Evans v Brannelly

[2008] QDC 269

DISTRICT COURT OF QUEENSLAND

CITATION:

Evans & Ors v Brannelly &Ors [2008] QDC 269

PARTIES:

PAUL EVANS

Plaintiff

AND

PAUL A BRANNELLY

First Defendant

AND

BRANNELLY FINANCIAL PTY LTD

Second Defendant

AND

DEAKIN FINANCIAL SERVICES PTY LTD

Third Defendant

MICHAEL COURTNEY

Plaintiff

AND

MATTHEW BRANNELLY

First Defendant

AND

BRANNELLY FINANCIAL PTY LTD

Second Defendant

AND

DEAKIN FINANCIAL SERVICES PTY LTD

Third Defendant

DOUGLAS SUMMERGREENE and SUE SUMMERGREENE

Plaintiffs

AND

PAUL A BRANNELLY

First Defendant

AND

BRANNELLY FINANCIAL PTY LTD

Second Defendant

AND

DEAKIN FINANCIAL SERVICES PTY LTD

Third Defendant

JOHN ANDREW

Plaintiff

AND

PAUL A BRANNELLY

First Defendant

AND

BRANNELLY FINANCIAL PTY LTD

Second Defendant

AND

DEAKIN FINANCIAL SERVICES PTY LTD

Third Defendant

HARVEY RADCLIFFE and VALERIE RADCLIFFE AS TRUSTEES FOR RADCLIFFE STAFF SUPERANNUATION FUND

Plaintiff

AND

PAUL A BRANNELLY

First Defendant

AND

BRANNELLY FINANCIAL PTY LTD

Second Defendant

AND

DEAKIN FINANCIAL SERVICES PTY LTD

Third Defendant

CEP ENTERPRISES PTY LTD AS TRUSTEE FOR CEP SUPERFUND

Plaintiff

AND

PAUL A BRANNELLY

First Defendant

AND

BRANNELLY FINANCIAL PTY LTD

Second Defendant

AND

DEAKIN FINANCIAL SERVICES PTY LTD

Third Defendant

FILE NO/S:

BD1916/06; BD2011/06; BD2032/06; BD2035/06; BD2036/06; BD2037/06

DIVISION:

PROCEEDING:

Trial

ORIGINATING COURT:

District Court, Brisbane

DELIVERED ON:

21 November 2008

DELIVERED AT:

Brisbane

HEARING DATE:

10, 11, 12, 15, 16, 17, 18, 19, and 29 October, 11, 12, 13, and 17 December 2007; 14 April 2008

JUDGE:

McGill DCJ

ORDER:

In Evans, judgment that the first and second defendants pay the plaintiff $61,813.81 inclusive of interest to date.

In Courtney, judgment that the first and second defendants pay the plaintiff $247,540.09 inclusive of interest to date.

In Summergreene, judgment that the first and second defendants pay the plaintiffs $124,208.22 inclusive of interest to date.

In Andrew, judgment that the first and second defendants pay the plaintiff $119,939.83 inclusive of interest to date.

In Radcliffe, judgment that the first and second defendants pay the plaintiffs $246,735.62 inclusive of interest to date.

In CEP Enterprises, judgment that the first and second defendants pay the plaintiff $61,731.50 inclusive of interest to date.

CATCHWORDS:

NEGLIGENCE – Economic Loss – careless advice – failure to warn – financial adviser selling investment – whether duty of care – breach – loss

TRADE AND COMMERCE – Financial Services – provision of financial product advice – misleading and deceptive conduct – false statements about investment in promissory note – causation – damages

TORT – Proportional Liability – whether concurrent wrongdoers – whether plaintiff exempt as consumer – whether loss caused independently of others – pleading – whether failure to disclose – apportionment

Australian Securities and Investment Commission Act 2001 s 12DA, s 12EP, s 12GR

Civil Liability Act 2003 s 28(1), (3), s 30

Atkins v Interprac Financial Planning Pty Ltd [2007] VSC 445 – followed.
Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 – applied.
Delmenico v Brannelly [2008] QCA 74 – applied.
Downey v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199 – applied.
Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 – applied.
Prestia v Aknar (1996) 40 NSWLR 165 – applied.
San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 – applied.
Shrimp v Landmark Operations Ltd [2007] FCA 1468 – followed.
State Superannuation Board (NSW) v Federal Commissioner of Taxation (1988) 82 ALR 63 – considered.

COUNSEL:

FG Forde for the plaintiffs

RA Perry SC and J Chapple for the first and second defendants

The third defendant did not appear

SOLICITORS:

Quinn and Scattini lawyers, later Slater and Gordon Lawyers for the plaintiffs

Clarke Kann for the first and second defendants

The third defendant was not represented

1. These six actions were heard together before me. The plaintiffs, separately, invested various sums of money to a company Bayshore Mezzanine Pty Ltd which was part of the Westpoint group of companies and lost their money when that company went into liquidation with the collapse of the Westpoint group. The plaintiffs came to do so following contact they had with the first defendant, a natural person who was relevantly a director and agent of the second defendant, which in turn was an authorised agent of the third defendant. The third defendant is currently subject to a deed of company arrangement under Part 5.3A of the Corporations Act,[1] and the actions did not proceed against the third defendant.  The second defendant is the same company in each of the six actions; the first defendant is the same agent of the second defendant in five of the six actions, and a different agent of the second defendant in the sixth action.[2]

   [1]Affidavit of Cliff sworn 3 April 2008 and filed by leave in CEP Enterprises Pty Ltd, Exhibit DFC1.

   [2]I shall use the term “defendant” to refer to the second defendant, acting by the relevant first defendant.

1. On the face of the pleadings the claims were advanced in negligence, for breach of contract, for breach of the Corporations Act 2001, and for misleading and deceptive conduct in breach of the Trade Practices Act, the Australian Securities and Investment Commission Act (“ASIC Act”), and the Fair Trading Act.  At the trial, however, only the causes of action in negligence and for misleading and deceptive conduct under the ASIC Act were advanced, although at one stage the plaintiffs did submit that if the ASIC Act did not apply to the transactions then the plaintiffs were entitled to recover under the Trade Practices Act, which was made inapplicable only because the ASIC Act applied.

1. The pleadings in the six cases were strikingly similar, to an extent which in the light of the evidence at the trial was shown to have been unjustified.[3]  Although there are substantial common issues involved, what passed between the individual plaintiffs and the first defendants was subject to variation to a greater extent than one might have expected from the pleadings.  As a result there were numerous objections to evidence on the ground that the evidence was not consistent with the pleadings.  These I dealt with by receiving the evidence subject to relevance, and eventually I decided that in order to avoid constant disruption to the flow of the trial I would treat all evidence in the trial as being received subject to relevance (p 163), and work out at the end of the trial just what was relevant to the various allegations in the pleadings.[4]  The rest of the evidence was received simply as background evidence.

   [3]To some extent this was mitigated by various amendments to the statements of claim.  On rare occasions, the degree of similarity actually proved to be inadequate, in respect of matters where identical wording would have been appropriate.

   [4]This involves working closely through the pleadings; where something is in issue on the pleadings, anything relevant to the determination of that tissue is therefore admissible.  It is not necessary to plead evidence tending to prove material facts:  Delmenico v Brannelly [2008] QCA 74 at [54].

1. Because of the differences in the factual situations, it is going to be necessary to some extent to deal separately with the six different actions, at least so far as the facts are concerned.  Because of this approach, it is convenient to set out an account of what happened as disclosed by the evidence of the various plaintiffs, but on the basis that not everything that is referred to in the account is necessarily relevant to the determination of the issues on the pleadings.

Evans – Background

1. Mr Evans was born in February 1952 in England.  He was educated there, and obtained a law degree from the University of London.  He spent some time in various activities before he obtained employment in the insurance industry, in which he stayed, in England or in Australia, until about 2006:  p 306.  After some brief experience with a marine insurer, he obtained employment with a Lloyds’ broker, and came to Australia when the opportunity arose to work for an insurance broker in Australia who was associated with the Lloyds’ broker.[5]  In England he was involved in the process of placing risk for the brokers with various Lloyds syndicates; in Australia, he was involved in both placing risk and processing claims.  Although this involved some business activity, it does not sound to me like the sort of experience which would assist him in assessing effectively the appropriateness of investing in promissory notes issued by Bayshore Mezzanine Pty Ltd.[6]

   [5]See pp 343-5; see also pp 335-6, where full details were not sought.

   [6]His responses under cross‑examination, for example at p 347, suggested to me that he was not very quick on the uptake.

1. In 2003, after he and his wife sold a house in Sydney, he had surplus funds of about $200,000 to invest:  p 306.  The money sat in the bank for some time, because he was very cautious about how to deal with it.  Eventually, he began to purchase shares over the internet using a Commonwealth Securities account and he ultimately invested about $40,000 in this way:  p 307.  He saw an advertisement in the newspaper for investing in the retirement and aged care industry through the second defendant, and either telephoned for more information or cut out a coupon and sent it in.  In response he received some information in relation to the Prime Retirement and Aged Care Fund:  Exhibit 45.  With this were copies of documents headed “Your Rights to Privacy”, “Financial Services Guide Deakin”, and “Brannelly The Professional Perspective”.

1. In respect of this, Mr Evans said he was impressed by the logo which identified the second defendant as “advisers to the professions”, and by the statement “this investment has been approved by a research team and is available for new investments”, which suggested that there were more than one person involved in vetting and analysing opportunities as they arose:  p 309.  He was not, however, attracted to that particular investment, being concerned by the references to tax advantages and deferred tax, which suggested to him that it might cause problems in relation to income tax.  Because he was not particularly attracted to the investment he only skimmed through the various documents forwarded with the letter:  p 709.  He received some follow up calls from Mr Paul Brannelly, in which he asked for time to consider it further, essentially to be polite:  p 310.

1. Mr Evans subsequently received a further letter from the defendant dated 18 July 2005:  Exhibit 46.  This was the first reference to an investment in Bayshore Mezzanine Pty Ltd, which he ultimately did make.  He said he was immediately attracted by the relatively high return, and the fact that it was a fairly short-term investment:  p 310.  The reference to the “limited opportunity to introduce investors” suggested that there was some sense of urgency about this, and he noted that it was described as an “excellent opportunity to invest”.  He said he had not heard of high yielding promissory notes before, but assumed they were an established way of raising capital in the property development industry.  The minimum investment of $50,000 struck him as very high.  He noted that the company had an established record of over 20 years, which impressed him.[7]  The fact that $6.5 million had already been raised suggested that there was a sense of urgency about the investment, and he was impressed by the various favourable things said about the Westpoint group:  p 311.  It suggested that that group had a formula by which they were able to offer relatively attractive rates of return.[8]

   [7]He said that, despite the terms of the letters and Exhibit 1, he thought he was lending the money to the Westpoint group:  p 339.

   [8]He does not seem to have made the connection that presumably the group would not be doing this out of a sense of altruism towards investors.

1. Mr Evans understood the letter as saying that the company had a second ranking mortgage, which he understood was over specific property, and a second‑ranking charge over the assets of the company: p 311. He knew what a mortgage was, and understood that a second ranking mortgage was probably just as good security, but perhaps there was someone else taking priority: p 312. He had no clear understanding of what a charge was. He read the letter as indicating that he would be holding the second ranking mortgage as the lender,[9] and that he would have the benefit of the second ranking charge. He understood the reference to Westpoint Corporation providing a guarantee of the company’s obligations under the loan as suggesting a second layer of safety. He knew what a guarantee was. He took from the letter that he would be getting the benefit of the guarantee himself: p 313. He noted the reference to this being the most appealing project at present, as indicating that the second defendant was giving this a ringing endorsement.

   [9]See also p 355.  He thought the mortgage was granted by the company in which he was investing the funds (p 355) which he thought was the Westpoint group:  p 339.  The company “had” the mortgage in the sense that a mortgagor has a mortgage.

1. He took from the second page that the building was already substantially completed and that these funds were just required to build some additional floors to complete the project, and noted that the Westpoint group had net tangible assets of $80 million, that the return was attractive, that there were no fees, that pre‑sales covered 80% of senior debt and mezzanine debt, which he thought would minimise his risk, and the guarantee from Westpoint group and the charge over the Bayshore Port Melbourne Trust referred to as one of the “Investment Highlights”:  p 313.  Again he thought that he as an investor would be getting the benefit of the guarantee and the charge.  The reference to the opportunity being open for a limited period suggested some sense of urgency.  He could not recall whether there was anything else attached with the letter, but he did not think that he had the information memorandum at that stage:  p 314.

1. Subsequently Mr Evans spoke to Mr Brannelly on the telephone[10] and told him that it looked a better opportunity than the Prime investment, and more suited to his purposes; Mr Brannelly responded that it was an excellent opportunity:  p 314.  Mr Evans next received from the defendant a letter dated 27 July 2005 which had attached to it a copy of the information memorandum:  Exhibit 47.[11]  Mr Evans noted that the letter was similar to the letter of 18 July, although the amount that had already been raised had increased to $10 million, which he thought was significant given the short time:  p 317.  This implied some urgency in the matter:  p 318.  He thought it was consistent with the earlier letter.  He had a look at the information memorandum but did not read it in any great detail:  p 319, p 350.  He said he paid very little attention to the diagram on p 2 of the information memorandum:  p 320.  He did not notice anything which was inconsistent with what had been said in either of the letters from the defendant.  Sent with the letter was a newsletter “Westpoint On Point” from the Westpoint group, which also said something about the Bayshore Port Melbourne project; he looked at it but he did not notice anything which was contrary to what he understood Mr Brannelly had told him:  p 319.

   [10]Mr Brannelly’s notes record a telephone call on 26 July, but nothing relevant about its content:  p 1122, Exhibit 116.

   [11]The information memorandum was another copy of the document which was Exhibit 1.

1. There then followed a couple of telephone conversations, after which he had a meeting with Mr Brannelly since he wanted to ask him a few more questions:  p 321.  He met him one day in the period 5‑9 August, he could not clearly remember just when, in Mr Brannelly’s office.[12]  Mr Evans said that he wanted to make sure that there were no down‑sides to the risk he was taking before committing any funds, and Mr Brannelly talked generally about the Westpoint group.  He emphasised they were a substantial company, and had been in business for 20 years, and he had been dealing with them for some time.  He said that his clients were happy to roll their investments over into other Westpoint projects.  Mr Evans asked Mr Brannelly whether, if the money were used for some project other than the Bayshore project, that would affect the security that he was supposed to have in the current Bayshore project, and how that related to his mortgage over the Bayshore project:  p 322.  He said that the response was an assurance that there was 100% cover over the Bayshore project.  Mr Brannelly said not to worry, your investment will be secure.  Mr Evans also asked what the chances were of the remaining apartments not being sold, and Mr Brannelly replied that 80% had been sold and there would be no problem in selling the remainder:  p 323.

   [12]The first defendant noted a meeting with him on 9 August 2005:  Exhibit 115, p 1120.  I accept that that was when the meeting occurred.  Mr Brannelly either did not recall, or denied, what was put to him about this meeting:  pp 1122-2.

1. Mr Evans recalled saying to Mr Brannelly that he could not afford to lose the money:  p 324.  He said that of the two emotions involved in investing, greed and fear, he had a minimum of greed and a maximum of fear of losing money, and said specifically he was more concerned about the return of his principal than the return on his principal.  He said that in response Mr Brannelly was at all times confident and authoritative about the Westpoint group, and did emphasise the guarantee again.  He said in 20 years Westpoint had not reneged on any obligation.  Mr Evans detected a bit of irritation from Mr Brannelly at this point, and said that he was sorry, he was just trying to get his head around the risk involved, to which Mr Brannelly replied “There is risk in everything we do.”[13]

   [13]Mr P Brannelly gave no version of this meeting.  All that he had noted in Exhibit 115 was that the plaintiff came in, handed over the application form and a cheque.  These notes do not purport to be comprehensive diary notes, but just an outline of what Brannelly regarded as of significance to his business:  p 905, p 956, p 1090.  For reasons given elsewhere, I prefer the evidence of the plaintiff.

1. Mr Evans said he thought of the guarantee and felt comfortable in making the investment, and he completed the application form and handed over a cheque for $50,000:  p 325.[14]  He subsequently received a letter dated 9 August 2005 from the defendant:  Exhibit 48.  Part of it, asserting that he had been provided with general information only and that he had decided to make an investment based on his own research, struck him as being a bit odd, but he did not take the matter up with Mr Brannelly:  p 327.  Mr Evans was subsequently sent by Bayshore Mezzanine Pty Ltd a letter enclosing a promissory note and a schedule of interest payments he was to receive on it:  Exhibit 49.  He said that what he had received, and what he had not received, including the principal, were as set out in the document Exhibit 50.

   [14]It follows that only at this point did he finally decide to go ahead.

1. Mr Evans said that he was not told prior to investing in Bayshore that the investment was a high-risk investment:  p 331.  Had he been told that it was a risky investment, or particularly a high risk investment, or that the investment was with a company incorporated only in 2001, or that a promissory note was really nothing more than an unsecured IOU, or that there was no mortgage securing the investment, or that he did not have the benefit of a guarantee from Westpoint and associated entities, he would not have invested as he did:  p 332.  He was not aware of the contents of Exhibit 17, a press release from ASIC in 2004 advising that ASIC was investigating the practice of Westpoint Corporation raising money by the issue of unsecured promissory notes in this way.  Had he been, he would not have made the investment, nor if he had been told that this was a scheme which ought to have been registered under the Corporations Act but was not registered:  p 333.  He did not receive a mortgage securing his investment or a charge of any sort, or a guarantee from Westpoint or any related companies:  p 333.

Courtney – background

1. Mr Courtney was the first plaintiff to give evidence.  He is a pharmacist born in 1954:  p 19.  Apart from practicing as a pharmacist, he had to some extent invested in shares through a broker using funds in a self‑managed superannuation fund:  p 20.  This it seems was done very much on the broker’s advice.  He had also contributed from the fund to a small property development on the Sunshine Coast, which he went into with two other people:  p 21.  He had heard of the second defendant as financial advisers, because it had been commonly involved in presentations organised by a professional body of community pharmacists, giving information about superannuation and investment:  p 22.

1. In May 2004 Mr Courtney arranged to meet the first defendant, Mr Matthew Brannelly, seeking some advice (p 23) which was ultimately not acted on.  In connection with this the defendant provided the plaintiff with written advice dated 24 May 2004:  Exhibit 9.[15]  Following that written document there was a meeting in which it was explained, and Matthew Brannelly recommended particular investments[16] which ultimately Mr Courtney did not make:  p 36‑7.  In the process of assessment of his financial position he was asked to sign, and did sign, an agreement with the second defendant:  Exhibit 10.[17]  He said he received a number of brochures from the defendant over a 12-month period.

   [15]The document referred to the second defendant’s expertise (p 1-1) and to Mr Courtney having ranked himself as a medium risk profile:  p 4.2.  Mr Courtney never said anything to Mr Brannelly to the contrary:  p 34.

   [16]This included an investment of $50,000 in Westpoint:  pp 94-5, Exhibit 18.

   [17]The document in evidence is undated, but it was uncontroversial that it was executed on about 25 May 2004:  p 40.  Mr Courtney agreed that nothing was done under this:  p 117.

1. In about July 2005 Mr Courtney attended a couple of seminars, at one of which a representative of Kebble was introduced, who referred, apparently in fairly general terms, to Westpoint:  p 42, p 66.  He received some promotional material, a copy of which became Exhibit 11.  Subsequently he telephoned Matthew Brannelly’s office (p 43), but spoke to another man who offered to send out some information (p 44) and who subsequently forwarded an information memorandum apparently produced by Westpoint dealing with the Bayshore project (Exhibit 1) under cover of a letter:  Exhibit 12.  Mr Courtney said he read the information memorandum:  p 45.[18]  He identified a number of attractive features, but did not know what a promissory note or a charge was, or just what a second ranking mortgage was.

   [18]In cross‑examination he was taken through what he noted in it, how he interpreted it, and what he relied on in it when deciding to invest:  pp 71-84.

1. There was later a telephone conversation when Matthew Brannelly rang.[19]  Mr Courtney told him that a business he had an interest in had recently been sold and as a result he had some funds to invest, that he had heard of an investment he thought might be appropriate for him at a recent seminar and that what he really wanted was Mr Brannelly’s opinion about Westpoint as a corporation and about the security of the particular investment:  p 48, p 110.  Mr Brannelly provided him with some information about Westpoint and also about this specific investment.  He said that they were a well‑established group with a 20-year track record of success.  They had completed a large number of projects and currently managed about $300 million worth of commercial property, and had substantial net assets of the order of $80 million.  He said the investment would be through promissory notes of a company Bayshore Mezzanine and that company would in turn lend the funds to Westpoint to develop the project:  p 48.  Mr Courtney did not ask what a promissory note was, nor was he told.

   [19]Mr Brannelly denied that any such conversation occurred:  p 779.  I prefer the evidence of Mr Courtney and find that it did occur.  Exhibit 13, sent on 18 August 2005, referred to “our recent telephone conversation”.  Exhibit 12, sent on 8 August 2005, foreshadowed such a call.  The defence para 9(a) admitted a discussion by telephone, and para 10(a) admitted making the statements in para 7(c)!

1. Mr Brannelly said the investment had a couple of forms of security, a mortgage and a charge:  p 49.[20]  Mr Courtney knew what a mortgage was; Mr Brannelly did not explain a charge:  p 50.  He said that both were to Bayshore Mezzanine in which Mr Courtney was to be an investor.  He was also told that the Westpoint guarantor group would guarantee the loan obligation owed to Bayshore Mezzanine.  Mr Brannelly said his investment was secured by that guarantee:  p 51, p 76.[21]  He said the project was scheduled to complete that year and was 95% pre‑sold, and the pre‑sales covered both the senior debt and the mezzanine debt.  There were going to be additional units as part of the project to make it more attractive.  Construction progress was good.  Those factors substantially reduced any capital risk associated with the investment.

   [20]Mr Courtney was particularly concerned about security of the investment:  p 49.

   [21]He took this to mean that the investors as individuals would be able to access that guarantee:  p 77, p 78.

1. Mr Courtney then said a number of things to Mr Brannelly which indicated approval of the investment, and Mr Brannelly ended by saying that he would recommend the investment to Mr Courtney:  p 52, p 99.  Risk really was not mentioned.  Not long after the conversation he received a letter dated 18 August 2005:  Exhibit 13.  He read the letter and noticed various things about it.  He subsequently completed the promissory note application form and sent it together with his cheque under cover of a letter dated 23 August 2005:  Exhibit 14.  He subsequently received a further letter from the defendant dated 29 August 2005 (Exhibit 15) and a letter from Bayshore Mezzanine Pty Ltd dated 31 August 2005 enclosing the promissory note issued 29 August and a payment schedule:  Exhibit 16.

1. Mr Courtney said that he was never told that an investment in a promissory note issued by that company was a high risk investment, or that Bayshore Mezzanine Pty Ltd would not have a second ranking mortgage over the property or a second ranking charge over the development company, or that apart from the commission being paid to the second defendant there was an extra 13% in commission being paid to others.  Had he been told any of these things, or not been told that Mr Brannelly recommended the investment, he would not have made the investment:  pp 61‑2.  He was not told of the contents of an ASIC media release of 25 May 2004 (Exhibit 17); had he been, he would not have made the investment:  p 63.  Mr Courtney received two monthly payments from Bayshore Mezzanine Pty Ltd and has not received anything else from that company; the payments were $2,104.11 on 30 September 2005, and $2,038.36 on 31 October 2005:  p 64.

Summergreene – Background

1. Mr and Mrs Summergreene both gave evidence.  Mr Summergreene was born in 1940 and after being educated to year 10 completed an apprenticeship as a builder, working in that industry until 1984, when they moved to Queensland and purchased a school bus business:  p 501.  He was the driver and mechanic for the business.  They disposed of that business in 2002, although he continued to drive for the business for some time thereafter:  p 502.  They had purchased three rental properties over a period of time, and made some modest investments in shares, generally on the advice of Mrs Summergreene’s father, although they purchased some Telstra shares on their own initiative:  p 472, p 502.  Mrs Summergreene was born in 1943, educated to year 11 and then did secretarial work until her first child was born, after which she did some part‑time secretarial work:  p 471.

1. Mr Summergreene saw an advertisement in the paper.  In response he made contact with Mr Paul Brannelly in January 2005:  p 502, p 473.  Mr Summergreene told Mr Brannelly that they were interested in investing funds down the track; he said they were going to sell an investment property and that would produce the funds they wanted to invest:  p 503.  He said that they were looking for a safe, secure investment for the funds.[22]  Security was a matter of importance to Mrs Summergreene, because she expected to have a capital gains tax liability as a result of the sale of the property which would have to be paid after the end of the financial year:  p 474.  She also preferred monthly payments on the investment.

   [22]See also Mrs Summergreene at p 474; she was listening to his side of the conversation, and added that he said that they wanted a reasonable rate of interest, that they were semi‑retired and that they had their own superannuation fund:  p 474.  Mr Brannelly said this would not have been said, although he had no recollection of this conversation:  pp 1109-10.  He said, consistently with his notes Exhibit 117, that he spoke to Mrs Summergreene on 31 January 2005:  p 1112.

1. Subsequently they received a letter dated 14 January 2005 from the defendant:  Exhibit 66.  Mr Summergreene noted that the investment referred to in the letter (the Prime Trust) was said to have been approved by a research team, but otherwise he left it to Mrs Summergreene to look at it:  p 504.  She also noted that part, which she treated as a recommendation, the return and that the investment had tax advantages, and involved monthly payments, but it appeared to be a longer-term investment than they were interested in:  p 475.  Thereafter the defendant rang on a number of occasions inquiring as to whether they were ready to invest money, but at that stage they had not sold the property:  p 504.

1. The next event was receipt of a letter from the defendant dated 28 February 2005:  Exhibit 67.  Mr Summergreene recalled that they discussed it, but essentially he left it to his wife to take care of:  p 504.  She took from the first paragraph of the letter that this was a recommendation (p 475, p 477), and noted that they were recommending only funds in which risk factors were minimised.  She noted what was said in that letter about the Westpoint group, which she said made it sound like a worthwhile company:  p 477.  She also noted that there were no fees associated with the investment, and that there were substantial pre‑sales in place, that it had a registered second mortgage over the property and a second ranking charge over the developer, and that it was supported by a guarantee from Westpoint itself, so that it sounded like a very safe investment:  p 478.  She did not at the time appreciate the significance of a second ranking mortgage, and did not know what a second ranking charge was.  At that stage they still did not have the money available to invest.

1. They received a further letter from the defendant dated 18 July 2005:  Exhibit 68.  Both of them noted the reference to an excellent opportunity to invest in high yielding promissory notes offering 14%, which Mrs Summergreene said she took as a recommendation:  p 481, p 505.  Neither knew at the time what promissory notes were.  They noted the favourable things said about Westpoint, which sounded like a successful company (p 481, p 505), and noted that it was providing a guarantee for the company’s obligations under the loan and securities.  Mr Summergreene said that he understood that this was a reference to Westpoint guaranteeing the loan that an investor would make:  p 505.  Mrs Summergreene put the same interpretation on the guarantee:  p 484, p 583.  She though that a promissory note was something like shares, and that the guarantee meant that it would be a safe investment:  p 482.  She also thought that they would get the benefit of the mortgage referred to in the letter, she knew what a mortgage was, and she noted that the purpose of the additional funding was to build additional floors which she took as an indication that the project was doing well:  p 483.  They noted the favourable things that were said about Westpoint (p 484, p 505), the absence of entry fee, exit fee or management fee, and the high level of pre‑sales of the property, and again the reference to the guarantee from the Westpoint group and a charge over Bayshore Port Melbourne Trust:  p 484 and p 505.  The reference to the limited period of time indicated to them that something needed to be done fairly quickly:  p 484.

1. Mrs Summergreene also noted a disclaimer which referred to the defendant’s not giving financial advice and that it was for information purposes only, but she thought that he was in the letter giving advice, which was why they contacted him:  p 485.  Mr Summergreene did not know what an unsecured promissory note was (p 505) but knew what a mortgage was, though not a second ranking mortgage, or a charge:  p 506.  He thought the letter suggested that this development was the most appealing to an investor.  He noted much the same things as his wife had noted, and was also attracted by the short term, by the absence of entry and exit fees, by the pre‑sales and by the guarantee from the Westpoint group:  pp 506‑7.

1. Mrs Summergreene said that she subsequently had a telephone conversation with Mr Brannelly in which she asked what was meant by a second rank mortgage and a second rank charge because, she said, she told him that if it was anything like a second or third mortgage they wanted nothing to do with it:  p 485.  She said his response was that it was fully backed by Westpoint and that there was no problem:  p 486.[23]  It was only in hindsight that she realised that he had not actually answered her question.  She said that she also asked him how secure it was, because she said they could not afford to lose money and that they were not going to put it in something that was risky; he replied that he had been dealing with Westpoint for nine years and he had had no trouble with them and they had never not fulfilled their obligation during that time, and that it was fully guaranteed by Westpoint:  p 486.  She asked what the term of the promissory notes was, because they needed to pay capital gains tax and he said that it was to June 2006:  p 486.[24]  She said she also asked him about whether there were monthly returns, and he said that he had been dealing with them for nine years and they had never reneged on paying.  He also said that they would send a notification of when the money would be paid, and that they were still taking money because some of the others were coming out of the scheme and the money was being repaid.

   [23]Mr Brannelly had no record or recollection of this conversation and said he would not have said there was no problem:  p 1113.  In substance he denied the conversation:  pp 1113-4.

   [24]The transcript at line 31 is inaccurate.

1. The investment property was sold, with settlement around 20 September:  p 488.  Prior to then, Mrs Summergreene again telephoned Mr Brannelly and asked him what he would recommend that they put the money into because the money was due then within a short space of time, and asked him to send out what he then recommended:  p 488.[25]  She said that it had to be something safe and secure.  Subsequently they received from the defendant a letter of 20 September 2005:  Exhibit 69.  This was consistent with what Mr Brannelly said, that he would send some information in the mail:  p 489.  This letter was very similar to the letter in July and Mrs Summergreene said the same things stood out:  p 491.  Mr Summergreene said that he relied on the statement in the letter that it was an excellent opportunity to invest with a company with an established record, and noted the favourable things said about the Westpoint group, which he said sounded like Mr Brannelly was guiding them towards a secure investment:  p 507.  He noted the comment that “we consider [Bayshore] to be the most appealing [Westpoint project] at present”:  p 508.  He also noted that they were adding additional floors and sourcing more capital to fund this additional expense.  He interpreted the letter as a statement that Westpoint was the place to put their investment money.  He also noted the reference to the absence of fees, that pre‑sales were 80%, that the construction was underway for completion, and the guarantee from Westpoint and the charge over Bayshore was the security:  p 509.

   [25]Mr Brannelly noted a phone call from her on 20 September 2005:  p 1112, Exhibit 117.

1. With the letter came a copy of the information memorandum, Exhibit 1.  Mr Summergreene said that he looked at it but did not understand it, and he cannot work a balance sheet:  p 509.[26]  He did not see anything in there inconsistent with what had been said in the letters from the defendant.  Mrs Summergreene also said she did not understand that document, and just relied on what the defendant had said in his letter:  p 491, p 644.  After considering this letter, Mr and Mrs Summergreene decided to go and see Mr Brannelly, because they wanted to see Mr Brannelly face to face before deciding to invest:  p 510.  Mr Brannelly’s notes record a meeting on 23 September 2005:  Exhibit 117, p 1114.

   [26]He said under cross‑examination that he read it (p 650) and seemed to accept that the diagram did show that the guarantee went to the company, and that he understood that at the time:  p 651.  That was quite inconsistent with his other evidence about the guarantee.  He said he did not analyse it in detail at the time (p 653) and I find he did not understand at the relevant time what Exhibit 1 said about the guarantee.

1. Mrs Summergreene said that they said to him they were not prepared to hand over $100,000 without knowing that their money was going to be safe; the defendant replied that Westpoint was fully guaranteeing Bayshore and he had been associated with them for nine years, but the company had been going for 25 years and had never missed a payment:  p 492.  One of them asked what was meant by a second ranking mortgage, and was it something like a second or third mortgage, and he just told them in response that there was a mortgage over Bayshore and it was all fully backed by Westpoint:  p 493.[27]  Mrs Summergreene said she told him that she hoped their money was safe because they could not afford to lose it:  p 493.  They checked when the money would be repaid and were told June 2006, and that they would get a letter with the promissory note giving dates on which payments were to be made.  There was some conversation about additional floors being added to the building and the defendant said that pre‑sales had done really well and that that was why they had found it necessary to add additional floors.

   [27]Under cross‑examination Mrs Summegreene added that he said there was a registered mortgage over Bayshore:  p 596.  They believed that they were investing in bricks and mortar:  p 631.  See also Mr Summergreene p 652, lines 31-35.

1. Mr Summergreene said that they also mentioned that they wanted a short term because of the possibility that they would have to pay capital gains tax on the sale of the investment property:  p 510.[28]  He recalled his wife saying that it must be secure, and Mr Brannelly saying that it was secure and that he recommended the investment.  He did not recall any elaboration on how it was secured:  p 510.  His wife had said that they could not afford to lose this money and it had to be secure:  p 511.  The defendant made a phone call during the meeting to see whether they were still accepting funds, and then said they were and that some investors’ money was coming out because their terms were finishing and they were still looking for new investors to put money into the project:  p 511.  Mr Summergreene said that Mr Brannelly had said that the company was secure, he had dealt with the company for nine years and never had any problems:  p 511.[29]  They then decided that they would invest, and Mrs Summergreene took out the cheque that had already been written out and the application form and they handed it over:  p 494, p 512, p 633.  They were given a receipt and told interest would be paid monthly into an account and they provided the relevant account details.

   [28]See also Mrs Summergreene p 566.

   [29]Mr Brannelly had no recollection of this conversation, but denied that it had occurred as they alleged, although he accepted that he would have mentioned the Westpoint guarantee:   pp 1114-6.

1. They subsequently received a letter dated 23 September 2005:  Exhibit 70.  Mrs Summergreene was concerned about the assertion in the letter that the investment was based on their own research, which she described as a load of rubbish:  p 494.  She also did not understand what Deakins had to do with the matter because at that stage she was not dealing with Deakins:  p 496.  However, she did not then follow this up with Mr Brannelly, on the basis that the money had already been paid over.  She had not in fact done any research herself, or told Mr Brannelly that.  They subsequently received a letter with the promissory note:  Exhibit 71.  They received one payment of interest, but nothing else:  p 512.  Details of what was received and not received are set out in Exhibit 72.  In May 2006, after problems had arisen, they wrote to the defendant:  Exhibit 73.  The reply from the defendant became Exhibit 74.

1. Mr and Mrs Summergreene said that they were not told that it was a high risk investment, and if they had been told that, or that it was a risky investment, they would not have made the investment:  p 498, pp 512‑3.  They said that if they had been told the promissory note was nothing more than an IOU, or that there was no guarantee to the investors from the Westpoint group, or if the investment had not been recommended by the defendant, they would not have made the investment:  pp 498‑9, pp 513‑4.  Neither had been told the content of Exhibit 17, and would not have made the investment if they had:  p 500, p 514.  If they had been told that it was something that ought to have been registered under the Corporations Act but was not they would not have made the investment:  p 500, p 514.

Andrew – Background

1. Mr Andrew was born in 1931; he is currently retired, after a lifetime in the gas supply industry:  p 121.  He had some investment experience, at a fairly basic level; he had put some money in a bank in Jersey to obtain a tax benefit, he had invested in shares through an investment program promoted by a company, and he had invested some money on the stock market, essentially by focusing on new companies being floated and selling on the basis of a formula:  p 122.  Mr Paul Brannelly’s name was given to him by a friend[30] and he telephoned Mr Brannelly and asked him if he had any investments that he might be interested in:  p 123.  He said that he wanted an investment which was secure and short term:  p 129.  He said he had about $200,000 to invest, and Mr Brannelly said he would look into it and get back later:  p 123.[31]

   [30]Who actually gave him a document, a copy of which is Exhibit 20.

   [31]Mr Brannelly noted a call on 26 July 2005 consistent with this conversation, but without reference to the investment being secure and short term:  Exhibit 113, p 1127.

1. Mr Andrew subsequently received two letters from Mr Brannelly; one dealing with the Prime Retirement and Aged Care Property Trust (Exhibit 21) and one in relation to Bayshore Port Melbourne:  Exhibit 22.  The latter had attached to it a copy of the information memorandum[32] and Mr Andrew read both the letter and the information memorandum:  p 128.  Mr Andrew identified a number of things in the letter which he said caught his eye and on which he said he relied when making his decision to invest $97,000 in Bayshore Mezzanine Pty Ltd:  p 128.  He said that as a result of the letter he had the impression that he would be getting the benefit of the guarantee referred to under the heading “Investment Highlights”: p 131.[33]

   [32]That is another copy of the document which is Exhibit 1.  There was also a copy of an “interview” with Mr Carey.

   [33]That was consistent with what he said at pp 148-9, and his evidence at p 135 that he would not have invested without it.  In this context his answer at p 150 line 31 under cross‑examination was curious, and should not be taken at face value.  It may be that he did not appreciate that he was being asked about his understanding when he applied for the promissory note, or that he thought that these were two guarantees, one to Bayshore Mezzanine referred to in Exhibit 1, and the one referred to in the letter Exhibit 22, which he reasonably interpreted as a guarantee to him.  The point was not explored.

1. Having read this material he decided to invest in Bayshore, and rang Mr Brannelly and told him that he probably would be investing:  p 132.[34]  On 5 August 2005 he sent off a form together with his cheque for $97,000:  Exhibit 23.  He received in reply a letter from the defendant:  Exhibit 24.  Some time later he received a further letter dated 12 October 2005 from the defendant in relation to the investment in Bayshore Mezzanine Pty Ltd:  Exhibit 25.  This related to what was to happen to the investment after it had matured, and after that letter and after (he thought) a telephone discussion with Mr Brannelly he decided to roll the investment into the Westpoint Investment Fund:  p 134.  Before that could happen, however, Bayshore Mezzanine Pty Ltd went into liquidation; he received three payments in respect of interest but he has not received anything else.  The details of the amount invested and the payments received are set out in Exhibit 26.

   [34]He told the defendant he had read and understood the documents:  p 138.  The defendant recorded a call on 1 August 2005:  Exhibit 113, p 1126.  The plaintiff also invested in Prime:  p 145.

1. Mr Andrew said that if had have been told the investment was a high risk investment, or that it was with a company which did not have 20 years experience, or if Mr Brannelly had not described the investment as an excellent opportunity, or if Mr Brannelly had told him that the promissory note was really just an IOU, or that he was not getting a guarantee to support his investment, he would not have made the investment in Bayshore Mezzanine Pty Ltd: p 135. If he had been told about the contents of Exhibit 17, he would not have invested, nor if he had been told that in 2004 the Supreme Court of Western Australia decided that the Bayshore information memorandum did not comply with the requirements of the Corporations Act: p 136. He said he did not remember Mr Brannelly ever saying anything about the risk involved in the investment: p 137.

Radcliffe – Background

1. Mr Radcliffe was born in August 1939:  p 419.  He trained as a teacher and spent most of his working life as a primary school teacher, rising to become principal of a State primary school before he resigned in 1993 to set up as a writer and publisher of primary school textbooks, including both workbooks for students and preparation books for teachers:  p 420.  He does most of the writing himself for the books that are published.  When he retired in 1993 he received a superannuation payout which he put into a self‑managed superannuation fund.  With some of the money he has purchased real estate, but the balance was put in the bank or a credit union until around 2000 when he obtained some financial advice from the Commonwealth Bank, as a result of which he invested money in the Bank’s super bonds:  p 421.  He then obtained advice from a financial adviser, as a result of which he invested money in Navigator and Colonial First State.  He has also invested in another investment vehicle, as a result of seeing an advertisement.

1. In October 2004 he saw an advertisement in a newspaper placed by the second defendant, as a result of which he contacted a Mr Paul Brannelly:  p 422.  Mr Radcliffe telephoned and said that he was putting $100,000 into his super fund, he was looking for secure investments that paid monthly or quarterly distributions that he could reinvest, and he wanted some financial advice on where would be the best place to park the money:  p 422.  He said Mr Brannelly mentioned Prime Retirement and Aged Care Property Trust, which he said was a strong performing trust, and that he had a research team and recommended this particular investment, and asked if Mr Radcliffe would like to see the PDS for the investment:  p 423.  Mr Radcliffe said he would.[35]

   [35]Mr Brannelly agreed there was a conversation in October 2004 (Exhibit 116), but in substance denied this content:  p 1116.

1. Following this, Mr Radcliffe received a letter from the defendant dated 22 October 2004 concerning the Prime Trust:  Exhibit 51.[36]  The letter also referred to a research team,[37] which Mr Radcliffe regarded as of some significance, as was the reference towards the end of the letter to a well‑regarded national independent research organisation, together with a number of things specifically about the Prime Trust.  He did not at that time make any investment, but on 14 March 2005 he again telephoned Mr Brannelly, identified himself again and explained that he was looking for secure investments that provided a regular distribution, and asked him some questions about the Prime Trust:  p 424.

   [36]The exhibit is only the letter, but it said it included various things, including the Prime PDS and a copy of the Financial Services Guide, which I assume were the same as those attached to the letter in Exhibit 66.

   [37]He later said he relied on the existence of the research team and an inference that it had also approved the Bayshore investment when deciding to invest in Bayshore:  p 534.

1. Mr Radcliffe subsequently received another letter from the defendant, dated 8 March 2005:  Exhibit 52.  He noted in the letter the reference to the defendant having been in operation for 40 years[38] providing financial services to a select clientele of executives and self‑employed business people.  He also noted a statement that “we endeavour to recommend only those funds in which risk factors are minimised as much as possible.”  The letter contained some general things about the Westpoint group, which Mr Radcliffe read and which he was impressed by.[39]  He also noted the general statement that investments were secured by a second ranking mortgage and a second ranking charge, and a guarantee from Westpoint which he described as the clincher for him:  p 425.[40]  He also noted a statement towards the end that it was increasingly difficult for the average person to make fully informed investment decisions, and he took from that that the second defendant were experts.

   [38]He relied on this and on the statement that this was a top performer, and the reference to a fully qualified financial planning organisation:  p 535.

   [39]He also relied on this, the guarantee, and on the assertion the defendants were experts:  p 536.  See also p 543 for a list of things relied on.

   [40]He understood that the guarantee was provided to the investors, and was not disabused of this interpretation by anything he saw in Exhibit 1:  p 530.

1. Mr Radcliffe was offered another copy of the PDS for Prime and he asked for it, and shortly afterwards he received a letter dated 14 March 2005 from the defendant which did enclose a further copy:  Exhibit 53.  He noticed again the reference to the research team, and a number of things which were specific to Prime.  On 22 March he invested $100,000 in the Prime trust:  p 425.  He subsequently received a letter from the defendant dated 26 April 2005:  Exhibit 54.  This letter was similar to Exhibit 52, and Mr Radcliffe noted much the same things about it:  p 46.

1. On 27 June he again telephoned Mr Brannelly saying he had additional funds to invest, and Mr Brannelly referred to Prime again, and then brought up the subject of Bayshore which was part of Westpoint, which he said had a great track record in property development:  p 538.[41]  He said it was a very solid investment and offered an information memorandum:  p 427.  Subsequently, Mr Radcliffe received a letter dated 28 June 2005:  Exhibit 55.  An information memorandum, a copy of Exhibit 1, was either sent with that letter or sent separately; he said he received one:  p 427.[42]

   [41]Mr Brannelly had a note of a conversation on 27 June (Exhibit 116), and accepted most of this conversation:  pp 1117-8.

   [42]He did not understand the diagram in Exhibit 1:  p 527.

1. Mr Radcliffe identified a number of things in the letter on which he relied when making his decision to invest, in particular the excellent return, and the guarantee from the Westpoint group and Westpoint’s record of success:  pp 427-430.  He did not understand what a second ranking charge was, and did not place any great significance on that or the reference to a second ranking mortgage:  p 429, p 522.  He read a copy of Exhibit 1, and it seemed to him to support what the defendants had said about the investment:  p 431.  He decided to invest in Bayshore (p 546), and telephoned the defendant on 4 July[43] to confirm that the investment was still available, and then invested $100,000 through his superannuation fund:  p 431.[44]  He received a promissory note for the investment from the company:  Exhibit 58.

   [43]Mr Brannelly’s notes record conversations to this effect on 29 June and 4 July: Exhibit 116, p 1118.

   [44]The application form became Exhibit 56.  Originally Mrs Radcliffe had not signed it as required, and the defendant sent it back for this to be attended to:  Exhibit 57.  The form was signed and sent back:  p 433.

1. Mr Radcliffe went to see Mr Brannelly in his office on 25 July 2005 and provided him with a short summary of his financial situation:  p 434, Exhibit 75.[45]  He declined a full financial review of his circumstances, since he had already obtained that elsewhere not long before.[46]  He said that he was looking to put more money into a super fund and looking for secure investments providing a quarterly and monthly distribution which could be reinvested.  The defendant referred to Prime trust, and said that Bayshore was looking for some more funds:  p 463.  Following the meeting he received a further letter from the defendant:  Exhibit 59.  The letter was similar to earlier letters sent to him by the defendant.

   [45]Mr Brannelly agreed there was a meeting on that day, as recorded in his notes (Exhibit 116) and that Exhibit 75 was handed over but otherwise had no relevant recollection of the meeting:  pp 1119-1120 (an issue relevant to his credibility is dealt with elsewhere).

   [46]He agreed that Mr Brannelly explained he was giving general advice, not personal advice:  p 544.

1. Mr Radcliffe subsequently invested a further $100,000 in each of the Prime trust and Bayshore Mezzanine:  p 464.[47]  He received further correspondence in relation to the investment:  a letter from the defendant Exhibit 62, a letter from Bayshore Mezzanine Pty Ltd of 1 November 2005 – Exhibit 63 – and a further letter from the defendant suggesting rolling over the Bayshore investment into the Westpoint income fund:  Exhibit 64.  Mr Radcliffe was interested in rolling over that investment, and adding a further $50,000 (p 467), but ultimately that did not proceed.

   [47]The application form for Bayshore became Exhibit 60, and the promissory note he received in response Exhibit 61.  He phoned the defendant on 24 August to tell him of the decision to do this:  p 546.

1. Mr Radcliffe was never told that the investment in Bayshore Mezzanine Pty Ltd was a risky investment or a high-risk investment, or that a promissory note was no more than a simple IOU; if he had been told any of these things he would not have made the investment:  p 468.[48]  He would not have made the investment if he had not been told that his investment was guaranteed,[49] or if it had not been recommended by the defendant.  He would not have invested had he known the contents of the ASIC press release Exhibit 17, or if he had been told that the investment ought to have been registered under the Corporations Act but was not:  p 469.  The amount he invested and the four payments received in relation to the investments were set out in a schedule:  Exhibit 65.

   [48]The return, although high, did not ring alarm bells:  p 540.

   [49]This was important, although not the only thing relied on:  p 525-6.

CEP Enterprises Pty Ltd – background

1. Mr Pegg, who was born in 1951 and has retired following a career as a Telecom technician, gave evidence that he was one of the directors of this company which was the trustee of the CEP Superannuation Fund:  p 153.  He gave some investment history.  He had bought a house in Ipswich which he sold five years later, and then together with a friend and his wife purchased a block of shops at Geebung which were done up and sold, and they purchased a block of eight two‑bedroom units in South Brisbane.  Then his friend’s marriage broke up, and he ended up owning the flats with his friend’s ex‑wife, whom he ultimately bought out; the flats were later sold:  p 153.  He had some shares which he inherited from his father’s estate, which essentially he just left as investments.  He obtained some shares in the float of the Commonwealth Bank, and because of an account initially with a building society he ended up with shares in Bendigo Bank:  p 154.

1. Mr Pegg had set up a self‑managed superannuation fund into which he paid his redundancy money when he left Telstra, and he purchased shares with the money in that fund acting on the advice of a stockbroker,[50] up until 2005 when the stockbroker he had been dealing with left:  p 154.  He went to a seminar run by Atlantic Three Financial, which impressed him and he made some investments with that company, some of which were successful and some of which were not:  pp 155‑7.  He had also made an investment with a property syndicate in Canberra, which was successful (pp 155‑6).  Overall, although there were a range of investments made at different times,[51] it does not strike me as a particularly sophisticated investment approach.  Investments in the stock market were conducted simply on the basis of following advice given to him by a stockbroker,[52] but otherwise essentially he was persuaded to invest in various ways by people who were trying to sell the investments.  This did not show that he was willing to take risks but only that he was not sufficiently astute to avoid them.

   [50]See Exhibit 44, an agreement with the stockbroker, signed in about 2000:  p 243

   [51]See also Exhibits 41 and 42.

   [52]This can be a perfectly satisfactory method of investing in the stock market, provided one has the right broker, but it does not require any sophistication on the part of the investor.

1. Mr Pegg first made contact with the defendant after seeing an advertisement in a paper in March 2005 relating to the Prime Retirement and Aged Care Trust:  p 158.  He spoke by telephone to Paul Brannelly[53] and asked for information about it, and that turned up in a letter dated 24 March 2005:  Exhibit 27.[54]  Ultimately an investment was made in that as well.  The defendant sent Mr Pegg a letter concerning the Bayshore Port Melbourne investment dated 18 July 2005:  p 162, Exhibit 28.[55]  He had not previously heard of Westpoint or of Bayshore Port Melbourne:  p 164.  He understood the letter as saying that the company that his money would be going into was the company which had a second ranking mortgage over the development property:  p 165.  He was aware that attached to the letter was a document headed “Disclosure”; he did not read it in detail but did note that it referred to a product disclosure statement:  pp 167‑8.

   [53]Mr Brannelly noted a call on 24 March 2005:  Exhibit 114.

   [54]The exhibit includes copies of the Deakin Financial Services Guide (which he read:  p 161), and the documents “Brannelly The Professional Perspective” and “Your rights to Privacy”.  It appears from the letter that there were various other things sent with it not included in the exhibit, including the Prime PDS and a desk calendar for 2005.

   [55]This was sent without prior discussion about it.  The highlighting on the document was put on by Mr Pegg when he read the letter in detail:  p 162.

1. After reading the letter Mr Pegg had some questions for Mr Brannelly, and he made notes of these on a sheet of paper:  Exhibit 29, pp 168-170.  On 22 July 2005 he telephoned Mr Brannelly’s office on his mobile and spoke to a receptionist and said he wanted a PDS, and asked Mr Brannelly to call him back on his mobile after 3 pm:  p 168.[56]  He said that later the same day, Mr Brannelly did call him back:  p 220.  He had a conversation with Mr Brannelly, in which he asked him the various questions, and made notes of his answers on Exhibit 29.[57]  That document was not disclosed until just before the trial, but Mr Pegg gave an explanation as to how that came about.

   [56]He denied he told the receptionist he was going ahead with the investment:  p 220.  This is contrary to the note from Ms Ahern which is part of Exhibit 114.  I accept his denial.

   [57]Mr Brannelly denied that he called back that day, having no note of a call in Exhibit 114:  pp 1124-5.  No call to 0427 652 559 appears in the Telstra records for the second defendant that day, Exhibit 109, but that is not conclusive.  A call could have been made on another line, or a mobile.

1. He had that day been with a friend at a social function, and after the function at the friend’s house a number of digital photographs taken at the function were printed, presumably using a colour printer:  p 246.  He took these photographs when he went home, and the sheet with the questions and answers on it was put with the photographs and taken home with them.  Although he had a file in relation to this investment (p 221), at this stage he had not received much documentation in relation to Bayshore, and it may be the file had not yet been started; in any event, this sheet was not then put into that file, but left with the photographs which were filed separately, and ultimately put away in an archive box.  It was only recently, when thinking about the impending trial, that he realised that the social function had been on the same day as this conversation, and he dug out the photographs and found the sheet with his notes of the questions and answers with them:  p 247.

1. That strikes me as a plausible explanation.  My impression of Mr Pegg in the witness box was that he was an honest witness, and, notwithstanding a challenge by the defendant to the provenance of these notes (pp 221‑2), I accept that Exhibit 29 represents his contemporaneous note of the conversation, and that the conversation on that day between Mr Pegg and Mr Paul Brannelly occurred as recorded in Exhibit 29.  For reasons given later, I do not generally accept Mr Paul Brannelly as a reliable witness.  Some conversation between them that day is consistent with the opening paragraph of the defendant’s letter of 22 July, Exhibit 30:  “Further to our recent telephone conversation …”  (emphasis added).  What was attributed to the defendant was the same as what he was saying in the letters.  Mr Brannelly’s notes Exhibit 114 record a conversation said to be on 26 July 2005, “CP phoned PB.  Had queries on Bayshore and Prime.  All OK.  CP will send in application forms for both funds.”  That suggests that at some time the plaintiff asked some questions about Bayshore and received answers which satisfied him.  These notes may have been written up later, for the wrong date.

1. That exhibit lists the questions and answers as follows:

“1.What exactly is the $20 mill being raised for – was the original finance not sufficient.

B.20 mill to mainly cover costs for addit[ional] floors approved for Twes A & B and to finish off.

2.Has there been any contractor or industrial problems causing additional costs.

B.Westpoint have their construction group – they do not have those sort of problems.

3.How good are the guarantees for the security of an investment in Bayshore.

B.Very secure – W/Point group guarantee the investment – they have assets of 80 mill and Bayshore Mezz has a 2^nd Mortgage over the property.

*If you are sure it is secure then send me the Info Mem, any info you have on the interview with Carey referred to in the letter.

B.Will do today.”

1. At that stage Mr Pegg said he had not finally made a decision about the investment:  p 176.  He received on 25 July 2005 a letter dated 22 July 2005 from the defendant:  Exhibit 30.[58]  Mr Pegg said that he relied on the fact that the amount which had already been taken up had increased in a matter of a few days as suggesting to him that it was an attractive investment; the reference to the high ratio of pre‑sales; the fact that the group was not dependent on others which he said fitted with what he had been told on 22 July by Mr Brannelly; the fact that the company in which he would be investment would have a second ranking mortgage; that this was said to be the most appealing project available at present; that the capital was being raised for the construction of additional floors; that the group had net tangible assets of $80 million; and the reference to Kebble being a boutique merchant investment bank:  pp 177‑8.

   [58]The highlighting on the letter is highlighting he put on at the time:  p 177.

1. Mr Pegg read the information memorandum and noted that there was no reference in that to the additional floors, but decided that the explanation was that the letters from the defendant contained more recent information than was available at the time the information memorandum was published:  p 179, p 226.  Otherwise, he did not detect any inconsistency.[59]  He then signed application forms both for Prime (Exhibit 31, dated 26 July 2005) and Bayshore:  Exhibit 32, undated.  These were sent with his cheques to the defendant[60] who sent a letter acknowledging receipt of them:  Exhibit 33.  Mr Pegg was concerned about the evidence making statements in that letter, but did not do anything about it:  p 181.  He subsequently received a letter from Bayshore Mezzanine Pty Ltd enclosing the promissory note dated 1 August 2005 and an interest schedule:  Exhibit 34.  Later he received correspondence from the defendant (Exhibit 39) and from Bayshore Mezzanine about rolling his investment over into the Westpoint Income Fund, and signed on 23 November 2005 the forms to do this, but again there was no evidence they were ever acted on.

   [59]He found the diagram in Exhibit 1 confusing:  p 223.

   [60]There was a brief conversation about completing the forms, on 26 July, of no significance:  p 238.

1. Mr Pegg said that if Mr Brannelly had told him that the promissory note was really nothing more than an IOU, or that there was no second ranking mortgage in place, or any second ranking charge in place, or if he had been told about the risks associated with the investment, or that it was a high risk investment, he would not have made the investment:  pp 182‑3.  If he had been told of the content of the ASIC media release Exhibit 17, or if he had been told that there was in 2004 a decision of the Western Australian Supreme Court that the issue of the promissory notes required registration under the Corporations Act but had not been registered, he would not have made the investment:  p 184.  He received three payments of interest but otherwise received nothing back in relation to his investment, as set out in the schedule Exhibit 35.

Credibility

1. I should make some general remarks on the question of credibility, although generally where there is need to resolve a specific inconsistency between different oral testimony I have made a specific finding which is recorded or reflected in my reasons elsewhere.  My overall impression of the plaintiffs were that they were honest witnesses though some of them obviously had difficulty in recalling matters of details.  I am conscious of the fact that it is likely that they were going to be recalling, and particularly going to be emphasising in the course of their oral evidence, those matters which could be said to be favourable to them, and would be less likely to recall or emphasise matters which may not be favourable to them, possibly because they were not matters to which they attributed any great significance at the time.  Nevertheless, my overall impression of them was that they were honest and reasonably reliable, though not necessarily so in matters of detail.

1. Their evidence‑in‑chief was generally more reliable than their cross‑examination.  I often had the impression that the witnesses did not really understand the questions asked in cross‑examination, which was conducted in a badgering, pressured way, attempting to force the witnesses to say particular things.  The questions were often difficult to follow, and put the witnesses under considerable pressure.[61]  Mrs Summergreene in particular seemed to become quite upset at times under cross‑examination.  In these circumstances, if there are differences I generally prefer what was said in evidence‑in‑chief, and do not necessarily accept everything said under cross‑examination.

   [61]At times the cross‑examination bordered on the improper. For example, at p 652 line 9 there was a question which presumed a proposition, that the witness had understood “the document” (Exhibit 1) which the witness had not previously accepted, although he had earlier said that he understood a couple of parts of it that he was asked about.  I do not regard his answer to that question as evidence that he did understand the document.

1. With regard to the defendants, Mr Matthew Brannelly struck me as particularly nervous in the witness box.  Although he seemed at times to be trying to give honest evidence to the best of his recollection, he was very defensive and self‑justifying in a way which suggested that much of his evidence was reconstructed.  I found some of the things he said inherently implausible, such as the assertion that he was told by Deakins not to investigate products himself:  p 901.[62]  Mr Martinovic, who used to work for Deakins, was not aware of any such policy:  p 931.  There is also the consideration that he denied (p 779) having a telephone conversation with Mr Courtney which was admitted in the amended defence, both as to the occurrence of “a discussion” (para 9(a)) and as to his having made the statements alleged in paragraph 7(c), most of what was alleged to have been said in the conversation.  In the circumstances, I reject his evidence as to this.  There was I think little else in the way of direct conflict between his evidence and that of Mr Courtney; insofar as there was any specific conflict with which I have not otherwise dealt, I prefer the evidence of Mr Courtney.

   [62]Other examples were the idea that loan to value ratios are based on gross sale values (p 863), and that he told Mr Courtney in the letters to him that he was just selling a product (p 878), something that does not appear in the letters, expressly or by implication.

1. The one witness of whom I formed a distinctly unfavourable impression was Mr Paul Brannelly.  That was particularly because of one piece of evidence that he gave, his assertion that he told all the plaintiffs with whom he dealt that the investment was a high risk investment.  This emerged almost incidentally during cross‑examination on p 1089, when he had accepted that an investment in Bayshore Mezzanine promissory notes was a high risk investment.  In answer to a question as to whether he ever advised any of the plaintiffs that it was in fact high risk, he replied “As I mentioned before, I always stated that mezzanine funding is high risk initially but there are factors which reduce that risk.”  He repeated the proposition that he had said that to the plaintiffs at p 1090, claiming that it was the very first comment when the Westpoint products were mentioned to them.  He conceded that this was not set out in any of his letters, nor was it recorded in the notes that he made of his dealings with the plaintiffs, though he said that this was because he was not recording everything that was said (and see p 956), and continued:

“I’m saying again that the very first thing I said to anybody when the Westpoint mezzanine funds were mentioned was that it was high risk but there are factors which mitigate against that risk.  And that was repeated at other times.”[63]

He said that he had made that statement to everybody he dealt with, and that he had told his solicitors and barristers that that was his practice:  p 1090.

[63]P 1090 lines 33-37.

1. The proposition that the plaintiffs were expressly warned that this was a high risk investment was plainly material to the plaintiffs’ cases as pleaded.  But it was not raised in any of the defences, nor was it put to any of the plaintiffs that any such thing had been said.[64]  The proposition that such a warning had been given was not led in evidence‑in‑chief, despite the fact that all of the plaintiffs were asked whether they were told that it was a high risk investment, and all said they were not, and all said that if they had been told that they would not have invested in these promissory notes.  From what I saw and heard of the various plaintiffs, I had the distinct impression that in particular Mr and Mrs Summergreene and Mr Evans would have definitely not invested in the promissory notes had they been told expressly that they were a high risk investment; indeed I think it unlikely that any of the plaintiffs would have done so.  I simply cannot accept the proposition that they all did so notwithstanding that they had been expressly warned of this.  In all the circumstances I find that this warning was not given by Mr Brannelly, and that his statements to that effect were false.  That reflects adversely on his credibility overall.  The fact that Mr Brannelly claimed to have said these things was, however, in effect an admission that they were warnings which ought to have been given.

   [64]Mr Courtney was in a different position:  he did not deal with Mr P Brannelly, although he was not told this either:  p 61.

1. Another matter which was unsatisfactory was the preparation of the typewritten versions of his handwritten notes, which form part of the respective exhibits.  They do not correspond exactly.  Mr Brannelly said that the reason for this was that the notes were prepared to inform others of what had happened with these (and other) investors, with a view to his handing them over when he left the company:  p 906.  But in Exhibit 116 the typewritten version for the meeting on 25 July 2005 includes: “PB explained he was only giving general advice not personal advice”.  That did not appear in the handwritten notes.  Mr Brannelly said this was an inference from what was in the handwritten notes (p 1119) and it was necessary so the rest of the notes would make sense:  p 1120.  These are not plausible explanations for what looks very like an exercise in manufacturing evidence.[65]

   [65]As it happens, Mr Radcliff accepted that this had been said:  p 544.  This does not account for the presence of this statement in the typewritten notes, on the defendant’s explanation.

1. There were some other matters about his evidence which I thought were unsatisfactory.  At one point he appeared to be saying that the letters sent out to the various plaintiffs were all individually submitted to the third defendant and approved by it before they were sent:  p 910.  However, under cross‑examination he conceded that all that had been approved by the third defendant were form letters, not each individual letter sent out:  p 1071.[66]  Some things that he said particularly under cross‑examination amounted to concessions which I am prepared to accept, partly because they were against interest and partly because they were generally speaking concessions about matters which were fairly obvious anyway.  Overall, however, I was not impressed by his reliability, and as a general proposition where there is any conflict between his evidence and the evidence of another witness, particularly the plaintiffs, I prefer the evidence of the other witness.  Indeed, I am wary about accepting his evidence even if it was not directly contradicted.

   [66]That was consistent with the evidence of Martinovic p 932.

1. Mr Johnston’s[67] evidence suffered from two difficulties.  It seemed to me that he was hardly objective in relation to a matter of this nature, because of the position that he occupied; he was in effect the person in charge of a professional association of investment advisers (p 972), so that ordinarily he would be concerned in advancing the interests of investment advisers and defending them if they came under attack:  Exhibit 120.  Despite this, it seemed to me that much of his evidence was quite frank.  His evidence also suffered from the difficulty that he gave it by telephone in circumstances which were scarcely conducive to calm deliberation.  To begin with, he was speaking from a hotel room he was supposed to be checking out of (p 1011), and ultimately I adjourned so as to give him time to vacate the room and relocate.  Then he was giving his evidence from an airport, where he was initially waiting for, and subsequently missed, an aeroplane:  p 1058.  In these circumstances I suspect that at times he did not give questions that he was asked the careful consideration that they really required.  I am overall wary about Mr Johnston’s evidence, but am prepared to accept quite a bit of it; essentially where I have referred to his evidence or cited it without indicating that it is rejected, I accept that evidence.

   [67]The defendant’s expert.  His report Exhibit 87 spells his name both with and without a “t” in different parts.  The transcript credits him with the “t”, as does Exhibit 120, so I have tried to follow suit.

1. Mr Child’s evidence I thought was generally honest and reliable, although much of it suffered from the difficulty that it was not directly relevant to the matters actually in issue in the action, for one reason or another.  There were I thought not very many matters of importance where there was a direct divergence between Mr Child and Mr Johnston; a number of apparent inconsistencies seem to me to be better characterised as differences in emphasis.  As a general proposition, particularly bearing in mind concerns that I had about Mr Johnston’s evidence, where there is a direct conflict I prefer the evidence of Mr Child, subject to any specific findings that I have made elsewhere.  There was I think no occasion for me to be concerned about the credibility of any of the other witnesses.

Evans – Pleadings

1. It is necessary then to work through the current statements of claim and identify those matters which are either admitted or proved, dealing with issues raised in that pleading and the current defence as they arise.  I will deal first with the Evans action.  A second further amended statement of claim in this matter was filed on 3 December 2007.  This includes amendments which were made by leave given on 15 October 2007.  A notice of intention to defend and defence was filed on 2 October 2006; an amended defence was filed on 3 October 2007, and a further amended defence filed 26 November 2007.  That document was responsive to the statement of claim filed on behalf of the plaintiff on 3 December 2007, though it was in fact filed earlier, since the amendments were known from 15 October 2007.  Then on 13 December 2003 there was a further amendment allowed, in terms of para 60 in Exhibit H:  p 1023.

1. At all material times the first defendant engaged in the provision of financial and investment advice for reward, and acted as a director and agent of the second defendant.[68]  The second defendant was an authorised agent of the third defendant.[69]  At all material times the first defendant held himself and the second defendant out as being competent or qualified to give financial and investment advice.[70]  The second defendant was a company duly incorporated according to law, a business providing financial and investment advice, a corporation within the meaning of that term as used in the Trade Practices Act 1974, liable for the actions of the first defendant, and a financial corporation within the meaning of that term as used in the ASIC Act.[71]

   [68]Statement of claim para 1(a)(ii); defence para 1(d).

   [69]Defence para 1(e).

   [70]Statement of claim para 1(a)(iv); this allegation was not put in issue in the defence, though it was independently alleged that the first defendant was competent and qualified to give financial advice but did not do so in respect of the plaintiff.  There is therefore a deemed admission of the holding out.

   [71]The first three propositions were admitted; defence para 2.  There was a purported denial of the fourth and fifth propositions in para 3 of the defence, but that denial did not comply with r 166(4) so the facts are deemed to be admitted:  r 166(5).

CEP Enterprises Pty Ltd – pleadings

1. An amended statement of claim was filed on 5 September 2006.  On 12 October 2007 leave was given to amend the statement of claim in accordance with Exhibit D and a second further amended statement of claim incorporating those amendments was filed on 3 December 2007.  A notice of intention to defend and defence by the first and second defendants were filed on 2 October 2006, and an amended defence on 3 October 2007.  A further amended defence was filed on 26 November 2007, which was responsive to the second further amended statement of claim, and a reply to that defence was filed on 4 December 2007.  Then on 13 December 2007 there was a further amendment allowed in terms of paragraph 60 in Exhibit H:  p 1023.

1. The allegations in paragraph 1 were the same as in Evans, and the defence was the same except that paragraph 1(d) was denied:  para 3.  There was evidence that the third defendant issued such a document, which is part of Exhibit 45.  A copy of it was sent to Mr Pegg on behalf of the plaintiff on 24 March 2005 with a letter of that date as part of Exhibit 27, so paragraph 1(d) was proved.  Otherwise the outcome of those allegations is the same as in Evans.  Paragraphs 2, 3, and 4 alleged an agreement to provide financial investment advice for reward, which was not proved, indeed ultimately was not pressed.  Paragraph 5 alleged that the defendants were aware or should have been aware of various things at the time the advice was given and the representations made as alleged in paragraphs 7 to 11.  Paragraph 7 referred to a letter of 18 July 2005 which was sent after there had been a request for information about the Prime Aged Care Trust, which had been sent some time earlier.  It was the first reference to Bayshore, and was unsolicited, so paragraph (a) was not made out in relation to that letter.

1. Paragraph 8 referred to a conversation held subsequently, and after Mr Pegg had spoken to a receptionist and left a message that he wanted a PDS, and for Mr Brannelly to call him back, so by the time that telephone conversation occurred, and subsequently, the first defendant must have known that the plaintiff was seeking advice on serious financial matters and was giving consideration to investing in the Bayshore Port Melbourne development.  That would also have been true when the letter of 22 July 2005 referred to in paragraph 10 was sent.  At the time when the various letters were sent, bearing in mind the information that had been provided on 24 March 2005, I find that the defendant knew or ought to have known that Mr Pegg on behalf of the plaintiff believed that the first and second defendants had expertise in property investment, and were experienced and knowledgeable about property investment.  To that extent paragraph 5(b) is found.

1. At least from the time of the telephone conversation on 22 July 2005, the defendant knew or ought to have known that Mr Pegg would rely or was likely to rely on any representations made by him as to the quality of the promissory notes as an investment, the value of the promissory notes in comparison to other investments and securities, and the price, safety, and reliability of the promissory notes in comparison to other investments, so paragraph 5(c) was proved.  He also knew or ought to have known that the plaintiff would rely on the advice and representations and would thereby be induced to invest in Bayshore Mezzanine Pty Ltd, or would be likely to do so, so that paragraph 5(d) was in substance proved.  It follows from these findings, and from the general circumstances of the case and the evidence of Mr Pegg, which I accept, that the first and second defendants owed a duty to the plaintiff to exercise reasonable care and skill in the provision of advice and the making of representations concerning proposed investment in Bayshore Mezzanine Pty Ltd, so paragraph 6 was proved.  My reasoning in this respect is essentially the same as in Evans.

1. Paragraph 7 referred to a letter sent by the defendant to the plaintiff dated 18 July 2005, Exhibit 28.  It was admitted that the letter was sent, though not admitted that it provided advice or made representations.  The letter contained the statements alleged in paragraph 13(b) of the amended defence, including the statement that the “attached information is not financial advice” and that Mr Pegg “had not sought advice nor was given advice … .”  For the reasons given in Evans, in my view this was of no significance.  Looking at the contents of the letter as a whole, it plainly gave advice.  I find that the letter of 18 July 2005 did provide advice with respect to investing in Bayshore Mezzanine Pty Ltd promissory notes.

1. The letter contained the express statements alleged in paragraph (b), which I find were representations.  There was nothing in the letter to indicate that they purported merely to amount to repetition of what was said in the information memorandum, and in most cases they did not accurately reflect what was said in the information memorandum.  Paragraph 8 alleged the telephone conversation on 22 July 2005 referred to earlier.  I find that that conversation occurred as recorded by Mr Pegg in Exhibit 29.  Consistently with that, I find paragraph 8(ab) proved.  Mr Pegg did not give evidence which provided any support for the allegations in paragraph 8(a) or (aa).  He did, however, say that when his other questions had been answered he informed Mr Brannelly that if he was sure it, that it is the investment, was secure then to send him the information memorandum and any information he had on the interview with Mr Carey referred to in the letter, and Mr Brannelly responded that he would do so today.  Accordingly, paragraph 8(b) was proved.

1. Mr Brannelly did in fact send to Mr Pegg a letter dated 22 July 2005 which enclosed a copy of the information memorandum Exhibit 1, and a copy of an interview between someone identified only as Kebbel and Norm Carey:  Exhibit 30.  That was the letter referred to in paragraph 10, but before coming to that I should deal with the allegation in paragraph 8(c) that there was an express statement by the first defendant that he was satisfied the investment in Westpoint was very secure.  To some extent this is covered by a finding I have already made in relation to paragraph 8(ab)(i), and of course by saying “will do today” he impliedly represented that the investment was secure.  Nevertheless in terms the evidence of Mr Pegg did not support the allegation in 8(c) as a separate allegation, so that allegation was not made out.

1. Paragraph 9 alleged that as a result of making the statements referred to in paragraph 8 the defendants made certain representations.  The representation referred to in 8(ab)(i) was effectively a representation also by the defendant that the investment was a very secure investment, and hence a secure investment, so paragraph 9 was proved in relation to the first and second defendants.

1. Paragraph 10 referred to the letter of 22 July 2005:  Exhibit 30.  The sending of that letter was admitted, but it was denied that any advice was given and reliance was placed on the statement on the third page headed “Disclosure” which was in the same terms as the statement with the same heading on page 3 of Exhibit 28.  Notwithstanding that statement, for the reasons given earlier in the light of the content of the letter as a whole, I find that it did amount to advice by the defendant with respect to investing in Bayshore Mezzanine promissory notes.  The letter contained the express statements referred to in paragraph 10(b) except that the third paragraph did not contain the words “in excess of” alleged in the second line of paragraph 10(b)(i), the first paragraph used the word “have” instead of the word “has” in paragraph (b)(ii), the letter referred to capital “now being raised on Bayshore” rather than the “now being raised at Bayshore” in paragraph (b)(vii) and under Investment Highlights the letter referred to as security “guarantee from the Westpoint group …” whereas paragraph (b)(viii) alleged “guarantee from Westpoint group … .”  These inaccuracies are of no consequence.  I find that these amounted to representations by the defendant.

1. Paragraph 11 alleged that the defendants made certain implied representations in making the express representations referred to in paragraphs 7, 8, and 10.  Paragraph 8 referred to statements rather than representations, but I will take this as a reference to the statements in paragraph 8(ab) which have been found.  The allegations are similar to the allegations in paragraph 11 in Evans, though of course have to be decided by reference to the express representations in paragraphs 7, 8, and 10 that were made to Mr Pegg.  On that basis, I find that the implied representations in paragraph 11(c)(iv), (d) (in effect), (e), (f)(i) and (ii), (g), (h)(i) and (iii), (i), (k), (l), and (m) were made.

1. Paragraph 12 alleged that the plaintiff invested $50,000 in a Bayshore Mezzanine Pty Ltd promissory note on or about 1 August 2005 in reliance on the advice and representations referred to in paragraphs 5 to 11.  Paragraphs 5 and 6 did not refer to advice or representations.  Mr Pegg said that he signed an application form for Bayshore (Exhibit 32) and indeed one for Prime (Exhibit 31, dated 26 July 2005) and sent these with his cheques to the defendant; the investment in Bayshore was acknowledged by a letter from the defendant dated 27 July 2005:  Exhibit 33.  He subsequently received from Bayshore Mezzanine Pty Ltd a promissory note dated 1 August 2005 for $50,000:  Exhibit 34.  Accordingly I find that he signed the application form and sent in his cheque on 26 July 2005, as a result of which the promissory note was issued on 1 August 2005.

1. Mr Pegg said that in relation to the letter of 18 July he relied on the reference to its being a limited opportunity, and being an excellent opportunity to invest (p 163), the return at 14% which he regarded as very attractive, the fact that the company had been in business for over 20 years (p 164), that about one‑third of the money to be raised had already been raised, that it was a short‑term investment, that Westpoint group had net assets in excess of $80 million, that the company that his money would be going into had a second ranking mortgage over the development property (p 165), that there was a second ranking charge as well, and that there was a guarantee from the Westpoint corporation, a guarantee of the company’s obligations under the loan, that is to return his investment:  p 166, p 217.

1. Mr Pegg’s evidence about the guarantee was not always very clear.  At p 166 line 30 he seemed to say that the company was getting the guarantee, but his next answer showed that he understood it as a guarantee of Bayshore Mezzanine’s obligation to him.  Under cross‑examination he mentioned the guarantee at p 218 but in terms which were ambiguous.  At pp 223-4 he seemed to accept that the Information Memorandum Exhibit 1 referred to a guarantee “given to Bayshore Mezzanine” and that that corresponded with his understanding of the position at the time.  At p 248 I asked him again about his understanding of the guarantee, and he again said that he took it from the letters that Westpoint proved a guarantee of the obligations of Bayshore Mezzanine to him.

1. No doubt Mr Pegg had only a layman’s understanding of a guarantee, and may not have appreciated the true import of what he was being asked at times.  Overall, I find that he did at the time believe that he, rather than Bayshore Mezzanine, would get the benefit of Westpoint’s guarantee in the immediate sense, which was the natural interpretation of what was said in the letters, and relied on that, notwithstanding what was said about the guarantee in Exhibit 1.  He also relied on the recommendation of Bayshore Port Melbourne as the most appealing project at present, and the fact that the money was needed to construct additional floors, and the fact that the accounts had been audited by KPMG:  p 167.  He also referred to the matters under the investment highlights, including the large number of pre‑sales, when the project was due for completion, and the security, so that it was “all in all a very, very attractive proposal.”:  p 167.

1. In relation to the letter of 22 July, he said that that was very similar to the earlier letter and that he relied generally on the same things, though he noted that the amount that had already been raised had gone up to $10 million:  p 177.  It is not difficult to conclude that Mr Pegg also relied on the things he had been told orally by the first defendant on 22 July 2005.  Overall, I find that in making the investment the plaintiff through Mr Pegg relied on the advice in paragraph 7(a) and 10(a), and the representations in paragraph 7(b), 8(ab), 9, 10(b), and 11 (to the extent found).  Paragraph 13 was admitted; paragraph 14 was proved by the evidence of Mr Pegg and Exhibit 35.

1. It will surprise no‑one who has persevered this far to learn that paragraph 15 was in essentially the same terms as paragraph 15 in Evans, and for the reasons given there I find paragraphs (a), (b), (c), (g), and (i) proved.  Paragraph 16 was in the same terms as paragraph 16 in Evans, and for the reasons given there I find the facts in paragraph (a) (to some extent), (b), (e), (f), and (i) proved.  Paragraph 17 alleged that the representations in paragraph 7 to 11 were false, misleading, and deceptive because of various matters there alleged; the matters there alleged were the same as the matters alleged in paragraph 17 in Evans, and for the reasons given there I find the facts in paragraphs (a), (b), (c), (d), (f), (g), (h), (i), (j)(i) concerning the first and second defendants, the second (i)(ii), and (k) proved.

1. As to whether the representations were false, misleading or deceptive, I find that the representation in paragraph 7(b)(i) that the opportunity was limited, (ii) that it was an excellent opportunity to invest, (iv) that the Westpoint group had net assets in excess of $80 million, (v) that for each project the special purpose company has a second ranking mortgage over the development property and a second ranking charge, (vi) that Westpoint corporation and associated entities provided guarantees for the company’s obligations under the loan, and (x) as to the security available, were false, misleading and deceptive.  The representations in paragraph 8(ab) that the investment was very secure, that Westpoint group had guaranteed the investment, that Westpoint had assets of $80 million and that Bayshore Mezzanine had a second mortgage over the property were all false, misleading and deceptive, and the corresponding representations in paragraph 10(b)(ii), (iii), (iv), (v), (viii) as to security, and (x), and the corresponding implied representations in paragraph 11(d)(i), (e), (f)(ii), (g), (h)(i) and (iii) concerning the first and second defendants, and (m) except as to the mortgage were false, misleading and deceptive, for the reasons already given elsewhere.

1. Paragraph 18 alleged that a financial adviser exercising reasonable care and skill would have advised clients of a number of matters.  I find that a financial adviser would have advised clients of the matters in paragraphs (g) and (h), for reasons given elsewhere, but the allegation is irrelevant because the plaintiff was not a client in the relevant sense.  Paragraph 19 then alleged that there was a breach of contract or duty of care to the plaintiff for the first and second defendants to fail to advise the plaintiff of the matters in paragraphs 15, 16, 17, and 18.  There was no question of contract, but I find for reasons given elsewhere that it was a breach of the first and second defendant’s duty of care to fail to advise the plaintiff of the matters referred to in paragraphs 15(c), 16(i), 17(a), (c)(ii), (g), (h)(i), (i), (j)(i) concerning the first and second defendants, and (k), and 18(a), (b), (g), and (h).

1. Paragraph 20 alleged that a financial adviser exercising reasonable care and skill in relation to the relevant investments would have done various things.  The allegation parallels that in paragraph 20 in Evans, and for the reasons given there I find that a financial adviser in such circumstances would have done the things in paragraphs (a), (d), (e)(iii), (h), and (l).  One difference from Evans is that it would not have been necessary to give the advice referred to in paragraph (j), because it is clear from Mr Pegg’s evidence that he did appreciate that he was not lending the money directly to the development company but rather lending money to a company which did not own the real estate or was not actually doing the development.

1. Paragraph 20A alleged that a financial adviser exercising reasonable care and skill would have known of the matters referred to in paragraphs 14 to 16 above.  For reasons given elsewhere I find that such a financial adviser would have known of the matters in paragraphs 15(a), (b), (c), (g)(i), and (i), and 16(i); there were no relevant matters in paragraph 14.  As to paragraph 20A(b) such an adviser probably would have advised clients of those matters but that is irrelevant because the plaintiff was not a client in the relevant sense.  Paragraph 20B seems to me to be the same as paragraph 20A(a) and I make the same findings.

1. Paragraph 21(b) alleged that had the defendants exercised the level of care and skill of a reasonably competent financial adviser they would have been aware of the matters in paragraphs 15 to 20 and 21A.  I have already made findings in paragraph 20A(a) about the awareness of such a financial adviser of the matters in paragraphs 15 and 16.  I find for the reasons given in Evans that such a financial adviser would have been aware in addition of the matters referred to in paragraphs 17(a), (b), (c), (d), (g), (h), (i), (j)(i) concerning the first and second defendants, and (k), 18(a), (b), (c), (g), (h), 20(a), (d), (e), (h), (j), and (l), and 21A(a), (b), (c), (h), and (i).  As to paragraph 21(c), I find for the reasons given in Evans that the first and second defendants had a duty to advise the plaintiff of the matters referred to in paragraphs 18(a), (b), (g), and (h), 20(a), (d), (e)(iii), (h), and (l), and 21A(a), (b), (h), and (i).  Paragraph 21A alleged various things about Bayshore Mezzanine Pty Ltd which were much the same as in paragraph 18; I find the facts in paragraph 21A(a), (b), (c), (h), and (i) proved.

1. Paragraph 22 alleged that it was a breach of the duty of care of the first and second defendants not to attend to or otherwise advise the plaintiff of the matters referred to in paragraphs 18, 20, and 21A.  For the reasons given in Evans, I find it was a breach of the duty of care to fail to attend to or advise the plaintiff of the matters referred to in paragraphs 18(a), (b), (g), and (h), 20(a), (d), (e)(iii), (h), and (l), and 21A(a), (b), (h), and (i).  Paragraph 23 alleged that there was a breach of duty of care of the defendant in failing to advise the plaintiff of those matters and by making the representations referred to in paragraphs 7 and 11.  I find there was a breach in making the representations referred to in paragraph 7(b)(ii) that it was an excellent opportunity to invest, (iv) that the Westpoint group had net assets in excess of $80 million, (v) that for each project the special purpose company has a second ranking mortgage and a second ranking charge, (vi) that the Westpoint corporation and associated entities guaranteed the company’s obligations under the loan, and (x) in relation to the security of the investment.  I also find there was a breach of duty of care in making the related implied representations in paragraph 11(e), (f)(ii), (g), (h)(i) concerning the first and second defendants, and (m).

1. Paragraph 24 alleged that the plaintiff would not have proceeded with the investment had it been aware of the matters referred to in paragraphs 15, 16, 17, 18, 20, or 21A. Mr Pegg said that if he had been told that a promissory note was nothing more than an IOU he would not have made the investment, nor if he had been told there was no second ranking mortgage in place, nor a second ranking charge, nor if he had been told this was a high risk investment: p 182.[256]  He would not have invested if he had been aware of the contents of Exhibit 17, the ASIC warning, or if he had been told that the court had determined that promissory notes ought to be registered under the Corporations Act and comply with the requirements under the Act and these did not:  p 104.  I accept his evidence, and in the light of this evidence, and the evidence of Mr Pegg generally, and my general assessment of him as an individual, I find that the plaintiff would not have proceeded with the investment had the plaintiff been aware of the matters referred to in paragraphs 15(c), 16(i), 17(c)(ii), (g), (h)(i), (i), (j) concerning the first and second defendants and (k), 18(a), (b), (g), and (h), 20(a), (d), (e)(iii), (h), (l), and 21A(a), (b), (h), and (i).

   [256]I do not treat his answer at p 237 line 54 as an admission that he knew this was a high risk investment, just that that was suggested by the interest rate in isolation.  That was countered by what he was told in the letters.

1. As to paragraph 25, I find that the representations in paragraph 7(b)(ii), (iv), (v), (vi), and (x) as identified earlier in relation to paragraph 23, the representations in paragraph 8(ab), the representations in paragraph 10(b)(ii), (iii), (iv), (v), and (viii) concerning the security, which essentially parallel the corresponding representations in paragraph 7(b), and the implied representations in paragraph 11(e), (f)(ii), (g), (h)(i) concerning the first and second defendants, and (m) constituted negligent misstatements. For the reasons given in Evans, paragraph 60 was also proved.

1. Paragraph 26 then alleged that the representations referred to in paragraphs 7 to 11 and the failure to advise or attend to matters referred to in paragraphs 18, 20, and 21A constituted misleading or deceptive conduct by the defendants in contravention relevantly of s 12DA of the ASIC Act.  For the reasons given in Evans, I find that the ASIC Act applied and find the facts alleged in paragraph 26A proved. For the reasons given elsewhere, I find that making the representations referred to in paragraphs 7, 8, 10, and 11 that I identified as false, misleading and deceptive in relation to paragraph 17 earlier constituted misleading and deceptive conduct for the purposes of the ASIC Act. I need not deal with paragraphs 26B to 26D.

1. Paragraph 27 alleged that as a consequence of the negligent misstatements and breaches of the ASIC Act the plaintiff suffered certain loss and damage.  I find that as a result of making the investment the plaintiff suffered the loss of his principal of $50,000, together with interest at 8% from 1 August 2005, less the interest actually paid which amounted to $1,495.89:  Exhibit 35.  This produces a total loss to the date of judgment of $61,731.50.[257]  As to whether this was caused by the negligence and negligent misstatements and breaches of the ASIC Act, I accept that the plaintiff made the investment because Mr Pegg was relying on what he had been told by the defendant, as identified earlier, and that if he had not been told those things, or if he had been told the various other matters referred to earlier, which he ought to have been told, he would not have made the investment.  Accordingly I find that he did suffer this loss as a result of the negligence, negligent misstatements and breach of the ASIC Act of the first and second defendants.

   [257]$50,000 + $13,227.39 - $1,495.89.

1. It is also relevant to consider whether it was reasonable for the plaintiff to have relied on the representations which amounted to misleading and deceptive conduct on the part of the first and second defendants.  In all the circumstances, I find that it was reasonable.  The defendants held themselves out to him as financial advisers, persons who were experts and experienced and persons who could be trusted by him.  In the financial services guide which was attached to Exhibit 27, which Mr Pegg read (p 161) it was said that “your adviser will be acting for you and not for any financial institution.”  Mr Pegg had no reason to know that Mr Brannelly was not even attempting to live up to that proposition.  The various statements in the document “Brannelly the professional prospective” would also have engendered confidence in the proposition that things said by the defendant could safely be relied upon.  In all the circumstances, bearing in mind this and all of the circumstances disclosed in Mr Pegg’s evidence, I find that it was reasonable for him and therefore the plaintiff to have relied on the representations which amounted to misleading and deceptive conduct.

1. It was alleged in the defence at paragraph 27 that the plaintiff was aware or ought to have been aware of the matters in paragraphs 7, 11, 14, 15, 16, 17, 18, and 20 of the statement of claim from his own assessment of the informant memorandum and public knowledge. Mr Pegg received a copy of the information memorandum, and read it, but the only discrepancy that he detected was that it made no reference to the additional floors, and he assumed, reasonably enough, that this was because the information available to the defendant was more up to date. Otherwise he did not detect any discrepancy, which was reasonable. There was no evidence that he could have been aware of any of those matters from public knowledge. Paragraph 27(a) was not made out.

1. I find that the letters of 18 July and 27 July 2005 did contain the statements set out in paragraph 9(d) of the defence; I have already commented elsewhere on the lack of significance of those statements. I find that Mr Pegg was not in fact aware of the matters in paragraph 27(c) of the defence, nor ought he to have been aware of them from reading the information memorandum. Paragraph 27(d) was not made out; Mr Pegg received advice from the defendant, and decided to invest because of that advice and acted on it. There was no evidence that he received any information about the proposed investment, or any advice in relation to it, from any other source. Paragraph 27 accordingly was not made out, and it follows that paragraph 28 which was an allegation of contributory negligence was not made out either. There was also an allegation of contributory negligence pleaded in relation to the claim under the ASIC Act.  For these reasons, and for reasons analogous to those set out in more detail in Evans, I find that that claim of contributory negligence also fails.  Although Mr Pegg had some investment experience, he was by no means a sophisticated investor and it was reasonable for him not to have analysed the Information Memorandum in sufficient detail to realise either that this was in fact not a good investment, or that he should not accept at face value what was said about it by someone who was supposed to be acting for him.

1. The defendant also pleaded in paragraph 28A that any loss suffered by the plaintiff had been suffered as a result of his subsequent investment in the Westpoint Income Fund and the failure of that investment.  Mr Pegg received from Bayshore Mezzanine Pty Ltd a letter of 1 November 2005 inviting him to transfer his investment to the Westpoint Income Fund, and signed and sent in the application forms and other documents associated with that proposal which were attached, on 23 November 2005:  Exhibit 40.  The forms were sent on to Kebbel:  Exhibit 119.  There was, however, no evidence that this was acted on by Bayshore Mezzanine Pty Ltd, or for that matter anyone else, and accordingly it has not been shown that the plaintiff’s investment at the relevant time had become one in the Westpoint Income Fund.  In any case, it is clear that the plaintiff received this offer to invest in the Westpoint Income Fund, and did what was done with a view to attempting to achieve that, only because he had already invested in a Bayshore Mezzanine Pty Ltd promissory note, so that the chain of causation was not broken.  This defence also fails.

1. The defendant also relied on the proportionate liability provisions of the Civil Liability Act and the ASIC Act.  There is a distinction here in relation to the application of the Civil Liability Act from the position in Evans, because this plaintiff does not satisfy the requirements of the definition of a “consumer” for the purposes of s 28(3). The plaintiff is a company, and therefore not an individual. However, the various other matters discussed in Evans in relation to an apportionable claim under the Civil Liability Act apply equally in this matter. So far as the plaintiff pleaded and proved any cause of action against the third defendant, it was not in respect of any act or omission which caused the plaintiff’s loss or damage independently of the first and second defendants; it is a liability which arises by way of vicarious liability, or because the third defendant was a joint tortfeasor with the first and second defendants in respect of the relevant acts and omissions of the first and second defendants. Accordingly, the third defendant was not a concurrent wrongdoer for the purposes of s 30 of the Act, or at least the first and second defendants have not shown that that was the case.

1. In relation to the various other potential concurrent wrongdoers identified in the defence, it is sufficient to say that the defendant has failed to plead and prove any basis on which any of them are liable to the plaintiff so as to make them concurrent wrongdoers.  It follows therefore that, for the reasons given in Evans except in relation to the question of whether the plaintiff was a consumer, the attempt to reduce the damages payable on the basis that the plaintiff’s claim is an apportionable claim for the purposes of the Civil Liability Act fails.

1. So far as the claim under the ASIC Act is concerned, this is an apportionable claim so far as the third defendant is concerned, and the position is relevantly similar to that in Evans. Again in my opinion the first and second defendants were principally responsible for the plaintiff’s loss as between them and the third defendant. For the reasons given in Evans, I would apportion 25% of the loss to the third defendant and 75% of the loss to the first and second defendants. However, because of s 12GR(2) of the ASIC Act, I give judgment for an unreduced sum against the first and second defendants.

1. The situation with this plaintiff is therefore relevantly the same as with the other plaintiffs.  In the circumstances the first and second defendants owed the plaintiff a duty of care, and they breached that duty of care in various ways, particularly by asserting that the proposed investment had the benefit of a security in the form of a guarantee from Westpoint corporation and associated entities, and other advantages, which it did not have, and in failing to provide appropriate warnings as to the hazards associated with the investment, of which they ought to have been aware, and the various other matters referred to earlier.  As a result of those matters, the plaintiff made the investment, and as a result suffered a loss, which was therefore caused by the negligence of the first and second defendants.  The incorrect statements about the proposed investment also amounted to misleading and deceptive conduct on the part of the first and second defendants, on which the plaintiff reasonably relied, and therefore suffered the same loss.  Sufficient of the facts alleged in the statement of claim have been admitted or proved to entitle the plaintiff to judgment against the first and second defendants.  In all the circumstances therefore there will be judgment that the first and second defendants pay the plaintiff $61,731.50 which is inclusive of interest to the date of judgment.