Jackson v Abram
[2014] SADC 118
•2 July 2014
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
JACKSON & ANOR v ABRAM & ANOR
[2014] SADC 118
Judgment of His Honour Auxiliary Judge Clayton
2 July 2014
CORPORATIONS - FINANCIAL SERVICES AND MARKETS - MARKET MISCONDUCT AND OTHER PROHIBITED CONDUCT - MISLEADING, DECEPTIVE OR UNCONSCIONABLE CONDUCT
CORPORATIONS - MANAGED INVESTMENTS - RESPONSIBLE ENTITY
TRADE AND COMMERCE - COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION - CONSUMER PROTECTION - MISLEADING OR DECEPTIVE CONDUCT OR FALSE REPRESENTATIONS - MISLEADING OR DECEPTIVE CONDUCT GENERALLY
PROFESSIONS AND TRADES - ACCOUNTANTS AND AUDITORS - ACCOUNTANTS - DUTIES AND LIABILITIES - NEGLIGENCE
TORTS - NEGLIGENCE - ESSENTIALS OF ACTION FOR NEGLIGENCE - WHERE ECONOMIC OR FINANCIAL LOSS - CARELESS ADVICE, STATEMENTS AND NON-DISCLOSURE
TORTS - NEGLIGENCE - CONTRIBUTORY NEGLIGENCE - PARTICULAR CASES - OTHER CASES
DAMAGES - GENERAL PRINCIPLES - EXEMPLARY, PUNITIVE AND AGGRAVATED DAMAGES
TAXES AND DUTIES - ADMINISTRATION OF FEDERAL TAX LEGISLATION - TAX AGENTS - LIABILITY - GENERALLY
INTEREST - RECOVERABILITY OF INTEREST - AWARD OF INTEREST AS DAMAGES - IN SOUTH AUSTRALIA - GENERALLY
The plaintiffs engaged the defendants to perform accounting and taxation services. The second defendant is in liquidation and played no part in the proceedings. The action proceded against the first defendant who was an authorised representative of Great Southern, the promoter of managed agricultural investment schemes. The defendants carried out accounting tasks including the incorporation of the second plaintiff, the establishment of a trust and a self managed superannuation fund and prepared taxation returns for the plaintiffs.
On the basis of advice from Mr Abram the plaintiffs made the following investments in Great Southern managed agricultural investment schemes:
2005 plantation project $15,000
2006 cattle project $140,000
2007 cattle project $140,000
2007 olive project plus options $48,000
2008 wine grape project - net $102,200
In August 2008 Great Southern Ltd announced a proposal, called Project Transform, to restructure some of the Great Southern investment schemes, including the 2006 and 2007 cattle projects, by exchanging the investors interest in the schemes for shares in Great Southern Ltd. The proposal was accepted at extra ordinary general meetings of investors and shareholders with the result that the plaintiffs interests in the schemes were compulsorily acquired and on 4 February 2009 Mr Jackson was allotted 322,336 shares in Great Southern Ltd. As at 4 February 2009 those shares had a market value of $49,962.
On 16 May 2009 administrators were appointed to various companies in the Great Southern Group and on 19 November 2009 an order was made placing various companies in the Great Southern Group, including Great Southern Ltd, in liquidation. As a consequence the shares in Great Southern Ltd became worthless as did the investments in the 2005 Plantation Project, the 2007 Olive Project and the 2008 Wine Grape Project.
The plaintiffs claim that the investments in the Great Southern Group were made as a consequence of:
- False and misleading conduct contrary to s12DA of the ASIC Act and s1041H of the Corporations Act.
- False and misleading representations about the standard, quality, value and suitability of investments in contravention of s12DB of the ASIC Act.
- False and misleading representations contrary to s769C of the Corporations Act.
- Breaches of warranty contrary to s12ED of the ASIC Act.
- Breaches of Chapter 7 Part 7.7 Division II of the Corporations Act in that the defendants failed to provide the plaintiffs with a Financial Services Guide and Statement of Advice for each investment, and
- Breaches of the common law duty of care and negligent advice.
In their Statement of Claim the plaintiffs claim damages of $3,916,298.38 comprised of the following:
- Total investments $445,120
- Project returns $242,457
- 10% return on Great Southern shares for 20 years $560,000
- Loss of share sale proceeds based on an expectation that the value of shares in Great Southern Ltd would increase to $4.76 - $1,534,319
- Estimated future tax liability with investment returns $1,114,402
In addition the plaintiffs have claimed exemplary or punitive damages.
The defendant argued the defendant was not subject to Chapter 7 of the Corporations Act because the defendant was within an exception created by s766B(5)(c) of the Corporations Act in that the advice was given by a registered tax agent "in the ordinary course of activities as such an agent" which could reasonably be regarded as a necessary part of those activities and was not "financial product advice".
The defendant argued that under s917B of the Corporations Act Great Southern Securities Pty Ltd, as the holder of an Australian financial services licence, rather than Mr Abram, was responsible for the conduct of Mr Abram.
Held:
1. The defendant's argument that he was excused from liability by the "tax agent exemption" rejected.
2. Claim that Great Southern Securities Pty Ltd and not Mr Abram was liable rejected. Section 917F makes licensee and representative jointly and severally liable.
3. In respect of the 2005 Plantation Project the investment was made by the plaintiff Arian. The plaintiffs have not made out any cause of action and the claim must be dismissed.
4. In respect of all other investments the investor was the plaintiff Gary Jackson.
5. The legislative provisions did not exclude the common-law liability of the defendants for negligence.
6. In respect of the 2006 Cattle Project, the 2007 Cattle Project and the 2007 Olive Project and options, all of which were speculative and high risk investments, the defendant David Abram was negligent in that he did not advise the plaintiffs to spread the risk of their investments amongst investments other than Great Southern. The defendant was in a position of conflict in that he stood to derive commission if the plaintiffs made investments in Great Southern and he negligently advised the plaintiffs to make substantial investments in Great Southern.
7. The plaintiffs were not guilty of contributory negligence.
8. In respect of the 2008 Winegrape Project the plaintiffs made that investment following their own research, they did not make the investment through the defendant and did not rely on the defendants in making that investment. The claim in respect of that investment dismissed.
9. Damages in respect of the 2006 Cattle, 2007 Cattle and 2007 Olive Projects assessed on the basis that a competent adviser giving reasonable advice would have advised the plaintiffs to diversify the risk and limit their investment in Great Southern .
10. The award must be reduced by the amount of the taxation deductions enjoyed from the relevant investments.
11. Claims for punitive and exemplary damages dismissed.
Judgment against the defendant David Abram in favour of the plaintiff Gary Jackson.
Submissions are required in respect of the effect of taxation on the award and costs.
Corporations Act 1990 ss761G; 766B(5)(c); 766A;s945A; 953B; 1041H; 1041N; 1324(10); Australian Securities & Investment Commission Act 2001 ss12BAB; 12DA; 12DB; 12ED; 12GF, referred to.
Presser v Caldwell Estates Pty Ltd [1971] 2 NSWLR 471; Heydon v NRMA (2000) 51 NSWLR 1; Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 206 FLR 112; Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; Hawkins v Clayton (1988) 164 CLR 539; Lanphier v Phipos (1838) 8 C&P 475; Mbakwe v Sarkis [2009] NSWCA 330; Mutual Life & Citizens Assurance Co Ltd v Evatt (1968) 122 CLR 556; Paige v FPI Limited & Anor (2001) Aust Torts Reports 81-625 [188]; Ali v Hartley Poynton Pty Ltd (2002) 28 CLC 1006; Gray v Motor Accident Commission (1998) 196 CLR 1; XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd (1985) 155 CLR 448; Uren v John Fairfax & Sons Pty Ltd (1966) 117 CLR 118; Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR 241; Tomasetti v Brailey [2012] NSWCA 399 [87]; The Laws of Australia 31.12.280, considered.
JACKSON & ANOR v ABRAM & ANOR
[2014] SADC 118Introduction
G Jackson and Arian Systems Pty Ltd v D Abram and David Abram and Associates Pty Ltd
The plaintiffs claim $3,916,298.38 plus interest and costs as a consequence of failed investments in tax-deductible managed agricultural investment schemes promoted by the Great Southern Group. Mr Jackson represented both himself and the plaintiff Company in these proceedings.
At the relevant times the defendants carried on business as an accountant and financial planner at Salisbury. The first defendant David Abram conducted that business under the aegis of the second defendant David Abram and Associates Pty Ltd. In addition to the accounting practice Mr Abram was a representative of the Great Southern Group.
Mr Abram gave evidence that his particular specialisation was superannuation and tax planning.[1] In the yellow pages his practice was listed under Tax Returns, Superannuation and Business Advice[2] The signage on the building from which the business was carried on referred to Accountants, Tax Agents and Business Advisors.[3]
[1] T 670 l 33
[2] T 671
[3] T 672
The second defendant is in liquidation and there is a stay of proceedings against that defendant by reason of s471B of the Corporations Act 2001. There has been no application for leave to proceed against the company and the liquidator advised that he did not wish to participate in this action which proceeded against the first defendant only.
Mr Jackson is a systems engineer/software engineer/consultant. He works on defence projects, for example, space projects doing system design engineering. He has a Bachelor's degree in computer science maths, a Masters degree in control engineering and is a chartered engineer. He worked in the United Kingdom and Canada before coming to Australia where he has worked in the defence industry. At first he was an employee but later provided services as a contractor.
When Mr Jackson changed to contracting his income increased significantly, however one of the organisations which he provided services to was only prepared to contract with companies. Hence in about November 2004 Mr Jackson consulted the defendants, who had an office on the Salisbury Highway at Salisbury, for the purpose of incorporating a company with which to conduct his business. The plaintiff Arian Systems Pty Ltd was established for that reason.
In his final address Mr Jackson stated that he was pursuing this action on behalf of Arian. While the first of the investments, namely the 2005 Plantation Project, was made in the name of Arian all of the following applications to Great Southern were made in the name of Mr Jackson, although funds used to pay for the investments may have been derived from Arian.
The defendants assisted Mr Jackson with the incorporation of a company, the establishment of a trust, the establishment of a self managed superannuation fund and the preparation of Mr Jackson's taxation returns. During the course of meetings which took place for accounting purposes Mr Abram drew the attention of Mr Jackson to the managed investment schemes of the Great Southern Group. The availability of the schemes was first raised by Mr Abram, not Mr Jackson.
In its simplest form the plaintiffs’ case is that the schemes involved a high risk, Mr Abram was aware of that risk but did not draw it to the attention of Mr Jackson and did not advise the plaintiffs of the desirability of portfolio diversification[4]. Mr Jackson claims that if he had been aware of a number of matters, including the fact that the investments were high risk, he would never have entered into the relevant transactions. The Great Southern Group and the relevant schemes failed with the result that the plaintiffs lost five separate investments.
[4] Outline para 2.7 and 53.4
The claim which has been presented by the plaintiffs is not simple. The Statement of Claim extends to more than 130 pages and the oral evidence of the plaintiff Mr Jackson occupied almost 7 days. In addition to his oral evidence Mr Jackson relied upon an affidavit of 337 pages which had been filed pursuant to a pre-trial direction. Much of the affidavit was objected to by the defendant and was disallowed on the basis that it was argument rather than evidence. However I advised the parties that I would have regard to the argument in the determination of the case.
The Statement of Claim is a sophisticated pleading which is appropriate for the claims of this type. The person who drafted the document clearly has insight into pleading requirements and the legal principles relating to such claims. The person who drafted the Statement of Claim was not the plaintiff. Unfortunately the evidence and argument of the plaintiffs, while competent and extensive, does not demonstrate the same level of sophistication and relevance in addressing the issues.
The Defence extends to 71 pages.
I have read the pleadings carefully but do not intend to set out a detailed analysis of all the issues raised by the pleadings in these reasons. That would result in an unnecessarily lengthy and convoluted document. I have attempted to focus on those issues which are relevant to the decision.
Evidence as to the dealings between the parties was given by Mr Jackson and Mr Abram. On the question of damages the defendant called evidence from Ms Cusack, a Sydney chartered accountant. On her evidence, if the plaintiffs succeed on the issue of liability, the amount of the damages would be significantly less than the sum claimed by the plaintiffs.
The plaintiffs’ claim involves six separate transactions namely:
·2005 Plantation Project
·2006 Great Southern Beef Cattle Project
·2007 Great Southern Beef Cattle Project
·2007 Diversified Olives Income Project and Options.
·2008 Wine grape Project.
·Project Transform.
The circumstances in which the plaintiffs make a claim in respect of each of those projects must be considered separately. That involves a consideration of a course of events over almost five years from October or November 2004 until Great Southern went into liquidation in 2009.
With respect to the separate transactions the Statement of Claim includes allegations that:
·the plaintiffs were consumers within the meaning of that term as defined in the ASIC Act and the Trade Practices Act. (paragraph 12)
·the plaintiffs were retail clients within the meaning of the Corporations Act (including761G) (paragraph 13)
·the conduct of the defendants with respect to each of the investments constituted personal advice within section 766B of the Corporations Act, constituted financial product advice as defined in section 766B of the Corporations Act and involved providing financial services as defined in sections 766A 766B of the Corporations Act and section 12 BAB of the Australian Securities and Investment Commission Act (“ASIC Act”).
·the defendants engaged in false and misleading conduct contrary to section12DA of the ASIC Act and s1041H of the Corporations Act.
·The defendants made false and misleading representations about the standard, quality, value and suitability of investments in contravention of section12 DB of the ASIC Act
·the defendants made false and misleading representations contrary to section 769C of the Corporations Act
·there were breaches of contract/warranty contrary to section 12 ED of the ASIC Act, by failing to provide financial services that were fit for a purpose made known by Mr Jackson and which would achieve the results desired by the plaintiffs
·there were breaches of Chapter 7 Part 7.7 Division Two of the Corporations Act in that the defendants failed to provide the plaintiffs’ with a Financial Services Guide or Statement of Advice for each investment
·representations were made as to future matters without reasonable grounds
·the defendants were in breach of their common law duty of care and gave negligent advice
The plaintiffs’ claim damages pursuant to ss953B and 1324(10) of the Corporations Act and section 12 GF of the ASIC Act and at common law.
As suggested by the length of the Statement of Claim the claims are extensive. Much of the Statement of Claim is repetitive ritual in that the same allegations are repeated in respect of each of the investments and it is difficult to isolate the facts which may establish a meritorious claim. Furthermore the plaintiffs’ evidence and submissions were not confined to the allegations in the pleadings but covered many complaints about the conduct of the defendants which are irrelevant for the purpose of determining the claim.
I have attempted to divine from the evidence those facts which could establish liability on the part of the defendants.
The Plaintiffs Opening
In opening the plaintiffs’ case Mr Jackson did address the relevant issues. His complaints included allegations that Mr Abram did not disclose that he was acting as an authorised representative of Great Southern,[5] that Mr Abram never disclosed to the plaintiffs that he received remuneration from anyone other than the plaintiffs’[6] and concealed the fact that during his dealings with the plaintiffs he was receiving remuneration or promises of remuneration from Great Southern with respect to the plaintiffs’ investments and the investments of his other clients.[7]
[5] T 26 l 8
[6] T 27 l 1
[7] T 27 l 8
He said that because of the undisclosed remuneration Mr Abram had a conflict of interest.
Mr Jackson asserted that Mr Abram had ignored his duty of care to the plaintiffs. He said that the first reason why the plaintiffs have suffered damages was because Mr Abram recommended Great Southern high risk investments to the plaintiffs whom he knew or ought to have known had a highly conservative risk profile and in doing so he ignored Great Southern’s mandatory requirement on him not to recommend Great Southern products to people with the plaintiffs’ risk profile.
He asserted that Mr Abram ignored a mandatory requirement from Great Southern, as detailed in ASIC policy statement 175, not to recommend products to clients if they are not appropriate for them.[8]
[8] T 29 l 27
He said that David Abram had a duty of care to the plaintiffs whilst acting as Arian's accountant and financial adviser but he failed in his duty of care to the plaintiffs.[9]
[9] T 30 l 16
He attacked Mr Abram's competence alleging that Mr Abram was neither trained nor qualified to provide the personal financial advice which he did and that Mr Abram failed to follow Great Southern policies and procedures when dealing with the plaintiffs.
He claimed that Mr Abram never gave mandatory documents to the plaintiffs, for example: the Financial Services Assistance Guide, Adviser Profile, Statements of Advices and Product Disclosure Statements (“PDS”). He said Mr Abram never advised the plaintiffs what a PDS was or that they should read one before they decided whether to invest in a project. He also said that Mr Abram never used documents mandated by Great Southern in his dealings with the plaintiffs and because he failed to use checklists he failed to follow steps which were mandatory.[10]
[10] T 31 l 2
He claimed that Mr Abram never investigated the subject matter of the advice before he gave it and never assessed the appropriateness of the advice before he gave it.[11] He referred to the appropriateness of the advice having regard to the current investments of the plaintiffs, and the plaintiffs’ risk profile, which was highly conservative, and the risk nature of the investments he was recommending which were high risk investments.[12]
[11] T 31
[12] T 31 l 23
Mr Jackson stated that the plaintiffs were not advised to read the documents they were required to sign and that they were not given copies of the documents which they signed either before or after signature. He said that there was therefore no way of knowing whether the documents disclosed by the defendants in this action as purporting to have been signed by Mr Jackson were signed by Mr Jackson at all, that is whether the signatures are genuine or forgeries. He said he had no way of knowing whether the documents which have been disclosed are those which were signed or whether pages had been added, removed or modified, for example, by stamps being added after signature.
In his opening Mr Jackson said that Mr Abram engaged in fraudulently deceptive, false and misleading practices and made false statements or declarations in the Statement of Advice and Client Fact Find Forms and Authority to Proceed documents which Mr Abram prepared but which he did not give to the plaintiffs.
Mr Jackson complained that Mr Abram made promises as to the returns on investments which had no basis.[13]
[13] T 33 l15
Mr Jackson said that even after he raised concerns with Mr Abram about Arian having all its “eggs in Great Southern” Mr Abram continued hawking further Great Southern projects to the plaintiffs. Mr Abram did not advise the plaintiffs to seek advice from a qualified independent financial planner. He said that Mr Abram did not factor in portfolio diversity into the advice that he gave the plaintiffs and that at one stage Mr Abram had the plaintiffs invested to the level of 75% or $343,000 of their investment portfolio in Great Southern Agri business products which was the plaintiffs only investment other than superannuation money in cash term deposits. Mr Jackson complained that Mr Abram continued to hawk the 2008 projects to the plaintiffs and that they invested a further $111,000 in a Great Southern project based on his advice.
Mr Jackson's final complaint related to a transaction known as Project Transform which took place after the final investment. Mr Jackson correctly described that as the beginning of the end of Great Southern. Great Southern went into administration while the plaintiffs were still paying off the loan for the Grape project. The plaintiffs had to continue to pay off the loan even though the company was in administration and heading to liquidation.
Mr Jackson said that Mr Abram's actions deprived the plaintiffs of the opportunity to invest in more appropriate investments to meet their investment needs which, as Mr Abram knew, was to obtain a secure income stream for the retirement of Mr Jackson and his wife where Mr Jackson planned on retiring at the age of 60.
Issues that arose during the trial
In so far as the plaintiffs allege that the defendants made representations as to future matters the onus is on Mr Abram as the maker of the representations to establish that there were reasonable grounds for making the representation. Otherwise the claim will depend upon the facts which have been proved by the plaintiffs.
At the trial Mr Jackson complained that Mr Abram failed to meet internal procedural requirements laid down by Great Southern. Mr Jackson did establish that the procedures adopted by Mr Abram were defective in certain respects but it does not follow that those deficiencies were causative of the plaintiffs’ loss.
The evidence in the case established that Mr Abram did not have an appropriate understanding of what might amount to a conflict of interest. I find that at all material times Mr Abram did have a conflict of interest. He had obligations as accountant and adviser to the plaintiffs which were in conflict with his obligations to Great Southern as an authorised representative and his own interest in deriving a commission from investments which he sold to the plaintiffs. By itself the conflict does not provide a basis for the relief which the plaintiffs claim, but it does put the actions of the defendants into perspective.
As well as raising the question of Mr Abram's training and competence to give the advice which he purported to give, Mr Jackson went further and suggested that Mr Abram had sinister motives. For example Mr Jackson complained about the defendants’ discovery of documents in these proceedings and he asserted that Mr Abram placed the second defendant into liquidation for the purpose of avoiding liability for this claim. Mr Jackson attempted to pursue an application for contempt, which I declined to hear. He suggested that the defendants had attempted to pervert the course of justice. [14] He claimed that Mr Abram deliberately contrived to have him sign documents without reading them.[15] None of these matters was relevant to the determination of the plaintiffs’ claim, and while I declined to entertain them the arguments raised by Mr Jackson did add to the length and complexity of the trial.
[14] Written address para 2.5
[15] 7th affidavit para.13
The plaintiff's introduction to Mr Abram
Mr Jackson needed a company for the purpose of contracting with one of his clients. He consulted the defendants whose office he had seen while driving along the Salisbury Highway in about October or November 2004. On 30 November 2004 Mr Abram incorporated the second plaintiff. That led to the establishment of a self managed superannuation fund and trust for the purpose of distributing income.
Mr Jackson had prepared his taxation return for the year ended 30 June 2004 himself but his own returns and those for the company and trust for the subsequent years were prepared by the defendants.
At the time when the company was set up Mr Abram explained the benefits of having a family trust connected to the company.[16] Mr Abram said that tax benefits were important to Mr Jackson who had explained the level of income that he was deriving and how that would grow over the coming years because of his contracting arrangements. Mr Abram said Mr Jackson was quite keen to consider, as anyone would in the same situation, how best to minimise his income tax liability. He discussed with Mr Jackson ways in which that might be done.[17] Mr Abram could not recall who raised the topic but said that he would "definitely have brought it up as part of the conversation". He said that Mr Jackson was in the process of establishing a new structure and looking forward to the current financial year and his forward planning for that year including tax planning.
[16] T 673
[17] T 673
The first tax return that Mr Abram prepared for Mr Jackson was the 2004/2005 tax return.[18]
[18] T 675
Mr Abram gave evidence that he first raised the Great Southern products with Mr Jackson at either their second or third meeting, which may have been in November 2004, after the company was established. He said they came to discuss the Great Southern products because Mr Jackson was considering alternatives and they discussed ways of minimising his tax. Mr Abram said "knowing that I was a tax accountant he posed some questions to me.[19]”
[19] T 7 l 20-2
Mr Abram said that the reason why he mentioned Great Southern products was because the company and the trust had been established and he was aware that Mr Jackson was going to be earning a significant income in the current and future years. Mr Abram said that he knew Mr Jackson:[20]
… had an appetite you could say and part of my job was to ensure my clients pay the least amount of tax legally allowed without infringing the law. So I was qualified to do that and part of that was to provide him not necessarily advice at that point but expose him to the possibilities of additional tax effective investments that could help complement his superannuation and claim that he wanted to make later on in the year.
[20] T 679
I have mentioned that evidence because it shows that Mr Abram considered the defendants to be acting as a general tax adviser to the plaintiffs.
Mr Abram gave evidence that he gave Mr Jackson a Financial Services Guide and some brochures. He was not sure whether the brochures related to a Wine Project or a Timber Project or whether they were Project Summary brochures. He said that he explained briefly what the brochures related to and enquired whether they were of interest to Mr Jackson. He explained that the products could provide an additional tax benefit that financial year.[21]
[21] T 676
Mr Abram said that he had a batch of the Financial Services Guides on his desk and it was "drummed into" him that the first thing to do on meeting a Great Southern client or potential Great Southern client for the first time was to provide a Financial Services Guide. His Business Development Manager from Great Southern had delivered a batch of the documents to him and ensured that Mr Abram stapled critical data in the back of them. In the circumstances there was no reason for Mr Abram not to give Mr Jackson a Financial Services Guide.
Mr Abram described the Financial Services Guide. Stapled inside the document was a print of Mr Abram’s own investments and exposure to shares and various projects in Great Southern. It included his rates of commission.[22] Mr Abram said he only gave Mr Jackson a Financial Services Guide once.[23]
[22] T 676
[23] T 720
Mr Jackson denied that Mr Abram ever gave him a Financial Services Guide.
On this topic I prefer the evidence of Mr Abram. For reasons discussed elsewhere I have found that I cannot rely upon the evidence of Mr Jackson.
I find that Mr Abram gave a copy of the Financial Services Guide to Mr Jackson in around November 2004.
I accept the evidence of Mr Abram that the Financial Services Guide disclosed that he was a representative of Great Southern and set out his authorised representative number. It also listed the number of lots in Great Southern products that Mr Abram owned and the number of shares that he owned.[24] I find that the Financial Services Guide disclosed commission of 5% and a marketing rate of 5%.
[24] T 677
In addition to the Financial Services Guide there are many other documents in connection with the individual transactions that show that Mr Jackson's claims that he was never advised that Mr Abram was a representative of Great Southern or that Mr Abram received commission from Great Southern to be incorrect.
Mr Abram assumed that Mr Jackson took the Financial Services Guide with him because the whole idea of Mr Abram giving the document to Mr Jackson was for Mr Jackson to read it and to consider the investments. Mr Abram was not sure whether he gave Mr Jackson both the Wine and the Timber Project summaries or whether it was just one of them.[25]
[25] T 677
The role of the individual defendants
The way the plaintiffs have formulated their claim does not distinguish between the roles of the first and second defendant
I find that the plaintiffs had engaged the second defendant for the supply of accounting and tax planning services and there was a contract between the plaintiffs and the second defendant. The first defendant, Mr Abram, was a servant or agent of the second defendant which was vicariously liable for his actions. Whilst acting in those roles the defendants provided investment advice to the plaintiffs.
I find that the usual duty of care and skill was an implied term in the contract between the plaintiffs and the second defendant. That duty is of little practical consequence having regard to the liquidation of the second defendant and the stay of proceedings.
I find that Mr Abram was under no contractual liability to the plaintiffs but that he did owe a duty of care at common law.
I must also consider the various statutory duties which are raised by the pleadings.
The defendants also acted as authorised agents of Great Southern. That agency which was a relationship determined by Great Southern and the defendants could not diminish the defendants duty to the plaintiffs.
But for their role as accountants and taxation advisers to the plaintiffs the defendants would never had contact with the plaintiffs and would never have had an opportunity to promote the Great Southern products.
The defence arguments
At the outset Mr Floreani identified three issues. First, he submitted that what he called the "tax advice exemption" applied to relieve the defendants from liability. Secondly, he submitted that if the “tax advice exemption” did apply a question arose as to whether the defendants owed an independent duty of care by reason of the client relationship. Third, he submitted there was a question as to whether there was any misleading representation in relation to the suitability of the products.
In his closing address Mr Floreani submitted that the advice provided by Mr Abram adequately explained the risks of the Great Southern products. He said that the written documentation outlined the investment risks associated with the fluctuating and long-term returns of the products.[26]
[26] Outline para 2.21
He submitted that the Corporations Act itself does not impose civil liability on an authorised representative for breaches of s945A and that the section which imposes civil liability is s953B, which, at the time (it has been repealed), provided that where an authorised representative fails to comply with s 945A the client may recover any loss caused by that failure from "the liable person", namely the licensee, even where the breach is that of the authorised representative.[27] He submitted that for Mr Abram, rather than Great Southern Securities, as the licensee, to be liable, the plaintiffs must establish a breach of a contractual or general law duty owed independently by Mr Abram outside the confines of the Corporations Act.[28]
[27] Outline para 2.22
[28] S 917F(2) of the CommonwealthCorporations Act creates joint and several liability
He argued that a duty of care beyond the obligations of the Corporations Act did not arise.[29] I reject that submission. He submitted if the court finds that there was a common law duty beyond the scope of the obligations under the Corporations Act there was no breach of duty.[30] I consider that submission later.
[29] Outline para 2.23
[30] Outline para 2.24
He submitted that if there was a duty of care it would have the indicia of the duty of care that arises in a professional context, namely the existence of a professional relationship, the client's reliance upon the professional skills and foreseeability of economic loss if the professional failed to exercise due care and skill. He referred to Presser v Caldwell Estates Pty Ltd[31] and to Heydon v NRMA.[32]For reasons disclosed below I accept that analysis and I find that Mr Abram did have a duty of care.
[31] [1971] 2 NSWLR 471 at 491
[32] (2000) 51 NSWLR 1 at [237]
Mr Floreani submitted that a financial adviser is not a guarantor that the client will not suffer loss but the obligation is to exercise care and skill to ensure so far as possible, that the client is protected from loss. I accept that submission.
He submitted that the advice given by Mr Abram was adequate in terms of warning the plaintiffs about the nature of the investments and the risks associated with them.[33] Whether that submission is correct or not is the real issue in the case.
[33] Outline para 2.29
He submitted that the issue of conflict of duty only arose in relation to the question of whether the duty of care was breached and that Mr Jackson must prove that Mr Abram failed to consider the suitability of the investments to him because his advice was influenced by the commissions he received. He submitted that Mr Jackson had failed to prove that was the case.[34] I consider whether the duty of care was breached below.
[34] Outline para 2.30
Mr Floreani submitted that the position with respect to the 2008 Wine Grape Project was different and that Mr Abram did not owe a duty of care to the plaintiffs because Mr Abram did not provide advice or if he did it was limited to general tax advice. He submitted that Mr Jackson proceeded with that investment of his own volition.[35]
[35] Outline para 2.31
Mr Floreani submitted that any advice was limited to general tax advice and consequently Mr Abram is entitled to rely upon the exemption in s766B(5)(c) of the Corporations Act.[36]
[36] Outline para 2.32
Mr Floreani submitted that no duty of care arose with respect to Project Transform because Mr Abram did not provide advice on whether Mr Jackson should retain or dispose of shares in Great Southern Ltd.[37]
[37] Outline para 2.33
He submitted that the plaintiffs should fail on the basis of causation.[38] In each case the plaintiffs allege that Mr Abram made representations to the effect that the investments were suitable, the claimants would be able to claim tax deductions, and the investments would provide a return within a short period.[39] Mr Floreani said that the alleged representations are denied. Also they are contradicted by the written material.[40]
[38] Outline paras 2.34-5
[39] Outline para 2.36
[40] Outline para 2.37
So far as the investments in the 2005 Plantation Project, the 2006 and 2007 Beef Cattle Projects and the 2007 Wine Grape Project are concerned Mr Floreani submitted that any information provided by Mr Abram cannot amount to representations which were misleading and deceptive or likely to mislead and deceive so as to give rise to liability under ss1041H of the Corporations Act and 12GF of the ASIC Act because Mr Abram is entitled to the defence of reasonable reliance on information supplied to him by his Business Development Manager, Mr Marsland, and Mr Abram therefore had reasonable grounds for making the representations as a representation as to future matter.[41]
[41] Outline para 2.39
He said that if Mr Jackson had been misled that was because he did not take reasonable care to protect his own interests and referred to Argy v Blunts and Lane Cove Real Estate Pty Ltd[42] where the court said:
A case may perhaps be imagined where an applicant is so negligent in protecting his own interests that there will be a finding that the representation complained of was not in the circumstances a real inducement to his entering into a contract. In such a case the element of causation between misrepresentation and damage would have been severed by the intervention of the negligence of the applicant.
[42] (1990) 206 FLR 112 at 138
He correctly argued that in order to determine whether conduct is misleading or deceptive the court must consider the conduct as a whole.[43]
[43] Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at [39]
The 2004/2005 financial year - Great Southern Plantations 2005 Project
The plaintiffs claim an amount of $30,000 in respect of a failed investment in the Great Southern Plantations 2005 Project. That amount comprises an original investment of $15,000 and a promised return in 10 years time of $15,000.
The documentation generated in respect of the Great Southern Plantations 2005 Project is in a similar form to the documentation generated in respect of the subsequent investments. I have therefore referred to the documentation for the Great Southern Plantations 2005 Project in detail as it is representative of the Great Southern documentation.
In the 2004/2005 taxation year the plaintiffs intended to invest $120,000 in superannuation but there was a limit of $100,000 on the amount that Mr Jackson could put into the self managed superannuation fund.
Mr Abram had assisted Mr Jackson by establishing the super fund, doing calculations, and advising him of the limits to ensure that overall his claims to superannuation were maximised.[44] In the course of doing that Mr Abram raised the topic of Great Southern products which he said was a tax effective investment which spoke for itself. He advised that if Mr Jackson made an investment just prior to the end of the financial year he would receive a significant benefit of up to about 48½% of the value of his investment as a rebate back on his taxation thereby minimising the amount of tax liability.[45]
[44] T 680 l 24
[45] T 681 l 38
Mr Abram said he saw the Great Southern products as an important adjunct to Mr Jackson's tax strategy and he "felt that he (Mr Jackson) was one of those candidates which fitted into that mould where a tax effective product would actually suit him" because it provided income in 10 years time when Mr Jackson would be looking at retiring and he would need an income stream which he did not need at the present. Also it allowed him to get a tax break at the present point in time. Mr Abram said that it would minimise his tax at a time when his tax was at a higher rate and spread the income to a period in the future where Mr Jackson's taxable income would not be the same and he would have a lower rate of tax so that when he did earn the income from the investment the tax on it would be lower.[46]
[46] T 681 l19
When asked how he came to discuss the Great Southern 2005 Plantation Project with Mr Jackson Mr Abram said:[47]
Mr Jackson was considering alternatives and any avenues he was open to, to discuss ways of minimising his tax and knowing that I was a tax accountant he posed questions to me.
[47] T 720 l 22
That evidence is an acknowledgement by Mr Abram that Mr Jackson had not dealt with Mr Abram in his role as an authorised agent of Great Southern but in his role as the plaintiffs’ accountant and tax adviser.
Mr Abram provided some Great Southern literature and ran through the brochures. He said he did not go through a lot of detail but went through the concept and the corresponding tax benefits that could be obtained by investing in the projects.[48] He advised that the Plantation Project was 100% tax-deductible in the 2005 tax year and that the return was to be received after year ten of the project when he would get approximately double his initial investment.[49]
[48] T 720 l 28
[49] T 721 l 16
Mr Abram said he had received the information as to the expected returns on the project from his Business Development Manager at Great Southern. In so far as Mr Abram made a representation to future matters I find that he had a reasonable basis for the representation. However this finding is inconsequential because the cause of the plaintiffs loss was not any false or misleading representation as to expected returns but the fact that Great Southern went into liquidation.
The submissions and evidence of Mr Jackson as to the 2005 Great Southern Plantation Project
In his opening Mr Jackson complained that Mr Abram never gave him a Client Fact Find form to fill in and that Mr Abram represented to Mr Jackson that the forms he requested him to sign were standard forms that had to be signed to join the projects.[50] Mr Jackson said that Mr Abram did not indicate to the plaintiffs that the forms contained information which he had not previously verbally told them. Mr Jackson said that the plaintiffs were not advised to read the documents they were required to sign and they were not given copies of the documents before or after they were signed. He said:
Hence, there is no way of knowing whether the documents disclosed by David Abram as purported to have been signed by Jackson were signed by Jackson at all i.e. whether the signatures are genuine or forgeries, or whether the documents disclosed are the same one signed or whether pages have been added, removed or modified, e.g. stamps added after signing.
[50] T 31
Mr Jackson did not admit to signing many documents which apparently bear his signature. During the trial it became apparent that Mr Jackson was not prepared to acknowledge that he signed documents containing statements which were potentially adverse to his case. Generally Mr Jackson’s evidence demonstrated evasiveness and a lack of candour which makes it difficult to accept any of his evidence.
In the 2005 year Mr Jackson put most of his money into cash in the self managed superannuation fund which Mr Abram had established.[51]
[51] T 54
He said that Mr Abram showed him a two-page summary of the 2005 Plantation Project but Mr Abram did not give it to him.[52] He said that Mr Abram had that summary in front of him and went through it. He said Mr Abram did not have any spare copies at that time so he did not give the document to Mr Jackson, although he showed it to him.[53] While Mr Jackson did not have a copy of that brochure he did have a copy of the PDS which Mr Abram gave him after he signed up to the project.
[52] T 55
[53] T 55
Mr Jackson said that although Mr Abram did not give him the document he held it, in a way which Mr Jackson demonstrated, and "sort of said stuff about the project, like the duration and the tax benefits of it and stuff like that but he specifically said to me if I invested $15,000 I would get $30,000 return in 10 years”. Mr Abram was the person who suggested an investment of $15,000, that being five units of $3,000.[54]
[54] T 53 l22 and p56
Mr Jackson said that as he was leaving Mr Abram's office after signing on the 2005 Plantation Project he asked "How much do I owe you for doing this?" and Mr Abram said "Nothing", or words to that effect. Mr Jackson replied "It's not often you get something for nothing" at which Mr Abram just looked at him. Mr Jackson did not realise the significance of that at the time. Later he realised that was an opportunity where Mr Abram could have told him that he received commission.[55] Later in his evidence Mr Jackson said that Mr Abram told him that he did not receive commission.[56]
[55] T 57 l 25
[56] T 61 l 5
Mr Jackson gave evidence that Mr Abram never told him that he was acting as an authorised representative of Great Southern.[57] I do not accept that evidence.
[57] T 60 l 37
Documents relating to the Great Southern 2005 Plantations Project
Mr Jackson said that Mr Abram recommended the Great Southern 2005 Plantations Project to him, Mr Abram prepared the paperwork and Mr Jackson went to his office and signed all the paperwork. Mr Jackson said:
He had, like, stickers, like these sort of things, on the documents to sign. He was sitting in front of me with the document that way around and he showed me where to sign and so I signed.
Mr Jackson was asked whether he read the documents and replied:
No, he never advised me to read any of the documentation associated with the projects and I just assumed whatever was in it - I don't even know what was in the document. I signed in that sense. He never gave me a copy of it before or after I signed any of the documents.
Mr Jackson said that it was only when disclosure was made in these proceedings that he received copies of the documents.[58]
[58] T 63
Application Form
One document signed in connection with the Great Southern Plantations 2005 Project was an Application Form dated 30 May 2005.[59] Unlike the other investments which are the subject of this action the application for the 2005 Plantations Project was made in the name of Arian Systems Pty Ltd, rather than the name of Mr Jackson. Mr Abram saw Mr Jackson sign that document and witnessed his signature.[60] In the Application Form there was the statement that Great Southern had issued a PDS in relation to that project and that "Applicants should read the PDS dated 8 March 2005 in its entirety". The section of the document where the applicant was required to sign reads:
9. Declaration and signatures.
By signing this application form I/we acknowledge and agree to be bound by the statements on the reverse side of this application.
Applicant/director/Sole director.
[59] Exhibit P81
[60] T 737
A signature which I find to be that of Mr Jackson appears immediately below that statement. The statement which I have set out must have been obvious to Mr Jackson when he signed.
The Application Form contains a stamp showing that Mr Abram was an Authorised Representative of Great Southern Securities Pty Ltd. Mr Jackson has suggested that stamps may have been affixed to documents after their execution. There is no evidence as to whether the stamp was on the document at the time Mr Jackson signed.
The evidence as to the Application Form[61] was similar to other exhibits, that is Mr Jackson's evidence was that he had no idea whether the signature on the document was his because he was never given a copy. I have no doubt that Mr Jackson did sign the document.
[61] Exhibit P81
Client Fact Finder
Mr Abram prepared a Great Southern Client Fact Finder also dated 30 May 2005[62] in connection with the investment. Mr Jackson's personal and assets details could only have come from Mr Jackson himself. Mr Jackson said that the signature looked like his but he did not receive the document.[63] The evidence does not establish that Mr Jackson ever received a copy of the document. However nothing turns on whether Mr Jackson received a copy of that Client Fact Finder document or not. The document was compiled for the purpose of enabling Great Southern to formulate its advice. The significance of that document is that any inaccuracy in it could affect advice based upon it. In the provision for the client signature there is a signature which appears to be that of Mr Jackson. Mr Abram said that Mr Jackson signed the document in his presence.
[62] Exhibit P80
[63] T 66
I find that the Client Fact Finder form was signed by Mr Jackson on 30 May 2005. It had probably been prepared by Mr Abram between a meeting on 26 May 2005 and when it was signed on 30 May 2005. Mr Jackson later acknowledged his signature on the Client Fact Finder but said that he did not read any of the documents that he signed. He said that a pile of paper was presented to him by Mr Abram and that all he did was to sign in the places indicated by Mr Abram and so he does not know whether documents which apparently bear his signature were documents which he signed or not. This is an example of the lack of candour demonstrated by Mr Jackson in refusing to acknowledge his signature on documents which were essential to transactions upon which his claim relies.
The front page of the Client Fact Finder has the heading Great Southern Securities Proprietary Limited and a licence number. There is a reference to David Abram as Authorised Representative Number 285516. Mr Jackson claimed that Mr Abram never disclosed the fact that he was a representative of Great Southern. That may explain why Mr Jackson was reluctant to acknowledge his signature on documents such as the Client Fact Finder.
On the basis of the Client Fact Finder[64] and many other documents I have no difficulty in finding that Mr Abram did disclose to Mr Jackson that he was a representative of Great Southern.
[64] Exhibit P80
The first page of the text of the Client Fact Finder states:
Please take the time to complete this questionnaire thoroughly as your adviser will be basing any recommendation on the information provided. If insufficient space appears in any section, or you believe there is any additional information your adviser should take into account when considering your personal circumstances, please give additional details in the applicable sections at the back of this booklet.
Mr Jackson denied having answered any of the questions in the Client Fact Finder.
I am satisfied that Mr Jackson did not complete the questionnaire himself, but I find that he provided information to Mr Abram and that Mr Jackson did sign it.
The direction in the document to take time completing the questionnaire thoroughly was otiose because, even on the evidence of Mr Abram, Mr Jackson was never given an opportunity to consider and complete the questionnaire “thoroughly”.
Section 2 which is headed "Scope of Advice" contained the question "What is your reason/s for seeking advice? Please note the advice provided to you will be limited to achieving the objectives you select below. Tick all appropriate of:…". There was a tick alongside the words "General Tax Planning". Mr Abram said that choice had been made by the computer.
Other sections dealt with Children/Dependants, Employment Details, Asset Details, Expenditure, Investment Needs and Risk Profile.
The document required the determination of a Risk Profile. The alternatives were Conservative, Moderately Conservative, Balanced, Moderately Aggressive and Aggressive. A tick was placed alongside "Moderately Conservative". A Moderately Conservative investor is described as:
An investor who is prepared to accept a small amount of capital risk with some volatility of return over the short to medium term. Their priority remains the preservation of capital over the medium to long term. They may have some understanding of investment risk however cannot afford to take chances with capital and the risk of loss of capital is not expected.
I am satisfied that the classification "Moderately Conservative" was determined by the Great Southern computer and not Mr Jackson.
Mr Abram said the document had been produced by him speaking to Mr Jackson who provided him with the information and he input that information into the computer which produced the report.[65] Mr Abram said that Mr Jackson provided him with the information prior to his investment at either their third meeting or the meeting when he agreed to proceed with the forestry investment. I accept that evidence of Mr Abram because much of the information in the document could only have come from Mr Jackson.
[65] T 722 l 31
Statement of Advice-2005 Great Southern Plantations Project.
Mr Jackson was asked whether he had received Exhibit P79. He responded "No I never received this letter" and when asked whether he wanted to say something about the document he said it related to a project that he did not invest in, that is a 2004 project.[66] The reference in the document to a 2004 project was an error. Its contents show the document clearly related to the 2005 Plantations Project.
[66] T 64 l 1
Mr Jackson referred to the opening sentence of the letter which referred to a meeting on 26 May 2005. Initially he denied the existence of such a meeting saying "That is a false statement" although he later acknowledged that there was a meeting around that date.
He was asked "Your evidence is that you never received a copy" and he responded "Never received a copy".[67] Mr Jackson refused to acknowledge that he had signed the document. Later evidence establishes that Mr Jackson did sign Exhibit P79 which was an essential part of the transaction which forms part of the plaintiffs’ claim. Even if Mr Jackson did not read the document he must have been handed a copy at least for the purpose of signing it. He had the opportunity of reading the document if he had chosen to do so.
[67] T 64 l 17
In the passages of evidence to which I have referred Mr Jackson initially attempted to disassociate himself from Exhibit P79, a letter and Statement of Advice, presumably because those documents contained statements adverse to his case.
On their face the letter and Statement of Advice purported to have been prepared by Mr Abram. In fact the document was generated by the Great Southern computer.
The first page of the document is the letter to Mr Jackson from Mr Abram, who is shown at the foot of the first page, in a prominent position below the signature provision, to be an Authorised Representative of Great Southern Securities Proprietary Limited. That was further advice that Mr Jackson was advised that Mr Abram was a representative of Great Southern. Mr Jackson claims that he never read the document. Whether Mr Jackson read the document or not, the evidence establishes that the defendants did not attempt to conceal the fact that Mr Abram was an authorised agent.
The letter commenced with the statement "We refer to our meeting on 26 May 2005 where you requested we provide limited advice on: General tax planning." There is a tick alongside "General Tax Planning". Again that tick was placed on the document by the computer.
The letter continued "For the reasons outlined in this Statement of Advice we recommend you apply for five Woodlots in the Great Southern Plantations 2004 Project (the "Project")”. (my underlining)
The heading also referred erroneously to the Great Southern Plantations 2004 Project. In fact the recommendation related to the 2005 project but the computer was unable to make the correct reference. Mr Abram said he was unable to alter the software that had been given to him. His BDM had advised that he could still use the software because the project details were the same for the 2004 and 2005 year "so all the information generated from their computer program which I don't believe they had updated at the time, would not impact negatively to a particular investor”. The letter continued:
You should read this Statement of Advice carefully before proceeding. It is a record of the personal financial advice being. provided to you and includes information on the basis on which this advice is given, costs, benefits, risks, remuneration including commissions and other benefits and any interest, relationships or associations which might influence the advice.
You should also read carefully the enclosed Product Disclosure Statement for the Great Southern Plantations 2004 Project before proceeding as this contains important information about the recommended product. (my underlining)
Later the letter advised that the Statement of Advice was limited to an investment in the Great Southern Plantations 2004 Project, was not a full financial plan and was limited in scope to providing advice on General Tax Planning.
Attached to the letter was the Statement of Advice. It commenced with a section headed "About Great Southern Securities Proprietary Limited" and the statement:
In providing the Statement Advice to you I (that is Mr Abram) am acting as an authorised representative of Great Southern Securities Proprietary Limited. I am only able to recommend investments in those products offered by Great Southern Managers Australia Ltd, which currently include:
Great Southern Plantations 2004 Project, and Great Summit Vineyards 2005 Project. I am not authorised to provide you with advice on any other class of financial product, such as superannuation, shares or managed funds. I am also unable to provide you with advice on any managed investment schemes other than those offered by Great Southern Managers Australia Ltd.
Mr Jackson's case is that he had never read the document and accordingly he was unaware of the information in the document. While I am satisfied that he did sign the document I am not satisfied that Mr Jackson read the document. If he had read the document Mr Jackson would not only have been informed Mr Abram was an authorised representative of Great Southern but would have been told that Mr Abram could not provide advice on other financial products.
There was a Summary of Personal Circumstances said to be based on the information in the Client Fact Finder. Under the heading "Investment Objectives and Risk Profile" there was the statement "You have a Moderately Conservative risk profile". The definition of a "Moderately Conservative Investor" was set out.
There was a Summary of Assets and Liabilities and the statement:
Based on the summary of your personal circumstances, I believe an investment in a managed investment is appropriate to you and that out of the projects I am currently authorised to recommend (namely the Great Southern Plantations 2004 Project and the Great Southern Vineyards 2005 Project) the features of the Great Southern Plantations 2004 Project are best suited to your identified investment objectives, financial situation and needs.
On its face that statement purported to be a recommendation from Mr Abram. The author of the letter was said to be Mr Abram, but Mr Abram gave evidence that the Statement of Advice was generated by the Great Southern computer from the information that Mr Abram had entered. That is, instead of being provided by an independent practising accountant and tax agent whom Mr Jackson believed was acting on his behalf, the advice emanated from a computer operated by Great Southern, the company which was trying to sell the scheme. While that was not causative of the plaintiffs’ ultimate loss that evidence puts the role of Mr Abram into perspective.
Under "Scope of Advice" there was the following statement:
The advice you require is limited to advice on achieving your investment objectives as noted in section (1) of the Summary of Personal Circumstances above. Please note the recommendation contained in this Statement of Advice to invest in the Great Southern Plantations 2004 Project is limited in scope to achieving the stated objectives. If you have not already done so I would recommend that you consult a financial planner to undertake a comprehensive review of your overall investment objectives, financial situation and needs as an investment in a Great Southern managed investment scheme is only one part of an overall financial plan.
Mr Jackson did not follow the recommendation to consult a financial planner to undertake a comprehensive review of his overall investment objectives. He could reasonably have assumed that the defendants were fulfilling the role of a financial planner who was advising on his overall investment objectives. Nothing had happened to confine the defendants role in the way assumed in the “Scope of Advice”.
That paragraph highlights one of the features of this case. Mr Jackson's case is that he engaged Mr Abram to act as an accountant, taxation adviser and financial adviser and that Mr Abram never advised him that he was a representative of Great Southern. I have difficulty in accepting that Mr Jackson was never advised that Mr Abram was a representative of Great Southern, but Mr Abram never confined his role to just a representative in Great Southern as contemplated in the Scope of Advice. Throughout Mr Abram continued to act as the plaintiffs’ accountant and taxation adviser. Statements in Great Southern literature, such as the one under "Scope of Advice", could not limit the duty Mr Abram owed to the plaintiffs.
The Statement of Advice advised the plaintiffs of the nature of the project, namely that the project had been established to provide investors with the opportunity to carry on the business of commercially growing eucalyptus trees in various regions within Australia and that the timber from the plantations would produce short fibre woodchip for use in the paper industry. The mechanics of the project were described. Each investor was required to enter into a Lease or Forest Right Agreement under which they contracted with the responsible entity to establish a eucalyptus plantation and carry on the future management and maintenance of their plantation until the trees were harvested. The woodlots were each 0.33 ha and for a period of approximately 11 years. The plantations were expected to reach maturity approximately 10 years from planting.
The Statement of Advice referred to an Australian Taxation Office product ruling confirming the extent of allowable tax deductions and advised that participation in the project was intended to be of the long-term nature and that no income would be received from the project until the timber was harvested and sold, a period of approximately 11 years. The income received would be taxable in the year of receipt.
Under "Risks" there was the following statement:
This investment is in commercial forestry and is considered speculative. There are a number of risk factors, each of which is explained in detail in the Product Disclosure Statement. Wherever possible, the responsible entity has adopted risk management strategies to minimise these risks:
Environmental/Growing Risks - such as drought, frosts, wind, high-altitude, other acts of God, fire, insects, pests and diseases, nutrition and failure to achieve expected volumes;
Market/Commercial Risks - such as reduced demand for the product, failure to achieve economic prices and increased costs;
Other Risks - such as changes in government legislation, change in taxation legislation, general economic and international issues, lack of a secondary market, failure to secure adequate land and the financial position of the responsible entity.
If for any reason your personal circumstances change before you repay any loan associated with investing in the project you may not be able to sell your interest in the project and may be forced to sell other investments to meet obligations under the loan. (my underlining)
I mention in passing that it was the last of the “Other Risks”, the one which I have underlined, namely the financial position of the responsible entity, which ultimately led to the loss of the investments.
The fact that the investment was speculative was common ground in the case. So was the fact that it was a high risk investment.
Mr Abram said that prior to Mr Jackson entering into the investment he discussed the risks of the investment. He said:[68]
It was primarily based around the fact that there is insurance on the particular project and because of - there is some risk partly - I think the biggest risk that these particular projects was pests which are little bugs and the biggest one is a ladybug, so I explained to him that because of these risks and fire, example, the company, Great Southern, have a insurance that everyone takes on that he has the option of paying an extra premium at his discretion to cover a full comprehensive type insurance policy and he needed to decide which one he would choose.
[68] T 735 l 28
Mr Jackson did elect to take out the additional comprehensive insurance.
Mr Abram was asked whether they discussed market or commercial risks in addition to environmental risks and he replied:[69]
I can't remember the exact conversations to say at what level of market risks that I covered although they - in any agricultural investment I don't know any that would be 100% guaranteed because there is always fluctuations in livestock prices or pulp prices or a series of different factors that are out of control of Great Southern or anyone else that - but I cannot remember the exact conversations discussing those particular risks myself.
[69] T 736 l 14
There was no discussion about the real risks associated with the investment such as the risk that Great Southern might become insolvent.
The Statement of Advice advised that the Great Southern Plantations 2004 Project was a long-term investment with a number of variables involved in calculation of possible returns so that the ability to project returns was limited and no guarantee was given in respect of possible returns. Mr Abram said that he did not personally guarantee anything in relation to returns but advised Mr Jackson of the returns that he had been advised by his BDM.[70]
[70] T 736 l 23
There was a recommendation that Mr Jackson invest $15,000 plus GST of $1,500 making a total of $16,500.
Under "Disclosure of Remuneration and Benefits" there was a statement:
Monetary and Nonmonetary Bonuses (Such As Travel Incentives) or Options in Great Southern Plantations Ltd May Be Paid or Allocated to Me on the Basis of My Sales Performance.
The document advised that Mr Abram held 2300 Great Southern shares and 22 Great Southern woodlots.
As I have mentioned I am satisfied that the Statement of Advice was signed by Mr Jackson, but I am not satisfied that Mr Jackson had read the document in any detail.
The first paragraph of the letter referred to a meeting on 26 May, 2005. I find that there was a meeting between Mr Jackson and Mr Abram on May 26, 2005 at which Mr Abram discussed with Mr Jackson the 2005 Plantation Project and that was the meeting where Mr Abram obtained information from Mr Jackson to prepare the Client Fact Finder.[71]
[71] T 724 line 11
In so far as Mr Abram made a statement about the possible returns he was making a representation as to future matters. I find there was a reasonable basis for those representations because Mr Abram was simply passing on information which had been given to him by his BDM. At the time the representation was made there was no reason for Mr Abram to doubt the accuracy of what he had been advised. There was no evidence of any representation as to future matters which was inappropriate.
Mr Abram did not believe there was any discussion about Mr Jackson's cooling off rights and said that he just pointed out the various paragraphs that were of interest to Mr Jackson "such as the one he signed there with the cooling off." Mr Abram repeated his evidence that he went through the Statement of Advice in about a minute pointing out the main areas.[72] Cooling Off was not an issue in the case.
[72] T 737 l 2
Mr Abram said that the Statement of Advice was automatically generated from the software program after he input information from the Client Fact-Find document and information as to the amount of the investment that the client had agreed to invest. He witnessed Mr Jackson sign the document.[73] Mr Abram said that before Mr Jackson signed the Statement of Advice Mr Abram:[74]
advised that the Statement of Advice was a document, which was a summation of his Client Fact Find information and also confirmed the amount that he wanted to invest and my disclosure of my interest in there and the cooling off period, where he had signed. I didn't read it out to him word for word or line by line but it probably took me about 1 min to go through all those items.
[73] T 727 l 22
[74] T 727 l 27
When asked to further explain what he meant in saying it took him "about 1 min to go through all those items" Mr Abram said:
Because most of this information Gary had already provided to me through the fact find. And this is basically parroting that information back to him, there was not a lot to gain by spending much time on that information that he already knew. What I did basically, go through in that minute was the amount that he's actually investing in. And at the very front you will notice that there is "General Tax Planning", so that was based on his purpose of coming to see me was for general tax planning. It wasn't for - in contrast to some clients who would come in for capital gains tax planning or for establishing future income streams for children. There is a variety of different options you can select in the program as a drop down by and he fitted into the "general tax planning" option, so I confirm that… (my underlining)
The evidence continued:
"QJust stopping there. When you were looking at this document, did you have a discussion with Mr Jackson about the limit of your advice being general tax planning."
"AIt wasn't general tax planning. It was personal advice, but the-sorry, the tax planning was general, but the advice was personal advice.
QYes but did you highlight to Mr Jackson that the advice that you were providing was limited to general tax planning.
AThere is no limitation on general tax planning. General tax planning basically covers the whole sphere of tax planning. There is no limitation to that I am a general tax practitioner, so general tax planning is just one of those areas that I practice. There’s no limitation on that. It is not like general investment advice where you’ve got limitations.
The distinction Mr Abram made between general tax planning and general investment advice is interesting.
Under "Investment Objectives and Risk Profile" one of the objectives was described as "To secure an investment that will assist with achieving your investment objectives of general tax planning" Mr Abram was asked how he determined that objective and replied:[75]
General tax planning encompasses a series of things. One of those was establishing the trust, which we did some months before that and superannuation is another thing, which he also had incorporated. And Great Southern is another option that people can take advantage of. So, general tax planning encompasses all those areas. So, his objective was and had been prior to Great Southern one of general tax planning.
[75] T 731 l 9
That evidence provides insight into Mr Abram's confused understanding as to his role. His understanding was inconsistent with the statement under "Scope of Advice".
Mr Abram was asked whether, bearing in mind Mr Jackson's investment objectives, the $15,000 investment in the Great Southern 2005 Plantation Project was a suitable investment for Mr Jackson and he replied:
Yes, at the time, despite the fact that he had a moderately conservative risk profile, that is, again, my BDM's advice that that is purely just a consideration, however many investors with Conservative risk profiles were still entitled to invest in Great Southern, if they felt that it was still part of - or attractive enough to them to take on the particular investment. The amount of $15,000 over a ten-year period, had the investment failed, would not have significantly impacted on Mr Jackson's lifestyle in the future.
I note that one of the considerations was the impact upon Mr Jackson's lifestyle if the $15,000 investment had failed. I also note the fact that the advice was attributed to the Business Development Manager, presumably in an attempt by Mr Abram to disassociate himself from the advice.
Mr Abram’s evidence continued:[76]
QAre these matters, namely, the risk profile and Mr Jackson's investment objectives, matters that you took account of in determining the suitability of this investment.
AYes, I think initially Mr Jackson felt to that P - sorry, after discussions with Mr Jackson, an amount of $15,000 was a comfortable amount Mr Jackson had agreed on that he would dip his toes in the water, so to speak, and see how this particular investment would affect his tax and from there on, he would then determine any future investments.
[76] T 731 l 30
Mr Abram said that after he signed the Statement of Advice Mr Jackson did not ask for a copy and Mr Abram did not give him a copy. He did not know whether the secretary who did the copying gave Mr Jackson a copy or not.[77]
[77] T 737 l 6
I find that Mr Jackson was never given a copy of the Statement of Advice in connection with the Great Southern Plantations 2005 Project.
Product disclosure statement
Mr Abram said he gave Mr Jackson a copy of the PDS in relation to that investment at the same time that Mr Jackson signed the documents.[78] Mr Abram acknowledged that at the time Mr Jackson signed Exhibit P19 and the Statement of Advice he had not read the PDS.[79]
[78] T 737 l 34
[79] T 738 l 7
Application Form
In an Application form Arian applied for five woodlots at $3,000 per woodlot and applied to Great Southern Finance Pty Ltd to borrow the amount of $15,000 under the terms of a finance option.
Authority to Proceed
The defendants prepared a form headed "Great Southern Securities Pty Ltd. Authority to Proceed - Great Southern 2005 Plantation Project. Personal Financial Product Advice Given”.[80] That document is also dated 30 May 2005.
[80] Exhibit P82
Mr Jackson said "Again, this document we were never given". At first he did acknowledge that the signature was his but later said "I signed something, whether this is the document I signed I have no idea because I wasn't given anything to compare it at this stage”. Mr Jackson did acknowledge that it appeared to be his signature on the document but said he had no recollection of the document "because I was never given any of the documents I have signed at that time to be able to compare to the ones which have been provided into evidence now”.[81]
[81] T 64
It is appropriate to set out the text of the Authority to Proceed in full. Exhibit P82 reads as follows:
1. I/we understand that David Abram ("Adviser") is authorised by Great Southern securities Pty Ltd ("Great Southern securities") to provide financial product advice and that Great Southern securities is the holder of Australian financial services licence number 240788. I/we understand that the advice that can be provided by my/our adviser is restricted to those products offered by Great Southern managers Australia Ltd (the "Responsible Entity").
2. I/we confirm that an investment in the Great Southern plantations 2005 Project (the "project") is considered by me/us to be appropriate to my/our circumstances and that I/we declare that prior to completing in signing an application form, I/we was/were provided with, and have read and retained for my/our records, a copy of the Great Southern plantations 2005 product disclosure statement dated 8 March 2005 ("PDS").
3. I/we confirm that my/our investment is made on the basis of the information contained in the PDS, the Statement of Advice I/we received from my/our authorised representative and such other information on the project provided to me/us by the authorised representative.
4. I/we acknowledge that participation in the project is considered to be speculative. Risks include fire, drought, acts of God, disease, pests, technological advances, changes in prices and costs, currency movements, government regulation and general economic and international issues, as set out in the PDS.
5. I/we acknowledge that participation in the project is a long-term investment and that there will be no returns from the project before harvest which is assumed to be approximately 11 years from the of parting. It is acknowledged that redemption of my/our investment from the project before harvest may not be possible.
6. As the project is a long-term investment and there are a large number of variables involved in the calculation of possible returns to growers, the ability to project returns is extremely limited. I/we acknowledge it is not possible to predict with certainty likely returns from the project and that no guarantee is given in respect of possible returns from the project.
7. I/we understand that any references made to income tax by my/our adviser in his/her capacity as a representative of Great Southern securities Pty Ltd of the issues involved but are not intended to be a substitute for professional tax advice provided by my/our accountant/financial planner.
8. I/we acknowledge that we have been given a copy of the financial services guide version number 1/3/05 ("FSG"), which I/we have read and understood.
9. I/we acknowledge that my/our adviser holds (legally and/or beneficially) in shares, convertible notes and/or options in Great Southern plantations Ltd and/or investments in Great Southern projects at the date hereof, as detailed hereunder.
…Number of shares: 2300 Number of options: nil
Number of convertible notes: nil Number of lots filled in Great Southern Projects: 22
I/we confirm that I/we have been advised that Great Southern securities were received commission and or marketing fees from the responsible entity in relation to my/our investment in the project at the following rates:
Amount invested: $15,000 Commission: 5% of the amount invested = $750
Marketing fees: 2% of the amount invested = $300
These commissions and/or marketing fees will be passed on to my/our adviser unless my/our adviser is a business development manager ("BDM") and/or employee of Great Southern securities Pty Ltd, in which case he or she is paid a retainer by Great Southern Securities which is not connected or associated with the financial services provided. Great Southern Securities will not pass on any commission and/or marketing fees it receives in respect of my/our investment to my/our adviser if he/she is also a BDM and/or employee
Bonus payments and/or options in Great Southern Plantations Ltd may also be paid or allocated to my/our adviser based on their sales performance at the discretion of the Great Southern group, as detailed in the FSG.
Additional information
10. I/we acknowledge that we are I/we have been referred to my/our adviser, a referral fee may be paid out of the applicable commission and/or marketing fees. Details of any such referral fee as set out below.
Please write "not applicable" below if no referral fee applies.
There is a box where there is provision for the applicants to sign. In that box the following words appear:
Applicants
1. I/we have read and understood the statements set out in this Authority to Proceed and confirm I/We wish to proceed with my/our investment in the Great Southern Plantations 2005 Project.
2. I/we confirm that I/We have been provided with a Statement of Advice in respect of my/our participation in the project.
3. I/We confirm that I/we have provided all relevant information to my/our adviser to enable the Statement of Advice to be prepared under the summary of my/our personal circumstances included in the Statement of Advice provided are true and correct.
The words "Jackson Family Trust" appear above the name of the Applicant and a signature. I find that Mr Jackson signed the Authority to Proceed which is Exhibit P82 on about 30 May 2005.
Mr Abram said that Mr Jackson signed the document in his presence but Mr Abram did not read the complete document to him. He could not remember discussing commission when they signed that document.
Other Documents – 2005 Great Southern Plantations Project
Subsection (2) introduces an element of causation. The amount of the loss or damage is only recoverable where the loss or damage has been suffered “because” the client was not given a disclosure document or statement or the disclosure document or statement was defective.
The plaintiffs have not suffered loss because of any of the specified reasons. Accordingly s953B would not provide the plaintiff's with an entitlement to damages .
The plaintiffs also rely on ss1324(10) of the Corporations Act which provides:
Where the Court has power under this section to grant an injunction restraining a person from engaging in particular conduct, or requiring a person to do a particular act or thing, the Court may, either in addition to or in substitution for the grant of the injunction, order that person to pay damages to any other person.
That provision has no application in the present case.
The circumstances complained of by the plaintiff, even if they were established, which I find they were not, would not result in an entitlement to damages under the Corporations Act.
Section 1041H(1) the Corporations Act provides:
A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive.
In my opinion the plaintiffs have not established that the defendants engaged in conduct in relation to a financial product or financial service that was misleading or deceptive or was likely to mislead or deceive. If the defendants did engage in conduct in contravention of ss1041H(1) would apply. That section provides that a person who suffers loss or damage "by conduct of another person that was engaged in contravention of s1041H may recover the amount of the loss or damage by action..."
The plaintiffs’ loss has not been caused "by conduct of" the defendants. The loss was caused by the insolvency of Great Southern. Accordingly, even if the plaintiffs had established misleading or deceptive conduct that would not by itself result in the relief which they seek.
I find that the plaintiffs are not entitled to relief pursuant to the Corporations Act .
The ASIC Act
The plaintiffs alleged that the defendants engaged in false and misleading conduct contrary to s12DA of the Australian Securities and Investments Commission Act. ("The ASIC Act.")
Section 12DA, which is contained in Part 2 of the ASIC Act which deals with Consumer Protection, provides person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.
I dismiss that part of the plaintiffs’ claim which alleges a breach of s12DA for the same reason that I dismissed the claim pursuant to s1041H of the Corporations Act.
The plaintiffs also claim that the defendants made false or misleading representations contrary to s12DB of the ASIC Act.
I find that the plaintiffs have not proved that the defendants made any representation that was false or misleading.
The plaintiffs also allege breaches of warranties contrary to s12 ED(1) of the ASIC Act. That section provides:
(1) In every contract for the supply of financial services by a person to a consumer in the ordinary course of business, there is an implied warranty that:
(a) the services will be rendered with due care and skill; and
(b) any materials supplied in connection with those services will be reasonably fit for the purpose for which they are supplied.
The plaintiffs also allege breaches of warranties contrary to s12ED(2) of the ASIC Act which provides:
If:
(a) a person supplies financial services to a consumer in the course of the business; and
(b) the consumer, expressly or by implication, makes known to the person:
(i) the particular purpose for which the services are required; or
(ii) the result that he or she desires the services to achieve;
there is an implied warranty that:
(c) the services supplied under the contract for the supply of the services; and
(d) any materials supplied in connection with those services;
will be reasonably fit for that purpose or are of such a nature and quality that they might reasonably be expected to achieve that result, except if the circumstances show that the consumer does not rely, or that it is unreasonable for him or her to rely, on the person’s skill judgment.
The Statement of Claim alleges that there were breaches of warranties contrary to s12ED(2) because the defendants failed to provide financial services that were fit for a purpose made known by Mr Jackson and which would achieve results desired by the plaintiffs. The evidence in the case does not support that allegation.
The plaintiffs’ claim damages pursuant to s12 GF of the ASIC Act. Like the corresponding provision in Corporations Act that section provides that a person who suffers loss or damage "by conduct of another person that contravenes a provision" of the Act may recover the amount of the loss or damage against any person involved in the contravention.
Again, even if there had been a breach of an implied warranty, s12GF would not provide the remedy that the plaintiffs seek because their loss was not caused "by conduct of another person that contravenes a provision" of the Act but was caused by the insolvency of Great Southern.
Additionally there was no contract between Mr Jackson and Mr Abram to which a warranty could attach.
I find that the plaintiffs are not entitled to relief pursuant to the ASIC Act.
The common law duty of care.
There was a contract between the plaintiffs and the second defendant for the provision of accounting services and advice. Implied in that contract was a term requiring the second defendant to exercise care and skill.
In the case of Mr Abram there was no contractual duty but I find that the common law of negligence applied to his relationship with the plaintiffs. In Hawkins v Clayton [164]Deane J concluded at 574 that the duty of care owed by a solicitor to a client in respect of professional work "prima facie the transcends that contained in the express or implied terms of a contract between them and includes the ordinary duty of care arising under the common law of negligence”. His Honour’s description in that case of the duty owed by a solicitor should also apply to accountants and taxation advisers. Accordingly the fact that the plaintiffs contracted with the company rather than Mr Abram is of no consequence. Mr Abram personally owed a duty of care in tort.
[164] (1988) 164 CLR 539
The duty of care owed by professional persons to their clients has been acknowledged in many cases at least since it was stated in the following terms by Tindal CJ in Lanphier v Phipos.[165]
Every person who enters into a learned profession undertakes to bring to the exercise of it a reasonable degree of care and skill. He does not undertake, if he is attorney, that at all events you shall gain your case, and a surgeon does not undertake that he will perform a cure, nor does he undertake to use the highest possible degree of skill. There may be persons who have a higher education and greater advantages than he has, but he undertakes to bring a fair, reasonable and competent degree of skill.
[165] (1838) 8C & P475
A case in which the duty of care owed by a financial adviser was discussed by the New South Wales Court of Appeal was Mbakwe v Sarkis.[166]In reasons with which Allsopp P and Ipp JA agreed Handley AJA said at [25]:
The classic statement in Australia of the circumstances which will give rise to a duty of care in the giving of information and advice is that of Barwick CJ in Mutual Life and Citizens Assurance Co Ltd v Evatt [1968] 122 CLR 556, 571:
....the circumstances must be such as to have caused the speaker or be calculated to cause a reasonable person in the position of the speaker to realize that he is being trusted by the recipient of the information or advice to give information which the recipient believes the speaker to possess or which the recipient believes the speaker to have access or to give advice, about a matter upon or in respect of which the recipient believes the speaker to possess a capacity or opportunity for judgment, in either case the subject matter of the information or advice being of a serious or business nature. It seems to me that it is this element of trust which the one has of the other which is at the heart of the relevant relationship. I should think that in general this element will arise out of an unequal position of the parties which the recipient reasonably believes to exist. The recipient will believe that the speaker has superior information, either in hand or at hand with respect to the subject matter or that the speaker has greater capacity or opportunity for judgment than the recipient . . . the speaker must realize or the circumstances be such that he ought to have realized that the recipient intends to act upon the information or advice ... in connection with some matter of business or serious consequence ... Further it seems to me that the circumstances must be such that it is reasonable ... for the recipient to seek, or to accept, and to rely upon the utterance of the speaker.
[166] [2009] NSWCA 330
That an investment adviser owes a duty of care was also recognised by McLellan J in Paige v FPI Limited and Anor[167]. referring to Esanda Finance Corporation Limited v Peat Marwick Hungerfords.[168]
[167] (2001) Aust Torts Reports 81-625 [188]
[168] (1997) 188 CLR 241
A comparatively recent decision in which the common law duty of care was acknowledged by the Court of Appeal in New South Wales to have been owed by an accountant and tax agent who also acted as a financial adviser in circumstances similar to the present was Tomasetti v Brailey.[169]In that case the test was articulated as whether a prudent adviser could reasonably have taken the view that the investments were suitable for the client.
[169] [2012] NSWCA 399[87]
Often in professional negligence cases evidence is called as to the required standard of care. In this case there was no such evidence. However that is no bar to the court forming its own opinion. Even where there is expert evidence the ultimate question as to whether conduct was negligent remains with the court.
What I must determine in this case is whether the defendant had exercised a reasonable competent degree of skill in the advice that he gave to Mr Jackson and if not whether that was the cause of the plaintiffs’ loss. Would a prudent adviser have taken the view that the investments were suitable for Mr Jackson.
I have already found that the defendants have no liability for the Great Southern 2005 Plantation Project. I have also found that the defendants have no liability for Project Transform. It remains to consider the other transactions.
Common law liability for the Great Southern 2008 Wine Grape Income Project
In my opinion the defendants have no liability in respect of the 2008 Winegrape Project.
Mr Abram had advised Mr Jackson of the existence of the Great Southern 2008 Winegrape Income Project and the Great Southern 2008 Diversified Olives Income Project in the circular letter to all clients dated 28 February 2008.[170] Although the letter was signed by Mr Abram as an Authorised Representative of Great Southern Pty Ltd the letter was on the letterhead of Great Southern Securities Pty Ltd and Mr Abram said that it had been drafted by his Business Development Manager at Great Southern. The letter concluded with the statement that if the addressee had experienced certain financial changes
"or just want to save some tax, then we would ask that you contact us at your earliest convenience so we can review your situation and make appropriate recommendations and referrals”.
[170] Exhibit P34
At the foot of the letter in very small type there was the following disclaimer:
Important; The information in this letter is not intended to be financial advice, is by way of general summary only and has been prepared without taking into account any person's individual objectives, financial situation or needs. Before making a decision to acquire an interest in a Great Southern managed investment scheme (a "Project") a person should consider the applicable projects Product Disclosure Statement and the appropriateness of the project to their individual objectives, financial situation and needs and if necessary seek advice from a suitably qualified professional, Great Southern Managers Australia Ltd… is the issuer of each project.
On the previous day, 27 February 2008, Mr Jackson had forwarded an e-mail to Mr Abram discussing taxation matters. Mr Abram responded to Mr Jackson’s email at 1.00 pm on 28 February in an e-mail headed "Subject: Retirement Fund Financial Statement". At 8:37 pm Mr Jackson replied to Mr Abram by e-mail:
David,
Okay as regards the retirement stuff, also thanks for the info re Great Southern. I plan to wait a while before deciding what to do re investing this year, partly to see what investment options are available, but also to get a better idea of my work plans for the next year or so, to be able to better plan my level of investment for this year.
Regards
Gary[171]
[171] Exhibit P16
There was no specific reference to the Winegrape Project in the e-mails that were exchanged on that day and it is to be noted that Mr Jackson informed Mr Abram that he intended "to wait a while before deciding what to do re investing this year".
Mr Abram relies upon the disclaimer clause in the letter of 28 February 2008 which I have set out above.
The investment in the 2008 Winegrape Project was not made through the defendants as an authorised representative of Great Southern but was made through another organisation. The investment was not made until four months after Mr Abram' s letter of 28 February 2008. Mr Jackson had conducted his own research into the project and in that financial year, as a result of his own research, he also made an investment in Rewards Group Tropical Fruit Project, which was not connected to Mr Abram or Great Southern.
Mr Jackson did not contact Mr Abram pursuant to the invitation in the letter of 28 February 2008. I accept the defendants’ submission that Mr Abram did not influence Mr Jackson's decision to invest in the 2008 Winegrape Project.
I find that the defendants were not in breach of any duty of care to the plaintiffs’ in respect of the Great Southern 2008 Winegrape Income Project. I also find that Mr Jackson did not rely on the advice of the defendants when he made the 2008 Winegrape Income Project Investment and that the circular letter of 28 February 2008 was not the cause of the plaintiffs loss.
Common Law Liability for the 2006 Cattle Project, the 2007 Cattle Project and the 2007 Olive Project Plus Options
In the 2005 year the plaintiffs had invested $15,000 in the 2005 Plantation Project. I have already found that was an appropriate investment for the defendant to recommend. In the following year the plaintiffs invested $140,000 in the Great Southern 2006 Cattle Project and in the financial year ended 30 June 2007 they invested a further $140,000 in the Great Southern 2007 Cattle Project, $40,000 in the 2007 Olive Project and $8,000 acquiring options in the olive company. All of those investments were made through the defendants at a time when the defendants were acting as the plaintiffs’ accountants and taxation advisers.
In my opinion the defendants duty of care required Mr Abram to advise Mr Jackson of the risk associated with placing all the investments with one organisation. Instructions given by Great Southern to Mr Abram acknowledge the desirability of diversifying investments to reduce portfolio risk.[172] It is also common sense.
[172] Exhibit P32
The investments in Great Southern were speculative and high risk. Mr Abram should have warned the plaintiffs of the risk of having such a substantial investment with Great Southern and he should have advised the plaintiffs to spread the risk. He did not do that. On the contrary, when on 6 June 2007 Mr Jackson advised of his concern that he had all of his “eggs in Great Southern”, Mr Abram responded by spruiking the merits of Great Southern and he persuaded Mr Jackson to make further investments in Great Southern.
I find that Mr Abram was negligent first because he never warned Mr Jackson of the risk of having such a large proportion of the plaintiffs’ investment in Great Southern, secondly because he never advised Mr Jackson to spread the risk and third because he actively encouraged Mr Jackson to place further investments with Great Southern after Mr Jackson had expressed his concern.
In cases such as this the purpose of an award of damages is to place the plaintiff back in the position he would have been in if there had been no breach of the duty of care.
If Mr Abram had advised Mr Jackson to spread the risk it is probable that some proportion of the investments would, in the process of spreading the risk, have remained with Great Southern.
I start with the investment in the Great Southern 2006 Beef Cattle Project. Mr Jackson gave evidence that he contacted Mr Abram and said that he had decided to invest $140,000 in superannuation in that financial year. He proposed to invest $60,000 in the cattle project and the remaining $80,000 in superannuation in term deposits. Mr Abram persuaded him to invest the whole $140,000 in the beef cattle project. Accordingly of the investment that Mr Jackson made in the year ended 2006 the sum of $80,000 was diverted from a cash deposit into the beef cattle project on the recommendation of Mr Abram.
In my opinion that recommendation was negligent. Mr Abram should have allowed Mr Jackson to make his proposed investment of $80,000 in a term deposit in the self managed superannuation fund. He should not have recommended that Mr Jackson invest the full $140,000 in Great Southern. The negligent advice of Mr Abram has resulted in the loss of the $80,000 that Mr Jackson had planned to invest in a cash deposit.
So far as the 2007 beef cattle project is concerned Mr Jackson did not require much encouragement following the function at The Hilton Hotel on 23 October 2006 before he applied for the investment in the 2007 Beef Cattle Project by his email at 9.33am the following morning. Nevertheless Mr Jackson made the decision following Mr Abram’s recommendation. Mr Abram should have advised him to spread the risk. By 23 October 2006 the plaintiffs already had a significant investment in Great Southern. In my opinion a reasonably competent and careful adviser should have recommended to Mr Jackson that he spread the investments at least in the same way that Mr Jackson had proposed to spread the 2006 investment. On that basis the negligent advice of Mr Abram resulted in the loss of a further $80,000 in the 2007 Beef Cattle Project.
So far as the Olive Project is concerned, by 6 June 2007 the plaintiffs had an even greater investment in Great Southern. The concern expressed by Mr Jackson that he had all his “eggs in Great Southern” was justified. Mr Abram should not have recommended a further investment in Great Southern but should have recommended that Mr Jackson diversify his risk by placing the investment with another organisation.
The irresistible inference is that Mr Abram was motivated to encourage investment in Great Southern by the commission he would receive.
I find that the entire Olive investment of $48,000 was lost as a consequence of the negligence of Mr Abram.
I find that the plaintiffs have lost $80,000 of their investments of $140,000 in each of the Great Southern 2006 Beef Cattle Project, and the Great Southern 2007 Beef Cattle Project and the entire investment of $48,000 in the Great Southern 2007 Olive Project and the options. The losses total $208,000 (ie $80,000 + $80,000 + $48,000) of the total investment in those projects of $328,000.
There is nothing to suggest that the options in the Olive Company did not meet the same fate as the Olives Project.
The Benefit of Tax Deductions
The plaintiffs have had the benefit of taxation deductions in respect of the investments in Great Southern and those benefits should be taken into account. For that purpose I have used the figures in the supplementary report of Ms Cusack.[173] Ms Cusack did not consider whether any tax deductions would have applied if the money had been invested in cash term deposits instead of Great Southern projects.
[173] Exhibit D2
One of the investments in question was made in the financial year ended 30 June 2006 and the other two were made in the financial year ended 30 June 2007. Ms Cusack has calculated that the tax benefit in the financial year ended 2006 was $50,353 and the tax benefit in the year ended 2007 was $72,561. If Mr Jackson had invested $60,000 in Great Southern in each of the 2006 and 2007 years a tax benefit would have been derived from those investments.
The tax benefit on the sum of $80,000 that should have been invested in cash rather than Great Southern in 2006 was $28,773.[174] The tax benefit on the sum of $128,000 that should have been placed in investments other than Great Southern in 2007 was $49,403.[175] The total tax benefits received by the plaintiffs on investments in Great Southern which should have been placed elsewhere is therefore $78,176. That sum should be credited against the losses of $208,000 to arrive at a net loss of $129,824.
[174] $80,000/($40,000 x 50.35)
[175] $128,000/188,000 x $72561
The plaintiffs have received a return of $5500 in respect of the Great Southern 2006 Beef Cattle Project. I credit $3,140, being the proportion of that return attributable to the $80,000 that would have been invested in cash, against the plaintiffs’ loss.
I assess the loss as follows:
Loss of $80,000 on Beef Cattle Project in each of
2006 and 2007 years $160,000
Loss on Olives Project in 2007 $ 48,000
$208,000
Less
Benefit of tax deductions on investments that
should not have been made in Great Southern $ 78,176
$129,824
Less proportion of return on 2006 Cattle Project $ 3,140
$126,684
Accordingly I assess that if in 2006 and 2007 Mr Jackson had been advised to invest a proportion of the funds in projects other than Great Southern he would have been $126,684 better off.
Interest
There is no precise evidence as to what would have happened to the other money if the whole had not been invested in the Great Southern projects. There are many contingencies. The money could have been invested in schemes such as the Rewards scheme. Mr Jackson lost that investment, which he made on his own initiative, in the same way that he lost the Great Southern investments. The money could have been invested in superannuation. If that had happened the investment might have increased or it might have diminished in the way that other investments diminished during the Global Financial Crisis. Mr Jackson has suggested two scenarios.[176]
[176] 7th Affidavit Part 45A, Appendix P: Outline of closing address Section 2.18
Scenario 2 assumes the money would have been invested in shares. I reject that scenario. It is not supported by evidence. There is no evidence to indicate what shares the money may have been invested in. The possibilities are endless and the concept is far too vague to contemplate.
Scenario 1 assumes that the plaintiffs would have continued as they had before they invested in Great Southern and they would have invested in cash term deposits in their self managed superannuation fund.[177] I am satisfied that Mr Jackson was eager to provide for his retirement and that he would have invested in some form of superannuation.
[177] 7th Affidavit Appendix P p324, App O p331
I have treated the plaintiffs’ submission to adopt Scenario 1 as an application for pre-judgment interest. The calculation on P325 of the Appendix P to Mr Jackson’s Seventh Affidavit assumes rates of interest during the period from 30 June 2005 to date which vary between 4% and 8.45%. I have considered the rates claimed by Mr Jackson and also the pre-judgment interest rates listed in Lunns Civil Procedure 6R 217.7
Because of the broad assumptions made in the calculation of the loss it would be artificial to attempt a precise calculation of interest on an imprecise figure. I therefore propose to award a lump sum pursuant to s39(3) of the District Court Act. In arriving at the lump sum I have had regard to the number of days from when each of the three investments was made until 30 June 2014, the amount that would have been invested in a cash term deposit and I have assumed an interest rate of 6% . On that basis I fix a lump sum of $95,000 for pre-judgment interest.
As to the remaining $60,000 that could have still been invested in Great Southern in 2006 and 2007 after deducting the sum of $80,000 from the amount to be invested in each year, I find that the loss of those investments was not caused by any negligence or breach of duty of Mr Abram.
Contributory negligence
Mr Floreani has argued that any damages should be reduced because of Mr Jackson's share in the responsibility for loss or damage. He relies upon the ASIC Act s12GF and s1041N of the Corporations Act. I have found that the defendant has no liability pursuant to either of those Acts and the provisions which Mr Floreani relied upon have no application. For the same reason I also find that the proportionate liability regime in ss12GP and 12GR of the ASIC Act and s1041N of the Corporations Act has no application.
In his oral submissions Mr Floreani argued that if there was a breach of duty at common law there was contributory negligence and he referred to the Law Reform (Contributory Negligence and Appointment of Liability) Act 2001.
The investment in the 2006 Beef Cattle Project was a consequence of Mr Abram persuading the plaintiff against depositing $80,000 in a term deposit.
In the case of the 2007 Beef Cattle Project the plaintiffs were very quick to apply for that investment following the function at The Hilton Hotel There had been no relevant contact between Mr Jackson and Mr Abram other than limited contact at the seminar. However the investment was made on Mr Jackson’s suggestion.[178]
[178] T 84 l27. Exhibit P7
In the case of the 2007 Olive Project Mr Jackson had sent the e-mail expressing concern about having all his “eggs in one basket” and he was aware of the need to diversify. However Mr Abram persuaded him to invest with Great Southern alone.
Mr Abram was in the dominant position and knew that Mr Abram was trusted by Mr Jackson to give advice which could be relied upon.
I find that Mr Abram did not give objective independent advice but was motivated by the desire to derive commissions from Great Southern investments. I find that a reasonable adviser would have recommended that the plaintiffs diversify their risk.
So far as the investments in the two cattle projects were concerned I find that Mr Jackson was not guilty of any negligence contributing to his loss because Mr Jackson had relied entirely on the advice of Mr Abram. At the time Mr Jackson was a novice in the area. In 2006 Mr Abram caused Mr Jackson to redirect the $80,000 he had proposed to invest in a cash term deposit to Great Southern. In 2007 Mr Jackson followed what Mr Abram had suggested. In my opinion it was not contributorily negligent for Mr Jackson to follow the recommendations of his adviser.
As to the olive project Mr Jackson demonstrated insight into the risk associated with not diversifying his investments. That is evidenced by his e-mail expressing concern that he had “all of his eggs in Great Southern”. However that concern was dealt with by Mr Abram's response singing the virtues of the Great Southern organisation. Having regard to the response that Mr Abram gave to Mr Jackson's e-mail, which recommended that the plaintiffs invest in Great Southern rather than other organisations, I find that Mr Jackson was justified in following Mr Abram’s recommendation and Mr Jackson was not contributory negligent when he made the investment in the olive project.
Mr Floreani argued that on his own case Mr Jackson failed to take reasonable care by failing to read or retain the documents presented to him and by signing documents without reading them.[179] I reject that argument. Even if Mr Jackson had studied the documents presented to him they would not have advised Mr Jackson to spread the risk by making investments with organisations other than Great Southern, which was the cause of the losses. Mr Jackson’s failure to read documents may have been careless but it did not contribute to the plaintiffs’ loss.
[179] Written submission para 2.54
Accordingly there will be no reduction for contributory negligence.
The remedies sought by the plaintiffs
Taxation
In paragraph 236 of the Statement of Claim the plaintiffs’ claim that their damages should be calculated to take into account the incidence of income tax and capital gains tax that will apply to a lump sum award of damages payable in one year. In para 237 the plaintiffs’ claim that the damages should include the tax which would be required to be paid on the damages received at the maximum rate of 46.5% which includes the Medicare levy. They claim that the applicable Medicare levy surcharge should also be included.
The amount claimed for tax is $1,101,726.01. The amount claimed for the Medicare levy surcharge is $12,675.77. The plaintiffs did not call evidence to support this component of their claim. The amounts claimed are obviously excessive.
Luntz Assessment of Damages 4th Edn suggests that pre-judgment interest on damages is not subject to tax.[180] Ms Cusack did not address the question. I require further evidence and argument on any taxation issues that may arise out of this decision. For example, should the award be “grossed up” to allow for taxation. Would the plaintiffs’ have received a deduction if they had invested the monies in superannuation in cash instead of Great Southern projects. If so, should the deductions for cash investments in superannuation be set off against the allowance of $28,176 that I have made for the benefit of the tax deductions on the Great Southern investments in 2006 and 2007.
The claim for “the promised return”
[180] Para 5.78
The judgment which I propose includes compensation for the loss of the investment in the 2006 and 2007 cattle projects and the 2007 olive project. The plaintiffs have also claimed damages in respect of the returns which Mr Abram promised on the investments.
I accept the submission of Mr Floreani that the plaintiff’s claim is a “no transaction” claim. His analysis of the claim is that if Mr Abram had given the advice the plaintiffs contend for, the plaintiffs would not have entered into the transactions in question. If they had not entered into the transactions the plaintiffs would never have received the “Promised Return” and I make no allowance for that component.
The “No Transaction” argument does not apply to an investment of $60,000 in the Cattle Projects in each of the 2006 and 2007 years. I have found that investments in Great Southern could have been made to that extent. In the case of those investments the evidence does not establish any basis for an award of a promised return.
The reason why the promised returns will never eventuate is not the result of any conduct of Mr Abram but the consequence of the insolvency of Great Southern.
Other heads of claim
I have already considered what the plaintiffs might have done with the monies that were invested in the Great Southern schemes if those investments had not been made.
I have dismissed the Project Transform claim. The various items set out in connection with that cause of action in the prayer for relief in the Statement of Claim such as “Project Transform Losses Due to Failed Expectation” and “Loss of Share Sale Expectation When Market Recovers” are dismissed.
Claim for punitive or exemplary damages
In addition to the other heads of damage which I have already mentioned Mr Jackson has also in his final address applied for an order for punitive damages against Mr Abram. The claim was not made in the Statement of Claim.
In the Outline of his closing address Mr Jackson wrote:
Unless the court takes decisive action to stop Mr Abram continuing in the manner he has been with the Great Southern products or similar products, Mr Abram will not be being punished in proportion to the offences which he has committed, which have included gross violations of the financial service law. If the level of claim payout is no bigger than the initial investment Mr Abram will not be being punished for making false promises on returns and taxes; and will not be punished for engaging in deceptive and misleading practices; and Mr Abram would not be being punished for having recklessly provided the plaintiffs with some sound personal financial product advice.[181]
[181] Outline page 41
In addition he wrote "the primary purpose for imposing punitive damages is to impose damages intended to reform or deter the defendant and others from engaging in conduct similar to that which formed the basis of the lawsuit."
Mr Jackson submitted that in this particular action the court should impose punitive damages in order to prevent under compensation of the plaintiffs occurring due to the trauma caused to the first plaintiff and his family as a result of disreputable behaviour of Mr Abram.[182]
[182] Outline s4 page 4; s2.5 p 63
Mr Jackson wrote:
… the approach adopted by the plaintiffs is to hold the adviser to the misleading statements he made with respect to the investments, as a mechanism to reform or deter the defendant and others from engaging in conduct similar to that which formed the basis of the lawsuit. If there is no precedence (sic) for such a quantum derivation the court should as a result of this action set a precedence (sic) with the outcome of this action. Without such deterrence advisers such as Mr Abram will continue risking their clients finances in the reckless manner he did due to his extreme conflict of interest, and their clients will continue to suffer as have the plaintiffs in this action. There is no point in having a financial services law, if when it is deliberately flouted by people like Mr Abram there are no consequences. It is time the courts took a harder line with individual such as Mr Abram to stem their reckless behaviour[183].
[183] Outline para 2.50 p 63
There are cases in which the court will award exemplary or punitive damages. The purpose of such damages is to punish and deter the defendant and other potential tortfeasors. In Uren v John Fairfax & Sons Pty Ltd[184] Owen J said at 158 that the Court may award damages:
...over and above those required to compensate the plaintiff for the injury suffered by him if it forms the opinion… that the defendants conduct in committing the wrong was so reprehensible as to require that he should not only compensate the plaintiff for what he has suffered but should be punished for what he has done in order to discourage him and others from acting in such a fashion.
[184] (1966) 117 CLR 118
The power to make an award of exemplary damages was also acknowledged in XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd (1985) 155 CLR 448 where Brennan J said at 471 that an award of exemplary damages:
Is intended to punish the defendant for conduct showing a conscious and contumelious regard for the plaintiff's rights and to deter him from committing like conduct again.
Such damages are available in an action based on negligence but the plaintiff must establish that "the defendant can be seen to have acted consciously in contumelious disregard of the rights of the plaintiff." Gray v Motor Accident Commission (1998) 196 CLR 1
In Ali v Hartley Poynton Pty Ltd (2002) 28 CLC 1006 a stockbroker who was held liable in negligence to a client was ordered to pay exemplary damages.
In support of his claim for exemplary damages Mr Jackson has asserted that the plaintiffs were deprived of the opportunity of investing in alternative investments and that the plaintiffs will suffer a tax penalty. He is also referred to "the trauma caused to the first plaintiff and his family as a result of disreputable behaviour of Mr Abram." In my assessment I have already made allowance for interest on cash term investments. That provides compensation for any lost opportunity of investing in alternative investments. Any possible tax penalty is yet to be considered. There is no evidence of the trauma said to be suffered by Mr Jackson and his family. I have no doubt that any person involved in proceedings such as these would experience a difficult time but that is not something which is compensable.
It is the conduct of the defendants rather than the suffering of the plaintiffs that provides the basis for an award of exemplary damages.
Awards of exemplary damages are not common. The plaintiffs must demonstrate a conscious and contumelious disregard by the defendants for the plaintiffs rights. While I am satisfied that Mr Abram did have a conflict of interest and was negligent I am not satisfied that the plaintiffs have established that he acted "consciously in contumelious disregard of the rights of the plaintiff."
In my opinion the evidence does not establish an entitlement to punitive or exemplary damages.
Summary
For these reasons the result is:
2005 Plantations Project Dismissed
2006 Beef Cattle Project $ 80,000
2007 Beef Cattle Project $ 80,000
2007 Olives Project and options $ 48,000
$208,000
Less proportion of taxation benefit attributable to
investment that should not have been made in Great
Southern $ 78,176
$129,824
Less proportion of return on 2006 Cattle Project $ 3,140
$126,684
Lump sum pre-judgment interest in trust $ 95,000
2008 Wine Grape Project Dismissed
Project Transform Dismissed
Exemplary or Punitive Damages Dismissed
Allowance for taxation Further submissions required
All other claims Dismissed
Conclusion
There will be judgment for the plaintiffs in the sum of $126,684 and a lump sum of $95,000 for pre judgment interest.
The parties are to have liberty to call further evidence limited to the taxation implications of the award that I propose.
I will hear argument as to costs.
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