Braham v ACN 101 482 580 Pty Ltd

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2018 0162

SIMON BRAHAM	Applicant
v
ACN 101 482 580 PTY LTD	Respondent

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JUDGES:	TATE, McLEISH and NIALL JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	19 February 2020
DATE OF JUDGMENT:	6 May 2020
MEDIUM NEUTRAL CITATION:	[2020] VSCA 108
JUDGMENT APPEALED FROM:	[2018] VSC 575 (Emerton JA)

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CONSUMER LAW – Misleading or deceptive conduct – Partnership agreement prepared by lawyer for promoter of failed investment scheme – Whether preparation of partnership agreement amounted to representation by lawyer to non–client investor as to compliance with taxation ruling – Whether non-disclosure of ‘qualifying fact’ – Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357, Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592, considered – Whether representation by lawyer to client promoter – Alleged ‘indirect’ causation of loss to investor – TPT Patrol Pty Ltd v Myer Holdings Ltd (2019) 140 ACSR 38, 316-7 [1656]-[1660], considered – Whether lawyer’s retainer precludes finding of misleading or deceptive conduct outside scope of retainer – Extent of retainer not dispositive but relevant contextual feature – Watkins v De Varda [2003] NSWCA 242, distinguished – No representation – No failure to disclose.

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APPEARANCES:	Counsel	Solicitors
For the Applicant:	Mr P G Cawthorn QC with Mr C G K Madder	Rigby Cooke Lawyers
For the Respondent:	Dr A Hanak QC with Mr N Walter	MinterEllison

TATE JA
McLEISH JA
NIALL JA:

Introduction

In 2006 the applicant, Simon Braham, borrowed approximately $1.2 million and invested that amount in timber plantations (the ‘2006 Great Southern Project’). The loan and investment were undertaken through a partnership, which claimed the investment as a loss in the 2006 financial year. By self-assessment for that year, Braham claimed his proportion of the partnership loss as a tax deduction, which yielded a tax refund of approximately $530,000. The refund was provided to the partnership for a secondary investment, the yield from which was intended to make repayments on the loan. It was intended that the investment would comply with an Australian Taxation Office (‘ATO’) Product Ruling 2004/116 issued by the Commissioner of Taxation (the ‘Ruling’) that identified, with some precision, the circumstances in which investments of this kind would yield accelerated tax deductions.

Three years later, in 2010, Braham was subject to an ATO audit; the deduction was disallowed on a variety of grounds; and an amended assessment issued, requiring Braham to pay tax, interest and a penalty. Braham objected, the objection was disallowed and his subsequent application to the Administrative Appeals Tribunal (the ‘AAT’) to review the objection decision was settled with Braham paying the tax due but the Commissioner waiving the interest and penalty.

Braham commenced proceedings in the Trial Division of this Court against the respondent, a firm of solicitors formerly known as Ambry Legal (‘Ambry’), alleging that the firm was retained by the partnership to document and advise on the taxation implications of the investment, and had contractual obligations and/or a common law duty of care to the members of the partnership, including the plaintiff. He alleged that Ambry had breached its retainer and duty of care by failing to advise that an investment through a partnership vehicle would not comply with the Ruling.

He further alleged, in the alternative, that Ambry had engaged in misleading or deceptive conduct by representing to him that the partnership structure which was utilised would comply with the Ruling. He claimed damages representing the sum he had agreed to pay the ATO and accounting and legal fees.

Braham failed in each of his claims.[1] The contractual and negligence claims failed because the judge found that Ambry was retained, not by the partners, but by Andrew Ludekens, an associate of Braham, who, in effect, was the promoter of the scheme and had encouraged Braham to participate but did not himself invest in the scheme. The judge found that there was no retainer between Braham and Ambry, and Ambry owed no duty of care to him. The applicant does not seek to appeal those conclusions.
[1]SimonBraham v ACN 101 482 580 Pty Ltd [2018] VSC 575 (‘Reasons’).

The misleading or deceptive conduct claim failed because the judge found that Ambry was not retained to give legal advice to Ludekens regarding the investment model generally, or specifically as to its compliance with the Ruling.[2] The judge also found that Ambry did not make representations as to whether the investment complied with the Ruling either directly to Braham or indirectly through Ludekens.[3] As the judge observed, the case failed on the facts because the representations were not made.
[2]Ibid [263].
[3]Ibid.

The applicant contends that the misleading or deceptive conduct finding should be reversed because:

(1) the judge made a number of erroneous factual findings, and failed to make other findings which should have been made. A catalogue of 10 findings of fact is relied on;

(2) having made, or failed to make, those factual findings, the judge failed to consider whether Ambry’s conduct as a whole was misleading or deceptive and failed to analyse Braham’s claim that Ambry’s preparation and provision of the investment structure comprised in two documents prepared by Ambry (a partnership agreement and loan agreement) was misleading or deceptive and had caused loss; and

(3) the reasons of the judge were inadequate.

None of the grounds of appeal can be accepted. We would grant leave to appeal but dismiss the appeal. Our reasons follow.

The facts

Given the proposed grounds of appeal it will be necessary to set out the facts in some detail. However, it is worth emphasising the narrowness of the case that the applicant now seeks to make. He contends that by preparing and proffering the partnership agreement, Ambry represented to Braham, or at least to Ludekens, that such a structure would comply with the Ruling. He relies on documents prepared or ‘endorsed’ by Ambry as providing context.

Braham and Ludekens were well known to each other. They are both medical practitioners although Ludekens, at the time of these events, was mainly engaged as a financial advisor and promoter.

In 2005, Braham made his first investment in forestry products. He would go on to make them in 2006, 2007 and 2009. His first foray involved an investment in Great Southern woodlots and was recommended to him by Ludekens. That year, Braham entered into an undocumented partnership that acquired 333 woodlots in Great Southern Plantations (the ‘2005 Partnership’) for $1,098,900, financed by a loan from Great Southern Finance Pty Ltd (‘GSF’). Braham held an 84 per cent interest in the 2005 Partnership. A tax return for the 2005 Partnership recorded that the other partners were Eric Poon, Joseph Dintini, Simarpal Aujla and Nevin Gupa.

Ludekens recommended, but was not directly involved in the 2005 investment, which was structured and coordinated by Nancy Keep & Associates.[4] The 2005 investment generated a tax refund, which was utilised in a secondary investment.
[4]Ibid [7], [38], [46], [95], [103].

For the 2006 financial year, Ludekens again recommended to Braham that he make a woodlot investment and Ludekens was directly involved in devising and setting up the structure of the investment.[5] The essential elements of the proposal were that the 2006 Great Southern Project would be undertaken through a partnership. The investment would be fully funded by a loan from GSF. The investment would give rise to a substantial income tax refund to Braham which would be provided to the partnership that would then make a secondary investment to generate income to meet the obligations under the GSF loan. The secondary investment was to be in the form of a loan to an entity known as Moneela, which operated out of Singapore, trading in commodities.
[5]Ibid [8].

Ambry

Keith Harvey was a director of Ambry. Other employees of Ambry who played a role in the relevant events were employee solicitors Nicole Segal, Davina Aliotta (formerly Davina Mighalls), Matthew Clarke and Ambry’s practice manager, Gerhard Moll.

Ludekens was a repeat client of the firm. From 2005 and throughout 2006, Ludekens operated at least part of his business activities, including those of ‘Lotus Capital’, from Ambry’s offices, first in South Melbourne and later in Little Collins Street, Melbourne. Ludekens, and a couple of assistants employed by him, worked at the Ambry office, Ludekens paid rent and had a dedicated phone line which was connected to the Ambry switchboard.

Harvey said that Ludekens used his proximity to occasionally solicit informal legal or commercial advice and, when he did formally retain Ambry, he was slow to pay. This had the consequence that Ambry was astute in formalising any retainer with Ludekens and generally secured some form of up-front payment of its fees.

The relevant documents relied on as context were described as the Annuity Advice, the Cash Flow Analysis, the Flowchart, the Procedure Document, the Managed Investment Scheme (‘MIS’) Advice and the Partnership Agreement. In addition to the Partnership Agreement, the applicant relied on a summary of an earlier partnership agreement prepared in 2005 (the ‘2005 Summary’) and a summary of the draft partnership agreement prepared in 2006. It will be necessary to refer to each of these documents.

However, first it is useful to refer to the Ruling which provides the backdrop to the applicant’s case.

The Ruling

The Ruling sets out the Commissioner’s opinion on the way in which certain tax laws apply to the defined class of persons who take part in the ‘Great Southern Plantations 2006 Project’.

The Ruling refers to and incorporates a number of documents relating to the scheme, including a draft product disclosure statement, a draft constitution, draft and pro forma leases, a plantation management agreement and a loan deed.

The ruling operates in respect of ’Growers’ who have their ‘Applications’ accepted on or before 30 June 2006.[6] In order to be entitled to the deductions contemplated by the Ruling, it is necessary that the Grower’s afforestation activities as a participant in the Great Southern Plantations 2006 Project amount to carrying on a business of primary production.[7]
[6]The Ruling cl 19.
[7]Ibid cll 49, 60.

Clause 63 provides that ‘generally’ a Grower will be carrying on such a business if the Grower has a number of attributes: an identifiable interest (by lease or by licence) in the land on which the Grower’s trees are established; a right to harvest and sell the wood produced; the afforestation activities are carried out on the Grower’s behalf; the activities are typical of those associated with an afforestation business; and the weight and influence of general indicators point to the carrying on of a business.

Under the Ruling, each Grower is required to enter into a lease or forest rights agreement with rights over a specific and identifiable area of land.[8] The agreement must give the Grower an ongoing interest in the trees and the Grower must use the land in question solely for afforestation activities. The Grower is also required to enter into a land and management agreement with a responsible entity that is responsible for establishing and maintaining the trees and harvesting and selling the wood grown.[9]
[8]Ibid cl 64.
[9]Ibid cll 65–66.

The Ruling provides for the advanced deductibility of management fees, interest and other outgoings with the effect of bringing forward deductions early in the life of the scheme.[10] The Grower must intend to stay in the scheme for its full term and derive assessable income from its harvesting.[11] Provided that certain requirements are satisfied, including that it cannot be concluded, having regard to the matters in s 177D(b) of the Income Tax Assessment Act 1936 (Cth) (‘ITAA’), that the investors will enter the scheme for the dominant purpose of obtaining a tax benefit, then the anti-avoidance provisions in part IVA are not engaged.
[10]Ibid cll 54, 57.
[11]Ibid cl 104.

It is convenient now to return to the relevant documents, in chronological order.

The Annuity Advice and Cash Flow Analysis

On 28 June 2005, Ludekens sought advice from Ambry relating to the taxation treatment of an annuity, which would constitute the secondary investment, acquired by the tax refund, for the purposes of repaying the original woodlot loan. By this time, the overall structure of the 2006 investment had been formulated by Ludekens and it was loosely based on the 2005 investment.

Various versions of the annuity advice were in evidence, with the final form provided to Ludekens on 2 August 2005.[12]
[12]30 June 2005, 18 July 2005 and 2 August 2005.

A retainer letter, setting out the scope of this work, was not in evidence, although evidence as to the standard practice of the firm suggested that such a letter had been sent to Ludekens.

Ambry’s records include a ‘client engagement form’ naming the client as ‘Ludekens, Andrew’ regarding ‘Great Southern Project Advice’ and a closing form for the same matter (Ambry File 6932) dated 8 December 2006. Ambry’s work on the annuity advice is recorded in an invoice addressed to Ludekens dated 30 July 2005. Additional work is recorded in an invoice for ‘Great Southern project’ addressed to Ludekens dated 12 October 2005. The invoice of legal fees to 30 July 2005 records work commencing on 28 June 2005 and concluding on 30 July 2005 with Ambry settling a letter of advice (the ‘Annuity Advice’) and preparing an accompanying spreadsheet.[13]
[13]Reasons [59].

The Annuity Advice is addressed to Ludekens and signed by Harvey. It commences by recording that Ambry had been requested to provide formal advice on the taxation treatment of an annuity that the partnership will acquire to finance repayment of the loan used to acquire certain woodlots offered for sale by ‘Great Southern Plantations Limited’. Harvey then records his instructions over seven numbered paragraphs.

Those instructions include that Ludekens and another person (together called the ‘General Partner’) have acquired $1 million worth of woodlot plantations from ‘Great Southern’, financed by a $1 million dollar loan from GSF. The General Partner has offered various high income earners an opportunity to join it as a partner (or ‘Participant’) in farming the woodlots with each Participant subscribing to one or more partnership units of $10,000 each. Harvey records that there is a partnership agreement which provides, amongst other things, for each Participant to make a contribution of between $4,000 and $5,000 in capital to the partnership for each unit acquired (such contribution to be made by 30 September 2005) and that 100 per cent of the loss from the partnership for the first three years accrues to the Participants, with 100 per cent of the profit accruing to the Participants until they have recouped their losses. After recovery of losses, the General Partner receives 10 per cent of the net income earned by the partnership.

The instructions then record the basic terms of the new annuity, including purchase price and projected income. Importantly, as part of his instructions, Harvey records that:

You have asked that I rely on the ATO taxation ruling PR 2004/05 and assume that the anti avoidance provisions in the income tax law do not apply to any part of the two investments made by the partnership.

After setting out his instructions, Harvey expresses the opinion that the whole of the amount received from the borrower each year will be assessed as income of the partnership in the tax year that it is received. He notes that s 27H(2) of the ITAA sets out a formula for calculating the amount of a tax deduction that can be set off against the income. In essence, that is the amount the taxpayer paid to purchase the annuity divided by the number of years in the annuity term. The calculation of that formula is set out in a table describing the net income of the partnership for each year of the annuity stream.

In the version of the advice dated 30 June 2005, the letter concludes by saying that the table on the following page summarises the cash flow and income tax consequences of both the woodlot investment and the annuity. Attached to the letter is a cash flow forecast for a business model designed on 22 July 2005 (‘Cash Flow Analysis’). That paragraph is not found in the final version of the letter dated 2 August 2005.

The respondent submits that the Cash Flow Analysis was not attached to the Annuity Advice. However, the respondent accepts that it was provided to Ludekens, albeit at a later date. The judge found that the Cash Flow Analysis accompanied the Annuity Advice (presumably referring to the version dated 2 August 2005). Nothing turns on this.

The judge noted Harvey’s evidence that he did not give advice about the general anti-avoidance provisions because he was not qualified to do so; did not know who the ‘Participants’ in the investment were going to be; and was not given a copy of the partnership agreement described in Ludekens’ instructions. She then concluded:

The Annuity Advice was therefore given on the basis that the investment vehicle would be a partnership and that the anti-avoidance provisions of the tax law would not apply to the partnership’s investments in woodlots and the annuity. Harvey was not asked to advise on these matters. It is evident from Ludekens’ instructions to Harvey in July 2005 that Ludekens had already decided to use a partnership structure for the 2006 investment before seeking Harvey’s advice. This was a structure with which Ludekens was already familiar through his association with Nancy Keep and the 2005 investment.[14]

[14]Ibid [65].

On 24 July 2005, Harvey sent two emails to Ludekens about the Cash Flow Analysis. The first email says:

Dear Andrew
I attach a cash flow model that I am happy to give a tax sign off on … I note the following:
(1) I have assumed a $1,000 investment and a $2,000 return in year ten
(2)Best case scenario is that the taxpayers realise a net after tax profit of $545.00 after ten years
(3)However, the taxpayer will be cash flow negative in years 4 - 9 (total $393.42)

I remain strongly of the view that the credit risk associated with this deal is such that it does not make commercial sense.
There is still a Part IVA problem (general anti avoidance rules) … however I can give an opinion that gives a PI policy sign off on this issue
Do you want an opinion on this model? If so, the cost will be $5,000 and you can have it by Friday.

The second email from Harvey to Ludekens on the same topic says:

Andrew, please also note these financial facts:
The NPV of the taxpayer’s cash flow at a discount rate of 15% (on a $1,000 investment) = $75.26
This really does not stack up.

The Cash Flow Analysis is a single page spreadsheet describing the cash flow based on ‘Cash in’, ‘Cash out’ and ‘Net cash flow’ spread over the 10 year term of the annuity. Under the heading ‘Cash in’ are the following items: loan from the finance company, tax refund on agricultural investment, income from financial investment, tax refund on interest expense and proceeds from agricultural investment. Included under the heading ‘Cash out’ is the item ‘Agricultural investment (with tax ruling)’.

It is apparent from the Cash Flow Analysis that the business model was to be funded, in large part, by a tax refund on agricultural investment and that the agricultural investment would be ‘(with tax ruling)’.

Although the content of the Annuity Advice is very confined and focused on the tax treatment of income derived from the annuity, the relevant Ambry file also contained an undated file note prepared by Harvey, setting out instructions and raising certain questions. The judge held that the file note appeared to date from the same time.[15]
[15]Ibid [71].

That file note addressed whether the General Partner, who under the model described in the Annuity Advice would borrow $2 million[16] from a finance company associated with Great Southern to acquire the woodlots, could pass that debt on to a third party (called ‘Harry’) in return for Harry assuming the liabilities under the loan, keeping the General Partner and other partners indemnified, but obtaining a 10 per cent interest in the profit from the woodlot investment after the partners other than the General Partner had recouped their investments. The file note records that in order for Harry to obtain a profit in return for his agreement to assume liability under the loan, the project would need an internal rate of return of more than 24.25 per cent.
[16]The Annuity Advice refers to the sum of $1 million.

The file note continued:

These facts raise the following questions:
7.Are the limited partners entitled to a tax deduction for their share of the investment in the Great Southern woodlots?
8.What are the taxation consequences of the debt defeasance transaction?
a.Who is entitled to claim the interest expense on the Loan?
b.Does the transaction trigger a CGT event?
c.How is the payment to Harry treated in Harry’s hands (if Harry has an unrecognised tax liability this will impact on his credit worthiness as a party to the arrangement).

9.Summarise the legal and commercial risks being assumed by the Limited Partners.

As noted by the judge, this is the only place in the Ambry file for the Annuity Advice where the question of the tax deductibility of the partners’ shares in the woodlots investment is raised.[17]
[17]Reasons [74].

In the second half of 2005, Ambry undertook work in relation to the preparation of a partnership agreement. The firm prepared a ‘Summary of the Lotus Trees Partnership Agreement’ and a draft partnership agreement was prepared on or around 19 August 2005 by Segal. In that draft agreement, the Managing Partner is identified as ALTE 4 Pty Ltd, an Ambry shelf company acquired by Ludekens.

The 2005 Summary refers to the Managing Partner having acquired 333 woodlot plantations from Great Southern Plantations Limited, financed by borrowing $999,000 from GSF. It refers not to ‘Participants’ or ‘Limited Partners’, but to ‘Silent Partners’. The 2005 Summary records, amongst other things, that:

(4) the Silent Partners will pay an amount to the Managing Partner to be determined as a function of the Silent Partner’s tax credit in year one. This will count as a capital contribution to the partnership;

(5) the Managing Partner will utilise the tax credits to acquire an annuity;

(6) the Managing Partner will utilise the monthly distributions from the annuity to repay the loan;

(7) the Managing Partner will have sole and exclusive control of the partnership business;

(8) the Silent Partners agree not to interfere in the management of the partnership business and they will appoint the Managing Partner as their attorney authorised to complete all arrangements needed for the purpose of the partnership business; and

(9) the Managing Partner agrees to indemnify the Silent Partners from all liability under the loan from GSF.

Segal emailed a copy of the 2005 Summary to Ludekens on 6 and 24 October 2005 asking him to confirm that it accorded with his instructions. There is no evidence of any response from Ludekens. A heavily annotated version of the 2005 Summary and a ‘Mind Map’ were located on the Ambry file. The judge observed that the content of the annotations strongly suggested that Ludekens was the author.[18] The Mind Map reflects the key elements of the proposed investment in a way that roughly conforms to the 2005 Summary. The judge regarded it as tolerably clear from its content that the Mind Map was drawn (or ‘perhaps doodled’) by Ludekens and reflected his thinking about the investment product that he was putting together and how it would be made attractive to investors like Braham.[19]
[18]Ibid [83].
[19]Ibid [85].

Two other documents were found on the Ambry file: the ‘Flowchart’ and ‘Procedure Document’.

The Flowchart

The Flowchart shows the structure of the proposed ‘Lotus Trees’ investment. It depicts a series of boxes and describes the flow of funds between Great Southern, the partnership, the ATO, the investor and the annuity. Essentially, it depicts a loan from Great Southern for the subscription of woodlots and the General Partner lodging tax returns for each of the participants. On those assessments, the ATO provides a refund which is sent to the partnership and on to the investor, providing the annuity which then repays the loan.[20] In his evidence, Harvey said that he did not recall being instructed to prepare the Flowchart, but he agreed that it was the kind of thing he might have put on the whiteboard.[21]
[20]Ibid [88].
[21]Ibid [89].

As will appear, the applicant relies on the Flowchart to demonstrate knowledge on the part of Ambry as to the movement of funds and the importance of obtaining a tax deduction to pay for the secondary investment.

The Procedure Document

The document headed ‘Procedure for Investment in Lotus Trees Partnership’ provides an explanation, directed to potential investors, of how an investment in the partnership is to be made. The judge noted that there were two versions of this document, although they are substantially to the same effect. The judge described the contents as follows:

The Procedure Document explains that the ‘General Partner’, as the managing partner on behalf of the partnership, will make the investment in woodlots with Great Southern, fully financed by a loan from GSF, before the end of the tax year. The establishment services fee will be incurred by the General Partner on behalf of the partnership, resulting in a tax loss that will be claimed in the partnership tax return. The partners will claim their respective shares of the partnership loss in their individual tax returns and receive tax refunds, which they will re-invest in the partnership by way of capital contribution. The partnership will then enter into the secondary investment of the tax refund moneys, and the income generated from this investment will be used by the partnership to meet the interest and principal payments on the loan from GSF. This secondary investment is described in the Procedure Document as an ‘annuity investment’.[22]

[22]Ibid [91].

Harvey said that he did not prepare the Procedure Document and did not recall receiving it. He commented that it had some ‘stupid things in it’ and said that he did not know who had ‘cobbled it together’.

The judge returned to the document later in her reasons, saying:

Ambry did not produce the Procedure Document or the Flowchart. These documents were prepared and disseminated by Ludekens. Harvey did not ‘walk’ Ludekens through these documents in the sense that he explained the documents to Ludekens, because they were Ludekens’ own handiwork.[23]

[23]Ibid [263].

At this point, it is useful to note that in relation to the 2005 investment, the judge found that the weight of the evidence was that the investment was put together by or through Keep.[24] Her Honour found that any work carried out in 2005 by Ambry for Ludekens related to the investment in Great Southern woodlots in 2006.[25]
[24]Ibid [105].
[25]Ibid [106].

Importantly, the judge rejected Braham’s evidence that in September 2005 he went to Ambry’s office for a meeting with Ludekens and Harvey. Braham said that, at that meeting, Ludekens and Harvey ‘walked him through’ the Flowchart and Procedure Document. The judge did not accept that this meeting occurred.[26] That conclusion is not challenged and Braham does not now rely on any oral communication between him and Harvey for the purpose of establishing his misleading or deceptive conduct claim.
[26]Ibid [170].

MIS Advice

Part of the business model employed by Ludekens involved encouraging high net worth individuals to invest in various commercial schemes, often driven by taxation considerations. The aggregation of individual investors in an investment inevitably raised issues as to whether what was contemplated was a MIS required to be registered under the provisions of the Corporations Act 2001 (Cth) (the ‘Corporations Act’).

In that context, Ludekens retained Ambry in May 2006 to provide advice on the Corporations Act requirements for the promotion of MISs and a product being developed by Ludekens referred to as ‘Lotus Trees’. There were three letters of advice (‘MIS advices’), each of which was prepared by Aliotta.

In an initial file note taken at a conference with Ludekens on 4 May 2006, Ambry’s practice manager, Moll, recorded a series of questions which included whether a partnership was the best vehicle for buying and financing trees and investing in an annuity and what the best tax structure was.[27] Aliotta made a brief file note, referring to a ‘P’ship’ and a ‘Fund’, and recorded a series of questions: whether the partnership would be a MIS; whether the fund would be a MIS; what the consequences of classification were; what steps would allow exclusion from the provisions of Chapter 7; and how to manage the structure.[28]
[27]Ibid [109].
[28]Ibid [110].

Aliotta confirmed the retainer in a letter to Ludekens of 4 May 2016. Her letter made no mention of the client seeking advice on whether a partnership was an appropriate or the best tax structure. Rather, her letter confirmed that advice was sought in relation to the MIS provisions of the Corporations Act. The scope of the retainer was confirmed in writing on 8 May 2006 and 16 May 2006. In the correspondence of 16 May 2006, Clarke wrote:

If our analysis reveals that another structure would be more appropriate in order to achieve your commercial objectives listed below, we will provide you with an amended estimate of our fees in relation to providing further advice and tax advice in respect of the proposed structure.[29]

[29]Ibid [116].

After reciting various exchanges between Ambry and Ludekens relating to the MIS advice, the judge concluded:

It is plain from the foregoing that the May 2006 retainer was to assist Ludekens to put together an investment product to be sold to an unspecified number of unidentified investors who could or would belong to any number of different partnerships. Although the form chosen for Ludekens’ investment product — the Trees model — raised a number of legal issues, Ambry was retained to advise on only certain of those issues. Ludekens engaged Ambry to advise in a piecemeal fashion, as and when it suited him. Ambry was never retained to advise generally or to ‘sign off’ on the Trees model.[30]
[30]Ibid [132].

The partnership agreement

The next, and for present purposes most important, piece of work undertaken by Ambry was performed between 19 and 27 June 2016, and comprised the drafting of a partnership agreement by Segal under the supervision of Harvey.

On 19 June 2006, Segal confirmed with Ludekens in writing the terms of the retainer to draft a partnership agreement and a loan agreement in relation to the ‘Lotus Trees Partnership’. A file was opened for the retainer. On or around 20 June 2006, Segal sent a summary of the proposed agreement which she had prepared to Ludekens; it contained the bare bones of the proposed agreement.

On 27 June 2006, Segal sent an email to Ludekens, attaching a final version of the partnership agreement. The schedules and execution pages were not completed: neither the Grower nor the Managing Partner was named nor did the execution clauses identify the members of the partnership.

The judge noted that Segal gave evidence that she did not consult the Ruling for the purpose of confirming that the arrangements in the partnership agreement would comply with the terms of the Ruling. Indeed, her Honour noted that there was no evidence that any Ambry lawyer considered whether the arrangements in the partnership agreement would comply with the requirements of the Ruling.[31]
[31]Ibid [142].

The judge found that Ambry carried out no further work on the incomplete partnership agreement after sending it to Ludekens on 27 June 2006.[32]
[32]Ibid [158].

Three versions of the partnership agreement were in evidence; they are largely in the same form but with variations in the identity of the parties set out in the schedule and some other amendments to the text of the agreement. The three versions were:

(10) the partnership agreement emailed to Ludekens by Segal on 27 June 2006;

(11) a version dated 1 January 2006, executed by the Silent Partners – Braham, Eric Poon, Hayben Richards and Claude Calleja. ‘Lotus Capital Group P/L’ is identified as the Grower and the Managing Partner; and

(12) a partnership agreement apparently provided by Ludekens to Great Southern and by Great Southern to the ATO. It is executed by the Silent Partners – Braham, Eric Poon and Claude Calleja, and Ludekens and Victoria Wen are named jointly as the Grower.

In each version, the structure is relevantly the same. The partnership agreement records a tripartite relationship between the Managing Partner, the Grower and the Silent Partners. The recitals state that the Grower has acquired plantations from Great Southern Plantations Limited which it holds as bare trustee for the Managing Partner. The Managing Partner will carry on the business of planting and farming the plantations and offer each Silent Partner a subscription of partnership units.

Following subscription, each Silent Partner is entitled to the profits and losses of the partnership business in accordance with their partnership unit holding. Neither the Managing Partner nor the Grower is required to make any financial contribution to the partnership and they are not allocated any partnership units. The partnership agreement provides that all property owned by the Partners is deemed to be owned by the partnership business as a separate legal entity and that the partners are to conduct themselves as if they had no direct ownership of the partnership property.

For the first three years from the commencement date, 100 per cent of the losses from the partnership business accrue to the Silent Partners in proportion to their holding of partnership units. After that period, 100 per cent of the profits or losses are to be distributed to the Silent Partners in accordance with their partnership unit holding until all losses from the partnership business have been recouped. Once that has occurred, the Managing Partner is entitled to receive a specified percentage of the net income earned by the partnership business until it is terminated.

The Managing Partner has sole and exclusive control of the partnership business and does not guarantee that the Silent Partners will receive any profits or losses from the business.

Importantly, clause 13 provides that each Silent Partner warrants and represents that it has been furnished with sufficient information about the partnership business and the Managing Partner to make an informed investment decision, is familiar with the partnership business and the Managing Partner’s proposed investments and ‘has obtained independent financial and legal advice with respect to joining’ the partnership business.

As noted, the judge found that Ambry performed no work in relation to the partnership agreement after 27 June 2006 when it provided a copy to Ludekens. In so finding, the judge rejected the applicant’s evidence that in June 2006 he was asked to go to Ambry’s office to sign the partnership agreement. According to the applicant, Harvey and Ludekens were present and he discussed with Harvey whether ‘they’ were still satisfied that the partnership (as structured) was going to satisfy the Ruling, that he would get his deduction and that the investment would go ahead as planned.[33]
[33]Ibid [155].

The investment

On 28 June 2006, the applicant and one other ‘Silent Partner’ executed the relevant partnership agreement at Ambry’s office. On the same day, Ludekens completed an application form for the woodlots, naming ‘Lotus Capital Group Pty Ltd’ as manager and ’Lotus Partnership No. 1’ as the account name.[34]
[34]Ibid [19].

On 30 June 2006, Great Southern Managers Australia Limited issued an invoice in the name of ‘Lotus Capital Group Lotus Partnership’ as the investing entity for the purchase of 500 woodlots in the 2006 Great Southern Project. The woodlots were acquired at a total cost of $1.5 million (excluding GST), funded by a loan for that amount from GSF. The GSF loan was taken out through the ‘Lotus Partnership No. 1’ account. The loan agreement was executed under a power of attorney on behalf of the borrower and on behalf of the applicant as one of two guarantors. On 20 July 2006, the applicant signed a finance application which contained a revocable power of attorney in favour of GSF.[35]
[35]Ibid [21].

On 11 August 2006, Ludekens applied for an ABN for the partnership. The Australian Business Register recorded the entity name as ‘S Braham and C Calleja and others’ under the trading name ‘Lotus Partnership No 1 and 2006 Braham Poon Richards and Calleja Partnership’.[36]
[36]Ibid [22].

The ATO decision

On 8 September 2010, the Deputy Commissioner determined that the tax deduction was not allowable, on the grounds, inter alia, that Braham:

(13) did not directly execute the application to invest in the 2006 Great Southern Project and apply for loan finance and there was no evidence that he had any right to receive income from the Scheme;

(14) had a purpose other than the derivation of income for entering into the Scheme;

(15) was not wholly committed to the GSF loan as evidenced by the lack of repayment leading to doubt as to whether any expenditure had been incurred;

(16) did not accept liability for the GSF loan, given that no loan repayments had been made for some three years; and

(17) was not of a class of entity to which the Ruling applied.

On 7 July 2011, the Deputy Commissioner disallowed an objection made by the applicant to the amended assessment. In making that decision, the Deputy Commissioner found:

(18) there was no partnership validly formed;

(19) even if there was a partnership validly formed, there was insufficient evidence that it existed when the documentation was executed on 28 June 2006;

(20) even if a partnership existed when the documentation was executed on 28 June 2006, there was insufficient evidence that the applicant was a member of the partnership on 28 June 2006; and

(21) even if a partnership existed, and the applicant was a member of it, there was insufficient evidence that the partnership incurred the claimed partnership loss.

In the objection decision, the Deputy Commissioner did not say that a partnership could not be a ‘Grower’ within the meaning of the Ruling, and many of the grounds proceed on the premise that a partnership could be a Grower. It appears that it took the contrary position in the AAT. The AAT proceedings were settled without the AAT making a decision.

The pleaded case

The applicant alleged that in June or July 2005, Ambry, through Harvey, advised Ludekens that individuals could comply with the Ruling by investing through a partnership structure. He pleaded that Ambry, through Harvey, prepared the Cash Flow Analysis, Flowchart and Procedure Document and knew that Ludekens intended to provide those documents to the applicant, when encouraging and advising individuals to invest in the project.[37]
[37]Third Further Amended Statement of Claim [12].

The applicant alleged that there had been an important meeting between him, Ludekens and Harvey in spring 2005 at which Harvey’s extensive experience was discussed and it was suggested by Harvey that a partnership was the best structure for the investment.[38]
[38]Ibid [14]. See also Reasons [167]–[169].

The applicant then pleaded that Ambry prepared a partnership agreement for the applicant and other partners so as to create a partnership and enable the Managing Partner (described as the ‘Lotus Capital Group’) to manage the partnership’s investment in the project, and a loan agreement.[39]
[39]Third Further Amended Statement of Claim [16].

He pleaded that at the time Ambry (through Harvey) gave advice to Ludekens and prepared the documents, he did so knowing that Ludekens or ‘Lotus Capital Group’ was acting as agent for the partners and that it was the partners, rather than Ludekens, who had retained Ambry to advise.[40] Alternatively, he pleaded that at the time he provided the advice and prepared the documents, Ambry (through Harvey) knew that the applicant and other partners would rely upon the advice and act upon the partnership agreement and therefore owed the applicant a duty of care in advising him and acting for him in connection with the partnership agreement.[41] These two aspects are the retainer claim and the breach of duty claim, respectively.
[40]Ibid [16A]–[18].
[41]Ibid [19]–[20].

The applicant alleged that Ambry had breached the retainer with the applicant and/or had failed to exercise the due care and skill expected of a reasonably competent ‘taxation and partnership’ firm of solicitors. In the particulars of breach, the applicant relied on a number of matters, some of which proceed on the basis that a partnership could comply with the Ruling but that the partnership agreement failed to do so by reason of its form and execution. Other particulars proceeded on the premise that a partnership could not be a ‘Grower’ and comply with the Ruling. He also pleaded that Ambry had failed to advise him that, as a partner, he would not be a ‘Grower’ within the meaning of the Ruling and that if he invested through a partnership, instead of individually, his investment would fall outside the Ruling.[42]
[42]Ibid [68].

In relation to the misleading or deceptive conduct claim, the applicant relevantly pleaded that by its conduct in preparing the documents, advising the applicant at the meeting in spring 2005 and preparing the partnership agreement, and by failing to ‘expressly state otherwise’, Ambry conveyed to the applicant that investing in the project through the partnership agreement and making a subsequent investment loan would comply with the Ruling, entitling him to a tax deduction for the amount invested in the project.[43] This was defined as the ‘Partnership Agreement Representations’.
[43]Ibid [69].

The applicant alleged that the Partnership Agreement Representations were misleading or deceptive because the partnership agreement and proposed investment structure did not comply with the Ruling; the relevant loss was not incurred by the partners but by Lotus Capital Group who had subscribed for the woodlots; and the loan agreement in combination with the partnership agreement amounted to a ‘scheme’ under s 177D of the ITAA.[44]
[44]Ibid [70].

The applicant alleged that he had relied on the representations by executing the partnership agreement, providing a guarantee for the loan by GSF to Lotus Capital Group, claiming the deduction and committing the tax refund to the partnership.[45]
[45]Ibid [72].

Alternatively, the applicant pleaded that the representations were made to Ludekens[46] and that Ludekens had relied on the representation by utilising the partnership structure instead of suggesting that the individuals invested individually as Growers and by assuming that the partnership structure would come within the Ruling.[47] He alleged that as a result of reliance by Ludekens, the applicant had suffered loss and damage.[48]
[46]Ibid [69A].
[47]Ibid [72A].
[48]Ibid [72B].

The judge’s reasons

Although only the misleading or deceptive conduct remains in issue, it is convenient to sketch the judge’s conclusions on the three critical claims: the retainer, breach of duty and misleading or deceptive conduct. Her reasons in relation to the first two causes of action provide important context for her rejection of the misleading or deceptive conduct claim.

Retainer claim

The judge described the retainer claim as the primary case. The judge noted that the alleged retainer between the applicant and Ambry arose principally from the instructions given to Ambry to draft the partnership and loan agreements, together with advice as to the appropriateness of a partnership as the vehicle for the partners to conduct their investment.[49]
[49]Reasons [166].

The judge rejected the existence of a retainer between the applicant and Ambry. She found that Ludekens was the client. Further, she found that Ambry was not instructed to furnish legal advice to Ludekens regarding the investment model generally, or specifically as to its compliance with the Ruling.[50]
[50]Ibid [244], [263].

Importantly, as already noted, the judge did not accept the evidence of the applicant that there had been a meeting in spring 2005 at which Harvey had assured him as to the suitability of the partnership.[51] She found the applicant’s evidence to be self-serving and unpersuasive and noted his failure to mention the existence of the advice in dealings and correspondence with the ATO despite the many opportunities to do so.[52] There were inconsistencies between the account the applicant gave in his AAT witness statement and the account he gave in evidence before the judge.[53] Ultimately, the judge did not accept that Braham ever spoke to Harvey about the taxation consequences of the Trees model and the partnership agreement.[54] Further, Ludekens was not called as a witness.
[51]Ibid [170].
[52]Ibid [174]–[179].
[53]Ibid [185].
[54]Ibid [197].

In rejecting the contention that there was a direct retainer between the applicant and Ambry, the judge noted that the applicant had recognised that he was investing in a product created by Ludekens to sell to high income individuals such as him. The judge noted that the applicant told the ATO in July 2010 that the investments in woodlots from 2005 to 2009 were ‘organised through Andrew Ludekens, all on a similar basis’.[55] He told the ATO examiner that he had proceeded ‘largely on trust’ and that Ludekens had promised him ‘he’s a financial advisor, this is all above board. There’s no risks involved.’[56]
[55]Ibid [221].
[56]Ibid [222].

The judge found that the applicant’s trust in the scheme proposed by Ludekens was misplaced. She said:

As it turned out, Ludekens’ model for the 2006 investment was defective for a number of reasons. The Cashflow Analysis showed the 2006 investment to be commercially unviable. The model attracted the attention of the ATO, which concluded that the 2006 investment was a scheme driven by a potential tax saving: ‘a scheme that in form collected trading capital from the investor, but in substance collected that capital from the tax system with the investor merely acting as a conduit.’ The 2006 investment was a classic example of something that looked too good to be true and was: it purported to permit investors to take an interest in a product that could generate significant returns in the longer term without having to put up any money other than the tax refund generated by the investment itself. In other words, Ludekens’ magic pudding investment product purported to generate something from nothing.[57]

[57]Ibid [223] (citations omitted).

The judge concluded that Ludekens, on his own account, and not the applicant’s, retained Ambry. Her Honour found that in 2005 and 2006, Ludekens retained Ambry to provide advice and assistance on aspects of the development of an investment product that had the Lotus Trees Partnership at its core. Ludekens was the client and he gave instructions to Ambry on his own behalf, not on behalf of prospective unidentified Silent Partners. The retainers were limited retainers. Finally, on at least two occasions, Ludekens declined to obtain further advice on the investment structure proposed.[58]
[58]Ibid [234].

Breach of duty of care

The judge did not accept that Ambry owed a duty of care to advise the Silent Partners, including the applicant, about the suitability of the partnership structure to achieve the taxation and investment goals.

The judge found it inconceivable that Harvey would have advised anyone on the suitability of a partnership vehicle in circumstances where he had expressed the view that the investment ‘just did not stack up’. She also reiterated that the documentary evidence established that Harvey did not advise Ludekens on the partnership structure and its compliance with the requirements in the Ruling. [59] She found it to be unlikely that Harvey would have given the applicant any assurances about his tax position, given that Harvey knew nothing about the applicant’s financial affairs.[60]
[59]Ibid [170].
[60]Ibid [170]–[171].

The judge found that Harvey did not know that the applicant was to be a partner and, as a result, the loss of the applicant’s tax deduction was not foreseeable. Further, Ambry had no ability to obtain information from the applicant or to exercise control over his tax affairs.[61] The applicant was not vulnerable in the relevant sense and was counselled to take independent advice. His own accountant, Mr Lamanna had, on 11 June 2006, strongly encouraged him to obtain independent financial advice before committing to an investment of the kind.[62] The partnership agreement itself contained a warranty that he had obtained independent legal advice.[63] In relation to this second aspect, the judge rejected a submission that clause 13 of the partnership agreement was only concerned with joining the partnership and potential disputes inter se and not with the suitability or efficacy of the partnership more broadly. The judge noted that the warranty related to obtaining advice about joining the partnership as well as the rights and obligations imposed on the relevant parties. Had such advice been obtained, it would have extended to the partner’s entitlement to a tax deduction, which was integral to the viability of the arrangement.[64]
[61]Ibid [245]–[246].
[62]Ibid [247]–[248].
[63]Ibid [250].
[64]Ibid [251]–[252].

Ultimately, the judge concluded that the imposition of a duty of care on Ambry to advise and take reasonable care for the interests of the applicant would be inconsistent with the professional duties owed to its client, Ludekens.[65]
[65]Ibid [254].

The judge then turned to the third and final aspect of the claim.

The judge’s findings on misleading or deceptive conduct

The judge rejected the misleading or deceptive conduct claim on the basis that she was not satisfied that the alleged representations were made to either Ludekens or Braham.

The judge concluded:

… there is no substance to the allegations of misleading or deceptive conduct by Ambry. Ambry did not produce the Procedure Document or the Flowchart. These documents were prepared and disseminated by Ludekens. Harvey did not ‘walk’ Ludekens through these documents in the sense that he explained the documents to Ludekens, because they were Ludekens’ own handiwork. Harvey himself was unimpressed by the Procedure Document. In his evidence he identified features of the Procedure Document that were ‘stupid’ and considered that it appeared to have been ‘cobbled together’. Ambry was not retained to give legal advice to Ludekens regarding the investment model generally, or specifically as to its compliance with the Product Ruling. No representations were made in that regard to Braham either directly or indirectly through Ludekens.
Furthermore, having regard to this context and to the findings that I have made concerning the retainers with Ludekens, the act of drafting the Partnership and Loan Agreements did not constitute a representation to the Silent Partners that they would become eligible for tax refunds for of [sic] their investments in the 2006 Great Southern project.[66]

[66]Ibid [263]–[264].

The judge found it unnecessary to go on to determine whether causation had been established. We shall return to this aspect later in these reasons.[67]
[67]Ibid [279].

Proposed ground of appeal 1 — findings on misleading or deceptive conduct

Grounds 1 and 2 are interrelated. Ground 1 does not stand alone but rather is the basis for ground 2. In order for the appeal to succeed, the applicant must succeed on ground 2. We will begin by considering ground 1.

Proposed ground 1 commences with the contention that the judge erred in concluding ‘that Ambry was not engaged to advise and made no representations to Ludekens about whether an investment in the 2006 Great Southern project through a partnership structure’ would comply with the Ruling. In his written case, the applicant submits that the judge ‘erred in concluding that Ambry was not instructed to advise, and gave no advice, about the partnership structure or whether a partnership was an appropriate investment vehicle for the 2006 Great Southern Project.’

As already noted, there is no challenge to the judge’s finding on the retainer or negligence claims. Pursuant to those findings, the judge concluded that Ludekens was the client in his own right and he did not retain Ambry to advise him about the partnership model generally, or specifically as to its compliance with the Ruling.

In oral submissions before this Court, the applicant clarified his position and disavowed any challenge to those findings in the proposed appeal. He submits that the relevant misleading or deceptive conduct is the preparation and proffering of the partnership agreement. Although he does not seek to disturb the judge’s finding that there was no retainer to advise on compliance with the Ruling, the applicant says that, in context, the partnership had a well-understood purpose, namely, to undertake the investment in a way that complied with the Ruling and secure the tax deduction. There was no point in having a partnership if it was incapable of achieving this goal.

Importantly, in seeking to impugn the judge’s conclusion, the applicant does not seek to rely on evidence of any oral communication between Harvey or the employed solicitors and Ludekens or Braham. There is a good reason for taking that course. It is apparent from her reasons that the judge considered Braham to be a poor witness. She found his evidence to be self-serving and unpersuasive and where it conflicted with evidence given by Harvey she preferred the latter.[68] Further, Ludekens was not called as a witness.
[68]Ibid [174].

By ground 1, the applicant contends that the judge made factual errors or failed to make findings of fact that ought to have been made.

The applicant identifies the following matters as constituting error:

(22) the finding that the 2006 investment was defective for reasons other than the use of a partnership or the partnership agreement (Reasons [223]);

(23) the finding that the documentary evidence established that Harvey did not advise Ludekens on the partnership structure and its compliance with the requirements of the Ruling (Reasons [170], [263]);

(24) the finding that the Annuity Advice related to ‘the taxation of the income stream from the proposed annuity investment that was the second limb of the model’, ie that it did not relate to the partnership’s investment in the 2006 Great Southern Project (Reasons, [170], [215]);

(25) the finding that, in giving the Annuity Advice, Harvey was not asked to advise, or required to consider, the use of a partnership as the investment vehicle and whether the anti-avoidance provisions of the tax law may apply (Reasons [65]);

(26) the finding that Harvey was not required to consider, and did not consider, the question of the tax deductibility of the partners’ respective shares in the woodlots investment (Reasons [73]–[75]);

(27) the failure to find that Harvey knew it was essential that the partners be able to rely upon the Ruling in making their investment through the partnership structure;

(28) the finding that there was no evidence that any Ambry lawyer considered whether the arrangements in the partnership agreement would comply with the requirements of the Ruling (Reasons [142]);

(29) the finding of ‘an obvious cost to Ludekens’ if a partnership structure was not used (Reasons [253]);

(30) the finding that Harvey had no involvement in the preparation or dissemination of the Procedure Document and the Flowchart (Reasons [263]); and

(31) the finding that Ambry only performed work pursuant to discrete written retainers (Reasons [213]) and that there was no evidence of such a retainer for Ambry to advise on whether the partnership structure was capable of complying with the Ruling (Reasons [216]).

The applicant groups those errors by reference to the following propositions and it is convenient to deal with them under the same topics:

(32) the financial model was defective and attracted the ATO’s attention because a partnership structure was used;

(33) Ambry acknowledged in the Annuity Advice that the Ruling underpinned the investment model;

(34) Harvey knew it was essential that the Ruling be complied with in order to secure the deduction;

(35) Ambry relied on the Ruling in preparing the partnership agreement and loan agreement, the Annuity Advice and Cash Flow Analysis, and summaries of the partnership agreement;

(36) Harvey tacitly endorsed the Procedure Document; and

(37) Ambry was retained to provide an opinion on the model.

Before addressing each matter, it is convenient to refer to the principles which this Court must apply in considering findings of fact made by a trial judge.[69] A central tenet of those principles was explained by the High Court in the following passage in Robinson Helicopter Co Inc v McDermott:

A court of appeal conducting an appeal by way of rehearing is bound to conduct a ‘real review’ of the evidence given at first instance and of the judge’s reasons for judgment to determine whether the judge has erred in fact or law. If the court of appeal concludes that the judge has erred in fact, it is required to make its own findings of fact and to formulate its own reasoning based on those findings. But a court of appeal should not interfere with a judge’s findings of fact unless they are demonstrated to be wrong by ‘incontrovertible facts or uncontested testimony’, or they are ‘glaringly improbable‘ or ‘contrary to compelling inferences’.[70]

[69]See Jadwan Pty Ltd v Rae & Partners (A Firm) [2020] FCAFC 62, [404]–[415] (Bromwich, O’Callaghan and Wheelahan JJ) for a recent summary of these principles (‘Jadwan’).

[70](2016) 90 ALJR 679, 686-7 [43]; [2016] HCA 22 (French CJ, Bell, Keane, Nettle and Gordon JJ) (citations omitted).

This Court must take into account the limitations that exist in an appeal setting and the comparative advantages of the trial judge in the evaluation of the credibility of witnesses. However, the limitations do not extend to inferences drawn by the primary judge; an appellate court is in as good a position as the trial judge to decide the proper inferences to be drawn from the facts in the case.[71]
[71]Lee v Lee (2019) 93 ALJR 993, 1002-3 [55]; [2019] HCA 28 (Bell, Gageler, Nettle and Edelman JJ); Jadwan [2020] FCAFC 62, [405]–[415] (Bromwich, O’Callaghan and Wheelahan JJ); Phelan v Melbourne Health [2019] VSCA 205, [77] (Tate and Kaye JJA and Zammit AJA). See also Bauer Media Pty Ltd v Wilson [No 2] (2018) 56 VR 674, 736–737 [272]–[273]; [2018] VSCA 154 (Tate, Beach and Ashley JJA).

Defects in the model

The first factual matter challenged by the applicant relates to the trial judge’s finding at [223] that the 2006 investment was defective for reasons other than the use of a partnership or the partnership agreement. We have set out paragraph [223] above.[72] The point that the applicant wishes to make is that this error reveals that the judge misunderstood the applicant’s case. He submits that the judge was focused on the commercial viability of the scheme whereas the fundamental error was that an investment through a partnership could not comply with the Ruling.
[72]See [93] above.

In our view, there was no error in the judge’s conclusion that the model was defective, in the sense that it would not comply with the Ruling, for a number of reasons. Nor did her Honour’s conclusion in this respect betray any error on her part as to the substance of the applicant’s case.

It will be recalled that the AAT proceeding in which the objection decision was challenged was compromised. There were a number of bases upon which the Commissioner contended that the investment did not comply with the Ruling. They included that the Commissioner did not accept that the applicant had entered into a partnership at the relevant time or that the partnership had incurred the relevant expense. These problems are independent of whether or not a partnership could obtain the benefit of the Ruling. The judge was right to say that the deductibility question was not a simple one.[73]
[73]Reasons [216].

In relation to the Ruling, the Commissioner concluded that the applicant was not a Grower because he did not apply for the woodlots. Further, the application was made in the name of Lotus Capital Group and the Commissioner was not satisfied that it acted on behalf of the applicant in applying for the woodlots. In addition, the Commissioner concluded that the loan agreement took the arrangement outside the Ruling because it included indemnity arrangements or other collateral agreements in relation to the loan which were designed to limit the borrower’s risk.

The objection decision does not identify as a disqualifying factor for the operation of the Ruling that the investment was purportedly made through a partnership. Indeed, it was not established before the AAT or by the judge that a partnership could not be a Grower for the purpose of the Ruling.

Moreover, whether the judge was right to observe that there were a number of relevant defects with the model, including from a commercial perspective, is irrelevant to the issue the judge found decisive, namely, that no representations were made.

The Annuity Advice

The second, third and fourth of the impugned findings relate to the conclusion drawn by the judge from the Annuity Advice. The judge found that:

(38) the documentary evidence established that Harvey did not advise Ludekens on the partnership structure and its compliance with the requirements of the Ruling;[74]

(39) Ambry held no retainer to advise on the tax effectiveness of the investment structure represented in the Flowchart;[75] and

(40) Ambry was not retained to give legal advice to Ludekens regarding the investment model generally, or specifically as to its compliance with the Ruling.[76]

[74]Ibid [170], [263].

[75]Ibid [215].

[76]Ibid [65], [170], [263].

The applicant submits that these findings cannot sit with the terms of the Annuity Advice or the context in which it was given. He submits that the Annuity Advice expressly stated that Harvey was to ‘rely’ on the Ruling, and at least one version of the Annuity Advice concluded by attaching the Cash Flow Analysis describing the income tax consequences of the investment and the annuity.

The applicant also relied on evidence given by Harvey in cross-examination that he understood that the tax refund was critical to the investment model and that in order to obtain a refund, the investment had to comply with the Ruling. Relatedly, the assumption contained in the Annuity Advice that the anti-avoidance provisions of the tax law would not apply could only be true if the proposed scheme complied with the Ruling.

The applicant complains that the judge did not refer to the evidence of Harvey to the effect that if a part IVA anti-avoidance issue arose it was his practice to refer a client to an accounting specialist, Arthur Athanasiou, but he did not tell Ludekens to seek that advice.

Although the applicant eschewed reliance on the oral evidence, the oral evidence remains significant. It is clear that the judge’s findings about the nature of the retainer were heavily informed by the evidence given by Harvey and the employed solicitors. Based on that evidence, the judge accepted that Ambry formalised its retainers and, by and large, secured its fees up front. Ludekens’ requests for advice tended to be narrowly focused, related to a specific topic, and were the subject of agreement as to fees.

The terms of the Annuity Advice do not support the applicant’s submissions. The substance of the advice, as opposed to matters of instruction, is very confined and deals with the tax deductibility of the annuity income. Reading the letter in full, it is not possible to discern an expression of opinion as to whether the investment will comply with the Ruling.

The Cash Flow Analysis, which was prepared by Harvey, was used by him to demonstrate that the model was economically flawed. The applicant’s evidence was that he did not recall seeing the document. The document does not contain any advice or deal with whether any future investment would comply with the Ruling.

The applicant relies heavily on the fact that Harvey records that his instructions are that he is to ‘rely’ on the Ruling. However, his instructions to rely on the Ruling do not amplify the subject matter of the advice. The statement in the advice that he is to rely on the Ruling most naturally conveys, to the contrary, that the author of the advice is to assume that the Ruling will be applicable. The obligation to rely on the Ruling is not consistent with a request to advise on whether a partnership investment could comply with the Ruling. Nor does it suggest that the author is required to form an independent opinion about the meaning of the Ruling or its application to any proposed investment.

The narrow focus of the advice is reinforced by the matters of context which we have mentioned. The advice was sought around 10 months before Ambry was instructed to draft the partnership agreement. In short, there was no error by the judge in concluding that the retainer for the Annuity Advice did not require Ambry to advise on the taxation treatment of the investment beyond the question, addressed in the advice, as to whether income derived from an annuity would be taxable.[77]
[77]Ibid [57]–[65].

Harvey’s knowledge that it was essential the Ruling applied

The fifth and sixth matters relate to the judge’s conclusion that Harvey was not required to consider, and did not consider, the question of the tax deductibility of the investment by reference to the Ruling. The applicant submits that this finding is inconsistent with Harvey’s 2005 file note and Harvey’s knowledge that it was essential that the partners could rely on the Ruling in order to obtain a tax deduction. It is also said that the judge erroneously failed to find that Harvey knew that it was essential that the partners be able to rely on the Ruling in making their investment.

In the 2005 file note, Harvey recorded a number of questions which the facts raised. These were whether the partners were entitled to a tax deduction and questions relating to the taxation consequences of the arrangement. The applicant points to the fact that Harvey conceded that the investment was tax-driven and that compliance with the Ruling was essential. No doubt that was true. Harvey was apparently an experienced tax lawyer, and his file note and the Cash Flow Analysis referred to the link between the tax refund and the scheme.

So much may be accepted. However, it does not follow from that evidence that the retainer encompassed a request for advice on tax deductibility or that Ambry was addressing whether a partnership could access the deduction in accordance with the Ruling. There is a relevant distinction between an understanding of the motivation for the transaction and the subject matter of discrete retainers. Compliance with the Ruling was essential to any putative investor who was minded to join the partnership and invest in the product. However, Ambry was not advising would-be investors. Further, its retainers with Ludekens were confined. As the judge found, they did not require Ambry to advise on the deductibility of the investment. Apart from the arguments we have already considered regarding the Annuity Advice, there is no challenge to those findings.

The judge referred to Harvey’s evidence about the importance of deductibility to the scheme and his acknowledgement that the model was tax-driven.[78] The issue for the judge was not whether Harvey thought that compliance with the Ruling was essential for a tax deduction. The primary issue was whether Ambry was retained on behalf of the partnership and, if so, what advice should have been given.[79] The applicant failed in respect of that aspect of the case. For the purpose of the submissions with respect to the alleged representations, what Harvey knew was less important than what the documents he prepared conveyed to the applicant, which was central. As explained below in relation to ground 2, little if anything was added by considering Harvey’s silence on these matters. The case rested substantially on what was represented by the preparation of the partnership agreement.
[78]Ibid [73]–[75], [216].
[79]Ibid [160].

Whether Ambry considered whether the investment would comply with the Ruling

The seventh matter the applicant seeks to establish is that, contrary to the judge’s finding, the Ambry lawyers considered whether the investment would comply with the Ruling. In that respect, he submits that Harvey acknowledged that he inserted the word ‘Grower’ in the partnership agreement.

The applicant noted that the 2005 Summary of the partnership agreement referred to each Silent Partner paying an amount as a capital contribution determined by reference to that partner’s tax credit. Similarly, the 2006 Summary of the partnership agreement referred to the lodgement of a partnership tax return and individual tax returns for the partners and stated that, in the event that a Silent Partner received a tax refund from the ATO due to the tax deduction for the partnership business, the Silent Partner must provide the refund to the Managing Partner up to an agreed amount.

The applicant submits that the entire model depended on obtaining tax deductions and tax refunds to fund the annuity investment. Ludekens saw this model as attractive because it enabled him to solicit investment and therefore the judge was wrong to conclude that there was no evidence of an obvious cost to Ludekens if a different structure was adopted. That was because he saw it as advantageous to securing business from potential investors to fund the investment by a tax refund.

Relevantly, the judge concluded that no Ambry lawyer considered whether the arrangements in the partnership agreement drafted in 2006 would comply with the requirements of the Ruling. The author of the partnership agreement, Segal, said that she did not consult the Ruling for the purpose of confirming that the arrangements would be compliant with the terms of the Ruling.[80] The judge was entitled to accept that evidence.
[80]Ibid [142].

Plainly, the Ruling formed part of the background matrix in which the partnership agreement came to be drafted. However, the process of drafting the partnership agreement itself did not require a consideration of the extent to which it complied with the Ruling.

The eighth matter does not take the applicant further and may be put to one side.

Whether Harvey endorsed the Procedure Document

The ninth matter relied on is an attack on the judge’s finding that Harvey had no involvement in the preparation or dissemination of the Procedure Document and the Flowchart.[81]
[81]Ibid [263].

The judge concluded that Harvey did not walk Ludekens or the applicant through the Procedure Document. The judge noted that metadata associated with the Procedure Document identified the author as ‘Andrew’.[82] The Procedure Document and the Flowchart bear the Lotus logo, again suggesting that they were produced by Ludekens. The impugned finding was well open to the judge.
[82]Ibid [193].

The judge’s findings were made in circumstances where Ludekens did not give evidence and were informed by her assessment of the evidence of the applicant, which she found to be unpersuasive.

Whether Ambry was retained to provide an opinion on the model

The final matter asserts that the judge was wrong to find that Ambry only performed work pursuant to discrete written retainers[83] and there was no retainer on whether the partnership structure was capable of complying with the Ruling.[84]
[83]Ibid [213].
[84]Ibid [216].

The applicant submits that the judge’s findings are artificial, given that the Annuity Advice and Cash Flow Analysis were prepared pursuant to Harvey’s email of 24 July 2005, offering an opinion on the model. Further, he points to the fact that the initial draft of the partnership agreement was undertaken without any written retainer.

The judge carefully analysed each of the retainers, and the documents that were either prepared by Ambry or relied on by the applicant. Her findings that Ambry was not retained to advise on deductibility were soundly based.[85] They were based on the practice that was adopted and the contents of documents; the findings were compelling.
[85]Ibid [213], [216].

Conclusion on factual matters

In our view, the applicant’s attacks on the judge’s individual findings of fact fail. The judge did not make the alleged errors in the findings of fact that she made.

Essentially, from that catalogue of matters, the applicant seeks to establish little more than that Harvey was aware that the Ruling was essential to the commercial operation of the scheme from the perspective of would-be partners. It was said this knowledge informed what could reasonably be drawn from the partnership agreement. It may be accepted that Harvey knew why Ludekens wanted Ambry to draft a partnership agreement as a vehicle for investors to invest in woodlots in a tax effective way. It is clear that Harvey knew that compliance with the Ruling was important because it provided assurance that the deduction would be allowed and the refund paid. The relevance of these matters is considered in connection with ground 2.

Proposed ground 2 — conclusion as to misleading or deceptive conduct

Ground 2 builds on ground 1 and asserts that the judge erred in that she:

(41) made the erroneous factual findings referred to in ground 1;

(42) failed to consider whether Ambry’s conduct as a whole (rather than in isolated parts) was misleading or deceptive; and

(43) failed to analyse Braham’s claim that Ambry’s preparation and provision of the investment structure comprised in the partnership agreement and the loan agreement amounted to misleading or deceptive conduct, and that he suffered loss by that conduct.

The applicant referred to a number of authorities to establish that misleading or deceptive conduct may be established even where there is no discrete representation.

In Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd, French CJ and Kiefel J noted that in order to assess whether there has been misleading or deceptive conduct it is necessary to determine ‘whether in the light of all relevant circumstances constituted by acts, omissions, statements or silence, there has been conduct which is or is likely to be misleading or deceptive’.[86]
[86](2010) 241 CLR 357, 368 [14]; [2010] HCA 31 (‘Miller’). See also Google Inc v Australian Competition and Consumer Commission (2013) 249 CLR 435, 464–5 [89]; [2013] HCA 1 (Hayne J) (citations omitted).

In Butcher v Lachlan Elder Realty Pty Ltd, McHugh J, in a dissenting judgment, noted the importance of assessing conduct in its broader context:

The question whether conduct is misleading or deceptive or is likely to mislead or deceive is a question of fact. In determining whether a contravention of s 52 has occurred, the task of the court is to examine the relevant course of conduct as a whole. It is determined by reference to the alleged conduct in the light of the relevant surrounding facts and circumstances. It is an objective question that the court must determine for itself. It invites error to look at isolated parts of the corporation’s conduct. The effect of any relevant statements or actions or any silence or inaction occurring in the context of a single course of conduct must be deduced from the whole course of conduct. Thus, where the alleged contravention of s 52 relates primarily to a document, the effect of the document must be examined in the context of the evidence as a whole. The court is not confined to examining the document in isolation. It must have regard to all the conduct of the corporation in relation to the document including the preparation and distribution of the document and any statement, action, silence or inaction in connection with the document.[87]

[87](2004) 218 CLR 592, 625 [109]; [2004] HCA 60 (‘Butcher’) (citations omitted).

That passage was endorsed by four members of the High Court in Campbell v Backoffice Investments Pty Ltd.[88]
[88](2009) 238 CLR 304, 341–2 [102]; [2009] HCA 25 (Gummow, Hayne, Heydon and Kiefel JJ).

In Miller, French CJ and Kiefel J noted that for conduct to be misleading or deceptive it is not necessary that it convey express or implied representations.[89] The distinction between misleading or deceptive conduct and representations was also emphasised by McHugh J in Butcher. It accords with the more general proposition that conduct will be misleading or deceptive if it has a tendency to lead into error.[90]
[89](2010) 241 CLR 357, 368 [15]; [2010] HCA 31.
[90]Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640, 651 [39]; [2013] HCA 54 (French CJ, Crennan, Bell and Keane JJ).

Although the statutory provision catches conduct beyond the making of a representation, the most common form of proceeding remains one based on a misrepresentation on which the plaintiff relies, resulting in loss and damage. In that typical way, the representation constitutes the conduct, reliance supplies causation and the remedy is compensation for the loss or damage. Conduct that does not readily constitute a representation as to present or future matters may still be misleading or deceptive. Examples may include omissions, silence and half-truths that are, in their context, misleading or deceptive. Each of these may also be, and often are, pleaded as an implied representation.

As an alternative to his positive misrepresentation case, the applicant sought to characterise the failure of Harvey to contradict the pleaded Partnership Agreement Representations as the non-disclosure of an ‘important qualifying fact’ that needed to be, but was not, disclosed to the applicant or Ludekens. This formulation of the case relied on the following further passage in the reasons of French CJ and Kiefel J in Miller:

When a document contains a statement that is true, non-disclosure of an important qualifying fact will be misleading or deceptive if the recipient would be misled, absent such disclosure, into believing that the statement was complete.[91]

[91](2010) 241 CLR 357, 371 [23]; [2010] HCA 31.

Whether the representation is alleged to have been conveyed positively or by omission, cases that do not involve a direct representation to the plaintiff can raise challenging questions on causation. In the case of a misrepresentation that induces the plaintiff to enter into a transaction, reliance has, in some cases, been held to be essential. However, causation may be established where a third party, but not the plaintiff, relies on the representation. In other cases, for example, in the context of shareholder class actions, reliance may not be essential.

In TPT Patrol Pty Ltd v Myer Holdings Ltd,[92] Beach J, after an extensive survey and analysis of authority, considered there to be three well-established mechanisms for causation in misleading or deceptive conduct cases:
[92](2019) 140 ACSR 38; [2019] FCA 1747 (‘TPT v Myer’).

(44) ‘direct causation’ where the conduct induces the plaintiff to some course of action, requiring proof that the plaintiff relied upon some impression created by the defendant’s misleading act or omission;

(45) ‘indirect or intermediary causation’, which includes two sub-categories:

(i) ‘active indirect causation’ where the defendant’s acts induce some reaction in X and the plaintiff would have acted differently but for that reaction by X. There is no additional requirement that the plaintiff was aware of or relied on the defendant’s conduct. Hampic Pty Ltd v Adams[93] provides an example. There the injured plaintiff did not see or read the misleading label but her supervisor had relied on it; and

(ii) ‘passive indirect causation’ where the defendant’s conduct induces some reaction in X and that reaction by X causes loss to the plaintiff without any reaction by the plaintiff. In Janssen-CilagPty Ltd v Pfizer Pty Ltd[94] the defendant’s conduct misled the plaintiff’s customers who moved their business from the plaintiff to the defendant, causing the plaintiff loss.[95]

[93][1999] NSWCA 455.

[94](1992) 37 FCR 526; [1992] FCA 649.

[95]TPT v Myer (2019) 140 ACSR 38, 316-7 [1656]–[1660]; [2019] FCA 1747.

In this case, the applicant pleaded that Ambry’s conduct, including by failing to state otherwise, conveyed to him, or to Ludekens, that investing in the project through the partnership agreement and entering into the loan agreement would comply with the Ruling, entitling him to a tax deduction for the amount invested.[96] As already noted, this was defined as the ‘Partnership Agreement Representations’. The applicant alleged that he, or alternatively Ludekens, relied on the representations.[97] In this way, the applicant relied on ‘direct’ and ‘active indirect’ causation respectively.
[96]Third Further Amended Statement of Claim [69].
[97]Ibid [72]–[72A].

In relation to the representations to Ludekens, a number of cases have considered whether in that context, reliance, either by the plaintiff or a third party, is essential.[98] It is not necessary to enter into that debate because the applicant’s alternative case is that the representations were made to Ludekens who relied on them, causing loss and damage to the applicant. The relevant reliance by Ludekens was not investing in the scheme but promoting it.
[98]Re HIH Insurance Ltd (in liq) v McGrath (in his capacity as liquidator of HIH Insurance Ltd) (2016) 335 ALR 320; [2016] NSWSC 482; TPT v Myer (2019) 140 ACSR 38, 303-10 [1581]–[1610]; [2019] FCA 1747 (Beach J).

Was a positive representation made to the applicant?

The question is whether the preparation and proffering of the partnership agreement by Ambry carried with it a representation to the applicant that a partnership agreement was a structure that would comply with the Ruling. In our view it did not.

Whether conduct conveys a representation is to be determined objectively, taking into account the circumstances.[99] Relevant matters include the nature of the parties and their relationship; the character of the transaction; the terms of the partnership agreement; and the state of knowledge of the participants.
[99]Global One Mobile Entertainment Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 134.

First, the applicant was a relatively experienced investor, who had invested in a woodlot scheme through a partnership in 2005 and had successfully obtained a tax deduction for that investment. The investment in question involved a large amount of money. One would reasonably expect a degree of prudence on the part of an investor in those circumstances and a capacity to obtain independent advice. His own accountant had strongly encouraged him to obtain independent financial advice before committing to the investment.[100]
[100]Reasons [15]–[16], [249].

Secondly, as the judge found, the applicant did not retain Ambry. In those circumstances, he was not privy to the instructions given to Ambry, was not responsible for paying for any advice provided by the firm and had no direct professional relationship with the firm. There was no reasonable basis for the applicant to assume that Ludekens had obtained from Ambry any specific advice in relation to whether the proposed scheme complied with the Ruling. In other words, given that the terms of the retainer between Ambry and Ludekens were apparently not known to Braham, they did not inform any implied representation to Braham. We deal with the representation to Ludekens below.

Thirdly, there was no direct communication between Ambry and the applicant. The applicant claimed to have met with Harvey and Ludekens at Ambry’s offices in around September 2005 and to have signed the partnership agreement at Ambry’s office. The judge did not accept that either event occurred or that Braham ever spoke to Harvey about the taxation consequences of the Trees model and the partnership.[101] Further, the applicant does not rely on any communication between Ambry and Ludekens beyond that which can be inferred from the documents.
[101]Ibid [157]–[158], [170], [197].

Fourthly, the transaction here was relatively complex, involving both financial and legal matters. There were any number of reasons why the partnership might not be entitled to the tax deduction. The Deputy Commissioner identified a number of them. In the circumstances, it was reasonable for the applicant to proceed on the basis that some professional thought and expertise had been brought to bear on the transaction. However, in his own evidence the applicant made it clear that he looked to Ludekens, rather than Ambry, to provide assurances in relation to the transaction.

Fifthly, and importantly, there is very little in the text of the partnership agreement that supports the representation. Undoubtedly, there are aspects of the partnership that draw a link to the proposed investment and its relationship to the Ruling. For example, the partnership agreement provides that the Managing Partner will carry on the business of planting and farming the woodlot plantations; that the Managing Partner will lodge a tax return for the partnership business and, at the Silent Partner’s request, will also lodge the partner’s tax return at no cost to the partner.

The agreement also expressly provides that each Silent Partner warrants and represents that he or she has obtained independent financial and legal advice with respect to joining the partnership business.

Sixthly, the last version of the partnership agreement was prepared and provided to Ludekens by Ambry on 27 June 2006. At that point, it was unexecuted and lacked material particulars, including the identities of the Managing Partner, the Grower and the Silent Partners.[102] At that point, Ludekens had not applied for woodlots; he would do so through Lotus Capital Group Pty Ltd (as manager) the following day.[103] In circumstances where Ambry did not know the identity of the partners, or when the partnership would acquire woodlots, it is difficult to find in the preparation of the agreement a representation that the future investment of unidentified partners would attract the benefit of the Ruling.
[102]Ibid [158].
[103]Ibid [19].

Against those matters it is important, as the applicant submits, to acknowledge that Ambry knew that the scheme was tax-driven and required compliance with the Ruling. Ambry’s knowledge might be relevant as part of the broader context, but given that there was no evidence of a relevant communication between Ambry and the applicant, it is not established that the applicant was aware of Harvey’s knowledge on the topic. Even if the applicant knew that the firm of solicitors who prepared the partnership agreement was aware of the importance of the Ruling, it does not follow that the drafting of the agreement entailed a representation to future investors that it was compliant with the Ruling.[104]
[104]Ibid [221]–[222].

Putting the matters together, we are not satisfied that the drafting and proffering of the partnership agreement entailed a representation to the applicant that the partnership agreement complied with the Ruling.

Did the conduct convey the representation to Ludekens?

The applicant also pleaded that Ludekens relied on the representation and, as a result, the applicant suffered loss and damage.[105] The first question that arises on this ‘indirect’ causation part of the case is whether the representations were made to Ludekens.
[105]Third Further Amended Statement of Claim [72A]–[72B].

It is notable that Ludekens did not give evidence in the proceeding. It follows that there was no direct evidence that he understood that, by preparing the partnership agreement, Ambry was representing to him that a partnership could come within the Ruling. (Nor is there evidence that he relied on such a representation.) Those matters aside, the judge was correct to conclude that no express representations were made to Ludekens.[106]
[106]Reasons [263].

It is then necessary to consider whether the representations were conveyed to Ludekens by implication. An important part of the context for any implied representations to Ludekens is the ambit of the retainer to draft the partnership agreement. The judge found that the retainers entered into between Ludekens and Ambry were specific in nature and did not include a retainer to advise regarding the investment model generally, or specifically as to its compliance with the Ruling.[107] The applicant does not challenge that beyond saying that the retainer to draft the partnership agreement required Ambry to assess compliance with the Ruling because that is what the partnership was intended to do.
[107]Ibid [132], [212], [213], [215], [216], [263].

The terms of a retainer will usually define the scope of the duty owed to the client in both contract and tort.[108] Generally, the scope of the duty may include a duty to warn the client of material risks inherent in implementing a proposed transaction in a particular way.[109] However, the content of the duty will be fact and context specific and it is unwise to be dogmatic in general terms about what needs to be done in fulfilment of the retainer.[110]
[108]Astley v Austrust Ltd (1999) 197 CLR 1, 22–3 [47]-[48]; [1999] HCA 6 (Gleeson CJ, McHugh, Gummow and Hayne JJ).
[109]Badenach v Calvert (2016) 257 CLR 440, 457 [57]; [2016] HCA 18 (Gageler J); Heydon v NRMA Ltd (2000) 51 NSWLR 1, 53 [145]; [2000] NSWCA 374 (Malcolm AJA).
[110]Provident Capital Ltd v Papa (2013) 84 NSWLR 231, 233 [2]; [2013] NSWCA 36 (Allsop P); Jadwan [2020] FCAFC 62 [437]–[442] (Bromwich, O’Callaghan and Wheelahan JJ).

When advising clients entering into commercial contracts, a solicitor does not ordinarily have a duty to give opinions about the financial prospects of the proposed arrangements.[111] By way of example, ordinarily, unless provided for by the retainer, a solicitor acting for a commercial lender will be responsible for the legal efficacy of any security for the loan, but not the value of the security, or the borrower’s creditworthiness or capacity to make repayments.[112]
[111]Richtoll Pty Ltd v WW Lawyers (in liq) Pty Ltd [2016] NSWSC 438, [161] (Hoeben CJ at CL).
[112]Ibid [162].

As noted in respect of ground 1, Harvey knew why Ludekens wanted a partnership agreement and what he intended to do with it. He also knew that compliance with the Ruling would have been important for any investor. However, in circumstances where there was a deliberate absence of any retainer to advise on deductibility, the retainer to draft the agreement did not carry with it an obligation to advise on whether investors who joined the partnership would be entitled to a tax deduction in accordance with the Ruling. That point is reinforced by the fact that in May to June 2006, Ambry raised with Ludekens whether he wanted advice on the best structure to use.[113] This work was excluded[114] and Ludekens did not seek further advice.[115]
[113]Reasons [109].
[114]Ibid [111]–[112].
[115]Ibid [117].

Ambry was obliged to prepare a partnership agreement to record the arrangements between parties who intended to carry on business together with a view to profit. Even where the partnership had a particular investment or business in mind, the retainer to draft the partnership agreement would not generally carry with it any obligations to advise in relation to the conduct of the business.

Ambry did give advice, as retained, on the risk that the promotion or carrying on of the partnership business might constitute a MIS.[116] However, as the judge correctly found, there was no retainer to advise on taxation issues generally and none can be found in the retainer to draft the partnership agreement.
[116]Ibid [108], [118]–[121].

The applicant submits that the judge erred by approaching the matter through the prism of contract law rather than through an assessment of the overall conduct and whether it was misleading or deceptive.

It may be accepted that there could be misleading or deceptive conduct by a solicitor to a person other than a client and that the existence and scope of a retainer will not be dispositive. A claim for misleading or deceptive conduct does not follow the precise contours of a claim in contract or tort law.

In Watkins v De Varda,[117] the New South Wales Court of Appeal upheld a claim in negligence and misleading conduct against a firm of solicitors in circumstances where the purchaser had not retained the solicitors to act. The facts in that case had some unusual aspects. The underlying transaction concerned the purported sale of land in Cambodia. The solicitor acted for the vendor. The vendor, solicitor and the purchaser, who had also been a client of the firm, met and discussed the transaction and the solicitor agreed to document the transaction. The solicitor prepared the documentation and told the parties that he was not an expert in Cambodian law. The documents were ineffective because, under Cambodian law, a non-resident could not own property in Cambodia. This fact was known to the solicitor. The solicitor argued that he was merely reproducing earlier documents, and had disclaimed any expertise in Cambodian law.
[117][2003] NSWCA 242 (‘Watkins’).

The trial judge held that the solicitor had engaged in misleading conduct by preparing the documents and passing them over as having a quality which they did not possess, namely, documents that would document the transaction and on the faith of which the purchaser should pay the purchase price.

In dismissing the appeal, Ipp JA (with whom Sheller JA and Foster JA agreed) held that, notwithstanding that there was no retainer between the solicitor and the purchaser, the solicitor owed a duty of care in the circumstances, including that the solicitor had given the purchaser the impression that he would look after his interests in the transaction.

In that case, it was clear from the document itself that it was incapable of conveying title, and it followed that the conclusion that title would not pass did not depend on any special knowledge of Cambodian law. The judge had found the solicitor had done more than simply reproduce documents.

Watkins provides an example of misleading or deceptive conduct by a solicitor to a non-client. But it is heavily dependent on its facts and the particular relationship between the solicitor and plaintiff that gave rise to the duty of care. It does not stand for the proposition that the absence of a retainer is irrelevant for the purpose of determining whether the preparation of a document carries a representation as to its legal efficacy to achieve a particular or intended outcome. In this case, as the judge found, the limited nature of the retainer was critical to the relationship between Ambry and Ludekens.

The applicant is correct in submitting that it is necessary to look beyond the precise terms of the retainer. However, it was an essential aspect of the professional relationship between Ludekens and Ambry that any advice would be confined to that which was sought by Ludekens as the client. That was significant in determining what inferences could reasonably be drawn as to what was conveyed by the provision of the partnership agreement itself. Ludekens must have been aware of these limitations. That being so, the fact that Ludekens had retained Ambry to prepare the partnership agreement weakened rather than strengthened the misrepresentation case to the extent that it was based on representations to Ludekens.

In these circumstances, Harvey’s ‘failure to expressly state’ to the contrary of the Partnership Agreement Representations cannot take the matter any further. In the language of French CJ and Kiefel J in Miller, if the preparation of the partnership agreement did not contain any representation of the kind pleaded, then Harvey’s failure to correct what was conveyed cannot be characterised as an ‘important qualifying fact’ without which the preparation of the document would be misleading.[118] The argument based on silence is therefore circular and adds nothing.
[118]See [153] above.

The other matters that applied to the applicant, also apply to Ludekens. They include that Ludekens was a professional adviser and he had initiated the partnership as the investment model.[119] Harvey had told Ludekens that the model did not ‘stack up’ and was sceptical about its viability.[120] As the judge found, it was unlikely that he would endorse the model in such circumstances[121] or that endorsement could be implied in the absence of any express statement.
[119]Reasons [218].
[120]Ibid [67], [68].
[121]Ibid [170].

From the time the partnership agreement left the Ambry office, Harvey and his employed solicitors played no further role in its execution.[122] At that time, there were to have been an unidentified number of investors, each in their own particular financial position; no instructions were provided about who they were.
[122]Ibid [197].

The judge was correct to hold that the applicant had failed to establish that the representations were made.

Ground 2 must be rejected.

Ground 3 — reasons

Ground three was faintly pressed and it can be dealt with briefly. The applicant contends that the judge failed to give reasons, or adequate reasons, for her conclusions in relation to the misleading or deceptive claim.

The relevant principles are not in issue. They were summarised by Nettle JA[123] in Hunterv Traffic Accident Commission & Avalanche in the following passage:

… while the extent of the reasons will depend upon the circumstances of the case, the reasons should deal with the substantial points which have been raised; include findings on material questions of fact; refer to the evidence or other material upon which those finding are based; and provide an intelligible explanation of the process of reasoning that has led the judge from the evidence to the findings and from the findings to the ultimate conclusion. It should also be understood that the requirement to refer to the evidence is not limited to the evidence that has been accepted and acted upon. If a party has relied on evidence or material which the judge has rejected, the judge should refer to that evidence or material and, in giving reasons which deal with the substantial points that have been raised, explain why that evidence or material has been rejected. There may be exceptions. But, ordinarily, where a judge rejects or excludes from consideration evidence or other material which is relevant and cogent, it is simply not possible to give fair and sensible reasons for the decision without adverting to and assigning reasons for the rejection or exclusion of that material. Similarly, while it is not incumbent upon the judge to deal with every argument and issue that might arise in the course of a case, where an argument is substantial or an issue is significant, it is necessary to refer to and assign reasons for the rejection of the argument or the resolution of the issue. Above all the judge should bear steadily in mind that reasons are not intelligible if they leave the reader to wonder which of a number of possible routes has been taken to the conclusion expressed. Failure to expose the path of reasoning is an error of law.[124]

[123]With whom Batt and Vincent JJA agreed.

[124]Hunterv Traffic Accident Commission & Avalanche [2005] VSCA 1, [21] (citations omitted).

The judge’s reasons are detailed and precise. The factual conclusions are set out and the evidence on which they are based is referred to. Explanations are given as to why evidence was rejected or given little weight. The path of reasoning on each of the three causes of action is revealed and easily comprehended. There is no substance to this complaint. Ground 3 is rejected.

Conclusion

In our view, the application for leave to appeal should be granted. However, none of the grounds have succeeded and the appeal must be dismissed.

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[2020] VSCA 108

6 May 2020