Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd (No 2)

Case [2009] FCA 1153

FEDERAL COURT OF AUSTRALIA

Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd (No 2)
[2009] FCA 1153

TRADE PRACTICES – misleading or deceptive conduct, false or misleading representations, loss and damage, characterisation of representations, reliance on statements made, no causal connection between statements made and damage suffered.

Australian Securities and Investments Commission Act2001 (Cth)
Corporations Act2001 (Cth), s 92
Fair Trading Act1999 (Vic), ss 9(1) and 12(n)
Managed Investments Act1998 (Cth)
Trade Practices Act 1976 (Cth), ss 52(1), 53(aa), 53(c) and 53(g)
Wrongs Act1958 (Vic), s 23B

Australian Securities & Investments Commission v Emu Brewery Mezzanine Ltd [2004] WASC 241 cited
Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 followed
Campbell v Backoffice Investments Pty Ltd (2009) HCA 25; 257 ALR 610 followed
Digi Tech (Aust) Ltd v Brand [2004] NSWCA 58 cited
Financial Industry Complaints Service Ltd v Deakin Financial Services Pty Ltd (2006) 157
FCR 229 cited
Gardam v George Wills & Co Ltd (No 1) (1988) 82 ALR 415 cited
Henville v Walker (2001) 206 CLR 459 cited
Heydon v NRMA Ltd (2000) 51 NSWLR 1 cited
I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 cited
Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 cited
John G Glass Real Estate Pty Ltd v Karawi Constructions Pty Ltd (1993) ATPR 41 249 distinguished
King v Yurisich (2006) 234 ALR 425 cited
McCarthy v McIntyre [1999] FCA 784 cited

Petera Pty Ltd v EAJ Pty Ltd (1985) 7 FCR 375 cited
Re York Street Mezzanine Pty Ltd (in liq) (2007) 162 FCR 358 cited
Unity Insurance Pty Ltd v Rocco Perzzano Pty Ltd (1998) 192 CLR 603 cited
Yorke v Lucas (1985) 158 CLR 661 cited

DARTBERG PTY LIMITED (AS TRUSTEE FOR THE POLLARD CHILDREN TRUST) (ACN 007 120 247) v WEALTHCARE FINANCIAL PLANNING PTY LTD (ACN 007 263 621) AND GREGORY FLEXMORE ROBERTS, PROPERTY INVESTMENT RESEARCH ACN 006 425 083 PTY LTD (IN LIQUIDATION), CEDRIC RICHARD PALMER BECK, JOHN NORMAN DIXON and LYNETTE ROCHELLE SCHIFTAN

VID 102 of 2007

MIDDLETON J
9 OCTOBER 2009

MELBOURNE


IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION

VID 102 of 2007
BETWEEN:

DARTBERG PTY LIMITED (AS TRUSTEE FOR THE POLLARD CHILDREN TRUST) (ACN 007 120 247)
Applicant

WEALTHCARE FINANCIAL PLANNING PTY LTD (ACN 007 263 621) and GREGORY FLEXMORE ROBERTS
Cross-Claimants
AND:

WEALTHCARE FINANCIAL PLANNING PTY LTD (ACN 007 263 621)
First Respondent

GREGORY FLEXMORE ROBERTS
Second Respondent

ACN 006 425 083 PTY LTD (IN LIQUIDATION)
First Cross-Respondent

CEDRIC RICHARD PALMER BECK
Second Cross-Respondent

JOHN NORMAN DIXON
Third Cross-Respondent

LYNETTE ROCHELLE SCHIFTAN
Fourth Cross-Respondent

JUDGE:

MIDDLETON J

DATE OF ORDER:

9 OCTOBER 2009

WHERE MADE:

MELBOURNE

THE COURT ORDERS THAT:

1.The cross-claim be dismissed.

2.The parties confer as to the appropriate order to make as to costs, and if no agreement can be reached, file and serve within 14 days any submissions as to costs.

Note:Settlement and entry…

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AGLC
Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd (No 2) [2009] FCA 1153
Case
[2009] FCA 1153
Decision Date

CaseChat Overview and Summary

The case of Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd (No 2) involves a dispute between Wealthcare Financial Planning, a licensed financial dealer, and PIR, a company that produced reports on investments in York Street and Market Street. Wealthcare had recommended that Dartberg invest in these projects, and PIR had provided reports and information to support these recommendations. The primary issues before the court were whether PIR's conduct and representations were misleading or deceptive and whether these actions caused the losses that Wealthcare claimed.

The court examined whether PIR's conduct or statements, which were part of the promotion of the supply of promissory notes, constituted a contravention of the Trade Practices Act and the Financial Services Reform Act. Wealthcare argued that PIR's representations, particularly in the PIR reports, were misleading and caused Dartberg's investment decisions, leading to financial loss when the investments went into liquidation. The court found that Wealthcare did not rely on the PIR reports, and as such, there was no basis for indirect causation. The court concluded that Wealthcare's failure to rely on the PIR reports meant that no actionable reliance was established.

In its judgment, the court dismissed the cross-claim and ordered that the parties confer on the appropriate order for costs, with submissions to be filed if no agreement is reached within 14 days. This decision highlights the importance of direct reliance on representations in establishing liability for misleading or deceptive conduct in financial advice contexts.

Orders

Orders of the court

1. The cross-claim be dismissed.

2. The parties confer as to the appropriate order to make as to costs, and if no agreement can be reached, file and serve within 14 days any submissions as to costs.

Note:

Background

Background to the litigation

It is not necessary to reproduce all those provisions in these reasons for judgment. The critical questions to be determined are whether the conduct complained of by Wealthcare was misleading and deceptive on the part of PIR, and whether PIR made false representations if s 53 of the TPA and s 12(n) of the FTA otherwise applied, and then whether the conduct or false representations caused the loss and damage alleged by Wealthcare.BACKGROUND The factual background to the claim between Wealthcare and PIR can be briefly summarised as follows based upon the findings I now make:·Wealthcare was at all relevant times the holder of a dealers’ licence issued pursuant to the Corporations Law and its successors. Mr Roberts was at all relevant times a financial planner and the principal of Wealthcare. ·Sometime around October 2001, Mr Roberts received from Mr Brian Thomas of Westpoint copies of two reports prepared by PIR namely:(a) PIR’s report for York Street dated February 2001 (‘York Street Report’);(b) PIR’s report for Market Street dated September 2001 (‘Market Street Report’).(I interpolate that it was contended by PIR that Mr Roberts did not receive these PIR reports, but as explained later I find that such reports were received by Mr Roberts).·In addition to receiving those PIR reports, Mr Roberts also received other information provided directly by Westpoint in the form of Information Memorandum relating to the York Street investment and the Market Street investment. ·In November 2001, Wealthcare determined to place the York Street Promissory Notes and the Market Street Promissory Notes (the ‘Promissory Notes’) on Wealthcare’s notional approved product list and they remained on the approved products list thereafter.·On 24 January 2002, Wealthcare wrote to Trevor and Joyce Pollard of Dartberg, enclosing amongst other things a document headed ‘Proposed Investment Plan’. The Proposed Investment Plan contained a recommendation that $300,000 be invested in a fixed interest based Westpoint security.·On 1 February 2002, Wealthcare received a letter from Mr Pollard enclosing a cheque for $300,000 for investment in York Street, an investment made on behalf of Dartberg.·In late May 2002 Dartberg received a letter from York Street. The letter enclosed a copy of an Information Memorandum for Market Street and provided existing York Street noteholders with the opportunity of rolling over their existing York Street promissory notes into a new Westpoint project, Market Street, in return receiving a 2% redemption premium and an entitlement to continue to receive the existing interest of 12% per annum payable monthly.·On or about 29 May 2002 Mr Trevor Pollard telephoned Wealthcare and spoke to Mr Roberts. He informed Mr Roberts that he had received this letter from York Street inviting him to rollover his York Street promissory note. Mr Roberts told him that the rollover was appropriate and that he should take the 2% redemption premium bonus. ·Dartberg subsequently redeemed the York Street note and received a promissory note from Market Street.·In August 2002, on the recommendation of Wealthcare, Mr Pollard on behalf of Dartberg decided to invest an additional $300,000 in Market Street, bringing Dartberg’s total investment to $600,000.·On 27 October 2003 both Mr Roberts and Mr Pollard received letters from Westpoint referring to the ability to extend the period of the Market Street promissory notes to 30 September 2005.·On 18 November 2003, Mr Mark Hepworth on behalf of Wealthcare spoke with Mr Pollard by telephone. Mr Hepworth advised Mr Pollard that he should agree to the extension of the term for the Market Street note because if he did so he would receive a 2% bonus payment amounting to $12,000 and that he would continue to receive the monthly interest payable until 30 September 2005. ·On 20 December 2005 York Street goes into liquidation.·On 6 February 2006 Market Street goes into liquidation.THE PIR REPORTS AND INFORMATION MEMORANDA

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

MIDDLETON J
As Wealthcare did not rely on the alleged representations in the PIR report, no ‘indirect causation’ can arise. Put another way, it cannot be said that Wealthcare’s reliance on the PIR reports was ‘a cause’ of Dartberg’s investing because there was no reliance at all by Wealthcare to find any ‘indirect causation’.CONCLUSION For the above reasons, the Court will order:1.The cross-claim be dismissed.2.The parties confer as to the appropriate order to make as to costs, and if no agreement can be reached, file and serve within 14 days any submissions as to costs.

Ratio Decidendi

Legal Principle Established

Established by: MIDDLETON J

I should indicate that no separate argument was made that the investments were not of ‘investment grade’ quality, other than by reference to the question of the application of the Corporations Law. Therefore, the focus of the submissions of Wealthcare was upon the applicability of the Corporations Law and the statements to that effect. If the attack were independently by reference to the ‘investment grade’ quality of the offering, this being an opinion based upon information obtained by PIR, different legal considerations would apply to those presented by the parties in this proceeding.CONSIDERATION I am proceeding on the basis that s 53 does apply, there being a representation in the PIR reports which was in connection with the promotion of the supply of promissory notes, which supply is encompassed by the phrase supply of ‘services’ as defined in the TPA (see s 4). For the purposes of this proceeding, I will also assume that the investments in the Promissory Notes were subject to the requirements of managed investment schemes under the Corporations Law. There was considerable debate before me as to this question. In light of the view I have come to on other issues, it is unnecessary for me to come to a final view on this question. My own tentative view is that the correct contention is that the issue of the Promissory Notes did not form part of a managed investment scheme. The arguments not accepted by Simmonds J in Australian Securities & Investments Commission v Emu Brewery Mezzanine Ltd [2004] WASC 241 seem to have considerable force. It seems to me that all that is involved here is the issue of promissory notes by a corporation with particular credit worthy characteristics and with a particular financing structure, which included the provision of certain securities for the lending of monies to investors. Each investor was offered and accepted a promissory note. All that was offered and acquired was the entitlement to payment of interest and repayment of capital in accordance with the promissory note, and no more or less. This is not the acquiring of rights to benefits produced by any ‘scheme’. As I have said, I do not find it necessary to go further into this matter – it would involve an analysis of the decision in Emu Brewery Mezzanine WASC 241, and possibly, the decisions of Finkelstein J in Financial Industry Complaints Service Ltd v Deakin Financial Services Pty Ltd (2006) 157 FCR 229 and Re York Street Mezzanine Pty Ltd (in liq) (2007) 162 FCR 358, and the question of the extent to which I should follow those decisions even if I considered any of them to be error.Characterisation of Representations Whilst contended to the contrary by Wealthcare, in my view it is abundantly clear that the PIR reports in referring to the Information Memoranda and the information contained therein, informed the reader of the PIR report that it was the information in the Information Memoranda that was being relied upon by PIR and passed on to the reader. The PIR reports specifically say that investors would be advised to consult the Information Memorandum and that PIR itself relied upon the information contained in the Information Memorandum. It would be apparent to any reader of the PIR reports and the Information Memoranda that the information about the structure of the investment comes directly from the Information Memoranda.