Equuscorp Pty Ltd v Hopkins, Ann
[1998] FCA 1574
•10 DECEMBER 1998
FEDERAL COURT OF AUSTRALIA
TRADE PRACTICES – whether financier was a party to misleading conduct by promoter of pine plantation scheme within the meaning of s 75B of the Trade Practices Act.
EVIDENCE – whether inferences drawn by the trial judge were open on the evidence.
Trade Practices Act 1974 (Cth), s 75B
Jones v Dunkel (1959) 101 CLR 298, applied
EQUUSCORP PTY LIMITED v ANN HOPKINS
NG 656 of 1998
HILL, RD NICHOLSON & EMMETT JJ
SYDNEY
10 DECEMBER 1998
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NG 656 of 1998
BETWEEN:
EQUUSCORP PTY LIMITED
APPELLANTAND:
ANN HOPKINS
RESPONDENT
JUDGES:
HILL, RD NICHOLSON & EMMETT JJ
DATE:
10 DECEMBER 1998
PLACE:
SYDNEY
REASONS FOR JUDGMENT
THE COURT: The respondent (“Dr Hopkins”) commenced proceedings in the Court in which she claimed damages and other relief arising from her becoming involved, at the end of the 1991 financial year, in a pine plantation scheme promoted by Seymour Softwoods Limited (“Seymour”). The scheme was known as the “Seymour Softwoods No. 3 Trust” (“the Trust”) and was established pursuant to a deed of trust dated 17 May 1991 between Seymour and National Mutual Trustee Limited (“National Mutual”). The appellant, Equuscorp Pty Limited (“Equus”), formerly known as Equus Financial Services Pty Limited, is a financier. Dr Hopkins contended that Equus and Seymour, together with two companies associated with Seymour, Sintoff Pty Limited (“Sintoff”) and Berrema Finance Pty Limited (“Berrema”), engaged in conduct in contravention of section 52 of the Trade Practices Act 1974 (Cth) and she sought relief under sections 82 and 87 of the Trade Practices Act.
A judge of the Court found that misleading representations were made at a seminar attended by Dr Hopkins on 25 June 1991. Those representations related both to the availability of finance from Equus and the viability of the pine plantation scheme. His Honour found that the representations in relation to both matters were false and misleading. Accordingly, his Honour made an order for damages in favour of Dr Hopkins pursuant to section 82 of the Trade Practices Act and declared that certain agreements entered into by Dr Hopkins are void ab initio. His Honour held that Dr Hopkins was induced to enter into those agreements as a result of misleading conduct on the part of Seymour and its associates. The agreements were between Dr Hopkins on the one hand and Seymour, Sintoff and Berrema on the other.
However, the trial judge also found that Equus was a party to the misleading representations said to have been made by Seymour and its associates. His Honour held that Equus was relevantly a party to that misleading conduct within the meaning of section 75B of the Trade Practices Act. Accordingly, his Honour held that Equus, Seymour, Sintoff and Berrema were all jointly and severally liable to Dr Hopkins in respect of the contraventions of the Trade Practices Act which he found had been committed. His Honour relevantly ordered that:
Seymour, Sintoff, Berrema and Equus jointly and severally pay Dr Hopkins the sum of $118,211.63.
Seymour, Sintoff, Berrema and Equus pay Dr Hopkins’ costs of and incidental to the proceedings.
The cross claim of Equus against Dr Hopkins be dismissed with costs.
THE FACTUAL BACKGROUND
Towards the end of 1991, as a result of her domestic and economic circumstances, the finances of Dr Hopkins were in some disarray. She was in need of some professional assistance as her outgoings were exceeding her income. About three or four days before 25 June 1991, she observed an advertisement in the Saturday edition of the “Adelaide Advertiser”. The advertisement referred to a Mr David Koo and to a seminar that was to be held at the offices of Greater Western Financial Services Company Pty Limited on 25 June 1991.
Dr Hopkins attended the seminar with a friend. The seminar was held in a large room, was attended by 20 or 30 people and lasted over an hour. At the front of the presentation room there was a video screen. In the presentation area near the video screen there were three or four people together with Mr Koo. At the back of the room was a table on which there were folders marked “Seymour Softwoods”. The folders contained various documents and Dr Hopkins took a folder of documents with her from the seminar.
Dr Hopkins remembers that there was a discussion at the seminar about Equus, but she had no specific recollection of any one being introduced to the meeting as a member of that organisation. At the seminar there was a video presentation with an accompanying narrative dealing with the need for people to provide for their own future. After the video presentation, each of the persons in the presentation area spoke about aspects of pine forest management and about Seymour.
There was discussion about finance and statements relating to Equus were made to the meeting. One of the speakers said that Equus supported the investment and that all costs could be financed by that organisation through the provision of immediate finance on an unsecured basis with no “up front” costs. Some stress was laid on the fact that Equus was able to provide financial assistance to investors by way of loans. His Honour held that the immediate availability of finance from Equus and its support of the plantation scheme was a definite theme at the seminar.
Dr Hopkins took with her, among the documents in the folder, a document which was headed “Equus Financial Services Ltd”. It was a promotional document for Equus and contained similar information to that which had been provided orally. It stressed the experience of Equus in financing forestry projects and its knowledge of and interests in such projects. The document was in the form of a questionnaire. The questionnaire relevantly provided as follows:
Q.2How much can I borrow from Equus to invest in Seymour Softwoods Limited?
A.2A loan of up to 100% of the purchase price is available to approved applicants. Equus will advance amounts from $5,000, up to a maximum of $300,000.
Q.3What types of loans are available?
A.3Equus offers two types of loans. They are either:
-Principal and Interest; or
-Interest Only
Q.4 What terms are available on my loan?
A.4 Equus will offer the following terms:-Principal and Interest Loans must be taken over a minimum of 12 months to a maximum of 120 months; or
Interest Only Loans must be over a minimum of 12 months with a maximum of 60 months. An option to rollover for a further term will be considered.
………………………………
Q.6 What repayment options are available?
A.6All loan repayments can be made monthly in arrears or for Interest Only Loans they can be made semi-annually or annually in advance.
………………………………
Q.11If I choose to borrow from Equus Financial Services Limited, what security must be pledged?
A.11As security for its loan advance, Equus will require a mortgage/charge over the Forestry Investment being purchased.
Q.12Can I make Principal Reductions on my loan?
A.12Generally Equus will not accept Principal Reductions however special consideration maybe given in certain circumstances.
At the conclusion of the seminar, Dr Hopkins approached Mr Koo and told him that she needed help in sorting out her financial affairs. Dr Hopkins subsequently saw Mr Koo at his office, by appointment, on 28 June 1991. They discussed Dr Hopkins’ current financial difficulties and Mr Koo handed to Dr Hopkins a prospectus relating to the Trust. He then produced a form of application for the Trust which included a works and services contract with Seymour, a lease of a parcel of land from Sintoff and a management contract with Seymour. Dr Hopkins signed each of the documents.
Mr Koo then advised Dr Hopkins that finance would be organised for the investment and that she would not have to pay the application moneys or the first of the lease payments but that they would be covered by the finance. Because Equus had been mentioned at the seminar, Dr Hopkins understood that the financier would be Equus and Mr Koo did not mention any other financier. Dr Hopkins left it to Mr Koo to fill out the relevant parts of the documents for her on the understanding that he would complete the business for her and she would be entitled to a tax deduction in respect of the payments which she was to make.
His Honour found that Dr Hopkins understood and believed, inter alia, that:
(a)finance would be organised by Seymour with Equus to meet the costs of investment and that there would be no “up front” cost to her;
(b)the moneys to be paid for the investment would be met by a loan to be advanced to her and the moneys would be paid directly to National Mutual to be invested.
Dr Hopkins could not recall whether she signed an application for a loan at the meeting with Mr Koo on 28 June 1991. However, his Honour found that she understood and expected that all payments which would be necessary to set her application in motion and to obtain the relevant tax deduction would be made by a finance company. She expected that Equus would be that finance company.
At some stage, Dr Hopkins also signed a document headed “Berrema Finance Pty Limited Finance Application”. The document is undated but it refers to an asset and liability statement, which is part of an application for finance, dated 28 June 1991. Dr Hopkins did not recall signing such a document but his Honour found that it was probable that it was one of the number of documents which she signed on 28 June 1991 in Mr Koo’s office.
However, his Honour also found that there was no discussion about Dr Hopkins obtaining finance from Berrema. In particular, there was no discussion about Berrema being associated with Seymour and Sintoff. His Honour found that it had been a feature of the representations about obtaining finance made to Dr Hopkins at the seminar that it would not be provided by any organisation associated with Seymour. Dr Hopkins did not become aware that she had made an application to Berrema until so advised by her solicitor in 1995.
In early August 1991, Dr Hopkins attended Mr Koo’s office for the purpose of signing her 1991 income tax return. She was told by Mr Koo on that occasion that Equus was not now able to finance the loan and that finance would be organised through National Australia Bank. Later that year, prior to December 1991, Dr Hopkins received a telephone call from Mr Koo’s secretary who told her that the National Australia Bank was not going to provide the loan but that it would be obtained from Equus. She was to be sent an Equus form for signature and return.
It appears that an Equus form of application was signed by Dr Hopkins at some time. However, it is clear that no loan was ever obtained either from Equus or from Berrema. On the other hand, a loan agreement was in fact entered into between Dr Hopkins and Berrema. The trial judge considered that the most likely situation was that Mr Koo obtained Dr Hopkins’ signature to the Berrema application form on 28 June 1991 at the same time as he had obtained her signed statement of assets and liabilities. He did so on the basis that it might prove necessary to have recourse to Berrema as the relevant finance company, in circumstances where Equus finance would not be available.
At the second meeting, Dr Hopkins also signed an authority for the deducting of moneys from her bank account for the periodical payment of interest to Berrema. Interest was regularly deducted from her bank account in respect of the “loan” from Berrema, despite the fact that the loan had not been made to Dr Hopkins. A total amount of $37,355.51 was paid by Dr Hopkins over the years. As a result of an assignment by Berrema to Equus of debts owing to Berrema, a portion of that sum, $18,202, was received by Equus. The balance of the amount of $37,355.51 paid by Dr Hopkins was received by Berrema.
Equus brought a cross claim against Dr Hopkins for amounts allegedly owing in respect of the loan agreement with Berrema. The trial judge found that no amounts were owing and that the loan agreement should be declared void ab initio. Accordingly, his Honour dismissed the cross claim with costs. There is no appeal from that order. Equus, as indicated above, received the sum of $18,202 out of payments made by Dr Hopkins. His Honour held that Dr Hopkins was entitled to a refund of that amount. While that aspect of his Honour’s determination was originally the subject of appeal, that ground of appeal was abandoned. Accordingly, in any event, Dr Hopkins is entitled to judgment against Equus in that sum together with interest.
THE CLAIM AGAINST EQUUS
Dr Hopkins’ claim against Equus was put on three separate bases, which may be summarised as follows:
(a)The trial judge drew the inference that there was an Equus representative present at the seminar conducted in June 1991. Accordingly, his Honour found that Equus was a party to the misleading representations made at the seminar.
(b)Alternatively, even if there was no Equus representative present at the seminar, Equus was responsible for the misrepresentations because it was relevantly a party to the misleading conduct of Seymour within the meaning of section 75B of the Trade Practices Act. That contention was based on the following:
(i)Having regard to the involvement of Equus in the forestry industry, an inference should be drawn that Equus knew that the representations made by Seymour concerning the viability of the pine plantation scheme lacked any reasonable basis.
(ii)Because Equus had previously furnished to Seymour a draft form of the questionnaire concerning the terms on which Equus was formerly prepared to make loans to prospective investors, and had not expressly directed withdrawal of Seymour’s document based on that draft, an inference should be drawn that Equus knew that Seymour would continue to use the document notwithstanding that the terms upon which Equus was prepared to make loans had changed radically.
No evidence was called by Equus. Accordingly, it was contended on behalf of Dr Hopkins that, in so far as those inferences are capable of being drawn, they can be more readily drawn because of the absence of any evidence to the contrary. The issue in the appeal was whether those inferences are capable of being drawn from the material which was before the trial judge. Thus, it is necessary to examine in some detail the evidence relating to the involvement of Equus with Seymour before dealing with the issues raised on the appeal.
INVOLVEMENT OF EQUUS WITH SEYMOUR
On 3 May 1989, Equus wrote to Seymour submitting a financing proposal. It advised that “…the consumer financing for your Pine Plantation has been approved subject to the terms and conditions contained herein…”. The details of the facilities which would be offered to Seymour’s prospective investors were set out. The letter stated that a formal agreement would be entered into which would “cover all loans and other finance facilities (past, present and future) introduced to Equus… for finance in your Pine Plantation irrespective of the organisation or persons submitting the proposal”.
The letter also contained the following:
EXCLUSIVITY
Seymour… and its related companies shall at all times use its best endeavours to promote Equus, and will not assist in facilitating competitor finance packages. The individual client and his adviser is free to choose any lender in the market, however, he shall not receive assistance in any way from [Seymour].
This requirement is necessary to ensure that Equus is able to quantify its risk by ensuring that it receives 100% (or as close thereto) of the available client population.
On 30 June 1989, a “Finance Provisions Agreement” was entered into between Equus and Seymour. Various guarantors were also parties. The Finance Provisions Agreement relevantly provided as follows:
3. FINANCIERS FURTHER OBLIGATIONS
3.1 The financier further agrees:
(a)That finance provided to any Approved Investor will be on the following basis:
[There then followed details of the loans which Equus was to make pursuant to the agreement.]
(b)To use a form of Loan Agreement (as amended from time to time) produced at the discretion of [Equus] but which has been previously approved by [Seymour], such approval not to be unreasonably withheld.
(c)To provide all relevant stationery in relation to the provision of finance to Prospective Investors including promotional material, loan application forms and blank loan agreements together with suitable guidelines and instructions regarding the completion and processing of loan application forms and loan agreements.
4.[SEYMOUR’S] OBLIGATIONS
The Recipient agrees:
(a)To ensure that any Prospective Investor who expresses a desire to invest in the acquisition of one or more Lease and Management Contract is informed of the availability of finance offered by [Equus], but only by communication to the Prospective Investor of information contained in publications provided by [Equus] for this purpose.
(b) ………………………………
(c)Except as required under paragraph (a) above, to ensure that no representations or warranties regarding [Equus] are made by any of the Relevant Persons [as defined] including, without limiting the generality thereof, any representations or warranties relating to [Equus’s] preparedness to make finance available to any prospective investor, without [Equus’] prior written consent.
………………………………
(o)To ensure that no prospective investor is advised by any of the Relevant Persons or any other person directly or indirectly associated with the public offering to which the prospectus relates, of the availability of finance from any person other than [Equus], without [Equus’s] prior written consent.
Under the Finance Provision Agreement Equus undertook to provide all promotional material in relation to the provision of finance and Seymour agreed to ensure that any prospective investor be informed of the availability of finance offered by Equus, but only by communication of information contained in publications provided by Equus for that purpose. In addition, Seymour was required to ensure that no representations or warranties were made relating to the preparedness of Equus to make finance available except as required by 4.1(a). Finally, Seymour was required to ensure that, without the prior written consent of Equus, no prospective investor would be advised of the availability of finance from any person other than Equus. The significance of those provisions will become apparent below.
On 16 February 1990, a newspaper advertisement was published by Seymour in “The Age” newspaper in Melbourne. The advertisement drew attention to a seminar to be held on 21 February 1990 at which Mr Frank D’Alessandro, an Equus business manager, was to be one of the principal speakers. The advertisement was addressed to “Accountants/Investors” and was headed “The Perfect Tax Shelter Seminar”. His Honour concluded that it is reasonable to assume that Mr D’Alessandro attended that seminar in order to be part of the team that was promoting a plantation scheme of Seymour and the role which Equus was to play in it.
Equus provided loans to investors in the first prospectus issued by Seymour in amounts in excess of $2 million. On 1 April 1990, Equus wrote to Seymour again, extending the approval of consumer financing for pine plantations on the same terms as the letter of 3 May 1989. That letter contained the same provision concerning “exclusivity”.
In the first prospectus issued by Seymour on 7 June 1989 and also in its second prospectus issued on 5 June 1990, the following appeared:
FINANCE
Finance is available at competitive rates to approved applicants from companies independent to Seymour Softwoods Limited. Approved applicants may borrow a minimum of five thousand dollars ($5,000) to a maximum of three hundred thousand dollars ($300,000) from Equus Financial Services Ltd. Equus Financial Services Ltd will consider lending amounts in excess of three hundred thousand dollars ($300,000) on a one off basis. Growers should direct their enquiries to Seymour Softwoods Ltd or Equus Financial Services Ltd.
In the statutory information required to be included in the second prospectus, the offer of 1 April 1990 by Equus to Seymour is disclosed as a material contract relating to the prospectus.
On 18 December 1990, a meeting took place between Mr Smith, a director of Seymour, and three representatives of Equus, including its managing director, Mr Nick Russo. A memorandum concerning that meeting records the following:
1.Nick Russo explained the need for a change in lending guidelines in the future as a result of changed economic conditions and as a result of internal pressures from Beneficial Finance Corporation.
It was stated that Carl Smith will provide us with comments on the Forestell Kit in early February and that Equus will provide Carl Smith with clear lending guidelines by the end of January.
2.Carl Smith expressed his concern with the level of service provided by Equus this year, and the fact that it was not up to the standard of previous year. Carl Smith then stated that both Equus and Seymour did not work as a team this year…
On 6 March 1991, Equus wrote to Mr Smith, referring to Seymour, and relevantly said as follows:
I refer to our telephone discussions of 4 March 1991 and a subsequent telephone call from Stephen Gilmore regarding modification of our terms and conditions for the approaching peak sale period.
After due consideration we have decided to reduce the applicable interest rate from 21.9% and 20.9% p.a. to a single rate of 19.9%. We appreciate that you were seeking a substantial reduction to around your current subsidised levels; however, this was not possible…
Apart from the decrease in our interest rate all other terms and conditions will remain the same. In particular, our “Charging Clause” (which enables Equus to lodge a caveat in the event of default) and loss reserve of 5% will remain in force. I know that you will be disappointed by this decision, but cannot emphasise strongly enough that these two conditions are:
-an integral part of a package which has proven to be the only efficient means of funding your clients into your project. Without these features there could be no funding and therefore, in all probability, Seymour Softwoods would not have achieved the success it enjoys today;
-imposed for the benefit of Seymour Softwood just as much as they are for Equus, bearing in mind the speculative nature of your project.
………………………………
Perhaps on a more positive note, we will have far more efficient “point of sale” documentation available very shortly, should Seymour Softwoods decide to continue sourcing funds through Equus. We are also prepared to provide your with a circular letter demonstrating that Equus is immune from the problems recently suffered by one of our major shareholders, Beneficial Finance.
In conclusion, I must emphasise that Equus is keen to continue its relationship with Seymour Softwoods. We are aware that you may have alternative sources of funding at a lower interest rate and without either a loss reserve or “Charging Clause”. However, I understand that the Banks in question are seeking all available security and, under new legislation, must personally identify all clients.
………………………………
In our experience, Banks and other finance companies have entered the “tax sheltered agricultural market” as financiers on a short term basis only. Equus, on the other hand, has entered this market for the long run. Seymour Softwoods must be able to rely on a financier with dedicated and long term commitment to the industry. Equus is the only financial institution in Australia which can guarantee such a commitment, evidenced by our involvement with every successful project in the industry in Australia.
On 15 March 1991, Equus wrote to Seymour under the heading “Rollover of Seymour Softwoods Prospectus”. The letter relevantly provided as follows:
As discussed in previous conversations, we are required to undertake a review of the Seymour Softwoods Ltd facility prior to approving funding of the new prospectus.
To promptly complete the review could you please supply our office with the following:
-Draft copy of the new prospectus
………………………………
-Copy of marketing plan
-Copies of any promotional material
………………………………
Seymour responded on 19 March 1991, relevantly saying as follows:
…we enclose the following:
(1)Draft copy of the new Prospectus in its current condition. The following reports are still to come:
-Investigating Accountant’s and Tax Agent’s reports. Available from Ernst and Young Chartered Accountants by Thursday.
-Reports affecting Land; Solicitor’s and Forester’s Reports will be available when the new plantation purchase has been completed.
………………………………
(5) Marketing Plan: Our Marketing Plan is very simple.
………………………………
(6)Promotional Material: Enclosed is our current investment [sic] package. Certain items are currently being updated.
………………………………
Hope this is sufficient to get you started.
There was no evidence of any complaint by Equus that promotional material had not been enclosed with the letter. Equus produced on discovery a draft prospectus dated 15 March 1991 and other promotional material. His Honour drew the inference, therefore, that the documents which were produced by Equus on discovery were documents which had been enclosed with the letter of 19 March 1991. The documents were substantially identical to the documents in the folder provided to Dr Hopkins at the seminar in June 1991. The documents produced by Equus on discovery included documents containing representations that the pine plantation scheme offered a “safe, secure, fully insured investment” from which an investor “could reasonably expect a minimum 200% return on investment over an eight year period”.
Equus also had in its custody, care or control a document entitled “Equus Financial Services Limited” on which a handwriting notation “circa 3/90” appears. The document is similar in its content to the questionnaire which was included in the folder provided to Dr Hopkins at the seminar in Adelaide. However, not all of the material contained in the draft appears in the document contained in the folder. His Honour drew the inference that it was produced by Equus and that Equus had it in its possession in March 1990. It is reasonable to draw the inference that the document provided to Dr Hopkins was based on that document.
His Honour found that the document provided to Dr Hopkins in the folder was produced by Equus. The content of the document was clearly produced by Equus. However, it is more likely than not that the document included in the folder was actually produced by Seymour because of the similarity between the type font of that document and other documents in the folder. The type font of the document which Equus had in its custody, care or control was different from that of the document in the folder.
It was not suggested on behalf of Dr Hopkins that, as at 19 March 1991, any of the statements contained in the questionnaire inaccurate. The questionnaire fairly reflects the terms contained in the letter from Equus to Seymour of 1 April 1990.
On 16 April 1991, Seymour responded to the letter from Equus of 6 March 1991 saying as follows:
Re: Financial Arrangements for the Growers Contracts this Financial Year.
I write with regard to the letter dated 6th March, 1991,… confirming that you will be financing Seymour Softwoods Ltd to approximately six, (6), million dollars of sales this financial year.
We note that your single rate of interest at 19.9% p.a. has reduced from 21.9% p.a. and 20.9% p.a. and agree to same.
Any assistance that you give us with point of sale material and kits will be appreciated.
We thank you for your assistance in the past with documentation and look forward to being of mutual benefit this year.
On 28 May 1991, Equus wrote to Seymour again. The letter was headed “REVISED TERMS AND CONDITIONS” and relevantly provided as follows:
You will be aware that the sole source of Equus funding is the Beneficial Finance corporation, a wholly-owned subsidiary of the State Bank of South Australia (SBSA). In view of the highly publicised problems of the SBSA, on 21 May 1991 Beneficial Finance substantially reduced Equus funding to a maximum of $40 million for the period June 1991 through September 1991. Because this period coincides with the end of the financial year, the Private Banking Division has been allocated $36 million of the quota, compared with budgeted sales of $79 million.
In order that all of our clients are treated equally, Equus henceforth will enforce strict, uniform conditions of acceptance which are enumerated below. All other terms and conditions contained in your finance provisions agreement will continue to remain in force.
Our objective is to write higher quality business which, in the long term, will be of benefit to you through the integrity of the loss reserve.
1. Amount
The maximum amount financed will be $100,000. Special consideration may be given to loans slightly in excess of $100,000 to accommodate unit pricing…
2. Term and Structure
i) Principal and Interest (P & I), fully amortised over 72 months.
ii) P & I with a maximum 60% balloon over 36 months…
iii)Loans from $5,000 to $50,000 will require a 5% deposit; loans from $50,000 to $100,000 will require a 10% deposit.
3.Capacity
The borrowers must have satisfactory disposable income level which, at all times, is above the minimum specified hereunder.
………………………………
4. Net Asset Backing
Net tangible asset backing must not be less than five times the amount being borrowed. (Minimum net worth $100K).
5. Security
Standard Equus Requirements of:
-all non-Credit Act loans to have standard charge Clause, power of attorney clause and all monies clause as well as cross-collateral and cross-default clauses;
-all loans over $30,000 to have title search or link search carried out to prove encumbrances and ownership; and
-all loans over $50,000 to have registered caveats and letter of interest and consent signed by first mortgagee, if applicable.
………………………………
The letter is of considerable significance because it changed profoundly the conditions upon which Equus was prepared to provide finance to prospective investors in the Trust.
RESOLUTION OF THE ISSUES
I shall deal separately with the three bases on which Dr Hopkins contended she was entitled to damages from Equus.
Presence at the Seminar
There was no evidence that Equus was ever informed that there would be promotional seminars held in relation to the Trust. Nor was there evidence of any arrangement having been made for Equus to be represented at any seminar to be held in relation to the Trust. There was certainly no evidence that Equus was aware of the seminar which was attended by Dr Hopkins.
There was no evidence that Mr D’Alessandro attended the seminar which is the subject of the advertisement in The Age. However, an inference can be drawn from the publication of the advertisement that Mr D’Alessandro did attend the seminar. Nevertheless, the mere fact that a representative of Equus had attended an earlier seminar does not give rise to an inference that a representative attended any later seminar.
His Honour placed some weight on a document generated by Seymour on which handwriting appears. It is reasonable to infer that the handwriting is that of Mr Russo, the managing director of Equus. It says:
Please read and understand. You need to be able to talk to introducers and clients regarding the [indecipherable] set out below. Please see me if you wish to ask any questions.
The document on which the handwriting appears contains examples of the tax consequences of investment in the Trust and refers to the prospectus dated 5 June 1990. There is a handwritten note “circa 11/90” on it, from which an inference can be drawn that that is when the handwriting was placed on the document.
His Honour drew the inference that the note was written by Mr Russo in about November 1990. It was contended on behalf of Dr Hopkins that the document comprehends personal involvement by the employees of Equus in the promotion of the Trust. However, the document makes no reference to any contemplated attendance at promotional seminars such as the seminar attended by Dr Hopkins. Having regard to its date and the reference to a prospectus which was to expire on 4 June 1991, it does not give rise to an inference that representatives of Equus were intending to attend seminars in relation to a third prospectus.
The statements made by representatives of Seymour at the seminar on 25 June 1991 were clearly inconsistent with the terms of the letter from Equus of 28 May 1991, written only weeks previously. It is highly improbable that such statements would have gone uncontradicted by any representative of Equus present at the seminar. Dr Hopkins, of course, could not recall anybody from Equus being present.
In all the circumstances, the evidence does not support an inference that a representative of Equus was present at the seminar attended by Dr Hopkins. Accordingly, the first basis on which liability for contravention of section 52 by Equus should have been rejected.
Availability of Finance
As at the date of the seminar, the questionnaire was clearly misleading. The terms upon which Equus was prepared to provide finance to prospective investors were quite different from those specified in the questionnaire. Nevertheless, as his Honour found, Seymour in effect made representations by furnishing to Dr Hopkins the folder which contained a copy of the questionnaire.
An inference can certainly be drawn that Equus knew that the questionnaire was intended to be circulated in connection with promotion of the Trust. It is also a fair inference that Equus intended that Seymour would circulate the questionnaire in connection with the proposed third prospectus. As indicated above, a draft of that prospectus, together with the other promotional material, was enclosed with the letter of 19 March 1991 from Seymour to Equus. However, the letter of 28 May 1991 changed everything.
Dr Hopkins contended that inferences should be drawn from the terms of the finance agreement that Equus was knowingly concerned in the misleading conduct constituted by providing the questionnaire to Dr Hopkins. Equus did not release Seymour from the contractual obligations to promote Equus contained in clause 4.1 of the Financial Provisions Agreement. Nor did Equus provide substitute documentation in circumstances where Equus was aware that Seymour intended to continue to promote the scheme.
It is certainly possible to draw the inference that, up to 28 May 1991, Equus believed that Seymour would circulate the promotional material, including the questionnaire. However, it would be extraordinary for Equus to assume that, following the letter of 28 May 1991, which profoundly changed the terms and conditions upon which it was prepared to lend to prospective investors, Seymour would continue to distribute the same promotional material, unaltered. Dr Hopkins contended, in effect, that by stating in the letter of 28 May 1991 that the terms of the agreement of 30 June 1990 were to continue in force, Equus was saying that it required Seymour to carry out its intention of distributing the promotional material notwithstanding that, following the letter of 28 May 1991, the material had become quite inappropriate.
The letter is simply not capable of that construction. If anything, it carries with it a prohibition on circulating any material which, notwithstanding that it may previously have been approved, incorrectly stated the terms and conditions upon which Equus was prepared to lend. The requirement that Seymour would not make any representation or warranty as to that matter otherwise than in accordance with publications which had been supplied by Equus would constitute a contractual prohibition. It would be quite extraordinary to construe the letter as a requirement that Seymour distribute false promotional material. That is precisely what clauses 4(a) and 4(b) of the Financial Provisions Agreement were designed to prevent. There is clearly implicit in the letter, when read in the context of the Financial Provisions Agreement, a prohibition on the circulation of any promotional material inconsistent with the letter of 28 May 1991.
For those reasons, the inference should not be drawn from the evidence that Equus knew or expected that Seymour would, after the letter of 28 May 1991, circulate the form of questionnaire which had been submitted under cover of the letter of 19 March 1991. Accordingly, this basis of liability of Equus should also have been rejected.
Representation as to Viability
Dr Hopkins contended that, having regard to a number of matters, an inference should be drawn that Equus knew that the representations made concerning the viability of the scheme promoted through the Trust lacked a reasonable basis. It was not in contest on the hearing of the appeal that representations were made by Seymour concerning the viability of the pine plantation scheme which were misleading and deceptive. The relevant representations, so far as Equus is concerned, were those made in the promotional material.
The scheme which was the subject of the prospectus involved a particular pine plantation known as “Black Andrew”. Mr C.J. Borough, a forestry industry consultant, gave uncontested evidence concerning the proposed development of the Black Andrew plantation. He was asked to provide opinions as to:
(a)whether the forecast of returns from the forestry investment in a period of 8 to 12 years could reasonably have been made in May or June 1991;
(b)whether Seymour had performed the work it contracted to perform under the works and services contract and the management contract with Dr Hopkins in the areas allocated to her;
(c)generally, as to the nature of the forestry investment.
Mr Borough said that the statement of returns contained in the material had no basis in fact and could not reasonably have been made having regard to what was known in the industry at the relevant time. Mr Borough expressed the view that it can be shown that the most likely outcome from the investment was in fact a negative return. Mr Borough’s opinion was that the whole scheme, as promoted in the prospectus, was flawed from the outset and was not commercially viable. He also expressed the view that the services which were required to be performed under the management contract between Dr Hopkins and Seymour did not appear to have been performed at all. His Honour accepted the evidence of Mr Borough and accepted that those promoting the scheme should also have been of a similar view. The question is whether it was proper to draw an inference from the evidence before his Honour that Equus also was of that view.
The matters relied on by Dr Hopkins as giving rise to that inference were as follows:
In a letter of 6 March 1991, Equus referred to the “speculative nature” of the Seymour project. His Honour considered that that assessment could only have been based upon the information provided to Equus by Seymour. His Honour considered that the very fact that Equus sought and obtained information as to the scheme and the manner in which it was being promoted indicates that it wanted to check the material and form a view about it. On the other hand, Equus led no evidence as to what steps it took and what view it formed. His Honour was satisfied that the use of the term “speculative” amply demonstrated that the relevant officers of Equus would have had considerable doubts as to the ultimate viability of the 8 to 10 year scheme.
Equus claimed, in the same letter, to be the only financial institution in Australia which could guarantee a long term commitment to the forestry industry. It asserted that that commitment was evidenced by its involvement “with every successful project in the industry in Australia”. Dr Hopkins contended that an inference could be drawn from that assertion, assuming it to be true, that Equus was sufficiently knowledgeable about the industry to be able to form a view about the assertions contained in the prospectus and the promotional material.
In the questionnaire, Equus asserted that it had attained membership in the Australian Forestry Development Institute, a lobby group established to promote the interests of forestry within Australia. That fact was said to support the inference that Equus must have had sufficient knowledge of the forestry industry to form a view about the assertions made in the prospectus and the promotional material.
Equus had actively sought the latest promotional material in its letter of 15 March 1991. It received that material under cover of the letter of 19 March 1991. Those facts support the inference that Equus had sufficient expertise to be able to assess and form a view about the assertions contained in the material.
Dr Hopkins contended that Equus had an interest in the promotion of the Seymour scheme because it had an interest in expanding its own lending business. That inference was said to be capable of being drawn from the assertion in the letter of 6 March 1991 that Equus “is keen to continue its relationship with Seymour” and the general thrust of that letter, which indicates an interest on the part of Equus in pursuing the business which might be put its way by Seymour. Accordingly, it appears to have been suggested that Equus had a motive for participation in falsely misleading assertions in the promotional material which might generate additional business.
However, the prospectus itself contained a statement that investment in the scheme was speculative. Similar comments had been made in the first two prospectuses issued by Seymour. In those circumstances, there is no reason to conclude that the assessment of Equus that the Seymour scheme was speculative was based on any particular consideration by Equus of the risks involved.
It is important that the material which was furnished to Equus in response to its request of 15 March 1991 included professional advice as to viability. The material included a report from forestry consultants which set out predictions of returns. There is nothing on the face of that report to indicate that there was no basis for the predictions which they contain. The material also included a cutting from a recent article from the Australian Financial Review suggesting that the proposals outlined in the forestry consultant’s report were viable. There was no evidence to suggest that that report was misleading.
The prospectus issued in May 1991 contained a report by a consultant indicating that the proposals contained in the scheme were feasible with optimum silvicultural management and attention to detail. There is nothing on the face of the promotional material or in the prospectus to indicate that the assertions made concerning the viability of the scheme were unreasonable or without foundation. The evidence does not justify the drawing of an inference that Equus, despite having had considerable experience in financing in the timber industry, would have acquired a level of expertise which would enable it to second guess the expert opinions expressed in the prospectus and the promotional material.
In addition, the attitude evinced by the letter of 6 March 1991 must be regarded as having been altered by the approach adopted in the letter of 28 May 1991. The difficulties which apparently had been experienced by the holding company of Equus wrought a significant change. The thrust of the letter of 28 May 1991 is totally different from that of the letter of 6 March 1991. It is apparent from the former that Equus was seeking to limit its commitment to Seymour. The terms upon which it was prepared to lend were very much more restrictive. Further, the amounts which Equus was prepared to commit were also significantly reduced.
In those circumstances, it was not open to draw the inference that Equus knew that the opinions concerning viability contained in the prospectus and the promotional material were false. The third basis for liability on the part of Equus should therefore have been rejected.
CONCLUSION
Thus, the inferences which the learned trial judge drew were not, in the absence of any further evidence, open on the material before him. Certainly, if inferences are available, they can be more readily drawn if a party who has the opportunity of adducing the evidence elects not to do so. However, it is not possible to fill in gaps in the evidence by drawing adverse inferences from the failure of a party to adduce evidence – Jones v Dunkel (1959) 101 CLR 298 at 312-313 per Menzies J.
It follows that the appeal should be upheld. However, as indicated above, Dr Hopkins is entitled to recover from Equus the sum of $18,202 and interest, representing the moneys paid by her which was received by Equus. Questions also arise concerning the appropriate order for costs both on the appeal and before the primary judge. Accordingly, the Court, having expressed the conclusion indicated above, it is appropriate that the proceedings stand adjourned for a short period to enable the parties to make submissions in writing concerning costs and to bring in short minutes to reflect the conclusions reached above.
I certify that this and the preceding twenty-one (21) pages are a true copy of the Reasons for Judgment herein of the Court.
Associate:
Dated: 10 December 1998
Counsel for the Appellant: D.F. Jackson QC with S.D. Kalfas Solicitor for the Appellant: Michell Sillar Counsel for the Respondent: R.W. White with D.A.C. Robertson Solicitor for the Respondent: Thompson Eslick Date of Hearing: 13 November 1998 Date of Judgment: 10 December 1998
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