Colaciello v Christensen; Colaciello Super Pty Ltd v Christensen
[2023] VSC 568
•21 September 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROFESSIONAL LIABILITY LIST
S ECI 2019 00790
| ANTONIO COLACIELLO | Plaintiff |
| v | |
| RUSSELL LESLIE CHRISTENSEN | First Defendant |
| and | |
| WILLIAM VLAHOS | Second Defendant |
S ECI 2019 01359
| COLACIELLO SUPER PTY LTD (ACN 162 913 242) | Plaintiff |
| v | |
| MICHELLE MAREE CHRISTENSEN | First Defendant |
| and | |
| ANTONIO COLACIELLO | Third Party |
JUDGE: | GARDE J |
WHERE HELD: | Melbourne |
DATES OF HEARING: | 29 May 2023 - 1 June 2023; 5 June 2023 |
DATE OF JUDGMENT: | 21 September 2023 |
CASE MAY BE CITED AS: | Colaciello v Christensen & Anor; Colaciello Super Pty Ltd v Christensen & Anor |
MEDIUM NEUTRAL CITATION: | [2023] VSC 568 |
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MISLEADING AND DECEPTIVE CONDUCT – Fraud by promoter of punting club – Ponzi scheme – Whether express or implied representations made – Reliance – Negligent misstatement – Fiduciary relationship – Breach of trust – Whether payments to private punting club ‘in trade or commerce’ – Disclaimer – Limitation period – Unauthorised gambling – Australian Securities and Investments Commission Act 2001 (Cth) ss 12BAB, 12DA, 12GF(1B)(c), 12GR – Competition and Consumer Act 2010 (Cth) sch 2 – Australian Consumer Law ss 2, 18.
SUPERANNUATION – Loan to member of self-managed superannuation fund – Provision of financial assistance to a fund member using the resources of the fund – Back to back loan agreements – Terms of Loans – Illegality – SuperannuationIndustry (Supervision) Act 1993 (Cth) ss 3(1), 3(2), 62, 65, 166(1).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff in each proceeding | Mr M Clarke KC with Ms V Plain | HM Ong Lawyers |
| For the First Defendant in each proceeding | Mr M Settle | RNG Lawyers |
| For the Second Defendant | No appearance |
TABLE OF CONTENTS
Part One: Introduction, background and evidence..................................................................... 1
Introduction................................................................................................................................... 1
Background.................................................................................................................................... 2
Mr Colaciello’s betting activities................................................................................................. 9
Claim for misleading and deceptive conduct......................................................................... 10
Mr Christensen’s defence........................................................................................................... 12
Mr Colaciello’s evidence............................................................................................................ 12
Mrs Colaciello’s evidence.......................................................................................................... 15
Mr Sheppard’s evidence............................................................................................................. 16
Mr Christensen’s evidence......................................................................................................... 17
Evidence in Chief............................................................................................................... 17
Cross Examination............................................................................................................. 19
Mrs Christensen’s evidence....................................................................................................... 22
Mr Hourigan’s evidence............................................................................................................ 22
Mr Charlton’s evidence.............................................................................................................. 23
The punting club......................................................................................................................... 23
Mr Vlahos’ deceit........................................................................................................................ 24
Part Two: Analysis of the first proceeding................................................................................. 25
Were the express representations made?................................................................................ 25
Three preliminary observations................................................................................................ 25
Credit............................................................................................................................................ 26
Findings as to the express representations.............................................................................. 30
Conclusion as to express representations................................................................................ 34
Investment and financial advice............................................................................................... 34
Implied representations............................................................................................................. 35
Disclaimer..................................................................................................................................... 35
Reliance......................................................................................................................................... 36
Were the payments made in trade or commerce?.................................................................. 37
Negligent misstatement............................................................................................................. 40
Fiduciary relationship................................................................................................................ 42
Breach of trust.............................................................................................................................. 43
Limitation period........................................................................................................................ 45
Unauthorised gambling............................................................................................................. 51
Other issues.................................................................................................................................. 52
Conclusion as to the first proceeding....................................................................................... 52
Part Three: Analysis of the second proceeding.......................................................................... 52
Second proceeding...................................................................................................................... 52
Defence of non-payment of Mrs Christensen......................................................................... 53
Defence of illegality.................................................................................................................... 54
Conclusion as to the second proceeding................................................................................. 61
Orders................................................................................................................................................. 61
HIS HONOUR:
Part One: Introduction, background and evidence
Introduction
These proceedings arise out of the fraud of William Vlahos, who pleaded guilty and was convicted of charges of obtaining a financial advantage by deception. He was sentenced on 17 December 2021 to a total effective sentence of nine years imprisonment with a non-parole period of six years with 682 days of pre-sentence detention to be reckoned as already served.[1]
[1]DPP v Vlahos [2021] VCC 2074, [175] (‘Vlahos’).
In proceeding S ECI 2019 00790 (‘first proceeding’), Antonio Colaciello seeks damages or equitable compensation from Russell Christensen for:
(a) misleading and deceptive conduct;
(b) negligent misstatement;
(c) breach of fiduciary duty; and
(d) breach of trust.
Pursuant to r 9.06 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) Mr Christensen joined Mr Vlahos as a defendant for the purpose of seeking an apportionment of any damages under the Wrongs Act 1958 (Vic) (‘Wrongs Act’). Mr Colaciello has not brought a claim against Mr Vlahos.
In proceeding S ECI 2019 01359 (‘second proceeding’), Colaciello Super Pty Ltd (ACN 162 913 242) (‘Colaciello Super’) seeks damages from Michelle Christensen for breach of a loan agreement between them dated 1 April 2013 (‘first agreement’) by failing to repay a loan of $320,000. Mrs Christensen has brought a third party claim against Mr Colaciello for breach of a loan agreement between them of the same date in the same amount (‘second agreement’).[2]
[2]The first and second agreements were varied orally on or about 11 September 2013 by increasing the amount to be lent from $290,000 to $320,000.
Background
The Colaciello and Christensen families were neighbours in Heighton Court, Traralgon and very close friends from about 1992 until late 2013. Mr Christensen was a builder/plumber and Mr Colaciello a concreter. Both took a great interest in horse racing and betting. They often went to the gym together and mixed with other friends. Their wives, Michelle and Cathy, were both school teachers and did likewise. The families would often enjoy each other’s company on Friday or Saturday nights.
Mr Colaciello finished high school and proceeded to work in his father’s concreting business. Mr Christensen was educated to year 10. In 2010, Mr Christensen completed a course qualifying him to act as a financial products and services adviser authorised to give general advice only.
In 2006, Mr Christensen was introduced to Mr Vlahos and joined a punting club that Mr Vlahos had formed. Mr Vlahos was a charming man who had developed a system to pick winners at race meetings. He distributed rating sheets nominating horses that were to be backed by the club on a particular race day. On the rating sheets he nominated the odds that had to be achieved for a horse to be backed. After the race day, he would distribute a completed rating sheet with the results inserted. Punting club members had no control over the horses that were to be backed or the amount of bets. This was done for them by Mr Vlahos.
In or around 2009, Mr Christensen became a syndicate leader in the punting club. His syndicate members were all family and friends. He forwarded Mr Vlahos’ rating sheets to syndicate members who wanted a copy of them. The tips and odds they contained were very well regarded by club members.
As syndicate leader, Mr Christensen received monies from syndicate members, and paid out monies when syndicate members requested withdrawals. After netting out the deposits and withdrawals each quarter, he paid the balance to Mr Vlahos, or was repaid by Mr Vlahos. Payments were received in Mr Christensen’s bank account and routinely reconciled with Mr Vlahos and syndicate members.
After a website entitled ‘Life’s a Gamble’ was established by a club member, syndicate members could login to the website and see their current balances and other information. Mr Christensen would enter the names and balances of his syndicate members and the website would be updated accordingly.
Mr Colaciello’s son, Joseph, was an outstanding junior tennis player and in January 2010 the Colaciello family left Australia for Florida to help their son with his tennis career and to achieve his dreams. Before they left Mr Christensen discussed membership of the punting club with Mr Colaciello, who took no action at that time.
In December 2010, Mr Christensen was involved in the establishment of a company called Oceans 18 Investments Pty Ltd (ACN 147 733 597) (‘Oceans 18’) with a principal place of business at Level 1, 181 Bay Street, Brighton. Oceans 18’s directors were Thomas Foster, Tomasz Gutowski and Mr Christensen. Under a shareholders agreement dated 19 January 2011, a Vlahos entity held one third of the ordinary shares in Oceans 18. The Foster interests had another one third. One-sixth of the ordinary shares were held by Gutowski entities while the final one sixth of the ordinary shares were held by Christensen entities.
On 25 November 2011, Oceans 18 entered into a wagering services agreement with Mr Vlahos. The agreement specified the wagering services that Mr Vlahos was to provide Oceans 18. They were in substance:
(a) provide a ratings form sheet for major race day meetings in Sydney and Melbourne and elsewhere covering at least five rated horses for each of the rated races on race days together with the minimum required odds for each rated horse and the amount to be wagered on each;
(b) liaise with administrators appointed by Oceans 18 to confirm and reconcile results, profits and account balances;
(c) assist Oceans 18 administrators in the collection and transfer of clients’ account balances and earnings as requested; and
(d) pass on to clients any rebates and other benefits generated by the wagering services.
In 2011, the Christensens enjoyed a family holiday in Europe, and visited the Colaciellos who were then living in Miami, Florida. They spent a number of days together and in July 2011 went on a Caribbean cruise for about a week.
After the cruise, the Christensens stayed with the Colaciellos for another two or three days. Mr Christensen again discussed the punting club with Mr Colaciello, inviting him to join the club. Mr Colaciello joined Mr Christensen’s syndicate making a payment by cheque for $65,320 to Mr Christensen for the club on 20 July 2011. Once he became a member, Mr Colaciello had access to the ‘Life’s a Gamble’ website.
On 19 October 2011, Mr Colaciello made another contribution to the club of $10,000.
These deposits were made to the Christensens’ joint account at the Australia and New Zealand Banking Group (‘ANZ Bank’) in Traralgon.
On 4 October 2012, Mr and Mrs Christensen established an overdraft credit facility in a joint account at the ANZ Bank. The facility was secured by a mortgage given by Mrs Christensen, who was the sole proprietor of their home at 23 Alamere Drive, Traralgon (‘property’). This account was used for the Christensens’ own investments, personal use and for depositing and withdrawing money on behalf of syndicate members.
The Colaciellos returned to Australia in December 2012. In January 2013, Mr Christensen drove Mr Colaciello to the Oceans 18 office where Mr Colaciello met Mr Foster and Mr Gutowski. Subsequently, Mr Colaciello made further payments to Mr Christensen for the punting club, and was repaid some monies. The payments that he made to Mr Christensen for the punting club were:
(a) deposits of $67,933 and $5,485 on 23 January 2013;
(b) a deposit of $218,514.56 on 24 January 2013; and
(c) a deposit of $250,000 on 25 February 2013.
In about March 2013, Mr Colaciello said to Mr Christensen, in substance, that he could not invest anymore because he did not have any more money. Mr Colaciello said that the only thing that he had was his super, which he could not touch anyway. He asked Mr Christensen if he knew of a way to get money out of superannuation. Mr Christensen said that he had heard this could be done by setting up a self-managed fund and transferring the monies in the superannuation accounts to the self-managed fund. The money could then be lent out of the fund.
Mr Christensen drove Mr Colaciello to his accountant, the Aintree Group in Kew. Aintree Group arranged for Colaciello Super to be incorporated as the trustee company of a self-managed superannuation fund (‘Colaciello superannuation fund’), and provided a trust deed which Mr and Mrs Colaciello signed. A bank account was opened for Colaciello Super and arrangements made for Vivienne Pett-Jones, a solicitor with McDonough & Co, Traralgon, to draw up the first loan agreement whereby Mrs Christensen borrowed $290,000 from Colaciello Super for a period of two years commencing on 1 April 2013. The loan was to be secured by mortgage over the property. Mrs Christensen signed the first loan agreement which provided for an interest rate of 8% per annum. There were no other signatories to this agreement apart from a witness.
Mr and Mrs Colaciello signed the second loan agreement, also prepared by Ms Pett-Jones, whereby Mrs Christensen agreed to lend $290,000 to Mr Colaciello. The preamble to the agreement recited that the loan arose as a result of Mrs Christensen placing the sum of $290,000 into an account in Mr Colaciello’s name with Oceans 18, and that the parties to the agreement intended that the loan would be offset against a loan of $290,000 made by Colaciello Super to Mrs Christensen. The loan was also for a two-year period commencing on 1 April 2013 at an interest rate of 8% per annum.
A third mortgage over the property was signed by Mrs Christensen in favour of Colaciello Super. It was sent by Ms Pett-Jones to the ANZ Bank with a request to produce the title to the Titles Office and have the mortgage registered on title. It was not ultimately registered.
At about this time, Mr Colaciello and Mr Christensen verbally agreed to increase the amount of both loans to $320,000.
Following the execution of the first and second loan agreements, Colaciello Super transferred the following amounts to the Christensens through their joint bank account:
(a) $60,000 on 15 April 2013;
(b) $200,000 on 21 June 2013; and
(c) $60,000 on 11 September 2013.
In return, the Colaciellos received the following amounts from the Christensens by bank transfer:
(a) $70,000 on 16 April 2013 (including $10,000 from the punting club);
(b) $200,000 on 21 June 2013; and
(c) $60,000 on 11 September 2013.
Those funds were not paid into an account with Oceans 18, but were received by the Colaciellos in their joint ANZ Bank account.
Mr Colaciello made a payment of $230,000 into the punting club on 26 April 2013, and a payment of $200,028 directly to Mr Vlahos on 15 July 2013.
On 15 July 2013, Mr Christensen emailed Mrs Colaciello attaching a calculation of the interest payable on the payments made by Colaciello Super to Mrs Christensen.
Mr Colaciello also made withdrawals from the punting club, and requested and received the following sums from Mr Christensen:
(a) $250,000 on 4 April 2013;
(b) $70,000 on 16 April 2013;
(c) $44,122.07 on 30 April 2013;
(d) $200,000 on 21 June 2013;
(e) $60,000 on 11 September 2013; and
(f) $5,000 on 19 November 2013.
On 27 and 30 May 2015, the Colaciellos made a trustee declaration for the Colaciello superannuation fund for the year ended 30 June 2014. The declaration stated that in the opinion of the directors, the operations of the fund had been carried out in accordance with the requirements of the Superannuation Industry (Supervision) Act 1993 (Cth) (‘SIS Act’) and associated Regulations during the year ended 30 June 2014.
On 12 April 2013, Mr Colaciello signed a services agreement with Oceans 18 (‘services agreement’). Under the services agreement, Mr Colaciello appointed Oceans 18 to provide the services specified in the agreement. Clause 2.2 of the services agreement provided that the services were limited to providing advice and recommendations and placing win/place bets on Australian thoroughbred races unless otherwise agreed in writing.
Clause 6 of the services agreement contained a disclaimer:
6.1Each party has entered into this Agreement without relying on any information or advice given or statement made (whether negligently or not) by any other party or any person purporting to represent that party.
6.2 The Client acknowledges that:
(1)wagering is an inherently risky activity and there is the possibility that the Client will lose the Initial Wagering Amount, together with any other monies that make up the Wagering Balance;
(2) Oceans 18 does not guarantee any return or profit to the Client;
(3)the information provided in respect of potential returns in past periods is for illustration purposes only and does not constitute a forecast; and
(4)in entering into this Agreement, it is relying on its own evaluation, advice and investigations and the Client has not relied on any statement or representation made, any advice, opinion, warranty, undertaking, promise, estimate, projection or forecast given or any conduct of any kind engaged in by or on behalf of Oceans 18.
By June 2013, Mr Vlahos was living in Singapore, and sought a loan of $1.5 million to keep the punting club afloat. Mr Colaciello, Mr Christensen and Graham Charlton, a professional tennis coach and friend of Mr Colaciello, agreed to provide the loan each contributing $500,000. Mr Colaciello and Mr Christensen went to Hong Kong to meet Leslie Gordon, a punting club syndicate leader, who was to be the guarantor of the loan. They then went to Singapore to meet Mr Vlahos. The loan schedule showed Mr Vlahos as the borrower, Mr Gordon as the guarantor, and Mr Colaciello as the lender. The principal was $1.5 million, and the interest rate was 20% over the loan period. The date of advance was 14 June 2013. The principal of the loan and interest of $300,000.00 was payable in full a little more than a month later on 19 July 2013. The interest of $300,000 was to be split four ways between the three of them and Ben Taylor, the Traralgon ANZ Bank manager who arranged the loans necessary to raise the funds. They were each to receive $75,000.
The loan of $1.5 million was never repaid by Mr Vlahos. Litigation against Mr Gordon in Hong Kong failed. The ANZ Bank sued Mr Colaciello for the $500,000 loan made to him and a $30,000 credit card debt, ultimately settling for a total payment of $30,000.
On 30 September 2013, Mr Christensen advised the members of his syndicate via email that he was pulling out of the punting club. He said it might take 2-3 weeks for the funds to arrive. Except for a small payment in November 2013, no funds were ever repaid by Mr Vlahos.
In late 2013, the punting club collapsed, and all contributions were lost. Mr Vlahos turned out to be a fraudster who had operated a Ponzi scheme with punting club funds and was declared bankrupt on 16 December 2013.
In sentencing Mr Vlahos, Judge Trapnell of the County Court of Victoria referred to the large number of bets that were either not laid at all, or were not in amounts remotely resembling those set out in the betting sheets.[3]
[3]Vlahos (n 1) [22]-[23].
Mr Colaciello’s betting activities
For much of 2013 Mr Colaciello was an avid, committed and frequent punter. The table below shows the number of bets Mr Colaciello placed with Sportsbet in 2013.[4]
[4]This information has been taken from Mr Colaciello’s ANZ Bank Low Rate bank statements for 2013, account number 5468 2790 2612 1859.
| Date range | Total purchases each month | Number of bets each month |
| 3 January 2013 – 3 February 2013 | $12,083.19 | 41 |
| 4 February 2013 – 3 March 2013 | $119.70 | 0[5] |
| 4 March 2013 – 2 April 2013 | $2,462.58 | 0 |
| 3 April 2013 – 2 May 2013 | $39,532.36 | 119 |
| 3 May 2013 – 3 June 2013 | $22,053.70 | 103 |
| 4 June 2013 – 2 July 2013 | $43,636.39 | 101 |
| 3 July 2013 – 4 August 2013 | $53,879.99 | 123 |
| 5 August 2013 – 2 September 2013 | $93,420.49 | 200 |
| 3 September 2013 – 2 October 2013 | $84,395.42 | 178 |
| 3 October 2013 – 3 November 2013 | $36,542.28 | 101 |
| 4 November 2013 – 2 December 2013 | $29,956.80 | 136 |
| 3 December 2013 – 2 January 2014 | $5,074.80 | 11 |
[5]In late February 2013, the Colaciellos, Christensens and Charltons went on a trip to Singapore followed by a seven night cruise to celebrate Mr Christensen’s 50th birthday. They returned to Australia on 10 March 2013.
The total purchases each month includes all of Mr Colaciello’s spending on gambling and all other spending. It reflects the ‘Purchases, Cash Advances & Other Debits’ amount set out on the first page of Mr Colaciello’s ANZ Bank Low Rate bank statements.
Mr Colaciello’s high level of betting with Sportsbet in 2013 coincided with a high level of deposits and withdrawals in the punting club.
When cross-examined about his betting practices, Mr Colaciello said that some of his bets were joint bets with his brother-in-law and cousins who would give him the money back in cash. He also said that he made bets for his father-in-law who did not have a phone betting account. Mr Colaciello said that no records were kept of bets made by him on behalf of other persons. While there may be some transactions of a family nature, I am satisfied that his bets in 2013 were very predominantly made by him on his own initiative and for his own benefit.
Mr Colaciello received rating sheets circulated by Mr Vlahos to Mr Christensen as his syndicate leader over much of this period. While Mr Colaciello said he did not understand the rating sheets, he admitted that they assisted him in placing bets with Sportsbet.
Claim for misleading and deceptive conduct
In the Further Amended Statement of Claim filed 6 December 2019 (‘FASOC’), Mr Colaciello alleges that he relied on the following express representations made by Mr Christensen:
During the period in late 2011 to early 2013, [Mr Christensen] represented to [Mr Colaciello], inter alia, that:
(a)the shareholders of Oceans 18 developed the core thoroughbred racing wagering systems and processes intellectual property (‘wagering IP’) over 5 years to April 2005;
(b)Oceans 18 stakeholders had been privately utilising the wagering IP since April 2005 with 28 of 29 quarters obtaining positive results;
(c)Oceans 18 was established in order to commercialise the wagering IP:
(d) the wagering IP underlies a proven trading strategy;
(e)the layers of wagering IP include unique processes and methodology in conducting research, executing trading strategies and maintaining money management discipline;
(f)[Mr Christensen] had 28 years’ experience in property and business management and 11 years’ experience in trading in equities and options;
(g)[Mr Christensen] had extensive experience utilizing Oceans 18’s core wagering IP dating back to 2006;
(h)[Mr Christensen] recently completed a Diploma of Personal Services in Investment Planning (General Advice) which consolidated his understanding of the financial services industry; and
(i)[Mr Christensen] was well qualified to give investment advice and make investment recommendations to [Mr Colaciello].
(”express representations”)
PARTICULARS
The express representations are partly in writing and partly oral. Insofar as they were in writing, they were contained in the website of Oceans 18. Insofar as they were oral, they were constituted by conversations between [Mr Colaciello] and [Mr Christensen] throughout 2011 and early 2013.
Mr Colaciello also alleges that:
On numerous occasions in 2011 and 2013 [Mr Christensen] gave [Mr Colaciello] investment and financial advice, and made investment recommendations to [Mr Colaciello], to invest monies with [Mr Christensen] by transferring money into [Mr Christensen’s] bank account, or any other bank account as directed, which he would invest with [Mr Vlahos] utilising Ocean 18’s wagering IP.
PARTICULARS
The advice, directions and recommendations were made by the first defendant shortly before the plaintiff made transfers of monies from his bank account into [Mr Christensen’s] bank account and [Mr Vlahos’s bank account] as set out below.
He further alleges that Mr Christensen impliedly represented that:
(a) each advice, direction and recommendation was based on reasonable grounds;
(b) they were the product of the exercise of due care and skill; and
(c) they were safe to be relied on.
(”the implied representations”).
Mr Colaciello then claims that he acted in reliance on the express representations in making the transfers from his bank account to Mr Christensen for the punting club or to Mr Vlahos.
He then says that each advice, direction and recommendation constituted a financial service under s 12BAB of the Australian Securities and Investments Commission Act 2001 (Cth) (‘ASIC Act’) or services within the meaning of the s 2 of the Australian Consumer Law (‘ACL’), and that each of the express and implied representations was false. He then alleges that Mr Christensen’s conduct was misleading or deceptive or likely to mislead or deceive in contravention of s 12DA of the ASIC Act or alternatively, s 18 of the ACL.
Mr Colaciello claims loss and damage in the total amount of $483,158.49 being the difference between the payments that he made to Mr Christensen and Mr Vlahos and the repayments that were made to him.
Mr Christensen’s defence
Mr Christensen denies these allegations. He says that it was Mr Vlahos who ran the punting club and Mr Vlahos who made representations about the returns that could be obtained. He says that the transfers made by Mr Colaciello were made in reliance on representations made by Mr Vlahos, and that Mr Vlahos’ representations were false, misleading and deceptive. He also relies on the disclaimer in cl 6 of the services agreement.
Mr Christensen further says that claims for money paid prior to 22 February 2013 are statute barred, and that all claims for monies are void as unauthorised gambling contrary to s 2.4.1 of the Gambling Regulation Act 2003 (Vic) (‘Gambling Act’). He denies that he was acting in trade or commerce, or that he received remuneration from Mr Vlahos or the punting club. If he has any liability he seeks to have that liability limited under ss 12GF(1B)(c) and 12GR of the ASIC Act and under Pt IVAA of the Wrongs Act as Mr Vlahos is a concurrent wrongdoer for the loss and damage that is the subject of the claim.
Mr Colaciello’s evidence
In his evidence, Mr Colaciello said that in about January 2010, before he left Australia for Florida, he had a discussion with Mr Christensen who said that he had a scheme going. He was doing this investment with 28 out of 29 quarters positive. There was only one flat quarter, and he did not have to work anymore. He was living off it and making heaps of money out of it. Mr Colaciello said that Mr Christensen stated that he had developed a ‘computer IP or something’ which worked out all the horses to pick, and just made money the whole time. They were still working on it to make it even better and it was not losing money. Mr Colaciello said that he turned a blind eye to what Mr Christensen said to him at this time.
Mr Colaciello said that in July 2011 when they were in Florida and on the Caribbean cruise Mr Christensen mentioned it again. He said that it was going good, and making heaps of money. He said that Mr Colaciello should invest and would probably not have to work again.
After the cruise, Mr Colaciello said that he decided to make an investment, asking his father to get out his cheque book and drop a cheque off at Mr Christensen’s office in Traralgon. Mr Colaciello said that he invested because he thought that the system was ‘so good’.
Mr Colaciello said that he returned to Australia in about mid November 2012. Around this time, he went on a golfing weekend with Mr Christensen, Mr Charlton and James Hourigan, all of whom were punting club members. He admitted that there was a discussion about the system and that it was going OK but that they did not discuss Mr Vlahos or even mention his name. He also denied discussing Mr Vlahos when he visited Mr Christensen’s house stating that he and Mr Christensen ‘were just discussing the system the whole time’. Likewise, he said that when he went to the gym with Mr Christensen, they would talk about the system and not about Mr Vlahos.
In or around January 2013, Mr Christensen drove Mr Colaciello to the Oceans 18 office in Bay Street, Brighton, where he met Mr Foster. There, he was told more about the system which he said was described as bullet proof and as being perfected. When shown material downloaded from the Oceans 18 website at that time, Mr Colaciello said that he had never seen and was never shown that material. He was not able to read all of the documents and was told verbally what was going on.
When taken to a brochure prepared by Oceans 18 entitled ‘Oceans 18 Wagering Services’, Mr Colaciello said that he had been shown the brochure by Mark Sheppard, an experienced tennis coach and friend of Mr Colaciello, and read through it. He said that all he understood was that Oceans 18 were specialised financial advisers who knew what they were doing.
Mr Colaciello admitted that in February 2013 he obtained a further drawdown of $400,000 from the ANZ Bank secured by a mortgage over a property that he jointly owned with his brother. He admitted that his brother refused to agree to the drawdown and that he forged his brother’s signature on bank documents to get the loan. He then alleged that both Mr Taylor and Mr Christensen had told him to forge his brother’s signature. He said that he used the $400,000 increase in mortgage to make a payment of $250,000 to Mr Christensen for the punting club on 25 February 2013. He agreed that he told Mr Taylor that the advance would be fully secured on one of his jointly owned commercial properties on Stratton Drive, Traralgon with the full consent of his brother as co-owner. According to the manager’s diary note, the borrowing would enable Mr Colaciello ‘to re-establish himself in business’ and was in essence ‘working capital’. When he found out what had happened, Mr Colaciello’s brother rang him and told him not to talk to him again. Mr Colaciello subsequently sent a letter of apology dated 21 February 2013 to the manager of the Traralgon Branch of the ANZ Bank. He said that the letter was drafted by Mr Taylor.
In cross-examination, Mr Colaciello acknowledged that in 2013 he received emails from Mr Christensen setting out the names of horses and tips relating to particular race meetings as recommended and provided by Mr Vlahos. He said that he and Mr Christensen would talk at Mr Christensen’s house about the horses that were running and how much they had won in the system. He said that he did not recall alleging in a counterclaim in proceeding S CI 2015 04536 in the Supreme Court of Victoria (‘ANZ proceeding’) that he had borrowed $650,000 from the ANZ Bank in early 2013 for the purpose of ‘investing’ the sum into a betting scheme operated by Mr Vlahos.
In an affidavit deposed on 2 December 2015 and filed in the ANZ proceeding (‘December 2015 affidavit’), Mr Colaciello deposed that in early 2013 he borrowed $650,000, secured by a mortgage over land held by him and his brother, from the ANZ Bank for the purposes of ‘investing’ the sum into a betting scheme operated by Mr Vlahos. He did not depose that the betting scheme was operated by Mr Christensen.
When taken to his defence and counterclaim in the ANZ proceeding, where he alleged that the temporary overdraft facility that he arranged with Mr Taylor of the ANZ Bank might expose him to ‘significant financial risks’, he said that the loan to Mr Vlahos was only a short-term loan, and the money would come back in three weeks. Despite the fact that the particulars he provided stated that the temporary overdraft facility was made ‘for the purpose of investing in a betting scheme’, Mr Colaciello said that he invested in a system that had nothing to do with gambling.
Mr Colaciello said that he met Mr Vlahos twice with Mr Christensen – once at the casino after Mr Vlahos had paid $5 million for a racehorse and another time during a trip to visit to him in Singapore. However he denied that he spoke or chatted with Mr Vlahos about the punting club on these occasions.
When pressed as to whether he had discussed the punting club with Mr Gordon when he was guaranteeing the loan of $1.5 million to Mr Vlahos, Mr Colaciello denied that the punting club was discussed. He claimed that that Mr Vlahos was only discussed in the context of the $1.5 million that he was borrowing.
Mr Colaciello stated in evidence that he did not get tips from Mr Vlahos. He claimed that he did not realise that the tips Mr Christensen sent him by email forwarded the emails received from Mr Vlahos. When taken to numerous emails from Mr Vlahos forwarded to him by Mr Christensen, Mr Colaciello said that he got the tips from Mr Christensen. He said he spoke to Mr Christensen but not Mr Vlahos directly.
Mr Colaciello said that he frequently logged on to the ‘Life’s a Gamble’ website to obtain ratings and results. When pressed as to whether he knew that he was depositing money into a punting club, he said that he knew that it was a system that involved horses the whole time.
When asked whether the punting club was a friendship group, Mr Colaciello said that it was a system that we were all in to make us a lot of money.
Mrs Colaciello’s evidence
Mrs Colaciello is a primary school teacher. She described Mr Colaciello and Mr Christensen as best friends who visited each other frequently and spent time together daily at the gym, having lunches and playing golf. She said that she was a director of Colaciello Super. She also said she was not involved in discussions about the punting club. However she was aware that her husband was receiving emails concerning the punting club from about August 2011 onwards.
Mrs Colaciello said that she was not a gambler and had no idea that Mr Colaciello was putting significant amounts of money into the punting club. She said that she trusted her husband and Mr Christensen with investments. She said that the punting club may have been discussed on some occasions between her husband, Mr Christensen and Mr Charlton during a holiday in Singapore and a seven day cruise to celebrate Mr Christensen’s 50th birthday on 1 March 2013.
She denied that Mr Vlahos was mentioned during these discussions. She said that when her husband went to Hong Kong with Mr Christensen and lent money to Mr Vlahos, he said to her that we were going to make a lot of quick money. They would invest some money but get it back quickly. She did not know how much money they were investing.
She said that during a two week visit to Tahiti with the Christensen family in about June 2013, the punting club may have been brought up between the four adults but she did not recall exactly.
Mrs Colaciello denied that her husband had a gambling addiction in 2013. She said that what was portrayed to her was that there was a system to make money and get a big return and interest. She was unaware of his spending on Sportsbet.
Mr Sheppard’s evidence
Mr Sheppard gave evidence that he and his wife went with Mr Christensen to the offices of Oceans 18 in Bay Street, Brighton in 2012. Mr Foster was the main speaker and made a PowerPoint presentation. Mr Foster described Mr Christensen as the glue that held the Oceans 18 syndicate together. Mr Sheppard said that at the time he and his wife declined to be involved.
Mr Sheppard downloaded the Ocean 18 website pages at this time and retained a copy of the PowerPoint presentation. Subsequently, Mr Christensen came to the Sheppards’ home in Kew. At that time, Mr Sheppard signed the Oceans 18 documentation. He subsequently made punting club payments through Oceans 18 and through Mr Colaciello to Mr Christensen. From January 2014, after the collapse of the punting club, Mr Sheppard directed a series of questions by email to Mr Christensen requiring his explanation as to what had happened.
Mr Christensen’s evidence
Evidence in Chief
Mr Christensen described the operation of the punting club in these terms:
(a) Mr Vlahos would send out rating sheets nominating horses that were to be backed on a particular race day and the odds that had to be achieved if the horses were to be backed; and
(b) after the race day, he would send out a completed rating sheet with the results filled in.
From 27 June 2006 until 2 July 2009, Mr Christensen contributed almost $270,000 to the punting club and received back over $365,000 from Mr Vlahos. In 2009, he started his own syndicate of family and friends within the punting club. As a syndicate leader, he would put monies in and withdraw monies on a quarterly basis. At the end of each quarter he would reconcile the deposits and withdrawals made to his account and account to Mr Vlahos and syndicate members. He said that he did not keep syndicate members’ money in his account. Syndicate members could log into the ‘Life’s a Gamble’ website to ascertain their situation at any time.
Mr Christensen said that before the Colaciellos went overseas in January 2010, he had conversations with Mr Colaciello about joining the punting club. He told him about the club on several occasions but Mr Colaciello said that he had more on his mind at that time, and that they would be able to discuss the club when overseas.
Mr Christensen said that he told Mr Colaciello that the punting club was run by Mr Vlahos who had the ability to produce picks and ratings. The club had been successful at least in the time that he had been involved in it.
Mr Christensen denied making any of the express representations or that he gave investment or financial advice, or made investment recommendations.
Mr Christensen said that he again mentioned the punting club to Mr Colaciello in 2011 when he visited him in Florida after the Caribbean cruise. He said that he invited Mr Colaciello to put money into the punting club if he wanted to. He said that he did not tell him that he should put money into the punting club. He said that of his syndicate Mr Colaciello was the one who was the most eager to get the rating sheets.
He said that when Mr Colaciello returned to Australia at the end of 2012, he was picked up at the airport by a bus load of fourteen friends heading off on a golf trip. At least four of those attending were punting club members. There were discussions between members about the punting club during the golf trip. Mr Vlahos’ name would come up occasionally. All were thankful that he was doing such a good job.
Mr Christensen said that for his 50th birthday on 1 March 2013, he and Mrs Christensen went on a cruise with friends and spent three days in Singapore. He said that during the cruise and whilst in Singapore, he and others discussed the punting club with Mr Colaciello.
Mr Christensen said that in about June 2013 he and Mr Colaciello went to Hong Kong to meet Mr Gordon, the guarantor of the $1.5 million loan to Mr Vlahos. Mr Vlahos was mentioned in discussions with Mr Gordon in the presence of Mr Colaciello. Mr Vlahos was the person who ran the punting club, and the purpose of the loan was to keep the punting club afloat.
After leaving Hong Kong, he and Mr Colaciello went to Singapore and met Mr Vlahos. Mr Christensen said that they signed documents, discussed the punting club and watched some races on television at a hotel bar.
After returning from Singapore, Mr Christensen said that his family and the Colaciellos went on a ten day cruise to Tahiti in late June and July 2013. The punting club was again discussed between Mr Christensen and Mr Colaciello and Mrs Colaciello and Mrs Christensen would sometimes be there during the conversations.
Mr Christensen said that once or twice a month in 2013 he and Mr Colaciello and other punting club friends would attend the Green Olive Bar in Traralgon which had betting facilities. The punting club was discussed during the time that the races were on. They would watch as the results came in. Mr Christensen said that Mr Vlahos was nearly always mentioned around the punting club, particularly if there was a good win.
In late 2013, Mr Christensen said that he found out that Mr Colaciello had forged his brother’s signature to raise additional funds secured by an increase in an ANZ Bank mortgage over a property at Stratton Drive, Traralgon.
Mr Christensen said that he did not receive a commission or payment from the punting club. He did not give Mr Colaciello financial or investment advice or make recommendations. After the punting club collapsed in December 2013, he assisted the Victoria Police Fraud Squad, including making a police statement.
Mr Christensen said that as a result of the collapse of the punting club he still owed the ANZ Bank in excess of $1 million.
Cross Examination
Mr Christensen said that he did not refer to the punting club as an investment scheme and did not promote it. He said that he did not encourage anyone to invest in the punting club. The decision as to whether to put money into the punting club was left to the individual members.
Mr Christensen said that Oceans 18 was a syndicate within the punting club. The purpose of incorporating Oceans 18 in about 2010 was to commercialise the punting club. While Oceans 18 tried to get a product to market, it did not succeed and Oceans 18 just became an agent of Mr Vlahos. Mr Christensen said that he got very few clients for Oceans 18.
Mr Christensen said that the Oceans 18 intellectual property was owned by Mr Vlahos.
Mr Christensen said that the statement in the Oceans 18 brochure that in the 29 quarters since April 2005, there was only one quarter which had a negative 1.7% result was information provided by Mr Vlahos.
Mr Christensen said that he undertook a training course to be able to give general financial advice. However, Oceans 18 did not have a true financial product. He said that no client monies were handled by Oceans 18, as all client monies went directly to Mr Vlahos.
Mr Christensen said that at the time he and others believed that Mr Vlahos’ system worked extremely well. On a weekly basis, it had positive results. Clients invested money of their own free will. The strategy of Oceans 18 was not to make any income from clients until their capital was returned. Both Mr Colaciello and Mr Sheppard wanted to put some of their money into the Oceans 18 syndicate under Mr Vlahos.
Mr Christensen said that he did not recall a meeting at the Oceans 18 office attended by Mr Sheppard in about 2012. He was not at such a meeting nor present during the PowerPoint presentation to Mr Sheppard. However, he did attend at the Sheppards’ home in Kew when Ocean’s 18 documentation was signed.
He said that when Mr Sheppard asked him a series of questions in 2014, he referred these to Mr Foster, who had the day to day conduct of the Oceans 18 office. He did not enjoy good relations with Mr Sheppard.
Mr Christensen said that Mr Colaciello was a member of his syndicate within the punting club and a client of Oceans 18. It was his decision to invest money into the punting syndicate.
He said that Oceans 18 conducted business as a service agent of people who wanted to put money into the punting club. It did not offer financial advice.
He also said that Mr Vlahos was the person who ran the punting club. Wagering strategies, methodologies, timing, race percentages and threshold were all at his discretion. The system that Mr Vlahos used was essentially checked every week. If bets were placed at the odds he said had to be achieved in the rating sheets, his system worked.
Mr Christensen said that he trusted Mr Vlahos. He and Mr Colaciello were good friends and trusted each other. He and others were a victim of a massive fraud that went on for at least seven and a half years. Over time, his syndicate invested $5,266,534 and received $2,210,987 back. It suffered a capital loss of over $3 million. His syndicate’s funds were never returned.
In response to a series of questions about his reconciliation and accounting of syndicate funds, Mr Christensen said that all of the monies provided by his syndicate members were passed onto Mr Vlahos. He said that he had not kept money from the members of his syndicate. He said that he netted out the amounts and paid monies out to syndicate members or forwarded monies on to Mr Vlahos, receiving monies from him as necessary. He did not earn commission from his syndicate, and did not tell Mr Colaciello that he did. He denied that he received any cash advances from Mr Vlahos, except for a payment of a withdrawal that he made from the club. The cash he received was not for commission.
Mr Christensen said that he did not have a written agreement with Mr Vlahos. The arrangement he had with him was verbal. Mr Christensen said that he now knew that Mr Vlahos’ bookmakers were non-existent.
Mr Christensen said that Mr Colaciello was very keen to put money into the punting club. He did not use the term ‘bullet proof’ as alleged by Mr Colaciello. The term was not one that he used.
Mr Christensen said that all members of his syndicate were concerned and devastated when they found out that the punting club was a sham.
Mrs Christensen’s evidence
Mrs Christensen gave evidence that she was a primary school teacher and neighbour for many years of the Colaciellos. After they moved overseas in January 2010, she remained good friends with Mrs Colaciello and would text and make telephone calls regularly. Mrs Christensen said that after the Colaciellos returned to Australia in late 2012, they resumed socialising. The punting club was often discussed between the adults. Mr Vlahos was also mentioned. If the races were coming up, they would say ‘I hope that Bill does a good job this weekend, and makes us some money’.
Mrs Christensen said that when her husband turned 50, the Christensens, Colaciellos and the Charltons all went to Singapore on a cruise, returning on 10 March 2013. The punting club was often discussed during the cruise. Often discussions about the punting club went hand in hand with discussions about Mr Vlahos. Mr Vlahos was much discussed when the six adults were having dinner together.
Mrs Christensen said that the punting club was also discussed during a two week trip to Tahiti in late June and July 2013 with the Colaciello family. They all went to the resort next door to watch the races together as they were not available at the resort where they were staying.
Mr Hourigan’s evidence
James Hourigan, an estate agent, said that he had known Mr Colaciello for about 30 years from school. Mr Hourigan was a member of the punting club and was in a group of friends who picked up Mr Colaciello from Tullamarine Airport on his return to Australia in November 2012 for a golfing trip. Five members of the punting club attended. The punting club and Mr Vlahos were discussed between members of the club as long as there was no one else around. He said that on numerous occasions the members expressed concern that the tips from Mr Vlahos might stop coming through.
Mr Hourigan said that when the tips came out from Mr Vlahos, members could make their own bets based on the tips that Mr Vlahos gave. He said that they were really good, and he used them himself.
Mr Charlton’s evidence
Mr Charlton said that he had known Mr Colaciello for about 23 years and had coached their son, Joseph. He said that Mr Colaciello loved horse racing.
Mr Charlton said that he joined the punting club in about 2011. On a Saturday morning, punting club members waited anxiously for an email with Mr Vlahos’ tips. Mr Vlahos’ name was at the top of the email.
When Mr Colaciello came back from overseas in late 2012, a group of friends picked him up at the airport for a golfing weekend. There were five members of the punting club present. The punting club was always a topic of conversation between club members.
The punting club
Over the five year period prior to 2005, Mr Vlahos claimed to have developed a computer-based thoroughbred racehorse wagering system that enabled him to pick winners, rate horses on race days, and determine minimum required odds. A large number of punters were impressed with his system, and were induced by Mr Vlahos to enter into the punting club through which they could put him in funds to make bets on their behalf. He distributed rating sheets to syndicate leaders informing them of his picks, and required odds if bets were to be made by him for the punting club. The rating sheets were distributed by him in a completed form after race meetings. Mr Vlahos would only return funds in the punting club on a quarterly basis.
Mr Vlahos’ computer system was shrouded in secrecy, and was said to constitute valuable intellectual property. It was not available to syndicate leaders or club members. Likewise Mr Vlahos’ bookmakers and betting arrangements were all kept secret.
Like other members of the punting club, Mr Christensen and Mr Colaciello were ‘true believers’ in Mr Vlahos and the system he had apparently developed. Until 2013, the punting club appeared to operate successfully with ongoing growth in members’ funds.
As a syndicate leader within the club, Mr Christensen’s principal responsibilities were the receipt and reconciliation of members’ deposits to the club, withdrawals, and payments to and from Mr Vlahos on behalf of his syndicate. He distributed Mr Vlahos’ rating sheets before race meetings and completed sheets after race meetings.
All but one of the payments which Mr Colaciello seeks to recover were made by him to Mr Christensen as syndicate leader. The one exception was a payment made by the Mr Colaciello directly to Mr Vlahos rather than to Mr Christensen. None of the payments in dispute were made through Oceans 18 to Mr Vlahos.
Mr Vlahos’ deceit
Until late 2013 the punting club was regarded by all as a very successful initiative founded and conducted by Mr Vlahos as a result of his invention of a computer based thoroughbred racehorse wagering system that made due allowance for all relevant factors affecting race performance. Mr Vlahos was the dominant force behind Oceans 18 which sought to commercialise his product.
It is highly likely that in their discussions and dealings Mr Christensen and other club members recognised the success of the punting club as it was perceived at the time. Given their close friendship and the large number of conversations that they had, Mr Colaciello would have clearly understood that Mr Vlahos was the central figure in the punting club, and that Mr Christensen was a syndicate leader on behalf of his own family and friends and involved with Oceans 18.
Mr Colaciello was a keen and frequent gambler. He was eager to receive Mr Vlahos’ ratings and betting tips before race days. He was well aware that the tips were made by Mr Vlahos and not by Mr Christensen.
Mr Colaciello and Mr Christensen were both deceived by Mr Vlahos as were all punting club members. This does not mean, however, that as a syndicate leader Mr Christensen is legally liable for what Mr Vlahos did. Legal liability must be established on a basis recognised in law.
Part Two: Analysis of the first proceeding
Were the express representations made?
Mr Colaciello’s claim for misleading and deceptive conduct is based on what he alleges were express and implied representations made to him by Mr Christensen. The express representations are said to have been made on the Oceans 18 website, and orally in conversations between the two of them in 2011, 2012 and early 2013. No other persons is said to have been involved in these conversations.
In evidence in chief, Mr Colaciello was taken to a download of the material on the Oceans 18 website obtained by Mr Sheppard. After the download had been scrolled through, Mr Colaciello stated that he had never seen the document before. There was no other evidence that Mr Colaciello had ever seen or relied on material published on the Oceans 18 website. There was not suggested to be any email, minute, file note, documentary or computer record of the conversations.
Given this evidence, Mr Colaciello can only prove that the express representations were made to him if he can prove that they were made orally. Mr Christensen denied making any of the express representations. Mr Colaciello has the onus of establishing that one or more representations were made by Mr Christensen to him on the balance of probabilities.
Three preliminary observations
Before turning to the credit issues, I make three preliminary observations about the alleged express representations:
(a) the express representations are said to have been published on the Oceans 18 website to the world. They are marketing material intended to promote Oceans 18, its wagering, intellectual property and trading strategy. They are not about, and do not mention, Mr Christensen’s syndicate of the punting club, which was a private syndicate for Mr Christensen’s family and friends;
(b) as marketing material, the language used in many of the express representations is not language that would be used by either Mr Colaciello or Mr Christensen in ordinary speech. Both had very limited education. In evidence, Mr Colaciello had difficulty in reading some documents shown to him. Neither expressed themselves in terms such as ‘intellectual property’, ‘wagering IP’, ‘proven trading strategy’, ‘money market discipline’ or ‘core wagering IP’. These expressions would be foreign to them in ordinary speech; and
(c) it was not pleaded by Mr Colaciello that the express representations were in fact made by Mr Vlahos to Mr Christensen and then conveyed by Mr Christensen to Mr Colaciello in circumstances where Mr Christensen would be regarded as adopting the express representations as his own, thereby making the representations himself.[6] Nor was this the purport of Mr Colaciello’s evidence. To the contrary, in his evidence he downplayed the role of Mr Vlahos almost entirely, and exaggerated the role of Mr Christensen so that he became the principal actor in the affairs of the punting club.
[6]See Gardam v George Wills & Co Ltd (1988) 82 ALR 415, 427 (French J).
Credit
During the trial, Mr Colaciello’s credit was very seriously impugned. I now provide examples where the truth and accuracy of his evidence must be rejected or gravely doubted:
(a) Mr Colaciello was well aware (and it is beyond doubt) that the betting scheme was operated by Mr Vlahos and not by Mr Christensen. Mr Colaciello alleged as much in a counterclaim filed in 2016 in the ANZ proceeding. He made the same allegation in particulars given in that proceeding;
(b) when cross-examined about such a fundamental change to his story, he said that ‘at the time it was, but I knew it wasn’t like that’. As a punting club member, Mr Colaciello was familiar with the role of Mr Vlahos, making his own direct payment of $200,028 to Mr Vlahos on 15 July 2013. He also joined with Mr Christensen and Mr Charlton to lend Mr Vlahos $1.5 million in June 2013 and met him in Singapore. Payment of such sums to Mr Vlahos, and going overseas to meet him, is consistent with Mr Colaciello having full knowledge of Mr Vlahos’ role;
(c) in evidence, Mr Colaciello said that the punting club’s betting system was organised and operated by Mr Christensen. This evidence is inconsistent with the evidence of all other witnesses (Mrs Colaciello excepted) and all documentary evidence;
(d) Mr Colaciello’s evidence to this effect is also inconsistent with what he said in paragraph 8 of the December 2015 affidavit where he described a $650,000 loan from the ANZ Bank in early 2013 as for the purpose of ‘investing’ the sum in a betting scheme operated by Mr Vlahos;
(e) Mr Colaciello’s new evidence as to Mr Christensen’s capacity was intended to exaggerate Mr Christensen’s role and significance in the punting club and thereby strengthen his case;
(f) Mr Colaciello admitted that he forged his brother’s signature on the mortgage with the ANZ Bank which increased the monies borrowed from the bank from $250,000 to $650,000. He repeatedly claimed that Mr Christensen told him to do this. He also maintained that Mr Taylor also told him to forge his brother’s signature. I find that these statements were untrue. He maintained this position even when it was put to him that forgery was a very serious allegation to make;
(g) despite knowing that he could not touch his own or Mrs Colaciello’s accumulated superannuation in the Colaciello superannuation fund before they reached retirement age or become eligible, he withdrew $320,000 from the fund in a ‘round robin’ transaction with Mrs Christensen with the money finishing up in the Colaciellos’ own bank account; and
(h) he subsequently made a trustee declaration for Colaciello Super for the relevant year stating that the Colaciello superannuation fund had been carried out in accordance with the requirements of the SIS Act which prohibits trustees from lending to members of the fund at any time during the financial year.
Mr Colaciello made a series of denials about the role of Mr Vlahos in the punting club, and as to his meetings with Mr Vlahos. He said that he did not know that Mr Vlahos was running the punting club. His evidence was not credible as:
(a) Mr Colaciello claimed that while meeting with Mr Vlahos in Singapore, the punting club was not spoken about;
(b) he said that at the time, he and others lent $1.5 million to Mr Vlahos, he did not know that Mr Vlahos was running the punting club;
(c) he said that he made no inquiries of Mr Vlahos whilst in Singapore;
(d) when with Mr Gordon in Hong Kong for the signing of the guarantee for the $1.5 million loan, he said that the punting club was not discussed;
(e) he said that he never got tips from Mr Vlahos;
(f) he said that while the Christensens were in Florida, there was no discussion about Mr Vlahos;
(g) he said Mr Vlahos was not discussed during the golfing weekend on his return to Australia in direct contradiction of the evidence of other punting club members who attended;
(h) he said he never spoke about Mr Vlahos with Mr Charlton, who gave evidence to the contrary;
(i) he said that while on a cruise from Singapore with the Charltons and Christensens, Mr Vlahos was not spoken about;
(j) he said that while at the Green Olive Bar in Traralgon, he and Mr Charlton did not speak about Mr Vlahos; and
(k) he said that on Friday nights when with friends who were punting club members, Mr Vlahos was not spoken about.
The evidence that Mr Vlahos was running the punting club is unanswerable and incontrovertible. Mr Colaciello was undoubtedly aware that this was so. For example:
(a) Mr Christensen and Mr Colaciello both had a strong interest in racing and discussed the affairs and results of the punting club on numerous occasions and whenever they could;
(b) the ratings provided by Mr Christensen to Mr Colaciello before race days made it clear that Mr Vlahos was the author of the ratings;
(c) Mr Christensen and Mr Colaciello discussed the punting club and Mr Vlahos during overseas trips in Florida, Singapore and Tahiti;
(d) Mr Colaciello personally met Mr Vlahos on two occasions – one over lunch after Mr Vlahos had bought a $5 million racehorse and the second in Singapore; and
(e) Mr Vlahos and the punting club were often discussed between Mr Colaciello, Mr Christensen, Mr Charlton and Mr Hourigan at the Green Olive Bar in Traralgon, which had betting facilities and at which they could observe race results and compare them with the ratings sheets provided by Mr Vlahos.
Mr Colaciello’s evidence is plainly inconsistent with that of Mr Charlton and Mr Hourigan, as well as that of Mr and Mrs Christensen. Mr Charlton and Mr Hourigan were fellow punting club members, and mutual friends of Mr Colaciello and Mr Christensen. Their recollections as to their conversations with Mr Colaciello concerning the punting club and the role of Mr Vlahos are very different to those of Mr Colaciello. I accept their evidence and reject that of Mr and Mrs Colaciello where it is inconsistent.
Mr Christensen did invite and encourage Mr Colaciello to become a punting club member. His evidence was also the subject of criticism in final submissions. The main criticisms were:
(a) he denied referring to his syndicate as an ‘investment’ whereas he used this expression in his police statement, and it was used on the Oceans 18 website and in an Oceans 18 brochure;
(b) he denied promoting the punting club, but it was promoted on the Oceans 18 website, and raised by him with a number of people;
(c) he denied, or could not recall, meeting Mr Sheppard at the Oceans 18 Brighton office contrary to Mr Sheppard’s evidence;
(d) he sought to distance himself from the drawing up of the two loan agreements by Ms Pett-Jones on his instructions;
(e) he claimed not to know what holding funds ‘on trust’ meant; and
(f) he said that Oceans 18 never had a bank account, but it clearly did.
While there is some merit in these criticisms, I generally accept Mr Christensen’s evidence in disputed matters and prefer that evidence to that of Mr Colaciello. Mr and Mrs Colaciello consistently sought to disregard or downplay Mr Vlahos’ pivotal role in the punting club in favour of exaggerating that of Mr Christensen. I reject Mr Colaciello’s evidence which ascribes a position and role to Mr Christensen that he did not have.
Findings as to the express representations
I have found that the express representations were not made to Mr Colaciello by publication on the Oceans 18 website as this was not read by Mr Colaciello.
I now set out my findings as to whether the express representations were orally made by Mr Christensen to Mr Colaciello. The express representations were:
(a) the shareholders of Oceans 18 developed the core thoroughbred racing systems and processes intellectual property (‘wagering IP’) over 5 years to April 2005
This representation relates to Mr Vlahos’ wagering system as developed by him. Mr Vlahos may have made such a representation. Mr Christensen denied making this representation. Mr Colaciello’s evidence does not establish that this representation was made by Mr Christensen to him. I am not satisfied on the balance of probabilities that this representation was made by Mr Christensen to Mr Colaciello.
(b)Oceans 18 stakeholders had been privately utilising the wagering IP since April 2005 with 28 of 29 quarters obtaining positive returns
Mr Vlahos developed the wagering IP, and purportedly used it for punting club betting. Mr Colaciello said in evidence that Mr Christensen said that he was ‘doing this investment which he set out at 29 quarters, 28 were positive’. He also said ‘They had 29 quarters, out of 29 quarters 28 were profitable and the 29th quarter was a flat quarter’, and that ‘He was telling me 28 out of 29 quarters it’s never failed. It’s only had one flat quarter’. Mr Christensen said that the information in the Oceans 18 brochure that in the 29 quarters since April 2005 there was only one quarter which had a negative 1.7% result was information given by Mr Vlahos. Mr Christensen denied making the representation.
The evidence establishes that Mr Christensen joined the punting club in 2006 making his first payment to Mr Vlahos on 27 June 2006. He was not a member of the club in April 2005. It was Mr Vlahos who controlled the punting club and developed or had access to its statistics. It is likely that he made a representation of this nature. Mr Christensen is likely to have had similar information from Mr Vlahos. I am not satisfied on the balance of probabilities that Mr Christensen made this representation to Mr Colaciello.
(c)Oceans 18 was established in order to commercialise the wagering IP
Mr Colaciello’s evidence did not establish that such a representation was made to him by Mr Christensen. Mr Christensen said that Oceans 18 was trying to commercialise Mr Vlahos’ system but could not get a product to market, and became an agent of Mr Vlahos. He said that he did not at any time tell Mr Colaciello that Oceans 18 was established in order to commercialise the wagering IP. I accept Mr Christensen’s evidence that he did not make the representation to Mr Colaciello but that in any event the representation was true.
(d)the wagering IP underlies a proven trading strategy
Mr Colaciello said that Mr Christensen said he had ‘developed this IP and they were just about bullet proof and they were still working on it to make it even better’. He said that Mr Christensen had also said that ‘they’re working on the IP, was going great, we’re perfecting it’. In other answers, Mr Colaciello said that Mr Christensen said that ‘he developed an IP, computer IP or something, and it was like working out all the horses to pick and percentages’ and ‘just making money the whole time’. He described the system as taken off Mr Vlahos, and organised and operated by Mr Christensen.
Mr Colaciello’s evidence did not establish that Mr Christensen had made the representations to him in the terms alleged. Mr Christensen denied that he made the representations. I accept his evidence that he did not use the term ‘bullet proof’, and that he did not organise or operate the wagering system.
I accept Mr Christensen’s evidence, and am not persuaded that the representation was made by him to Mr Colaciello.
(e)the layers of wagering IP include unique processes and methodology in conducting research, executing trading strategies and maintaining money management discipline.
Mr Colaciello did not give evidence that Mr Christensen had a conversation with him where he used words to this effect. Mr Christensen denied making this representation.
I accept Mr Christensen’s evidence. It is highly unlikely that Mr Christensen used words to this effect in a conversation with Mr Colaciello. This was not the way they spoke to each other.
(f)[Mr Christensen] had 28 years’ experience in property and business management and 11 years’ experience in trading in equities and options;
(g)[Mr Christensen] had extensive experience utilising Oceans 18’s core wagering IP dating back to 2006;
(h)[Mr Christensen] recently completed a Diploma of Personal Services in Investment Planning (General Advice) which consolidated his understanding of the financial services industry; and
(i)[Mr Christensen] was well qualified to give investment advice and make investment recommendations to Mr Colaciello.
These express representations concern Mr Christensen personally. At the time that the express representations were allegedly made, Mr Colaciello and Mr Christensen were close friends and ‘best mates’ who had known each other for around 20 years. They, their wives and families met very regularly on a social basis. They had been neighbours from 1992 until the Colaciellos moved to Florida in 2010. They were well aware of each other’s background and past employment. It is most unlikely in the circumstances that Mr Christensen made the statements or used the language alleged of him.
When shown the Oceans 18 Wagering Services brochure, Mr Colaciello described the brochure as just saying that they are financial advisers, specialised in this ‘thing’ who know what they are doing. He described Mr Christensen as a qualified financial adviser ‘like in business’. Mr Colaciello did not give evidence that these express representations were made to him by Mr Christensen. Mr Christensen denied making the representations. There was no evidence from any other witness that oral representations of this nature were made by Mr Christensen to Mr Colaciello.
In 2010, Mr Christensen completed a training course in Investment Planning (General Advice) – Managed Investments, Securities and Derivatives which entitled him to provide general advice on financial products and services. He was not, however, permitted to give personal advice. There is no evidence that he completed a Diploma. There was no reason why he would misdescribe his qualifications to a close personal friend.
I am not satisfied that these representations were made orally by Mr Christensen to Mr Colaciello.
Conclusion as to express representations
I am not satisfied that Mr Christensen made any of the express representations to Mr Colaciello as alleged in the FASOC.
Investment and financial advice
The punting club was an association of persons who placed funds with Mr Vlahos through syndicates and relied on Mr Vlahos to make bets on racehorses at race meetings on their behalf. They did this because they considered Mr Vlahos to have a successful wagering system to guide his picks and calculation of required odds, and a strong record over time.
While Mr Colaciello said that he got financial advice from Mr Christensen, and that he expected to receive income from the punting club because of the financial advice that Mr Christensen was giving, their relationship was one of very longstanding and close friends, and not of client and investment adviser. Mr Christensen did not act in any professional or financial advisory capacity in relation to Mr Colaciello. Mr Colaciello did not request Mr Christensen to act as his financial adviser or in any professional capacity, and Mr Christensen did not do so. There are no letters, emails, accounts or documents that suggest that he did.
The punting club was a private club of members who placed money with Mr Vlahos to bet on their behalf as he saw fit and in accordance with the wagering system that he had created. Mr Christensen led a syndicate within the club consisting of family and friends. It was up to the members of the syndicate to decide whether they wished to make a deposit or withdraw funds from the punting club. There is no evidence that Mr Christensen gave members financial advice as to the deposit or withdrawal of funds before or after each quarterly reconciliation. It was up to individual members to decide what they wanted to do at the end of each quarter. Mr Christensen did not guide individual members as to what they were to do.
The payments made by Mr Colaciello were determined by him as he saw fit without personal advice from Mr Christensen. Mr Colaciello also engaged in other frequent personal punting activities. I accept Mr Christensen’s evidence that he was taught in the course of his training to be a financial product adviser that he could not give personal advice. He was confined to general advice about financial products and services, and did not give personal advice.
Implied representations
In the FASOC, Mr Colaciello alleges that Mr Christensen made investment recommendations to him to transfer money into Mr Christensen’s bank account and that this occurred shortly before he did so. There are seven payments the subject of the claim against Mr Christensen over the twenty-one month period from 20 July 2011 until 26 April 2013. There is one payment made by Mr Colaciello to Mr Vlahos on 15 July 2013. There is no evidence that Mr Christensen gave advice or made recommendations that led to the making of these payments. There is no evidence that he made recommendations to Mr Colaciello to the effect that he should increase or decrease the amount of money that he sought to place in the punting club. Their timing and amount was determined by Mr Colaciello.
Disclaimer
Clause 6 of the services agreement made between Oceans 18 and Mr Colaciello on 12 April 2013 contains an extensive disclaimer.[7] As set out above, the disclaimer includes the following elements:
[7]See above [33].
(a) each party has entered into the agreement without relying on any information or advice or statement made by the other party;
(b) wagering is an inherently risky activity and there is the possibility that the client will lose the initial wagering amount together with other monies that make up the wagering balance;
(c) Oceans 18 does not guarantee any return on profit to the client;
(d) the information provided in respect of potential returns in past periods is for illustration purposes only and does not constitute a forecast; and
(e) the client relies on its own evaluation, advice and investigations, and not on any statement or representation made, any advice, opinion, warranty, undertaking, promise, estimate, projection or forecast given or any conduct of any kind engaged in by or on behalf of Oceans 18.
While the disclaimer applies only to the relationship between Mr Colaciello and Oceans 18, it does show that Mr Colaciello was on notice at least from 12 April 2013 of the risks involved in placing money in the punting club for betting by Mr Vlahos on behalf of the club.
Despite receipt of the disclaimer (which Mr Colaciello said he did not read), on 26 April 2013 he made a substantial payment of $230,000 to Mr Christensen for the punting club.
Reliance
In addition to what I have said above, Mr Colaciello has failed to establish not only that the express or implied representations were made but that he relied on them in making the payments to the punting club. When he joined the punting club, as he said in evidence, he considered that he would make money the whole time based on the system developed by Mr Vlahos which he considered to be bullet proof. He would probably not have to work again. This is the basis on which he deposited substantial sums in the punting club.
Mr Colaciello was a frequent gambler and must have appreciated that the success of the punting club was entirely dependent on the fortunes and performance of Mr Vlahos, who was responsible for all betting.
Mr Colaciello has the burden of proof that he relied on the express or implied representations. I am not satisfied that he has established that he acted in reliance on the express or implied representations. Rather, he acted of his own volition to make money and because he was onto ‘a good thing’.
Were the payments made in trade or commerce?
Mr Colaciello claims under s 12DA of the ASIC Act and under s 18 of the ACL.
Section 12DA of the ASIC Act provides that a person must not in trade or commerce engage in conduct relating to financial services that is misleading or deceptive or is likely to mislead or deceive. ‘Financial service’ is defined in s 12BAB of the ASIC Act.
Section 18 of the ACL provides that a person must not in trade or commerce engage in conduct that is misleading or deceptive or likely to mislead or deceive. Trade or commerce is defined in s 2 of the ACL to include business or professional activity (whether or not carried on for profit).
Mr Christensen submitted that the express and implied representations related to a private punting club and were not made in trade or commerce.
In Concrete Constructions (NSW) Pty Ltd v Nelson,[8] the plurality of the High Court said of the predecessor provision to s 18, in a well-known passage, that:
… it is plain that s. 52 was not intended to extend to all conduct, regardless of its nature, in which a corporation might engage in the course of, or for the purposes of, its overall trading or commercial business. Put differently, the section was not intended to impose, by a side-wind, an overlay of Commonwealth law upon every field of legislative control into which a corporation might stray for the purposes of, or in connection with, carrying on its trading or commercial activities. What the section is concerned with is the conduct of a corporation towards persons, be they consumers or not, with whom it (or those whose interests it represents or is seeking to promote) has or may have dealings in the course of those activities or transactions which, of their nature, bear a trading or commercial character. Such conduct includes, of course, promotional activities in relation to, or for the purposes of, the supply of goods or services to actual or potential consumers, be they identified persons or merely an unidentifiable section of the public. In some areas, the dividing line between what is and what is not conduct ‘in trade or commerce’ may be less clear and may require the identification of what imports a trading or commercial character to an activity which is not, without more, of that character.[9]
[8](1990) 169 CLR 594 (‘Concrete Constructions’).
[9]Ibid 603–4 (Mason CJ, Deane, Dawson and Gaudron JJ).
In support of their claim that the respondent had wrongfully appropriated the payments, the appellants contended that the respondent was required to appropriate the money in accordance with the rule in Clayton’s Case, namely, by appropriating each consecutive payment to the earliest outstanding loan – the “first in first out” rule. Instead, it was said, the respondent wrongfully appropriated the payments first to interest and then to principal. In my view, however, the rule in Clayton’s Case has no application here. The operation of the rule was explained in that case by Sir William Grant M.R. in the context of a current, or running, or blended, account that was in existence between the parties, such as a bank account. In those circumstances, his Lordship said: “[t]here is no room for any other appropriation than that which arises from the order in which the receipts and payments take place and are carried into the account. Presumably, it is the sum first paid in that is first drawn out. It is the first item on the debit side of the account that is discharged or reduced by the first item on the credit side; the appropriation is made by the very act of setting the two items against each other.” But it is clear enough that the rule is “a mere rule of evidence and not an invariable rule of law” and, as Lord Halsbury said in Cory Brothers & Co. Ltd v. The Owners of The Turkish Steamship “Mecca” (“The Mecca”), the rule has no operation where the payment in question was properly appropriated by the creditor (or debtor) or where there are distinct and separate debts.
In the present case, there is “room” for appropriation of the payments as made by the respondent for a number of reasons. First, there was no account current (or running account) between the parties. A running account, as Dawson, Gaudron and McHugh, JJ. explained in Airservices Australia v. Ferrier: “is merely another name for an active account running from day-to-day, as opposed to an account where further debits are not contemplated. The essential feature of a running account is that it predicates a continuing relationship of debtor and creditor with an expectation that further debits and credits will be recorded. … Thus, a running account is contrasted with an account where the expectation is that the next entry will be a credit entry that will close the account by recording the payment of the debt… .” The evidence in this case makes it apparent that the parties conducted their affairs on the basis that each of the six loans constituted a separate transaction, as distinct from a current account. Similarly, each loan was subject to separate documentation, and the communications between the parties relevantly bear out that they treated each loan as being independent of the other loans. […] Secondly, and perhaps more importantly, the payments were plainly appropriated by the respondent in accordance with clause 8(b) of the deeds, namely, first against interest and then against the principal.[36]
[35][2006] VSCA 109.
[36]Ibid [25]–[26] (citations omitted).
In Airservices Australia v Ferrier,[37] Brennan CJ explained the difference between a running account, which would attract the rule in Clayton’s Case, and distinct debts, which would not. His Honour stated that:
Where a debtor owes a number of distinct debts to a creditor and the debtor, on paying an amount, directs that the payment be appropriated to one of those debts, or where the creditor thereafter elects to appropriate the payment to one of those debts, the debt to which the payment is appropriated is discharged. But in the case of a running account, when no appropriation of a payment to a particular debit item is made either by debtor or creditor, the immediate effect of the payment is not the discharge of a debt itemised in the account. The immediate effect is a reduction pro tanto in the balance of the account and, in so far as it is material to attribute the payment to particular debit items, the rule in Clayton's Case prima facie applies to discharge the oldest debts that have not been discharged by intermediate payments.[38]
[37](1996) 185 CLR 483.
[38]Ibid 494–5 (citations omitted).
In Central Cleaning Supplies (Aust) Pty Ltd v Elkerton (No 2)[39] Daly As J applied Clayton’s Case to the appropriations in question because it was found that there was a ‘running account’ between the parties.[40] Her Honour held that:
Where there is a running account, the rule in Clayton’s case is said to apply, that is, the creditor is required to appropriate each consecutive payment to the earliest outstanding loan. As stated by the Court of Appeal in Yarra Capital Group Pty Ltd and anor v Sklash Pty Ltd, the rule in Clayton’s case is a ‘mere rule of evidence and not an invariable rule of law’, and ‘the rule has no operation where the payment in question was properly appropriated by the creditor (or debtor), or where there are distinct and separate debts.’
In my view, the evidence regarding the nature of the commercial relationship between the parties, including an examination of the statements of account provided by Central to Swan, is consistent with there being a ‘running account’ between the parties.[41]
[39][2016] VSC 410.
[40]Ibid [34], [36].
[41]Ibid [33]–[34].
Limitations issues were considered in Re French Caledonia Travel Service Pty Ltd (in liq),[42] where Campbell J stated that Clayton’s Case applies in situations including:
In the application of the Limitation Act 1969 to a debt owing to a bank on an overdraft account. If the contractual arrangements are such that a demand is not a prerequisite to the accrual of a cause of action, time runs separately in relation to each advance from the date it is made, and Clayton's Case is used to determine which advance is the oldest which has not been repaid.[43]
[42](2003) 59 NSWLR 361.
[43]Ibid 373 [34] (citations omitted).
In DSHE Holdings Ltd (recs and mgrs apptd) (in liq) v Potts[44] the New South Wales Court of Appeal provided the following summary of the different situations where the rule in Clayton’s Case applies:
The “rule” is a presumption, rebuttable by contrary agreement or evidence sustaining a contrary intention. It is a rule which is used in a number of areas of the law in order to identify the relationship between credits and debits. It is not used invariably. It says little, if anything, concerning the relations between trustee and beneficiary… for equity developed its own rules where there were ongoing deposits and withdrawals, including in cases where there were multiple depositors into the same account. The authorities are reviewed extensively in Caron v Jahani(No 2).[45]
The rule may be used in a range of circumstances where there is a running account between parties, and it is necessary to identify precisely when a particular debit is discharged by a particular credit.[46]
[44](2022) 405 ALR 70 (‘DSHE Holdings’).
[45](2020) 102 NSWLR 537.
[46]DSHE Holdings [335]–[336].
The Laws of Australia provides further guidance on situations where the rule does not apply. The authors state that:
The rule, or presumption, is not a rule of law and does not apply where there has been some express appropriation by the debtor or if the circumstances of a particular case lead to an inference that payments in respect of the account are to be treated in a different manner. It does not apply where there are different debts in respect of separate accounts.[47]
It has been held that the rule in Clayton’s Case does not apply where it leads to an injustice or is contrary to the intention of the customer. The rule was described by the Court of Appeal in Re Diplock; Diplock v Wintle[48] as “really a rule of convenience based upon so-called presumed intention”.[49] When viewed on this basis, it is reasonable to recognise alternate methods of calculating the sequence of transactions where the application of the rule in Clayton’s Case leads to an unfair or unintended result.[50]
[47]Westlaw AU, The Laws of Australia (online at 14 September 2023, last reviewed 1 January 2022) 7 Contract: General Principles, ‘7.5 Performance’ [7.5.510] (citations omitted).
[48][1948] Ch 465; [1948] 2 All ER 318 (CA).
[49]Ibid 554 (Ch).
[50]Westlaw AU, The Laws of Australia (online at 14 September 2023, last reviewed 1 July 2022) 18 Finance, Banking and Securities, ‘18.4 Bank Customer Relationship’ [18.4.2490] (citations omitted).
The rule in Clayton’s Case is no longer applied in Australia in certain circumstances. It is no longer applied where ‘the funds of innocent contributors have been mixed or blended in a bank account and there is a shortfall in funds available for recovery.’[51]
[51]Caron v Jahani(No 2) (2020) 102 NSWLR 537, 554 [81].
Where a bank account is complex and monies have been received from a range of different sources, the application of Clayton’s Case may be inappropriate.[52] In Barlow Clowes International Ltd (in liq) v Vaughan,[53] the English Court of Appeal refused to apply the rule where a number of investors paid money into a deposit-taking company which went into liquidation.[54]
[52]Westlaw AU, The Laws of Australia (online at 14 September 2023, last reviewed 1 July 2018) 15 Equity, ‘15.10 Tracing’ [15.10.510].
[53][1992] 4 All ER 22.
[54]Ibid 33 (Dillon LJ), 42 (Woolf LJ), 46 (Leggatt LJ).
The account between Mr Colaciello as a syndicate member and Mr Christensen as a syndicate leader was a running account and operated between 2011 and 2013. Mr Christensen received monies from Mr Colaciello and paid withdrawals on a number of occasions. The present dispute is not a dispute involving competing creditors where there has been a shortfall. For limitation purposes, I am concerned only with the funds paid by Mr Colaciello to Mr Christensen and the payments made by Mr Christensen to Mr Colaciello.
The amounts that would be statute barred if the rule in Clayton’s Case were not applied total $367,252.56, and were paid before 24 February 2013. In 2013 Mr Christensen paid Mr Colaciello the total amount of $629,122.07 which was more than sufficient to repay all amounts paid prior to 24 February 2013.[55] There is no agreement or arrangement between the parties not to apply the rule in Clayton’s Case. Nor is there any injustice if the rule in Clayton’s Case is applied for the limited purposes with which I am concerned.
[55]See above [30], [174].
The application of the rule in Clayton’s Case between Mr Colaciello and Mr Christensen would mean that no amount of Mr Colaciello’s claim against Mr Christensen is statute barred. No other party would be adversely affected.
In my view, the rule in Clayton’s Case should be applied to the course of payments between Mr Colaciello and Mr Christensen as a running account with the consequence that no part of the claim made by Mr Colaciello is statute barred.
Unauthorised gambling
Mr Christensen submits that the claims made by Mr Colaciello are void as unauthorised gambling contrary to the Gambling Act.
Mr Christensen relies on s 2.4.1 of the Gambling Act which provides:
A gaming or wagering contract or agreement (whether written or not) is void if the gaming or wagering to which it relates is unauthorised gambling.
‘Unauthorised gambling’ is defined in s 1.3(1) of the Gambling Act as follows:
‘unauthorised gambling’ means gambling that is not authorised by or under this Act or another Act
These provisions do not apply. They were only incorporated into the Gambling Act on 1 July 2015 and are not retrospective. Prior to that date the Gambling Act provided:
2.4.1 Gaming or wagering contracts are void
Except as provided in section 2.4.2, a gaming or wagering contract or agreement (whether written or not) is void.
2.4.2 Non-application of section 2.4.1
Section 2.4.1 does not apply to –
(a)subscriptions or contributions to gaming allowed under this Act; or
(b)any bet made with a registered bookmaker while the bookmaker is carrying on their business or vocation in accordance with Part 5A of Chapter 4, being a bet –
(i)made in accordance with section 4 of the Racing Act 1958 or a club betting permit under that Act; or
(ii) made in accordance with section 2.5.10; or
(c)any bet made in the name of a trading bookmaking partnership (within the meaning of Part 5A of Chapter 4) all the members of which have approval to be members of that partnership under section 4.5A.10, being a bet made in accordance with section 4 of the Racing Act 1958; or
(d)any bet or wager made with a licensee under Chapter 4 or wagering operator or the holder of an on-course wagering permit under Chapter 4; …
Mr Christensen did not make bets on behalf of the punting club and forwarded funds to Mr Vlahos for bets to be made. It was expected that Mr Vlahos would place bets with licensed bookmakers in accordance with the rating sheets forwarded to club members. To the extent he did so, the betting undertaken by Mr Vlahos for the punting club was lawful. Predominantly Mr Vlahos undertook a Ponzi scheme where the funds provided by syndicates and their members were used to pay other members and Mr Vlahos’ business and private expenditure. This money was not used for betting at all.
There is no evidence that the funds provided by punting club syndicates to Mr Vlahos were used for betting outside the scope of s 2.4.2 of the Gambling Act as it was in force at the relevant time.
I find that Mr Christensen has not proven the facts necessary to establish this defence.
Other issues
The parties also made submissions on a number of other issues including contributory negligence, apportionment and interest. There is no need, having regard to the findings above, to decide these issues.
Conclusion as to the first proceeding
The first proceeding fails and must be dismissed.
Part Three: Analysis of the second proceeding
Second proceeding
In the second proceeding, Colaciello Super claims the amount of $320,000 and interest from Mrs Christensen pursuant to the first loan agreement. The first loan agreement was for a two year period and expired on 31 March 2015. Colaciello Super also seeks a declaration that the property is security for the first loan, and that Colaciello Super is entitled to possession of the property.
Mrs Christensen admits the first loan agreement, which was one of two agreements.
She says that the monies that she received under the first loan agreement were transferred back to the Colaciello joint bank account following their receipt in the Christensens’ joint bank account. She also relies on recital D and cl 9 of the second loan agreement. Mr Colaciello is joined as a third party to the second proceeding.
Recital C of the second loan agreement states that the loan arises as a result of the Lender placing the sum of $290,000 into an account in the name of the Borrower with Oceans 18. This did not take place. Rather, the funds were paid to Mr Colaciello.
Recital D states:
The parties intend the Loan to be offset against a loan of $290,000 made by Colaciello Super Pty Ltd as Lender to Michelle Maree Christensen as Borrower.
Clause 9 of the second loan agreement states:
The parties agree that the Lender will not be required to repay any principal and interest on the loan for $290,000 made by Colaciello Super Pty Ltd to Michelle Maree Christensen unless principal and interest due under the loan made is in accordance with this agreement is paid to Michelle Maree Christensen.
Defence of non-payment of Mrs Christensen
The loan agreements made between the parties are found in the first and second loan agreements and the oral agreements between Mr Colaciello and Mr Christensen to increase the amount of the loan to $320,000 in lieu of $290,000. The provisions of the first and second loan agreements are interconnected. Essentially, Mrs Christensen was an intermediary or conduit to effect the flow of funds from the Colaciello superannuation fund to Mr Colaciello. Her position is safeguarded by cl 9.
Mrs Christensen is under no obligation to repay the principal and interest on the loan made by Colaciello Super unless the principal and interest under the second loan agreement is paid by Mr Colaciello to her. It is common ground that this has not occurred.
As a result, the second proceeding fails and must be dismissed.
Defence of illegality
Mrs Christensen also submits that:
(a) the first and second loan agreements are unenforceable as they are in breach of the SIS Act that prohibits a superannuation fund from lending funds to its members;
(b) all money that was received from Colaciello Super was paid to Mr Colaciello; and
(c) Mrs Christensen’s obligation to repay Colaciello Super only arose on Mr Colaciello repaying Mrs Christensen which has not occurred.
Section 65(1) of the SIS Act relevantly provides:
(1) A trustee… of a regulated superannuation fund must not:
(a) lend money of the fund to:
(i) a member of the fund; or
(ii) a relative of a member of the fund; or
(b)give any other financial assistance using the resources of the fund to:
(i) a member of the fund; or
(ii) a relative of a member of the fund.
The purpose of s 65 is to prohibit a trustee of a regulated superannuation fund from lending money to a member or relative of a member or providing any other financial assistance to a member or a relative of a member using the resources of the fund.[56]
[56]Frigger v Trenfield (No 10) (2021) 397 ALR 24, 132 [505].
Section 166(1) of the SIS Act provides for an administrative penalty of 60 penalty units to be imposed on a trustee of a self-managed superannuation fund or director of a body corporate that is a trustee of a self-managed superannuation fund for breach of s 65(1).
Section 65(1) has been considered by courts in numerous cases, typically in connection with the penalty to be imposed for contraventions.[57]
[57]See Frigger v Trenfield (No 10) (2021) 397 ALR 24; Deputy Commissioner of Taxation (Superannuation) v Graham Family Superannuation Pty Ltd (2019) 99 ATR 544; Deputy Commissioner of Taxation v Rodriguez (2016) 103 ATR 662; Deputy Commissioner of Taxation v Lyons (2014) 100 ATR 130; Olesen v Macleod (2011) 85 ATR 107; Deputy Commissioner of Taxation (Superannuation) v Ryan (2015) 100 ATR 449; Olesen v Eddy (2011) 81 ATR 763; Vivian (Deputy Commissioner of Taxation (Superannuation)) v Fitzgeralds (2007) 69 ATR 834.
In Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd,[58] Gibbs ACJ said:
There are four main ways in which the enforceability of a contract may be affected by a statutory provision which renders particular conduct unlawful: (1) The contract may be to do something which the statute forbids; (2) The contract may be one which the statute expressly or impliedly prohibits; (3) The contract, although lawful on its face, may be made in order to effect a purpose which the statute renders unlawful; or (4) The contract, although lawful according to its own terms, may be performed in a manner which the statute prohibits….
…
It is often said that a contract expressly or impliedly prohibited by statute is void and unenforceable. That statement is true as a general rule, but for complete accuracy it needs qualification, because it is possible for a statute in terms to prohibit a contract and yet to provide, expressly or impliedly, that the contract will be valid and enforceable. However, cases are likely to be rare in which a statute prohibits a contract but nevertheless reveals an intention that it shall be valid and enforceable, and in most cases it is sufficient to say, as has been said in many cases of authority, that the test is whether the contract is prohibited by the statute. Where a statute imposes a penalty upon the making or performance of a contract, it is a question of construction whether the statute intends to prohibit the contract in this sense, that is, to render it void and unenforceable, or whether it intends only that the penalty for which it provides shall be inflicted if the contract is made or performed….
The question whether a statute, on its proper construction, intends to vitiate a contract made in breach of its provisions, is one which must be determined in accordance with the ordinary principles that govern the construction of statutes… As Devlin J. said in St. John Shipping Corporation v. Joseph Rank Ltd: ‘The fundamental question is whether the statute means to prohibit the contract. The statute is to be construed in the ordinary way: one must have regard to all relevant considerations and no single consideration, however important, is conclusive.’[59]
[58](1978) 139 CLR 410.
[59](1978) 139 CLR 410, 413 (citations omitted).
In Gnych v Polish Club Ltd,[60] four members of the High Court summarised the general principles relating to statutory illegality in these terms:
[60](2015) 255 CLR 414.
In Equuscorp Pty Ltd v Haxton, French CJ, Crennan and Kiefel JJ explained that an agreement may be unenforceable for statutory illegality in three categories of case, where:
“(i)the making of the agreement or the doing of an act essential to its formation is expressly prohibited absolutely or conditionally by the statute;
(ii)the making of the agreement is impliedly prohibited by statute. A particular case of an implied prohibition arises where the agreement is to do an act the doing of which is prohibited by the statute;
(iii)the agreement is not expressly or impliedly prohibited by a statute but is treated by the courts as unenforceable because it is a ‘contract associated with or in the furtherance of illegal purposes’.
In the third category of case, the court acts to uphold the policy of the law, which may make the agreement unenforceable. That policy does not impose the sanction of unenforceability on every agreement associated with or made in furtherance of illegal purposes. The court must discern from the scope and purpose of the relevant statute 'whether the legislative purpose will be fulfilled without regarding the contract or the trust as void and unenforceable’.”
…
In this regard, in Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd, Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ cited with approval the observation by Mason J in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd that:
“the question whether a contract prohibited by statute is void is, like the associated question whether the statute prohibits the contract, a question of statutory construction.”
Their Honours went on to state that whether a statute which:
“contains a unilateral prohibition on entry into a contract ... is void ... depends upon the mischief which the statute is designed to prevent, its language, scope and purpose, the consequences for the innocent party, and any other relevant considerations. Ultimately, the question is one of statutory construction.”
That statement was, in turn, cited with approval by Gummow A-CJ, Kirby, Hayne, Crennan and Kiefel JJ in Master Education Services Pty Ltd v Ketchell.[61]
[61]Ibid [35]–[39] (French CJ, Kiefel, Keane and Nettle JJ) (citations omitted).
In Civil and Allied Technical Construction Pty Ltd v A1 Quality Concrete Tanks Pty Ltd,[62] the Court of Appeal considered the authorities concerning statutory illegality and relevantly noted the following propositions:
(1)A contract does not become unenforceable merely because something illegal is done in the course of its performance.
(2)Where enforcement is said to be precluded on grounds of public policy, the illegality contended for must be of real significance in relation to the subject matter of the contract which is sought to be enforced. It cannot be a matter which is incidental or peripheral to the real purpose or object of the transaction. The illegal purpose must go to the substance of the transaction.
(3) The principle which precludes recovery on the basis of public policy is directed at preventing an affront to the public conscience or involving the court in upholding seriously anti-social conduct which is illegal or gravely reprehensible.
(4)In the modern context, courts should be slow to nullify a bargain on the basis of what may be properly characterised as regulatory non-compliance.[63]
[62][2018] VSCA 157 (‘Civil and Allied’).
[63]Ibid [119] (Whelan, Santamaria and McLeish JJA).
Colaciello Super and Mr Colaciello submitted that:
(a) the contravention was not dishonest with an intention to gain an advantage;
(b) Mr Christensen suggested the arrangement and was aware it was improper;
(c) Mr Christensen orchestrated the arrangement by instructing a solicitor, arranging for Mr Colaciello to go to an accountant to have a self-managed fund established and arranging for Mr Taylor to set up a bank account; and
(d) neither Mr or Mrs Colaciello were advised by the solicitor or accountant that the arrangement was wrongful.
In Civil and Allied, the Court of Appeal accepted the two general principles adopted by Devlin J in St Johns Shipping Corporation v Joseph Rank Ltd.[64]They were that:
(a) a contract entered into with the object of committing an illegal act is unenforceable. The application of this principle depends upon proof of intent at the time the contract was made to break the law; and
(b) the court will not enforce a contract which is expressly or impliedly prohibited by statute. If the contract is of this class it does not matter what the intent of the parties is; if the statute prohibits the contract, it is unenforceable whether the parties meant to break law or not.[65]
[64][1957] 1 QB 267 (‘St John Shipping’).
[65]Civil and Allied (n 62) [88], [114].
In the present case, both Mr Colaciello and Mr Christensen were aware that the first and second loan agreements were improper. Mr Colaciello said in evidence that he told Mr Christensen that he could not touch the money in his superannuation. Mr Christensen was also aware that the purpose of the two loan agreements was to circumvent restrictions on member access to superannuation until the member was eligible to do so. He facilitated the arrangements to draw up and sign the necessary documents.
Mrs Christensen had little if any understanding about the first or second loan agreements or the third mortgage that she signed. She said that she was aware that the first and second loan agreements happened, and that if anything had to be done Mr Christensen would have attended to it. Likewise, Mrs Colaciello signed the Colaciello superannuation fund deed in the kitchen in her home in the presence of Mr Colaciello and Mr Christensen and did not speak with lawyers or accountants about the establishment of a self-managed superannuation fund. She also signed the first loan agreement at Mr Colaciello’s request at home without seeing a lawyer or accountant. She did not attend at the bank to open the Colaciello superannuation fund bank account, or make transfers of money. She did not read the documents.
The SIS Act governs the operation and management of superannuation funds. The Colaciello superannuation fund was a self-managed superannuation fund. Section 3(1) of the SIS Act relevantly provides that the main object of the SIS Act is to make provisions for the prudent management of certain superannuation funds. Section 3(2) notes that the basis for supervision is that these funds are subject to regulation under the Commonwealth’s powers with respect to corporations or pensions, and in return, may become eligible for concessional taxation treatment.
The SIS Act protects both individual fund members and the public as a whole by ensuring that retirement benefits are preserved. This benefits members in retirement and relieves the wider community from the cost of pensions. There is a public interest in ensuring that superannuation funds are properly used.
The first loan agreement and the second loan agreement were drafted by the same solicitor at the same time. They have the same commencement and completion date, loan quantum, interest rate and term. They are directly interconnected in the sense that payments by Mrs Christensen as borrower to Colaciello Super as lender under the first loan agreement are limited in quantum to the payments Mrs Christensen as lender may receive from Mr Colaciello as borrower under the second loan agreement.
It would have been simple to draft an agreement whereby Colaciello Super lent money directly to Mr Colaciello. However that would have been an obvious and direct contravention of s 65(1) of the SIS Act. For that reason, the two agreements were prepared with the same amount of funds flowing from Colaciello Super to Mrs Christensen, and then to Mr Colaciello at the same interest rate. It was open to the parties to provide only the first loan agreement which was apparently lawful in form.
The object of the two agreements taken together is to defeat the operation of s 65 of the SIS Act by lending to Mr Colaciello, a member of the Colaciello superannuation fund, and to provide financial assistance to Mr Colaciello using the resources of the fund.
The scheme constituted by the first loan agreement and the second loan agreement was intended to be, and is, a loan by the Colaciello superannuation fund to Mr Colaciello and the provision of financial assistance to him.
Section 62 of the SIS Act relevantly requires each trustee of a regulated superannuation fund to ensure that the fund is maintained solely for the provision of benefits to each member of the fund after retirement, or after reaching the specified age. The first and second loan agreements are plainly part of a scheme in contravention of this ‘sole purpose’ test.
These conclusions come as no surprise having regard to Mr Colaciello’s own pleadings. In a reply to Mrs Christensen’s defence in the second proceeding filed 3 June 2019, Colaciello Super alleged that:
(a) the second loan agreement was a sham and is otiose; and
(b) the second loan agreement is void for public policy.
On 24 July 2019, Colaciello Super filed a defence to a third party statement of claim, which included the following allegations:
(a) the second loan agreement is a sham, as its real purpose was to circumvent the prohibitions against self-managed superannuation funds lending funds to its members (in this case Mr Colaciello) to invest in a gaming or wagering system, which was void and unenforceable; and
(b) the second loan agreement is void for public policy due to its sham nature. This allegation referred to ss 65 and 83 of the SIS Act.
I find that the first loan agreement and second loan agreement are unenforceable being contracts expressly or impliedly prohibited by ss 62 and 65 of the SIS Act. In breach of the ‘sole purpose’ test found in s 62, the principal object of the contracts was to lend money to Mr Colaciello, a member of the Colaciello superannuation fund. It was also to provide him with financial assistance using the resources of the fund in contravention of s 65(1) of the SIS Act. As a result, in my view the first and second loan agreements are unenforceable under the second principle in St John Shipping. It would be an affront to the public conscience and the law to disregard these provisions and uphold the loan agreements.
The practical effect of the defence of illegality is that the status quo remains. Mr Colaciello took the benefit of the Colaciellos’ superannuation funds, and expended them as he saw fit. It would be unfair and unjust for Mrs Christensen to be held responsible for them when Mr Colaciello has already expended the monies previously held in the Colaciello superannuation fund.
Conclusion as to the second proceeding
The second proceeding fails and must be dismissed. The third party proceeding against Mr Colaciello will also be dismissed.
Orders
Both proceedings and the third party proceeding will be dismissed. I will hear from the parties as to the costs of the proceedings.
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