D'ALOIA & ANOR v Amanatidis - Amanatidis v Chew - [2008] SADC 128

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Minor Civil Review)
D'ALOIA & ANOR v AMANATIDIS - AMANATIDIS v CHEW
[2008] SADC 128
Judgment of His Honour Judge Millsteed
3 October 2008
CONTRACTS
Action brought by plaintiffs against the defendant for damages arising out of contract of indemnity - whether the contract was void/voidable due to mistake (non est factum) and misrepresentation - whether contract was unenforceable due to uncertainty - defendant held to be liable under the indemnity.

TORTS
Action in negligence brought by defendant against third party - whether defendant entered into contract of indemnity due to third party's negligent misrepresentations - third party held to be liable.
Evidence Act 1929 s 45A (1)(2)(4), s 45B, referred to.
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd and Others (2004) 219 CLR 165; Mutual Life & Citizens' Assurance Co Ltd v Evatt (1968) 122 CLR 556, considered.

D'ALOIA & ANOR v AMANATIDIS - AMANATIDIS v CHEW
[2008] SADC 128
Introduction

The plaintiffs, Mario D’Aloia and Angelo D’Aloia (hereinafter individually referred to as “Mario” and “Angelo”) have brought an action against the defendant, Gregory Amanatidis (“Amanatidis”) for damages arising out of an alleged contract of indemnity.[1] Amanatidis denies liability and, in the alternative, claims damages in negligence from the third party, Lee Teck Chew (“Chew”), to the extent that the plaintiffs are successful against him.
[1] The agreement was described by the parties in their pleadings and evidence as a “guarantee”. In my view the agreement was an indemnity, namely, “a promise by the promisor that he will keep the promisee harmless against loss as a result of entering into a transaction with a third party”: Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245, 254 (Mason CJ) See also Lakeman v Mountstephen (1874) 7 CL HC 17. Accordingly, I will refer to the parties’ agreement as an indemnity except when quoting the parties’ evidence.
Factual overview
Chew is an accountant. In 1999 he informed Amanatidis of a high yield investment scheme in the United States (“US”) conducted by a US company called Luxor Capital Markets Inc (“Luxor”). Amanatidis was aware that the plaintiffs were interested in investment opportunities and introduced them to Chew.
In October-November 1999 the plaintiffs attended a series of meetings with Chew and Amanatidis. Chew explained to the plaintiffs that Luxor bought and sold US government bonds for a profit. The plaintiffs were informed that funds invested in the scheme, and profits derived from the investment, would be deposited into, and disbursed from, the escrow account of Mark Talley (“Talley”), an attorney who practised in Memphis, Tennessee. The plaintiffs were further informed that all relevant financial transactions in the US would be conducted on their behalf by Southstar II Limited (“Southstar”), another company based in the US. The plaintiffs were also advised that investment funds held in Talley’s escrow account would be protected under an insurance policy or policies that had been issued to Talley. In the result the plaintiffs decided to invest US $100,000 (“the investment principal”).
On 10 November 1999, the plaintiffs and Amanatidis signed, in the presence of Chew, a document (“the Agreement” - exhibit P6) which stated, in part, that “should an event occur where the money is stolen or an insurance payment is denied [Amanatidis] shall pay in full to [the plaintiffs] the principle (sic) ($100 k US)”. The Agreement also recorded the plaintiffs’ agreement to pay Amanatidis a commission equivalent to 4% (four per cent) of the profits the plaintiffs received from the investment.
On 11 November 1999 the plaintiffs transferred $156,641.60 (US $100,000) into an overseas account in the belief that the funds would be invested in the scheme. During the ensuing months, the plaintiffs failed to receive any returns from the investment and demanded repayment of the investment principal. In April 2000 the plaintiffs obtained from Southstar a repayment of US $22,500. They failed to recover the balance of the investment principal.
The pleadings and issues
On 6 January 2004 the plaintiffs filed a statement of claim wherein it was pleaded that the balance (US $77,500) had been “stolen and/or fraudulently taken by or from the investment managers or some of them”[2] and that Amanatidis was obliged to pay the plaintiffs the balance pursuant to the terms of the Agreement.[3] On the trial it was the plaintiffs’ case that, unbeknown to them, they had invested in a “Ponzi scheme” (a fraudulent scheme in which returns paid to investors are derived from the incoming funds of new investors entering into the scheme).[4]
[2]    Statement of Claim [5]
[3]    Statement of Claim [6]
[4]    Karl Suleman Enterprizes Pty Ltd (in liq) v Babanour [2004] NSWCA 214, [8]. See also Australian Securities Investments Commission v Atlantic 3-Financial (Aust) Pty Ltd [2006] QSC 132, [30]; Australian Securities and Investments Commission v McDougall [2006] FCA 427, [15]
On 5 July 2004 Amanatidis’ former solicitors, filed a statement of defence wherein it was pleaded that Amanatidis had failed to read the Agreement before he signed it and had mistakenly believed, as a result of representations made by Chew in the presence of, and with the silent acquiescence of the plaintiffs, that it merely acknowledged his entitlement to an “Introduction Fee”.[5] In other words, he was unaware that the Agreement contained an agreement by him to indemnify the plaintiffs in respect of their investment.
[5] Statement of Defence [2.7] - [2.17], [3.1]
In essence, the statement of defence pleaded:
·that the Agreement was void due to mistake (non est factum);
·that the Agreement was voidable due to misrepresentation;
·that the Agreement was unenforceable by reason of contractual uncertainty.[6]
[6] Statement of Defence [23.2 ] - [3.5]
On 12 September 2006 Amanatidis, who by this time was unrepresented, filed with the leave of a Master, a third party statement of claim pleading negligence and seeking damages from Chew if, and to the extent, that Amanatidis was held liable to the plaintiffs under the Agreement.[7] It was pleaded that Chew owed Amanatidis a duty of care, which he breached by failing to inform Amanatidis of the existence and effect of the indemnity in the Agreement;[8] by failing to advise Amanatidis that he should obtain independent legal advice in respect of the indemnity;[9] and by making negligent representations in relation to the security of the plaintiffs’ investment.[10]
[7]    Third Party Statement of Claim [6], [19]
[8]    Third Party Statement of Claim [11] - [12], [13.1]
[9]    Third Party Statement of Claim [11] - [12], [13.2]
[10] Third Party Statement of Claim [11] - [12]
On 4 October 2006 Chew’s solicitors, (Gretsas & Associates) filed a defence to the third party statement of claim, denying negligence, and a counterclaim against Amanatidis in respect of unrelated matters. The counterclaim was remitted to the Magistrates Court for hearing by order of a Master on 18 December 2006.
The trial – witnesses
At trial the plaintiffs were represented by Mr Geyer and Chew by Mr Gretsas. Both plaintiffs gave evidence and called their solicitor, Mr A Mitchard. Chew gave evidence and called his wife, Cheryl Show-Kee Chew. Amanatidis gave evidence but did not call any witnesses. He was not represented by counsel.
Before I canvass the key features of the evidence it is appropriate that I make some general observations concerning the credibility of the witnesses. The plaintiffs presented as patently honest witnesses. They had difficulty recalling some aspects of the relevant events and conversations, but that is hardly surprising after a lapse of about eight years. Despite some discrepancies and mistakes I find that they gave a substantially truthful and accurate account.
By contrast I was unimpressed by Amanatidis’ evidence in relation to his understanding of the nature and effect of the Agreement. Making all due allowance for the age of this case, I found that Amanatidis’ evidence on this topic was excessively vague. I was left with the clear impression that he was deliberately evasive and untruthful.
I was also unimpressed by aspects of Chew’s account. For reasons which I will canvass, I accept Amanatidis’ evidence that Chew stood to gain a secret commission from the plaintiffs’ investment and encouraged him to sign the Agreement. Chew’s evidence as to the adequacy of the investigations he conducted in relation to the integrity of the scheme and its promoters was also unimpressive. I formed the impression that Chew was prepared to put his desire for financial gain ahead of the interests of the plaintiffs and Amanatidis.
The evidence
Background
The plaintiffs are brothers. They are self-employed.
Amanatidis currently receives a disability pension. He has previously worked in the property and real estate industry with the Polites Group and as a self-employed consultant. In 1999–2000 he owned and operated a take-away chicken shop at Glenelg.
Chew has been a chartered accountant for over 30 years. During that time he has worked for several firms including Price Waterhouse (Sydney and Singapore) and Coopers Lybrand (Sydney). Since 1980 he has conducted his own accountancy practice, Lee Chew & Co Pty Ltd, in Hutt Street Adelaide.
Amanatidis and Chew have known each other since about 1990. They were friends until about 2005 when their friendship terminated due to the present litigation and other financial disputes. It is common ground that Chew acted as Amanatidis’ accountant for several years. However, there is a conflict in the evidence as to whether their accountant/client relationship was still in existence when the Agreement was signed in 1999. This issue is discussed in more detail later.[11]
[11] See [206] - [208]
Chew learns of investment scheme
Chew testified[12] that he first heard of the investment scheme in mid 1999 during a meeting in Sydney with a client named George Athos. Chew said that Athos told him that he had personally invested in the scheme and had made a lot of money, though he did not disclose how much. Chew said that he thought that Athos was possibly telling him the truth because he was aware that Athos had assets worth about $50 million.[13]
[12] T 661-663, 678
[13] T 661-662
Athos then rang one Larry Lewis in the US and introduced him to Chew over the telephone. Chew said that he understood that Lewis was “an engineer or a scientist or something of that profession”[14] though in later correspondence Lewis purported to be the president of Southstar.[15] Chew said that Lewis told him that he was associated with a high yield investment scheme that involved buying US government bonds and selling them to pension funds for a substantial profit. The investment scheme required a minimum deposit of US $100,000. Lewis stated that investors’ funds were deposited in the escrow account of a US attorney, Mark Talley, and were insured under a binder (policy) issued to Talley that provided cover in the amount of US $5 million. He also told Chew that monies deposited in the escrow account could not be withdrawn without the permission of Talley or the investor.[16] Lewis explained that there were no current opportunities to invest in the scheme and promised to contact Chew when one arose.
[14] T 663
[15] T 662
[16] T 663-664
Chew testified[17] that a short while after he returned to Adelaide from Sydney he rang Talley in Memphis. Talley confirmed that he was a practising attorney and also claimed to be a certified accountant. Talley gave a similar explanation of the investment scheme to the one provided by Lewis and asserted that it attracted returns in the order of 25% (twenty five per cent) per week. Talley also said that various ‘program managers’ were involved in the scheme but refused to disclose their identities, claiming that he was concerned that potential investors might deal directly with them. Chew said that he told Talley he was not prepared to invest in the scheme without seeing a copy of the insurance binder.[18]
[17] T 665-667
[18] T 665-667
On 25 September 1999, Lewis faxed to Chew a copy of an insurance binder purportedly issued to “Mark D Talley, Attorney” by “Zurich-American Insurance Group” (“the Zurich-American binder” – exhibit P2).[19] Facsimile transmission entries on the exhibit indicate that it had been faxed on 25 September 1999, initially to Southstar (presumably by Talley in response to Chew’s request) and then to Chew’s office by Southstar. On its face the exhibit suggests that Talley had been insured for “professional liability” in the sum of US $1,000,000 and “excess liability” in the sum of US $4,000,000 for a period of 12 months from 3 February 1999. The binder does not state a policy number.
[19] The exhibit is of poor quality - parts of the document are impossible to read
Chew testified that on about 25 September 1999 Lewis faxed to him a copy of a letter that Lewis had received from Talley, dated 2 September 1999 (exhibit P3), and a copy of another insurance binder referred to in the letter.
The letter reads:
Dear Mr Lewis
I am transmitting along with this letter copies of the fidelity bond that was issued this week. Please note that Fidelity and Deposit is a part of the Zurich Group.
Please be advised that I intend to issue an undertaking to escrow clients that I will not hold an amount of funds in my escrow account (s) that is in excess of the fidelity bonds that have been issued on my behalf.
I trust that this information is sufficient for your needs but please contact me at 901-726-1316 if you need additional information.
Best regards
(signed Mark D Talley)
The copy insurance binder faxed to Chew had purportedly been issued by “Fidelity and Deposit Co” to “Mark D Talley, Attorney/Escrow Agent” (“the Fidelity binder” – exhibit P30).[20] On its face the exhibit indicates that Talley had been issued with a “policy number END 00002386” for “employee dishonesty” in the amount of US $5 million for 12 months from 30 March 1999. However, it is to be observed that according to the letter (P3), the Fidelity binder was not issued until the week of 2 September 1999. None of the parties gave evidence as to whether they noticed this discrepancy.
[20] The exhibit is of poor quality – parts of the document are impossible to read
Admissibility of insurance binders
This is a convenient point to discuss the relevance and admissibility of the two binders. Counsel for the plaintiffs submitted that the copy faxes P2 and P30 were admissible pursuant to s 45A of the Evidence Act 1929 without further proof of the facts stated in them. In other words, the documents constituted evidence that Talley had in fact been issued with insurance binders by the Zurich American Insurance Group (P2) and Fidelity & Deposit Co (P30) and in the terms stipulated in the exhibits.
Section 45A (1) makes admissible in evidence, without further proof, an apparently genuine document purporting to be a business record. “Business record is defined to mean (a) any book of account or other document prepared or used in the ordinary course of a business for the purpose of recording any matter relating to the business or (b) any reproduction of any such record by photographic, photostatic, lithographic or other like process” (s 45A (4)).
Sub-section (2) provides as follows:
(2)     A document shall not be admitted under this section if the court is of the opinion–
(a)     that the person by whom or at whose direction, the document was prepared can and should be called by the party tendering the document to give evidence of the matters contained in the document;
(b)     that the evidentiary weight of the document is slight and is out-weighed by the prejudice that might result to any of the parties from the admission of the document in evidence; or
(c)     that it would be otherwise contrary to the interests of justice to admit the document in evidence.
Sub-section (3) provides:
(3)For the purpose of determining the evidentiary weight, if any, of a document admitted in evidence under this section, consideration shall be given to the source from which the document was produced, the safeguards (if any) that have been taken to ensure its accuracy, and any other relevant matters.
In my view the copy insurance binders are not admissible under s 45A. The plaintiffs’ case is that the investment scheme conducted by Luxor was set up to defraud innocent investors and that Talley and Lewis were knowing participants in the fraud. On the plaintiffs’ own case, the relevant exhibits may well be bogus documents brought into existence for the purpose of deceiving innocent investors as to the security of their investments. In the circumstances, I am not prepared to characterise them as “an apparently genuine document”.
Even if I am wrong on that point, I would not admit exhibits under s 45A in the exercise of my discretion (s 45A (2)). No explanation has been put forward to explain why the plaintiffs failed to call anyone from the relevant insurance companies to give evidence of the matters contained in the documents. Furthermore, the evidentiary weight of the matters stated in the exhibits is slight having regard to the real possibility of fraud and forgery.
The exhibits are, however, admissible on another basis. The purpose of s 45A is to overcome the problems of the hearsay rule where the pre-requisites for admissibility under the section are satisfied. In the present case, P2 and P30 are relevant and admissible for non-hearsay purposes. As will be seen, the exhibits were the subject of discussion between the parties during the events leading up to the execution of the Agreement and are, therefore, relevant to a determination of the parties’ intentions and the construction of the Agreement.
I continue with the narrative of events.
Chew makes enquiries about insurance binders
Chew testified that after he received exhibits P2 and P30, he made enquiries with Phil Kleinig, the “state manager for Zurich” to determine their validity. Kleinig “put him through to the right person” who stated that they were valid.[21] Chew said that he also made enquiries, over the telephone, with the United States Bar Association and a society for accountants in the United States and was informed that Talley was a practising attorney and accountant.[22]
[21] T 668-669 (re Zurich binder) T 726 (re Fidelity policy)
[22] T 666
Mr Gretsas, counsel for Chew, acknowledged that this evidence constituted inadmissible hearsay if used for the purpose of showing (1) that the insurance binders were valid and (2) that Talley was a practising attorney and accountant, though it is to be observed that Talley’s professional qualifications were never in dispute. However, Mr Gretsas submitted, correctly in my view, that the information Chew claims to have received from Kleinig and the United States is relevant and admissible for non-hearsay purposes. In particular, the nature of the enquiries conducted by Chew and the information he received, whether true or false, were relevant to the question of whether Chew acted negligently in relation to any representations he made to Amanatidis concerning the security of the plaintiffs’ investment. I will discuss the adequacy of Chew’s investigations later.[23]
[23] See [166] - [175]
Further discussions with Talley and Lewis
Chew estimated that following his initial conversations with Lewis and Talley, and before he met the plaintiffs, he spoke with each of them about the investment scheme, over the telephone, on about 12 occasions.[24] His account of those further discussions was vague.[25] Indeed, he did not suggest that he was provided with any information about the nature and operation of the investment scheme, other than the correspondence that he received after his initial discussions with Lewis and Talley save for one matter. Chew said that at some stage during his discussions with Talley and Lewis he was informed that another US attorney, named Donald G Coffman, was also involved in the investment scheme.[26] However, he did not elaborate on the information he received, if any, about Coffman’s role in the investment scheme and did not suggest that he made any enquiries about Coffman.
[24] T 667
[25] T 665-669
[26] T 674
Chew discusses the investment scheme with family members

Chew testified that he subsequently discussed the investment scheme with his wife and members of her family. In the result Chew and his wife, and four siblings of Mrs Chew and their spouses, decided to invest a total of US $60,000 (US $12,000 per couple).[27] However, because of the requirement of a minimum deposit of US $100,000, they needed to find an investor(s) who could contribute, at least, US $40,000 to the venture. Mrs Chew’s evidence on this topic was similar to her husband’s.[28] She was not cross-examined.
[27] T 670-671
[28] T 974-976
Chew discusses scheme with Amanatidis
There is no dispute that in about September 1999 Chew informed Amanatidis of the existence of the investment scheme during a private meeting. However, there is a conflict between Chew and Amanatidis as to the details of the discussions that took place.
Amanatidis testified[29] that Chew told him that his “brothers-in-law” were interested in the venture but required another $100,000 to “finish off the investment” and asked Amanatidis to find other investors in exchange for receiving a commission. According to Amanatidis, Chew never disclosed that he and his wife intended to invest in the scheme as well. He also claimed that Chew failed to explain the scheme in any detail.
[29] T 436-437
Chew,[30] on the other hand, denied asking Amanatidis to recruit investors. He testified that he relayed to Amanatidis the information that he had received about the investment scheme from Lewis and Talley and specifically told Amanatidis of his intention to invest in the scheme along with members of his wife’s family. Chew said that he told Amanatidis that they were unable to raise the minimum deposit and invited Amanatidis to become a co-investor. Amanatidis replied that he did not have enough money but stated that he would find investors and charge them a commission. According to Chew he did not respond to Amanatidis’ proposal.
[30] T 672-677
In relation to the last point, I do not believe that Chew would have responded to a proposal by Amanatidis to find other investors with mere silence. On Chew’s own account, he wanted to invest in the scheme because he believed that it could generate considerable profits for himself and his family. However, his ability to proceed with the investment depended upon him finding other investors to make up the shortfall of US $40,000. Indeed, on Chew’s account, it was for that reason he invited Amanatidis to become a co-investor. In the circumstances, one would have thought that Chew would have embraced a proposal by Amanatidis to find other investors with a degree of enthusiasm.
I prefer Amanatidis’ account on this topic. I am satisfied that Chew encouraged Amanatidis to find investors in exchange for receiving a commission. However, I think that Amanatidis is probably mistaken about Chew not having told him of Chew’s intention to invest in the scheme. There is evidence, which I will discuss later, that serves to show that Chew and his wife became co-investors.[31]
[31] See [96]
Amanatidis speaks to Mario
It is common ground that Amanatidis subsequently contacted Mario to find out whether he was interested in investing in the scheme. The two men had met earlier in the year at a business conference and, thereafter, had several discussions about business and investment opportunities. Mario expressed interest in the scheme but said he wanted more information. Amanatidis told him that he would introduce him to a person who could provide the relevant information.
Meetings between the parties prior to 10 November 1999
There is no dispute that Amanatidis subsequently informed Chew of Mario’s interest. Chew then rang Mario. Mario testified that Chew informed him that there was an opportunity to invest in the scheme but it was only available for a limited period of time. They arranged to meet in Chew’s office in Hutt Street.
Angelo attended the meeting with his brother. Amanatidis was also present. The parties were not able to say, with any precision, when this initial meeting took place. Estimates varied from late September to November 1999.[32] However, documentary evidence, to be discussed later, suggests that it must have taken place before 12 October 1999.[33]
[32] T 69 Mario (mid October 1999), T 274 Angelo (late September – early October 1999), T 439 Amanatidis (late October – November 1999), T 677 Chew (October - November 1999)
[33] See [57]
Following this initial meeting there were three or four additional meetings between the parties at Chew’s office before the Agreement was signed on 10 November 1999. The evidence given by witnesses as to the sequence and details of the discussions that took place at the meetings, before the Agreement was executed, varied and was somewhat disjointed. It is convenient to separate the evidence of the discussions that took place at the meetings held before 10 November 1999 into two broad categories, namely, those concerning the details of the investment scheme; and, those relating to the alleged indemnity and Amanatidis’ entitlement to a commission.
1. The discussions relating to the investment scheme
Evidence of plaintiffs and Chew
The plaintiffs and Chew testified[34] that in the course of the meetings Chew explained to the plaintiffs, in the presence of Amanatidis, the elements of the investment scheme. In broad terms Chew passed on the information he claimed to have received from Talley and Lewis. He also informed the plaintiffs that both he and his wife, and members of her family, intended to jointly invest US $60,000 in the scheme but required an additional US $40,000 to satisfy the minimum investment requirement.
[34] Mario T 69-103, Angelo T 275-287, Chew T 678-681, 684-692
The plaintiffs were also told by Chew that any investment funds paid into Talley’s escrow account could not be withdrawn without the “signatures” of Talley and Chew.[35] This is a curious feature of the scheme. Plainly, Chew was not a signatory to Talley’s escrow account. What document was it necessary for Chew to sign before Talley could withdraw the plaintiffs’ funds from his account? This was never explained by Chew to the plaintiffs in his evidence. Nor was any written approval produced to the plaintiffs that verified the existence of any such arrangement between Chew and Talley or Southstar.
[35] T 664, 682. See also T73
During the meetings Chew provided the plaintiffs with copies of documents that had been faxed to him by Lewis including the Zurich-American binder (P2). The plaintiffs said that Chew told them that the binder provided US$5 million cover for investment funds deposited in Talley’s escrow account. Mario said that Chew stated that if Talley did “anything wrong, incorrect, or the money was misappropriated, thieved or whatever” that they could make a claim under the binder.[36] Angelo gave similar evidence.[37] He said that they were told by Chew that they could claim under the Zurich-American binder if their investment funds were “lost or stolen”.[38] The plaintiffs did not say whether they discussed the Fidelity binder (P30) at any of the meetings that preceded the execution of the Agreement though Angelo recalled that the document had been produced by Chew at one of the meetings.[39]
[36] T 84
[37] T 279-280
[38] T 279-280
[39] T 87
Chew did not dispute the plaintiffs’ evidence in relation to his statements concerning the Zurich-American binder. Consistent with Angelo’s evidence Chew also said that he showed the plaintiffs the Fidelity binder (P30) and the covering letter from Talley to Southstar (P3) during the meetings prior to 10 November 1999 though, later in cross-examination, he suggested that he did not become aware of the existence of the Fidelity binder until after the Agreement had been executed.[40] He did not say what discussions took place in relation to the Fidelity binder except to say:[41]
We were advised that there was going to be an insurance binder to the value of $5 million.
As to whether it was one binder or two binders we didn’t know …
(my emphasis)
[40] T 904
[41] T 726
Despite this confusion in the evidence, I find that the existence of the Fidelity binder was brought to the plaintiffs’ attention by Chew. It cannot be doubted that he received copies of both the Zurich-American and the Fidelity binders on 25 September 1999. To my mind it is unlikely that he would have discussed with the plaintiffs one binder but not the other. I am satisfied that as a result of their discussions with Chew the plaintiffs and Amanatidis were informed that the Zurich-American binder, and possibly the Fidelity binder as well, would secure any monies the plaintiffs invested in the scheme.
Chew testified[42] that, during the period when he was meeting with the plaintiffs and Amanatidis, he remained in contact with Talley and Lewis over the telephone and by fax and e-mail. He said that he passed on the additional information and documents he received to the plaintiffs.
[42] T 692
On 1 November 1999 Lewis faxed to Chew a letter that he had purportedly received from Luxor dated 1 November 1999, (exhibit P1). The letter reads:
Mr Lewis,
To summarize our conversation of today:
1)     We have an opening in the program for up to $ 250,000.00 for the November 15, 1999 closing date provided such funds are received by the custodian/attorney no later than November 8, 1999.
2)     That upon receipt of Southstar’s paperwork we will forward to the coordinates for Mr Tally’s (sic) escrow account.
3)     That upon receipt of the funds, Mr Talley will issue an assignment letter, assigning a portion of his $5 million dollar bond directly to your client.
4)     That we expect a minimum of two payments to be received this year and likely three for a minimum return to your client of 25% per week. These payment (sic) would not be expected prior to the second week in December 1999 and are contengent (sic) on getting all the paperwork for this aggregation completed prior to November 20, 1999.
If you have any question (sic) please feel free to contact me.
Sincerely
(signed)
B. David Gilliland
Agent for:
Luxor Capital Markets, Inc.
Chew and Mario testified that the fax was produced by Chew at a meeting shortly after Chew had received it.[43] They did not say what discussions took place in relation to the fax and Angelo did not refer to the fax at all in his evidence. Furthermore, it is not clear what discussions had taken place between Chew and the plaintiffs, on the one hand, and between Chew and Talley and Lewis, on the other, which resulted in the transmission of the fax to Chew. It is also to be observed that the letter (exhibit P1) purports to offer an investment opportunity for Chew’s client but does not name the client(s).
[43] Mario – T 78-79, Chew – T 891
On 3 November 1999 Chew and Lewis executed an agreement, which was referred to at trial as the Southstar Agreement (exhibit P4). I have inferred that the words “Southstar’s paperwork” which appear in the letter (P1) are a reference to that agreement.[44]
[44] The fax transmission dates indicate that the agreement was initially faxed to Southstar from Chew’s office on 12 October 1999 and was later faxed back to Chew’s office on 3 November 1999. Chew said that he could not recall the sequence of events that culminated in the agreement’s execution on 3 November. The plaintiffs’ evidence threw no light on the matter. However, it is reasonable to infer that Chew was in possession of the draft agreement before 12 October 1999 and faxed the document (signed or unsigned by him) to Southstar on that day. Lewis subsequently signed and dated the agreement 3 November 1999 and faxed it back to Chew the same day. It is to be observed that these transmission dates indicate that the first meeting between the parties must have taken place sometime between 25 September 1999 (when Chew received exhibits P1, P2 and P30) and 12 October 1999.
The Southstar Agreement records an agreement between Chew (“the Client”), Southstar (“the Agent”) and Mark Talley (“the Attorney”) wherein it was agreed:
·that an “account” would be opened with the Attorney into which the Client’s “principal funds” for investment would be deposited;
·that the “account” would also be used “to receive any earned profit and to disburse any earned profits earned thereon”;
·that the principal funds were to be in the amount of US$160,000 and were to be used in a “transaction” identified in schedule 2.02 (i) to the agreement as the “Luxor Capital Markets Program”;
·that the Agent was responsible for coordinating the receipt of the funds into the Attorney’s account, for coordinating the transaction on behalf of the Client and other participants in the transaction, and for the disbursement of profits from the transaction in accordance with written instructions signed by the Client and the Agent;
·that there was “no guarantee made by the agent as to any profit from the transaction” and
·that profits were to be disbursed in accordance with written instructions, set out in schedule 3.03, signed by the Client and Agent.
Schedule 3.03 reads:
IRREVOCABLE PAY ORDER
Date:        11 October 1999.
To:           Southstar II Limited
From:        Chew Teek (sic) Lee
Re:           Transaction No: (blank)
Client No: (blank)
This shall constitute my irrevocable written instruction that upon receipt of the Profit from Transaction No: (blank) into your disbursement account, you are directed to disburse same as follows.
(i)    Fifty (50%) percent to the Agent;
(ii)    the balance to the Client at Bank Coordinates:
Bank:                Citibank – International Personal Banking
(deleted)
Singapore 900711
Bank Officer:      Jason Ng
Account:            (deleted)
Name of Account: Chew Teek (sic) Lee
This direction is irrevocable and shall survive the closing of Transaction No. (blank) Until revoked or terminated in writing by the undersigned and the Agent.
DATED this 3^rd day of November 1999.
SOUTHSTAR II LIMITED
By:     (signed by Lewis)                 By:     (signed by Chew)
(my deletions)
A striking feature of the Southstar Agreement is that it identifies Chew as the “Client” and acknowledges that he would invest US $160,000 into the Luxor scheme. The agreement makes no mention of the other co-investors namely the plaintiffs and Mrs Chew’s siblings and their partners. It is also to be observed that the Southstar Agreement does not stipulate that funds paid into Talley’s escrow account could not be withdrawn without Chew’s signature. Rather, the agreement specifies that Southstar was to be responsible for co-ordinating payments into and out of Talley’s account.
Before I turn to Amanatidis’ account of the discussions that took place at the meetings, I should point out that it is clear from the evidence given by the plaintiffs and Chew that Amanatidis played a limited role at the meetings. Chew explained the nature of the scheme while Amanatidis, from time to time, acknowledged, verbally or by nodding his head in agreement, the correctness of the information provided by Chew.
Mario, however, did say that during one meeting Amanatidis stated that he had previously invested in the scheme and had explained to the plaintiffs the function of the Zurich–American binder.[45] These particular allegations were denied by Amanatidis and are not supported by the evidence given by Chew and Angelo. Both Angelo and Chew testified that it was Chew who explained the nature and function of the binder. Furthermore, neither of them recalled Amanatidis claiming that he had some prior involvement in the scheme. I find that Mario was mistaken on this topic. I find that Amanatidis did not assert that he had previously invested in the scheme. Nor did he explain the function of the insurance binder.
The defendant’s evidence
[45] T 81-92
Amanatidis confirmed that Chew discussed the investment scheme with the plaintiffs in his presence.[46] He said that Chew explained some “basic things” about the investment scheme but expressed difficulty recalling the details of the discussions. Nevertheless, he agreed that Chew informed the plaintiffs that it was an overseas scheme that required a minimum investment of $100,000[47] and promised substantial profits. He conceded that Chew might have told the plaintiffs that investment funds would be deposited in the escrow account of Talley.[48]
[46] T 585-586
[47] Amanatidis could not remember whether these sums were expressed as Australian or United States dollars.
[48] T 498, 588
Amanatidis agreed that Chew assured the plaintiffs that if anything went wrong they could recover their investment funds under an insurance binder. He recalled that Chew told the plaintiffs that the relevant binder had been issued by “Zurich-Australia”.[49] He could not recall Chew making any reference to the Zurich-American and Fidelity binders and was adamant that they were not amongst the documents shown to the plaintiffs by Chew.[50]
[49] T 440-442, 587
[50] T 502
Amanatidis agreed that the Southstar Agreement may have been produced at one of the meetings, but could not recall looking at the document or remember any discussions relating to it.[51] He acknowledged that he told the plaintiffs that he trusted Chew[52] and agreed that he may have nodded his head from time to time to indicate that he agreed with the information Chew was providing them.[53]
Findings
[51] T 444
[52] T 447
[53] T 442-443
Amanatidis’ account of the discussions concerning the investment scheme was unimpressive. His poor recall about some matters discussed at the meetings may have been genuine but I was left with the clear impression that, in the main, he was being deliberately evasive about conversations that might be seen as relevant to his understanding of the purpose of the Agreement executed on 10 November 1999. I prefer and accept the accounts given by the plaintiffs and Chew on this topic.
In summary, I find that during the relevant meetings Chew told the plaintiffs in the presence of Amanatidis:
·that Luxor conducted an investment scheme which generated substantial profits for investors of about 25% (twenty five per cent) per week - the letter from Luxor dated 1 November 1999 (P1) indicated that the plaintiffs would receive a minimum weekly profit of 25% (twenty five per cent).
·that the plaintiffs’ investment principal would be deposited in Talley’s escrow account;
·that the plaintiffs’ profits would be paid into, and disbursed from, Talley’s escrow account;
·that Southstar would be responsible for co-ordinating payments into and out of Talley’s escrow account;
·that a withdrawal of the plaintiffs funds (principal and profits) from the escrow account required Chew’s authority and signature; and
·that the plaintiffs’ funds held in Talley’s escrow account would be protected by the Zurich-American binder (P2), and possibly the Fidelity binder (P30) as well.
I am also satisfied that Amanatidis listened carefully to the discussions and understood the information that was conveyed to the plaintiffs about the nature of the investment scheme. Clearly, he attended the meetings hoping that he might be able to obtain a commission from the plaintiffs. In the circumstances it was in his interests to closely follow the discussions. Indeed, as I have said, he conceded that, from time to time, he acknowledged the correctness of the information conveyed to the plaintiffs by Chew.
2. Discussions in relation to the commission and indemnity
Plaintiffs’ evidence
Mario testified that Amanatidis first raised with the plaintiffs his wish to be paid a commission, at a meeting held in Chew’s office, shortly before 10 November 1999. He said that Amanatidis asked for a commission equivalent to 4% (four per cent) of the profits the plaintiffs derived from the scheme. Mario then asked Amanatidis if he was prepared to sign a “guarantee” in exchange for the plaintiffs agreeing to pay such a commission. Amanatidis answered in the affirmative.[54]
[54] T 90-91

Angelo also testified that Amanatidis raised the idea of being paid a commission during one of the meetings prior to 10 November. However, he could not recall Mario asking Amanatidis if he was prepared to indemnify the plaintiffs. Angelo said that Mario first raised the idea during a private conversation with Angelo after the meeting had finished.[55]
Defendant’s evidence
[55] T 288
Amanatidis testified that at the first meeting Chew informed the plaintiffs that they would have to pay Amanatidis a commission if they invested in the scheme.[56] Amanatidis said that before the next meeting Chew suggested that they might be able to get a commission from the plaintiffs but added that they would have to share it “50/50”.[57] Chew instructed Amanatidis not to tell the plaintiffs or Chew’s wife about their agreement and promised to look after him.[58] Amanatidis agreed to the secret commission arrangement.
[56] T 443-444
[57] T 445, 448-489
[58] T 443-445
Amanatidis testified that at the last meeting before 10 November 1999, the plaintiffs expressed concern about the investment scheme and queried whether it was one in which Amanatidis would be prepared to invest his own monies. Amanatidis told them that he trusted Chew and believed that the scheme was “okay”.[59] At that point Mario announced that he would prepare an agreement that he wanted Amanatidis to sign[60] and said that it would say “something about securing a payment of $100,000” in exchange for Amanatidis receiving a commission.[61]
[59] T 447
[60] T 447, 596
[61] T 447
Following the meeting Amanatidis spoke to Chew in the plaintiffs’ absence. He asked Chew what he thought the agreement might contain. Chew told him not to worry and stressed that it was important to obtain from the plaintiffs a written acknowledgment of their agreement to pay a commission. During cross-examination Amanatidis said that this was something that Chew had emphasised on several occasions during private discussions.[62]
Chew’s evidence
[62] T 598-599
For his part Chew said that he could not recall the topic of Amanatidis receiving a commission having been raised at any meeting before 10 November 1999, but agreed that it may have happened.[63] However, he was confident that the issue of an indemnity was not raised until the meeting of 10 November 1999.[64] He denied that he had any private discussions with Amanatidis in relation to these matters.[65] It is to be observed that in his pleadings Chew asserted that he never saw the agreement before it was signed and specifically denied that it was signed in his presence. I find that Chew was forced to retreat from these false assertions by the plaintiffs’ evidence.
[63] T 698-699
[64] T 699
[65] T 700
Findings
I accept the plaintiffs’ evidence that at the last meeting before 10 November Amanatidis mentioned that he wanted to receive a commission. I also accept Mario’s evidence that he then raised with Amanatidis the idea of signing some form of indemnity in exchange for receiving a commission. Mario’s evidence on this topic is supported by Amanatidis’ concession that Mario indicated that he wanted Amanatidis to sign an agreement that would say “something about securing a payment of $100,000”.
However, I am not satisfied that Amanatidis, at that time, indicated that he would sign the proposed agreement. The agreement had yet to be prepared. The details of the agreement were unknown. In my view, consistent with Amanatidis’ evidence, it is more probable that he expressed no attitude to signing an agreement at that stage. I find that Mario was mistaken on this point.
I also accept Amanatidis’ evidence that following the meeting he had a private conversation with Chew about the proposed agreement. The idea of Amanatidis indemnifying the plaintiffs had just been raised for the first time and Amanatidis’ knowledge of the investment scheme, like the plaintiffs, was based solely on information obtained from Chew. Chew purported to know about the scheme and to be in close contact with the promoters of the scheme. Furthermore, Chew was a close friend and an experienced chartered accountant who had acted for Amanatidis. In the circumstances, it would have been quite natural for Amanatidis to seek Chew’s views about Mario’s proposal.
I also accept Amanatidis' evidence that Chew told him not to worry about the proposed agreement and emphasised that it was important to obtain from the plaintiffs in writing their agreement to pay a commission. As I earlier remarked, Chew’s ability to proceed with the joint investment with members of his family depended upon the plaintiffs becoming co-investors. It would have been obvious to Chew that the plaintiffs were concerned about proceeding with the investment without some form of indemnity. It was in Chew’s interest to encourage Amanatidis to sign an agreement that would serve to alleviate the plaintiffs’ concerns. I am also satisfied that he assured Amanatidis that there was nothing to worry about. That was the tenor of the advice he had given the plaintiffs and no doubt the tenor of the advice he had given to his wife’s siblings.
Execution of the Agreement
On 10 November 1999 the four parties attended a meeting at Chew’s office. Mario took with him the Agreement (P6), which he had drafted the day before without legal advice. There is no dispute that during the meeting the plaintiffs and Amanatidis signed the Agreement in the presence of Chew.
The Agreement reads:
9^th November 1999
This agreement is made between Gregory J. A. Amanatidis of (address deleted)
Angelo D’Aloia of (address deleted)
Mario John D’Aloia of (address deleted)
All parties are of the understanding that Mr Angelo D’Aloia & Mr Mario J. D’Aloia have invested $100k US into an account Managed by Larry Lewis and Mark Tally. (sic) These said funds are to be used for investment purposes and retained in a Solicitors Trust Account. Furthermore these above mentioned Professional people have undertaken insurance to the value Of $5,000,000.00 (FIVE MILLION DOLLARS) to insure this Investment.
Should an event occur where the money is stolen or an insurance payment is denied Gregory J.A. Amanatidis shall pay in full to Mr Angelo & Mr Mario D’Aloia the principle (sic) ($100k US) in full.
Mr Angelo & Mr Mario D’Aloia agree to pay a commission to Mr Gregory J.A. Amanatidis to the amount agreed upon by all Parties prior to entering into this agreement, the amount Being paid is 4% (Four percent) of the profit derived from the initial amount of moneys invested.
All parties have read and understand this agreement, in it’s entirety.
Signed by Gregory Amanatidis Signed by Angelo D’Aloia Signed by Mario D’Aloia
Date 10/11/99 (handwritten)
I turn to the contentious evidence concerning the discussions that took place at the meeting before the Agreement was signed.
The plaintiffs’ evidence
Mario testified[66] that he took four copies of the Agreement to the meeting. He said he handed one copy to each of the parties. He said that both Chew and Amanatidis appeared to read the Agreement. Mario said he then read the Agreement out aloud, word for word. He then asked both Amanatidis and Chew whether they had any questions. Neither of them responded. The plaintiffs and Amanatidis then proceeded to sign each copy of the Agreement.
[66] T 107-109, 266-268
Mario further testified that Amanatidis did not ask any questions about the terms of the Agreement, or ask for an opportunity to obtain legal advice, or express any concerns before signing the Agreement. Mario said that the defendant and Chew remained in the plaintiffs’ presence in Chew’s office from the commencement of the meeting until the execution of the Agreement. Angelo gave similar evidence to his brother.[67]
Amanatidis’ evidence
[67] T 410-413
Amanatidis testified[68] that at the commencement of the meeting Mario showed him the Agreement, of which there was only one copy at that stage, and said: “this would convince me more if you sign it”. Amanatidis said he “quickly browsed through” the Agreement, though in his pleadings he stated that he signed the Agreement “without first reading it”.[69]
[68] T 450-451
[69] Defence [2.8]
According to Amanatidis, he and Chew then left the office where the meeting was taking place and went into another room where Chew photocopied the Agreement. While they were in that room Amanatidis asked Chew: “What do you think of this?” Chew replied: “Don’t worry, the insurance will cover it”. It is to be observed that neither the defence, nor the third party statement of claim, state that such a private conversation took place before the Agreement was executed. However the pleadings are expressed in general terms.
Amanatidis said that they then returned to the office where each copy of the Agreement was signed by the plaintiffs and himself.[70] In examination-in-chief Amanatidis suggested that he signed the Agreement because he believed that it merely confirmed his entitlement to a commission. In other words, he was unaware that it contained an agreement by him to indemnify the plaintiffs.[71] However, he contradicted himself during the following passage in cross-examination:[72]
[70] T 450-451
[71] T 477
[72] T 512-515
QOn signing day, on the day on which the guarantee was signed, Mario D’Aloia gave evidence in this Court that at that meeting he read the guarantee out word for word, he read it out aloud at the meeting. Would you accept that that happened?
AYes.
…
QCan you see in the second to last paragraph [referring to the Agreement] it says ‘Mr Angelo and Mr Mario D’Aloia agree to pay a commission to Mr Gregory JA Amanatidis to the amount agreed upon by all parties prior to entering into this agreement. The amount paid is 4% of the profit derived from the initial amount of moneys invested’. Can you see that?
AYes.
QThat represented your protection in relation to the commission, didn’t it?
AThat’s what I thought.
QThat’s what you were primarily interested in, wasn’t it?
AThat’s right.
QCan you see the paragraph above that, that says ‘Should an event occur where the money is stolen or an insurance payment is denied, Gregory JA Amanatidis shall pay in full to Mr Angelo and Mr Mario D’Aloia the principal 100,000 US in full’. Can you see that?
AYes.
QYou understood what that meant, didn’t you.
AYes, but I didn’t take it serious because I was convinced an insurance policy would have been taken out and the insurance would cover anything like that.
…
QBut, Mr Amanatidis, the guarantee itself says should an event occur where the money is stolen, that you would be potentially liable. That’s pretty clear, isn’t it?
AI am not denying what it says in the agreement; I cant. I signed that agreement, but understanding – I was misled clearly that no event – that the insurance was taken out, I was not insured, there was a policy taken out – that was due to my stupidity, I didn’t even bother about it because I was under the influence of a professional man, Mr Chew convinced me there was an insurance policy taken out.
HIS HONOUR:
QBut did you understand that if there was not an insurance payout that you were liable to pay the D’Aloia brothers $100,000 … did you understand that.
I did not even consider that. I didn’t take it serious.
The effect of the above evidence is that Amanatidis was aware of the indemnity but did not take it seriously because he believed, due to Chew’s representations, that the plaintiffs would be able to recover monies under the insurance binder(s) if their investment funds were stolen.
Chew’s evidence
For his part Chew recalled Mario reading the Agreement out aloud and distributing four copies of the Agreement each of which was signed. He could not remember whether Amanatidis read the Agreement before he signed it. He also could not remember whether he left the office with Amanatidis during the meeting. However, he insisted that Amanatidis did not seek any advice from him before the Agreement was executed.[73]
Findings
[73] T 702-703
I accept the plaintiffs’ evidence that Mario read the Agreement out aloud, word for word and that Amanatidis read the Agreement before he signed it. I reject Amanatidis’ claim that he “quickly browsed” through the document. It is difficult to believe that he would not have read the Agreement with some care at least to ensure that his entitlements were properly recorded. In any event, I am satisfied that he was fully aware from the discussions that had taken place on and before 10 November 1999 that the plaintiffs wanted him to sign an indemnity. Indeed, as I have already pointed out, this was virtually conceded by Amanatidis during cross-examination. I am left in no doubt that when Amanatidis signed the Agreement he knew that it recorded his agreement to pay the plaintiffs US $100,000 “should an event occur where the [plaintiffs’ investment principal] is stolen or an insurance payment is denied”.
But what of his claim that he sought advice from Chew before he signed the Agreement? I do not accept that Amanatidis would have signed the Agreement without comment or enquiry. It is common ground that Mario did not supply Amanatidis with a copy of the Agreement before he attended the meeting on 10 November 1999. In other words, Amanatidis had no advance knowledge of the terms of the Agreement.
But more than that, Amanatidis was, as I earlier remarked, being asked to indemnify the plaintiffs in relation to an investment he knew little about. His understanding of the investment scheme was based solely on information he had received from Chew. Taking into account those matters, and their relationship, it is entirely understandable that Amanatidis would have sought Chew’s views about the Agreement before he signed it.
I prefer Amanatidis’ evidence on this topic. I am satisfied that, whether or not they went to do some photocopying, Chew and Amanatidis left the plaintiffs alone in the conference room for a while. It is true that the plaintiffs could not recall that having happened, but that is not surprising, given that it would have been a relatively minor incident in the context of a meeting that occurred eight years ago.
I am also satisfied that Chew told Amanatidis, in the plaintiffs’ absence, not to worry about the Agreement and assured him that the insurance would cover any losses the plaintiffs sustained. Chew was on the cusp of being able to proceed with a joint investment from which he hoped to obtain a substantial financial gain. The only possible impediment to the investment proceeding was a refusal by Amanatidis to sign the Agreement.
The plaintiffs transfer money
On 11 November 1999 the plaintiffs attended the ANZ Bank in Hutt Street, Adelaide and transmitted, by way of telegraphic transfer, the sum of $156,641.60 (US $100,000). The telegraphic transfer receipt (exhibit P7) described the beneficiary of the transfer as: “Rep Tally/Coffman – Attorneys – Chew Teck Lee K/ South star agreement” and contained instructions from the plaintiffs that the funds were to be credited first to the “Royal Bank of Canada, Barbados, A/C 0011879350” then to “Key West Swiss Inv Bank A/C 8008765” and finally to “Chase Manhattan Bank, New York A/C 212244”.
No evidence was put before me identifying the source from which the plaintiffs and Chew obtained the details of the accounts that appear in the receipt. I have inferred that they are the “co-ordinates” of Talley’s account that Lewis promised to supply Chew once the Southstar Agreement had been executed.[74]
[74] See [54]
Chew testified that, on the same day, he telegraphically transferred from the Hutt Street branch of Bank SA, to the Chase Manhattan Bank in the United States, US $60,000 which comprised the joint investment by Mr and Mrs Chew and members of her family. Chew said that he was given a receipt for the telegraphic transfer but had since lost it.[75] He said that he had not made enquiries with Bank SA to see if he could obtain any records verifying the transfer because he had since changed banks.[76]
[75] T 704-705
[76] T 705-707
Amanatidis put to Chew in cross-examination that no such transfer occurred.[77] He suggested, as I understood his case, that in order to gain the plaintiffs’ confidence Chew falsely pretended that he, and members of his wife’s family, intended to invest in the scheme. I am unable to accept that contention. When cross-examined by Mr Gretsas on this topic, Amanatidis was unable to offer any evidence to support his assertion. It was based on pure speculation.[78]
[77] T 827
[78] T 614
On the other hand, there is some evidence which supports Chew’s evidence on this topic.
·First, Mrs Chew testified that she and her husband and members of her family invested in the scheme.[79]
·Second, Chew said that after he transferred the amount of US $60,000 he attended the ANZ Bank with the plaintiffs and was present when they conducted their transfer. He showed the plaintiffs his telegraphic transfer receipt to ensure that their funds were paid into the same account.[80] Angelo recalled that Chew accompanied the plaintiffs to their bank and said that it was possible Chew showed them the receipt evidencing the $60,000 transfer.[81]
·Third, Chew produced in re-examination a Bank of SA cheque book in the name of Lee Chew & Co Pty Ltd, account number 08285523.[82] Chew located the cheque book among his personal papers at home after he had been cross-examined on this topic by Amanatidis. The cheque book contained a butt, upon which was written “10/11/99 – HYIP Tally – America – $28,500” (Australian dollars). Chew said that the amount written on the cheque butt included his and his wife’s contribution and also some of the monies he had received from one of the other co-investors.
·Fourth, during late 1999 and early 2000 Chew wrote to Lewis and others demanding repayment of the investment funds. Some of the correspondence Chew received from the US in relation to his demands acknowledged that a total of US $160,000 had been paid into the investment scheme.[83] There is no reason for the authors of the relevant correspondence to have acknowledged the receipt of such an amount of money if only US $100,000 had been received, unless Chew was a party to a conspiracy with the promoters of the investment scheme to defraud the plaintiffs and the letters were intended to deceive them.
[79] T 976
[80] T 708
[81] T 410
[82] Exhibit TP54
[83] For example, see exhibit P5.
On 11 November 1999, following the telegraphic transfers, the plaintiffs and Chew had a meeting with Amanatidis in Chew’s office. The plaintiffs gave Amanatidis a letter (exhibit P8) in which they acknowledged his entitlement to a commission of “4% … of the profit from their investment of US$100,000 into a High Yield Investment Program in U.S.A. known as the Tally (sic)/Coffman – Attorneys – Chew Teck Lee/Southstar Agreement”. At the same meeting Chew gave the plaintiffs a letter signed by him, (exhibit P9) in which he acknowledged that the plaintiffs had invested US $100,000 in the same scheme.
Insurance Assignment
On 19 November 1999 the plaintiffs and Chew had a further meeting at Chew’s office. During the meeting Chew received from Southstar a faxed document titled “Insurance Loss Payee Assignment” (“Insurance Assignment” - exhibit P5) which had purportedly been signed by Talley. Angelo and Chew signed the document.[84]
[84] It is not clear from the evidence given by the plaintiffs and Chew whether Amanatidis was present when the agreement (exhibit P5) was executed or whether it was ever drawn to his attention. Amanatidis’ evidence is silent on the point.
The Insurance Assignment reads:
This Agreement made the 19^th Day of November, 1999 by and between Mr. Chew and Mr. A. D’Aloia (herein referred to as “Clients”) and Mark D. Talley/Southstar I (herein referred to as Tally/Southstar”.
WHEREAS:        The parties have entered into an investment contract dated November 10 1999 in the amount of $160,000.00 USD.
WHEREAS:               In order to insure, guarantee and preserve the integrity of the principal capital amount invested Talley/Southstar agree to assign as a direct loss payee the status of co-insured beneficiary to the insurance bonds and policies issued on Mark D. Talley by Zurich American Insurance group, policy binder No. 311991138 and the Fidelity and Deposit Insurance Co. policy under No. END0002386 which total in aggregate the face amount of $5 million USD.
THEREFORE: The parties mutually agree that
1)     The policy(s) shall be kept in force for the duration of the investment contract term.
2)     The face amount of such policy(s) shall never be reduced lower than the amount of $5 million USD.
3)     That the total number of assignments to these policies shall never exceed the total face amount of the policies effective and in force.
4)     That this agreement contains the total understanding between the parties and that is shall be an addendum to and be governed by the master investment agreements stated above between the parties.
Agreed to this the 19^th day of November 1999.
(signed) Mark Talley  (signed) Lee Chew
(signed) Angelo D’Aloia

The Fidelity and Deposit policy number quoted in the Insurance Assignment corresponds with the number in the Fidelity binder (exhibit P30). As earlier observed, the Zurich-American binder (exhibit P2) did not quote a policy number. It would appear that the plaintiffs and Chew proceeded on the assumption that it was the same policy as the one mentioned in the Insurance Assignment (policy binder No 311991138”).
The plaintiffs testified that the Insurance Assignment had been prepared by Talley at Chew’s request because the plaintiffs and Chew wanted to ensure that they could recover their investment funds under the binder(s).[85] They also wanted to ensure that the investment funds placed in Talley’s escrow account did not exceed the insured amount of US $5 million.[86] Chew gave similar evidence.[87] As I earlier observed, there is some confusion in the evidence as to whether the parties believed that the plaintiffs’ investment funds were protected by both binders or by only one of them, namely, the Zurich-American binder.
[85] T 102-104, 355-357
[86] T 102-104
[87] T 904
The plaintiffs had no rights under the investment binders
There is no admissible evidence before me that establishes that the Zurich-American and Fidelity binders were valid. As I have already stated, the copy binders are not admissible under s 45A as business records and Chew’s evidence that he was told by Kleinig that the binders were valid is pure hearsay.
Even if the binders were valid, it is clear that they did not secure the plaintiffs’ investment. On the face of the binders they were professional indemnity policies issued to Talley. The plaintiffs would not have been entitled to claim under such policies.
The Insurance Assignment purports to assign Talley’s rights under the binders to the plaintiffs. However, there are some obvious problems with this arrangement. First, there is no evidence that Zurich-American or Fidelity consented to such an assignment. Secondly, the binders purported to be professional indemnity policies providing cover for employee dishonesty. Talley would have had no right to lodge claims in respect of escrow account defalcations committed by him. Thirdly, the binders are unlikely to have provided cover for the plaintiffs’ funds once they left Talley’s escrow account.
Plaintiffs open account in Singapore
As earlier observed schedule 3.03 of the Southstar Agreement required that any investment profits were to be paid into a nominated account held by Chew with Citibank in Singapore. After the investment funds were transferred overseas, the plaintiffs, with Chew’s advice and assistance, opened an account with Citibank in Singapore. Chew and the plaintiffs had agreed that the profits of the investment would be transferred to Chew’s account with Citibank in Singapore, in accordance with the terms of the Southstar Agreement, and that Chew would then transfer the plaintiffs’ share of the profits into their Citibank account.
The plaintiffs fail to receive payment
On or about 30 November 1999, Southstar faxed to Chew a letter received from David Gilliland of Luxor (exhibit P10). The letter detailed a schedule of fortnightly payments of profits to be distributed in accordance with the Southstar Agreement for the period ending 17 January 2000. The fax stipulated that the first payment would be made in the week of 13 December 1999. When no payment was received Chew made enquiries with Lewis and Talley over the telephone to ascertain the reasons for the delay.
On 23 December 1999 Chew received by fax from Southstar a letter purportedly sent by Talley to Lewis (Southstar) (exhibit P11). The letter asserted that the “inbound wire transfer of funds” into Talley’s account with Key West Swiss Investment Bank (“Key West”) had incurred problems and that he expected the funds to be in the account the following day.
Chew continued to press Southstar for an explanation.
On 31 December 1999 Chew received by fax from Southstar a letter (exhibit P12) sent by Donald G Coffman to Southstar. The letter from Coffman stated that pursuant to Chew’s instructions he had instructed Key West, in Nassau, to transfer US$40,000 to Chew’s Citibank account in Singapore.
Chew and the plaintiffs testified that they had ongoing discussions during this period regarding the payment delay and became increasingly concerned about the integrity of the investment scheme and the security of their funds.
By letter dated 6 January 1999 (exhibit P15) Chew complained to Lewis about the delay and the failure on the part of Southstar, and Key West to provide any explanation as to why no payment had been received. He demanded repayment of the principal funds (US $160,000) and four weeks trading profit at a weekly rate of 4%.
In the letter Chew further stated:
The situation [had] caused extreme anxiety for [his] investors in light of the number of recent highly publicised cases in Australia over this type of investment where investors have lost a lot of money and fraud has been proven.
I will return to discuss Chew’s reasons for writing this letter and his concerns about the investment scheme later.
Chew subsequently received from Southstar a copy letter purportedly sent by “Robert Moore[88], Executive Vice President” of Luxor’s “North American Operations” to Lewis dated 14 January 2000 (exhibit P13) wherein Moore asked Lewis to apologise to Chew for the delay in the transfer of funds from the Key West account. The letter stated that Luxor intended to discontinue its relationship with Key West and “expected to be up to date with payments and improved banking for disbursements over the coming few days”. Despite this intimation Chew and the plaintiffs failed to receive any payments.
[88] No evidence was given by Chew as to whether he had previously heard of Moore or made any enquiries in relation to him.
Chew gave evidence[89] that he had previously given assistance to prosecution agencies in the US in relation to a fraud case. Chew said that two men named Montello and Calish, who was a friend of George Athos, were prosecuted in the US for fraud. Chew was requested by the Federal Bureau of Investigation and Kevin March, a prosecutor based in Florida, to give evidence for the prosecution. Chew said that he declined to go to the US because he feared for his safety. However, he said that he became friendly with March and that March told him that if he had any problems in the US to feel free to contact him.
[89] T 695-698
On 2 February 2000, Chew wrote to Lewis (exhibit P16), and instructed him “as [his] agent” to terminate the investment and arrange for repayment to Chew of the principal of US $160,000, plus interest in the amount of US $1,181 and weekly profits of US $40,000 for the period ending 31 January 2000.Chew stated that if he did not receive payment within three banking days he would contact “Mr Kevin March, Chief Prosecutor and Louis Freeh, Director of the Federal Bureau of Investigation in Tampa, Florida to investigate the matter on [his] behalf”. No payment was received.
Chew testified[90] that he subsequently rang Kevin March and Louis Freeh and asked for their assistance. Freeh told him he was involved in investigating several schemes and did not have enough time to look into the matter. Chew did not say what March said to him. Chew said that it was at about this time that he “started to feel that [they] had fallen into a Ponzi scheme”.[91]
[90] T 723-725
[91] T 724
On 16 February 2000 Chew wrote to Lewis (exhibit P17) and instructed him to make a claim against Talley’s insurance policies with Zurich-American and Fidelity by reason of Luxor’s failure to return the principal of US $160.000.
On 14 March 2000 Chew wrote to Lewis and made a further demand for the repayment of the investment principal (exhibit P17). Chew also asked Lewis to recover their profits from the investment as soon as possible.
Trip to the United States
In early April 2000 Lewis informed Chew that he had secured a refund of US $60,000 and said the money could be collected from him in Memphis, Tennessee on 14 April 2000.
On or about 13 April 2000, Chew and Angelo flew to Memphis to collect the promised refund. They met Lewis the following day at the motel where they were staying. He drove them around Memphis and took them out for a meal. He was evasive when they asked for their money and said that it would be available within a couple of days. Chew recalled that Lewis said he was waiting on a telephone call from Donald Coffman. Angelo said that he believed that Lewis was giving them the run around. He became increasingly agitated and aggressive in demanding that Lewis hand over the money they had been promised.[92]
[92] Angelo’s evidence T331-333
One or two days later Lewis met Chew and Angelo in their motel room and gave them US $45,000 cash. He promised to pay them a further US $15,000 on 25 April 2000, US $50,000 on 28 April 2000 and $US 50,000 on 5 May 2000. Chew and Angelo agreed to each take US $22,500 of the monies received from Lewis.
On 17 April 2000 Chew and Angelo attended the Bank of America, in Memphis, where Chew opened a bank account and deposited his share of US $22,500 (see cash deposit book exhibit D55). He then arranged for the monies to be transferred to his account in Singapore. Angelo exchanged his share for a bank cheque in the amount of US $22,500.
During their stay in Memphis, Chew and Angelo attempted to speak to Talley. On several occasions they attended his home address in Memphis but were unable to raise him. On one occasion Talley answered the front door but quickly slammed it shut when Angelo identified himself. Angelo testified that they also attended Gilliland’s residential address in Memphis but decided against knocking on the door because Chew was nervous. He said that Chew attempted to telephone Gilliland but was unsuccessful.
Chew and Angelo testified that they also made enquiries in Memphis about the validity of the Zurich-American and Fidelity binders. The Zurich-American binder identified Professional Financial Advisers (“PFA”) as the insurance brokers involved in the issuance of that binder to Talley. Chew and Angelo attended the Memphis address of PFA as stated in the binder but the premises were vacant. They then attended the Memphis office of Palladin Consulting Corporation (“Palladin”) a firm identified in the Fidelity binder as the brokers responsible for the issuance of that binder. Their enquiries established that Palladin were also brokers for Zurich-American.
Chew testified that they spoke to an employee of Palladin who confirmed that he knew Talley. Chew said he showed him a copy of the Zurich–American binder (P2) and the Insurance Assignment Agreement (P5) and asked if they could make a claim against the binder. They were told to seek legal advice.[93]
[93] T 737
Angelo said that they also asked the Palladin employee to provide them with a copy of the Fidelity binder and were given exhibit P30.[94] I find that Angelo is wrong about receiving P30 from Palladin. The fax transmission dates that appear on P30 indicate that it was faxed to Chew’s office from Southstar on 25 September 1999. That accords with Chew’s evidence. Neither Angelo nor Chew gave evidence about what discussions, if any, took place at Palladin regarding the Fidelity binder.
[94] T 343-346
On or about 24 April 2000 Chew left Memphis and returned to Australia. Angelo agreed to remain in Memphis to collect the balance of the funds they had been promised by Lewis. However, he received no further payments from Lewis and returned to Australia on or about 7 May 2000.
On 28 April 2000, while Angelo was still in Memphis, Chew wrote to Talley (exhibit P19) complaining about the loss of the investment funds and demanding repayment of the balance of the investment principal. Chew stated that he would report the matter to various organisations, including the Federal Bureau of Investigations, if they were not paid the balance of the investment principal by 5 May 2000. No payment was received.
Angelo receives payments from Chew
During cross-examination by Amanatidis, Angelo agreed that following the trip to the United States he received several payments from Chew. He said that Chew gave him a total of about $5,000–$8,000 (Australian dollars) over a period of about 12 months because he was experiencing financial problems. Angelo said that Chew never asked him to repay the money.[95]
[95] T 406-407
Chew gave a somewhat different account. He said he paid Angelo a total of $6,000 (Australian dollars) comprising four cheques each in the sum of $1,500. He said that he made the payments because he did not think it was fair that the plaintiffs should have received only half of the funds recovered from Lewis given the amount they had invested.[96]
[96] T 740-741
I am satisfied that Chew paid Angelo $6,000. I do not accept that it was a gift as Angelo’s evidence might suggest. I find that the money was given by Chew for the reasons he gave. In effect the payment of $6,000 formed part of the monies recovered from Lewis. Accordingly, the plaintiffs’ claim against Amanatidis, if successful, ought to be reduced by that amount.
Further investigations in the United States
In 1999 Angelo and Chew, while still in Memphis, instructed lawyers in the US to recover the investment funds. I have been told that they were unsuccessful. As I earlier mentioned, Chew said that while he was in Memphis he asked a Palladin employee whether he and the plaintiffs could make a claim against the Zurich-American binder. He was told to get legal advice. There is no evidence before me of the plaintiffs or Chew having ever submitted a claim under the Zurich-American binder or the Fidelity binder and/or the claim having been rejected.
In 2003 the plaintiffs instructed Mr Mitchard of Nicholls Gervasi. As part of Mr Mitchard’s investigations, he accessed the internet website of Michael J Quilling, a receiver in the United States appointed to administer the affairs of various persons including Benjamin David Gilliland and Mark D Talley.
Mr Mitchard obtained from the website copy documents that purportedly related to civil proceedings instituted in the United States District Court, Western District of Tennessee, Western Division (the “Tennessee District Court”) by “American– Guarantee Insurance Company and Zurich Reinsurance (London) Limited” against Mark D Talley and Mark D Talley PC”.
The documents included a copy of an order made by Judge Julia Smith Gibbons granting the plaintiffs’ motion for summary judgment dated 29 March 2002 (exhibit P20) and a copy of a judgment delivered by her Honour in the same action on 2 April 2002 (exhibit P21A). On 27 October 2006, Mr Mitchard wrote to the Tennessee District Court, (exhibit P27) and obtained from the Court a certified copy of the order granting the motion for summary judgment (exhibit P20A).
In the order granting the plaintiffs’ motion for summary judgment (P20/20A) the Judge explained the nature of the action. The Judge said:
On January 18, 2001, American Guarantee Insurance Company (“American Guarantee”) and Zurich Reinsurance (London) Limited (“Zurich”) filed this action seeking rescission of two malpractice insurance policies issued by plaintiffs to defendants Mark D Talley and Mark D Talley, PC (collectively “Talley”).
The judge proceeded to explain the factual basis of the action:
This action arises out of a large–scale investment fraud (described as a “Ponzi scheme) perpetrated primarily by B. David Gilliland and assisted by Talley. As part of the scheme, Talley agreed to procure $5 million of legal malpractice insurance. Thus, he bought a $1 million policy through American Guarantee and a $4 million excess policy through Zurich. However, Talley’s policies were contingent on the delivery of a correct, up-to-date application from Talley. Although Talley submitted an executed application, Talley’s application contained two significant misrepresentations of which plaintiffs were unaware: (1) Talley misrepresented his knowledge of a potential claim and; (2) Talley misrepresented his area of practice. Specifically, Talley responded “No” to the following question on the application for the policies:
During the past five (5) years, has any professional liability claim or suit been made against any Attorney named in Question 1 aware of any circumstances, incidents, acts, errors, or omissions which could result in a professional liability claim against the firm, any attorney of the firm, or its predecessors? If YES, provide full details on a Supplemental Claim Information form.
The negative response to the question was incorrect since at the time Talley responded to this question he was or should have been aware of a potential claim since he knew that he was involved in a Ponzi scheme. Additionally, Talley did not report that he performed any legal services relating to securities law despite his involvement in the investment scheme.
The Judge concluded that for these, and other reasons, the plaintiffs were entitled to rescind the policies and formally entered judgment in favour of the plaintiffs on 2 April 2002 (P21A).
The plaintiffs contend that the order granting the motion for summary judgment (P20/P20A) and the judgment (P21A) are admissible under s45A of the Evidence Act1929 as business records of the Tennessee District Court. The plaintiffs argue that the order granting the motion for summary judgment therefore constitutes evidence:
·that Talley had been issued with malpractice insurance policies by American Guarantee Insurance Company and Zurich Reinsurance (London) Limited;
·that the policies had been procured by Talley to facilitate a fraudulent Ponzi scheme perpetrated by Gilliland with Talley’s assistance; and,
·that the policies were rescinded by order of the Tennessee District Court.
The plaintiffs contend that I should infer that the malpractice insurance policies rescinded by the Tennessee District Court were the Zurich-American and Fidelity binders (P2 and P30). It was further argued that I should infer that the Ponzi scheme perpetrated by Gilliland and Talley was the very scheme in which the plaintiffs had invested.
I reject that argument.
The order (P20/20A) and the judgment (P21A) would ordinarily qualify as business records of the Tennessee District Court. However, the fundamental problem with the plaintiffs’ argument is that it involves putting before me, as trier of fact, a judicial opinion in another case concerned with different legal issues and evidence. Such findings are irrelevant and not admissible in these proceedings.[97] Because s 45A cannot be used as a vehicle for admitting evidence that would otherwise be inadmissible,[98] the documents obtained from the Tennessee District Court in relation to the civil proceedings cannot be admitted as business records.
[97] See Grivas v Brooks (1997) 69 SASR 532, 536 (Doyle CJ), R v Forrest (1988) 35 A Crim R 421, 426 (King CJ)
[98] R v Errigo (2005) 91 SASR 80
Even if I am wrong and the documents are admissible under s45A there are several difficulties with the plaintiffs’ contention that I should infer that insurance binders P2 and P30 are the same policies that were the subject of proceedings in the Tennessee court. For example:
·the insurance binders P2 and P30 were purportedly issued by the “Zurich- American Insurance Group” and “Fidelity and Deposit Co”. No evidence was put before me to show that these are the same corporate entities referred to in the Tennessee judgment, namely, “American Guarantee Insurance Company” and “Zurich Reinsurance (London) Limited”.
·the insurance binders P2 and P30 had expired on 3 February 2000 and 30 March 2000 respectively, before the commencement of the civil action in the Tennessee District Court.
Mr Mitchard also obtained from the receiver’s website print outs of documents relating to criminal proceedings instituted in the United States Northern District Court of Florida, Pensacola Division (“the Florida District Court”), in the matter of the United States of America v Benjamin David Gilliland & Others. The documents comprised:
·an unsigned and undated indictment (Exhibit P24) which recites detailed allegations against each of the named defendants and a “Plea and Cooperation Agreement” filed in the Florida District Court on 21 August 2000 (exhibit P25); and,
·a “United States Department of Justice Press Release” dated 13 April 2001 (exhibit P22) summarising the history and outcome of the criminal proceedings, also obtained from the website.

For an experienced accountant with considerable business acumen Chew’s efforts to check out the integrity of the Luxor scheme were extraordinarily inept. His failure to conduct the most rudimentary enquiries is even more surprising having regard to his knowledge of the fraudulent nature of similar high yield investment schemes, a topic to which I now turn.
During examination in chief Chew was questioned about whether he had any concerns about the investment scheme. The evidence he gave was as follows:[102]
[102] T 694
QWhat was concerning you about this investment at this particular period before 10 November. Perhaps I should ask you the first question: were you concerned about this investment.
AIn my opinion, I thought it was fairly secure in the sense that for a start we were dealing with professional people, lawyers and accountants, and on top of that there was an insurance bond and, of course, on top of that I didn’t think that somebody would sacrifice their profession for $100,000.
QCan you explain to his Honour why you were taking the steps that you were taking about the investment.
AThe reason I went to such lengths is, first of all, I have heard of schemes like this before, and I am also very concerned that I do not lose my family’s money and also the investors’ money and also my money of course. The only thing that I felt comfortable about was that I was dealing with professional lawyers and accountants.
QDid you convey these concerns to the plaintiffs.
AYes, I told them exactly what I’ve done with each step that I took to confirm my fears, that these are my fears. It was the first time that I’ve done something like that so it’s new to me as well.
HIS HONOUR:
QDid you tell the plaintiffs that this was the first time you had been involved in a scheme like this.
AI don’t know whether I told them, but in my own mind I have to satisfy myself and my family members that there’s a lot of precaution taken.
QYou mentioned a moment ago that you were aware of other schemes. What were you referring to.
AThese sort of, you know, high yield investment programs.
QHad you heard of the term ‘Ponzi scheme’.
AYes, I have.
QHad you heard of Ponzi schemes back in 1999 when all this was happening.
AYes, I have actually.
QWhat is your understanding of a Ponzi scheme.
AWhere you are investing moneys and the money gets lost through people taking the moneys and not returning them.
QDid you have any fears that this was a possible Ponzi scheme.
ANot at that stage because the ones that were referred to me previously were not professional people. The fact that I was dealing with lawyers and accountants and also there was an insurance bond relaxed me a bit.
I was unimpressed by Chew’s evidence on this issue. He stated that he felt that the scheme was fairly secure because he was dealing with “professional people, lawyers and accountants”. However, he then conceded that he had concerns about the scheme because he had heard of similar high yield investment schemes. Indeed, he suggested that “the only thing [he] felt comfortable about was that [he] was dealing with professional lawyers and accountants”. If he had such concerns all the more reason for further enquiries.
Indeed, it is evident from Chew’s letter to Lewis of 6 January 2000 (P15) that he must have had quite serious concerns about the legitimacy of the Luxor scheme. In that letter he referred to a “number of recent highly publicised cases in Australia over this type of investment where investors have lost a lot of money and fraud had been proven”. The letter was written only seven weeks after the plaintiffs had made their investment. I find that at the time Chew was meeting with the plaintiffs and Amanatidis he was alive to the real and substantial possibility that the Luxor scheme was another fraudulent high risk scheme.
There is another aspect of Chew’s evidence that I should discuss. In the course of the evidence set out above [170], Chew suggested that he had concerns about the scheme to the plaintiffs during the meetings prior to 10 November 1999. I reject his evidence on this topic. Neither the plaintiffs nor Amanatidis said that Chew expressed any such concerns. Nor was that suggestion put to them in cross-examination. The tenor of their evidence was that Chew painted a fairly rosy picture of the venture.
The reliance placed on Chew’s representations
The plaintiffs and Amanatidis have not pleaded that Chew was aware of the fraudulent nature of the Luxor scheme or that he may have arranged to receive a secret commission from the organisers of the scheme for promoting it. Nor was this hypothesis put to Chew during cross-examination. Accordingly, it would be wrong for me to make any comment about the matter.
But what is abundantly clear is that Chew was the prime mover behind the plaintiffs’ decision to invest. He was an accountant and purported to have an understanding of the investment scheme and indicated that he was personally prepared to invest in it. The plaintiffs were induced to enter into the scheme as a result of his representations about the viability of the investment scheme and the security provided by the insurance binders and Amanatidis’ agreement to indemnify them. To my mind, it is also clear that Amanatidis would not have agreed to indemnify the plaintiffs but for Chew’s representations about the investment scheme and the statements Chew made during their private conversations.
I turn to the plaintiffs’ claim and the third party claim.
Plaintiffs’ claim: analysis
The issues of mistake and misrepresentation
The statement of defence pleads that Amanatidis failed to read the Agreement before he signed it and mistakenly believed, as a result of representations made by Chew in the presence of the plaintiffs, and with their silence acquiescence, that it merely recorded the plaintiffs’ obligation to pay him an “Introduction Fee” or commission.
The pleaded assertions must be rejected. First, it should be observed that they are inconsistent with Amanatidis’ testimony. He admitted in his evidence that he read the Agreement. Furthermore, he said nothing about Chew misrepresenting the contractual terms contained in the Agreement. In any event, for the reasons I have previously expressed, I am satisfied that Amanatidis signed the Agreement knowing that it contained his agreement to indemnify the plaintiffs. It was an indemnity deliberately and freely entered into by Chew for the purpose of securing the plaintiffs’ agreement to pay him a commission.
The issue of uncertainty
The pleadings in the statement of defence fail to particularise the grounds upon which it is said that the Agreement is unenforceable due to uncertainty, though the third party statement of claim asserts:[103]
[N]o consideration was paid in respect of the “Agreement” or the guarantee or in the alternative the agreement was and remains unenforceable on the basis that it is vague and imprecise and incapable of enforcement and in the further alternative that any consideration based on a payment of commission calculated on the profits earned was so vague as to be inadequate consideration and unenforceable.
[103] See [5]
Leaving to one side the issue of inadequate consideration, to which I will return in a moment, the Agreement is undoubtedly vague in several respects. In particular:
·the Agreement acknowledges that the plaintiffs had “invested $100k US into an account managed by Larry Lewis and Mark Tally (sic)” and states that the funds “are to be used for investment purposes and retained in a Solicitors Trust Account” but does not identify the relevant investment scheme;
·the Agreement acknowledges that Talley and Lewis had “undertaken insurance to the value of $5,000,000 … to insure [the] investment” but fails to identify the relevant insurance policy or policies;
·the Agreement records that Amanatidis was obliged to pay the plaintiffs US $100,000 “should an event occur where the money is stolen or an insurance payment is denied but does not define the circumstances in which the plaintiffs’ investment could be regarded as having been stolen or the circumstances in which an insurance claim could be regarded as having been denied;
·the question arises whether liability under the indemnity is contingent upon proof of both events or proof of one or the other.
The plaintiffs gave evidence of their understanding of these aspects of the Agreement.[104] In the main, their evidence on this topic was irrelevant because it was never established that they had communicated to Amanatidis their subjective understandings, save in one respect. Mario said that in the course of reading out the Agreement during the meeting on 10 November he paused and explained to the others that the word “stolen” was intended by him to mean “misappropriated, fraudulently obtained”.[105]
[104] Mario T 108-112, Angelo T 294-296
[105] T 110
The law in this area is clear. The requisite intention to create contractual relations is not a search for the uncommunicated subjective motives and intentions of the parties.[106] The test is objective. As the High Court said in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd and Others:[107]
It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.
(my emphasis)
[106] Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at 105-106 [25] Gaudron, McHugh, Hayne and Callinan JJ)
[107] (2004) 219 CLR 165, 179 [40]
In the present case the ambiguities to which I have referred are, in my view, resolved by reference to the discussions and pre-contractual negotiations that took place in Chew’s office at the various meetings prior to 10 November 1999 and during the meeting on 10 November 1999 before the Agreement was executed.
The relevant investment scheme and insurance policies
The relevant discussions and negotiations focused on the plaintiffs’ interest in investing in the Luxor scheme. The plaintiffs and Amanatidis had been informed that funds invested in the scheme would be protected under the Zurich–American binder (P2) and possibly the Fidelity binder (P30) as well. No other investment schemes or insurance policies had been the subject of discussion between the parties. In the circumstances, it cannot be doubted that the Agreement was intended by the parties to apply to the Luxor scheme and the said insurance binders.
The meaning of “an event … where the money is stolen”
Mario testified that in the course of the meeting on 10 November he explained to the others that the word “stolen” was intended by him to mean “misappropriated, fraudulently obtained”. No other person present at the meeting could recall Mario having said this. However, I accept his evidence. I also accept the plaintiffs’ evidence, to which I referred earlier, that Chew told them during one or more of the meetings prior to 10 November, that they could make an insurance claim if the money was “misappropriated, thieved” or dishonestly misused in some way. Amanatidis was present when those explanations were given.
I am satisfied that the parties intended “stolen” to encompass any form of fraudulent misappropriation of the plaintiffs’ investment principal. This accords with the ordinary meaning of the word. I am also satisfied, having regard to the pre-contractual discussions, as a whole, and the obvious purpose of the indemnity, that a reasonable person would have understood that it was intended to apply to the fraudulent misappropriation of the plaintiffs’ investment principal by any person involved in, or associated with, the Luxor scheme and at any time after the plaintiffs’ funds were transmitted overseas.
The meaning of “insurance payment denied”
The use of the word “denied” might suggest that liability under the indemnity was dependent upon the relevant insurance companies having rejected a claim made by the plaintiffs. Such an interpretation would present a problem for the plaintiffs because, as I earlier remarked, there is no evidence that the plaintiffs ever lodged a claim with Zurich-American or Fidelity which was rejected.
However, I do not favour such an interpretation. In my view it could not have been intended that liability was dependent on the plaintiffs having submitted an insurance claim in circumstances where, as here, the plaintiffs never had any rights of recovery. In my opinion the words “should an event occur where … an insurance payment is denied” were intended by the parties to extend to circumstances where an insurance payment “would have been denied” if the plaintiffs had submitted a claim.
Should the criteria for liability be construed disjunctively or conjunctively?
Mr Geyer submitted that liability under the indemnity was dependent upon proof that the plaintiffs’ investment principal had been stolen or upon proof that an insurance payout had been or would have been denied.
I reject that submission. Such a construction would mean that Amanatidis would be liable to indemnify the plaintiffs for stolen funds in circumstances where they were able to obtain an insurance payout. The parties could not have intended such an unreasonable arrangement. I find that Amanatidis’ liability under the Agreement was intended to be conditional upon the plaintiffs’ investment funds having been stolen and the plaintiffs having no right, for any reason, to recover under the insurance binder(s).
Consideration
The contention that there was no consideration paid to Amanatidis under the Agreement or that it was vague and unenforceable must also be rejected. The parties had agreed that Amanatidis would receive a commission of “4% (four per cent) of the profit derived from the initial amount of moneys invested”. It is true that the Agreement does define the manner in which the plaintiffs’ profits were to be calculated. However, I am satisfied having regard to the discussions that took place between the parties during the meetings in Chew’s office prior to 10 November 1999, that it was their common understanding that the plaintiffs would receive from Luxor a minimum weekly profit of 25% (twenty five per cent) of the investment principal.[108]
[108] See [65]
Accordingly, under the terms of the Agreement Amanatidis was entitled to a minimum commission equivalent to 4% (four per cent) of that amount. It is unclear how profits exceeding the minimum of 25% (twenty five per cent) were to be calculated. But even if the payment of such additional profits were entirely within Luxor’s discretion the amount distributed to the plaintiffs could, theoretically, be ascertained upon payment into Talley’s escrow account.[109] I think the consideration under the Agreement was sufficiently certain.
[109] See Cheshire and Fifoot’s Law of Contract, (9th ed, 2008) 253 [6.5] for discussion of vague phrases that have been held to be sufficiently certain: for example, promises to pay “handsomely”(King v IvanhoeGold Corp (1908) 7 CLR 617); a “substantial sum” (Sinclair v Schlidt (1914) 16 WALR 100), a “bonus” (Re Galaxy Media Pty Ltd (2001) 167 FLR 149)
Liability
It follows from what I have said that Amanatidis’ liability under the Agreement depends upon the plaintiffs proving, first, that their investment funds had been stolen or fraudulently misappropriated by any person involved in or associated with the Luxor scheme and, secondly, that the plaintiffs have no right of recovery under the insurance binder(s).
For the reasons that I have already given, I am satisfied that Lewis, Talley and Gilliland and others were involved in a conspiracy to defraud the plaintiffs and no doubt other innocent investors as well. I find that one or more of the promoters fraudulently misappropriated the plaintiffs’ investment principal. I am also satisfied, for reasons that I have given, that the plaintiffs never had any rights of recovery under the insurance binders.
Accordingly, I find that Amanatidis is liable to indemnify the plaintiffs under the Agreement.
Quantum
The amount of money invested by the plaintiffs was $156,641.60[110] or US $100,000 (exchange rate .6384). It is necessary to deduct $35,244.36 (US$22,500) on account of the monies recovered by Angelo in the US and to further deduct $6,000 on account of the monies recovered from Chew by Angelo after they returned to Australia.
[110] See telegraphic transfer receipt (P7)
Accordingly, Amanatidis is liable to the plaintiffs in the amount of $115,397.24 plus interest on the debt. I allow interest in the amount of $32,311 calculated at the rate of 6% (six per cent) per annum from the date of the summons (22 January 2004).[111]
[111] District Court Rules – R84.19, Third Schedule
Defendant’s claim
Amanatidis contends that Chew owed him a duty of care which Chew breached by failing to inform him of the indemnity contained in the Agreement, by failing to advise him of the effect of the indemnity, by failing to advise him to obtain independent advice and by making negligent representations concerning the security of the plaintiffs’ investment. But for these matters he would not have agreed to indemnify the plaintiffs. Accordingly, he seeks damages from Chew to the extent of his liability to the plaintiffs.
For Chew to be liable on grounds of negligent misrepresentation it is necessary for Amanatidis to prove that:
·Chew owed him a duty of care;
·Chew was in breach of this duty of care;
·Chew’s breach of duty caused Amanatidis’ loss; and
·The damage suffered by Amanatidis was not too remote.
Did Chew owe Amanatidis a duty of care?
The law
Liability for economic loss on account of negligent misstatement is, of course, no longer confined to cases where the statement was made in breach of a fiduciary relationship. A duty of care in making statements arises where there is a “special relationship” between the representor and the representee.[112]
[112] Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465
The features of the special relationship in which the law will import a duty of care were explained by Barwick CJ in Mutual Life & Citizens’ Assurance Co Ltd v Evatt as follows:[113]
[T]he speaker must realise or the circumstances be such that he ought to have realised that the recipient intends to act upon the information or advice in respect of his property or of himself in connection with some matter of business or serious consequence … Further, it seems to me that the circumstances must be such that it is reasonable in all the circumstances for the recipient to seek, or to accept, and to rely upon the utterance of the speaker. The nature of the subject matter, the occasion of the interchange, and the identity and relative position of the parties as regards knowledge actual or potential and relevant capacity to form or exercise judgment will all be included in the factors which will determine the reasonableness of the acceptance of, and of the reliance by the recipient upon, the words of the speaker.
[113] (1968) 122 CLR 556, 571. Barwick CJ’s formulation has been approved by the High Court: see San SebastianPtyLtd v The Minister (1986) 162 CLR 340, 355; Tepko Pty Ltd v Water Board (2001) 206 CLR 1, 17-18

Barwick CJ went on to say:[114]
It seems to me, therefore, that whenever a person gives information or advice to another, whether that information is actively sought or merely accepted by that other upon a serious matter, and particularly a matter of business, and the relationship of the parties arising out of the circumstances is such that on the one hand the speaker realises or ought to realise that he is being trusted, particularly if he is thought by the other to have, or to have particular access to, information or to have a capacity or opportunity to judgment or both as to the matter in hand, to give the best of his information or advice as a basis for action on the part of the other party and it is reasonable I the circumstances for the other party to seek or accept and in either case to act upon that information and advice the speaker, choosing to give the information or advice in such circumstances, comes under a duty of care both to utilise with reasonable care the information and sources of information at his disposal and to employ with reasonable care what capacity he has for judgment in relation to the matter and to exercise reasonable acre in the expression of what he is prepared to convey by way of information or advice.
[114] (1968) 122 CLR at 572-573
Several relevant principles can be extracted from the leading authorities in this area:
·First, the duty of care extends to the supply of information and opinion as well as advice.[115]
·Second, an antecedent request for information, opinion or advice demonstrates reliance, which is a key determinant of the existence of a duty of care, but such a request is not essential.[116]
·Third, the reasonableness of the recipient’s reliance on the speaker’s statement will depend upon all the circumstances of the case. This will include the context in which the information or advice was given, for example, whether it was given in a business or social setting.
·Fourth, the elements of the special relationship do not require either the actual possession of skill or judgment on the part of the speaker or any profession by him to possess the same. The speaker’s willingness to proffer the information or advice in the “special relationship” is sufficient.[117] In other words, special skill is not an essential element of the “special relationship” but merely one of the factors affecting the question of reasonable reliance.
·Fifth, the speaker’s opportunity to gain financially from the recipient’s reliance on the information or advice is a relevant factor in determining the existence of a duty of care.[118] Indeed, there is some authority for the view that if the speaker stands to gain financially from the recipient’s reliance on the statement that may be sufficient in itself to establish a duty of care.[119]
The facts
[115] San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340, 356 (Gibbs CJ, Mason, Wilson and Dawson JJ)
[116] Ibid 356-7
[117] Mutual Life and Citizens' Assurance Co Ltd v Evatt (1968) 122 CLR 556, 574 (Barwick CJ); Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) (1981) 150 CLR 225; San SebastianPty Ltd v The Minister (1986) CLR at 356
[118] See O’Leary v Lamb (1973) 7 SASR 159
[119] See Mutual Life and Citizens' Assurance Co Ltd v Evatt [1971] AC 793, 809; Presser v Caldwell Estates Pty Ltd [1971] 2 NSWLR 471 at 493 (Mason AJ)
At the outset it is necessary to discuss whether Chew and Amanatidis had an accountant/client relationship at the time the agreement was executed.
In his evidence, Amanatidis suggested that Chew never ceased being his accountant up until about 2004-2005. On the other hand, Chew deposed that he had handled Amanatidis’ tax returns, for one or two years, in the early 1990’s and again for the financial years ending 30 June 1995, 30 June 1996 and 30 June 1997. Chew tendered from his computer software program the tax returns that he had completed for Amanatidis for those years.
Amanatidis’ evidence on this topic was unsatisfactory. He was vague when pressed to explain the accounting services that Chew had continued to provide him up to and including 1999-2000. In the end, he said that he considered Chew to be his accountant though Chew did not complete any tax returns for him during the disputed period. When asked to explain what accountancy work Chew performed, Amanatidis replied: “Occasionally I would ask him for accountant advice”. He was invited to elaborate on the work Chew had performed in that regard but did not take up the invitation. I am satisfied that Chew and Amanatidis did not have an account/client relationship whatever Amanatidis’ subjective views about the matter may have been.
Amanatidis gave evidence of other business dealings with Chew. He gave evidence of discussions that had taken place between them concerning two projects in China involving the construction of a hospital and a bridge. In broad terms, Amanatidis, in each case, had approached Chew to organise finance for the projects. Neither project went ahead.
As I understood Amanatidis’ case, the evidence was adduced for two purposes: first, to show that the men were involved in an ongoing business relationship relevant to the question of whether Chew owed him a duty of care and, second, to show that Chew’s conduct in relation to those ventures had discreditable features that indicated a tendency on his part to engage in dishonest business practice. The suggestions of improper conduct were denied by Chew.
Amanatidis also gave evidence of dealings he had with Chew in relation to a shopping centre at … purchased by Chew in about 2000-2001. There is no dispute that Amanatidis entered into an agreement with Chew to manage the property in exchange for receiving a commission based on rent received. Amanatidis alleged, however, that he was not paid commission for his services. This was disputed by Chew. Once again I understood this evidence to be relevant to Chew’s credit and the question of whether there was an ongoing business relationship.
The evidence relating to these matters was unhelpful. The projects in China took place either well before or well after the events relating to the Luxor scheme. Similarly, the parties’ dealings in relation to the shopping centre did not arise until a considerable time after the Luxor events. They were isolated events that did not give rise to a continuing business relationship. On the issue of credit Mr Gretsas conducted a spirited attack on Mr Amanatidis. I must say that there were aspects of Amanatidis’ evidence on these peripheral topics which did not impress me. However they did not cause me to alter my view that Amanatidis told the truth about the central issue of Chew having encouraged and advised him to sign the indemnity.
As I say, I am satisfied that there was no accountant/client relationship at the time of the relevant events. Nonetheless, I am satisfied that there was a “special relationship” between Chew and Amanatidis which gave rise to a duty of care.
The relevant circumstances can be summarised as follows. During the meetings, prior to the execution of the Agreement, Chew had represented the Luxor scheme as a sound investment and, significantly, had informed the parties that the plaintiffs’ investment principal would be protected under the Zurich-American binder and possibly the Fidelity binder as well. Amanatidis’ knowledge of the investment scheme, like the plaintiffs’, was based on information obtained from Chew.
Following the meeting when the issue of an indemnity was first raised, Amanatidis asked Chew what he thought it might involve and was told that he should not worry because it was important to obtain from the plaintiffs a written acknowledgment of his entitlement to a commission – a commission which Chew and Amanatidis had secretly agreed to share.
On 10 November 1999 immediately before the Agreement was executed Amanatidis specifically asked Chew what he thought about it and was advised “Don’t worry about it, the insurance will cover it”. As I have said, I am satisfied that Chew proffered that advice because he stood to gain financially from the investment.
In my view, the following factors are significant:
·These events did not occur in a social setting but involved, from the party’s perspective, important matters of business.
·The plaintiff was an experienced accountant who had acted for Amanatidis in the past, albeit in relation to taxation matters, and apparently had discharged his duties competently - it has not been suggested otherwise.
·Chew purported to have knowledge of the investment scheme and access to the promoters of the scheme. Amanatidis’ knowledge of the scheme was based entirely on the oral and documentary information provided by Chew.
·Chew had a financial interest in the scheme both in his capacity as an investor and as the recipient of a secret commission.
·In respect of the private conversation that took place on 10 November 1999 Amanatidis sought Chew’s opinion or advice about the Agreement before he signed it.
In the circumstances, Chew must have realised, or ought to have realised that Amanatidis would act upon the information that he supplied at the meetings in relation to the soundness of the investment scheme and the security provided by the insurance binders and that Amanatidis would also act upon the statements he made, and the opinions he expressed, during their private conversations. As I earlier stated, I am satisfied that that Amanatidis did rely upon Chew’s representations and statements. His reliance was reasonable in the circumstances.
As I have said there is no evidence that Chew was an accountant who specialised in offering information and advice of this kind. However, as the authorities make plain, the elements of the special relationship that give rise to a duty of care do not require that he was engaged in such a profession or that he possessed any particular skill in that regard. The fact that he was willing to proffer such information and advice is sufficient.
Did Chew breach the duty of care?
The investment scheme was fraudulent. Chew was aware that similar high yield investment schemes had resulted in innocent investors losing substantial amounts of money to fraudsters, but failed to disclose his concerns to Amanatidis and the plaintiffs. There was no sound basis for Chew to believe the information he had received from the US about the Luxor scheme and the security afforded to investors. In the circumstances, no prudent and reasonable man would have advised and encouraged Amanatidis to sign the agreement. Chew’s conduct was negligent.
The remaining matters
It follows from earlier findings that I am satisfied that but for Chew’s negligence Amanatidis would not have executed, and thereby have incurred liability under the Agreement. There is no question of the damages being too remote.
On balance Amanatidis has proved all of the requisite elements of negligence. Accordingly I find that Chew is liable to the extent that the plaintiffs were successful against Amanatidis.
Summary
I set out hereunder a summary of my findings and orders.
1.      The plaintiffs’ action in contract against the defendant to enforce the indemnity succeeds. Therefore the defendant is liable to the plaintiffs under the indemnity. The defence of mistake, misrepresentation and contractual uncertainty fail. Therefore I enter judgment in favour of the plaintiffs in the amount of $147,708.24 inclusive of interest.
2.      The defendant’s action in negligence against the third party succeeds to the extent that the defendant is entitled to be indemnified for the judgment obtained by the plaintiffs against him. Therefore I enter judgment in favour of the defendant in the amount of $147,708.24 inclusive of interest.
3.      I will hear the parties as to costs.