Zipside Pty Ltd & Ors v Anscor Pty Ltd & Ors [2004] QSC 33

[1] This proceeding arises from dealings the plaintiffs had from mid-1996 until early 1998 with the defendants, and, through the defendants, with a man named

Geoffrey Robert Dexter who traded as 'The Wattle Group'. The plaintiffs claim to have suffered loss and damage of $570,000 and claim:

Damages against the first defendant pursuant to s. 82 of the Trade Practices Act 1974 for contravention of s. 52 of the Act;

A declaration that each of the second and third defendants was a person who was, directly or indirectly, knowingly concerned in contravention of s. 52 of the Act by the first defendant;

Damages against each of the second and third defendants pursuant to s. 82 of the Act;

Further or alternatively, damages against the first, second, and third defendants for fraud and deceit;

Further or in the further alternative, damages, against the first, second and third defendants for negligent misstatement;

[2] The defendants deny that they are liable to the plaintiffs.

[3] The plaintiffs 'invested' money in a scheme operated by Dexter. In essence the Wattle Group scheme was what is known as a Ponzi scheme, under which the principal contributed by 'investors' is used to pay them and other 'investors' interest, in this case five per cent. per month. Dexter attracted investors through eight administrators of which the first defendant was one. 'Sourcing agents' or 'introducers' received commissions for referring investors to the administrators, who then arranged for the investors to participate in the scheme. The swindle - for that it what it was - was very successful. It attracted large sums of money so that by 9 February 1998 Dexter owed approximately $130,000,000 to those who had advanced money under the scheme.

[4] Dexter, now aged fifty-nine years, has no professional qualifications, and is a former bankrupt. He was declared bankrupt on 9 June 1989 and was discharged on 10 June 1992. 'The Wattle Group' was registered as a business name on

21 July 1992. Until 30 September 1993 Dexter's wife Wilma carried on the business, and after that he carried it on, at an office at Alderley, Brisbane and from his home at 11 Kestrel Court, Warner. The office was also used by the Foundation Group of companies, which he controlled. At all times relevant to this proceeding the Wattle Group used only one bank account, at the Stafford City Shopping Centre. There was an arrangement with the bank allowing the transfer of funds between the Wattle Group and the Foundation Group.

[5] On behalf of the plaintiffs Mr James Wilson and his wife Denise - chiefly

Mrs Wilson - dealt with the second and third defendants - chiefly the third defendant - on behalf of the first defendant.

[6] It is common ground that at all times material to this proceeding: the first defendant was a corporation within the meaning of that term in the Trade Practices Act, engaged in trade or commerce within the meaning of those terms in that Act; that the second defendant was a representative of the first defendant; and that the third defendant was the sole director, and a representative, of the first defendant, save that the second defendant was a director of the first defendant between 29 June and 2 December 1994: see paragraph 2(b), (c), (d) and (f) of the amended statement of claim and paragraph 1 of the amended defence.

[7] There was mention of the Wattle Group at a luncheon in about June 1996 at which Mr Christopher Barnes, a director of Barnes Mortgage Management Pty Ltd of which the Wilsons were clients, and Mr Wilson, then a director of all three plaintiff companies, and Mr Wilson's son John were present. The luncheon was to celebrate, as Mr Barnes put it, 'the settlement of a refinance of a loan, of approximately

$3 million in respect of a commercial property owned by an entity associated with Wilsons located in the Valley'. Mr Wilson had enquired 'what options were available for obtaining higher returns than he was getting for his real estate activities'. Options were discussed and another person present, Mr David Henry, mentioned the Wattle Group. Mr Barnes, who knew the second and third defendants and a Mr Howard Owen (finance broker who had many clients who lent money to the Wattle Group) swore in an affidavit filed by leave on 28 October 2003 that he and Mr Henry then passed on to Mr Wilson and his son certain things that they had heard from the second defendant and Mr Owen about the Wattle Group, but I am not satisfied that Mr Barnes's memory of the conversation at the lunch goes beyond his believing he might have told Mr Wilson those things if he had discussed the Wattle Group. I accept Mr Wilson's evidence that Mr Barnes did not tell him anything about the Wattle Group at the luncheon.

[8] After the luncheon Mr Henry arranged a meeting between Mr Wilson and the second and third defendants. It took place on 2 July 1996 at the offices of Barnes Mortgage Management in Brisbane. There Mr Wilson was greeted by Mr Henry, and Mr Barnes introduced Mr Wilson to the second and third defendants. As alleged in paragraph 2L of the amended statement of claim and admitted in paragraph 17 of the amended defence, at the meeting the second defendant made representations to the following effect to Mr Wilson concerning the Wattle Group:

That it was engaged in lending money in the short-term bridging- finance market;

That it made no loans for longer than sixty days; and

That if there were any losses, they were generally absorbed by the Wattle Group.

It is not in issue either that at the meeting the second defendant said words to the following effect:

That the Wattle Group would take all the security or surety it could to secure repayment of the short-term advances, which might include mortgages where the Wattle Group thought that appropriate;

That loan funds to the Wattle Group when lent by it were spread among borrowers to minimize the loss to any one investor; and

That the Wattle Group recovered fifteen per cent. per month on funds it lent, of which five per cent. was retained by it, five per cent. paid to the first defendant, and five per cent. paid to the investor.

The third defendant, then the only director of the first defendant, did not demur to anything said by the second defendant at the meeting, and in the circumstances may be taken to have concurred for herself, and on behalf of the first defendant, in the representations and statements made by her husband.

[9] The defendants allege that the second defendant warned Mr Wilson at the meeting that loans to the Wattle Group 'were of a very high risk nature' and that if

Mr Wilson could not afford to lose his money he should not lend to it . Mr Wilson denied that those warnings were given. I conclude it probable that something of the kind was said, but at all events very little turns on the resolution of that issue of fact as the risk would have been quite evident to any reasonably prudent person, in view of the extraordinarily high rates of interest.

[10] After the meeting of 2 July 1996, at which Mrs Wilson was not present, she conducted the dealings for the plaintiffs with the defendants. Between 2 July and 23 August 1996 Mrs Wilson met the third defendant at the offices of the first defendant on Level 11, 344 Queen Street, Brisbane. I accept Mrs Wilson's account of the meeting as correct. The third defendant disclaimed any memory of having the meeting with Mrs Wilson alone, but I conclude Mrs Wilson's account can be relied on, as the meeting was one of only a few she says she had with the third defendant, whereas the third defendant dealt with many investors and so would have difficulty remembering one such meeting. At the meeting the third defendant gave Mrs Wilson a business profile of the first defendant - 'formatted', as the third defendant said in evidence, by the second defendant - in which the first defendant and another entity called Anscor Financial Services were described as financial facilitators in the private financial market. The profile proclaimed that the first defendant and Anscor Financial Services specialized in two areas of the private financial markets: project financing, and bridging finance. The bridging finance part of the profile was as follows:

Anscor Pty Ltd acts as "Administrator" to The Wattle Group, a group that lends money as agents for private lenders, to individuals and corporations who require immediate access to funds for short periods of no more than 60 days and can provide satisfactory security or surety to The Wattle Group to ensure repayment of those funds.

Anscor Pty Ltd monitors all monies on behalf of the lenders, arranges disbursement of interest received and provides statements on individual transactions to lenders as contained in the agreement between The Wattle Group and the lender.

The Wattle Group, personally owned by accountant, Mr Geoffrey Robert Dexter has been operating for approximately 6 years and has loans in excess of $6 million per month.

The Wattle Group receives its lending enquires [sic] from Solicitors, Accountants, Finance Brokers, Real Estate Agents and Insurance Agents and lends to a wide range of professional persons and small to medium businesses.

[11] At the meeting the third defendant told Mrs Wilson:

That Anscor acted as administrator to the Wattle Group, which was engaged in private lending for short periods of time of no more than sixty days;

That the Wattle Group would, where it could, take some form of security to ensure the payment of those funds;

That any moneys invested would be lent only as short-term bridging finance;

That if the Wilsons invested any money, only small amounts of the money that they invested would be put into each individual bridging loan in order to minimize their risk;

That interest was usually charged to borrowers at about fifteen per cent. per month, or sometimes more, and of that sum, five per cent. was retained by the Wattle Group, five per cent. was retained by Anscor, and the balance five per cent. would be paid to the Wilsons;

That would equate to a return of approximately sixty per cent. per annum but because of delays with moneys coming in and going out, it was more than likely that a return of fifty per cent. per annum would be achieved; and

[12] Although the business profile referred to project financing as well as to bridging finance, only the latter was discussed as Mrs Wilson made it plain she was not interested in the former. The third defendant gave Mrs Wilson a sample schedule demonstrating how money would be advanced and how interest earned and paid would be recorded. The third defendant explained by reference to the sample schedule that an investment of $100,000 would be lent in smaller sums in separate loans for short periods. The third defendant provided Mrs Wilson with a draft agreement between Dexter and a prospective investor.

[13] On 23 August 1996 Mr and Mrs Wilson met the third defendant at the first defendant's office and handed her a loan agreement executed on behalf of the first plaintiff with a cheque for $100,000 payable to the Wattle Group. The agreement came to be dated 27 August 1996 and provided:

A. You have agreed to engage Wattle to invest, on your behalf as your undisclosed agent, the Initial Amount (The sum of money stated in the schedule of this agreement [$100,000,000]), and any further money you may place with Wattle in the future.

B. Wattle will invest your money in one or more Loans ("Loans") in the nature of bridging Loans to individuals or corporations, mainly referred by solicitors, accountants, finance brokers or insurance brokers. Each loan is for a term of no more than 60 days, unless you agree in writing to a longer term.

C. Although Wattle will exercise due care and skill in making Loans, the Loans are of the "High Risk" type and Wattle does not guarantee either the refund of your capital or any return on your investment.

1. You have advised Wattle that you have appointed the person or corporations named as administrator in the schedule of this agreement [the first defendant] to act on your behalf in relation to all matters concerning administration and you authorise Wattle to forward your monthly reports and pay any money owed to you, either as principle [sic] or interest to the administrator for onforwarding to you. The administrators receipt for those documents and that money will be good discharge for Wattle.

2. You engage Wattle to invest the Initial Amount, and any further money you lend through Wattle. Wattle will make Loans on your behalf in its own name as lender.

3. Wattle undertakes to exercise care and skill in making the Loans, but has complete discretion as to whom it lends and the terms and conditions of the Loans. (Provided no Loan is for longer than 60 days unless you authorise a longer term)

4. You must leave the Initial Amount (and any further money you pay to Wattle), with Wattle for a minimum of 6 months, for investment in accordance with this agreement, before requesting its return.

5. Wattle must always attempt to obtain the best security available for each Loan, but you acknowledge that Wattle may make an unsecured loan if, in Wattle's opinion, relevant circumstances make that Loan an acceptable investment.

6. Wattle will continue to invest the Initial Amount, and any further money you place with it, in Loans until you make a written request for their return. Subject to Clauses 4 and 7, Wattle must return your money (including accrued interest) within 60 days (being the maximum Loan term) of your request, or at the earliest possible time.

7. Wattle does not guarantee either that your capital will be refunded or that you will make any return on that capital.

8. Subject to clause 7, Wattle must account to you on settlement of the Loans in which your funds are placed, and through the Administrator a monthly summary will be provided by Wattle. Any correspondence or enquiries must be directed through the Administrator.

9. You acknowledge that your funds may not earn interest for the whole of the time they are placed with Wattle, but only while they are deployed in Loans. An amount equivalent to 5% per calandar [sic] month of the capital you have with Wattle will be paid to you on settlement of the Loans in which your funds are invested, subject to the terms of this agreement. The method of payment is subject to your instruction in clause 12. If Wattle believes, at any time, there may be a significant delay (ie. greater than 1 month) in using your funds for a Loan it will return them to you until a suitable opportunity arises.

10. You acknowledge and accept that Wattle will charge a high rate on the Loans (up to 15% per calendar month) and subject to clause 11, Wattle is entitled to retain for its own use absolutely any interest paid to it on the Loans in excess of 5% per calendar month. You release Wattle from any obligation to account to you for that excess.

11. You acknowledge and accept that Wattle will pay the Administrator and entities associated with them, from income received by Wattle on the Loans, a monthly commission for providing management services in relation to your funds invested through Wattle. The commission payable to the Administrator is variable, but may not exceed an amount equivalent to that amount detailed in clause 9.

12. You may elect to have accrued interest (subject to clauses 6 and 9) either:

ٱ B. Compound (ie added to capital and reinvested by Wattle in further Loans)

13. Wattle must bear the cost of any investigations, searches, credit checks etc carried out by Wattle in relation to any Loans, as well as the cost of any attempt to enforce payment.

14. To the extent that Wattle might owe you duties of a fiduciary nature (as your agent) beyond Wattles express obligations to you under this agreement, you release Wattle from those fiduciary duties.

15. You should seek professional advice on the taxation implications for your transactions described in this agreement. Wattle cannot advise you on this subject. Wattle recommends that you seek legal advice before signing this agreement.

16. Subject to clauses 4 and 6, either you or Wattle may terminate this agreement, by written notice to the other party, via the Administrator, at any time. However termination does not affect any rights you may have against Wattle, or Wattle against you, at the time of termination.

[14] By a letter dated 23 August 1996 to the first plaintiff signed by the third defendant, the first defendant, described in the heading as 'Investment Managers', acknowledged receipt of the $100,000 as follows:

We hereby acknowledge receipt of the amount of $100,000 and advise that these funds have now been placed with THE WATTLE GROUP, and will be monitored on your behalf. Individual documentation will be issued for each transaction as it occurs.

[15] On 26 September 1996 the first plaintiff sent a letter dated that day, signed by

Mrs Wilson as director, to the third defendant as manager of the first defendant enclosing with it a cheque for another $100,000 payable to the Wattle Group 'for investment in Bridging Finance'.

[16] By a letter dated 27 September 1996 to the first plaintiff signed by the third defendant, the first defendant, described in the heading as 'Investment Managers', acknowledged receipt of the $100,000 as follows:

We hereby acknowledge receipt of the amount of $100,000 and advise that these funds have now been placed with THE WATTLE GROUP, in addition to existing funds and will be monitored on your behalf. Individual documentation will be issued for each transaction as it occurs.

[17] By a letter dated 17 December 1996 to the first plaintiff signed by the third defendant, the first defendant, described in the heading as 'Investment Managers', provided 'updated information' regarding the first plaintiff's investment:

Please find enclosed updated information regarding your investment. Please read your statement carefully and note that a transaction in which your funds have been placed is for a period of 60 days. Should you have any queries or require any explanation regarding your statement please do not hesitate to call me.

As this is the final correspondence from us for this year, I would like to take this opportunity to wish you and your family a SAFE and FULFILLING FESTIVE SEASON.

[18] On 13 June 1997 the first plaintiff sent a further cheque for $100,000 to the first defendant. The cheque was drawn on the account of the second plaintiff and was payable to the first defendant. On the same day the first plaintiff entered into a further agreement as lender with Dexter as borrower:

A. The "Borrower" lends monies for short periods of time, to individuals and corporations usually referred to the "Borrower" by Solicitors, Accountants, Banks and Finance Brokers and upon such security or surety suitable in the circumstances.

B. The "Lender" has agreed to lend to the "Borrower" and the "Borrower" has agreed to borrow from the "Lender" the sum of money set out in Item 1 of the Schedule to this agreement (in this agreement referred to as the "loan") upon the terms and conditions contained in this agreement.

1. The "loan" from the "Lender" to the "Borrower" shall be unsecured.

2. The "Lender" shall pay the "loan" to the "Borrower" upon execution of this agreement.

3. The "Borrower" shall pay interest on the loan at the rate and in the manner set out in Item 2 of the schedule.

4. The "Borrower" shall have the right to repay the "loan" to the "Lender" at any time together with any unpaid interest.

5. The "Lender" shall have the right to demand repayment of the loan and any accrued interest by giving 30 days notice in writing to the "Administrator", provided that such demand shall not be given no earlier than 6 calendar months from the date of this agreement.

6. The "Lender" and the "Borrower" herein agree that Anscor Pty Ltd (in this agreement referred to as the "Administrator") of Level 11, 344 Queen Street, Brisbane in the State of Queensland be appointed to act as the "Administrator" of the loan funds for the purpose of receiving directly from the "Borrower" both principle [sic] and interest amounts payable to the "Lender" by the "Borrower" and disbursing those funds to the "Lender" after verifying the information provided by the "Borrower".

The "lender" agrees that receipt of such funds by the "Administrator" is good discharge for payment of the same by the "Borrower".

7. The "Lender" and the "Borrower" herein agree that all notices to be served by any party on the other shall be served on the "Administrator" and shall be deemed to have been received by the other party on the day following receipt of such notice by the "Administrator".

8. The "Lender" acknowledges that the "Administrator" receives a fee for its services and that such fee is payable in full by the "Borrower".

9. If the "Lender" lends further amounts to the "Borrower" then such further amounts shall be deemed to have been lent on the same terms and conditions as this agreement and shall bear interest commencing 15 days from the date of clearance of such further amounts.

All stamp duty payable herein shall be paid by the "Borrower".

together with such further amounts which may be lent from time to time.

ITEM 2: INTEREST

Interest shall be calculated on the following basis

No interest shall be payable for the first 14 days of the loan period.

Interest at the rate of 50% per anum calculated on a daily basis shall be paid not later than 30 days after the end of each calendar monthly period, the first calendar monthly period commencing 15 days from the date hereof, and the final calendar monthly period ending upon repayment of the loan in full.

EXECUTION: This agreement is signed by the "Lender" and the "Borrower".

(I should mention here that it is common ground on the pleadings that there was an agreement dated 13 June 1997 between the first plaintiff and Dexter, but the copy of it exhibited to Mrs Wilson's affidavit filed on 12 October 2001, part of exhibit DEW 31 quoted above, shows execution by only the first plaintiff.)

[19] On 13 June 1997 Mr Wilson, on behalf of the first plaintiff, signed an acknowledgment of having read and understood a letter, a copy of which is also part of exhibit DEW 31, from the first defendant signed by the third defendant and of having accepted the statements made in it prior to signing the agreement:

Following our recent discussions we are pleased to enclose a loan agreement for your signature which contains all of the terms and conditions upon which your loan is made.

Any variations to this agreement at any time must be agreed to in writing by all parties.

Please satisfy yourself that you understand completely the basis upon which you make this loan and if necessary take your own legal advice prior to entering into the agreement.

Should you wish to proceed, please sign the agreement where indicated and have your signature witnessed by an independent party.

The agreement will be dated to commence upon clearance of your cheque which should be for a minimum amount of $20000 and should be made out to The Wattle Group, attached to the agreement and returned to our office together with signed acknowledgement where indicated of your receipt and acceptance of this letter.

Your funds will only be passed to The Wattle Group upon receipt of Mr Dexter's signature to the agreement, and a fully signed and stamped original of the agreement will be forwarded to you within 21 days.

Should you wish to increase your loan at any stage a minimum of $5000 would be required and would form part of this agreement.

Interest payments will be forwarded to you promptly upon receipt from The Wattle Group and will include a statement.

We look forward to administering your loan and request that you contact us at any time should you have any queries.

[20] By a letter dated 17 June 1997 to the first plaintiff signed by a Mr Craig Berridge, the first defendant, in this instance with no description of itself in the heading, acknowledged receipt of the $100,000 as follows:

We hereby acknowledge receipt of the amount of $100,000 and advise that these funds have now been placed with THE WATTLE GROUP in addition to existing funds, and will be monitored on your behalf. Individual documentation will be issued for each transaction as it occurs.

[21] By a letter dated 18 July 1997 headed 'A Very Important Notice' the third defendant notified the first plaintiff of 'a restructuring of the loan documentation'. The letter, formal parts omitted, was as follows:

As you are no doubt aware, the last few years has seen a very substantial growth in the funds borrowed and employed by The Wattle Group.

Consistent with this growth The Wattle Group have undertaken a major review of their business protocols and the structures employed by them in administering funds borrowed and lent. In their opinion there continues to be profitable opportunities available in both the venture capital market and the secured mortgage market.

As a result they have implemented a restructuring of the loan documentation. This new documentation will properly accommodate existing commitments and enable them to undertake further growth in the business. It will also simplify accounting requirements and enable the Wattle Group and Anscor Pty Ltd as administrator to more effectivley [sic] account to you.

One of the benefits of this new agreement is that you will receive your interest on a fixed day each month and that the Wattle Group will become directly liable to you for funds.

The interest rate is 50% per annum and equates to the average return you will have received in the past.

It is intended that this new agreement, as attached, be in operation as soon as possible and we would appreciate your co-operation in signing it, and the accompanying authority and returning both to our office in the stamped, addressed envelope enclosed.

Should you wish to discuss the matter with us, please do not hesitate to contact your sourcing agent or our office.

For those clients who may decide not to proceed with the new agreement, The Wattle Group will refund those amounts to ensure completion of the restructure.

We wish to thank you for your past support and look forward to being able to continue to provide you with our ongoing services.

Mrs Wilson swore, and I accept, that after reading the letter she telephoned the third defendant and asked if the Wilsons' funds were still to be invested in

short-term bridging finance, to which the third defendant said that they were still being invested in bridging finance. The third defendant denied there had been that question and answer. I see no reason to doubt Mrs Wilson's evidence on this issue, corroborated as it is by the contents of letters dated 20 August 1997,

10 September 1997, 3 October 1997, and 18 December 1997 and other correspondence from the first defendant. I shall refer to those letters in further detail later.

[22] The first plaintiff, as lender, then entered into a new loan agreement with Dexter, as borrower, dated 4 August 1997:

A. The "Borrower" lends monies for short periods of time, to individuals and corporations usually referred to the "Borrower" by Solicitors, Accountants, Banks and Finance Brokers and upon such security or surety suitable in the circumstances.

B. The "Lender" has agreed to lend to the "Borrower" and the "Borrower" has agreed to borrow from the "Lender" the sum of money set out in Item 1 of the Schedule to this agreement (in this agreement referred to as the "loan") upon the terms and conditions contained in this agreement.

1. The "loan" from the "Lender" to the Borrower" shall be unsecured.

2. The "Lender" shall pay the "loan" to the "Borrower" upon execution of this agreement.

3. The "Borrower" shall pay interest on the loan at the rate and in the manner set out in Item 2 of the schedule.

4. The "Borrower" shall have the right to repay the "loan" to the "Lender" at any time together with any unpaid interest.

5. The "Lender" shall have the right to demand repayment of the loan and any accrued interest by giving 30 days notice in writing to the "Administrator", provided that such demand shall not be given earlier than 6 calendar months from the date of this agreement.

6. The "Lender" and the "Borrower" herein agree that Anscor Pty Ltd (in this agreement referred to as the "Administrator") of Level 11, 344 Queen Street, Brisbane in the State of Queensland be appointed to act as the "Administrator" of the loan funds for the purpose of receiving directly from the "Borrower" both principle [sic] and interest amounts payable to the "Lender" by the "Borrower" and disbursing those funds to the "Lender" after verifying the information provided by the "Borrower". The "Lender" agrees that receipt of such funds by the "Administrator" is good discharge for payment of the same by the "Borrower".

7. The "Lender" and the "Borrower" herein agree that all notices to be served by any party on the other shall be served on the "Administrator" and shall be deemed to have been received by the other party on the day following receipt of such notice by the "Administrator".

8. The "Lender" acknowledges that the "Administrator" receives a fee for its services and that such fee is payable in full by the "Borrower".

9. If the "Lender" lends further amounts to the "Borrower" then such further amounts shall be deemed to have been lent on the same terms and conditions as this agreement and shall bear interest commencing 15 days from the date of clearance of such further amounts.

It is agreed between the Borrower and the lender that the Lender may request the Borrower to reborrow the interest earned by acknowledging so in the attached schedule, in which case the interest so borrowed will be treated as a further amount for the purposes of this agreement.

ITEM 1: THE LOAN $Balance at time of transfer being the initial amount together with such further sums which may be lent from time to time.

Interest shall be calculated on the following basis

No interest shall be payable for the first 14 days of the loan period for any amounts loaned after the initial amount.

Interest at the rate of 50% per annum calculated on a daily basis shall be paid no later than 30 days after the end of each calendar monthly period, the first calendar monthly period commencing on the day of receipt of this agreement by the Borrower or 15 days from the date of receipt of any amounts loaned after the initial amount, the final calendar monthly period ending upon repayment of the loan in full.

YES The Lender hereby requests the Borrower to reborrow interest earned under the terms of this agreement. (ie: Yes/No)

EXECUTION: This agreement is signed by the "Lender" and the "Borrower"

By a letter dated 4 August 1997 from the first plaintiff to the Wattle Group, the former agreed that the existing contract it had with the latter would become null and void upon the latter's acceptance of the new contract (which was enclosed with the letter) and repayment of all funds, and the first plaintiff thereby authorized the Wattle Group to transfer those funds from the existing contract to the new one as they matured. The first plaintiff's funds with the Wattle Group were thus rolled over from the earlier régime to the later one. In about mid-August 1997, at

Mrs Wilson's request to the third defendant, the first plaintiff's interest payments were capitalized.

[23] The second plaintiff, as lender, entered into an agreement with Dexter, as borrower, dated 19 August 1997:

A. The "Borrower" lends monies for varying periods of time to corporations (usually referred to the "Borrower" by Solicitors, Accountants, Banks and Finance Brokers) upon such security or surety and other terms and conditions suitable in the circumstances in the discretion of the Borrower and places monies in venture capital projects and the secured mortgage market and otherwise undertakes joint ventures and the acquisition and disposition of properties both real and personal.

B. The "Lender" has agreed to lend to the "Borrower" and the "Borrower" has agreed to borrow from the "Lender" the sum of money set out in Item 1 of the Schedule to this agreement (in this agreement referred to as the "loan") upon the terms and conditions contained in this agreement.

1. The "loan" from the "Lender" to the Borrower" shall be unsecured.

2. The "Lender" shall pay the "loan" to the "Borrower" upon execution of this agreement.

3. The "Borrower" shall pay interest on the loan at the rate and in the manner set out in Item 2 of the schedule.

4. The "Borrower" shall have the right to repay the "loan" to the "Lender" at any time together with any unpaid interest.

5. The "Lender" shall have the right to demand repayment of the loan and any accrued interest by giving 30 days notice in writing to the "Administrator", provided that such demand shall not be given earlier than 6 calendar months from the date of this agreement.

6. The "Lender" and the "Borrower" herein agree that Anscor Pty Ltd (in this agreement referred to as the "Administrator") of Level 11, 344 Queen Street, Brisbane in the State of Queensland be appointed to act as the "Administrator" of the loan funds for the purpose of receiving directly from the "Borrower" both principle [sic] and interest amounts payable to the "Lender" by the "Borrower" and disbursing those funds to the "Lender" after verifying the information provided by the "Borrower".

The "Lender" agrees that receipt of such funds by the "Administrator" is good discharge for payment of the same by the "Borrower".

7. The "Lender" and the "Borrower" herein agree that all notices to be served by any party on the other shall be served on the "Administrator" and shall be deemed to have been received by the other party on the day following receipt of such notice by the "Administrator".

8. The "Lender" acknowledges that the "Administrator" receives a fee for its services and that such fee is payable in full by the "Borrower".

9. If the "Lender" lends further amounts to the "Borrower" then such further amounts shall be deemed to have been lent on the same terms and conditions as this agreement and shall bear interest commencing 15 days from the date of clearance of such further amounts.

All stamp duty payable herein shall be paid by the "Borrower".

together with such further amounts which may be lent from time to time.

Interest shall be calculated on the following basis

No interest shall be payable for the first 14 days of the loan period.

Interest at the rate of 50% per annum calculated on a daily basis shall be paid no later than 30 days after the end of each calendar monthly period, the first calender [sic] monthly period commencing 15 days from the date hereof, and the final calendar monthly period ending upon repayment of the loan in full.

EXECUTION: This agreement is signed by the "Lender" and the "Borrower"

Pursuant to the agreement the second plaintiff paid $100,000 to the Wattle Group by a cheque dated 19 August 1997.

[24] By a letter dated 20 August 1997 to the second plaintiff signed by Mr Berridge, the first defendant, described in the heading as 'INVESTMENT MANAGEMENT', acknowledged receipt of the $100,000 as follows:

We hereby acknowledge receipt of the amount of $100,000 and advise that these funds have now been placed with THE WATTLE GROUP and will be monitored on your behalf. Documentation will be issued monthly.

[25] In a letter dated 10 September 1997 to the first plaintiff signed by the third defendant the first defendant, described in the heading as 'INVESTMENT MANAGEMENT' under the reference 'THE WATTLE GROUP/BRIDGING FINANCE', thanked the first plaintiff for its prompt attention to 'the agreement change', and advised that the first plaintiff's account had been 'transferred to the new format'.

[26] On 3 October 1997 the second plaintiff lent Dexter another $150,000 pursuant to the agreement of 19 August 1997 by sending a cheque to the first defendant.

[27] By a letter dated 3 October 1997 to the second plaintiff signed by a

Mr Ken Parker, the first defendant, described in the heading as 'INVESTMENT MANAGEMENT', acknowledged receipt of the $150,000 as follows:

We hereby acknowledge receipt of the amount of $150,000 and advise that these funds have now been placed with THE WATTLE GROUP in addition to your existing account, and will be monitored on your behalf.

Should you wish to place further funds with the Wattle Group we advise that the cheque should be received 15 days prior to your continuing date (which is on the statement), if it is to be included on your next statement.

[28] The third plaintiff, investing $20,000 as lender, entered into an agreement with Dexter, as borrower, dated 15 December 1997:

The Lender has agreed to lend to the Borrower and the Borrower has agreed to borrow from the Lender the sum of money set out in Item 1 of the Schedule to this agreement (in this agreement referred to as the loan) upon the terms and conditions contained in this agreement.

1. The loan from the Lender to the Borrower shall be unsecured.

2. The Lender shall pay the loan to the Borrower upon execution of this agreement.

3. The Borrower shall pay interest on the loan at the rate and in the manner set out in Item 2 of the schedule.

4. The Borrower shall have the right to repay the loan to the Lender at any time together with any unpaid interest.

5. The Lender shall have the right to demand repayment of the loan and any accrued interest by giving 30 days notice in writing to the Administrator, provided that such demand shall not be given earlier than 6 calendar months from the date of this agreement.

6. The Lender and the Borrower herein agree that Anscor Pty Ltd (in this agreement referred to as the Administrator) of Level 11, 344 Queen Street, Brisbane in the State of Queensland be appointed to act as the Administrator of the loan funds for the purpose of receiving directly from the Borrower both principle [sic] and interest amounts payable to the Lender by the Borrower and disbursing those funds to the Lender after verifying the information provided by the Borrower. The Lender agrees that receipt of such funds by the Administrator is good discharge for payment of the same by the Borrower.

7. The Lender and the Borrower herein agree that all notices to be served by any party on the other shall be served on the Administrator and shall be deemed to have been received by the other party on the day following receipt of such notice by the Administrator.

8. The Lender acknowledges that the Administrator receives a fee for its services and that such fee is payable in full by the Borrower.

If the Lender lends further amounts to the Borrower then such further amounts shall be deemed to have been lent on the same terms and conditions as this agreement and shall bear interest commencing 15 days from the date of clearance of such further amounts.

together with such further amounts which may be lent from time to time.

Interest shall be calculated on the following basis

No interest shall be payable for the first 14 days of the loan period.

Interest at the rate of 50% per annum calculated on a daily basis shall be paid no later than 30 days after the end of each calendar monthly period, the first calender [sic] monthly period commencing 15 days from the date hereof, and the final calendar monthly period ending upon repayment of the loan in full.

EXECUTION: This agreement is signed by the "Lender" and the "Borrower"

[29] On 15 December 1997, Mrs Wilson, on behalf of the Wilson Pension Fund, signed an acknowledgment of having read and understood a letter from the first defendant signed by the third defendant and of having accepted the statements made in it prior to signing the agreement:

Following our recent discussion we are pleased to enclose a loan agreement for your signature which contains all of the terms and conditions upon which your loan is made.

Any variation to this agreement at any time must be agreed to in writing by all parties.

Please satisfy yourself that you understand completely the basis upon which you make this loan and if necessary take your own legal advice prior to entering into the agreement.

Should you wish to proceed, please sign the agreement where indicated and have your signature witnessed by an independent party.

The agreement will be dated to commence upon clearance of your cheque which should be for a minimum amount of $20,000 and should be made out to The Wattle Group, attached to the agreement and returned to our office together with signed acknowledgement where indicated of your receipt and acceptance of this letter.

Your funds will only be passed to The Wattle Group upon receipt of Mr Dexter's signature to the agreement and the signed original agreement will be forwarded to you within 21 days.

If you wish to increase your loan at any stage a minimum of $5000 is required and will form part of this agreement. We ask that your cheque, payable to The Wattle Group, be received no later than 15 days prior to your monthly continuing date (which will be advised to you on your statement).

Funds received outside of this time frame will be forwarded to The Wattle Group. However no interest adjustment will be made and interest on this further amount will not be paid until the following continuing date.

Interest payments will be forwarded to you promptly upon receipt from The Wattle Group and will include a statement. Your preferred interest payment option may be advised by completing the "Interest Advice Form" attached to this letter.

We look forward to administering your loan and request that you contact us at any time should you have any queries.

[30] By a letter dated 18 December 1997 to Mrs Wilson signed by Mr Parker as 'General Manager,' the first defendant, described in the heading as 'INVESTMENT MANAGEMENT', acknowledged receipt of the $20,000 as follows:

We hereby acknowledge receipt of $20,000 and advise that these funds have now been placed with THE WATTLE GROUP and will be monitored on your behalf. Interest of $833.33 will be payable from 1/2/98.

The above information is subject to cheque clearance.

To place additional funds with The Wattle Group, we ask that your cheque be received no later than fifteen days prior to your continuing date, if it is to be included on your next statement.

[31] Copies of letters accompanying monthly statements (client summary sheets) from the first defendant to the plaintiffs are to be found in exhibits DEW 99 (to the first plaintiff), DEW 100 (to the second plaintiff), and DEW 101 (to the third plaintiff). While those to the third plaintiff and some to the other plaintiffs did not refer to bridging finance, as late as 3 October 1997 (a letter to the second plaintiff) and

3 February 1998 (a letter to the first plaintiff) there were such references.

[32] On 26 March 1998 Dexter appointed Mr David Clout, chartered accountant and registered trustee in bankruptcy, his controlling trustee pursuant to s. 188 of the Bankruptcy Act 1966 and on 28 May 1998 a sequestration order was made in the Federal Court against Dexter's estate. No dividend has been paid to Dexter's creditors, and in the result the plaintiffs have lost the $570,000 they advanced to the Wattle Group: the first plaintiff $300,000, the second $250,000, and the third $20,000.

[33] In making their claims all plaintiffs rely on representations made to Mr Wilson by the second and third defendants at the meeting on 2 July 1996, the representations made to Mrs Wilson at the meeting she had with the third defendant between 2 July and 23 August 1996, and the third defendant's representation made to Mrs Wilson on the telephone after the latter had read the letter of 18 July 1997. The plaintiffs also rely on the contents of the letters of 23 August 1996, 27 September 1996,

17 December 1996 and 17 June 1997. The third plaintiff, in addition, relies on the letters of 20 August 1997 and 3 October 1997. Representations concerning the Wattle Group's and the first defendant's businesses made before and after the rolling over of the first plaintiff's investment are, then, relied on. No loss was however suffered until after that because following the first plaintiff's letter dated

4 August 1997 to the Wattle Group the $300,000 then held by the Wattle Group was transferred to the new régime heralded by the letter of 18 July 1997 and accepted in the agreements of 4 and 19 August and 15 December 1997. But representations made before the introduction of the new régime are relevant because there was a course of dealing between the Wilsons and the defendants, but where those representations were amended or abandoned only the remaining, amended, representations can be relied on by the plaintiffs.

[34] The first defendant did make a number of representations concerning the business conducted by the Wattle Group to Mr and Mrs Wilson before 18 July 1997:

That the Wattle Group lent investors' money in the short-term bridging-finance market for not longer than sixty days;

That the Wattle Group took all security available to ensure repayments; and

That the sums invested in the Wattle Group were spread over a number of loans to minimize potential losses.

Those representations were made at the meeting of 2 July 1996 and were repeated in various forms at the meeting between the third defendant and Mrs Wilson between

2 July and 23 August 1996. Following the telephone conversation between

Mrs Wilson and the third defendant following the former's receipt of the letter of

18 July 1996, the agreements themselves, and the letters of 23 August 1996,

27 September 1996, 17 December 1996, 17 June 1997, 20 August 1997, and

3 October 1997 those representations were amended and reduced to two:

1. That the Wattle Group lent the plaintiffs' money in the short-term bridging-finance market; and

2. That the Wattle Group took such security or surety as it deemed suitable.

[35] The first defendant made the following further representations at the meeting between 2 July and 23 August 1996:

4. That the Wattle Group had been operating for approximately six years by mid-1996; and

5. That the first defendant monitored or managed funds invested in the Wattle Group.

Those representations were made in the business profile handed to Mrs Wilson by the third defendant at the meeting and 5 was repeated in various forms in the letters of 23 August 1996, 27 September 1996, 17 December 1996, 17 June 1997,

20 August 1997, and 3 October 1997: the first defendant was described as administrator to the Wattle Group which monitored all moneys on behalf of lenders, investment managers, and as being in the business of investment management.

[36] The representations were false, misleading, and deceptive. Most of the money raised by the Wattle Group was paid to entities within the Foundation Group of companies and to entities in which Dexter and the defendants had joint interests; or was not lent at all, but used for making payments of principal and interest to lenders to the Wattle Group and of fees to the administrators of the Wattle Group (including of course the first defendant). The Wattle Group almost never took or obtained security in respect of moneys lent to it. Dexter was not an accountant. The Wattle Group had not been carrying on business for six years by mid-1996. The first defendant did not monitor or manage funds invested by lenders in the Wattle Group through it but confined itself to passing signed proposed agreements to Dexter and passing on monthly statements from electronically-received data from the Wattle Group and interest payments to the lenders. In short, the defendant did not administer or monitor or manage any funds which came to Dexter through it, but rather acted as a document exchange between investors and the Wattle Group.

[37] The falsity of representations 1 and 5 requires some elaboration.

[38] An analysis of the disbursement of funds from the Wattle Group bank account for the period 1 July 1994 to 10 February 1998 undertaken by the Australian Securities Commission in the course of its investigation of Dexter's and, inter alia, the first defendant's affairs, showed that of approximately $146,700,000 disbursed only $18,939,872 was by way of loans to borrowers other than those in the Foundation Group. The remainder was used for payments of interest and refunds of principal ($66,904,086), fees to administrators ($24,832.621), the Foundation Group ($34,774,918), overheads ($857,407) and Dexter's personal expenses ($400,246). Payments to the Foundation Group were interest-free. An analysis by the Commission of the source of deposits into the account in November 1997 and disbursements from the account for the period 1 December 1997 to

10 February 1998 showed that Dexter was paying principal and interest to lenders out of new loans he had received. Client summary sheets were found by the Commission investigator to be false. Mr Clout was unable to identify 'any systematic onlending of funds by Dexter to third parties' that replicated entries in the client summary sheets. As Mr Clout concluded, Dexter was not in the business of lending money but rather money that was lent to him by investors was used largely for payment of principal and interest to Dexter's lenders and payment of fees to the administrators, including the first defendant.

[39] At the heart of Dexter's deception was the fact that his scheme was a Ponzi scheme. The figures I have quoted from the Australian Securities Commission's analyses show that clearly. Those analyses and Mr Clout's assessment of the falsity of the client summary sheets also indicate that the assertion of dealings in the short-term bridging-finance market was fraudulent, designed to allay suspicions with a plausible explanation for the usurious rates of interest. One may safely draw the inference from the available circumstantial evidence that the Wattle Group did not lend the plaintiffs' $570,000 in the short-term bridging-finance market and never had any intention of doing so. The money was merely used to swell the bubble which would inevitably burst.

[40] At the heart of the first defendant's deception was the representation that it provided monitoring or management services to lenders in respect of funds lent to the Wattle Group. Had that been done the true nature of the scheme should have been revealed and the plaintiffs warned accordingly. Throughout the plaintiffs' dealings with the defendants the first defendant was represented as administrator to the Wattle Group monitoring money invested on behalf of lenders. The business profile the third defendant gave Mrs Wilson at their first meeting made that representation and it was repeated many times as in the letters acknowledging receipt of various sums making up the $570,000 invested. In paragraph 10 of the second defendant's affidavit filed on 8 October 2003 he swore that one of the first defendant's roles was 'to monitor the flow of funds between the lender to the Wattle Group and the Wattle Group, interest and capital. Our role was not to monitor the lending activities of the Wattle Group itself. An example of our role can be likened to any fund manager placing a funds [sic] with a major institution like for example, Westpac or HIH (before it went into liquidation). The fund manager does not monitor, or have anything to do with, the day-to-day running of Westpac or HIH or the management of the invested funds'. The contrast between the examples given (investment in funds in major public institutions as opposed to the Wattle Group's small private organization) coupled with the broad representations made concerning the business of the first defendant (administrator to the Wattle Group, monitor of lender's funds on their behalf, investment manager) justify the conclusion that what was represented was that the first defendant would indeed monitor or manage more than the flow of money and information to the lenders to and from the Wattle Group but would in addition monitor or manage the lending of the investors' funds by the Wattle Group - monitor or manage in the sense that it would verify the use of investors' funds as specified by investors.

[41] The second and third defendants were clearly knowingly concerned in the misleading and deceptive conduct constituted by making representation 5: they knew from their own direct knowledge that the first defendant was not monitoring or managing the plaintiffs' funds.

[42] The first defendant was the largest administrator of the Wattle Group scheme.

Mr Clout found that from 26 March 1996 to 26 March 1998 Dexter paid the first defendant $26,379,260 on account of commissions. The second defendant spoke to Dexter almost daily, as the former admitted when he was examined on

4 February 1998 in the course of the investigation by the Australian Securities Commission. In the course of a public examination conducted by Mr Clout on

15 December 2000 the third defendant admitted she spoke to Dexter on the telephone far more often than once a week in the two years from March 1996. From the close business relationship between Dexter and the second and third defendants it is reasonable to draw the inference that the second and third defendants either knew from their own knowledge of the falsity of representations 1 and 2 or were wilfully blind to what Dexter was doing, or not doing. In either event they may properly be held to be liable as accessories to the misleading and deceptive conduct constituted by the making of representations 1 and 2: see Musgrave v. Australian Competition & Consumer Commission; Australian Competition & Consumer Commission v. IMB Group Pty Ltd [2003] F.C.A.F.C. 17 at para 135.

[43] I am not satisfied that the second and third defendants had reason to suspect that representation 3 was untrue. In 1992 Dexter was introduced to the second defendant by Mr Michael Newberry, a friend and former employee, as the latter's accountant. Dexter told the second defendant he had worked for a well-known and reputable firm of accountants and the second defendant had no reason to doubt him. It may be concluded that the third defendant shared the second defendant's belief concerning Dexter's being an accountant.

[44] The defendants' business association with Dexter began in about mid-1994 so that their direct knowledge of the business of the Wattle Group covered only two years in 1996 when they first had dealings with Mr and Mrs Wilson. On the evidence I am not persuaded that it has been established that the second and third defendants knew of the falsity of representation 4.

[45] It is reasonable to conclude that uppermost in the minds of those representing the plaintiffs when they had dealings with the Wattle Group through the first defendant was the extraordinarily high rate of interest paid on investors money. Mr and Mrs Wilson showed considerable naïveté in committing the plaintiffs' money to such a scheme on so little information, but one need not go back to 1720 to find precedents of such investor credulity. In any event, contributory negligence is not and cannot be an issue in this case: I & L Securities Pty Ltd v. HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 C.L.R. 109, applying Henville v. Walker [2001] HCA 52; (2001) 206 C.L.R. 459.

[46] The plaintiffs chiefly relied I find on two, related, representations made on behalf of the first defendant: 1 and 5. Those representations were related in that 5 tended to add credibility to 1. Mr and Mrs Wilson - in particular Mrs Wilson - placed great reliance on 1 and 5 in committing the plaintiffs to their agreements with the Wattle Group.

[47] It was argued on behalf of the defendants that by August 1997 the plaintiffs were not relying on anything that they had been previously told by the defendants but were content to continue their dealings with the Wattle Group because of the returns received. The letter of 18 July 1997 and the contracts of 4 August and

19 August 1997 defined the new, broader, lending and investment régime: 'the venture capital market and the secured mortgage market' (the letter); lending for 'short periods of time ... and upon such security or surety suitable in the circumstances' (agreement of 4 August 1997); and lending 'for varying periods of time to corporations ... upon such security or other terms and conditions suitable in the circumstances in the discretion of [Dexter]', and placing moneys 'in venture capital projects and the secured mortgage market', and otherwise undertaking 'joint ventures and the acquisition and disposition of properties both real and personal' (the agreement of 19 August 1997). Further, there was nothing in the agreement of 15 December 1997 confining the use of money invested to the short-term

bridging-finance market, and in fact there was no reference to the use Dexter was to make of the money. Notwithstanding those indications of Dexter's intention to use investors' money other than for short-term bridging finance, the plaintiffs continued to rely on the representations made to them concerning the use of their money for that purpose I find. Mrs Wilson made her concern that the money she arranged to be invested in the Wattle Group be confined to that use in her telephone conversation with the third defendant after reading the letter of 18 July 1997. It is somewhat difficult to understand how Mrs Wilson was as trusting as she was, but the fact is, I find, that she relied on the representations as to the use of the money for short-term bridging finance by the defendants right up to the time the scheme was revealed for what it truly was.

[48] It was submitted on behalf of the defendants that Mr and Mrs Wilson were sophisticated investors. There is nothing in the evidence of their dealings with the Wattle Group that would support that proposition. They were easily duped to invest in a scheme represented as extracting interest at the rate of 150 per cent. per annum from borrowers: fifteen per cent. per month for ten months only, to allow for delays between lendings. The Wilsons were drawn into the Wattle Group scheme and continued to have dealings with the defendants and Dexter, influenced of course by the high returns on funds invested but also relying on the representations of the uses to which they were told the plaintiffs' money would be put and on the monitoring or managing role of the first defendant.

[49] The plaintiffs also relied on representations 2 and 3, although 2 was vague. I am not satisfied that representation 4 was relied on by the plaintiffs after July 1997 because by then they had had apparently satisfactory dealings with the defendants and the Wattle Group for over a year. While Dexter's status as an accountant continued to play a part in the minds of Mr and Mrs Wilson in giving the Wattle Group respectability - despite many indications to the contrary of that - the

pre-1996 history of the Wattle Group did not I conclude affect their actions at material times, whereas the course of their dealings with the Wattle Group from mid-1996 did.

[50] At no time prior to the plaintiffs' entering into agreements with the Wattle Group did the defendants inform the plaintiffs that the second and third defendants had been bankrupt, as they had been in 1984; that the defendants had interests in joint ventures with Dexter; that the plaintiffs' money invested in the Wattle Group was not being invested in the short-term bridging-finance market; or that the Wattle Group lent money to companies within the Foundation Group of companies. The first defendant's role as monitor or manager cast upon it and the second and third defendants the duty to reveal such things, but in any event having regard to all the relevant circumstances one may properly conclude that the defendants' silence was part of the misleading and deceptive conduct that led to the plaintiffs' loss: Demagogue Pty Ltd v Ramensky [1992] FCA 557; (1992) 39 F.C.R. 31 per Black C.J. at p. 32.

[51] I shall now summarize my findings in relation to the plaintiffs' claims under the Trade Practices Act. The first defendant engaged in conduct that was misleading and deceptive in that it made false representations 1 to 5 inclusive. So far as the representations were with respect to future matters the first defendant did not have reasonable grounds for making them. The second and third defendants were knowingly concerned in making representations 1, 2, and 5. It has not been established that they were knowingly concerned in making representations 3 and 4. From mid-1997 the plaintiffs relied on the truth of representations 1, 2, 3, and 5 in investing money in the Wattle Group and would not have invested any money in the group had they known of the falsity of those representations or any of them. Of particular importance to the plaintiffs were representations 1 and 5. From mid-1997 representation 4 was not relied on by the plaintiffs. The plaintiffs suffered loss and damage by the conduct of the defendants. The first defendant was also guilty of misleading and deceptive conduct by its silence concerning the matters I have referred to in the last paragraph. The second and third defendants were knowingly concerned in that contravention of the Act, and it too was a cause of the plaintiffs' loss.

[52] In making the false representations I have found to have been established knowing them to be false the defendants were in the circumstances guilty of deceit. They were also guilty of negligence in making the representations when they knew or ought to have known that the plaintiffs would rely on them.

[53] The plaintiffs will be awarded the damages they seek. I shall invite further submissions on the orders to be made, including any orders as to interest.