A and D Douglas Pty Ltd ACN 008 404 180 v Lawyers Private Mortgages Pty Ltd ACN 010 556 751 - [2006] FCA 520

FEDERAL COURT OF AUSTRALIA
A & D Douglas Pty Ltd ACN 008 404 180 v Lawyers Private Mortgages Pty Ltd ACN 010 556 751 [2006] FCA 520
PRIVATE MORTGAGE LENDING – Solicitor’s private mortgage lending business – where investment failed
NEGLIGENT MISSTATEMENT – nature of duty of care owed by trustee company – nature of duty of care owed by solicitors – whether duty to enquire as to accuracy of statements made in the loan application
DUTY OF CARE – Duty owed by trustee company – duty to take reasonable care not to recommend an imprudent investment – duty to act bona fide and in the interests of the investors – where failure to check accuracy of asset statement of developer – whether investment was imprudent
DUTY OF CARE – duty owed by solicitors – duty to act with all due care and diligence in recommending lending transactions – whether duty not to recommend imprudent investments – whether duty to make appropriate enquiries
DECEPTIVE AND MISLEADING CONDUCT – Whether statements were misleading or deceptive – Whether statements were likely to mislead or deceive – where statements contained in an “investment summary”, and “newsletters” – extent to which a reasonable investor would rely on those statements
INSURANCE – professional indemnity insurance – dishonest, fraudulent or reckless misstatement – meaning of “dishonest” and “fraudulent” – whether motivation is necessary to prove dishonesty – non-disclosure – whether if the circumstances were disclosed, insurance would have been refused – meaning of “know”, “known” and “knows” pursuant to s 21 Insurance Contracts Act 1984 (Cth)
DAMAGES – Whether compound damages can be awarded – calculation of interest – quantum of damages
WORDS AND PHRASES – ‘practitioner nominee company’, ‘pre-sale’, ‘pre-sale contract’, ‘trade dollars’, ‘trustee company’
Marine Insurance Act 1906 (Imp)
Bankruptcy Act 1966 (Cth) Part X
Evidence Act 1995 (Cth) s 63(2)(b)
Trade Practices Act 1974 (Cth) s 52A(2)
Federal Court of Australia Act 1976 (Cth) s 51A
Insurance Contracts Act 1984 (Cth) ss 21, 28, 54
Corporations Law ss 9, 92, 765, 995, 999, 1005(1)
Hungerfords v Walker (1988-1989) 171 CLR 125 applied
Gilmour v AMP General Insurance (1997) 9 ANZIC 61-372 distinguished
Moloney & Anor v Bells Securities Pty Ltd & Ors [2005] QSC 013 cited
Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (The Wagon Mound) [1961] AC 388 cited
Mount Isa Mines Ltd v Pusey (1970) 125 CLR 383 cited
South Australia v Johnson (1982) 42 ALR 161 cited
FAI General Insurance Co Limited v Australian Hospital Care Pty Limited (2001) 204 CLR 641 discussed
Permanent Trustee Australia & Anor v FAI General Insurance Co Ltd (1998) 44 NSWLR 186 considered
Permanent Trustee Australia Co Ltd & Anor v FAI General Insurance Co Ltd (2001) 50 NSWLR 679 considered
Midaz Pty Ltd v Peter McCarthy Insurance Brokers Pty Ltd (1999) 1 Qd R 279 considered
Advance (NSW)Insurance Agencies Pty Ltd v Matthews (1987) 4 ANZ Ins Cas 60-813 considered
Lindsay v CIC Insurance Ltd (1989) 16 NSWLR 673 cited
Ayoub v Lombard Insurance Co (Aust) Pty Ltd (1989) 5 ANZ Ins Cas 60-933 cited
Australia and New Zealand Bank Limited v Colonial and Eagles Wharves Limited (1960) 2 Lloyd’s Rep. 241 considered
Australian Insurance Law Commercial Union Assurance Co of Australia Ltd v Beard (2000) 11 ANZ Ins Cas 61-458 considered
Hammer Waste Pty Ltd v QBE Mutual Ltd [2002] NSWSC 1006 considered
PM Eggers, S Picken and P Foss, Good Faith and Insurance Contracts (2^nd ed), Insurance Law Library, London, 2004
MacGillivray on Insurance Law (10^th ed), Sweet & Maxwell, London, 2003
K Sutton, Insurance Law in Australia (3^rd ed), LBC Information Services, Sydney, 1999
AA Tarr, Australian Insurance Law, The Law Book Co Ltd, Sydney, 1987
The New Shorter Oxford English Dictionary, ed & rev, Oxford, 1993 (1973)
A & D DOUGLAS PTY LTD ACN 008 404 180, GRAHAM LESLIE ANDERSEN and HILARY ANDERSEN, YVONNE ELLEN ANDREW, DAVID WILLIAM ARMSTRONG, CHERYL LYNETTE BACKWELL and PHILIP ASHLEY RYAN (as executor of the Estate of ELSIE EDITH BACKWELL), HEINRICH BAUER and SABINE BAUER, DONALD BENGSTON, WILLIAM MALCOLM BRYDEN and MARGARET ANNE BRYDEN, FIONA MARY CAMPBELL (as trustee of the F CAMPBELL SUPERANNUATION FUND), FREDRIKA JANE CARSON, ROBERT JOHN CHARLES MCINTYRE (as executor of the Estate of ALAN STANSFIELD CHENEY), JAMES DAVID CLADINGBOEL and MARIAN ELSIE CLADINGBOEL, KENNETH BARRY DUNCAN and JOAN EDITH DUNCAN (as trustees of the DUNCAN FAMILY SUPERANNUATION FUND), LYNETTE KAY HAMATY, KEITH EDWARD HOLMES (as trustee of the MELZTNER TRUST), PATRICK FYSK HOWDEN, JILLIAN ANNE HUGHES, INFOTEC M.S. PTY LTD ACN 003 954 523, JOHN FRASER KENNEDY and VIVIAN JESSICA KENNEDY, MICHAEL COLIN MELLISH, WADE RICHARD MELLISH, ERIC JAMES MITCHELL and JULIE ANNE MITCHELL (as trustees of the MITCHELL RETIREMENT FUND), RONALD JOHN MOHR and MARGARET STEWART MOHR, ALLAN JOHN MORRISON and PATRICIA JOY MORRISON (as trustees of the A & P MORRISON PENSION FUND), DELIA MURDOCH, BRIAN CHRISTIAN NIELSEN, KAREN ROSE PARKER, PETER JOHN PERRING, KEITH PRINCE, ROBERT RITORZE, NICOLA SCOTT, NARELLE VIDA SHALLARD (as trustees of the C & N SHALLARD SUPERANNUATION FUND), IAN ARCHIBALD STEWART and DOROTHY STEWART, WARREN GEORGE TROTMAN and CARMEL MYNETTA TROTMAN (as trustees of the WGCM TROTMAN SUPERANNUATION FUND), W J & A M LUKE PTY LTD ACN 000 884 266, GRAHAM ROBERT WATT and PATRICIA ANNE WATT, ANNIE CATHERINE WEBB, DIETER HOLMAN (in his own right and as executor of the Estate of MILDRED HOLMAN, ALICE JOY TANGEY (in her own right and as executor of the Estate of KEVIN HERBERT TANGEY) v LAWYERS PRIVATE MORTGAGES PTY LTD ACN 010 556 751, JONATHAN JAMES McCARTHY, BRUCE MICHAEL DURIE, PHILIP ASHLEY RYAN and IAN ALEXANDER NEIL, ST PAUL INTERNATIONAL INSURANCE COMPANY LIMITED and QBE INSURANCE (AUSTRALIA) LIMITED ACN 003 191 035
QUD 115 OF 2003
DOWSETT J
12 MAY 2006
BRISBANE

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY

QUD 115 OF 2003

BETWEEN:

A & D DOUGLAS PTY LTD ACN 008 404 180
FIRST APPLICANT

GRAHAM LESLIE ANDERSEN and HILARY ANDERSEN
SECOND APPLICANTS

YVONNE ELLEN ANDREW
THIRD APPLICANT

DAVID WILLIAM ARMSTRONG
FOURTH APPLICANT

CHERYL LYNETTE BACKWELL and PHILIP ASHLEY RYAN (as executors of the Estate of ELSIE EDITH BACKWELL)
FIFTH APPLICANTS

HEINRICH BAUER and SABINE BAUER
SIXTH APPLICANTS

DONALD BENGSTON
SEVENTH APPLICANT

WILLIAM MALCOLM BRYDEN and MARGARET ANNE BRYDEN
EIGHTH APPLICANTS

FIONA MARY CAMPBELL (as trustee of the F CAMPBELL SUPERANNUATION FUND)
NINTH APPLICANT

FREDERIKA JANE CARSON
TENTH APPLICANT

ROBERT JOHN CHARLES MCINTYRE (as executor of the Estate of ALAN STANSFIELD CHENEY)
ELEVENTH APPLICANT

JAMES DAVID CLADINGBOEL and MARIAN ELSIE CLADINGBOEL
TWELFTH APPLICANTS

KENNETH BARRY DUNCAN and JOAN EDITH DUNCAN (as trustees of the DUNCAN FAMILY SUPERANNUATION FUND)
THIRTEENTH APPLICANTS

LYNETTE KAY HAMATY
FOURTEENTH APPLICANT

KEITH EDWARD HOLMES (as trustee of the MELZTNER TRUST)
FIFTEENTH APPLICANT

PATRICK FYSK HOWDEN
SIXTEENTH APPLICANT

JULLIAN ANNE HUGHES
SEVENTEENTH APPLICANT

INFOTEC M.S. PTY LTD ACN 003 954 523
EIGHTEENTH APPLICANT

JOHN FRASER KENNEDY and VIVIAN JESSICA KENNEDY
NINETEENTH APPLICANTS

MICHAEL COLIN MELLISH
TWENTIETH APPLICANT

WADE RICHARD MELLISH
TWENTY-FIRST APPLICANT

ERIC JAMES MITCHELL and JULIE ANNE MITCHELL
(as trustees of the MITCHELL RETIREMENT FUND)
TWENTY-SECOND APPLICANTS

RONALD JOHN MOHR and MARGARET STEWART MOHR
TWENTY-THIRD APPLICANTS

ALLAN JOHN MORRISON and PATRICIA JOY MORRISON (as trustees of the A & P MORRISON PENSION FUND)
TWENTY-FOURTH APPLICANTS

DELIA MURDOCH
TWENTY-FIFTH APPLICANT

BRIAN CHRISTIAN NIELSEN
TWENTY-SIXTH APPLICANT

KAREN ROSE PARKER
TWENTY-SEVENTH APPLICANT

PETER JOHN PERRING
TWENTY-EIGHTH APPLICANT

KEITH PRINCE
TWENTY-NINTH APPLICANT

ROBERT RITORZE
THIRTIETH APPLICANT

NICOLA SCOTT
THIRTY-FIRST APPLICANT

NARELLE VIDA SHALLARD (as trustee of the C & N SHALLARD SUPERANNUATION FUND)
THIRTY-SECOND APPLICANT

IAN ARCHIBALD STEWART and DOROTHY STEWART
THIRTY-THIRD APPLICANTS

WARREN GEORGE TROTMAN and
CARMEL MYNETTA TROTMAN (as trustees of the WGCM TROTMAN SUPERANNUATION FUND)
THIRTY-FOURTH APPLICANTS

W J & A M LUKE PTY LTD ACN 000 884 266
THIRTY-FIFTH APPLICANT

GRAHAM ROBERT WATT and PATRICIA ANNE WATT
THIRTY-SIXTH APPLICANTS

ANNIE CATHERINE WEBB
THIRTY-SEVENTH APPLICANT

DIETER HOLMAN (in his own right and as executor of the Estate of MILDRED HOLMAN)
THIRTY-EIGHTH APPLICANT

ALICE JOY TANGEY (in her own right and as executor of the Estate of KEVIN HERBERT TANGEY)
THIRTY-NINTH APPLICANT

AND:

LAWYERS PRIVATE MORTGAGES PTY LTD
ACN 010 556 751
FIRST RESPONDENT

JONATHAN JAMES McCARTHY, BRUCE MICHAEL DURIE, PHILIP ASHLEY RYAN and
IAN ALEXANDER NEIL
SECOND RESPONDENTS

ST PAUL INTERNATIONAL INSURANCE COMPANY LIMITED
FIRST CROSS-RESPONDENT

QBE INSURANCE (AUSTRALIA) LIMITED ACN 003 191 035
SECOND CROSS-RESPONDENT

JUDGE:

DOWSETT J

DATE:

12 MAY 2006

PLACE:

BRISBANE

REASONS FOR JUDGMENT
INTRODUCTION

These proceedings arise out of an investigation by the Australian Securities and Investment Commission (“ASIC”) into a private mortgage lending business (the “mortgage business”) conducted by the second respondents, a firm of solicitors (“MDRN”). In conducting the mortgage business, MDRN solicited funds from persons wishing to lend (“investors”). Investors were frequently clients of MDRN’s legal practice. MDRN also identified potential borrowers. Lending to such borrowers would be for a specified project, with repayment secured by a first mortgage over realty. In the usual course of events, MDRN would provide details of proposed loans to potential investors. Each was invited to choose the borrower to whom he or she wished to lend and nominate the amount to be lent. Normally, the loan to a particular borrower would be made up of funds coming from numerous lenders.
The first respondent (the “trustee company”) was a “practitioner nominee company” for the purposes of rules made by the Queensland Law Society (Inc) to regulate the conduct by solicitors of such mortgage businesses. In effect, the trustee company’s role was to receive and advance investors’ funds, to take security for repayment thereof and to realize the security if necessary.
The applicants deposited funds with MDRN for lending to Rivett Project Results Pty Ltd (“Project Results”) for use in a development project at Yandina (the “Yandina project”). John Philip Rivett (“Mr Rivett”) was a director and in effective control of Project Results. The applicants’ funds were advanced as contemplated. The Yandina project failed. At a later stage, I will discuss the causes of such failure. The applicants claim to have suffered loss as a result of the respondents’ conduct and sue accordingly. The first and second cross-respondents (“St Paul” and “QBE”) are insurers from whom MDRN claim indemnity and/or damages in respect of any amounts payable by them to the applicants.
Although the statement of claim raised other issues, by the end of the trial they had been narrowed to the following claims:
·against both respondents for damages for misleading or deceptive conduct contrary to s 995 of the Corporations Law as it stood at the relevant time;
·against the trustee company for damages for breach of duty; and
·against MDRN for damages for breach of duty as solicitors.
Almost all claims arise out of statements in promotional material sent by MDRN and/or the trustee company to the various applicants, in particular a document describing the proposed investment in the Yandina project (the “investment summary”). Some applicants claim to have relied on other documents to which I will refer in due course, but such reliance is generally in support of claims which also depend on the investment summary. Some applicants rely on oral statements. I will also deal with them at a later stage.
SECTION 995 CLAIM
The allegedly misleading conduct is primarily in connection with statements made in the investment summary. The aspects upon which counsel for the applicants relied in final addresses were that:
·Project Results was contributing the amounts of $400 000 and $238 677 to the Yandina project;
·the proposed loan had been approved under MDRN’s “loan assessment application programme”;
·all units (or all units in Stage 1 of the project) had been sold;
·Mr Rivett’s companies could attend to the payment of interest from their trading profits; and
·Mr Rivett had a strong asset position with a nett surplus of $1 790 000 and Project Results also had a nett asset position of $640 000.
It was also said that the investment summary was misleading or deceptive in failing to disclose the proposed use by Project Results of “trade dollars”.
The applicants’ case pursuant to s 995 seems to be put in two ways. Firstly it is said that these various statements were simply misleading or deceptive or likely to mislead or deceive. The second is that the respondents represented to the applicants that they had checked the accuracy of the statements when they had not done so. In their written submissions the respondents asserted that the applicants’ case was limited to the second of these approaches, but neither the pleading nor the applicants’ submissions were so limited. In any event the distinction is probably of no significance, given the circumstances of this case.
CLAIMS FOR BREACH OF DUTY
As to the claim against the trustee company for breach of duty it is said that it had a duty to take reasonable care not to recommend, nor to make, an imprudent investment and that it breached such duty. The respondents admit that the trustee company had a duty to take reasonable care not to recommend, or alternatively not to make, an imprudent investment. The claim against MDRN is for breach of duty as solicitors. The respondents admit that MDRN acted as solicitors for the applicants in the making and management of the loan to Project Results, and that they owed to each applicant a duty to exercise reasonable skill and care in so acting.
The applicants’ case against both respondents is that they were negligent in recommending the loan to Project Results and in their assessment of the application for such loan. The particular factual bases of these claims were that:
·the respondents accepted statements by Mr Rivett as to his assets, background and experience and those of Project Results and other companies without independently checking that information;
·the respondents did not identify and clarify certain qualifications contained in a relevant valuation;
·the respondents failed to note irregularities in certain contracts for the sale of units in the project;
·the respondents failed to investigate the proposed use of trade dollars;
·the valuation was not independent; and
·the specified loan to value ratio (“LVR”) was not observed.
Applicants who rely primarily on the allegedly misleading statements in the investment summary are the first to nineteenth and twenty-second to thirty-ninth applicants. The twentieth and twenty-first applicants did not see the investment summary but claim to have relied on oral representations by Mr David Gill an employee of MDRN. The first to thirty-seventh applicants are described in the statement of claim as the ‘initial investors’. The thirty-eighth and thirty-ninth applicants are described in the pleading as the ‘subsequent investors’. As those descriptions suggest, the initial investors deposited funds for loan to Project Results at an earlier stage than did the subsequent investors. The subsequent investors invested after Project Results had defaulted in paying interest. They complain that they were not told of this and also of misrepresentation in the investment summary.
Some of the initial investors claim to have relied upon the combined effect of the investment summary and one or more other documents. In the statement of claim the sixth, eighth, twelfth, twenty-fourth and twenty-sixth applicants claim to have relied on a brochure issued by the respondents (the “brochure”). The eighth, twelfth, thirteenth, seventeenth, eighteenth and twenty-fourth applicants claim to have relied on a newsletter (the “autumn 1999 newsletter”). The second, eighth, twelfth, thirteenth, seventeenth, eighteenth, twenty-fourth, thirtieth and thirty-second applicants claim to have relied on another newsletter (the “winter 1999 newsletter”). However, in submissions, only the autumn 1999 newsletter was treated as relevant.
MATTERS ADMITTED BY THE RESPONDENTS
At the end of the trial, counsel for the respondents indicated that they would not be contending to the contrary of certain matters. I will use the expression “not contradicted” rather than the more cumbersome “not contended to the contrary of”. I understand both expressions to mean that the relevant matter is not admitted so that the applicants must still prove it to the extent that they bear the onus of proof. The matters not contradicted were (by reference to paragraph numbers in the statement of claim):
Paragraph 4 which pleads that:
‘For a period from or about 1997 until the 13 February 2001 [MDRN]
(a)engaged in the business of marketing, promoting and conducting its private mortgage lending scheme, i.e. non-institutional or bank initiated transactions;
(c)invited contributions of money by clients of [MDRN] to be made to the trust account of [MDRN] to facilitate the making of advances by the [trustee company];
(d)conducted business as a mortgage lender as trustee for the individual contributors to each loan.’
Paragraph 14 which pleads that:
‘The Summary further represented and contained advice that:
…
(b) Mr Rivett had a good asset position;
…
(i)Mr Rivett, the guarantor of the loan had a strong asset position evidencing a net surplus of $1.79 million and that [Project Results] had a net asset position of $640 000.’
Paragraphs 18 and 19 which plead that:
‘18.Further, in or about April 2000, the respondents provided to the Thirty-Eighth Applicants:-
(a)their MDRN Select Mortgage Fund No 1 Prospectus; and
(b)an Advisory Services Guide; and
(c)a brochure inviting completion of an investment authority.”
19.The terms of the documents referred to in paragraph 18, represented and contained advice that a strict process was used in evaluating each loan proposal submitted and which included loan monitoring, inquiry as to the ability to pay, the carrying out of credit checks, valuation support and a prudent LVR to ascertain that the loan/security ratio did not exceed 70%. The Applicants shall refer to the said documentation at trial for their full terms meaning and effect.’
The respondents indicated that they did not contradict par 19 to the extent that it applies to ‘the issues raised by subparagraphs 14(b) and (i)’ of the statement of claim.
Paragraph 31 which pleads:
A duty of care as solicitors. The respondents indicated that they did not contradict the plea in subpar 31(c)(iv), that MDRN owed a duty to each applicant ‘to perform their professional services with all due care, skill and diligence.’ This concession related only to the matters alleged in subpars 14(b) and (i) to which I have already referred and is ‘only in respect of [the respondents’] acting in the capacity as solicitor/lenders’. I am not quite sure what that means.
Paragraph 32 which pleads that:
‘Notwithstanding the representations referred to in paragraphs 10, 12, 13(b) and (c), and 14, no checks, or no proper checks were made with respect to the character, personal wealth, asset position, background and experience, credit history or personal wealth and asset position of [Project Results] or [Mr Rivett].’
The respondents did not contradict this plea to the extent that it related to the personal wealth and asset position of Project Results and Mr Rivett as pleaded in subpars 14(b) and (i).
Paragraph 56 which pleads that:
The respondents breached their duties, in particular, the duties identified in pars 30 concerning the duties of the trustee company, (which the respondents partially admitted in their defence) and 31. To the extent of the concession made in connection with par 32, the respondents did not contradict the plea in par 56.
Paragraph 59A which pleads that:
‘Further, or in the alternative, in making the representations pleaded … the [trustee company] and MDRN in, or in connection with a dealing in securities, engaged in conduct that was misleading or deceptive or was likely to mislead or deceive … in contravention of s 995 of the Corporations Law.’

The respondents did not contradict this paragraph to the extent that it applied to the plea in subpars 14(b) and (i), in conjunction with par 19.
Paragraph 59C which pleads that:
‘In the premises the Respondents and each of them engaged in conduct that was in contravention of s 995 of the Corporations Act (as it applied immediately after the commencement of the operation of the Corporations Act 2001 and under which the … respondents by virtue of s 1400 of the Act have incurred a liability equivalent to s 995 of the Corporations Law as it applied at the time of the relevant conduct).’
To the extent that the respondents did not contradict the pleas in par 59A, they also did not contradict the pleas in par 59C.
Paragraph 25 which pleads that:
Various applicants relied upon various representations in the investment summary and one other representation, which is no longer relevant as I understand the applicants’ final submissions, and deposited money pursuant to such reliance. The respondents did not contradict the plea of reliance by the ‘initial investors’ save for the seventh and eleventh applicants. The twentieth and twenty-first applicants do not rely on the investment summary. Reliance by the subsequent investors was not conceded.
Counsel for the respondents summarized these concessions as follows (TS 2381-2):
‘Your Honour, the practical effect of that is, in relation to the initial investors, I will not contend to the contrary of there having been a contravention of section 995 in relation to the asset position and negligence in relation to the asset position and reliance in respect of those investors. So in terms of those investors it will leave only the issue of the proper assessment of what, if any, damage or loss flows from that. And then we are left with these investors, you Honour - McIntyre and Bengston on the basis that it’s not accepted there was reliance on the representations I’ve just identified in relation to financial position.
The two Mellishes, who didn’t see the investment summary at all, and the two subsequent investors Holman and Tangey, that was a case put on rather a different footing in respect of them, understandably.’
Helpful as these “non-contentions” were, they did not obviate the need to address the evidence in some detail. However, at a later stage, the respondents converted their non-contentions into admissions. (See TS 2596.) As a result most applicants are entitled to judgment for breach of s 995 and for breach of duty against both respondents, with damages remaining to be assessed. However the cases for the seventh, eleventh, twentieth, twenty-first, thirty-eighth and thirty-ninth applicants remain for consideration. Further, despite the respondents’ admissions, St Paul continues to claim the right to avoid liability under a policy of insurance on the basis of fraud or dishonesty by MDRN in connection with various other statements upon which the applicants previously relied. For that reason, I have deemed it appropriate to deal with those other aspects of the case notwithstanding the respondents’ admissions. Those matters are also relevant to the claim against QBE. It is, in any event, necessary that I discuss most of those issues in connection with the claims by one or other of the applicants whose claims have not been admitted.
KEY DOCUMENTS
Most of the applicants claim that they relied upon various statements made in one or more of four documents, namely the brochure (ex 49); the autumn 1999 newsletter (ex 41); the winter 1999 newsletter (ex 42); and the investment summary, issued in two versions which are Parts A and B of ex 54 and will be referred to as ex 54A and ex 54B respectively. I will refer to those documents as the “key documents”. In the end, only the investment summary and the autumn 1999 newsletter seem to be relevant.
FACTUAL ISSUES
It is convenient to explain, at this stage, a number of common factual issues. In so doing, I will be able to explain my reasons for summarily dismissing certain aspects of the applicants’ claims.
The Loan
The loan was to be in the amount of $1 400 000, bearing interest at 9.25 per cent per annum for twelve months. Interest for the first six months was to be pre-paid from the amount advanced. The loan was to be used in acquiring land upon which a retirement village would be constructed and in completing Stage 1 of the development, which was to be built in three stages. Stage 1 included the construction of twelve residential units and the manager’s residence. The relevant land comprised lots 2 to 6 on RP 111584 (the “subject land”). The retirement village was to be located on lot 6. In the investment summary, it was claimed that the other four blocks were zoned for townhouse development and that Mr Rivett was seeking approval to construct a nursing home on them.
Available Security
The investment summary offered the following “security” for repayment of the loan:
·registered first mortgage over the subject land in favour of the trustee company;
·registered mortgage debenture over the assets and undertaking of Project Results; and
·director’s guarantee from Mr Rivett.
Loan to Value Ratio
The investment summary stated that the Yandina project would have a ‘Loan to Value Ratio’ (the “LVR”) of 70 per cent. I understand this to mean that the amount of the loan secured on the subject land would not exceed 70 per cent of the value thereof. The amount owing would increase as the project proceeded and funds were advanced, but the value of the subject land would also increase as the project advanced. It was anticipated that a quantity surveyor would ensure that the specified LVR was observed at all times.
Representation that Project Results was contributing $400 000 towards the purchase of the land and $238 677 towards the construction of Stage 1
The investment summary specified the purpose of the loan as:

Cost Borrower Contribution Loan Requirement

Purchase land $800,000 $400,000 $400,000

Construct & sell Stage 1 $1,162,995 $238,677 $924,750

Prepay 6 months interest $75,250 $75,250

Total Loan $1,400,000

Two issues arise out of this summary. Lot 6 was, or was to be, purchased for $400 000. Lots 2, 3, 4 and 5 were, or were to be, purchased for $398 000. However that amount was to remain unpaid, repayment being secured by a second mortgage over those lots, with priority after the mortgage to be granted in favour of the trustee company. In the above table, the debt has been “rounded off” to $400 000. Some applicants complain that they understood the table to mean that Mr Rivett and Project Results had paid $400 000 towards the project, not merely undertaken to do so.
The second issue concerns the sum of $238 677 to be paid towards construction costs. It seems that Mr Rivett or Project Results held a substantial quantity of “trade dollars”. There are privately conducted markets on which creditors are able to trade debts owed to them. Debts which are so traded are called “trade dollars”. The evidence suggests that such debts are generally traded at discounted values. It seems that Mr Rivett or Project Results intended to use trade dollars to pay for part of the development work. Some applicants say that had they known that, they would not have invested in the Yandina project.
Valuation by Stanton Hillier Parker
According to the investment summary, a valuation of the subject land had been obtained and was available for inspection. These are challenges to the validity of assumptions upon which it is based.
Director’s personal statement of assets and liabilities
The notes on p 2 of the investment summary indicate that MDRN were holding a document described as ‘Director’s Personal Statement of Assets and Liabilities’. That document disclosed Mr Rivett’s assets and liabilities as follows:

Asset	Value	Liability
* House Alexandra Headland	$220,000	ANZ $140,000
* Units Maroochydore	$140,000	NAB $90,000
Shares – Barlake Pty Ltd Beckbern Pty Ltd	$100,000
Barter Capital Limited Barter Fund Limited * Rivett Project Results Pty Ltd + subsidiaries	$280,000	NAB $110,000
Beneficial Interest (controlled by me) ۰ John Rivett Family Trust ۰ NJT Trust	$440,000 $200,000
Beneficial Interest in “Fritton Trust” (controlled by father) (Real Property, Shares, Cash)	$750,000
$2,130,000	$340,000
* Half interest with wife

Obviously, this statement of assets and liabilities was designed to demonstrate that Mr Rivett’s personal guarantee was substantial. However the valuation of shareholdings in proprietary companies is notoriously problematic. The inclusion of trust interests raises questions as to the terms of such trusts, the beneficiaries and ultimate authority over distribution of income and capital. The values attributed to individual assets were allegedly unsustainable.
Pre-payment of Interest
It was a condition of the advance that six months’ interest be pre-paid by Project Results, held in trust by MDRN and remitted as it fell due. The table on p 2 of the investment summary shows that such payment was to come from the advanced funds. Numerous applicants assert that they understood the investment summary to mean that Project Results or Mr Rivett would pre-pay such interest from other funds, thus increasing its, or his, overall investment in the project. In my view the investment summary clearly showed that the pre-paid interest was to come from loan funds. To the extent that any applicant thought to the contrary, he or she was mistaken, not misled.
Company Trading Profits
At p 3 of the investment summary it is said that:
‘The trading profits of Mr Rivett’s companies can provide interest coverage.’
A “residual” of $400 000 would remain after the completion of Stage 1
The Yandina project was to be completed in stages, but funding was being provided only for Stage 1. In that context it is said at p 3 of the investment summary that:
‘It is believed a residual of approximately $400,000 will remain following sale all units and management. The LVR at this stage will be below 70 per cent. The borrower will then look to develop Stage 2 with increased borrowings of $550,000. Stage 2 will be subject to full review by [MDRN] and no commitment to fund Stage 2 has been given.’
Applicants have asserted that they understood this to mean that there would be a residual surplus of $400 000 at the end of Stage 1. Some asserted that the expectation of such a surplus influenced their decisions to invest. If the sentence is taken in isolation, the absence of the word “debt” after the word ‘residual’ leaves open such an inference. However it would be inconsistent with the rest of the paragraph. The reference to an LVR ‘below 70 per cent’ indicates that at the end of Stage 1 there was to be an outstanding debt. There could otherwise be no LVR. The reference in the third sentence to ‘increased borrowings’ clearly indicates that there would be residual outstanding borrowings. No sensible reading of the clause leads to the inference that there was to be a nett surplus of $400 000. Again, the relevant applicants may have been mistaken, but they were not misled.
Mr Rivett had a strong asset position with a nett surplus of $1 790 000
This statement appears under the heading ‘Financial Strength’ on p 3 of the investment summary. The figure is the excess of assets over liabilities in Mr Rivett’s statement of assets and liabilities. I have previously mentioned some of the alleged difficulties with that document.
Project Results had a nett asset position of $640 000
This statement also appears under the heading ‘Financial Strength’ on p 3 of the investment summary. Mr Rivett’s statement of assets and liabilities showed Project Results’ nett asset position as $170 000, although it held other assets as trustee. It also had acquired, or was to acquire, the subject land and had, or would have, the acquisition cost as a debt.
All units in Stage 1 had been sold
A number of passages in the investment summary deal with the pre-sale of units. Firstly, on p 2, it is said that amongst the documents held by MDRN and available for inspection were ‘… presale contracts of the units’. On p 3 of both versions of ex 54, it is said that:
‘Mr Rivett is in a unique position of having an intimate knowledge of these members [of trade dollar exchanges] and their motivations. It is through this that Mr Rivett has successfully secured contracts to sell all the units in Stage 1 and has strong expressions from purchasers for the remaining two stages.’
On that page in each version appears the following statement:
‘This profit is considered achievable for Mr Rivett particularly with the strong expressions to purchase units and existing contracts already available.’
On p 4 of ex 54A under the heading ‘Security’ it is said that:
‘The units are being sold for $85,000 each with Mr Rivett stating all have been sold.’
In ex 54B the statement is slightly different, observing that:
‘… all units in Stage 1 have been sold.’
In each version, under the heading ‘Condition Precedent’ it is said that ‘Presale Contracts for at least six units to be provided prior to the first draw’.
Finally, on p 5 of ex 54A it is said that:
‘This proposal is submitted for your consideration and supported on the basis of:
…
Presale of all units in place (with clear evidence to be provided of at least six sales prior to the first drawdown).
…’
In ex 54B, the statement was:
‘Presale of all units in Stage 1 being in place (with clear evidence …).’
In my view the reference in ex 54A to ‘all units’ should be understood as meaning ‘all units in Stage 1’. It is clear that the project was to be built in stages and that the loan was for, and for the term of, Stage 1. On p 2 of both versions, it is said that all units in Stage 1 had been sold and that there had been expressions of interest in the remaining stages. It is made clear that investors had no commitment to fund later stages and that Stage 2 was to be ‘subject to full review by MDRN’. This suggests that funding might yet have come from an MDRN scheme, implying that no other funding arrangements were in place. This suggests that there was no final commitment to build Stage 2, and so ‘presales’ would seem unlikely. When sale of units is discussed in ex 54A, it is clearly speaking of the units to be built in Stage 1.
A further difficulty arises from the requirement that there be evidence of six sales. As Stage 1 was to consist of twelve units and the manager’s accommodation, the reference to evidence of ‘six sales’ suggests a distinction between a “sale” and a “pre-sale”. I will return to this matter at a later stage.
MDRN had investigated the proposal and approved it
Numerous applicants claim to have inferred that MDRN had investigated the project and/or checked information and/or evaluated its prospects. Some applicants seem to have considered that MDRN, in effect, guaranteed repayment of the loan.
Mr Rivett had, in 1984, made an arrangement with his creditors
All that is known about this aspect of the matter is that there was such an arrangement. Some applicants claim that had they known of this matter, it would have influenced their decisions to invest. There is some debate as to whether MDRN could have discovered this fact and whether they should have taken any step to do so.
It seems unlikely to me that an arrangement with creditors made in 1984 would have influenced a decision to invest in 1999, particularly given the apparently strong financial positions of Mr Rivett and Project Results which appeared from the investment summary. Such knowledge may have caused some applicants to be more careful, but I doubt whether it would have influenced the decisions in view of the other information in the investment summary.
Purchase of units using trade dollars
Some applicants complain that they were unaware that contracts for the sale of units provided for the purchase prices to be paid partly in trade dollars. They claim that had they been aware of this, they would not have invested. As indicated above, the investment summary discloses that Mr Rivett had been involved in the trade dollar market.
At p 3 of the investment summary it was said that:
‘Currently, Mr Rivett controls Barter Pacific Property and Finance which specializes in property and finance where trade dollars are utilised. The Sunshine Coast has proven to be a very active region for trade dollar exchanges. He indicates that there is some 1200 trade members in the region.
Mr Rivet is in a unique position of having an intimate knowledge of these members and their motivations. It is through this that Mr Rivett has successfully secured contracts to sell all the units in Stage 1 and has strong expressions from purchasers for the remaining two stages.’
These two paragraphs make it clear that:
·Mr Rivett and his companies specialized ‘in property and finance where trade dollars are utilised’;
·there were 1200 trade members (ie people utilizing trade dollars) in the Sunshine Coast area;
·Mr Rivett knew these people and their motivations; and
·these factors had led to Mr Rivett’s successfully securing contracts to sell all units in Stage 1 and having strong expressions from purchasers for the remaining stages.
The statement identified a clear link between the use of trade dollars in property and finance transactions, the number of persons engaged in the use of those trade dollars in the Sunshine Coast area and the successful completion of contracts of sale for units in Stage 1. Any reasonable reader would have inferred that at least some of the contracts would involve utilization of trade dollars. In those circumstances I do not consider that there was anything misleading or deceptive about failing to give particulars of the extent of such involvement. Applicants may have misunderstood the position, but they were not misled.
THE EVIDENCE
I will now examine the evidence. I will first discuss the applicants’ own evidence and then evidence from the respondents and Mr Blackadder, MDRN’s principal employee in the mortgage business, concerning the conduct of the mortgage business and the making of the loan to Project Results. I will then discuss the other evidence relevant to the applicants’ claims against the respondents. I will discuss evidence solely relevant to the cross-claims after I have disposed of the applicants’ claims.
The applicants’ claims

Applicant:

A & D Douglas Pty Ltd

Amount of Investment: $30 000

Key Documents Received: Investment Summary

Mr Eaton is a shareholder and director of the first applicant, A & D Douglas Pty Ltd. That company invested $30 000 in the Yandina project. I infer that Mr Eaton made the decision to invest those funds on behalf of that company.
Mr Eaton had previously invested in seven first mortgage schemes promoted by MDRN, the first in February 1998. He is an experienced businessman with a range of investments. Mr Eaton received the investment summary. He said:
‘After reading this brochure I decided to invest in the project. I did not make any further inquiries with respect to this investment other than my consideration of the brochure. As I had invested with MDRN before and had not had any problems in the past, I felt confident in this project.’
Mr Eaton claimed to have relied upon the following representations in the investment summary:
·LVR of 70 per cent;
·the loan was secured by a mortgage over five adjoining vacant lots, a mortgage debenture over the assets of Project Results, and Mr Rivett’s guarantee;
·Project Results was contributing $400 000 towards the purchase of the land and $238 677 towards the construction of Stage 1 of the project;
·the valuation by Stanton Hillier Parker;
·the statement of Mr Rivett’s personal assets and liabilities;
·interest on the loan for the first six months being pre-paid by the borrower.
·trading profits from Mr Rivett’s companies could provide interest coverage;
·a residual of $400 000 would remain after the completion of Stage 1;
·Mr Rivett’s asset position evidenced a nett surplus of $1 790 000;
·Project Results showed a “nett asset position” of $640 000; and
·all units in Stage 1 of the project had been sold.

In oral evidence-in-chief Mr Eaton claimed also to have relied upon the fact that the application had been approved under MDRN’s private mortgage loan application assessment programme. He understood this to mean that they had ‘approved the loan and had sort of looked into all the figures and it was okay’. Had he known that Mr Rivett had, in 1984, entered into an arrangement under Part X of the Bankruptcy Act 1966 (Cth) (the “Bankruptcy Act”), it would have been significant in his decision-making, and he would have ‘put my money somewhere else’.
As to the figure of $400 000 shown as ‘Borrower Contribution’ on p 2 of the investment summary, Mr Eaton said that had he known that it was the unpaid purchase price, secured by a second mortgage, it would have affected his decision to invest. Had he known that the sum of $238 677 was to be invested in trade dollars, it would similarly have affected his decision. In cross-examination, Mr Eaton said that critical matters affecting his decision to invest were the availability of mortgage security and the figures which he had been given.
Although I thought that Mr Eaton was a little “eager” in his assertions of reliance upon various matters, I saw no reason to doubt his honesty. In particular, I accept that he relied to some extent upon the “figures” given in the investment summary.

Applicants:

Graham Leslie Andersen and Hilary Andersen

Amount of Investment: $50 000

Key Documents Received: Investment Summary

The applicants had dealt with MDRN prior to their involvement in the Yandina project. On or about 11 June 1999 they received the investment summary. Mr Andersen said that the following matters were important to him in deciding to invest:
·interest rate of 9.25 per cent, higher than that offered by banks but not the highest rate on offer in the market;
·term of twelve months; he preferred short-term investments;
·LVR of 70 per cent; he would not have accepted any higher LVR;
·background and qualifications of Mr Rivett;
·financial strength of Mr Rivett and Project Results;
·nature of the development, namely a retirement village; Mr Andersen considered this to be a ‘sound investment considering Australia’s ageing population’; and
·all units in Stage 1 had been sold.
Mr Andersen was not cross-examined.
I have no difficulty in accepting that the various matters identified by him were material to his decision to invest.

Applicant:

Yvonne Ellen Andrew

Amount of Investment: $5 000

Key Documents Received: Investment summary

Ms Andrew and another applicant, Mr Ritorze, are partners. Both invested in the project, but as I understand it, the investments were placed separately. Ms Andrew first became aware of MDRN in their capacity as solicitors. She was introduced to their first mortgage investment schemes by Mr Ritorze who had previously invested with them. Prior to June 1999 Ms Andrew had been involved in one other first mortgage investment scheme arranged by MDRN. In June 1999 Ms Andrew received a letter from MDRN suggesting that she might like to invest $5 000 (which sum the firm was holding) with Project Results. It was said of Mr Rivett that:
‘The director, John Rivett has extensive experience in property development and law having practised as a Barrister and as an Executive Director of Forrester Parker Group Ltd.’
The investment summary was included with the letter. From that document, Ms Andrew identified the following matters upon which she relied:
·Mr Rivett’s resume and MDRN’s statement that:
‘We believe Mr Rivett has the necessary experience and qualifications to successfully undertake this project. From meetings held with him we believe him to be very credible.’
·The statement that:
‘This proposal is submitted for your consideration and supported on the basis of:
·Experienced and well qualified Director
·Good asset position of the Director’.
Ms Andrew inferred that Mr Rivett had relevant experience in property development. She relied upon the statements in the investment summary headed ‘Financial Strength’ on p 3 and the ‘Good asset position of the director’ on p 5. She understood these statements to mean that Mr Rivett personally had surplus assets of $1.79 million, which would be available for repayment of the loan if necessary, and that the company had $640 000 in assets.
In oral evidence she said that she also relied upon the LVR of 70 per cent, the period of the loan of twelve months and the registered mortgage. She formed the view that MDRN had thoroughly checked the information concerning Mr Rivett and Project Results’ assets and the availability of a valuation from a recognized valuer. Her attention was invited to the statement at the end of the passage headed ‘Notes’ on p 2 of the investment summary which provides:
‘The Borrower’s application has been approved under MDRN Private Mortgages loan application assessment programme and is now available for contribution by you.’
When asked, the witness indicated that she understood this statement to mean that MDRN had ‘completed exhaustive thorough checks and approved a loan to Mr Rivett and that they had done absolutely thorough checks, more so than what a bank might do because they were a legal firm as well.’
I have great difficulty in accepting this evidence. Firstly, it sounds contrived. Secondly, it was elicited from her by inviting her to comment on particular passages in the investment summary and thus implying to her that they were important.
The witness said that she inferred from Mr Rivett’s curriculum vitae that he was ‘very well experienced in regard to his management experience, and as a barrister I thought he would have to be a very credible person.’ She said that she would not have invested with him had she known that he had previously entered into an arrangement with his creditors. She also claimed to have been influenced by the fact that he had secured contracts for the sale of all units in Stage 1. She did not realize that such contracts involved part-payment in trade dollars. She was also influenced by the reference to a ‘final margin of 25.7% achievable to the borrower’ and the reference to Mr Rivett’s companies providing interest coverage.
The witness also referred to the statement ‘Interest for this loan is being prepared [sic] by the borrower’ under the heading ‘Serviceability’ on p 3 of the investment summary. She took this to mean that the borrower would be paying interest from his own funds. It seems likely to me that the word ‘prepared’ should be “pre-paid”, however the witness seems not to have so understood it. She also relied upon Mr Rivett’s director’s guarantee. She said that she understood that the interest was to be paid from the borrower’s own funds and not from the advance.
In the course of cross-examination the witness said that she believed from the investment summary that:
‘Mr Rivett had proved to MDRN beyond any benefit of doubt that he had this nett surplus of $1.79 million and that they had thoroughly checked it according to their assessment program. I trusted MDRN to do the right thing beyond what any other lending authority might do, because they were a legal firm … . If I want to get advice, I go to a legal firm and get advice.’
Again, I cannot accept that evidence. It is, in my view, little more than a gratuitous assertion of a point of view which the witness thought would be of assistance to her case.
I have indicated in the course of summarizing the evidence that in at least two respects I am unwilling to act upon Ms Andrew’s evidence. She appeared to be a suggestible witness and, unfortunately, counsel chose to take her through the evidence in a way which amounted, in effect, to subtle prompting. As a result she claimed to have relied upon many aspects of the document which she had not addressed in her affidavit. It may be that these matters will not be of great significance at the end of the day, but I will treat her evidence with caution.

Applicant:

Robert Ritorze

Amount of Investment: $5 000

Key Documents Received: Investment Summary, possibly Autumn Newsletter

Prior to his investment in the Yandina project, Mr Ritorze had invested in other schemes fostered by MDRN. He received a letter from them dated 23 June 1999, enclosed with which was the investment summary for the Yandina project. He considered that document, finding the following matters to be important:
·Mr Rivett had ‘significant experience and abilities in successfully undertaking this project’;
·he had managed a number of other similar projects and had a law degree;
·he appeared to be a man of substance;
·he had a strong asset position with a nett surplus of $1 790 000 and so could stand behind his guarantee;
·Project Results had a nett asset value of $640 000;
·the LVR was 70 per cent;
·all units in Stage 1 had been pre-sold; and
·interest for first six months’ would be pre-paid.
In his oral evidence he said that he and Ms Andrew had invested in 32 different loans with MDRN. He was referred to the winter 1996 newsletter. He said that in 1999, he received similar newsletters prior to receiving the investment summary. He was referred to the following passage in the newsletter:
‘As Solicitors we are responsible for conducting legal searches in relation to the property and the applicants and if all is satisfactory, loan documents are prepared for the matter to proceed to settlement.’
The witness said that he took this to mean that ‘they checked everything out’. He said that he had conversations with Mr Ryan (one of the second respondents) and David Gill (an employee) who ‘also told me the same thing, that everybody is completely vetted.’ He also referred to the following statement in the newsletter:
‘Further, you may recall advertisements being placed in the Courier Mail and other newspapers highlighting that Private Mortgage Lending Ltd would pay a 15 per cent return to investors. At the time we did have many investors contact us asking if a similar return would be obtained through private mortgages placed through our firm. Most law firms (including us) offer investment in private mortgages which provide a return of approximately 11 per cent per annum. This reflects a similar return paid by business borrowers to a bank. The obvious question with Private Mortgage Lending Ltd was-what was the quality of a borrower willing to pay in excess of 15 per cent per annum interest? With a such a high return to investors there was obviously a higher risk.’
The witness said that Mr Gill told him that MDRN’s mortgages were not ‘with that group’, and that ‘they were safer but did not offer 15%’.
Counsel then invited the witness to go through the investment summary ‘and if you could tell us, please, of any items that you see there that were of significance to you in your decision to invest in this loan?’. In answer he referred to the LVR of 70 per cent, to the term of twelve months, to the interest rate, to the fact that interest had been pre-paid for six months and to the various securities. The witness attached particular significance to the guarantee because of Mr Rivett’s asset backing and the fact that he had a company ‘that’s got assets of $640,000.’ Mr Ritorze thought that Mr Rivett’s nett asset position did not include his interest in Project Results, and that its nett value could be added to Mr Rivett’s for the purpose of assessing the assets available to support repayment of the loan. Mr Ritorze also said that it would have affected his decision had he known that Mr Rivett had entered into an arrangement with creditors. He said that he would not have trusted the investment. The assertion that the trading profits of Mr Rivett’s company would cover interest was important to him. He understood that the first six months’ interest was being retained out of the loan funds.
Mr Ritorze understood that MDRN were commending Mr Rivett to him as a person with the necessary experience and qualifications to undertake the project. He claimed that he relied upon them as his solicitors to give him appropriate advice. He also relied upon the fact that all units had been sold. Had he been told that six or fewer had been sold, it would only have made a slight difference to him. It would have sounded like a good deal anyway. He understood that the units were to be sold at $85 000. He did not understand that trade dollars were involved.
He was questioned concerning the extent to which he would have been affected by assumptions underlying the valuation. However it seemed that the valuation did not affect his decision to invest. This was because of the asset positions of Mr Rivett and Project Results.
In cross-examination Mr Ritorze said that he expected that MDRN would have made the assessments ‘that a reasonably prudent lender would make’. He agreed that he had always understood that there was a trade-off between the degree of risk and the rate of return. He understood that there were risks of default and shortfall. However he seemed to assume that he could avoid any such risk. It is very difficult to accept this at face value. He denied that it was clear from the investment summary that the sales contracts for the units involved trade dollars.
Mr Ritorze is quite intelligent and has reasonable business understanding. I had difficulty with some aspects of his evidence. However, on at least two occasions, he conceded that certain aspects of the material had not been of great significance in his decision-making process. To the extent that he asserted, in his oral evidence, reliance upon aspects other than those identified in his affidavit, I conclude that the affidavit sets out those aspects which were of real importance to him. I do not accept that he relied upon the summer 1997 newsletter. It seems quite unlikely that in mid-1999, he would have referred back to specific passages in that letter in order to inform his decision. If he had done so, he would have said so in the affidavit. He did not.

Applicant:

David William Armstrong

Amount of Investment: $10 000

Key Documents Received: Investment Summary

Mr Armstrong first established contact with MDRN after seeing an advertisement in a local newspaper promoting safe investment opportunities with a return of 9.25 per cent. In early June he contacted them by telephone to discuss the advertisement and to obtain further information. He subsequently received investment summaries for the Yandina project and for another project. He decided to invest $10 000 in the Yandina project. The important aspects of the information provided to him were:
·the project was not too large;
·he was familiar with the Nambour area;
·he thought that a retirement village would be popular;
·he was impressed with the information provided in the investment summary concerning Mr Rivett who appeared to be well qualified and experienced;
·Mr Rivett’s financial strength;
·the interest rate was attractive; and
·a twelve month term suited him.
The financial information set out in the investment summary indicated that the investment was safe, particularly as it was to be secured by a registered mortgage. He understood that the reference to ‘pre-paid interest’ meant that interest was to be paid to MDRN by Mr Rivett (or, presumably, his company) from his own resources. He understood the reference to ‘a residual of approximately $400,000’ on p 3 of the investment summary to be to a profit after sale. As I have indicated, I do not consider the words to be capable of that interpretation.
At p 5 of the investment summary there are seven points upon which MDRN relied in supporting the proposal. He placed considerable significance upon the following:
·that Mr Rivett was an experienced and well-qualified director;
·LVR of 70 per cent;
·pre-sale of all units in Stage 1 with evidence to be provided of at least six sales; and
·it was a well-located development which would be profitable, having no immediate competition and being a proven product.
Mr Armstrong was not cross-examined.
I have no difficulty in accepting his evidence at face value, subject only to the qualifications which I have set out above.

Applicants:

Cheryl Lynette Backwell and Phillip Ashley Ryan (as executors of the estate of Elsie Edith Backwell)

Amount of Investment: $50 000

Key Documents Received: Investment Summary

Curiously, Mr Ryan, who is one of the partners in MDRN and therefore a respondent in these proceedings, is also one of the fifth applicants. He is the joint executor of the estate of Elsie Edith Backwell (deceased), an investor. Mrs Backwell died on 11 August 2001. Cheryl Lynette Backwell (“Ms Backwell”) is her daughter. It seems that in 1992, Mrs Backwell received the proceeds of sale of the family farm. Over the years she invested in MDRN’s private mortgage schemes. Ms Backwell recalled her mother receiving information concerning the Yandina project. Mr Ryan agreed (at TS 2115) that Mrs Backwell would have received the investment summary. He also accepted, based upon his experience of her, that she would have acted upon its contents. I have no reason to doubt any aspect of the evidence of Ms Backwell or Mr Ryan in that respect.

Applicants:

Heinrich Bauer and Sabine Bauer

Amount of Investment: $20 000

Key Documents Received: Brochure, Investment Summary

Mr Bauer is a retired carpenter. He gave evidence but his wife did not. In 1998 they consulted MDRN concerning a legal matter. At that time Mr Bauer picked up a pamphlet entitled ‘Private Mortgages’, apparently published by MDRN in connection with their private mortgage lending business. In April 1999 he went to their office to discuss such an investment. He spoke to David Gill. Mr Gill provided him with information on various projects, including an investment summary for the Yandina project. As a result Mr and Mrs Bauer invested $15 000 in the Ammbar project and $20 000 in the Yandina project. Mr Bauer found the investment summary ‘very convincing’. The matters which were of particular importance to him were:
·LVR of 70 per cent;
·experience, qualifications and expertise of Mr Rivett;
·that all units in Stage 1 had been sold; and
·the term of twelve months for the loan.
In oral evidence Mr Bauer conceded that he may have received the investment summary by mail rather than personally from Mr Gill.
When referred to p 3 of the investment summary, he said that he considered Mr Rivett’s asset position to be an important matter in his decision-making. He said that had he been told that Mr Rivett did not have assets totaling $1 790 000, it would have made a difference to his decision to invest. Had he known that Mr Rivett’s assets were less than $100 000, he would not have invested. Similarly, with respect to the company’s assets of $640 000, he said that had he would not have invested had he known that the company had no assets. He also said that his decision would have been affected had he known that Mr Rivett had previously entered into an arrangement with his creditors.
He was asked whether ex 1 to his affidavit (the brochure) had any relevance to his decision. He said that the whole document ‘looked really good’. He said of the brochure that the section headed ‘Evaluation Procedure’ was of importance. The relevant extract is as follows:
‘The evaluation of applicants is provided by National Mortgage and Development Limited a company whose executives have had extensive banking experience.
They examine the debt service capacity and good credit history of each applicant and obtain a valuation of the security property to ascertain that the loan/security ratio does not exceed 70%. This is set by the Queensland Law Society.
Many current borrowers are established self employed people who are able to provide all required information, have a good credit history and are seeking a workable alternative to the regimentation of traditional lending institutions.’

He said that all of this looked ‘very correct and very sure, like bank guarantees, secure facility insurance through the Queensland Law Foundation and so on.’ As I understand it, the use of external loan assessors had been abandoned by the time of events which are presently relevant.
In cross-examination Mr Bauer said that had he been told that Project Results’ asset position and the asset position of Mr Rivett had not been checked by MDRN, he would not have entered into the transaction.
Mr Bauer’s evidence concerning his reliance upon the brochure, as opposed to the investment summary was not convincing. It was prompted by the way in which his evidence was led. However such evidence was not really challenged.

Applicant:

Donald Bengston

Amount of Investment: $250 000

Key Documents Received: Investment Summary

Mr Bengston is a retired farmer. He and his brother had first consulted MDRN as solicitors in the late 1980s. They had some experience in investment and were sole trustees of their self-managed superannuation fund. They had owned commercial property.
In 1998, having sold property at Redland Bay for about $3 million, they invested in one of MDRN’s private mortgage investment schemes. This involved an investment of $1 million. It was successful. Thereafter, they regularly received promotional material from MDRN. In early to mid-1999 Mr Bengston and his brother decided to spread their risk. Having received repayment of a substantial part of their $1 million investment, they spread it between two new investments, one of which was the Yandina project. Curiously, Mr Bengston seems to have believed that although the finance was for Stage 1 only, they would not receive their capital back at the end of that stage. However that misapprehension seems not to matter. He said that the factors which influenced his decision to invest were:
·the location of the development at Yandina, allowing him physically to inspect the site although, curiously, he did not do so;
·the sale price per unit of $85 000; a reasonable price at which price there would be sufficient demand;
·LVR of 70 per cent which he considered to be a reasonable level of debt; he had no reason to suspect that there was another loan secured by a second mortgage;
·the extent of borrower contribution, namely $400 000 for the land and $238 677 towards construction and sales costs; meaning that there would be an investment of $638 677 ‘not so much in monetary terms but as a value/equity contribution’; he did not understand that trade dollars would be involved;
·director’s personal statement of assets and liability; he believed that MDRN would have verified this statement;
·the borrower’s application had been approved under ‘[MDRN’s] Private Mortgages loan application assessment programme’; he believed that a formal process existed within MDRN for checking and verifying the contents of loan applications before offering them to the public;
·Mr Rivett had successfully secured contracts to sell all units in Stage 1; this was of less importance to him than other aspects because he understood that contracts could ‘fall over’; it showed sufficient demand for units at the nominated price to justify the project; he was not aware that the purchase prices were payable partly in trade dollars; and
·‘It is believed a residual of approximately $400,000 will remain following sale of all units and management.’, which he understood to mean that a surplus of $400 000 would be available.
Mr Bengston understood that the first six months’ interest was to be repaid from borrowed funds.
He discussed these matters with his brother and subsequently received from Mr Gill a copy of the valuation referred to in the investment summary. In July they deposited the sum of $250 000 with MDRN for investment in the project.
In late 1999 Mr Bengston’s brother required funds for private purposes and asked if Mr Bengston would, in effect, buy his share of the investment. Mr Bengston did so and advised MDRN.
In his evidence-in-chief, Mr Bengston said that he understood that Mr Rivett was ‘with the land, providing his equity of the $400,000 which isn’t really his money, it’s already there.’ This seems to be a correct understanding of the position. He said also that he did not place much weight on Mr Rivett’s financial position as he considered the project to be strong enough to stand on its own.
It would have made a difference had he known that only three or four units had been sold out of the first twelve. He thought that marketing would be important and that ‘if you’ve got buyers lined up the marketing is easy, and if you haven’t got buyers lined up the whole arrangement could drag on.’ His understanding of the assertion that all units had been sold was that ‘somebody had put their name down on the list for a particular unit’ and that there was not necessarily a contract in each case.
Mr Bengston said that had he been aware that pursuant to such contracts as there were, 40 per cent of the purchase prices could be paid in trade dollars, it would have affected his decision. He considers trade dollars to be a problem. In order to spend them, there must be somebody who wants to buy them. He would not have proceeded with the investment had he known that trade dollars were involved. In cross-examination it emerged that he believed that the $400 000 residual surplus at the end of Stage 1 was the value of the land rather than cash in hand.
I generally accept Mr Bengston’s evidence.

Applicants:

William Malcolm Bryden and Margaret Anne Bryden

Amount of Investment: $20 000

Key Documents Received: Brochure, Investment Summary, Autumn 1999 Newsletter, Winter 1999 Newsletter

In his affidavit Mr Bryden identified the following items in the investment summary as influencing his decision to invest:
·that the application had been approved by MDRN under their private mortgage loan application assessment programme, meaning that MDRN ‘had followed their structured process that is spelled out in the Autumn 1999 newsletter’ and ‘that sufficient checks had been performed in assessing this development application prior to approving same’;
·LVR of 70 per cent;
·borrower’s contributions of $400 000 and $238 677, meaning that the borrower had ‘personally’ contributed the purchase price of the land and $238 677 towards construction costs;
·the anticipated ‘residual of approximately $400,000’ meaning a surplus of $400 000;
·pre-payment of interest for the initial six months meaning that the borrower would pre-pay it from its own resources and not from the advance;
·that Mr Rivett’s companies could provide interest coverage from trading profits, meaning that the companies were sufficiently financially strong to meet the interest obligation in the event that the project encountered delay, this statement being based upon MDRN’s checks of the financial records of the companies;
·Mr Rivett’s strong asset position with a nett surplus of $1 790 000, in excess of the amount of the loan, such figures having been checked by MDRN;
·Project Results’ nett asset position of $640 000, meaning that Project Results (as trustee for the NJT Trust) had ‘net liquid assets of $640,000 and that this had been verified by MDRN conducting thorough financial checks of financial records’; and
·all units in Stage 1 had been sold, meaning that all twelve units had been sold for $85 000 each in Australian dollars. He did not understand that trade dollars were involved.
From the autumn 1999 newsletter Mr Bryden learned of the “MDRN Ten Point Assessment Plan’. In particular it stated:
‘All applications for Private Mortgage loans through MDRN are thoroughly evaluated before approval. The investigations take place right up to settlement to ensure that the loan is going to perform and that investors are fully secured.’
Mr Bryden said of the ten point plan that a number of the steps were important to him:
‘… because they implied that thorough inspections had been made of the balance sheets (and by implication, also the Profit and Loss Statements, and cashflow statements) relating to John Rivett, [Project Results] and Rivett’s other companies. I believed that because MDRN had made these checks, that was how they came to make the statements in relation to the net asset positions for Rivett of $1 790 000 and [Project Results] of $640 000 and the fact that Rivett’s companies could provide interest coverage. I also believed that part of the background checks and credit history checks would require a clean credit history with the Credit Reference Association of Australia.’
From the winter 1999 newsletter Mr Bryden noted the following statements:
‘MDRN’s policy is never simply to “equity lend” ’;
and
‘Loans Manager Dale Blackadder conducts full checks for every prospective borrower and no loan is approved unless it meets the Ten Point Assessment Plan. (See the autumn 1999 newsletter).’
These statements were important in Mr Bryden’s decision-making ‘because it reinforced the thorough evaluation procedure that MDRN stated they followed as per the autumn 1999 newsletter, and the fact that the loan did not rely upon the valuation of the project, but could rely upon the serviceability and financial strengths of John Rivett and [Project Results]’.
On or about 23 June 1999, as a result of a conversation with Mr Gill, Mr and Mrs Bryden received a letter from Mr Blackadder entitled ‘A Reliable High Return Investment Opportunity for You’.
Mr Bryden described the contents of the letter as follows:
‘The letter spoke of MDRN’s unblemished track record in relation to Solicitors Mortgages. The contents of the letter reinforced what Gill had said to me at our meeting.’
However evidence of his conversations with Mr Gill was excluded from evidence. The reference to this letter therefore adds little to the Bryden case. The Brydens also received a second investment summary. Mr Bryden claimed that ‘We also relied upon this information …’. It is a little difficult to understand this statement, given that it was merely a copy of the document which they had previously seen.
In oral evidence Mr Bryden was asked if it would have made any difference to him had he known that the $400 000 being advanced by the borrower was the unpaid purchase price for the property and that the sum of $238 077 was to be invested by the developer in trade dollars. He said that it would have affected his decision. He was influenced by the fact that Mr Rivett had relevant experience and was a barrister. Mr Bryden thought that a barrister ‘would have things well sorted’. He said that he would have been less likely to enter into the project had he known that Mr Rivett had previously made an arrangement with his creditors. He also said that the project attracted him because projects of that kind were ‘very popular’ and that ‘being a pensioner myself, I can understand that’. The statement that such projects were ‘very popular with several developers in Queensland undertaking this type of project’ also influenced him. He noted that a final margin of 25.7 per cent was said to be achievable by the borrower. He thought that this showed that the developers had done a feasibility study and were certain to make money.
He reiterated his reliance upon the purported sale of all units in Stage 1 and upon the fact that the cost and timing of the project had been confirmed by a qualified quantity surveyor. He said that he would not have gone into the project had he known that Mr Rivett and Project Results did not have the cash reserves which he understood the investment summary to assert. He was also attracted by the idea of a first mortgage. He noted references to the project having amenities and available transport which he considered to be important to retired people. He also relied upon a statement that Alan Ludlow of Stanton Hillier Parker, the valuers, was recognized as one of the most experienced valuers in connection with this type of development. He relied upon the fact that Mr Rivett was giving a personal guarantee. He said that had he known that not all units had been sold, ‘it wouldn’t have been nearly as impressive …’. He also said that if he had been told that 40 per cent of the purchase prices for the units was to be in trade dollars ‘Alarm bells would have started to ring very loud’.
As with a number of the other witnesses, I have difficulty in accepting at face value assertions of reliance upon aspects of the documentation evinced in evidence-in-chief which were not referred to in the original affidavit. Mr Bryden seemed willing to claim reliance on every aspect. Nonetheless, his affidavit is reasonably comprehensive. For reasons which I have given elsewhere, his understanding of some aspects of the investment summary is not supported by a fair reading of it.

Applicant: Fiona Mary Campbell as trustee of the F M Campbell Superannuation Fund

Amount of Investment: $ 100 000

Key Documents Received: Investment Summary

Ms Campbell is a solicitor. She is not presently practising. She has developed various subdivisions, renovated premises and bought and sold home units. I formed the impression that she was quite experienced in property matters. She first dealt with MDRN whilst she was still in practice. She discussed investment of her own superannuation fund with Mr Ryan and subsequently received investment summaries for the Yandina project and the Ammbar project. She invested $100 000 in each. She was influenced to invest in the Yandina project by the following matters in the investment summary:
·a maximum term of twelve months;
·the project was in Yandina which was “local” to her;
·MDRN adopted a procedure for ascertaining the suitability of a loan application before offering it to the public;
·LVR of 70 per cent, meaning that the loan would not exceed 70 per cent of the unimproved value of the land over which the mortgage was taken;
·contracts of sale for all twelve units prior to the first “draw down” of the loan;
·units to be sold for $85 000 each, with all units in Stage 1 having been sold, meaning that they had each been sold for 85 000 Australian dollars, with MDRN holding deposits;
·her understanding that the statement ‘It is believed a residual of approximately $400,000 will remain following sale of all units and management’ implied a cash surplus; and
·Mr Rivett was providing personal and business guarantees and had a strong asset position with a surplus of $1 790 000; Project Results having a nett asset position of $640 000, represented by the land and the cash to be invested in developing the project, meaning that assets to such value were available to cover repayment; Ms Campbell having no reason to suspect that the amount to be invested in developing the project was to be in trade dollars.
Although she had previously met Mr Rivett, she had no knowledge of his financial position and relied upon the relevant statements in the investment summary. In her oral evidence she said that had she realized that the sum of $400 000 was not a cash contribution, but represented the unpaid purchase price of the land, and that the further amount of $238 677 was to be in trade dollars, it would have affected her decision to invest.
Ms Campbell knew that Mr Rivett had made an arrangement with his creditors in 1984. She understood that the assertion that there were contracts over all units in Stage 1 ‘indicated as was fairly typical in looking for finance to be able to proceed, that he already had dedicated purchasers and also had access to a wide range of people who were interested in purchasing.’ (TS 101) This was significant to her. Ms Campbell said that had she been told that only three contracts had been entered into, and that each purchase price was payable as to 40 per cent in trade dollars, it would have affected her decision. The strong asset position of Mr Rivett and the nett asset position of Project Results were of significance to her. She said that she was surprised by the extent of Mr Rivett’s assets but it was ‘more significant from the point of view of looking at the nature of the contribution and the amount that would be available to secure repayment of the advance, if need be.’ (TS 102)
Of the apparent distinction drawn in the investment summary between the number of units sold and the number of units for which contracts of sale were to be produced, Ms Campbell said:
‘… I took that as looking at the usual - what - you know, a bank or other financier may require. That they may not need all of them to necessarily proceed, but they would certainly want evidence of the number that they felt was adequate to substantiate the development.’ (TS 115)
As to the outstanding purchase price for the land, Ms Campbell agreed in cross-examination that it was at least arguable that the vendor’s interest-free loan for two years was advantageous to investors. (TS 145)
At TS 169, Ms Campbell said:
‘Well, as far as the document itself at the time I haven’t found anything particularly misleading about it except for what the subsequent events and how they transpired and what occurred subsequently. For example, the covering letter referred to the interest being pre-paid, the balance being met from trading profits and that the two-thirds of the loan repaid from the sale of units in Stage 1. Well, that gives you - you know, automatically gives rise to thinking that they would have contracts in existence for those sales. That the various conditions would have been satisfied with respect to prior to making the advance available on those sorts of things. … It’s not so much a matter of misleading on this document, it’s more the events as they transpired and the difficulties which seem to compound themselves subsequently which then indicated that perhaps information or the way in which this had been presented was not strictly correct.’
Ms Campbell was cross-examined about ex 3 which is a questionnaire circulated by ASIC in connection with its investigation of the Yandina project. Ms Campbell responded to the survey. The completed response is ex 7. In it she denied that in investing, she relied upon certain letters. In cross-examination she said that she was referring to attachments to the letters, including the investment summary.
Ms Campbell was asked about par 19(c) of her affidavit in which she alleged that in the investment summary there was an assertion that MDRN ‘had stated a process they followed which contained certain checks to ascertain the suitability of a loan application before offering an investment to members of public.’
In cross-examination she said in explanation of this:
‘Because it says that they’ve considered the application, that they consider that its viable; that they’ve nominated certain conditions precedent, which would indicate that they have viewed those documents and weighed them; and have been able to ascertain the information provided as to loan to value ratio, to be able to support the loan details which they’re provided.’ (TS 181)
This was a reference to p 5 of the investment summary. She continued:
‘They could only have got that from having viewed documentation and sought certain documentation.’ (TS 181)
She was then asked: ‘So you have made an assumption that they have done what you say in par (c)?’ She replied: ‘Well, I think it is supported by the fact that the information which is there can only have been gathered by certainly, at some part, having gathered to support it.’ (TS 181)
In re-examination the witness said that she had anticipated the use of trade dollars in the later stages of the development, that is in Stages 2 and 3.
Ms Campbell was basically, a straightforward witness, but her specialized knowledge and experience may have led her to reconstruct, to some extent, the inferences which she drew from the investment summary. As I have previously observed with respect to the question of the $400 000 “residual”, I cannot accept that any fair reading of the passage could lead to her view as to its meaning. Whilst I think that she was an honest witness, it is necessary to approach her evidence with care.

Mr Willmot’s place was taken by Andrew MacKenzie who has also sworn an affidavit. He submitted a proposal for renewal on 17 October 2004 and was advised on 28 October that the proposal had been declined upon the basis that it fell outside underwriting guidelines.
Although the second cross-respondent’s pleading raises a most complex network of facts and circumstances said to comprise either material non-disclosure or misrepresentation, and although their written submissions to some extent reflected that complex web, the case eventually put in oral submissions was much simpler. Senior counsel said, at TS 2525:
‘On the 1999 policy the first defence we raise is the non-disclosure-misrepresentation defence. It really covers the same ground.
The non-disclosure covers three topics. They are, firstly, the non-disclosure of MDRN’s practice as to how it went about checking or, you could say “non-checking”, the assets and liabilities of borrowers. The second is the non-disclosure of the actual misrepresentation made in the Rivett investment summary. The third is what might be described as the lack of supervision or lawyer involvement. Unfortunately, the evidence has tended to focus on the third. I won’t be saying any more about it in oral submissions, because the first two are really simpler and, we say, a very straight forward way to get there.’
As QBE has proceeded upon the basis of non-disclosure, it is not necessary to consider any case based on misrepresentation.
To rely upon non-disclosure, QBE must establish non-disclosure of a matter:
·known to the insured; and
·which is known by the insured to be relevant to the insurer’s decision, or which a reasonable person, in the circumstances, could be expected to know to be so relevant.
For present purposes, QBE must also establish that had the matter been disclosed, it would not have accepted the proposal for the 1999-2000 year. It is convenient first to consider this matter. It is primarily addressed in the evidence of Ms Hume and Mr Hoffman.
I have a clear preference for the evidence of Mr Hoffman over that of Ms Hume. This preference is based upon three considerations. Firstly, Mr Hofmann has substantially more experience than Ms Hume had at the relevant time and has now. Secondly, her evidence had the ring of ex post facto justification about it. In particular, her view that legal skills were relevant to the assessment of a loan proposal seemed to me to border on the irrational. Her evidence concerning supervision of Mr Blackadder was also somewhat unrealistic. I much preferred Mr Hoffman’s approach. Thirdly, Mr Hoffman is clearly independent. Ms Hume does not enjoy that luxury. I do not mean to imply that Ms Hume’s evidence was of no use or was in any sense dishonest, but her own involvement in the transaction cannot be overlooked. I suspect that it has affected her objectivity.
I reject Ms Hume’s evidence concerning the significance to her of legal involvement in approving loan proposals. That function did not call for legal qualifications. Ms Hume seems not to have been concerned by the fact that in earlier years, assessment was conducted externally by a company which was not apparently providing legal services. Whoever accepted those proposals apparently saw no difficulty in doing so. As to supervision of Mr Blackadder, there is no evidence that it was an established practice in the mortgage investment industry to audit the files of senior employees such as Mr Blackadder to ensure compliance with prescribed procedures. I have some difficulty in seeing how, in those circumstances, QBE could have expected that such a system was in place. If there was no such reasonably based expectation, then I cannot see that there was any failure to disclose the absence of such a system. In other words there is no basis for inferring that MDRN knew that the matter was relevant to QBE’s decision or that a reasonable person, in the circumstances, could be taken to know that such matter was relevant. The absence of an audit system could only be known to be relevant if it were known that QBE believed that there was such a system. It is true that Mr Hoffman also expected some system of that kind. However, in the absence of evidence that it was usual in the finance industry or any part of it, that insurers might think such a practice to be desirable does not entitle them to assume that it occurs, nor does it mean that a potential insured must be aware of such belief.
In my view the only matters of concern which arguably should have been disclosed in the 1999 proposal, if MDRN was relevantly aware of them, were:
·the misstatement in the investment summary concerning the asset positions of Mr Rivett and Project Results;
·the misstatement in the investment summary concerning the pre-sale of units; and
·if it be the case, any divergence between statements in the newsletters as to mortgage assessment practice and actual practice.
I am satisfied that a reasonable person, in the circumstances, could have been expected to know that such matters would be relevant to QBE’s decision.
The question, then, is whether any of the three matters mentioned above was known to MDRN, and if so, whether it knew that any such matter was relevant to QBE’s decision to accept the proposal, or whether a reasonable person, in the circumstances, could have been expected to know that such matter was relevant. It is appropriate to consider the meaning of each of the words “known”, “knows” and “know” in s 21. Two questions arise for consideration. The first is whether the required knowledge must be actual, or whether it is sufficient that it can be inferred from other matters known to the insured. The second is the extent to which the knowledge of some person other than the insured is to be imputed to him or her. The Insurance Contracts Act seems not to deal with either question other than in the bald terms of s 21. However the cases establish, with respect to the first question, that it is actual knowledge which must be disclosed. Thus in Permanent Trustee Australia & Anor v FAI General Insurance Co Ltd (1998) 44 NSWLR 186 at 247, Hodgson CJ in Equity (as his Honour then was) said:
‘In my opinion, “known” in s 21(1) means more than “suspected” or “believed”. What is required is that the matter should be the subject of a true belief, held with sufficient assurance to justify the term “known”. However, it must be remembered that a belief may sometimes itself be a matter relevant to the decision of an insurer. An insured may know that it has a particular belief, and know that its having that belief is relevant to the decision of an insurer, in which case that belief itself is a matter which must be disclosed.’
On appeal (at (2001) 50 NSWLR 679) Handley JA said at [45] et seq (Meagher and Powell JJA concurring):
’45.The problem of defining, for legal purposes, the boundary between belief and knowledge did not arise for the first time in this case. The problem has been considered in a number of legal contexts, and in general it may be said that, for legal purposes, our knowledge includes the facts, apart from matters of religious faith, that we believe to be true.
46.Thus out of court admissions are receivable in evidence against a party if they disclose an intention to affirm or acknowledge the existence of a fact whatever the party’s source of information or belief; see Lustre Hosiery Ltd v York (1935) 54 CLR 134 at 143. However, as the Court said (at 144):
“If it appears that [the party] had no knowledge, or that, although he had some means of knowledge, he had formed no certain or considered belief and indicated nothing amounting to a personal judgment or conclusion of his own, the probative force of the admission may be so small that a jury ought not to be allowed to act upon it alone, or in preference to opposing evidence.”
…
54.… When a person, on the basis of some information, holds a belief on which that person is prepared to act in the world of practical affairs, he or she knows that fact for most legal purposes, and certainly for the purposes of s 21.’
In Midaz Pty Ltd v Peter McCarthy Insurance Brokers Pty Ltd [1999] 1 Qd R 279, the Court of Appeal of Queensland addressed the question of whether a person who was aware of certain facts should be taken to have knowledge of a reasonably available inference from those facts. Of that proposition Pincus JA said at 283-4 (Moynihan SPJ and Byrne J concurring):
‘Acceptance of that argument must depend on adoption of a construction of section 21(1) which is rather generous to insurers: that the section means that if an insured knows matter A which is not in itself relevant to insurance, but the insured should reasonably infer from matter A a further matter B which is so relevant, then the duty to disclose matters A and B arises. This construction is in practical terms little different from reading the introductory part of section 21(1) as if it included the expression “… every matter that is known to or should be inferred by the insured”.
I have found no authority which supports such a reading, nor does it appear to be one which must be adopted to give section 21(1) a sensible operation.’
As to imputed knowledge, in Advance (NSW)Insurance Agencies Pty Ltd v Matthews (1987) 4 ANZ Ins Cas 60-813, Young J said at 74,998:
‘Although the language of section 21 is awkward, in my view it means that if a reasonable person in the circumstances could be expected to know that a matter is relevant it must be disclosed and whether that be the case or not, if the insured actually knows the relevant thing, that is enough. However, the insured must have actual knowledge of the thing, the mere fact that he ought in the ordinary course of business to have known is insufficient.’
Nonetheless, in some cases, knowledge of an agent will be imputed to the principal. In Peter MacDonald Eggers, Simon Picken and Patrick Foss, Good Faith and Insurance Contracts (2^nd ed), Insurance Law Library, London, 2004, the authors assert at par 13.49:
‘The agents whose knowledge principally is imputed to the assured are those agents who are concerned with the custody, care or status of the subject matter insured, general agents who are so placed with respect to the assured that they may be said to make decisions for the assured generally and agents who are charged with arranging the insurance.’
The authors of MacGillivray on Insurance Law (10^th ed) say at par 1812:
‘It is not all agents whose knowledge is imputed in that way for purposes of non-disclosure but only those agents who are “agents to know” that is to say, are responsible for keeping the assured informed about the subject matter of the insurance, either because they are responsible for placing the insurance or because they have the management of it for the assured. If such an agent owes a duty to communicate information which is relevant to the insurance, but fails to do so, the assured is deemed to know what in the ordinary routine of his business he should have been told if the agent had performed his duty, but he will not be deemed to know facts which, whether or not owing to the deficient organization of the business, no agent was responsible for communicating to him.’
See also Lindsay v CIC Insurance Ltd (1989) 16 NSWLR 673 and Ayoub v Lombard Insurance Co (Aust) Pty Ltd (1989) 5 ANZ Ins Cas 60-933.
McNair J discussed the matter at length in Australia and New Zealand Bank Limited v Colonial and Eagles Wharves Limited (1960) 2 Lloyd’s Rep. 241. In that case his Lordship assumed that at common law, rules derived from the Marine Insurance Act 1906 (Imp) applied to non-marine insurance. After reference to the authorities, his Lordship observed at 254:
‘These judgments make it clear to my mind that it is not the knowledge of all agents or servants that is imputed to the proposer of any marine insurance, but only the knowledge of quite a limited class, namely, the broker who actually places the insurance, the master or the ship agent, or, to use Lord Halsbury’s phrase, “his general agent for the management of his shipping business.” On the facts of the present case, Henderson was not within that limited class. Though, in a sense, the key man in the sense that a mistake by him would mean the failure of the system his duties were almost entirely clerical; it was not established that he had any discretion or executive authority; he was not superior to the head clerks in the warehouses but co-ordinate with them. He was not, in my judgment, a person within the class of those who were under a duty to report to the company.’
See also Sutton’s Insurance Law in Australia (3^rd ed) at pars 3.183 and 3.184, and Tarr’s Australian Insurance Law at 104-105. It seems to be generally accepted that the position under the Insurance Contracts Act reflects the common law position.
Mr Ryan was responsible for MDRN’s mortgage business. Mr Blackadder was employed as the General Manager (Finance) or “Lending Manager”. His duties as set out in his letter of appointment (ex 44) were
‘1.To source loans directly and through finance brokers and to then assess them for submission to our Private Mortgage System;
2.Assessment shall include analysis of pertinent financial data provided by each borrower and checking of same, organizing external valuations and on-site visits, checking of CRAA details, liaising and organising QS reports and preparation of loan summaries for investors to peruse;
3.On construction and development loans to visit the site regularly and check QS reports and updated valuations where necessary;
4.To liaise with investors concerning queries they may have about any loan proposal submitted;
5.To liaise and negotiate with borrowers, brokers, valuers and real estate agents concerning any default by the borrower in payment of interest or principal;
6.To assist our Property Syndication Department in finding suitable investment properties and to perform due diligence in respect of same and to negotiate lending terms with financial institutions.’
MDRN has been at pains to point out that Mr Blackadder was a senior employee, receiving a high salary relative to other employees, including employed solicitors. Clearly, he was expected to assume substantial responsibility in connection with the assessment of loan proposals. According to ex 44 his contact with potential investors was limited to liaison ‘concerning queries’. However his duties also included the preparation of investment summaries for distribution to potential investors. His responsibility for assessing loan proposals and drafting investment summaries placed him at the centre of the mortgage business. I infer that he had an implied duty to report to the partners as to strengths and weaknesses of each proposal and as to the content of any investment summary. The applicants and the cross-respondents assert the absence of any system of accountability or supervision. However I reject that assertion. Mr Ryan had daily contact with Mr Blackadder. He read investment summaries before they were distributed. The other partners also saw copies, although at a later stage. I infer that Mr Blackadder also had an implied duty to report to the partners concerning any serious irregularity in his area of responsibility, including any matter which might lead to litigation against MDRN or the trustee company. His knowledge of such matters should be imputed to each of them, subject only to one qualification which is discussed below. As to the relationship between Mr Ryan and the other partners, Mr Ryan supervised the mortgage business and was responsible for negotiating the cover for it. In those circumstances it follows that the other partners had imputed knowledge of relevant matters known to Mr Ryan, again subject to one qualification.
The general principles to which I have referred are subject to a critical qualification. In ANZ Bank v Colonial Wharves (supra) McNair J said at 254:
‘There is, however, another answer in law to the third party’s contention on this point, namely, that assuming that he was within the class of persons who were under a duty to report so that his knowledge was to be imputed to his principal, he, on the principle stated in Bell & Anor v Lever Bros Ltd & Ors [1932] A.C. 161, and J C Houghton & Co v Nothard, Lowe & Wills Ltd [1928] A.C. 1 … was under no duty to report his own dereliction of duty, and his knowledge of that dereliction is not to be imputed to his principals.’ Lord Atkin ([1932] A.C. 6, at p 228) puts the matter succinctly in the following passage:
“… The servant owes a duty not to steal, but, having stolen, is there super-added a duty to confess that he has stolen? I am satisfied that to imply such a duty would be a departure from the well established usage of mankind and would be to create obligations entirely outside the contemplation of the parties concerned …”.’
Sutton observes, concerning that decision, at 339:
‘What had to be considered was what an honest and competent agent would have communicated to the assured in the ordinary course of business, and such an agent would not have had any dishonesty to reveal.’
Similarly, MacGillivray observes at 18-16:
‘An agent’s knowledge of his own fraud or misconduct and matters relevant to it will not be imputed to the assured … because it cannot be supposed that in the ordinary course of business an agent will disclose his own fraud, misconduct or serious breach of duty to his principal. Thus another reason for the decision in Australia and New Zealand Bank v Colonial and Eagle Wharves that the knowledge of the assured’s chief entry clerk concerning the company’s delivery systems was not to be imputed to the assured was that it would have revealed his own misconduct and he had no duty to report that to his superiors.’
As the duty to disclose extends only to matters which the insured knows, only matters actually known to a relevant agent will be imputed to him or her. In Commercial Union Assurance Co of Australia Ltd v Beard (2000) 11 ANZ Ins Cas 61-458, Davies AJA (Meagher JA and Foster AJA concurring) said at 75-259:
‘The terms “known” and “knows” are used in their common law sense. Their primary denotation refers to that which is actually known; but it would be wrong to import the word “actually” into a provision such as section 21. The section does not use it. The terms “known” and “knows” are used in their ordinary sense. Whether a matter is known is a question of fact for the judge or jury.’
In Hammer Waste Pty Ltd v QBE Mutual Ltd [2002] NSWSC 1006, Palmer J referred to that decision and said:
‘… (I)n s 21(1) … the word “know” is used in its ordinary sense; it implies actual, not constructive, knowledge both on the part of the insured and on the part of any agent or employee of the insured whose “knowledge” is to be imputed to the insured. The obligation to disclose something “known” can attach only to something which, at the time for disclosure, a person actually has in his or her consciousness or else something which exists in some record or other source of information which the person actually knows about and to which the person has access. So, for example, I “know” my driving licence number for the purposes of s 21(1) … even though I cannot recite it off hand because I actually know that it is to be found in the plastic card in my wallet.’
I return to the three matters which may have required disclosure. I am satisfied that a reasonable person, in the circumstances, could be expected to know that each of those matters would be relevant to QBE’s decision. I have indicated with respect to the third of those matters, divergence between contents of the newsletters and actual practice, that I am not satisfied that there was any significant divergence. However, for reasons which appear below, it is not necessary finally to decide that question.

QBE asserts that Mr Ryan was familiar with the content of the investment summary and knew that Mr Blackadder did not carry out detailed checks of the asset positions of applicants for loans as allegedly asserted in the newsletters, or credit checks against guarantors as asserted in the winter 1999 newsletter. It is said to follow that he had knowledge which should have been disclosed. In my view unless asked, Mr Ryan had no duty to disclose either the content of the newsletters or the actual practice which was adopted. At least for present purposes, neither matter, by itself, exposed either MDRN or QBE to risk. The relevant matter was the alleged divergence between the two. As I have said, I do not necessarily accept that there was a significant divergence. It is at least arguable that the practice as described by Mr Blackadder and Mr Ryan was a form of checking in the sense in which the term was used in the newsletters. Potential investors may have understood the newsletters to imply something more, but for present purposes we are looking at the subjective states of mind of Mr Blackadder and Mr Ryan.
Once it is accepted that the language of the newsletters is not as precise in meaning as is submitted by QBE (and the applicants), and that Mr Blackadder’s practice varied, depending upon the exigencies of a particular application, it becomes very difficult to identify the point at which divergence between statement and practice may have occurred. If the fact in issue were whether or not there was such a divergence, it would be necessary to determine that question. However, for present purposes, it is only necessary to determine whether or not either Mr Ryan or Mr Blackadder knew that there was a divergence. Whilst I have no doubt that Mr Blackadder was conscious of his own fraud, I am not satisfied that the practice which he otherwise followed, or claimed to have followed, was, to his knowledge, inconsistent with the statements in the newsletters. It is probable that in providing information for the autumn 1999 newsletter, he used the expression “checking” (or whatever expression he used to convey that idea) to describe the approach which he described in evidence. Nothing in his evidence suggested to me that he was aware at the time of any divergence between those statements and the practice which he actually followed. Whilst it may be arguable that the interpretation placed by QBE (and the applicants) upon the newsletters, particularly the autumn 1999 newsletter, is correct, it does not follow that Mr Blackadder held that view. It also does not follow that he was aware of any divergence between such statements and his practice. I am similarly not satisfied that Mr Ryan was aware of any such divergence. In explaining this view I should say something about certain assumptions which appear to underlie much of the applicants’ case and also those of both cross-respondents.
From time to time in this case, it has been suggested or assumed that the respondents were simply unconcerned about the investors’ interests, that they were concerned only to make a profit for themselves. No doubt such a short-term view often guides the actions of those who attract the attention of ASIC. However it is quite unlikely that these respondents had that attitude. MDRN is a firm of solicitors practising in the suburbs of Brisbane. They have done so for some years and, as far as can be seen, propose to continue doing so. No doubt the firm’s reputation is an important asset. The mortgage business was primarily marketed to clients of the legal practice. The evidence discloses that numerous investors participated in loans on more than one occasion, reflecting a degree of satisfaction with their previous investments. It is most unlikely that the MDRN partners intended to throw away both their professional reputation and their mortgage business for short-term gains derived from careless assessment of proposed loans. It cannot be seriously suggested that they expected Mr Blackadder to do anything other than ensure that investments would be secure, and that investors would continue to be clients of both the legal practice and the mortgage business.
I am not saying that lawyers are presumptively incapable of fraud or recklessness. I am rather saying that it is unlikely that the MDRN partners would have seen it as being in their interests to take a quick profit at the expense of their clients and investors. Mr Ryan’s evidence must be understood in that context. No doubt he expected Mr Blackadder to assess loan applications in a way which would minimize the risk of loss to investors who were, almost by definition, making speculative loans. Mr Ryan understood the ten point plan to be an explanation of Mr Blackadder’s general approach. I see no reason to conclude that he was conscious of any departure from his understanding of it or other aspects of the newsletters. It follows that I am not satisfied that he was aware that the statements concerning the asset positions of Mr Rivett and Project Results had not been checked (as he understood the practice) or that he was aware of the inaccuracies in the investment summary concerning those matters and the pre-sale of units. He was certainly not aware of Mr Blackadder’s fraud. I therefore conclude that Mr Ryan possessed no knowledge which he failed to communicate to QBE. It follows that no such knowledge can be imputed to the other partners.
As to Mr Blackadder’s knowledge, for reasons which I have given, I am also not satisfied that, save for his fraud, he was aware of any divergence between statements in the newsletters and his practice. As to his fraud, his knowledge of it cannot be imputed to the MDRN partners. I consider that his negligence in connection with the statements about the pre-sale of units was sufficiently serious to be described as serious misconduct. As I have said, it was obviously an important topic in the loan application, the investment summary and for the purposes of the valuation. Knowledge of that matter is also not to be imputed to the MDRN partners.
It follows that there was no failure to disclose or misrepresentation for the purposes of s 28 of the Insurance Contracts Act.
The 1998 policy
I should say something about the alternative claim under the 1998 policy, relying on s 54 of the Insurance Contracts Act. The 1998 policy covered claims notified during the relevant period of cover or circumstances which might give rise to such a claim, of which circumstances the insured became aware during the relevant period of cover, and of which notice was given. Section 54 might operate to excuse non-notification, but the cover will only extend to circumstances of which the insured became aware during the period of cover. I am not persuaded that any matter came to the knowledge of any of the partners during the period of cover of the 1998 policy, of which they could have given notice to QBE. It therefore follows that cl 5.2 of the policy was not engaged so as to extend cover under the 1998 policy to claims arising out of any such matter. Section 54 has no relevant operation.
Severability and Non-Imputation – cl 2.2
I should also say something about cl 2.2 of the policy. It provided:
‘QBE agrees that where this Policy insures more than one party, any conduct on the part of any party or parties whereby such party or parties:
(a)failed to comply with the duty of disclosure in terms of the Insurance Contracts Act 1984; or
(b)made a misrepresentation to QBE before this contract of insurance was entered into; or
(c)failed to comply with any terms or conditions of this Policy;
shall not prejudice the right of the remaining parties to indemnity as may be provided by this policy. PROVIDED ALWAYS THAT such remaining parties shall:
(a)be entirely innocent of and have had no prior knowledge of any such conduct; and
(b)as soon as is reasonably practicable after becoming aware of any such conduct, advise QBE in writing of all known facts in relation to such conduct.’
MDRN submits that the clause exempts the partners, other than Mr Ryan, from the consequences of non-disclosure by them of information known to him. My conclusions as to the state of his knowledge mean that I need not consider that argument. However I should say a little about the clause. No doubt it would excuse the other partners from the consequences of any non-disclosure or misrepresentation by Mr Ryan. However each of the other partners had his own duty to disclose and not misrepresent. The question is whether cl 2.2 excused them from disclosing a matter known to Mr Ryan but not disclosed to them.
Prima facie I am inclined to think that the clause would not operate to protect the other partners from their own failure to disclose such information, knowledge of which was imputed to them by virtue of its being within Mr Ryan’s knowledge. However use of the expression ‘non-imputation’ in the side note might suggest to the contrary. As with Mr Blackadder, knowledge of fraud or serious breach of duty by Mr Ryan would not be imputed to the other partners. As I have said, it is not necessary to decide the question.
Recklessness
I have previously referred to s 4 of the policy which deals with “Exclusions”. It provided that:
‘QBE shall not be liable under this Policy to provide indemnity in respect of any Claim against the Insured:
‘4.1 …
4.2 directly or indirectly based upon, attributable to, or in consequence of:
(a)any actual or alleged dishonest fraudulent criminal or malicious act or omission of any Insured or their consultants, subcontractors or agents; or
(b)any act or omission of any Insured or their consultants, subcontractors or agents committed or alleged to have been committed with a reckless disregard for the consequences thereof; or
(c)wilful breach of any statute, contract or duty by any Insured or their consultants, subcontractors or agents.’
However cl 2.3 extended the cover as follows:
‘QBE agrees to provide coverage in respect of any Claim which would otherwise be excluded by reason of exclusion 4.2 (Fraud and Dishonesty). PROVIDED ALWAYS THAT:
(a)such coverage shall not be provided to any person committing or condoning any act, omission or breach excluded by reason of Exclusion 4.2 (Fraud and Dishonesty);
(b)such coverage shall not apply to loss of money, negotiable instruments, bearer bonds or coupons stamps, bank or currency notes.’
This aspect of the case has taken different forms at different times. In QBE’s defence it pleaded that it was not obliged to indemnify MDRN because it had been reckless, relying on cl 4.2 without regard to the extension clause, cl 2.3. In reply MDRN pleaded the latter clause. In its submissions QBE apparently accepted this difficulty and abandoned any allegation of recklessness, other than as against Mr Ryan. It is said that he condoned ‘reckless acts and omissions that gave rise to the applicants’ claims so that MDRN are not assisted by cl 2.3.’
There are two difficulties with this approach. Firstly, it seems to revert to the pleaded case of reliance on cl 4.2 against all MDRN partners. However the heading of that part of the submissions and other aspects of them, including par 77, suggest that the defence is only relied upon against Mr Ryan. Secondly, the argument seems to be that Mr Ryan condoned conduct by MDRN, implying that he condoned his own conduct, particularly as he was the partner primarily responsible for the mortgage business. A third difficulty emerges from the written submissions. In some places, it seems to be asserted that Mr Ryan’s condonation was reckless. Clause 2.3 of the policy deals relevantly with condonation of recklessness, not reckless condonation of other conduct. The best that I can do with this aspect of the case is to treat it as an allegation that Mr Ryan condoned recklessness by Mr Blackadder, although such a case is probably not pleaded and is only obliquely raised in QBE’s submissions. It may also be intended to allege actual recklessness by Mr Ryan. If proven, such conduct would lead to exclusion of cover pursuant to cl 4.2(b). Clause 2.3 would not extend cover to Mr Ryan to the extent that his own conduct was reckless. No question of condonation would arise in that context. I should point out that in the context of cll 2.3 and 4.2, the words ‘Fraud and Dishonesty’ seem to include recklessness.
It is necessary to say something about condonation. The word previously had a particular legal meaning in connection with matrimonial proceedings. It concerned the attitude of one spouse to the other’s adultery or other matrimonial offence. The term also has a specialized meaning in the law concerning the relationship of master and servant. According to the Shorter Oxford Dictionary, to condone is to ‘Forgive or overlook’, ‘Make appear forgiveable’, ‘Approve, sanction, esp reluctantly; acquiesce in’. Clearly, mere knowledge of relevant misconduct will not constitute condonation, but knowledge will be necessary in order that there be condonation.
In its written submissions, QBE purports to rely upon the factual matters referred to in pars 22, 25, 26, 28, 29, 34 and 35 of its submissions. Once again that comprehensive reference to multiple allegations raises many possible ways of arguing the case. However the submission seems to be limited to the allegation that loans were not assessed in the way outlined in the newsletters. As the applicants eventually relied only upon the autumn 1999 newsletter, it is not necessary, in this regard, to refer to the winter 1999 newsletter. No relevant claim arises out of its contents. It seems to be alleged that Mr Ryan condoned Mr Blackadder’s recklessness in adopting assessment practices which were inconsistent with statements in the newsletter. I have previously concluded that Mr Ryan was not aware of any such inconsistency. There can therefore be no question of condonation. Of course, I am also not persuaded that there was any inconsistency.
As to the question of Mr Ryan’s own recklessness, concerning inconsistent practices, I have found that he was not aware of them (if there were any). Mr Ryan could only have been reckless if his lack of knowledge was itself reckless. I see no basis for such a conclusion. It may be arguable that his supervision of Mr Blackadder was inadequate, but given the latter’s experience and background, he was not reckless.
CONCLUSION
There will be judgment for damages in favour of each of the applicants, other than the twentieth and twenty-first applicants, both on the statutory cause of action and for negligent misstatement. The damages should be calculated in accordance with the method identified in my reasons. After delivering these reasons I will adjourn the matter to enable the parties to carry out the appropriate calculations.
As to the cross-claims, my understanding is that MDRN should recover judgment against St Paul in the amount of the seventh applicant’s claim. It should recover judgment against QBE in respect of all of the amounts recovered against it by the applicants. In the case of the cross-claims there may be outstanding issues concerning limits on the amount of the cover and/or excesses. Some such issues were raised in the pleadings but not addressed in argument. I will receive further submissions if necessary. It may also be necessary to receive further submissions concerning orders to be made as between St Paul and QBE.
The claims and cross-claims are multi-faceted. I may have overlooked some aspects. It is important that the parties identify any further findings of fact which they require so that, to the extent that I think it appropriate, I can address them at this stage, whilst the evidence is relatively fresh in my memory. I wish to avoid the situation in which further findings are necessary at some time in the future. The question of costs will also have to be addressed. I suspect that it will be necessary to receive further submissions in that regard.
In those circumstances it is my intention to publish these reasons and then to adjourn the matter. This will enable the parties to calculate the quantum of damages for each successful applicant, identify any requirements for further findings, otherwise consider the forms of order to be made and address the question of costs.

I certify that the preceding seven hundred and fifty-seven (757) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett.

Associate:
Dated: 12 May 2006

Counsel for the Applicants:

Mr P E Hack SC

Mr P J Roney

Solicitor for the Applicants:

Australian Insurance and Investment Commission

Counsel for the Respondents:

Mr P Dunning

Ms E Longbottom

Solicitor for the Respondents:

McCarthy Durie Ryan Neil

Counsel for the First Cross-Respondent:

Mr P Applegarth SC

Mr M Brady

Solicitor for the First Cross-Respondent:

Minter Ellison

Counsel for the Second Cross-Respondent:

Mr H Fraser QC

Mr K Barlow

Solicitor for the Second Cross-Respondent:

Clayton Utz

Dates of Hearing:

20-24, 27-30 September 2004

7 October 2004

4-8, 11-15, 18-22 April 2005

Date of Judgment:

12 May 2006

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QUD 115 OF 2003

JUDGE:	DOWSETT J
DATE:	12 MAY 2006
PLACE:	BRISBANE

Cost	Borrower Contribution	Loan Requirement
Purchase land	$800,000	$400,000	$400,000
Construct & sell Stage 1	$1,162,995	$238,677	$924,750
Prepay 6 months interest	$75,250	$75,250
Total Loan	$1,400,000

Applicant:	A & D Douglas Pty Ltd
*Amount of Investment: $30 000*
*Key Documents Received: Investment Summary*

Applicants:	Graham Leslie Andersen and Hilary Andersen
*Amount of Investment: $50 000*
*Key Documents Received: Investment Summary*

Applicant:	Yvonne Ellen Andrew
*Amount of Investment: $5 000*
*Key Documents Received: Investment summary*

Applicant:	Robert Ritorze
*Amount of Investment: $5 000*
*Key Documents Received: Investment Summary, possibly Autumn Newsletter*

Applicant:	David William Armstrong
*Amount of Investment: $10 000*
*Key Documents Received: Investment Summary*

Applicants:	Cheryl Lynette Backwell and Phillip Ashley Ryan (as executors of the estate of Elsie Edith Backwell)
*Amount of Investment: $50 000*
*Key Documents Received: Investment Summary*

Applicants:	Heinrich Bauer and Sabine Bauer
*Amount of Investment: $20 000*
*Key Documents Received: Brochure, Investment Summary*

Applicant:	Donald Bengston
*Amount of Investment: $250 000*
*Key Documents Received: Investment Summary*

Applicants:	William Malcolm Bryden and Margaret Anne Bryden
*Amount of Investment: $20 000*
*Key Documents Received: Brochure, Investment Summary, Autumn 1999 Newsletter, Winter 1999 Newsletter*

Applicant:	Fiona Mary Campbell as trustee of the F M Campbell Superannuation Fund
*Amount of Investment: $ 100 000*
*Key Documents Received: Investment Summary*

Counsel for the Applicants:	Mr P E Hack SC Mr P J Roney
Solicitor for the Applicants:	Australian Insurance and Investment Commission
Counsel for the Respondents:	Mr P Dunning Ms E Longbottom
Solicitor for the Respondents:	McCarthy Durie Ryan Neil
Counsel for the First Cross-Respondent:	Mr P Applegarth SC Mr M Brady
Solicitor for the First Cross-Respondent:	Minter Ellison
Counsel for the Second Cross-Respondent:	Mr H Fraser QC Mr K Barlow
Solicitor for the Second Cross-Respondent:	Clayton Utz
Dates of Hearing:	20-24, 27-30 September 2004 7 October 2004 4-8, 11-15, 18-22 April 2005
Date of Judgment:	12 May 2006