Colman, O.R. v Lincoln Hunt Australia Ltd

[1986] FCA 353

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

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

DATE : 11 AUGUST 1 9 8 6

MINUTES OF ORDER

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THE COURT ORDERS THAT: l

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).

2.	The first and thlrd respondents pay to the applicants
their costs of these proceedings. -

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

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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'

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Applicants

AND:	LINCOLN HUNT AUSTRALIA PTY LIMITED
First Respondent RICHARD HAWKE Second Respondent
Thlrd Respondent : 3

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

EXTEMPORE REASONS FOR JUDGMENT

2.

T h i s is 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 of t he -

T r a d e P r a c t i c e s A c t 1 9 7 4 . T h e 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 on 8 May 1985 i n t h e sum o f $ 8 , 0 0 0 . The

second payment was made on 27 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

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Hawke, was employed by 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 . He 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 of 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 as 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 .

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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

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a t a l l m a t e r i a l tlmes b o t h a d i r e c t o r a n d t h e p r l n c i p a l .'

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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 by 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

of t h e f l r s t r e s p o n d e n t " .

3 .

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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

..

l applicants on 20 June 1986, I ordered that the first

respondent, within 14 days from that day, file and serve _.

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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. -

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- 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

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i n t e n d e d t o r e l y were t o be f i l e d p r i o r t o t h e h e a r i n g . -

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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 , Mr Colman, has sworn an

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 he 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 a Mr 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 of t h e

I 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 . Mr Ryder was employed

by Linco ln Colman, who	Hun t	as	a	sa les	p e r s o n .	M	r	R y d e r	c o n t a c t e d	M r
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is a d e n t l s t b y p r o f e s s i o n , o n a number of

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 to a t t e n d a mee t ing

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h e l d a t t h e o f f l ces of L i n c o l n Hunt o n 27 F e b r u a r y 1985.

The re were a number of 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

1 and t hey were each g lven documen t s wh lch have been t e n d e r e d i n

1 e v i d e n c e a s e x h i b i t s A a n d B.

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	to
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h a v e v e r y l l t t l e , If 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

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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 1s

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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 , so

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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
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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 B is a 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

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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.

I.

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

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l Colman's affidavit, which is a document headed: "HOW is My l

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

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Answers to Interrogatories that he was one of the authors-of I. .

this document. The document sets out a number of statements

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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

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there was ever any Intention of so investlng the funds. e s a y I

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this betause of the fact that, in the case of each of his-:

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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:

6.

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"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 8 .

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

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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

l 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

3

futures contracts.	-
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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."

7.

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 of p u r c h a s i n g w i t h a 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

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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	, .
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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 of p r o f l t s t

o f 50% t o 1 0 0 % p e r annum. Whereas the document handed t o M r

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 a

number of 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 of p r o f i t s of 50% to 1 0 0 % per-

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annum was g r o s s l y misleading.

Under t h e h e a d l n g : "What Is My 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 is n o t a f f e c t e d by

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 1s 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
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I n c a u t i o u s r e a d e r t h a t h e 1s a c t u a l l y b u y l n g T r e a s u r y bon&;

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b u t , more 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 is t o l d i n te$s

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t h a t t h e - s e c u r i t y 1s e x c e l l e n t .

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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 a 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

of a 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

8.

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 to

enter into the investments. There is no reason to doubt thls

statement and there is no question in my mind that the	-
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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

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had s t i l l been retained, an assumption which seems to be< -

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inconsistent wlth what subsequently happened when Mr Colmsn

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did invest. Mr Colman was sufficiently influenced by this

statement to agree to receive a copy of the client agreement

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form. When It was recelved he telephoned Mr Ryder in relation

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

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a paragraph covering the posslbility of loss of an Investment

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

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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 o f c o n t r a c t " . Mr C o l m a n

remembered t h a t h e h a d b e e n t o l d by Mr 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 a p r o f l t would no t be made would be 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 it 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 up 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 . Mr 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 . On 25 June , Mr

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

p icked up a number of t l c k s , t h a t is t o s a y , p e r c e n t a g e p o i n t s - L

o f a 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

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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 subscribe a 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 .

Mr 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 of 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 M r Dubinsk i -Hun t . In due cour se , Mr Colman r e c e i v e d

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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 -

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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
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" T r e a s u r y B o n d s " , t h e r e b e i n g a 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 of 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 be made If 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

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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 -

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Ryder omltted to tell him about. The result of all thls -3s

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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

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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.

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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
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Dubinski-Hunt was knowingly concerned	In the conduct	I
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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

I investment so that he was clearly aware of Elr Colman's

investments. It also appears from one of his Answers to --

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Interrogatories that he was personally involved in the 2

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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

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p r o v i d e f o r t h e c o m p u t a t i o n o f 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 of N e w S o u t h Wales for

I c a l c u l a t i o n o f 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

l 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

l d a t e , It h a s b e e n 1 8 . 2 5 % . I f i n d t h i s a l l t t l e s u r p r i s i n g a s

my l m p r e s s i o n is t h a t i n t e r e s t r a t e s have been somewhat lower

l t h i s y e a r t h a n I n 1 9 8 5 . I 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

i 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 b e a p p l i e d d i r e c t l y . 1 -

t h i n k It is 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

i l n t e re s t r a t e of 15%. I 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
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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 I 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
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t h e sum of $ 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 $2 ,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

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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 .

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l I 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 a t r u e c o p y of

t h e R e a s o n s fo r Judgment of

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.#&
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Date : 20 August 1986

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I Counsel for the Applicant: Mr M Walton ->

Solicitors for the Applicant: Messrs Walter Dickson & CO

I	Appearance for the Second
I	Respondent: Mr P MacMahon, Sollcltor
i	Solicitors for the Second
Respondent: Messrs MacMahon & Drake
l	Date(s) of hearing: 11 August 1986
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