Amadio Pty ltd v Henderson

[1998] FCA 823

FEDERAL COURT OF AUSTRALIA

CORPORATIONS LAW - prescribed interests - offer of interests in partnership formed to acquire office building - scheme involved vendor finance - payment by vendor of fee to promoter - application by purchasers for declaration that scheme contravened ‘prescribed interest’ provisions of Companies Code - whether scheme involved an offer or issue to the public of a prescribed interest - consequences of an offer of a prescribed interest to the public

EQUITY - illegality - statutory intention to exclude restitutionary relief - principles governing - whether liability to contribute

PARTNERSHIP - existence of partnership - when it came into existence - effect of attorney executing the deed of partnership after acquiring the partnership property

NEGLIGENCE - breach of duty - liability of solicitor - determining identity of clients - scope of retainer - to whom duty was owed - failure to advise as to absence of “ratchet” clause - distinction between legal and financial advice - causation - whether loss suffered was foreseeable at the time of breach of duty

NEGLIGENCE - duty of care - accountants prepared cashflows on assumptions provided by promoters - whether accountants owed duty to clients of promoters to investigate assumptions

TRADE PRACTICES - misleading and deceptive conduct - misrepresentation - breach of duty of care - reliance and causation - question of fact

TORT - contribution - liability for negligence and misleading or deceptive conduct - basis for assessing entitlement to contribution

INSURANCE - professional indemnity - whether the claims occurred in the course of professional business - exclusion from liability of claims in respect of advice given regarding an investment facility or service in which assured holds direct or indirect financial interest - meaning of “investment facility or service” - entitlement to commission a financial interest – meaning of direct or indirect financial interest

DAMAGES - claims for restitution or damages where claim relates to the same loss - whether alternative or cumulative remedies - election where alternative remedies - reduction of damages awarded by amount of restitutionary payment made

COSTS - indemnity costs - court’s discretion

WORDS AND PHRASES - “investment facility or service” - “direct or indirect financial interest”

Companies (Victoria) Code, ss 5, 33, 169, 170, 171,174, 230(8)
Trade Practices Act1974 (Cth)
Partnership Act1958 (Vic) ss 5, 6
Wrongs Act1958 (Vic) ss 23A(1), 23B(1), 24 (2)

Cox v Hickman (1860) 8 HLC 268
Jolley v Federal Commissioner of Taxation (1989) 86 ALR 297
Robinson v  Federal Commissioner of Taxation (1986) 17 ATR 1068
Australian Breeders Co-operative Society Ltd v Jones & others (1997) 150 ALR 488
Australian Softwood Forests Pty Ltd v Attorney-General (NSW) (1981) 148 CLR 121
Carragreen Currencies Corporation Pty Ltd v Corporate Affairs Commission of New South Wales (1986) 7 NSWLR 705
Corporate Affairs Commission v M G Securities A/Asia Ltd (1975) 1 ACLR 157
Corporate Affairs Commission v Australian Softwood Forest Pty Ltd & Ors [1978] 1 NSWLR 150
Wade v A Home Away Pty Ltd [1981] VR 475
Australian Securities Commission v United Tree Farmers Pty Ltd (1997) 24 ACSR 94
Brisbane Unit Development Corporation v Deming No 456 PtyLtd (No 2) [1983] 2 Qd R 92
Waldron v MG Securities A/Asia Ltd [1975] VR 508
Maunder-Hartigan v Hamilton (1984) 2 ACLC 438
Co-operative Building Society of South Australia v Australian Securities Commission (1993) 10 ACSR 89
Munna Beach Apartments Ltd v Kennedy [1983] Qd R 151
Hurst v Vestcorp Ltd (1988) 12 NSWLR 394
Attorney-General (NSW) v The Mutual Home Loans Fund of Australia Ltd [1971] 2 NSWLR 162
Attorney-General for New South Wales v Australian Fixed Trusts Ltd [1974] 1 NSWLR 110
Jones v Acfold Investments Pty Ltd (1984) 6 FCR 512
Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563
Corporate Affairs Commission (S.A.) v Australian Central Credit Union (1985) 157 CLR 201
O’Brien v Melbank Corporation Ltd (1991) 7 ACSR 19
Gollan v Nugent (1988) 166 CLR 18
Maguire v Makaronis (1997) 144 ALR 729
Bialkower v Acohs Pty Ltd (1998) 154 ALR 534
United Australia Limited v Barclays Bank Limited [1941] AC 1
Tang Man Sit v Capacious Investments Ltd [1996] 1 AC 514
The Solicitor’s Liability Committee v Gray & Anor (1997) 147 ALR 154
Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1991] 2 AC 249
MacIndoe v Parbery (1994) Aust Torts Reports 61, 532

Orszulak v Hoy (1989) Aust Torts Reports 69, 181

Sykes v Midland Bank Executor and Trustee Co Ltd [1971] 1 QB 113

County Personnel (Employment Agency) Ltd v Alan R Pulver & Co [1987] 1 All ER 289

Neagle v Power [1967] SASR 373
Norris v Sibberas [1990] VR 161
Banque Bruxelles Lambert SA v Eagle Star Insurance [1995] QB 375
Hayes v James & Charles Dodd [1990] 2 All ER 815
MGICA (1992) Ltd v Kenny & Good Pty Ltd (1996) 140 ALR 313
Kenny & Good Pty Ltd v MGICA (1992) Ltd (1997) 147 ALR 568
Gregg v Tasmanian Trustees Pty Ltd (1997) 73 FCR 91
Banque Bruxelles Lambart S A v Eagle Star Insurance Co Ltd [1995] QB 375 and on appeal [1997] AC 191
Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1991] AC 249
Devries v Australian National Railway Commission (1993) 177 CLR 472
Yorke v Lucas (1985) 158 CLR 661
Nescor Industries Group Pty Ltd v MIBA Pty Ltd (1997) 150 ALR 633
Hannpost Pty Ltd v Mita Copiers Australia Pty Ltd (1996) 67 FCR 416
Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151
MGICA (1992) Ltd v Kenny & Good Pty Ltd (1996) 140 ALR 707
Biogen Inc v Medeva plc [1997] RPC 1
Sutton v A J Thompson Pty Ltd (In Liquidation) (1987) 73 ALR 233
Browne v Dunn (1893) 6 R 67
Australian Competition & Consumer Commission v J McPhee & Son (Australia) Pty Ltd (Federal Court of Australia, Heerey J, 26 February 1998, unreported)
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546
Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500
C E Heath Underwriting and Insurance (Australia) Pty Ltd v Campbell Wallis Moule & Co Pty Ltd [1992] 1 VR 386
Nutton v Wilson (1889) 22 QBD 744
Brown v Director of Public Prosecutions [1956] 2 All ER 189
Downward v Babington [1975] VR 872
Attorney General; ex rel Anka (Contractors) Pty Ltd v Legg (1979) 39 LGRA 399
Attorney-General for Victoria v Keating [1971] VR 719

AMADIO PTY LTD AND ANOTHER v RUSSELL FRASER HENDERSON AND OTHERS

VG 244, 245, 248, 249, 250 AND 252 OF 1996

JUDGES:      NORTHROP, RYAN AND MERKEL JJ

DATE:          14 JULY 1998
PLACE:        MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 244 of 1996 VG 245 of 1996 VG 248 of 1996 VG 249 of 1996 VG 250 of 1996 VG 252 of 1996

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

VG 245 OF 1996
BETWEEN:	AMADIO PTY LTD AND ANOTHER APPELLANTS
AND:	RUSSELL FRASER HENDERSON AND OTHERS RESPONDENTS
VG 248 OF 1996
BETWEEN:	HUNTLEY MCARDLE & GLASS AND ANOTHER APPELLANTS
AND:	RUSSELL FRASER HENDERSON AND OTHERS RESPONDENTS
VG 249 OF 1996
BETWEEN:	DUNYACK PTY LTD (ACN 005 001 632) (FORMERLY RICHARD ELLIS (VICTORIA) PTY LTD) APPELLANT
AND:	RUSSELL FRASER HENDERSON AND OTHERS RESPONDENTS
VG 250 OF 1996
BETWEEN:	NEVETT FORD APPELLANT
AND:	RUSSELL FRASER HENDERSON AND OTHERS RESPONDENTS
VG 252 OF 1996
BETWEEN:	GRAY & WINTER AND ANOTHER APPELLANTS
AND:	RUSSELL FRASER HENDERSON AND OTHERS RESPONDENTS
VG 244 OF 1996
BETWEEN:	SGIO INSURANCE LIMITED APPELLANT
AND:	BPM PTY LTD AND OTHERS RESPONDENTS
JUDGES:	NORTHROP, RYAN AND MERKEL JJ
PLACE:	MELBOURNE
DATE:	14 JULY 1998

THE COURT ORDERS THAT:

1. Within 14 days the parties file and exchange minutes of orders that give effect to the findings of the Full Court in these Reasons for Judgment.

1. Within 21 days the parties file and exchange any written submissions upon which they may wish to rely in respect of any matters arising out of these Reasons for Judgment including the form of orders which they contend are appropriate to give effect to these Reasons for Judgment.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court        Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 244 of 1996 VG 245 of 1996 VG 248 of 1996 VG 249 of 1996 VG 250 of 1996 VG 252 of 1996

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

VG 245 OF 1996
BETWEEN:	AMADIO PTY LTD AND ANOTHER APPELLANTS
AND:	RUSSELL FRASER HENDERSON AND OTHERS RESPONDENTS
VG 248 OF 1996
BETWEEN:	HUNTLEY MCARDLE & GLASS AND ANOTHER APPELLANTS
AND:	RUSSELL FRASER HENDERSON AND OTHERS RESPONDENTS
VG 249 OF 1996
BETWEEN:	DUNYACK PTY LTD (ACN 005 001 632) (FORMERLY RICHARD ELLIS (VICTORIA) PTY LTD) APPELLANT
AND:	RUSSELL FRASER HENDERSON AND OTHERS RESPONDENTS
VG 250 OF 1996
BETWEEN:	NEVETT FORD APPELLANT
AND:	RUSSELL FRASER HENDERSON AND OTHERS RESPONDENTS
VG 252 OF 1996
BETWEEN:	GRAY & WINTER AND ANOTHER APPELLANTS
AND:	RUSSELL FRASER HENDERSON AND OTHERS RESPONDENTS
VG 244 OF 1996
BETWEEN:	SGIO INSURANCE LIMITED APPELLANT
AND:	BPM PTY LTD AND OTHERS RESPONDENTS
JUDGES:	NORTHROP, RYAN AND MERKEL JJ
PLACE:	MELBOURNE
DATE:	14 JULY 1998

REASONS FOR JUDGMENT

THE COURT

INDEX

1	INTRODUCTION	4
2.	NATURE OF ORDERS OF TRIAL JUDGE	8
3.	THE PRESCRIBED INTEREST ISSUES	10
3.1	The Facts	10
3.2	Did a Partnership Acquire the Coles Myer Building?	28
3.3	Statutory Provisions - Prescribed Interest	30
3.4	The Prescribed Interest Issues	33
3.5	Was a Prescribed Interest Offered or Issued?	34
3.6	Was the Prescribed Interest Offered by Gray & Winter to the Public?	47
3.7	Was a Prescribed Interest Issued by Amadio to the Public?	53
3.8	What are the Consequences of the Offer by Gray & Winter of a Prescribed Interest to the Public?	55
3.9	What Relief is Appropriate?	58
3.10	Cross-Claims of Amadio and Hudson Conway	70
4.	SUMMARY OF OTHER ORDERS RE LIABILITY AND DAMAGES	73
5.	NEVETT FORD - LIABILITY OF THE SOLICITORS	76
5.1	The Trial Judge’s Reasons	77
5.2	Who were Nevett Ford’s Clients?	79
5.3	What was the Scope of Nevett Ford’s Retainer?	80
5.4	The Extent of Nevett Ford’s Duty to Advise	83
5.5	To Whom was the Duty Owed?	84
5.6	Advice as to Joint and Several Liability Under the Mortgage	85
5.7	The Terrey Clause in Relation to the Liability of Nevett Ford	87
5.8	Advice as to the Absence from the Lease of a “Ratchet” Clause	89
6.	RICHARD ELLIS, HUDSON CONWAY AND THE 31 MAY 1990 LETTER	103
6.1	Background	104
6.2	Findings of the Trial Judge	106
6.3	Liability of Richard Ellis	117
6.4	Liability of Hudson Conway and Amadio	127
6.5	Reliance and Causation	135
7.	GRAY & WINTER AND JAMES GRAY	136
8.	BIRD CAMERON	141
9.	HUNTLEY McARDLE & GLASS AND ROBERT HUGH GLASS	144
10.	METZKE & ALLAN	147
10.1	Liability	147
10.2	Costs	153
10.3	$300,000 - On Account of Costs or Damages?	156
11.	THE TERREY CLAUSE	157
12.	DAMAGES AND CONTRIBUTION	157
13.	COSTS OF THE TRIAL	165
14.	SGIO APPEALS	166
14.1	Professional Business	167
14.2	Exclusion (e)	169
14.3	The Parties’ Submissions on Exclusion (e)	170
14.4	Investment Facility or Service	172
14.5	Direct or Indirect Financial Interest	178
14.6	Other Matters	184
15.	COSTS OF THE APPEALS	185
16.	SUMMARY OF OUTCOMES	186
17.	ANNEXURE A	188
18.	ANNEXURE B	191

1. INTRODUCTION

On 9 April 1996, following a trial that had occupied ninety-four days, the final orders of the Court were entered in proceeding No VG 260 of 1993. Those proceedings will be called "the trial". The judgment is reported at (1995) 62 FCR 1. At the time judgment was given, on 2 April 1996, there were thirty-nine applicants and twenty-four respondents named as parties to the trial. They are named in Annexure A to these reasons. In addition, several cross-claims were heard and determined at the trial. The final orders are long and complex. The orders are set out in Annexure B to these reasons. They will be explained later in these reasons but for present purposes it is sufficient to say that the applicants were the successful parties. The orders made included orders made on the cross-claims and as to costs. Many of the parties have appealed against the orders made, including orders for contribution and for costs and on the cross-claims. There are six separate appeals which, with the consent of all parties, have been heard together. It is fair to say that the appeals have raised many difficult and complex questions.

Although each appeal raises specific issues which will be identified later in these reasons, they all arise out of, or are incidental to, the same series of events. In order to understand the issues, it is helpful, before stating the facts in more detail, to outline some of the facts which have given rise to the issues.  Essentially, these facts are taken from the reasons of the trial Judge.

On 29 June 1990, Amadio Pty Ltd (“Amadio”), a company incorporated under the Companies (Victoria) Code, was the registered proprietor of an office building known as 258 Queensberry Street, Carlton ("the Coles Myer building") just north of the Melbourne central business district ("CBD"). On 29 June 1990 Amadio entered into four different transactions. The first was a contract for the sale of the Coles Myer building between Amadio as vendor and eighteen persons as purchasers for the sum of $14.835 million payable on that day. The contract of sale contained a number of conditions, two of which can be mentioned now. One was that the sale was subject to the lease of the property to Coles Myer Ltd. A copy of the lease was annexed to the contract. The other was designed to give effect to the intention of the parties that Amadio would finance the purchase by, in substance, providing 120% of the purchase price by way of loan.  In essence, this condition was to the effect that Amadio would advance to the purchasers the sum of $16.265 million to be secured by the purchasers granting a mortgage over the property to Amadio as mortgagee together with guarantees and indemnities as identified to enable them to pay the purchase price, Amadio's costs as mortgagee and the stamp duties and registration fees payable upon the transfer and mortgage. This condition appears to have been described during the trial as "the loan agreement". In these reasons, that phrase will be used to describe this condition but it must be remembered that it constitutes a term of the contract of sale.

The second transaction entered into by Amadio on 29 June 1990 was a transfer by which Amadio transferred the title of the Coles Myer building to the eighteen purchasers as tenants in common. The consideration for the transfer was stated to be $14.835 million.

The third transaction entered into by Amadio on 29 June 1990 was the mortgage granted by the eighteen purchasers as mortgagors of the Coles Myer building in favour of Amadio as mortgagee. The principal sum secured by the mortgage was $16.265 million. The due date for repayment was three years from the date of the mortgage and the rate of interest was 14% payable six monthly in advance, the first payment to be made on the date of the mortgage, namely 29 June 1990.

The fourth transaction entered into by Amadio on 29 June 1990 was the guarantee and indemnity referred to in the loan agreement whereby fifty-four persons associated with the eighteen purchasers guaranteed the payment by those eighteen purchasers of the moneys falling due under the loan agreement and indemnified Amadio against loss from breach of the principal obligations.

These four transactions were the culmination, so far as Amadio and its parent company, Hudson Conway Ltd ("Hudson Conway"), were concerned, of their attempts to sell the property.

The purchasers, often referred to in these reasons as the investors, bought the property as a step in a scheme which had been promoted by Gray & Winter, a firm of solicitors, who carried on other activities. The scheme required Amadio to advance $16.265 million to the purchasers on 29 June 1990. The loan was to be secured by a mortgage for three years with interest only to be paid at six monthly intervals in advance as well as the other security given by the guarantors. The excess of the loan ($16.265 million) over the purchase price ($14.835 million), namely $1.43 million, was applied towards payment of the fee received by Gray & Winter for the promotion of the scheme as well as other expenses including interest and costs.

The nature of the scheme and why it failed are explained by the learned trial Judge, Heerey J, at 62 FCR 16:

"The expectation of the purchasers was that the building would steadily increase in value at a rate of 8.5 per cent per annum. When the vendor finance was repayable in 1993 the building would be worth $19 million. Interest only finance could then be obtained from a bank for 85 per cent of the value and that would be sufficient to pay out the vendor. The building would continue to increase in value at 8.5 per cent per annum and would be worth over $31 million after 10 years. In the meantime, the purchasers would obtain taxation deductions for the difference between the interest paid and the net rent of the building. This could be set off against other assessable income of the purchasers.

The building did not increase in value, either at the rate expected or at all. It was caught up in the huge slump in property values which hit Australia and in particular Melbourne in the early 1990s. Precisely when that slump commenced, and the extent to which it could or should have been reasonably predicted, are among the many disputed issues in this case. But in any event within less than a year valuations put figures of $11.5 million and $11.9 million on the building. Today the building is worth $8 million. The purchasers, and the associated persons and entities which have guaranteed the purchasers' obligations under the mortgage, are jointly and severally liable for a figure which, with accumulated interest, amounts today to some $20 million."

The financial position of the purchasers was made much worse by the reduction in rent payable by Coles Myer under the terms of its lease of the property. The lease was for a period of fifteen years from 24 March 1989 with two options of five years each with rent being reviewed at the expiration of every two years from 24 March 1989 to the then current market rental. At the time of the purchase in June 1990 the rent payable under the lease was $1,279,807. The worsening of the financial position of the purchasers resulting from the reduction in rent is described by the trial Judge at 62 FCR 16:

"Apart from the general collapse of the property market, the decline in value of the Coles Myer building was affected substantially by a feature of the lease. Clause 3 of the lease provides for rent reviews every two years, the review to be to "the then current market rental". The clause provides a machinery for determining disputes as to the appropriate figure. For present purposes the critical feature is that, apart from the first review in March 1991, as to which maximum and minimum figures were stipulated (the minimum being the existing rental of $172.22 and the maximum $199.13 per square metre per annum), the rent review clause does not provide that the rent cannot decrease. There is not, as there usually is in commercial leases, an underpinning or "ratchet" clause. The result is that the rental has declined from $1,279,807 at the time of purchase to $912,000 today."

By the beginning of the year 1993, the full extent of the financial disaster resulting from the scheme was clearly apparent to the purchasers and the persons and entities associated with them who had given the guarantee and indemnity. The loan was due to be repaid by the end of June 1993. Amadio was threatening to foreclose on the mortgage and to sue for damages. The purchasers had no hope of obtaining finance to continue the scheme.

On 28 June 1993 some thirty-nine applicants, including a number of the purchasers as well as a number of the guarantors, commenced proceedings in matter No VG 260 of 1993. Fourteen persons were named as respondents including Amadio and Gray & Winter. A number of the purchasers associated with Gray & Winter were named as respondents. Claims were made against a number of other persons who had been involved in presenting the scheme to the purchasers and of implementing it. It is noted that Hudson Conway was not named as a respondent.

Ultimately, the main claim against Amadio was for a declaration that the scheme contravened s 171 of the Companies (Victoria) Code (the "Companies Code") and thus was illegal and of no effect (“the prescribed interest”). Declarations were sought that a number of the transactions forming part of the scheme including the contract of sale, the transfer of the Coles Myer building, the mortgage and the guarantee and indemnity were void and of no effect, together with consequential orders flowing from the declarations. In addition claims were made against the respondents for damages based upon the Trade Practices Act 1974 (Cth) (“the TPA”) and Fair Trading Act 1985 of Victoria and of South Australia and for damages for negligence as well as on other causes of action.

The final orders of the Court included orders and declarations, based on the contravention of the provisions of the Companies Code, that the mortgage and guarantee were unenforceable, that the Coles Myer building be re-transferred to Amadio and that there be restitution. In addition damages were ordered to be paid by a number of the respondents to the applicants. Orders were made on the cross-claims for contribution and for costs.

There can be no doubt that the applicants had a great success. They were relieved of their obligations and received compensatory relief by way of restitution and damages. Amadio suffered a great loss. It was left with the Coles Myer building and had to make restitution and pay damages. In addition Hudson Conway, by that time a respondent to the application, and other respondents had to pay damages.

It is not surprising that Amadio, as well as other respondents, appealed against the orders made.

1. NATURE OF ORDERS OF TRIAL JUDGE

To understand the nature of the appeals, it is helpful to give a brief summary of the orders made by the trial Judge which are set out in Annexure B to these reasons.  It is not necessary at this stage to identify each of the applicants who are among the respondents to the appeals.  They include the purchasers, sub-partners of some of the purchasers and guarantors.  For present purposes, the groups can be identified by reference to the names of the purchasers, namely the Hendersons, the Gordons, the H F Deans, the W S Deans, the Greens, the Lees, the Turners, the Haarsmas, the Schoemans, the Arthursons, the Phelps, the Tranters and the Trengoves.

The structure of the orders of the Court was, by Order 1, to make a declaration that the mortgage and the guarantee and indemnity were each unenforceable and that the Coles Myer property be re-transferred to Amadio.  Orders 3 to 15 inclusive were to the effect that there be judgment for the H F Deans and the W S Deans (collectively referred to as “the Deans”) in accordance with Schedule B, for the Turners in accordance with Schedule C, for the Gordons in accordance with Schedule D, for the Hendersons in accordance with Schedule E, for the Greens in accordance with Schedule F, for the Lees in accordance with Schedule G, for the Haarsmas in accordance with Schedule H, for the Schoemans in accordance with Schedule I, for the Arthursons in accordance with Schedule J, for the Phelps in accordance with Schedule K, for the Tranters in accordance with Schedule L and for the Trengoves in accordance with Schedule M.  The other orders need not be referred to at this stage.

In summary, Schedules B to M inclusive provided that there be judgment for each of the applicants against Amadio for restitution in the amounts paid by them respectively plus interest, that there be judgment for the members of the various groups against some or other of the respondents Amadio, Hudson Conway, Gray & Winter, James William Gray, Huntley McArdle & Glass Pty Ltd, Robert Hugh Glass, Bird Cameron, Nevett Ford and Richard Ellis (Victoria) Pty Ltd, now Dunyack Pty Ltd, (“Richard Ellis”) (collectively, “the respondent debtors”), for specified amounts, that there be contribution between the debtors in specified proportions and for costs.  Many other orders were made which need not be referred to at this stage.

Ultimately the main claims by the applicants were directed against Amadio and Hudson Conway on the prescribed interest issue.  These two companies, in appeal No VG 245 of 1996, inter alia, challenge the judgment based on these claims and, in particular, the declaration and the orders made for restitution.

A consideration of the prescribed interest issues raised on the appeals by Amadio and Hudson Conway will provide a helpful foundation for the consideration of all the appeals including the cross-appeals and contentions.

1. THE PRESCRIBED INTEREST ISSUES

Heerey J concluded that:

• the sale of the Coles Myer building by Amadio coupled with the mortgage back to Amadio and the associated guarantees contravened the prescribed interest provisions of the Companies Code;

• Hudson Conway and Amadio would be unjustly enriched if they were to retain the benefit of those transactions;

• the transactions should be set aside on terms that the present registered proprietors execute transfers of their respective interests in favour of Amadio and that the mortgage and guarantees be discharged.

His Honour then made final orders which gave effect to the conclusions.  The appeals against those orders challenge each of the conclusions and raise complex issues of fact and law.  In order to appreciate those issues it is necessary to consider in detail the factual basis for his Honour’s conclusions.

3.1      The Facts

The Parties

The vendor of the Coles Myer building, Amadio, was a company whose sole function was to hold title to the building.  It had no commercial existence separate from its parent, Hudson Conway.  Hudson Conway had retained Richard Ellis as an agent to sell the Coles Myer building and also an adjoining building at 31-47 Barry Street owned by another subsidiary and leased to Telecom Australia (“the Telecom building”).  After Richard Ellis had failed to sell the buildings, Hudson Conway was approached by Mr Garrick Gray (“Gray”) of the firm of solicitors called Gray & Winter.  The partners in that firm were Gray and Mr Michael Winter (“Winter”).  Mr James Gray, the son of Gray, was an employee of the firm.  Mr James Gray is not a solicitor.  A company called Australian Investment Management (Holdings) Pty Ltd (“AIMH”) was controlled by the Gray & Winter interests.  Mr James Gray and Winter were directors of that company but Gray was not.

The persons who were persuaded to invest in the Coles Myer building, save for Winter and Mr James Gray, all lived in country areas of Victoria, New South Wales, South Australia and Tasmania.  They are mainly farmers, small business people and doctors.  Most of them were introduced to the scheme by firms of chartered accountants to whom Gray & Winter had promoted the scheme.  One of those firms was Bird Cameron.  The accountancy practice under that name is actually conducted by a company, BPM Pty Ltd.  Its headquarters are in Perth.  It had, at the time, some thirty-eight branches in cities and towns throughout Australia including Ballarat and Geelong in Victoria and Millicent and Port Lincoln in South Australia.  The other firm of chartered accountants was Huntley McArdle & Glass which carried on practice in Ballarat.

The Option Agreement

The agreement had its genesis at a meeting on 15 May 1990 between Gray and Mr Lloyd Williams (“Williams”), the Chief Executive Officer and Managing Director of Hudson Conway.  Williams was aware that Gray was involved in the promotion of tax driven investment schemes, including negatively geared investments in commercial property.  Williams' understanding was that Gray packaged such investments for his clients for a fee.  At the meeting Williams indicated that the "bottom line" price for the Coles Myer building was $13.8 million.  Gray responded that he proposed to syndicate, for a group of investors, both the Coles Myer building and the Telecom building which was being offered for sale at the same time by another Hudson Conway subsidiary.  Gray expressed an intention to take an option over each property for his clients whom he proposed to charge a fee for securing the properties.  He then enquired of Williams whether his company would provide finance equal to 100% of the sale price for up to five years.  Williams replied that Hudson Conway would provide 100% vendor finance at 14% for three years but only if it were satisfied that the purchasers had sufficient asset backing and capacity to service the borrowings.  Williams expected Gray to syndicate the buildings to a “range” or “group” of investors.  Gray said he wanted an acquisition fee of $760,000 for the Coles Myer building.  Williams stated that he was prepared to “capitalise” the fee by adding it to his sale price.  The trial Judge found that it is likely that Gray mentioned the figure of $6 million of net assets and $2 million of income for a proposed purchaser of the Coles Myer building without identifying the purchaser.

On 16 May 1990 Gray & Winter sent a fax offering to take an option for the acquisition of the Coles Myer building "by a client with net assets of at least $6 million and net annual income in excess of $2 million at a purchase price of $14.56 million of which acquisition fees for Gray & Winter of $760,000 would be paid by Hudson Conway at settlement".  The option would result in an effective purchase price of $13.8 million and was to include provision for vendor finance of $15.4 million for three years with interest at 14.0% paid six monthly in advance.  The vendor finance included finance for the purchase price, interest and stamp duty payable by the purchasers.

Williams instructed Mr Hamilton (“Hamilton”), the company secretary of Hudson Conway, to assume responsibility for the transaction.  Hamilton learned, probably from Gray, that the client for whom Gray proposed to acquire the building was Mr A Myers QC.  Hudson Conway agreed to grant the option as requested on the understanding that the contemplated purchaser was Mr Myers.

Thereafter an option agreement, prepared by Gray and dated 17 May 1990, was executed on 17 May 1990 by Hudson Conway and AIMH.  The agreement contained the earlier agreed stipulation as to the net asset and income position of any “nominated Purchaser or Purchasers” and provided that the vendor would pay an acquisition fee of $760,000 to AIMH if the option was exercised and settlement of the sale occurred on 24 June 1990.

Syndication of the Building

On 21 May, Mr Myers decided not to purchase the Coles Myer building. Gray & Winter decided to syndicate the Coles Myer building as a negatively geared investment to investors and thereupon set about assembling a syndicate of purchasers.  Gray told Hamilton that he was forming such a syndicate.

The structure of the investment devised by Gray & Winter was as follows. The Coles Myer building was to be acquired by a partnership in which the partners held twenty equal shares. Where it was desired by an investor that a given share be less than a 1/20th share it was necessary for one holder to become the sole legal owner of the 1/20th share and to execute a declaration of trust to the effect that the legal interest was held on behalf of the investor and any other "sub-partners" beneficially entitled thereto. There was to be a declaration of trust and a sub-partnership agreement in respect of each share to which such an arrangement applied. The limitation of twenty shares was dictated by the prohibition in s 33 of the Companies Code against partnerships consisting of more than twenty persons. Investors were also able to hold an interest greater than a 1/20th share. It was made clear to investors that the acquisition of the building was to be by a proposed partnership of twenty 1/20th shares. As an aid in marketing the Coles Myer building, Gray & Winter prepared a brochure in which a price of $14.835 million was ascribed to the building. The brochure included, in a modified form, the text of an earlier information memorandum which had been prepared by Richard Ellis. The brochure was for distribution, primarily, to accountants to interest their clients in the project. It explained the supposedly tax effective investment potential of the property and contained five sections; photographs, a property summary, the original Richard Ellis brochure with some modifications, a copy of the Coles Myer Lease and a projected cash flow.

The brochure gave details of the lease to Coles Myer and noted that the rent was reviewable "at the expiration of every two years from the commencement date of the lease to comparable market evidence".  An analysis of the net income currently yielded by the Coles Myer building was followed by the note that "analysis of comparable rentals for similar office premises indicate the present rental for this property has significant potential for growth” (brochure's emphasis).  Then followed a number of financial projections based on various assumptions including a "property cost" of $14.835 million and progressive increases in annual rental at review from $1,279,800 in June 1990 to $3,281,525 in March 2001.  An anticipated value at June 1993, of $19,457,620, was ascribed to the property for the purpose of obtaining bank finance in substitution for the assumed vendor finance of $16.2 million.  It was also indicated that a bank would lend up to 85% of the anticipated value of $19,457,620 being $16,538,977.

Other spread sheets, included in the brochure, were a cashflow summary to 30 June 2000 showing the property attaining a value of $31,163,577 by applying a capitalisation rate of 9% to an assumed rent increase equal to a movement in the consumer price index (the “CPI”) of 8.5% per annum.  There were also interest calculations, a statement of owners’ contributions required, proposed debt reductions and monthly cashflow projections for the whole ten year period.

In addition to the brochure, a single separate sheet of paper ("the one page summary") projected an annual cost to each of the proposed partners holding a 1/20th share.  After imputing a particular tax deduction claimable by each partner during each of eleven years, the one page summary set out for each year the after-tax cost for each investor.  The one page summary includes this note:

“Assuming a tax rate of 48.25% the following table applies for a partnership of 20 owning the above building

Year  Cost to  Tax              After Tax           After Tax

Partner           Deductions                 Cost at               Cost at
  48.25%               39.0%

1 (to 30/06/90)  40,350                  61,900                 10,484               16,209

2  46,330                  62,325                 16,255               22,024

3  39,505                  55,505                 12,724               17,858

4  40,427                  56,427                 13,201               18,420

5  37,068                  53,768                 11,125               16,098

6  32,224                  48,924  8,618               13,144

7  22,370                  39,070  3,519                 7,133

8  16,702                  33,402  586                 3,675

Subtotal  274,976               411,321                 76,512             114,561

9  5,174                  21,876                 (5,380)               (3,358)

10  (1,457)                  14,543                 (8,474)               (4,215)

11  (16,045)  (45)               (16,023)             (16,063)

TOTAL  262,648               447,695                 46,635               90,925

Note:      The deductions are an average of $1.70 for each $1.00 paid out.  Assuming the property is sold at the end of 10 years. The net tax free gain per partner should be $717,000 for an after tax cost of $46,635 based on a tax rate of 48.25% or $703,307 for an after tax cost of $90,925 at a 39% tax rate.”

The after tax projections were a major selling point to potential investors.  The after tax costing was that "for a partnership of 20 owning the [building]" the tax deduction averaged $1.70 for each $1 paid out. It also stated that, on the assumption that the property would be sold at the end of ten years, the net tax free gain per partner should be $717,000 for an after tax cost of $46,635 to $57,750 at a 48.25% tax rate or $703,307 for an after tax cost of $90,925 at a 39% tax rate.

On 1 June, Hamilton agreed to extend the option period to 29 June, and to increase vendor finance from $15.4 million to $16.2 million which was to include an increased acquisition fee from $760,000 to $1.035 million.  The increased fee is significant. When it became apparent that Mr Myers was not proceeding with the purchase, Gray realised that syndicating the property would involve considerable additional work and endeavour on his part.  Gray asked Hamilton to increase the acquisition fee to $1.035 million and to increase the vendor finance accordingly.  Previously, Hamilton had questioned the size of the initial acquisition fee with either Gray or Winter and was told that the transaction would involve Gray & Winter spending a great deal of time on the project.  Hamilton agreed to the increased fee on the basis that, to syndicate the property, Gray would now be doing more work than he originally envisaged.  Hamilton was content for Gray to “put a lot of hard work” into finding buyers for the property and pay the increased acquisition fee as it did not change the net return to Hudson Conway of $13.8 million for the property.  Hamilton emphasised that the syndicate members would need to have sufficient asset backing or the sale would not proceed.

Hamilton sent two letters to Gray on 1 June 1990 agreeing to extend the option period to 29 June 1990 and agreeing to increase the vendor finance from $15.4 million to $16.2 million to accommodate the increased acquisition fee and the additional interest.  By a letter dated 5 June, Gray confirmed the changes to the option and indicated that he was “confident of exercising it.”

As from late May 1990 Messrs Gray & Winter recruited investors.  The brochure and the one page summary were used by them in making presentations to the clients, principally by the two firms of accountants, Bird Cameron and Huntley McArdle & Glass who introduced some of their clients to the investment. The trial Judge gave the following description which, whilst not true of all investors, gives some understanding of the Gray & Winter modus operandi.  Gray, Mr James Gray or Winter visited the various offices of Bird Cameron, or the office of Huntley McArdle & Glass in Ballarat, and there made a presentation to clients of those firms in the presence of the accountant with whom the client usually dealt.  Gray & Winter had already sent copies of their brochure to those offices.  Frequently, a copy of the brochure and the one page summary was given to the prospective investor.  If an investor stated a wish to proceed, the Gray & Winter representative asked that person to sign an "Application for Finance" and a power of attorney in favour of William Ernest Balcam of the Melbourne office of Bird Cameron authorising him to execute a wide range of documents in connection with the Coles Myer building.

The Documentation

The investors who participated in the project executed the following documents:

1. An “Application for Finance” for “Proposed Partnership Scheme 20 x 1/20th shares in Coles Myer Building” (application’s emphasis).  The application was for the proposed vendor finance.  It provided details of the income, assets and liabilities and business history of the proposed borrower as well as that of the borrower’s family entities such as family companies, trusts or partnerships.

1. A power of attorney in favour of William Ernest Balcam (“Balcam”), Chartered Accountant, who was a partner in Bird Cameron, Melbourne.  The power of attorney, which was irrevocable for three months, conferred extensive powers on the attorney who was appointed to execute a wide range of documents in connection with the Coles Myer building including a contract of sale, transfer, a mortgage or mortgages, assignment of rental income and a “Deed of Partnership between the owners of the land.”  The documents executed by the attorney were to be

“...upon and subject to such terms covenants conditions and provisions as the Attorney in his absolute discretion determines;”.

An additional power to execute a guarantee and indemnity was added at a later stage. The power of attorney entrusted Balcam with the task of committing each investor to the proposed acquisition and partnership on the terms set out in the documents which he, in his discretion, elected to execute in his capacity as attorney.

1. An undated letter of instruction by investors to Gray & Winter. The letter was substantially in the same form for all investors.  The following is a typical example:

“Messrs Gray & Winter
Barristers & Solicitors
1st Floor
474 St. Kilda Road
MELBOURNE  VIC  3004.

Dear Sirs,

re:      Acquisition of the Coles Myer Building
258 Queensberry Street, Carlton

I confirm the instructions from Bird Cameron [........ .......] Accountants for you to acquire the above building for a partnership including the undersigned for $17,072,000 including the costs set out below and to arrange a vendor loan on my behalf for an amount of $16,264,764 for 3 years at 14% per annum on security of a first mortgage of the property and joint and several guarantees of all the partners.

I undertake to promptly provide all financial documentation required for obtaining the loans to you when requested.

I confirm that the cash flow shown to me has been explained and I am satisfied to proceed.  We authorise you to direct disbursement of the sum of $17,072,000 as follows at settlement:-

Property Cost (including acquisition fee of 7.5% to Gray & Winter)	$14,835,000
Stamp Duty	816,000
Legals - Nevitt, Solicitors	15,000
Capital Acquisition Cost	15,666,000
Accounting Fees (1.5% of Purchase Price)	207,000
Stamp Duty - Mortgage	64,764
First Six Months Interest	1,134,000
Balance:  Clients Account	236
Total Funds Required	17,072,000

We are aware that there is an acquisition fee of $1,035,000 which will be paid to Australian Investment Management (Holdings) Pty Ltd. a company associated with Gray & Winter which currently holds the option over the property.  The balance will be paid out as follows

Accountants Fees $207,000

I undertake to meet my share of the cost of any adjustment of rates and taxes which may be due to the purchasers at settlement together with any other costs certified by the Management Committee of the Partnership.

I authorise you to instruct solicitors on behalf of the partnership to act in the conveyance of the property and the mortgages.

I undertake to execute such documentation as is necessary to complete the purchase and mortgage of the property prior to settlement.

I authorise you to hand all documentation in respect of the acquisition to Huntley McArdle & Glass, Accountants to be held in trust for the partnership or to be handed over to any other trustee nominated by the management committee of the partnership elected by the partners.

The abovenamed building and the prospect of purchasing a part of it in partnership with others was brought to my attention by my accountant and I have decided to invest having received my accountant’s advice and as a result of my own appraisal.  I requested that your firm should further explain the legal documentation and the taxation consequences resulting from the cash flow and the proposed loan for the purchase and I confirm that you did not approach me or canvass my interest in any way.

Yours faithfully,

........ ..”

Later, a revised form of letter which, inter alia, more fully explained the break up of the “Accountant’s Fees” of $207,000 was signed by a number of the investors.

1. A Declaration of Trust and sub-Partnership agreements were executed by investors applying to acquire an interest which was less than a 1/20th share.  Where this occurred the interest was to be held on a bare trust by a partner holding the relevant 1/20 share.  The sub-partnership agreement recorded that the holding of the interest of the trustee partner for the sub-partners was with the consent of the other “partners” in the “Coles Myer Building Partnership”.

Each of the documents was required to be delivered to Gray & Winter prior to settlement with the agreed contribution to initial partnership capital of $40,500 for each of the twenty 1/20th shares.  The ledger of Gray & Winter records that twenty contributions of $40,500, totalling $809,700, were made between 22 June 1990 and 29 June 1990.

Settlement of the Sale

By 22 June 1990 Gray & Winter had become confident that the acquisition would proceed.  By a letter dated 22 June 1990 Hamilton was informed by Gray & Winter that

“A partnership to be known as C.M. Building Partnership will acquire the [building].”

A financial summary statement for fourteen “clients”, proposing to participate in the partnership, was enclosed with the advice that the balance of the “financials” will be forwarded in the following week.

On 25 June 1990 Hamilton agreed to a request by Gray to increase the vendor finance by $65,000 to $16.265 million to assist the purchasers with fees payable on registration but on the condition that the Telecom building was also sold prior to 30 June 1990.  As that property was also sold the loan facility was increased accordingly.

On 29 June 1990 eighteen sets of investors (including two who each held two 1/20th shares) holding twenty 1/20th shares, agreed to participate in the project by paying the purchase price and all legal, accounting and other costs and expenses. Their attorney, Balcam:

• executed the contract of sale to acquire the Coles Myer building for $14.835 million;

• executed the mortgage to secure vendor finance of $16.265 million for three years at an acceptable rate of interest at 14% per annum payable six monthly in advance; and

• executed guarantees in respect of the principal sum and interest due under the mortgage where the investor was a corporate entity or trust.

By the Contract of Sale, Amadio sold the land and improvements known as Building No 1, 258-274 Queensberry Street Carlton to the individual persons or companies set out in the Schedule (ie the eighteen investors) as tenants in common. The contract of sale, containing the loan agreement, provided for vendor finance of $16.265 million to be secured by a mortgage over the building.  The building was sold subject to the Coles Myer lease which was annexed to the contract.  A transfer of the property was executed by Amadio and each of the purchasers as tenants in common in the shares set out in the contract.  The mortgage secured repayment on 29 June 1993 of the principal sum of $16.265 million lent by Amadio and contained common convenants by all of the purchasers save for what became known as the Terrey clause.  Under the mortgage the purchasers mortgaged their respective shares in the building to secure the repayment of the principal sum and interest at 14% per annum.  In addition to the usual covenants the mortgage provided that the principal sum, for which each mortgagor was jointly and severally liable, included any sums owing on any account whatsoever by any mortgagor to Amadio or any “associated company” which was defined as a related company within the meaning of the Companies Code.  The guarantee and indemnity guaranteed the performance by each of the mortgagors of their obligations under the mortgage.

In the result, each investor and guarantor, with the exception of Terrey, became jointly and severally liable for the whole of the principal sum and interest due under the mortgage.

Settlement of the sale of the Coles Myer building took place on 29 June 1990 at the offices of Corrs Chambers and Westgarth (“Corrs”), solicitors for Amadio.  By 29 June 1990 two of the 1/20th shares had not been taken up by investors.  The two remaining shares were taken up by Mr James Gray and Winter so that the matter could proceed to settlement prior to the end of the financial year.

The partners, sub-partners and the guarantors associated with them were as follows:

LEVELS OF PARTICIPATION IN INVESTMENT

The Gordons

1.Partner:              H.A. Gordon

2.Sub Partners:      P. Gordon, H. Glass

3.Guarantors:       P. Gordon, H. Glass, Bredtar Pty Ltd and Fifth Varona Pty Ltd

The Frank Deans (Two partnership shares)

1.Partner:              Bactbuild Pty Ltd

2.Guarantors:       H.F. Dean, K. Dean, W.S. & H.F. Dean Pty Ltd

The Stan Deans (Two partnership shares)

1.Partner:              Lonihire Pty Ltd

2.Guarantors:       W.S. Dean, N. Dean, W.S. & H.F. Dean Pty Ltd

The Turners

1.Partner:              Garkat Pty Ltd

2.Guarantors:       G.L. Turner, D.W. Turner and Turnbross Pty Ltd

Lee

1.Partner:              B. Lee

2.Guarantors:       Asska Pty Ltd

Green

1.Partner:              M.J. Green

2.Sub Partners:      R. Green, B. Green and G. Green

3.Guarantors:       R. Green, B. Green and G. Green

The Arthursons

1.Partner:              J.P.G. Arthurson

2.Guarantors:       J.P.G. Arthurson and S.L. Arthurson

The Haarsmas

1.Partner:              L.F. Haarsma

2.Sub Partners:      J.A. Haarsma and M.P. Haarsma

3.Guarantors:       J.A. Haarsma and M.P. Haarsma

The Hendersons

1.Partner:              R.F. Henderson

2.Sub Partner:       N.M. Henderson

3.Guarantor:         N.M. Henderson

The Schoemans

1.Partner:              D.J. Schoeman and J. Schoeman

The Phelps

1.Partner:              Ackina Pty Ltd

2.Guarantors:       I.D. Phelps, G. Phelps and C. Phelps

The Tranters

1.Partner:              T.E. Tranter

2.Sub Partner:       P.F. Tranter

3.Guarantor:         P.F. Tranter

The Trengoves

1.Partner:              Marican Pty Ltd

2.Guarantors:       R.F. Trengove and L. Trengove

The Walkers

1.Partner:              P.R. Connell

2.Sub Partners:      J.A. Connell, P.J. Walker, J.A. Walker

3.Guarantors:       J.A. Connell, P.J. Walker, J.A. Walker

Terrey

1.Partner:              M.D. Terrey

J. Gray

1.Partner:              J. Gray

M. Winter

1.Partner:              M. Winter

2.Guarantors:       L.F. Winter and Mt. Duneed Pastoral Co Pty Ltd

The Morgans

1.Partner:              E.C. Rutt

2.Sub Partner:       Glincraft Pty Ltd

3.Guarantors:       R.C. Morgan and D. Morgan

Mr James Gray and Winter were associated with Gray and Gray & Winter.  Neither was an applicant.  The Morgans settled their claim.  Another firm of solicitors, Nevett Ford, had been retained by Gray & Winter to act for the investors and did so act prior to and at the settlement on 29 June and thereafter.  In the course of preparing for the settlement, Mr Stephens, a partner in Nevett Ford, worked from the office of Gray & Winter.  He examined a draft contract of sale which had been prepared by a solicitor, Ms McCallum of Corrs, and submitted a draft version of the power of attorney to be executed by the purchasers and guarantors.  Ms McCallum was involved in settling that draft and later undertook a check to ensure that, in its final version, it had been executed by each purchaser and, where others had an interest in that purchaser's share, by those others as guarantors as set out above. Ms McCallum of Corrs acted as the solicitor for Hudson Conway and Amadio in the transaction and was responsible for the preparation or settling of all of the legal documentation executed by the direct participants, the sub-partners and the guarantors to enable the settlement to proceed on 29 June.  In acting as solicitor and agent for Hudson Conway and Amadio the knowledge gained by, and conduct of, Ms McCallum was clearly that of her clients:  see Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 659 per Mason J. Ms McCallum was fully aware of the syndication of twenty 1/20th shares in the Coles Myer building and was also aware, from the documentation prepared or settled by her, of the proposed legal structure, including the partnership, for the acquisition. This finding has some significance as many of Amadio’s submissions as to its state of awareness ignored the detailed knowledge held by Ms McCallum as to the legal structure being offered by Gray & Winter to investors. The proposed deed of partnership was specifically referred to in the Power of Attorney and the fact that the holders of the twenty 1/20th shares held those shares in the “Coles Myer Partnership” was set out in all of the loan applications for vendor finance and was the express basis upon which the sub-partnership interests were to be created and held.

Shortly prior to settlement the legal advisers of Mr and Ms Terrey insisted on a limitation of their clients’ liability.  Mr and Ms Terrey, who were brother and sister, had agreed to take a share of the Coles Myer building.  They had not been introduced through either Bird Cameron or Huntley McArdle & Glass but were clients of a Sydney firm of accountants, Phillips McSweeney, who procured for them separate legal advice from a Sydney firm of solicitors, Gillis Delaney.  Those solicitors negotiated the insertion of the following clause (“the Terrey clause”) in the mortgage executed by the eighteen investors:

“It is expressly agreed by and between the Mortgagor and the Mortgagee that the liability of MICHAEL DAVID TERREY shall be limited to the extent of his interest in the Land but without in any way affecting or limiting the joint and several obligations of all other parties comprising the Mortgagor or any Guarantors of the Mortgagor.”

The learned trial Judge construed the Terrey clause as confining the mortgagee's recourse against the mortgagor to the extent of his interest in the land: see 62 FCR 168. Balcam, as attorney for all other participants, accepted the Terrey clause. Accordingly, the rights and obligations of the participants and Terrey were subject to the exception provided for in the Terrey clause. Otherwise Terrey was an equal participant in respect of his 1/20th share in the project.

Settlement was able to occur on 29 June because a transfer was executed in escrow by Amadio and held on terms stipulated in a letter from Corrs to Nevett Ford:

“We advise that the Transfer has been executed by Amadio Pty Ltd in escrow.  We record that the Purchase monies have been paid to Amadio Pty Ltd and settlement has taken place today, subject to the condition subsequent, that if within 45 days from today, Amadio Pty Ltd or its solicitor is not entirely satisfied as to the legal capacity of all of the parties in connection with the Contract of Sale, Transfer, Mortgage and Guarantee and Indemnity of the Mortgage, in relation to the abovementioned property and to the Power of Attorney relating to the execution of such documents, then the Transfer executed in escrow will not be released as the condition subsequent will not have been fulfilled and the Vendor reserves the right to cancel the sale, destroy the Transfer and transfer back to the Purchasers the monies paid, in excess of the amount of the mortgage loan.”

The conditions giving rise to the escrow were gradually satisfied by Mr Stephens' procuring various documents including original certificates under s 230(8) of the Companies Code, amendments of certain deeds of family trust and the execution by Mr and Mrs Morgan of the guarantee and a power of attorney.  On 13 August, Ms McCallum was able to confirm to Mr Stephens that Corrs "now held all documentation which we required to be provided in respect of this transaction".

On 9 August a formal partnership agreement was executed by Balcam as attorney for the eighteen investors holding the twenty 1/20th shares.

After the Coles Myer building had been acquired, administrative matters necessary for the management of the partnership were attended to by a management committee, the original members of which were Messrs Balcam, Glass, Lynch and Henderson.  The secretary to the committee was Ms Mason, an accountant employed in the Melbourne office of Bird Cameron, who attended to day-to-day accounting and administrative matters by preparation of tax returns, accounts, requests for contributions to syndicate members, payment of accounts, arranging maintenance of the building and the like.

Save for Terrey, as from the date of acquisition common rights and obligations existed for all of the partners, all guarantors and all of the sub-partners in relation to the assets, income and liabilities of the project.  Even Terrey’s rights and obligations, save for liability under the mortgage, were common to those of the other partners.  As a consequence, as from 29 June 1990 each investor (save for Terrey) and guarantor was liable for the whole of the principal sum and interest.  Rights of contribution arose at law against any defaulting party.  Such rights arise at law when “one of several persons has paid more than his proper share towards discharging a common obligation”: see Davies v Humphreys (1840) 6 M & W 153 at 168-9; 151 ER 361 at 367-8.

In summary, the rights and obligations of the investors and guarantors in relation to the Coles Myer building as set out in the documents executed by or on behalf of the parties, subject to the escrow, came into existence on 29 June 1990.  On that date the contributions of $40,500 by the investors in respect of each of the twenty 1/20th shares in the proposed partnership were applied to meet the shortfall between the projected “partnership” liabilities of $17.072 million as set out in the letter of instruction (for the purchase price, stamp duty etc) and the $16.265 million advanced by Amadio under the mortgage.

In the result on 29 June 1990 as set out above:

• eighteen individuals and companies acquired twenty 1/20th shares in the project and became the principal debtors under the mortgage;

• thirteen individuals and companies (some of whom were holders of 1/20th shares interests for the sub-partnership) executed sub-partnership agreements and became sub-partners;

• thirty-four individuals and companies (some of whom were dual participants) executed the guarantee and became guarantors.

Prior to 29 June 1990 each of the partners, sub-partners and guarantors had authorised their attorney, Balcam, to enter into the transactions entered into by him on 29 June 1990 and thereupon to appropriate their capital contributions to meet liabilities of the proposed partnership.  Before those transactions were entered into the participants had authorised their attorney, Balcam, to take the necessary steps to enable their participation in a partnership to acquire the Coles Myer building subject to:

• the twenty 1/20th shares in the proposed partnership being taken up;

• Balcam exercising his power as attorney to execute the documents enabling the acquisition of the building on terms authorised by the participants.

Both conditions were satisfied on 29 June 1990 thereby crystallising the proposed legal relationship between the participants into an actual legal relationship.

3.2      Did a Partnership Acquire the Coles Myer Building?

It is an inescapable conclusion from these facts that a partnership was entered into on 29 June 1990. The existence of a partnership is determined by reference to the true contract and intention of the parties as appearing from all of the facts and circumstances relevant to the relationship of the parties: see Cox v Hickman (1860) 8 HLC 268; Jolley v Federal Commissioner of Taxation (1989) 86 ALR 297 at 306-8 per Burchett and Lee JJ, and ss 5 and 6 of the Partnership Act 1958 (Vic). The documentation to which we have referred demonstrates that the transaction into which each of the participants was intending to enter was the purchase of the Coles Myer building by a partnership of twenty 1/20th shares to be taken up by investors. In our view, it is not realistic to conclude that, on 29 June 1990, when that very transaction was implemented, the acquisition was by the holders of the twenty 1/20th shares on some other basis. The letters of instruction were given, the powers of attorney were executed, the contributions to partnership capital were made, the sub-partnership structures were created and the loan applications were executed on the basis of the acquisition being by a partnership. We are satisfied that prior to 29 June 1990 there was a proposed partnership; and on 29 June 1990 there was an actual partnership. That was the common intention and true agreement of the parties as at that date. We have reached that conclusion by viewing events as they had occurred prior to and on 29 June 1990. To the extent that the conduct of the parties after that date might be relevant: see Lindley and Banks on Partnership, (R C I’Anson Banks, 17th ed, 1995) at 123-7;  Higgins and Fletcher, The Law of Partnership in Australia and New Zealand (K L Fletcher, 17th ed 1996) at 39-40, 60 and Robinson v Federal Commissioner of Taxation (1986) 17 ATR 1068 at 1071-2, that conduct confirms our conclusion. The partnership agreement entered into on 9 August 1990 was expressed to be as from 29 June 1990. Further, the income tax returns of all of the partners and sub-partners, including those for the year ended 30 June 1990, were all based on the partnership having come into existence on 29 June 1990.

Not only is there no reason to infer any contrary intention by any of the participants but the matters to which we have referred afford good reason to infer that their common intention was to bring a partnership into existence as at 29 June 1990.

The trial Judge found against the existence of a partnership on 29 June 1990 but that appears to have been mainly in response to Hudson Conway’s contentions that a partnership had been created prior to 29 June 1990 and that all that happened on that day was the sale by Amadio of the property to a pre-existing partnership.  For the reasons we have set out, his Honour was clearly correct in rejecting those contentions. However, we respectfully disagree with his Honour’s additional conclusion that there was no partnership on 29 June.  That conclusion is inconsistent with the contemporaneous documentation and the conduct of the parties which demonstrates that each of the investors had intended to enter into the Coles Myer partnership for the purpose of acquiring the Coles Myer building before the end of the 1990 financial year.  Balcam, as attorney for all of the partners, had been irrevocably authorised to execute a deed of partnership.  He was authorised to execute all necessary documents to acquire the building for the Coles Myer partnership.  The fact that the deed only came into existence at a later date does not preclude an agreement by the investors to become partners upon the acquisition taking effect on 29 June 1990.  The common intention of the investors, their overt acts and all of the contemporaneous documentation confirms that such an arrangement was to take effect, as it did, by the end of the 1990 financial year.  On 29 June 1990 the partnership was created; the subsequent partnership deed was to be consistent with and give effect to the terms of the partnership brought into existence on 29 June 1990.

Heerey J was of the view that important details relating to the administration of the partnership remained to be determined as at 29 June 1990 and, accordingly, no partnership came into existence until 9 August 1990 when those details had been agreed upon in the deed of partnership executed by Balcam on that date.

His Honour, relying on the reasoning of Brooking J in Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106 at 130-134, concluded that the parties were not to be taken as having intended that a partnership agreement would come into existence until they (or their attorney) had executed a document dealing with “matters which are ordinarily agreed upon in transactions of the class in question”.

In our view, the matters to which we have referred above demonstrate that, in the present case, the parties can be taken to have intended that a partnership between them would come into existence upon their acquisition of the property.  They had specifically authorised their common attorney, Balcam, to determine the terms of, and to enter into, the partnership agreement on their behalf, to acquire the property on behalf of the partnership, and to reflect the terms of the partnership in a deed of partnership.  The fact that the deed was executed after the attorney had acquired the property did not have the consequence of defeating the common intention of the parties if, as we have found, the acquisition was always intended to be made by the investors as partners. To the extent that details relating to administration may be of importance in the interim period we are satisfied that the establishment, with the agreement of the investors, of the management committee, the attorney’s wide powers and the provisions of the Partnership Act 1958 (Vic) would govern or provide for those matters. In any case, the failure to agree on those matters as at 29 June 1990 did not have the consequence of defeating the common intention of the partners to which we have referred.

3.3      Statutory Provisions - Prescribed Interest

The statute applicable at the relevant time was the Companies Code.  The Victorian and South Australian versions were in identical terms.  That legislation has now been replaced by the Corporations Law.

In combination, ss 169, 170 and 171 of the Companies Code provided that a person or company should not issue to the public, offer to the public for subscription or purchase, or invite the public to subscribe for or purchase, any “prescribed interest” without registration of a prospectus. In the present case no prospectus was registered.

Under s 174(1)(a), contravention of ss 169, 170 or 171 was an offence punishable by a fine of $20,000, or imprisonment for five years, or both. Section 174(2) provided:

“A person is not relieved from any liability to any holder of a prescribed interest by reason of any contravention of, or failure to comply with, a provision of this Division.”

Accordingly, a person who was liable to the “holder of a prescribed interest” remained liable notwithstanding that the holder of the prescribed interest acquired the interest as a consequence of a contravention of ss 169, 170 or 171. However, if a holder of a prescribed interest incurred obligations or liabilities in respect of the prescribed interest which was acquired as a consequence of a contravention of ss 169, 170 or 171 that would raise the question of whether the obligations or liabilities were unenforceable under the doctrine of illegality.

A “prescribed interest” was defined in s 5(1) of the Code to mean, inter alia, a “participation interest” which, in turn, relevantly, was defined to mean:

“... any right to participate, or any interest -

(a)in any profits, assets or realisation of any financial or business undertaking or scheme whether in the State or elsewhere;

(b)in any common enterprise, whether in the State or elsewhere, in relation to which the holder of the right or interest is led to expect profits, rent or interest from the efforts of the promoter of the enterprise or a third party; or

(c)       in any investment contract,

whether or not the right or interest is enforceable, whether the right or interest is actual, prospective or contingent, whether or not the right or interest is evidenced by a formal document and whether or not the right or interest relates to a physical asset, but does not include -

(d)      ...

(e)       ...

(f)       ...

(g)an interest in a partnership agreement, unless the agreement or proposed agreement -

(i)relates to an undertaking, scheme, enterprise or investment contract promoted by or on behalf of a person whose ordinary business is or includes the promotion of similar undertakings, schemes, enterprises or investment contracts, whether or not that person is, or is to become, a party to the agreement or proposed agreement; or

(ii)       ...”

An interest in a partnership agreement, or a proposed partnership agreement was likely to be a prescribed interest under sub-paragraph (a), (b) or (c) if sub-paragraph (g)(i) was satisfied.

An “investment contract” was defined in s 5(1) as meaning:

“... any contract, scheme or arrangement that, in substance and irrespective of the form of the contract, scheme or arrangement, involves the investment of money in or under such circumstances that the investor acquires or may acquire an interest in or right in respect of property, whether in the State or elsewhere, that, under, or in accordance with, the terms of investment will, or may at the option of the investor, be used or employed in common with any other interest in or right in respect of property, whether in the State or elsewhere, acquired in or under like circumstances;”.

There is no relevant definition of “offer” or “invitation” but s 5(1) defines “issue” to include:

“circulate, distribute and disseminate”.

Section 5(4) made provision for an offer, invitation or issue to the public to include an offer etc to “any section of the public”. The sub-section provided:

“A reference in this Code to, or to the making of, an offer to the public or to, or to the issuing of, an invitation to the public shall, unless the contrary intention appears, be construed as including a reference to, or to the making of, an offer to any section of the public or to, or to the issuing of, an invitation to any section of the public, as the case may be, whether selected as clients of the person making the offer or issuing the invitation or in any other manner and notwithstanding that the offer is capable of acceptance only by each person to whom it is made or that an offer or application may be made pursuant to the invitation only by a person to whom the invitation is issued, ...”

3.4      The Prescribed Interest Issues

In the present case we propose to follow an approach similar to that adopted by another Full Court of this Court in Australian Breeders Co-operative Society Ltd v Jones & Others (1997) 150 ALR 488 where Wilcox and Lindgren JJ (at 503), after commenting upon the numerous issues and the multitude of arguments which they had considered, confined their reasons to the issues raised by submissions that were both significant and consequential as to do otherwise would have made the reasons for judgment unacceptably long.

The appeals raise the following questions:

1. Was a prescribed interest offered or issued?

2. Was the prescribed interest offered by Gray & Winter to the public?

3. Was a prescribed interest issued by Amadio to the public?

4. What is the consequence of the offer of the prescribed interest to the public?

5. What relief is appropriate?

3.5      Was a Prescribed Interest Offered or Issued ?

The definition of a “prescribed interest” - the case law.

Amadio and Hudson Conway contended that the legislature could not have intended that certain everyday transactions such as the sale of a rental property to a syndicate of investors can constitute a prescribed interest.  Mason J (with whom Stephen J agreed) in Australian Softwood Forests Pty Ltd v Attorney-General(NSW) (1981) 148 CLR 121 at 129-30 said in rejecting an analogous contention:

“Apart from any considerations which may be derived from the general context in which the statutory definition appears, there is no very good reason for reading the words down.  The context is that of prohibitions against issuing or offering to the public for subscription or purchase or inviting the public to subscribe for or purchase “interests” unless there is in force in relation to them an approved deed and unless there is provided information similar to that which is prescribed in connexion with an offer to the public of shares.  Indeed, the prospectus provisions of the Act are applied to offers to the public of “interests” as if they were shares (s. 82(2)).  This context supplies no reason for denying that the proposed activities constitute a “financial or business undertaking or scheme” within the meaning of the statutory definition.

That a very wide meaning should be given to “interest” is attested by the exclusion from the statutory definition of shares and debentures (par.(d)), interests in life assurance policies (par.(e)) and, subject to some qualification, interests in partnership agreements (par. (f)).  The presence of the power to exempt by regulation other rights or interests from the definition (par. (g)) is also of telling significance.

There are real difficulties in the suggestion that the court can read down the very comprehensive definition of “interest” by reference to the supposedly unintended consequences of a literal reading on everyday commercial transactions.  The definition is so general and all-embracing that it is impossible to say that it necessarily excludes particular transactions which appear to be covered by the general words.  The hazards of adopting such a course are not dispelled by the absence of supporting context.  It would be different if we could glean from the legislative provisions an overall purpose which, being limited in scope, justified a reading down of the definition.  Unfortunately in this case the search for a legislative purpose takes us back to the very words of the definition for the intended scope of the operative provisions depends so heavily on the comprehensive language of that definition.  As Young C.J. observed in A Home Away Pty Ltd v Commissioner for Corporate Affairs, in discussing the meaning of “interest” as defined in s. 76(1):  ‘If it were said that we should give effect to the purpose Parliament wished to achieve, we must first ascertain the purpose and that can only be ascertained from the language used.’”

In Carragreen Currencies Corporation Pty Ltd v. Corporate Affairs Commission of New South Wales (1986) 7 NSWLR 705, it was argued that the introduction of interpretative provisions in relation to the Codes which require a court to prefer a construction which promotes the statutory purpose or object or enables the court to take into account extrinsic materials (see ss 5A, 5B, 5C of the Companies (Interpretation and Miscellaneous Provisions) Code and now ss 109H and 109J of the Corporations Law) reduced the authority of Australian Softwood Forests. Hodgson J responded to this argument (at 725-6) with the view that the effect of the interpretative provisions was “insufficient to rob cases such as Australian Softwood Forests of authority”, on the basis that:

“In my view, the best guide to the purpose of the legislation, in particular in the provisions concerning prescribed interests, is to be found in the words of those provisions.”

We agree with the view expressed by Hodgson J.  It is now well settled, therefore, that the words in the relevant paragraphs are to be given the meaning they naturally bear.  It is also accepted that, in determining whether a prescribed interest is offered or issued, the courts look to the substance, rather than the form, of what is offered or issued although the documentary form will be a guide to the substance: see Corporate Affairs Commission v M G Securities A/Asia Ltd (1975) 1 ACLR 157 at 158 per Moffitt P.

This appeal is concerned with paragraphs (a) and (c) of the definition of “participation interest”.

Paragraph (a): any right to participate, or any interest in any profits, assets or realisation of a financial or business undertaking or scheme

To fall within this aspect of the definition, the three elements of the definition must be satisfied: “(1) a right to participate, or an interest; (2) in any profits, assets or realisation; (3) of any financial or business undertaking or scheme”: Corporate Affairs Commission v Australian Softwood Forest Pty Ltd & Ors [1978] 1 NSWLR 150, per Helsham CJ in Eq. It is appropriate to consider the third element first.

"...of any financial or business undertaking or scheme..."

In Australian Softwoods, Mason J noted (at 129) that the scope of the words “financial or business undertaking or scheme” are “of very wide import”. His Honour said:

“For example, all that the word "scheme" requires is that there should be “some programme or plan of action” (Clowes v Federal Commissioner of Taxation (1954) 91 CLR 209 at 225).
........ .  It is not an objection to an enterprise qualifying as an undertaking or scheme that it consists of a number of parts or elements, the participation of individual parties being limited to one of these parts or elements, their profits or remuneration being derived from the particular activities in which they engage.  There is nothing in the notion of an undertaking or scheme that requires or implies that there is joint participation in everything comprised in the plan....”.

The expression “business undertaking” does not require repetition of the relevant activity.  A “single venture” may constitute a “business undertaking”: Wade v A Home Away Pty Ltd [1981] VR 475, at 492 per Jenkinson J.

"A right to participate or any interest...”

The requisite “interest” in the financial undertaking or scheme is not limited to a proprietary interest: Australian Softwood Forests at 133 per Mason J; see also Van Reesema v Flavel (1987) 5 ACLC 751 and Australian Securities Commission v United Tree Farmers Pty Ltd (1997) 24 ACSR 94.

“Participation” requires more than a mere right of use of property.  Nicholson J stated in Butterworth v Lezemo Pty Ltd (1983) 8 ACLR 737, 749:

“I think that participation goes beyond a mere right of use and bears a connotation that the participant, even if he has no proprietary interest in the asset, has an eventual right or expectation of receiving something in respect of it.”

Participation may also require some distribution of the profits, assets or realisation as there will be no “participation” if the profits obtained are derived solely as a result of that person's efforts: Butterworth v Lezemo at 749; Streeter v Pacific-Seven Pty Ltd (1985) 9 ACLR 790 at 793-4. A partner's share in a partnership which carries on a business undertaking or scheme would constitute participation or an interest in the relevant sense.

"...in any profits, assets or realisation"

In Brisbane Unit Development Corporation v Deming No 456 Pty Ltd No 2 [1983] 2 Qd R 92, Connolly J observed that the question posed by paragraph (a) of the definition is whether there is an acquisition of an interest in a financial undertaking or a scheme - it will not be sufficient, to fall within the words of the definition, for there to be an acquisition from an undertaking or a scheme.  Therefore, if the only interest to be acquired is an interest in an asset which then ceases to be an asset of the scheme or undertaking, there will be no prescribed interest within the meaning of paragraph (a) of the definition.

1. Order that the amount which Russell Fraser Henderson may recover pursuant to paragraphs 1 and 2 hereof is limited to the sum of $152,990 plus interest at $48,545.

1. Order the debtors may recover contribution from each other in respect of their liability pursuant to paragraph 3 hereof in the following proportions:

   (i)        Gray & Winter and James William Gray - 44.4%

   (ii)       BPM Pty Ltd and Bird Cameron - Ballarat - 44.4%

   (iii)      Nevett Ford - 11.2%

1. Order that the taxed costs of the Hendersons of the proceeding be paid by the debtors, Hudson Conway Limited and Amadio Pty Ltd and each of them in accordance with paragraph 19 of these Orders.

1. Order that the debtors, Hudson Conway Limited and Amadio Pty Ltd may recover contribution from each other in respect of their liability for the costs of the Hendersons and any interest thereon pursuant to paragraph 5 hereof in the following proportions:

   (i)        Amadio Pty Ltd and Hudson Conway Limited - 15%

   (ii)       Gray & Winter and James William Gray - 40%

   (iii)      Bird Cameron - Ballarat and BPM Pty Ltd - 40%

   (iv)      Nevett Ford - 5%

SCHEDULE F
JUDGMENT FOR THE GREENS AND FOR CONTRIBUTION
BETWEEN RESPONDENTS

1. Judgment for Perpetual Trustees Tasmania Limited (as representative of the Estate of Max Joseph Green, deceased) against Amadio Pty Ltd for restitution in the sum of $91,014 plus interest in the sum of $29,612.

1. Judgment for Perpetual Trustees Tasmania Limited (as representative of the Estate of Max Joseph Green, deceased) for damages in the amount of $152,990 plus interest in the sum of $48,545 against the following persons and each of them:

   (i)        Gray & Winter

   (ii)       Nevett Ford
              (hereafter called “the debtors”).

1. Order that the amount which Perpetual Trustees Tasmania Limited (as representative of the Estate of Max Joseph Green, deceased) may recover pursuant to paragraphs 1 and 2 hereof is limited to the sum of $152,990 plus interest in the sum of $48,545.

1. Order that the debtors may recover contribution from each other in respect of their liability pursuant to paragraph 2 hereof in the following proportions:

   (i)        Gray & Winter - 80%

   (ii)       Nevett Ford - 20%

1. Order that the taxed costs of the Greens be paid by the debtors, Hudson Conway Limited, Amadio Pty Ltd and each of them in accordance with paragraph 19 of these Orders.

1. Order that the debtors, Hudson Conway Limited and Amadio Pty Ltd may recover contribution from each other in respect of their liability for the costs of the Greens and any interest thereon pursuant to paragraph 5 hereof in the following proportions:

   (i)        Hudson Conway Limited and Amadio Pty Ltd - 15%

   (ii)       Gray & Winter - 80%

   (iii)      Nevett Ford - 5%

SCHEDULE G
JUDGMENT FOR LEE AND FOR CONTRIBUTION
BETWEEN RESPONDENTS

1. Judgment for Barbara Lee against Amadio Pty Ltd for restitution in the sum of $91,014 plus interest in the sum of $29,612.

1. Judgment for Barbara Lee for damages in the amount of $152,990 plus interest in the sum of $48,545 against the following persons and each of them:

   (i)        Gray & Winter

   (ii)       Nevett Ford
              (hereafter called “the debtors”).

1. Order that the amount which Barbara Lee may recover pursuant to paragraphs 1 and 2 hereof is limited to the sum of $152,990 plus interest in the sum of $48,545.

1. Order that the debtors may recover contribution from each other in respect of their liability pursuant to paragraph 2 hereof in the following proportions:

   (i)        Gray & Winter - 80%

   (ii)       Nevett Ford - 20%

1. Order that the taxed costs of Lee be paid by the debtors, Hudson Conway Limited, Amadio Pty Ltd and each of them in accordance with paragraph 19 of these Orders.

1. Order that the debtors, Hudson Conway Limited and Amadio Pty Ltd may recover contribution from each other in respect of their liability for the costs of Lee pursuant to paragraph 5 hereof in the following proportions:

   (i)        Hudson Conway Limited and Amadio Pty Ltd - 15%

   (ii)       Gray & Winter - 80%

   (iii)      Nevett Ford - 5%

SCHEDULE H
JUDGMENT FOR THE HAARSMAS AND FOR CONTRIBUTION
BETWEEN RESPONDENTS

1. Judgment for Leo Francis Haarsma against Amadio Pty Ltd for restitution in the sum of $91,014 plus interest in the sum of $29,612.

1. Judgment for Leo Francis Haarsma for damages in the amount of $152,990 plus interest in the sum of $48,545 against the following persons and each of them:

   (i)        Gray & Winter

   (ii)       BPM Pty Ltd

   (iii)      Daryl Lynch

   (iv)      Nevett Ford
              (hereafter called “the debtors”).

1. Order that the amount which Leo Francis Haarsma may recover pursuant to paragraphs 1 and 2 hereof is limited to the sum of $152,990 plus interest in the sum of $48,545.

1. Order that the debtors may recover contribution from each other in respect of their liability pursuant to paragraph 2 hereof in the following proportions:

   (i)        Gray & Winter - 44.4%

   (ii)       BPM Pty Ltd and Daryl Lynch - 44.4%

   (iii)      Nevett Ford - 11.2%

1. Order that the taxed costs of the Haarsmas of the proceedings be paid by the debtors, Hudson Conway Limited, Amadio Pty Ltd and each of them in accordance with paragraph 19 of these Orders.

1. Order that the debtors, Hudson Conway Limited and Amadio Pty Ltd may recover contribution from each other in respect of their liability for the costs of the Haarsmas and any interest thereon in the following proportions:

   (i)        Hudson Conway Limited and Amadio Pty Ltd - 15%

   (ii)       Gray & Winter - 40%

   (iii)      BPM Pty Ltd and Daryl Lynch - 40%

   (iv)      Nevett Ford - 5%

SCHEDULE I
JUDGMENT FOR THE SCHOEMANS AND FOR CONTRIBUTION
BETWEEN RESPONDENTS

1. Judgment for Dick Jacobus Schoeman and Judith Schoeman against Amadio Pty Ltd for restitution in the sum of $91,014 plus interest in the sum of $29,612.

1. Judgment for Dick Jacobus Schoeman and Judith Schoeman for damages in the amount of $152,990 plus interest at $48,545 against the following persons and each of them:

   (i)        Gray & Winter

   (ii)       BPM Pty Ltd

   (iii)      Daryl Lynch

   (iv)      Nevett Ford
              (hereafter called “the debtors”).

1. Order that the amount which Dick Jacobus Schoeman and Judith Schoeman may recover pursuant to paragraphs 1 and 2 hereof is limited to the sum of $152,990 plus interest in the sum of $48,545.

1. Order that the debtors may recover contribution from each other in respect of their liability pursuant to paragraph 2 hereof in the following proportions:

   (i)        Gray & Winter - 44.4%

   (ii)       BPM Pty Ltd and Daryl Lynch - 44.4%

   (iii)      Nevett Ford - 11.2%

1. Order that the taxed costs of the Schoemans be paid by the debtors, Hudson Conway Limited, Amadio Pty Ltd and each of them in accordance with paragraph 19 of these Orders.

1. Order that the debtors, Hudson Conway Limited and Amadio Pty Ltd may recover contribution from each other in respect of their liability for the costs of the Schoemans and any interest thereon pursuant to paragraph 5 hereof in the following proportions:

   (i)        Hudson Conway and Amadio Pty Ltd - 15%

   (ii)       Gray & Winter - 40%

   (iii)      BPM Pty Ltd and Daryl Lynch - 40%

   (iv)      Nevett Ford - 5%

SCHEDULE J
JUDGMENT FOR THE ARTHURSONS AND FOR CONTRIBUTION
BETWEEN RESPONDENTS

1. Judgment for John Paul Gerrard Arthurson and Suzanne Lovitt Arthurson against Amadio Pty Ltd for restitution in the sum of $91,014 plus interest in the sum of $29,612.

1. Judgment for John Paul Gerrard Arthurson and Suzanne Lovitt Arthurson for damages in the amount of $152,990 plus interest at $48,545 against the following persons and each of them:

   (i)        Gray & Winter

   (ii)       BPM Pty Ltd

   (iii)      Daryl Lynch

   (iv)      Nevett Ford
              (hereafter called “the debtors”).

1. Order that the amount which John Paul Gerrard Arthurson and Suzanne Lovitt Arthurson may recover pursuant to paragraphs 1 and 2 hereof is limited to the sum of $152,990 plus interest in the sum of $48,545.

1. Order that the debtors may recover contribution from each other in respect of their liability pursuant to paragraph 2 hereof in the following proportions:

   (i)        Gray & Winter - 44.4%

   (ii)       BPM Pty Ltd and Daryl Lynch - 44.4%

   (iii)      Nevett Ford - 11.2%

1. Order that the taxed costs of the Arthursons be paid by the debtors, Hudson Conway Limited, Amadio Pty Ltd and each of them in accordance with paragraph 19 of these Orders.

1. Order that the debtors, Hudson Conway Limited and Amadio Pty Ltd may recover contribution from each other in respect of their liability for the costs of the Schoemans and any interest thereon pursuant to paragraph 5 hereof in the following proportions:

   (i)        Hudson Conway and Amadio Pty Ltd - 15%

   (ii)       Gray & Winter - 40%

   (iii)      BPM Pty Ltd and Daryl Lynch - 40%

   (iv)      Nevett Ford - 5%

SCHEDULE K
JUDGMENT FOR THE PHELPS AND FOR CONTRIBUTION
BETWEEN RESPONDENTS

1. Judgment for Ackina Pty Ltd against Amadio Pty Ltd for restitution in the sum of $91,014 plus interest in the sum of $29,612.

1. Judgment for Ackina Pty Ltd for damages in the sum of $152,990 plus interest at $48,545 against the following persons and each of them:

   (i)        Gray & Winter

   (ii)       BPM Pty Ltd

   (iii)      Daryl Lynch

   (iv)      Nevett Ford
              (hereafter called “the debtors”).

1. Order that the amount which Ackina Pty Ltd may recover pursuant to paragraphs 1 and 2 hereof is limited to the sum of $152,990 plus interest in the sum of $48,545.

1. Order that the debtors may recover contribution from each other in respect of their liability pursuant to paragraph 2 hereof in the following proportions:

   (i)        Gray & Winter - 44.4%

   (ii)       BPM Pty Ltd and Daryl Lynch - 44.4%

   (iii)      Nevett Ford - 11.2%

1. Order that the taxed costs of the Phelps be paid by the debtors, Hudson Conway Limited, Amadio Pty Ltd and each of them in accordance with paragraph 19 of these Orders.

1. Order that the debtors, Hudson Conway Limited and Amadio Pty Ltd may recover contribution from each other in respect of their liability for the costs of Ackina Pty Ltd and any interest thereon pursuant to paragraph 5 hereof in the following proportions:

   (i)        Hudson Conway and Amadio Pty Ltd - 15%

   (ii)       Gray & Winter - 40%

   (iii)      BPM Pty Ltd and Daryl Lynch - 40%

   (iv)      Nevett Ford - 5%

SCHEDULE L
JUDGMENT FOR THE TRANTERS AND FOR CONTRIBUTION
BETWEEN RESPONDENTS

1. Judgment for Thomas Tranter and Pauline Tranter against Amadio Pty Ltd for restitution in the sum of $91,014 plus interest in the sum of $29,612.

1. Judgment for Thomas Tranter and Pauline Tranter for damages in the amount of $152,990 plus interest at $48,545 against the following persons and each of them:

   (i)        Gray & Winter

   (ii)       BPM Pty Ltd

   (iii)      Joseph Korczak

   (iv)      Nevett Ford
              (hereafter called “the debtors”).

1. Order that the amount which Thomas Tranter and Pauline Tranter may recover pursuant to paragraphs 1 and 2 hereof is limited to the sum of $152,990 plus interest in the sum of $48,545.

1. Order that the debtors may recover contribution from each other in respect of their liability pursuant to paragraph 2 hereof in the following proportions:

   (i)        Gray & Winter - 44.4%

   (ii)       BPM Pty Ltd and Joseph Korczak - 44.4%

   (iii)      Nevett Ford - 11.2%

1. Order that the taxed costs of the Tranters be paid by the debtors, Hudson Conway Limited, Amadio Pty Ltd and each of them in accordance with paragraph 19 of these Orders.

1. Order that the debtors, Hudson Conway Limited and Amadio Pty Ltd may recover contribution from each other in respect of their liability for the costs of the Tranters and any interest thereon pursuant to paragraph 5 hereof in the following proportions:

   (i)        Hudson Conway and Amadio Pty Ltd - 15%

   (ii)       Gray & Winter - 40%

   (iii)      BPM Pty Ltd and Joseph Korczak - 40%

   (iv)      Nevett Ford - 5%

SCHEDULE M
JUDGMENT FOR THE TRENGOVES AND FOR CONTRIBUTION
BETWEEN RESPONDENTS

1. Judgment for Marican Pty Ltd against Amadio Pty Ltd for restitution in the sum of $91,014 plus interest in the sum of $29,612.

1. Judgment for Marican Pty Ltd for damages in the sum of $145,540 plus interest in the sum of $46,181 against the following persons and each of them:

   (i)        Gray & Winter

   (ii)       BPM Pty Ltd

   (iii)      Bird Cameron - Geelong

   (iv)      Nevett Ford
              (hereafter called “the debtors”).

1. Order that the amount which Marican Pty Ltd may recover pursuant to paragraphs 1 and 2 hereof is limited to the sum of $145,540 plus interest in the sum of $46,181.

1. Order that the debtors may recover contribution from each other in respect of their liability pursuant to paragraph 2 hereof in the following proportions:

   (i)        Gray & Winter - 58%

   (ii)       BPM Pty Ltd and Bird Cameron - Geelong - 28%

   (iii)      Nevett Ford - 14%

1. Order that the taxed costs of the Trengoves of the proceeding be paid by the debtors, Hudson Conway Limited, Amadio Pty Ltd and each of them in accordance with paragraph 19 of these Orders.

1. Order that the debtors, Hudson Conway Limited and Amadio Pty Ltd may recover contribution from each other in respect of their liability for the costs of the Trengoves and any interest thereon pursuant to paragraph 5 hereof in the following proportions:

   (i)        Hudson Conway and Amadio Pty Ltd - 15%

   (ii)       Gray & Winter - 40%

   (iii)      BPM Pty Ltd and Bird Cameron - Geelong - 40%

   (iv)      Nevett Ford - 5%

SCHEDULE N
DIRECTIONS AS TO TAXATION OF COSTS OF APPLICANTS

In taxing the costs of the Applicants pursuant to paragraph 19 of these Orders, the Taxing Officer shall:

(a)identify any costs or expenses which can be attributed to individual Applicants (“specific costs”) and deduct them from the total taxed costs of the Applicants;

(b)reduce the balance of the total taxed costs of the Applicants by the sum of $300,000 to allow for the earlier contribution towards those costs by Metzke & Allan;

(c)divide the said reduced balance of the total taxed costs of the Applicants (“the group costs”) into thirteen shares;

(d)certify that the Deans are entitled to recover from the Respondents in accordance with Schedule B hereof costs being their respective specific costs (if any) and a two-thirteenth share of the group costs taxed in accordance with the Order set out in paragraph 19 of these Orders.

(e)certify that the Turners, the Gordons, the Hendersons, the Greens, Lee, the Haarsmas, the Schoemans, the Arthursons, the Phelps, the Tranters and the Trengoves and each of them are entitled to recover from the Respondents in accordance with Schedules C to M hereof costs being their respective specific costs (if any) and a one-thirteenth share of the group costs taxed in accordance with the Order set out in paragraph 19 of these Orders.

SCHEDULE O
JUDGMENT FOR METZKE & ALLAN AND FOR
CONTRIBUTION BETWEEN OTHER RESPONDENTS

1. Judgment for Metzke & Allan on the Cross-claims (as amended) brought against it by the following persons:

   (1)BPM Pty Ltd, Bird Cameron - Ballarat, Bird Cameron - Geelong, John Albert Mayne, Daryl Lynch, Joseph Korczak, Peter Allan Landers, William Ernest Balcam and Bird Cameron Partners and each of them (collectively “Bird Cameron Cross-Claimants”).

   (2)Huntley McArdle & Glass Pty Ltd and Robert Hugh Glass and each of them.

   (3)       Amadio Pty Ltd and Hudson Conway Ltd and each of them.

   (4)       Richard Ellis (Victoria) Pty Ltd

   (5)       Nevett Ford

   (6)Gray & Winter, Garrick Lewis Gray, Michael Frederick Winter and James William Gray and each of them (collectively “Gray & Winter Cross-Claimants”).

   [The abovenamed cross-claimants are hereafter collectively called the “Cross-Claimants”.]

2. The Cross-claim by Metzke & Allan against the Cross-Claimants and each of them is dismissed with no order as to costs.

3. The Cross-Claimants pay the costs of Metzke & Allan for the whole of the proceedings against Metzke & Allan, such costs to be taxed and paid on the following basis:

   (1)By all Cross-Claimants, on a party/party basis up to and including 1 March 1995.

   (2)By all Cross-Claimants except Richard Ellis (Victoria) Pty Ltd and Nevett Ford, on an indemnity basis from and including 2 March 1995 except any costs of an unreasonable amount or which were unreasonably incurred so as to, subject to the above exceptions, completely indemnify Metzke & Allan for its costs.

   (3)By Richard Ellis (Victoria) Pty Ltd and Nevett Ford, on a solicitor/client basis from and including 2 March 1995.

4. Order that the Cross-Claimants may recover contribution from each other in respect of their respective liabilities for the party/party costs of Metzke & Allan to and including 1 March 1995 and in respect of an amount equal to the solicitor/client costs of Metzke & Allan from and including 2 March 1995, and any interest thereon, in six equal proportions, as follows:

   (1)       Bird Cameron Cross-Claimants and each of them.

   (2)Huntley McArdle & Glass Pty Ltd and Robert Hugh Glass and each of them.

   (3)       Amadio Pty Ltd and Hudson Conway and each of them.

   (4)       Richard Ellis (Victoria) Pty Ltd

   (5)       Nevett Ford

   (6)       Gray & Winter Cross-Claimants and each of them.

5. In respect of the difference (if any) between the amount of solicitor/client costs taxed under paragraph 3(3) above and the amount of indemnity costs taxed under paragraph 3(2) above, order that the Cross-Claimants except Richard Ellis (Victoria) Pty Ltd and Nevett Ford may recover contribution from each other in respect of their respective liabilities for those extra costs, and any interest thereon, in four equal proportions, as follows:

   (1)       Bird Cameron Cross-Claimants and each of them.

   (2)Huntley McArdle & Glass Pty Ltd and Robert Hugh Glass and each of them.

   (3)       Amadio Pty Ltd and Hudson Conway and each of them.

   (4)       Gray & Winter Cross-Claimants and each of them.

SCHEDULE P
ORDERS AS BETWEEN THE BIRD CAMERON PARTIES
AND SGIO INSURANCE LIMITED

A.       DECLARE THAT:

1. In relation to the claims of Russell Fraser Henderson, Noelene Marie Henderson, Leo Francis Haarsma, Janette Anne Haarsma, Matthew Peter Haarsma, Dick Jacobus Schoeman, Judith Schoeman, John Paul Gerrard Arthurson, Suzanne Lovitt Arthurson, Ackina Pty Ltd, Ivan Douglas Phelps, Gavan Phelps, Clifford Phelps, Thomas Tranter, Pauline Tranter, Marican Pty Ltd, Ronald Frederick Trengove and Leonie Trengove (“the Bird Cameron Applicants”) and Phillip John Walker, Judith Ann Walker and Metzke & Allan, the amount of the excess under the policy of insurance dated 4 December, 1992 is $640,000.00 “costs inclusive”.

1. Of the liability of BPM Pty Ltd trading as Bird Cameron (“Bird Cameron”) and Bird Cameron-Ballarat to the Bird Cameron Applicants for damages, the sum of $67,275 representing commissions received is not payable by SGIO Insurance Ltd.

1. The sum insured under the policy of insurance is $10 million.

B.       ORDER THAT SGIO Insurance Ltd -

1. (a)       Subject to Bird Cameron and Bird Cameron-Ballarat bearing $67,275 in respect of their liability for damages to the Bird Cameron Applicants, (other than Marican Pty Ltd, Ronald Frederick Trengove and Leonie Trengove), and Phillip John Walker and Judith Ann Walker:

   (i)indemnify each of Bird Cameron, Bird Cameron Partners, Bird Cameron-Ballarat, Bird Cameron-Geelong, Peter Allan Landers and William Ernest Balcam in respect of any liability, pursuant to any order or judgment made against it, him or they in these proceedings, to the Bird Cameron Applicants, or any of them, to Phillip John Walker and Judith Ann Walker and to Metzke & Allan, whether for damages, costs or interest;

   (ii)pay the amount of any such order or judgment and the interest accrued and accruing thereon to the Bird Cameron Applicants, to Phillip John Walker and Judith Ann Walker and to Metzke & Allan as the case may be;

   (b)pay, on an indemnity basis, so much of the costs as exceed $640,000 of Bird Cameron, Bird Cameron-Ballarat, Bird Cameron-Geelong and Peter Allan Landers incurred in defending the Bird Cameron Applicants’ claims, the claim of Phillip John Walker and Judith Ann Walker and any cross-claim made in this proceeding by or against it, him or them other than the cross-claim against SGIO Insurance Ltd.

PROVIDED THAT any liability of SGIO Insurance Ltd pursuant to this Order shall not exceed the sum insured of $10 million plus costs, charges and expenses as provided for in the policy of insurance.

1. Pay the taxed costs of each of Bird Cameron, Bird Cameron Partners, Bird Cameron-Ballarat, Bird Cameron-Geelong, Peter Allan Landers and William Ernest Balcam of their cross-claim against SGIO Insurance Ltd.

SCHEDULE Q
THE REGISTERED PROPRIETORS

MICHAEL DAVID TERREY
RUSSELL FRASER HENDERSON
HENRY ARNOLD GORDON
BACTBUILD PTY LTD
LONIHIRE PTY LTD
JAMES WILLIAM GRAY
MAX JOSEPH GREEN
BARBARA JANE LEE
GARKAT PTY LTD
LEO FRANCIS HAARSMA
DICK JACOBUS SCHOEMAN
JUDITH SCHOEMAN
JOHN PAUL GERRARD ARTHURSON
ACKINA PTY LTD
PAUL ROBERT CONNELL
THOMAS EDWARD TRANTER
ERNEST CLYDE RUTT
MARICAN PTY LTD
MICHAEL FREDERICK WINTER

I certify that this and the preceding two hundred and twenty four (224) pages are a true copy of the Reasons for Judgment herein of the Court

Associate:

Dated:

Counsel for Amadio & Hudson Conway Pty Ltd:	Mr K Hargraves QC and Mr K Lyons
Solicitors for Amadio & Hudson Conway Pty Ltd:	Corrs Chambers Westgarth
Counsel for the Respondents:	Mr E N Magee QC with Mr R Smith and Mr I H Percy
Solicitor for the Respondents:	Anthony Kelly & Associates
Counsel for Michael Terrey:	Ms J E Richards
Solicitors for Michael Terrey:	Wilmoth Field & Warne
Counsel for Gray & Winter and James Gray:	Mr A N Bristow
Solicitors for Gray & Winter and James Gray:	Garrick Gray & Co
Counsel for Nevett Ford:	Mr P O’Callaghan QC and Mr P G Cawthorn
Solicitors for Nevett Ford:	Middletons Moore & Bevins
Counsel for Bird Cameron:	Mrs Sue Crennan QC and Mr D M Clarke
Solicitors for Bird Cameron:	Barker Gosling
Counsel for Metzke & Allan:	Mr M Shatin QC and Mr M A Robins
Solicitors for Metzke & Allan:	Maddock Lonie & Chisholm
Counsel for Richard Ellis Pty Ltd (now called Dunyack Pty Ltd):	Mr P N Vickery QC
Solicitors for Richard Ellis (Pty Ltd (now called Dunyack Pty Ltd):	Minter Ellison
Counsel for SGIO Insurance Ltd:	Mr J Middleton QC and Mr C M Caleo
Solicitors for SGIO Insurance Ltd:	Phillips Fox
Mr R Glass:	Represented himself
Dates of Hearing:	3, 4, 5, 6, 7, 11, 12, 13, 14, 17, 18, 19 and 20 March 1997
Date of Judgment:	14 July 1998