Colman, O.R. v Lincoln Hunt Australia Ltd

NOT FOR DISTRIBUTION

IN THE FEDERAL COURT OF AUSTRALIA )

)

NEW SOUTH WALES DISTRICT REGISTRY	)	No. G.247	of	1 9 8 5
1

DIVISION

GENERAL

)

BETWEEN :

OLIVER ROLAND EDMUND

COLMAN

and

SUSAN CLARE COLMAN

Applicants - L -

AND :	LINCOLN HUNT AUSTRALIA PTY LIMITED
Flrst Respondent
RICHARD HAWKE
Second Respondent
JACOB FEDOR DUBINSKI-HUNT
Third Respondent

CORAM :	-	-	WILCOX J	,..
PLACE :	SYDNEY

DATE :

11 AUGUST

1 9 8 6

MINUTES OF ORDER

j 1

THE COURT ORDERS THAT:

1. Judgment be entered agalnst each of the flrst and third respondents In the sum of slxteen thousand dollars ($16,000.00) together with interest in the sum of two thousand eight hundred dollars

($2,800.00).

The first and thlrd respondents pay to

the applicants

their costs of these proceedings.

Note:

Settlement and entry of orders is dealt wlth in Order

36 of the Federal Court

Rules.

NOT FOR DISTRIBUTION

IN THE FEDERAL COURT OF AUSTRALIA	)	I.
)

NEW SOUTH WALES DISTRICT REGISTRY	)	No. G.247 of 1985
)

DIVISION

GENERAL

)

BETWEEN:	OLIVER ROLAND EDMUND
COLMAN
and
SUSAN CLARE COLMAN'

Applicants

AND:

LINCOLN HUNT AUSTRALIA

PTY LIMITED

First Respondent

RICHARD HAWKE

Second Respondent

Thlrd

Respondent :

CORAM:	WILCOX J
PLACE :	SYDNEY
DATE :	11 AUGUST 1986

EXTEMPORE REASONS FOR JUDGMENT

T h i s

a n

a p p l i c a t i o n b r o u g h t u n d e r

s .52

t he -

T r a d e

P r a c t i c e s

A c t

1 9 7 4 .

a p p l i c a n t s

O l i v e r

R o l a n d

Edmund

Colman

a n d S u s a n C l a r e

Colman

made

two

d e p o s i t s w i t h t h e f i r s t

r e s p o n d e n t , L i n c o l n

H u n t

A u s t r a l i a P t y L l m i t e d p u r s u a n t

t o

c e r t a i n s t a t e m e n t s

made

t o

t h e m , b o t h o r a l l y

a n d

I n

documentary

form,

r e g a r d l n g

s o - c a l l e d

i n v e s t m e n t s .

T h e

f irst

d e p o s i t

was

made

May

1985 i n t h e sum

o f

$ 8 , 0 0 0 .

The

second

payment

was

made

J u n e 1 9 8 5

i n

t h e

same

amount.

The

s econd

r e sponden t

t o

t h e p r o c e e d i n g s , R i c h a r d

Hawke, was employed

the

f lrst

r e s p o n d e n t

a s C h i e f

E x e c u t l v e ,

F l n a n c i a l

S e r v i c e s

D i v i s l o n .

p l a y e d

some

p a r t

i n t h e p e r s u a s l o n

M r Colman,

who

made

t h e r e l e v a n t

d e c i s i o n s o n b e h a l f o f

h i m s e l f

a n d h i s

wl fe

t o

i n v e s t

money

wlth

the

company.

However ,

a n

ag reemen t

has

been

r eached

b e t w e e n

t h e

a p p l i c a n t s

a n d

M r Hawke

w h e r e ,

b y

c o n s e n t ,

t h e

p r o c e e d i n g s

h a v e

b e e n

d i s m l s s e d

a g a i n s t

h l m .

C o n s e q u e n t l y

I am n o t

f u r t h e r c o n c e r n e d w i t h h i s

I n v o l v e m e n t .

The

t h i r d

r e s p o n d e n t ,

J a c o b

F e d o r

D u b l n s k 1 - H u n t , > a s

-	?	-
i

a t a l l m a t e r i a l

tlmes

b o t h

d i r e c t o r

a n d

t h e p r l n c i p a l

executive	o f f i c e r	o f	t h e	company.	Accordlng	t o	an	answer	t o	!I
i

in te r roga tor ies

sworn

him

h i s

f u n c t i o n s , d u t i e s a n d

r e s p o n s i b l l i t l e s

l n r e l a t i o n

t o

t h e

f i r s t r e s p o n d e n t

were,

i n

1984,

" t o d i r e c t

t h e

a c t i v i t i e s of

t h e

f irst

r e s p o n d e n t ,

I n v e s t i g a t e

m a r k e t

c o n d i t i o n s a n d g e n e r a l l y m a n a g e

t h e o f f i c e s

t h e

f l r s t

r e s p o n d e n t " .

3 .

A Defence was entered to these proceedlngs

on behalf

of the first respondent, Llncoln Hunt,

but that company failed

to answer interrogatories and I was informed during the

hearing of a Notice of Motlon in respect of interrogatories

that the company had gone into provisional liquidation.

There

was some question about

whether the company would in fact

defend the proceedings.

Upon the application of the

applicants on 20 June

1986, I ordered

that the first

respondent, within 14 days

from that day, file and serve _.

answers to interrogatories as set out

in the appllcants' -

Notice to Answer Interrogatories, paras.18

to 40 and 45(c) and

( d ) respectively, and In default thereof

and without the

necessity for a further order the Defence

of the first

respondent be struck out.

The answers to interrogatories

referred to in that order were not in fact filed whereby, in consequence of the order, the Defence was struck out. At no

subsequent tlme has there

been any appearance on behalf

of the

flrst respondent.

- So far as the third respondent, Mr Dublnskl-Hunt.; is concerned a Defence was filed and Answers to Interrogatories

were flled.

He has been represented by counsel on a number of

occasions.

However, he has not been represented today and I

note that no affidavlts were

filed by Mr Dubinski-Hunt,

notwithstanding a direction that all affldavlts upon

which he

4 .

i n t e n d e d

t o r e l y were

t o

f i l e d p r i o r t o t h e

h e a r i n g .

C o n s e q u e n t l y

t h e

matter

h a s p r o c e e d e d a s a n u n d e f e n d e d

matter

a s a g a i n s t b o t h

t h e

f i rs t

and

t h i r d

r e s p o n d e n t s .

The

f l r s t

a p p l i c a n t ,

Colman,

has

sworn

a f f i d a v l t

s e t t i n g

o u t

t h e

way

i n whlch

became

involved .

I t

a p p e a r s

t h a t h e w a s

f l r s t

a p p r o a c h e d b y

Jason

Ryder

Accord ing

t o the

Answers

t o

I n t e r r o g a t o r i e s o n b e h a l f

t h e

f i r s t

r e s p o n d e n t

a n d

h l r d

e s p o n d e n t .

Ryder was employed

by Linco ln Colman, who

Hun t

sa les

p e r s o n .

R y d e r

c o n t a c t e d

M r

a d e n t l s t b y

p r o f e s s i o n ,

o n

number

o c c a s i o n s a n d e v e n t u a l l y p e r s u a d e d h i m

a t t e n d

mee t ing

h e l d a t

t h e

o f f l ces

L i n c o l n Hunt

o n

F e b r u a r y

1985.

The re

were

number

o t h e r p e o p l e p r e s e n t o n t h a t o c c a s i o n

and

t hey

were each

lven

documen t s

lch

have

been

t e n d e r e d

i n

e v i d e n c e a s e x h i b i t s

a n d

These

documents

a r e

a t t r a c t i v e l y p r e s e n t e d a n d

show

p h o t o g r a p h s o f v a r i o u s

well

known

p e o p l e b u t

t h e y a p p e a r

h a v e

v e r y

l l t t l e ,

a n y t h i n g ,

t o

d o

w i t h

t h e

i n v e s t m e n t 3 h i c h

i	-	-	e	-
i	I

Lincolf i -Hunt

was

o f f e r i n g

t o

i n t e r e s t e d

p e r s o n s .

E x h i b i t 3 A

p r o s p e c t u s

f o r

P r o p e r t y T r u s t o f A u s t r a l i a

L l m i t e d

a n d ,

I	f a r a s	t h e e v l d e n c e	I n d i c a t e s ,	t h i s h a s n o t h i n g w h a t e v e r	t o	do
l
I

w i t h e i t h e r L i n c o l n H u n t

o r

t h e p a r t i c u l a r

i n v e s t m e n t w h i c h

was

b e l n g

o f f e r e d .

E x h i b i t

d o c u m e n t

d e a l i n g

w i t h

L incoln

Hunt

and

I ts

real

e s t a t e

i n v e s t m e n t s .

I t

h a s

n o t h i n g

5. j ..

i.;

to do wlth the

particular Investments which were

being offered

to Mr Colman and the others at the meetlng.

I suppose it can

best be described as an attempt in	image-bullding on behalf of
Lincoln Hunt.

On that occaslon Mr Hawke addressed those present for

I '

some time and he handed to those present, including Mr Colman,

various documents.

These documents Included annexure A to Mr

I-

Colman's

affidavit,

which

is a document headed: "HOW is My

Money Invested?" Mr Dubinski-Hunt has acknowledged in his

-	L -
-

Answers to Interrogatories that

he was one of

the authors-of

I. .

this document.

The document sets out a number of statements

,.:

whlch I am satisfied were misleading or deceptive.

At the

commencement of the document and in response to the headlng: "How 1s My Money Invested?', the statement is made: "30% of your money is invested in Australlan trading bank accepted

bills of exchange".

The evidence indlcates that no part of Mr

Colman's money was ever invested in Australian trading bank

accepted bills of exchange, and It appears to me unllkely $hat

there was ever any Intention of so investlng the funds.

e s a y

this betause of the fact that, in the

case of each of his-:

investments, the whole of the investment was immediately used

for the purchase of futures

in Unlted States Treasury Bonds.

The second statement which was made in the document

was as follows:

"The balance of 70% is invested in the United

States on the basis of the U.S.

financial

instruments contracts - Treasury Bills, Treasury Bonds, Government and Natlonal Mortgage Association securities (GNMA's).	, '.	, + -
These are bought and sold as spreads. Thls is

a very attractive way

of investing because of

the combination of security wlth an

exceptlonal return."

I think that, as pointed out

in an affidavit by Mr E S

Spooner, who

1s an experienced futures broker, the references

to "financial instruments contracts" and in partlcular to

"Treasury Bills" and "Treasury Bonds" would be likely to

- 1

convey to the non-expert that the subject

matter of the 1

purchase was in fact Instruments lssued by the United States

government, such as Treasury bllls or Treasury bonds.

In fact

the money which was subscribed

by Mr Colman was used not to

purchase Treasury bllls or Treasury bonds but rather futures contracts in Treasury bonds. Once again, I am satisfled that there was never any intention of doing otherwise, because the

purpose of the transactlon was to obtain

the benefit of a

spread and -- with the beneflt

of informatlon from Mr Spooner

-- It appears that this could only

be done by dealings i n 2

futures contracts.	-
-

On the second page of this document, under

the

heading "How Can The

Return Be So High" the following appears:

"You state that profits of 50% - 100% per annum

may be made.

How can the

proflt be so high?

Because only a low deposit (or margin) is paid

when investing in the U . S .

T-Bonds and other

flnanclal instruments spreads."

The

e x p l a n a t l o n c o n t i n u e d b y r e f e r e n c e

t o

t h e m u l t l p l l e r '

e f f ec t

p u r c h a s i n g

w i t h

s u b s t a n t i a l u n p a i d

b a l a n c e .

I t

I T

a p p e a r s	f r o m	t h e	A n s w e r s	t o	I n t e r r o g a t o r i e s	a n d	t h e d o c u m e n t s	, .
!

d i s c o v e r e d

t h a t L i n c o l n H u n t h a d n o

record

a t

a l l

p r o f l t s

o f

50% t o 1 0 0 % p e r

annum.

Whereas

the

document

handed

t o M

Colman

s u g g e s t e d

c o n s i d e r a b l e

e x p e r i e n c e ,

i t

a p p e a r s

t h a t

t h e

c o m p a n y h a d b e e n p u r c h a s i n g

f u t u r e s

i n

T-Bonds

f o r o n l y

number

m o n t h s a n d

t h a t ,

a l t h o u g h

t h e r e h a d b e e n

some

minor

p r o f i t s ,

t h e s e h a d b e e n

s w a l l o w e d u p b y b r o k e r a g e

c h a r g e s .

C o n s e q u e n t l y

t h e

s u g g e s t i o n

p r o f i t s of

50% to

1 0 0 % per-

annum

was

g r o s s l y misleading.

Under

t h e

h e a d l n g :

"What

S e c u r i t y " ,

t h e

a n s w e r

is	r e t u r n e d :

"Exce l l en t .

Your

investment

n o t

a f f e c t e d

f a l l l n g p r i c e s , e v e n o f T r e a s u r y

Bonds

( w h i c h

does

happen

f rom

time

t o t i m e ) .

T h l s

1 s o f

c o u r s e

b e c a u s e

y o u r

i n v e s t m e n t

d e s i g n e d

t o

p r o f l t r e g a r d l e s s	of	w h e t h e r p r l c e s	rise	o r
f a l l . "

A g a i n ,	t h e	reference t o	" T r e a s u r y	B o n d s "	w o u l d	s u g g e s t	t o	a n
-

I n c a u t i o u s

r e a d e r

t h a t h e

a c t u a l l y b u y l n g T r e a s u r y

bon&;

b u t ,

r e l e v a n t

for

p r e s e n t

p u r p o s e s ,

h e

t o l d

i n te$s

t h a t

t h e - s e c u r i t y

e x c e l l e n t .

A s Mr

Spooner

makes

c lear i n h i s a f f i d a v i t , t h l s

is a

g r o s s

d e c e p t i o n .

T h e r e

is a

chance of

s p e c t a c u l a r

p r o f i t ,

i f one

i n v e s t s

i n

f u t u r e s c o n t r a c t s

s l m u l t a n e o u s l y

t o

buy

and

.,.

s e l l

g o v e r n m e n t

s e c u r i t i e s .

T h e r e

seems

t o

b e

a n ' e g u a l

c h a n c e

s p e c t a c u l a r loss,

i f

i n c a u t i o u s

t r a n s a c t i o n s

a re

entered

into, as the subsequent history of Mr Colman’s

Investment,

shows.

The proposed investment could only be described as

highly speculative, with a substantial chance of being lost In

whole or In part.

I think that I need not set out all

of the matters

contained in the document.

Mr Colman has sworn that the

matters set out in that document influenced hls decision

enter into the investments.

There is no reason to doubt thls

statement and there is no question in my mind that the

document was grossly misleading

ln material respects.

Mr Colman dld not Immediately enter into any

investment. He was subsequently contacted by telephone by Mr Ryder on several occasions. On 7 May 1985, Mr Ryder spoke to hlm whllst he was at work and had a conversation during which

he told him that if he had Invested $8,000 In the previous

November his units would now be worth $12,000.

This statement

no doubt assumed that the investment on the previous November

had s t i l l been retained, an assumption which seems

to be<

inconsistent wlth what subsequently

happened when Mr Colmsn

i .I

did invest.

Mr Colman was sufficiently influenced by this

statement to agree to receive

a copy of the client agreement

form.

When It was recelved he telephoned Mr Ryder

in relation

. _

to para.16 of the agreement and asked why there was a need for

a paragraph covering the posslbility of loss of an Investment

that is said to be so secure. Mr Ryder replled: “It is for

t h e most

u n l i k e l y

s i t u a t i o n w h e r e I n t e r e s t

r a t e s

are

n o t

moving

a t a l l d u r i n g

t h e

p e r l o d

c o n t r a c t " .

C o l m a n

remembered

t h a t h e h a d b e e n

t o l d

H a w k e

t h a t t h e o n l y

c i r c u m s t a n c e s

I n w h i c h

p r o f l t

would

made

would

i f

i n t e r e s t r a t e s

d i d n o t

move

a t a l l ;

t h a t

d i d n o t m a t t e r

w h e t h e r

i n t e r e s t

r a t e s

w e n t

o r d o w n ,

p r o v l d l n g

t h e r e

w a s

movement

i n

t h e

m a r k e t .

Colman a c c e p t e d

t h i s

e x p l a n a t l o n ,

s i g n e d

t h e

a g r e e m e n t

a n d

s u b s c r i b e d

$ 8 , 0 0 0 .

June ,

R y d e r

t e l e p h o n e d

a g a i n

a n d

t o l d

Colman

t h a t h i s s p r e a d h a d

p icked

a number

t l c k s ,

t h a t

t o

s a y , p e r c e n t a g e p o i n t s

- L

o f

d o l l a r

a n d

t h a t h l s

money

was

d o l n g

v e r y

well.

He was

t o l d

t h a t

h e

had

made

about

$ 2 , 0 0 0 .

T h e r e

was

d i s c u s s i o n

about

what

would

happen

i f

h e w l t h d r e w

t h i s

a m o u n t b u t

I n

t h e

end Mr

Colman

agreed

t o

f u r t h e r

$ 8 , 0 0 0 .

T h i s

money

was

t h e n p a l d o v e r .

Colman

r e c e i v e d

from

L l n c o l n H u n t

r e c e l p t s

f o r

e a c h

t h e

$ 8 , 0 0 0

s u b s c r i p t i o n s .

I n

e a c h

c a s e

t h e s e

were

s i g n e d

b y

Dubinsk i -Hun t .

due

cour se ,

Colman

r e c e i v e d

s e t t l e K e n t

s t a t e m e n t s .

T h e s e

s h o w e d

t h a t

h i s money

had

G e n

e x p e n d e d	I n	p u r c h a s i n g	c o n t r a c t s	b o t h	t o	buy	and	s e l l	i
-

" T r e a s u r y B o n d s " ,

t h e r e b e i n g

t h r e e m o n t h d i f f e r e n c e b e t w e e n

t h e d a t e

m a t u r l t y of

e a c h of

t h e

c o n t r a c t s .

T h e

t h e o r y

was

t h a t money

would

made

t h e

p r l c e s p r e a d

i m m e d l a t e l y

I .

' _

b e f o r e m a t u r i t y .

I '

10.

Consistently with what had been told to him, Mr -,

Colman's best interests would have been

served by retaining

the contracts and selling at an advantageous

tlme shortly

prior to maturity.

~n relation to the flrst investment the

bought contract was to explre In June 1986

and the sell

contract in September 1986.

In relation to the second

investment, the relevant dates were December

1986 and March

1987. Notwlthstandlng this, it appears that Lincoln Hunt

decided to close the contracts whlch had been entered into.

There are a number of settlement statements and I will noL. set

out all the detalls.

Some of them show a profit in US dollar

terms on the transaction and this, of course, meant	a profit
at a different rate in Bustrallan dollars.

The remarkable feature of the settlement statements

1 s that however profitable the transaction Itself, after

brokerage 1s allowed for, there was a deblt agalnst Mr

Colman's account.

For example, the $2,000 which Mr Ryder told

hlm about on 25 June, seems to have been

more than offset by

brokera2e charged of $2,750 on that transaction:

which PS

Ryder omltted to tell him about.

The result of all thls

-3s

that the first investment of $8,000 which was made

on 8 May

1985 diminished to be worth $3,312.90 by 31 July 1985,

a loss

of well over half the capital Invested in less than three

months.

The investment made on 27 June 1985 disappeared in an

even more spectacular fashion: $8,000 was deposited on

that

day but by 31 July 1985

there was a deblt balance in the

1 1 .

account of $ 5 0 3 . 2 3 .

The main reason for

these results was

that Llncoln Hunt was charging

a brokerage fee of $A275 on

each unit.

It appears from evidence In this case that the

rate charged to Lincoln Hunt by the Unlted States brokers in

respect of that same transaction was

SUS25 per unit.

I thlnk that there 1s no question that misleading

statements were made to Mr Colman, both orally

and in writing,

and that these caused him to deposit the

total sum of $16,000

with the first respondent.

I am also satisfied that Mr

-I

Dubinski-Hunt was knowingly concerned	In the conduct	I
!

complained of.

Not only was he a director and the prlncipal

executive officer of the company, he had been Involved

throughout 1984 I n Its general management.

He was the author

of the document "How Is

Ely Money Invested" which

I have

already found was grossly mlsleading, he personally signed the

receipts, the client agreements and the certificates of

investment so that he was clearly aware

of Elr Colman's

investments.

It also appears from one of his Answers to --

Interrogatories that he was personally involved in the

-	1	-
i

instruc€ions to the Unlted States brokers as to the

investment, inter alia, of Mr Colman's money.	The relevant
transaction sheets are in his own handwriting.

The applicants seek interest

on their deposit as from

the dates when each were made. There has been some discussion

as to how thls ought to be calculated. There are no rules to

,/---

/	-
r

;', '

1 2 .

p r o v i d e

f o r

t h e

c o m p u t a t i o n

p r e - l u d g m e n t

interest:

o n e

h a s

t o

h a v e

r e g a r d

t o

t h e c l r c u m s t a n c e s ,

t h e n a t u r e o f

t h e

I	i n v e s t m e n t ,	a n d	so	on.	Counsel	has	drawn	my	a t t e n t l o n t o t h e
1

r u l e s made

i n t he Supreme Cour t

N e w

S o u t h Wales

for

c a l c u l a t i o n

p r e - ~ u d g m e n t

i n t e r e s t .

I t

a p p e a r s

t h a t

t h e

r e l e v a n t

r a t e

d u r i n g

1 9 8 5

was

1 4 . 5 % .

D u r l n g

t h l s

y e a r ,

t o

d a t e ,

h a s

b e e n

1 8 . 2 5 % .

f i n d

t h i s

l l t t l e s u r p r i s i n g a s

l m p r e s s i o n

t h a t i n t e r e s t

r a t e s have

been

somewhat

lower

t h i s

y e a r

t h a n

I n

1 9 8 5 .

f i n d

t h i s

r e f e r e n c e

p r o v i d e s

some

g e n e r a l

g u i d a n c e

b u t

i t

s h o u l d

n o t

a p p l i e d

d i r e c t l y .

1 -

t h i n k

r e a s o n a b l e u n d e r

t h e c l r c u m s t a n c e s

t o

a l l o w

afi

l n t e re s t r a t e of

15%.

r o u n d

t h l s

o u t

t o

t a k e

completed

I	months SO	t h a t	t h e r e w o u l d b e	a	t o t a l	of	$2,800	earned	by	way
!

I	o f	I n t e r e s t o n	t h i s b a s l s .
I

The

orders

t h a t

m a k e

a r e a s

f o l l o w s :

t h a t

~ u d g m e n t

1	b e e n t e r e d a g a i n s t e a c h o f	t h e	f irst	and	t h i r d	r e s p o n d e n t s	i n
i

t h e sum

$ 1 6 , 0 0 0

t o g e t h e r w l t h

In te res t

l n t h e

s u m

o f

,800

a n d

t h a t

t h e

f l r s t

a n d

t h i r d

r e s p o n d e n t s p a y

t o

t h e a p p l i c a n t s

t h e i r c o s t s o f

t h e s e p r o c e e d i n g s .

1 -

c e r t i f y t h l s

and

t h e e l e v e n

(11)

p r e c e d i n g p a g e s

t o be

t r u e c o p y

t h e R e a s o n s

fo r

Judgment

h i s Honour Mr

J u s t l c e Wllcox.

l	A s s o c i a t e :	YLG73.42Lz	A.#&
I

Date :

August

1986

1 i

1 -

13.

. I

Counsel for the Applicant:

Mr M Walton

Solicitors for the Applicant:

Messrs Walter Dickson & CO

Appearance for the Second

Respondent:

Mr P MacMahon, Sollcltor

Solicitors for the Second

Respondent:

Messrs MacMahon & Drake

Date(s) of hearing:

11 August 1986

I I

!	!
!
1

[1986] FCA 353

8 Nov 1986