Jamieson v Westpac Banking Corporation
[2014] QSC 32
•7 March 2014
SUPREME COURT OF QUEENSLAND
CITATION:
Jamieson & Ors v Westpac [2014] QSC 32
PARTIES:
MARK BRYAN JAMIESON
(first plaintiff)
and
LORRELL BERNADETTE JAMIESON
(second plaintiff)
and
JAMIESON INVESTMENTS QLD PTY LTD ACN 103 273 070 as trustee for The M & L SUPER FUND
(third plaintiff)
v
WESTPAC BANKING CORPORATION ABN 33 007 457 171
(defendant)
FILE NO/S:
3536/11
DIVISION:
Trial Division
PROCEEDING:
Application
DELIVERED ON:
7 March 2014
DELIVERED AT:
Brisbane
HEARING DATE:
2013
JUDGE:
Jackson J
ORDER:
The orders of the court are that:
1 Direct the parties to submit a calculation or further submissions as to the amount of the judgment for damages in accordance with paragraph [347] of the reasons on or before 14 March 2014.
2 Judgment for the defendant against the third plaintiff on the third plaintiff’s claim.
3 Direct the parties make any submissions on costs in writing not to exceed five pages in length on or before 14 March 2014.
4 Liberty to apply.
CATCHWORDS:
DAMAGES – GENERAL PRINCIPLES – OTHER MATTERS - where the defendant gave advice to the first and second plaintiffs to enter complex financial investments, including superannuation arrangements – where the plaintiffs allege the manner of giving advice was negligent, in breach of contract or in contravention of the Australian Securities and Investment Commission Act 2001 (Cth) – where losses may be attributable to general market decline – whether the rule in Potts v Miller should be applied – whether another approach to assessment of damages is preferable – whether the likelihood of the plaintiffs entering into similar or alternative transactions should be included in the assessment of damages – whether ongoing interest liability for one of the loans acquired by the first and second plaintiffs is recoverable
DAMAGES – GENERAL PRINCIPLES – INCIDENCE OF TAXATION AFFECTING DAMAGES – where the amount claimed was the gross amount of loss – where the losses had previously been claimed as tax deductions – whether the award of damages should be “grossed-up”
CORPORATIONS – FINANCIAL SERVICES AND MARKETS – FINANCIAL PRODUCTS – GENERALLY - where defendant bank gave advice to first and second plaintiffs regarding a self-managed superannuation fund – where the third plaintiff was trustee of the self-managed superannuation fund created – where financial product advice was given to first and second plaintiffs – whether ss 945A, 945B and 947B of the Corporations Act 2001 (Cth) applied to the defendant in respect of the third plaintiff – whether the defendant breached its obligations under those sections in respect of the first and second plaintiffs
COUNSEL:
CC Heyworth Smith and S Hogg for the plaintiffs
APJ Collin and GJ Watson for the defendant
SOLICITORS:
Schultz Toomey O’Brien for the plaintiffs
Sparke Helmore for the defendant
JACKSON J: In May and June 2007, Mark and Lorrell Jamieson and the trustee of their self-managed superannuation fund made investments based on a written statement of advice. The statement of advice was prepared by Robert Tindall who was a financial planner in the employ of the defendant (“the Bank”). Mr and Mrs Jamieson and the trustee, Jamieson Investments Qld Pty Ltd (“the Trustee”), claim damages for alleged breaches of contract, negligence and contraventions of statute in preparing and giving the advice.
The statement of advice was first given in draft on 1 May 2007 and subsequently updated on 16 May 2007. The claims are based on the updated statement of advice. It recommended strategies and particular investments. There were two major strategies, both to be effected in the financial year ending 30 June 2007. First, it recommended that Mr Jamieson borrow $5 million from Macquarie Bank Limited under a Macquarie Structured Product Investment Loan for a three year term at an interest rate of 7.95 percent per annum. The proceeds of the loan were to be invested in a basket of different classes of units in a registered managed investment scheme described as the “MQ Gateway Trust”. The investment was to be for a three year term. Over that period, the aim was that the growth of the value of the units would provide an investment return greater than the costs of the loan and other administrative costs. Mr Jamieson borrowed $5 million from Macquarie Bank Limited and invested in the MQ Gateway Trust.
The second strategy was that Mr Jamieson or Mr and Mrs Jamieson borrow $600,000 from the Bank to make substantial undeducted contributions to a self-managed superannuation fund which would invest the funds in self-funding instalment warrants. Mr and Mrs Jamieson and the Trustee executed the trust deed of the M&L Super Fund. The Trustee was thereby constituted the trustee of that fund. Mr and Mrs Jamieson borrowed $700,000, rather than $600,000, from the Bank. The sum borrowed was contributed by them to their accounts under the M&L Super Fund. The Trustee invested that amount in self-funding instalment warrants in Australian shares. The particular warrants selected for investment were recommended by Ian Elks from Macquarie. Mr Elks was a stockbroker responsible for managing Mr Jamieson’s substantial pre-existing share portfolio.
Both strategies and investments were unsuccessful. The plaintiffs’ claims for damages are calculated so as to the restore them to the positions as if no borrowing or investment had been made, although it will be necessary to deal in some detail with the basis of the amounts claimed.
The Bank denies any breach of contract, negligence or contravention of statute. It also denies that it caused the plaintiffs any loss they would not otherwise have suffered. There are numerous factual disputes between the parties, including what was said at or before the time of giving the advice, whether the plaintiffs would have made the investments or obtained the associated loans had the alleged breaches of contract, negligence or contraventions of statute not occurred and what consequences would have ensued had the plaintiffs not made the investments or taken out the loans.
The plaintiffs
In April and May 2007, Mr Jamieson was the chief executive officer of APN News & Media Limited (“APN”), an ASX listed company. He was 48 years of age. Mr and Mrs Jamieson married in 1980 and had three children. In 2007, one of the children was still a dependant.
Mr Jamieson was a long term customer of the Bank. From about 2003, Greg Halliday had been his banker at the division of the Bank described as Westpac Private Bank. It was Mr Halliday who introduced Mr Tindall to Mr and Mrs Jamieson.
Mr and Mrs Jamieson were directors of the Trustee. The Trustee was not incorporated for the purpose of becoming trustee of the self-managed superannuation fund. Reference is made in some of the documents tendered at the trial to a family trust, although neither a trust deed nor any financial statements relating to any family trust were put into evidence.
Mostly from information supplied by Mr Jamieson to Mr Tindall, it appears that Mr Tindall recorded a summary of Mr and Mrs Jamieson’s financial situation in April 2007 as follows:
Assets $ Liabilities $ Apartment in “Aspect”, Caloundra $2,500,000.00 Joint loan $1,041,431.00 House at 17 Mayfair Lane, Buderim $2,000,000.00 Joint loan 163413 $243,000.00 Apartment in “The Hudson”, Brisbane City $1,700,000.00 Mrs Jamieson loan 328154, 329309 $1,410,000.00 Property known as “Cashelmara”, near Toowoomba $1,000,000.00 Mr Jamieson loan 651216, 154975, 536981, 545781 and 165239 $910,000.00 Shares (Mr Jamieson) $3,052,700.25 Mr Jamieson margin loan $2,043,972.00 Shares (Mr Jamieson and his brother) $298,155.00 Mr Jamieson’s employee options (APN) at $6.20 $1,178,000.00 Exercise cost $848,500.00 Mr Jamieson’s employee options (INM) $800,000.00 Exercise cost MIS (Mr Jamieson) $339,000.00 (GtSth)
$264,000.00 (FEA) $89,000.00
(B Barrossa)
$30,000.00 (Cattle)06/07 Cashflow $85,100.00 Retire Invest/Sunsuper (Mr Jamieson) $650,000.00 Sunsuper (Mrs Jamieson) $40,000.00 Total Assets $13,220,180.00 Total Liabilities $6,582,003.00
Mr Jamieson says there are inaccuracies in that statement of assets and liabilities. It will not be necessary to resolve all those allegations. However, that summary of financial situation was the basis on which Mr Tindall gave the draft statement of advice and the updated statement of advice to Mr and Mrs Jamieson.
In April and May 2007, the Aspect apartment was Mr and Mrs Jamieson’s official principal place of residence. However, at that time, they were living at 17 Mayfair Lane. In about February 2007, the Aspect apartment was listed for sale and an offer was made to purchase it for the sum of $2,300,000. A contract was entered into. However, that contract did not proceed. In 2008, after advertising the property for sale for a period at $2,500,000, Mr and Mrs Jamieson sold it for $2,300,000.
In April and May 2007, in my view, Mr Jamieson was an experienced and astute businessman. The experience included management of a listed public company as well as personal investment experience in residential and rural real property and the Australian share market.
Mr Jamieson had grown up in a rural environment. In his teenage years, he moved to Hervey Bay. From 1981, he had some experience selling real estate in Maryborough. In 1982 and 1983, whilst living in Hervey Bay, he and his brothers built and sold a couple of “spec” homes. In March 1995, whilst living and working in Toowoomba, he purchased “Cashelmara” which is a 40 acre property. After a period of time when he was working in Rockhampton, Mr Jamieson and his family moved to the Sunshine Coast. In early July 2001, Mr and Mrs Jamieson purchased 17 Mayfair Lane. The Aspect apartment followed. Mr and Mrs Jamieson bought it off the plan in 2003. The purchase was settled in June 2006. They bought another apartment in Aspect at the same time. It was furnished and sold after settlement. Effective 1 January 2005, Mr Jamieson was made the chief operating officer for APN. Mrs Jamieson acquired The Hudson apartment in Brisbane. Mr Jamieson rented it from Mrs Jamieson.
The shares held by Mr Jamieson were acquired at least in part through a margin loan of approximately $2 million provided to him by Macquarie Bank Limited or a related company. As at April 2007, there was about $1 million of excess cover of the value of the shares to the balance of the loan. At that time, Mr Jamieson had an ongoing relationship with Mr Elks as his stock broker.
Over the prior years, Mr Jamieson made a number of investments in managed investment schemes described by him as “agribusiness”. In the 2003 tax year, he invested in the Great Southern Plantations 2003 Project; in the 2004 tax year, the Great Southern Plantation 2004 Project, Forestry Enterprises and Barossa Vines; in the 2005 tax year, the Great Southern Plantations, Forestry Enterprises and Barossa Vines; in the 2006 tax year, the Great Southern Plantations and Barossa Vines; in the 2006 tax year Great Southern Cattle; and in the 2007 tax year, Great Southern, Barossa Vines 2007 and FEA.
As well, through these years, Mr Jamieson carried on the business of primary production on Cashelmara. The business comprised cattle production, buying and selling hay and growing olives.
Although he had left school at a relatively young age, it appears from Mr Jamieson’s progress and success in various positions of employment that he acquired considerable business experience. At April 2007, he had been the chief executive officer of APN since 1 July 2006, having been the chief operating officer of that company since 1 January 2003. Prior to that, he had a long history of experience in marketing within the publishing industry in Queensland, starting with Provincial Newspapers Queensland at the Hervey Bay Fraser Island Sun newspaper. In 1996, he obtained a Bachelor of Business degree with majors in marketing and human resources and management from the University of Southern Queensland.
For many years, Mr and Mrs Jamieson retained the services of an experienced tax accountant, Terrance Lynch of Canning, Lynch McGrath, in connection with their personal and business affairs. Mr Lynch had been their accountant since 1984 or 1985. He knew Mr Jamieson well. He did the income tax compliance work for Mr and Mrs Jamieson, their family trust and a couple of other trusts as well. No evidence was given about those trusts at the trial. From documents tendered at the trial, it appeared that Mr Jamieson consulted Mr Lynch in relation to investment advice or financial advice beyond tax compliance work. However, it was not suggested that Mr Lynch was involved in giving any advice in relation to the investments the subject of this proceeding, at the time when those investments were made.
Further, over a number of years Mr Jamieson consulted Danny Mattson as a financial advisor. Mr Mattson was an authorised representative of Professional Investment Services Pty Ltd. He gave advice in connection with investments in agribusiness. It also appears from some documents that Mr Mattson may have been involved in obtaining the deed of trust and rules of the M&L Super Fund.
March to May 2007 meetings
By the time of the trial of this proceeding in August 2013, more than six years had elapsed since the central events had occurred. The statement of claim alleges that Mr Halliday introduced Mr Tindall to Mr and Mrs Jamieson in or about February or March 2007. That allegation is admitted in the defence. It was not in dispute that there were a number of meetings between Mr and Mrs Jamieson on the one hand and Mr Tindall and Mr Halliday, on the other, in March or April 2007.
However, at the trial the Bank’s case was that the first meeting of any consequence occurred on 10 April 2007. There is no dispute that there was a meeting on that date at 17 Mayfair Lane. There is also no dispute that Mr Tindall made notes at the meeting. The notes were not tendered in evidence, even though the experts who gave evidence had been supplied with them.
The plaintiffs’ case is that there was more than one meeting at 17 Mayfair Lane before 10 April 2007. Mr Jamieson described the first meeting as more of a “meet and greet”. Nothing of particular substance is alleged to have occurred at that meeting, so it probably does not matter if it did happen, except insofar as a view about that might reflect upon the reliability of one witness or another in general.
In the same vein, the plaintiffs relied on Mrs Jamieson’s recollection of meeting Peter McGrath at the first or subsequent meeting between Mr and Mrs Jamieson and Mr Tindall and Mr Halliday. In particular, Mrs Jamieson recalled discussing with Mr McGrath mutual friends who lived in Milmerran. Her evidence was not clear about when that meeting occurred. On the Bank’s part, it was contended that Mr McGrath could only have attended a meeting at a much later time. But Mr McGrath’s evidence did not make that clear one way or another. However that may be, Mr McGrath was neither involved in giving any of the advice which was complained about nor in making any selection of the self-funding instalment warrants which were purchased by the Trustee with the contributions made by Mr & Mrs Jamieson to the M&L Super Fund.
Mr Jamieson claimed a real and detailed recollection of the meeting or meetings which occurred prior to and after receiving the draft statement of advice. In cross-examination he was challenged on the footing that his evidence was largely a reconstruction. It was reasonably clear that he had read the disclosed documents. He made reference to that fact and also to the timing of some of the disclosure in terms of when he had first seen relevant documents. I formed the view that significant parts of his evidence were a regurgitation of the contents of the documents, against which he had reconstructed what he believes happened. I doubted the extent of his genuine recall.
The reality is that none of the witnesses to the early meeting or meetings from which the updated statement of advice of advice emerged can be relied upon as having an accurate recollection of what was said. To the extent that Mr Jamieson or Mr Tindall purported to urge clear recollections, in my view, it is likely that their evidence is coloured both by reconstruction and their beliefs as to what would have happened. It will be necessary to deal with specific matters as they arise.
Valuation instruction
One of Mr Jamieson’s central complaints in respect of his investment in the MQ Gateway Trust and associated loans was that the investment strategy put at risk more than ten percent of the overall net asset wealth of Mr and Mrs Jamieson. A particular aspect of that complaint is the allegation in paragraph 9(f)(iii) and (iv) of the statement of claim that, when Mr Tindall sought information from Mr and Mrs Jamieson as to the value of their properties, he informed them to the effect that the Bank would need valuations to support their estimates of value, and that Mr Jamieson then gave an express instruction to obtain those valuations.
In April 2007, there were four real properties potentially in question: 17 Mayfair Lane, the Aspect apartment, Cashelmara and The Hudson apartment.
It was not disputed that in late April 2007 the Bank in fact commissioned valuations of the Aspect apartment and 17 Mayfair Lane. The valuations obtained were dated 24 April 2007. However, no valuations were commissioned or obtained for either Cashelmara or The Hudson apartment.
The Bank’s position was that the two valuations were obtained in connection with a proposal by Mr and Mrs Jamieson to borrow funds to acquire an apartment at “The Bellagio” in Brisbane. Mr and Mrs Jamieson each denied this in evidence. Their case was that there was no reason why the Bank would have obtained the valuations of the Aspect apartment or 17 Mayfair Lane, except for the arrangement or instruction that they would be obtained to support the estimates of value given by Mr and Mrs Jamieson for the statement of advice.
I reject Mr and Mrs Jamieson’s evidence in this regard because it is inconsistent with the contemporaneous documents and it is unlikely that the Bank would have obtained valuations for the purpose of giving investment advice.
On 25 March 2007, Mr Jamieson sent an email to Mr Halliday advising that he had seen a place in Brisbane he may like to buy and requesting a calculation of the amount that he could borrow. On 2 April 2007, Mr Halliday prepared an internal application for the purpose of obtaining an approval to assist with making a bid at an auction for a unit in “Bellagio” in Brisbane to the amount of $3,100,000. Both Mr and Mrs Jamieson in oral evidence sought to distance themselves from any suggestion that they seriously intended to bid for the unit at “Bellagio”. However, there is no rational explanation for Mr Halliday to have prepared an internal application for finance at the bank on 2 April 2007 for that purpose all of his own accord.
Consistently with Mr Jamieson’s oral evidence, Mr Halliday recorded in the application that, at the time, the Aspect apartment was on the market for $2,500,000. On 10 April 2007, the internal application was approved by another bank officer. The approval suggested that two properties be valued (which subsequently occurred). Also on 10 April 2007, as previously mentioned, Mr and Mrs Jamieson met with Mr Tindall and Mr Halliday. On 11 April 2007, Mr Jamieson sent an email to Syd Walker requesting the name of a valuer who “will go close to valuing my Aspect unit … at $2.5 million? … I need to get someone to value for Westpac”. Also on 11 April 2007, having received a recommendation from Mr Walker, Mr Jamieson sent an email to Mr Halliday identifying the recommended valuer and requesting Mr Halliday to follow him up and to arrange a valuation to $2,500,000. On 17 April 2007, Mr Halliday responded that he would organise the unit valuation and would phone the recommended valuer. He also said: “We should do Mayfair Lane at the same time is that okay? …” Mr Jamieson responded in the affirmative. None of that course of correspondence refers in any way to obtaining any valuation for the purpose of the investment advice which Mr Tindall was preparing following the 10 April 2007 meeting.
As stated above, Mr and Mrs Jamieson’s position is that there was no reason why valuations would have been obtained at the time for lending purposes to purchase the unit because they had no intention to do so. Another important contemporaneous document is inconsistent with that. On 1 May 2007, Mr Tindall sent the draft of the statement advice to Mr Jamieson by email. Page nine of the document is headed “Strategy”. There are 11 dot points under that heading. The sixth dot point is: “Purchase your investment property for approximately $3,000,000 in joint names”.
In my view, that was a reference to the proposal to buy the unit identified in the earlier correspondence and Mr Halliday’s internal application. It does not matter, in my view, whether or not the unit at “Bellagio” had already been auctioned. The Bank was operating on the footing that there was an intention to purchase an investment property for approximately $3 million and, as the internal approval and Mr Halliday’s correspondence with Mr Jamieson suggests, the Bank was obtaining updated valuations on the two properties in connection with such proposals.[1]
[1]I note that the strategy to purchase investment property for approximately $3,000,000 in joint names was deleted in the updated plan prepared by Mr Tindall on 16 May 2007.
I note as well that the superannuation strategy recommended in both the draft and updated statement of advice included rolling over existing superannuation to a new self-managed superannuation fund “as discussed with your accountant”. The updated statement of advice also included the strategy to: “establish a loan against existing property for $600,000 and make an undeducted contribution to your newly established self-managed superannuation fund. This is to be organised by Greg Halliday. The interest on this debt will not be tax deductable. All debt repayments should be focussed firstly towards reducing and eliminating this loan.” In other words, by 16 May 2007, at the latest, it was proposed that either Mr Jamieson or Mrs Jamieson or both would borrow monies from the Bank for the purpose of making superannuation contributions to their self-managed superannuation fund.
Finally, apart from the prospect that Mr and Mrs Jamieson might borrow funds to implement one or other part of the strategies referred to in the draft or updated statement of advice, there is no other logical reason why the Bank would have requested valuations of the relevant properties. It was neither Mr Tindall’s practice nor was there any evidence that it was usual practice for a financial planner such as Mr Tindall to obtain valuations in order to prove the value of properties taken into account in the assessment of a client’s financial situation for the purpose of giving investment advice. Neither of the experts who were called to give evidence suggested that a financial planner would ordinarily do that.
In my view, neither did Mr and Mrs Jamieson instruct Mr Tindall to obtain valuations for that purpose, nor did Mr Tindall say that he or the Bank would do so. The purpose for which any valuation was to be obtained was in connection with the proposed borrowings by Mr and/or Mrs Jamieson.
Risk of loss on MQ Gateway Trust and associated loans
The updated statement of advice contained a section on page 14 which included the following in relation to investment in the MQ Gateway Trust and associated loans:
“Investment Risk
Based on the assumptions in the illustrations attached to this Statement of Advice, the following illustrates the potential outcomes in three different investment horizons:
Investment return PA % (Loss)/Gain $ (after tax) 0 or less (601,875) 3.61 Nil 10 2,986,000 We have assumed the highest marginal tax rate on profits at 46.5%”
A close analysis reveals that there are a number of errors or inaccuracies in that statement of potential outcomes. However, it is unnecessary to discuss some of them because they were not pleaded as a relevant breach of contract, negligence or contravention of statute.
Paragraph 46 of the statement of claim alleges that in contravention of s 12DA(1) of the Australian Securities and Investment Commission Act 2001 (Cth) (“ASIC Act”), the statement of advice did not adequately or completely describe the nature and effect of the investment and loans or misstated their nature and effect “in engaging in the conduct pleaded in paragraph 39”.
Although paragraph 39 contains numerous different allegations, including a number as to the failure of the statement of advice to sufficiently describe the Capitalised Interest Assistance Loan (which I refer to later in these reasons), in oral evidence Mr Jamieson said, in effect, that he understood that his investment risk was $601,875 if the investment in the MQ Gateway Trust returned no profit, being approximately the amount of the three annual interest payments of $198,750 he was required to make on the $5 million loan. He was aware that he was required to fund those amounts in cash in each of the three years of the investment.
I accept that Mr Jamieson did not fully understand the amount of his exposure or liability under the loans associated with investment in the MQ Gateway Trust. But I reject that he believed his only exposure was the amount of the three annual interest payments of $198,750.
First, Mr Jamieson was aware that the effect of investing in this Macquarie product was that he would be able to claim a tax deduction of $375,000 for interest associated with the loan in each of the relevant tax years, starting in 2007. It is not easy to accept that an astute investor concerned to maximise their available allowable deductions for the purposes of reducing their taxable income would readily accept that a tax deduction for interest of $375,000 could be obtained for a payment of or liability to pay interest of $198,750.
On 22 May 2007, Mr Jamieson wrote to Mr Lynch:
“I intend to proceed with the offshore investments through Westpac for $5 million… Interest is $375,000 which is fully deductible but I only need to pay 50% up front, ie, $187,500.”
Other documents passing between Mr Jamieson and Mr Tindall in 2009 are inconsistent with Mr Jamieson’s statement in evidence that he believed that he had no exposure other than the payment of the three annual amounts of interest of $198,750. In 2008 and 2009, Mr Tindall continued to act as Mr and Mrs Jamieson’s financial planner or contact with the Bank in some respects. Before March 2009, the impact of the so-called global financial crisis upon equity markets had come home to roost.
On 12 March 2009, Mr Tindall sent an email to Mr Jamieson setting out an analysis of three scenarios of liquidation of Mr Jamieson’s investment in the MQ Gateway Trust and associated loans. In the analysis, the amount to be repaid in July 2009 for the Macquarie interest assistance loan was stated to be $664,832.
On 20 March 2009, Mr Jamieson sent an email to Mr Tindall stating, inter alia, as follows:
“I would like confirmation on the following please:
1.My exposure to Macquarie for the Gateway Investment is limited to $601,875 (as per SOA) if the original investment runs its course to July 30, 2010? This being three years of interest assistance?
2.I understand you are examining ways to further reduce this amount? Can you give me any more detail on what the opportunity is? …”
On 20 March 2009, Mr Tindall responded by email to Mr Jamieson upon those two points as follows:
“1.Exposure is correct – however there is an interest expense on the interest assistance loan itself.
2.A. The interest expense is one issue that is not highlighted and needs addressing.
B. Rolling into a short dated strategy to pick up some market movement.
C. Fully analysing the break costs and having Macquarie meet us half way.
D. We are having a lawyer go over the Macquarie loan documents to see if there are any avenues to avoid some of the costs …”
Mr Jamieson’s reference to $601,875 as the “exposure” and as “three years of interest assistance” was pointed. It came in response to the earlier email from Mr Tindall to Mr Jamieson sent on 12 March 2009 which included reference to repayment of the amount of the Macquarie interest assistance loan in July 2009 in the larger sum of $664,832.
Mr Tindall’s statement that the “exposure is correct” was wrong. He had made an error in calculating the amount of $601,875, (even as an after tax value) because he had forgotten that “interest assistance”, which was capitalised interest, itself carried interest that should have been included in the calculation. Mr Tindall subsequently acknowledged in his emails that he had left that component out of his calculations in April and May 2007 for both the draft and updated statement of advice. But the point, for present purposes, is that in responding to the amount required to pay out the Macquarie Structured Product Investment Loan in March 2009, Mr Jamieson did not say that his understanding was that he would not have to pay the amount of the interest assistance at the end of the loan term as a sum additional to the annual payments on account of interest he had previously made. Rather, his point was that he thought the amount of the additional sum would be limited to $601,875. As will subsequently appear, the amount of $601,875 did not represent the amount required to pay out the Macquarie Structured Product Investment Loan at all. It was something else. But that does not matter for this point.
Thus, on 20 March 2009 Mr Jamieson sent a further email to Mr Tindall saying:
“Thanks for the response.
The interest in the assisted amount is my major concern given that the maximum potential loss was $601K …”
Mr Tindall responded on 20 March 2009 as follows:
“Absolutely
I am absolutely working on it. It was definitely my oversight. May take some time but I am sure we will have a suitable solution”
Consistently with the view I have reached, on 12 March 2009, Mr Jamieson had forwarded Mr Tindall’s email of 12 March 2009 to Mr Lynch saying:
“Have a look at the attached options.
Not sure why the losses on option 1 are now larger than the 601K in the proposal.
Somehow I have got to reduce the deficit going forward. Perhaps I can pay the total interest ie. $5m x 7.95% with no assistance and get some of the earlier interest subsidy to reduce my exposure and proceed with option 1 or 3. …”
Also, after receiving Mr Tindall’s acknowledgement of his oversight in relation to the interest payable on the interest assistance, Mr Jamieson forwarded that email to Mr Lynch on 20 March 2009 saying:
“This admission of responsibility (oversight) may be helpful down the track.”
Down the track, Mr Jamieson ended up in dispute with the Bank about the amount of his exposure. On 17 May 2010, he made a formal complaint to which the Bank responded. By then, the amount outstanding to Macquarie in connection with the Interest Assistance Loan was approximately $700,756.73. On 4 June 2010, the Bank wrote to Mr Jamieson summarising its understanding of his complaint as follows:
“We understand that you believe that your expected net financial position arising from the maturity of the above product does not reflect the ‘worst-case’ scenario that was disclosed to you when you were given the recommendation.
You believe that a shortfall of around $90,000 exists between the amount due shortly on the loan and the estimate of what your total after tax loss position would be in the event of negative market performance of the underlying funds.
You are seeking an explanation and compensation for this shortfall.”
On 21 June 2010, Mr Jamieson sent an email to Frank Gomez of the Bank about the resolution of his complaint, saying:
“The issue is straight forward in that I relied on representations from Rob Tindall and my private banker Greg Halliday to invest in the MQ Gateway product. I relied on their advice which I understand would have been scrutinised and approved by Westpac Legal. I entered into the investment on the understanding that my maximum exposure based on the interest assistance provided by Macquarie Bank would be $601,875 in the event of zero or less capital growth.
I accepted the SOA as it was presented and whilst I wished the investment had resulted in a positive outcome I have accepted my liability up to the amount of $601,775 which was clearly illustrated in the executive summary …”
Nothing in that chain of correspondence suggests that Mr Jamieson believed that the amount of $601,875 described as his maximum exposure was confined to the sum paid by him by way of annual instalments in the amount of $198,750 for the three years of the term of the loans associated with investing in the MQ Gateway Trust. That suggestion is one which appears to have been arrived at by Mr Jamieson late in the piece. I reject that it was an assumption made by Mr Jamieson on which he acted in entering into the MQ Gateway Trust investment and associated loans.
The loans
A number of allegations are made in paragraph 39(a) of the statement of claim about the content of the updated statement of advice, in relation to the proposed loan or loans associated with investment in the MQ Gateway Trust. The loans were described as a “Macquarie Structured Product Investment Loan”. The operative parts of the loan documents comprised a loan and security agreement and terms contained in a loan application form. For MQ Gateway Trust investors, appendix A also contained a deed of variation to the loan and security agreement for investors who utilised the Capitalised Interest Assistance Loan. Provision was also made in the loan application form for an accountant’s certificate.
On 23 May 2007, Mr Jamieson completed the loan application form – part A. On the same day, he completed a copy of the deed of variation relating to investors utilising the Capitalised Interest Assistance Loan. The particular form of variation provided for capitalisation of fifty percent of the interest payable on the investment loan. On 12 June 2007, Mr Lynch completed the accountant’s certificate as to Mr Jamieson’s financial position.
Mr Jamieson’s evidence was that he received the relevant parts of the application form for the loan and the interest assistance loan for execution from Mr Tindall.
Mr Jamieson said that he read the forms that were sent to him. However, he did not receive the balance of the documents relating to the loans. I accept that evidence. Although Mr Tindall said that it was his and the Bank’s practice to provide copies of the documents, there is no copy on file or other note or documentary evidence to show that he did so. The information in the updated statement of advice about the loans was brief, to say the least. The recommendation was to “borrow $5,000,000 through a Macquarie Structured Product Investment Loan”. It was said that there would be:
“a capital protection level of 100 percent at capital protection date … [and] an effective fixed rate loan of 7.5 percent with 100 (sic) percent interest assistance of 7.5 percent. Total outlay up front is approximately $198,750 with a rebate from Westpac back in August of $44,750. The rate will be achieved through a fee rebate provided by Westpac”.
The executive summary also described the upfront cash outlays for years 1, 2 and 3, as “(net) $187,500”. The reference to “net” is a reference to the effective rate of 7.5 percent.
In fact, the rate of interest on the Macquarie Structured Product Investment Loan was 7.95 percent. The amount of the required annual payment of interest in the sum of $198,750 reflected that rate. That sum, $198,750, was 50 percent of the annual interest payable on the loan of $5 million. The arrangement made by Mr Tindall with Mr Jamieson was that Westpac would provide a rebate, so as to reduce the amount of the annual payments by Mr Jamieson to the net amount of $187,500. That was to be 50 percent of the “net” amount of interest per annum of $375,000. The basis of the calculation of the rebate at $44,750 is not clear.
MQ Gateway Trust - breach of contract or negligence – Capitalised Interest Assistance Loan
The first complaint made about the content of the updated statement of advice as to the associated loans for the MQ Gateway Trust is that it did not mention the Capitalised Interest Assistance Loan. The updated statement of advice stated on the executive summary page that “interest payments totally deductable approx $375,000 06/07 financial year” in association with the statement that the “upfront cash outlay (net) [would be] $187,500”. Because the “upfront” component was half of the total annual “payment” of interest it is a fair deduction that half of the interest “payment” was to be capitalised, but no more than that. However, there is no reference to the “capitalised” interest bearing interest.
Paragraph 39(a) of the statement of claim further alleges that the reference to interest assistance in the updated statement of advice did not explain that it was a reference to a Capitalised Interest Assistance Loan. In my view, that is correct. Thirdly, paragraph 39(a) of the statement of claim alleges that the updated statement of advice did not state that Mr Jamieson would be required to borrow 50 percent of the interest on the Macquarie Structured Investment Loan in accordance with the Capitalised Interest Assistance Loan to be repaid by Mr Jamieson at the date of maturity of the loans. In my view that is also correct. It was far from clear on the face of the updated statement of advice that 50 percent of the interest would have to be repaid on maturity. However, it was a fair deduction that it would be so, given the statement that the interest payments of $375,000 net per annum would be deductable for an upfront net amount of $187,500 per annum.
Paragraph 39(a)(ii) of the statement of claim sets out an alternative thesis. It is that the plan recommended in the updated statement of advice “contemplated that Macquarie would fund 50 percent of the interest on the Macquarie structured investment loan as ‘interest assistance’ to be recouped by it if the investment in the MQ Gateway Trust earns sufficient income to allow that to occur, the consideration for this being the … loan participation rate … in the investment”.
The only reference to a “participation rate” in the updated statement of advice appears on page 11 under the heading “Reasons” for investment by borrowing through the Macquarie Structured Product Investment Loan and investing the funds in the MQ Gateway Trust. The third dot point under that heading states:
“We have decided to forego income from the portfolio for simplification purposes. This has had the effect of reducing the interest payable and increasing the participation rate.”
On the prior page, each of the classes of “units” identified as proposed for investment in the Macquarie Gateway Trust is stated to have a “participation” of a particular percentage amount or between two nominated percentage amounts.
In my view, by those references, the updated statement of advice did not “contemplate” that Macquarie would “fund” 50 percent of the interest on the Macquarie structured investment loan as interest assistance, in the sense that repayment of that 50 percent of the interest would not be required. There is no link on the face of the updated statement of advice between the “participation” or the “participation rates” and any requirement or non-requirement to repay 50 percent of the interest on the Macquarie Structured Product Investment Loan at maturity. In my view, the objective reader of the updated statement of advice would not make that assumption.
Ten percent of overall net wealth at risk
Paragraph 39(a)(iii) of the statement of claim alleges that the updated statement of advice provided that it would not put at risk more than ten percent of the net worth of Mr and Mrs Jamieson quantified at $663,887.70.
The calculated amount of Mr and Mrs Jamieson’s net worth on page five of the updated statement of advice was $6,638,877, generally in accordance with the table I have previously set out.[2] Hence, the plaintiffs quantify ten percent of their net worth as $663,887.70, although that number does not directly appear in the updated statement of advice.
[2]I have altered some of the descriptions for ease of understanding.
The reference to risk of loss appears on page 11, in the first dot point under the heading “Reasons” for the solution recommending borrowing $5 million through a Macquarie Structured Product Investment Loan to invest funds in the MQ Gateway Trust. It provides that the advice to so invest was appropriate as:
“By using $5,000,000 in gearing we put less than ten percent of your overall net wealth at risk of loss”.
The other relevant part of the document was the table of losses or gains appearing under the heading “Investment Risk” which has previously been set out. For an investment return of zero percent or less, the loss was described as $601,875 after tax. That is apparently the amount stated to be at risk of loss.
The plaintiffs submitted that the basis of the calculation of that amount does not appear anywhere, but it can be deduced without too much difficulty. As appears in the heading to the table that is an amount calculated “after tax” and, as appears from the sentence below the table, Mr Tindall assumed the marginal tax rate of 46.5 percent. The executive summary was proposing that net annual interest “payments” of $375,000 would be made over three years which is a total of $1,125,000. As a matter of arithmetic, $601,875 equals 53.5 percent of $1,125,000. That is, the “after tax” statement of the loss is a statement that the loss represents the value of $601,875 after tax because the payments totalling $1,125,000 will be tax deductible. As previously stated, the calculation was wrong, in any event, even as an after tax “value”. It did not take account of the requirement to pay interest on the capitalised interest to Macquarie. I also leave to one side whether the net annual amount of $375,000 was an accurate assumption.
Paragraph 39(a)(iii) of the statement of claim alleges that the MQ Gateway Trust investment and associated loans in fact put at risk approximately $1,300,000. The difference between $1,125,000 and $1,300,000 is not explained in the pleading, but would include the amount of interest payable on capitalised interest which Mr Tindall accepted that he had omitted. The expert called by the Bank said the amount was $1,293,740, but it was not clear what interest rate he had applied. In any event, Mr Jamieson’s complaint is that even if it is accepted that ten percent of Mr and Mrs Jamieson’s overall net wealth was $663,887, the amount that the loans put at risk before tax was approximately twice that.
In my view, there is substance in this complaint. The statement that less than ten percent of Mr and Mrs Jamieson overall net wealth is at risk of loss must be a statement of the amount of money that is put at risk. The net wealth which was calculated on page five of the updated statement of advice did not incorporate any adjustments for any potential tax liabilities (or credits) that might be associated with the realisation of any of the assets. The calculation of loss or gain through the investment on an “after tax” basis tended to understate the amount of the overall cash exposure in such a way that it appeared that only ten percent, namely the sum of $663,887, or less, was at risk. In fact, the gross sum at risk was in excess of $1,125,000 by at least the amount of the interest on the capitalised interest.
MQ Gateway Trust - breach of contract or negligence - accuracy of calculation of net wealth
Mr Jamieson alleges that the bank overvalued Mr and Mrs Jamieson’s property in assessing their overall net wealth, so that the statement that their net wealth was $6,638,877 was wrong. In support of that allegation, he alleges that the values set out in the table extracted earlier in this judgment were erroneous because each of the Aspect apartment, 17 Mayfair Lane, Cashelmara and the The Hudson apartment was overvalued. Mr Jamieson sought to prove the values of those properties by reference to valuations which had been obtained by the Bank at various times. However, the valuations were successfully objected to as evidence of the opinion of the valuers, on the ground that the valuers were not called as witnesses. There was thus no actual admissible opinion evidence from those valuations as to the property values at the relevant time. In any event, two of the valuations in question were well out of date as at April 2007.
Further, the plaintiffs allege that the value of the Aspect apartment was $2,000,000 at 24 April 2007. Yet, Mr Jamieson gave evidence that Mr and Mrs Jamieson entered into a contract of sale of that apartment in or around February 2007 for the sum of $2,300,000. that contract did not complete. However, in the first half of 2008 they sold the Aspect apartment for that amount.
Mr Jamieson also alleges that in circumstances where he had given instructions for the properties to be valued for the purpose of the advice to be prepared by Mr Tindall, he was not informed that the Bank had the valuations to hand or of their amounts. I have previously found that Mr Jamieson and Mrs Jamieson did not instruct Mr Tindall or Mr Halliday to obtain valuations for the purpose of the advice to be prepared by Mr Tindall. There is no dispute that Mr Tindall did not inform Mr and Mrs Jamieson of the amounts of the valuations which were obtained by the Bank at any time or that up to date valuations had not been obtained over Cashelmara or the The Hudson apartment. I also accept that Mr Tindall did not tell Mr and Mrs Jamieson that the values utilised in the updated statement of advice were not based on valuations by valuers.
However, in my view, there was no reason for Mr Tindall to have told Mr and Mrs Jamieson those things. It was not a departure from the ordinary practice of a financial planner not to do so and in my view there was nothing particular in the facts relating to the preparation of the statement of advice for Mr and Mrs Jamieson which obliged Mr Tindall or Mr Halliday to take that course. At the time, it must have been apparent to Mr and Mrs Jamieson on reading either the draft statement of advice or the updated statement of advice that the values of those assets in the summary of their financial situation were the values which Mr Jamieson had given to Mr Tindall on 10 April 2007 or thereabouts.
MQ Gateway Trust - breach of contract or negligence - failure to provide terms and conditions
Paragraph 39(e) of the statement of claim alleges that the bank failed to provide Mr Jamieson with the full terms and conditions of the Macquarie Structured Investment Loan, the Capitalised Interest Assistance Loan or the MQ Gateway Trust before he made his investment in the MQ Gateway Trust and associated loans. In my view, that allegation is correct. An associated allegation in paragraph 39(g) is that the Bank altered the signature page of the application for units in the MQ Gateway Trust after he had signed it and faxed it back. The alteration consisted of placing a cross in a box on the form acknowledging that Mr Jamieson had received and understood the relevant parts of the product disclosure statement (“PDS”). Mr Jamieson gave evidence, which I accept, that although he signed the relevant part of the application form he left the box uncrossed because he had not in fact received or read the PDS for the MQ Gateway Trust.
I observe that Mr Jamieson later gave evidence that he had in fact not read the application form or paid any close attention to it, quite inconsistently with his earlier evidence. This was one of a number of instances where Mr Jamieson gave evidence which he thought would suit his case on a particular point. In this instance, I prefer the evidence he gave that he did not check the box acknowledging receipt, reading or understanding of the PDS because he did not in fact receive the document.
MQ Gateway Trust - breach of contract or negligence – other allegations
There are a number of other particulars of breach of contract or negligence in paragraph 39 of the statement of claim. However, I have sought to deal with the substance or gist of the complaints in accordance with the findings which, in my view, follow from the evidence and in such a way that it makes it unnecessary to deal with further sub-categories.
MQ Gateway Trust - breach of contract or negligence - conclusions
The Bank admitted the plaintiffs’ allegation that, in or about February or March 2007, Mr and Mrs Jamieson retained the Bank to supply financial services and in particular to provide a statement of advice recommending a financial plan.
It also admitted that financial services were provided to Mr and Mrs Jamieson as consumers under s 12ED of the ASIC Act and that the financial services were supplied by Mr Tindall to Mr and Mrs Jamieson in the course of the business of the Bank. In that context, the Bank admitted that it was an implied warranty in the contract that the Bank would take reasonable care in the provision of the statement of advice.
The Bank further admits that it owed a duty of care (in tort) to take reasonable care in the provision of financial advice to Mr and Mrs Jamieson.
The alleged “duty” under the contract is co-extensive and concurrent with the duty of care in tort. Accordingly, it is a “duty” as defined in the Civil Liability Act 2003 (Qld) (“CL Act”), although neither the plaintiffs nor the Bank expressly relied on that Act. As well, no one relied on the operation of Division 5 of Part 1 of the CL Act, relating to the liability of professionals.
Having regard to the findings I have made above, the question is whether those facts constituted a failure to render the financial services the subject of the contract, with respect to the MQ Gateway Trust and associated loans, with due care and skill either in breach of contract or negligently.
First, in my view, it was a breach of contract and negligent for Mr Tindall to fail to mention the Capitalised Interest Assistance Loan or to describe more accurately its operation, and in particular that interest would be payable on the capitalised interest in a significant amount.
Secondly, in my view, it was a breach of contract and negligent for Mr Tindall to state in an unqualified way that investment in the MQ Gateway Trust and associated loans put less than ten percent of Mr and Mrs Jamieson overall net wealth at risk of loss.
Thirdly, in my view, it was a breach of contract and negligent for Mr Tindall to fail to provide to Mr and Mrs Jamieson both the full terms and conditions of the Macquarie Structured Product Investment Loan, including the Capitalised Interest Assistance Loan, and the PDS for the MQ Gateway Trust. Investment in the MQ Gateway Trust and the associated loans was a highly complex contractual arrangement based on investments in derivative financial products. It is unnecessary to go into the detail but even the statement of claim makes assumptions about how the concept of “participation” operated in relation to investment in units of a class in the scheme, in a way not consistent with the PDS. Quite apart from any statutory obligation to do so, it seems to me that it was incumbent upon the Bank, in recommending such a complex product, to provide copies of the relevant documents to the client, so that the risks and benefits could be assessed by the client. That conclusion is not affected by the level of Mr Jamieson’s experience or his skills as an astute businessman.
No more support for that proposition is needed than appears from the list of ten dot points under the heading “Other Factors” in the updated statement of advice. In two places, Mr Tindall made specific reference to the PDS which was described as the “product booklet”. He said:
“You should refer to the product booklet for details on the types of material events that could trigger any termination” and that “the risk factors [are] detailed in the product booklet”.
MQ Gateway Trust - s 12ED of the ASIC Act
In paragraph 9(d) of the statement of claim the plaintiffs allege that Mr Jamieson told Mr Tindall that the financial plan to be prepared by him should take into account that Mr Jamieson wanted to protect his assets and grow his wealth, did not want to risk on any investment more than ten percent of the net asset worth of him and his wife, wanted to improve his tax position and wanted to make best use of his employee share options.
In paragraph 42 of the statement of claim, Mr Jamieson alleges that the updated statement of advice was provided for the purposes pleaded in paragraph 9(d) and that, for the reasons pleaded in paragraph 39, warranties as to fitness for purpose and as to the nature and quality of the services and the materials supplied in connection with them were breached.
For the reasons set out above, it is unnecessary to separately consider these allegations of breach of contract as breaches of statutory warranties under s 12ED. However, in my view, the statements that Mr Jamieson wanted to protect his assets and grow his wealth did not amount to a statement of purpose of a kind which supports the alleged implied warranties as to protection of assets. Aspirational statements about a proposed course of investment action, if successful or unsuccessful, are not such a purpose in my view.
Similarly, I do not consider that there was an implied term that the services and materials to be provided by Mr Tindall on behalf of the Bank would not risk on any investment more than ten percent of the net asset worth of the first and second plaintiff or that they might reasonably be expected to have risked no more than ten percent of the net asset worth of Mr and Mrs Jamieson. In context, the statement that less then ten percent of overall net wealth was at risk was representational, not promissory.
MQ Gateway Trust - s 12DA of the ASIC Act
In paragraph 46 of the statement of claim, Mr Jamieson alleges that by engaging in the conduct pleaded in paragraph 39, the Bank engaged in conduct in relation to financial services that was misleading or deceptive or likely to mislead or deceive and in doing so contravened s 12DA(1) of the ASIC Act in six particular ways. As to those allegations, each of the findings of breach of contract or negligence I have made above, in my view, was also misleading or deceptive conduct or conduct that was likely to mislead or deceive in contravention of s 12DA(1).
As to the other allegations made in paragraph 46, some of them have been dealt with as a matter of substance previously. It is unnecessary to further expand on those reasons for rejecting the relevant allegations of contravention.
I have not previously dealt with the allegation in paragraph 46(e) of the statement of claim that alteration of the signature page on the application for units in the MQ Gateway Trust by checking the box was a breach of contract or negligent or misleading or deceptive. The further allegation is that had the box not been checked Macquarie would not have entered into the relevant contracts with Mr Jamieson to invest in the MQ Gateway Trust and make the associated loans. However, there was no evidence one way or the other as to what the Macquarie entities would have done. One of the accountants commented on this point in his report but, in my view, this is not within any subject of expertise upon which expert opinion evidence is receivable. I am not prepared to infer what would have happened in the absence of evidence. It is unnecessary, therefore, to pursue this allegation further.
MQ Gateway Trust – alleged loss
As previously set out, Mr Jamieson claims damages for loss suffered by reason of the investment he made in and the associated loans he obtained for the MQ Gateway Trust. The total amount of $1,289,232.45 is made up of three components.
First, there were interest payments made by Mr Jamieson to Macquarie on the $5 million loan as follows:
First interest payment (29 June 2007) $199,294.51 Second interest payment (29 June 2008) $198,750.00 Third interest payment (29 June 2009) $194,938.00
Secondly, at the end of the three year term of the $5 million loan Mr Jamieson paid Macquarie the amount of $688,499.59 on 30 June 2010, representing the financed interest component for the $5 million loan, together with interest on that amount.
The net principal amount of the investment in the MQ Gateway Trust “realised” on maturity, plus the interest on that balance taking into account a payment on account, are credited as discharging the principal of the Macquarie Structured Investment Loan.
Thirdly, an amount of an unpaid “rebate” in the sum of $7,750 is claimed. Mr Jamieson contends that this is part of the amount that the Bank promised to pay him by way of rebate for the difference between the rate of 7.95 percent per annum interest payable to Macquarie and the rate of 7.5 percent per annum which Mr Tindall had represented would be the rate payable.
Mr Jamieson alleges that he would not have entered into the MQ Gateway Trust investment and associated loans but for the Bank’s breach of contract, negligence or breach of statutory duty. Thus he would have avoided the alleged loss.
Such a claim is often described as a “no transaction” case. That label serves to distinguish it from other categories of claims for loss whether made for breach of contract, in tort or under equivalents of former ss 52 and 82 of the Trade Practices Act 1976 (Cth) (“TPA”), such as s 12DA(1) and s 12GF of the ASIC Act.
In a “no transaction” case, the question is not whether the breach of contract, or tortious or contravening conduct is a cause of the alleged loss. Where liability is based on that causal concept, a plaintiff is not required to show that but for the conduct they would not have entered into the relevant transaction. It is enough if it was a material cause of the loss. In contrast, a plaintiff in a “no transaction” case will seek to prove, on the balance of probabilities, that they would not have entered upon the transaction, so as to prove that they have suffered the alleged loss.
Loss on MQ Gateway Trust and associated loans - summary
First, has Mr Jamieson proved on the balance of probabilities that had Mr Tindall not failed to mention the Capitalised Interest Assistance Loan or to more accurately describe its operation, and in particular that interest would be payable on the capitalised interest in a significant amount he would not have made the investment in the MQ Gateway Trust? In my view he has.
Secondly, has Mr Jamieson proved on the balance of probabilities that had the representation that less than ten percent of overall net wealth was at risk of loss not been made he would not have made the investment in the MQ Gateway Trust and associated loans? In my view, he has.
Thirdly, has Mr Jamieson proved on the balance of probabilities that had Mr Tindall not failed to provide to Mr and Mrs Jamieson the full terms and conditions of the Macquarie Structured Investment Loan, Capitalised Interest Assistance Loan and the PDS for the MQ Gateway Trust Mr Jamieson would not have invested in the MQ Gateway Trust and associated loans? In my view, he has.
Curiously, none of the parties analysed the case having regard to the operation of s 11 of the CL Act in respect of causation for a breach of duty within the meaning of that Act, which provides that:
“11 General principles
(1) A decision that a breach of duty caused particular harm
comprises the following elements—
(a) the breach of duty was a necessary condition of the
occurrence of the harm (factual causation);
(b) it is appropriate for the scope of the liability of the
As before, in my view it would be unsafe to make any finding based on Mr Jamieson’s evidence as to what he would have done absent the found breach of contract or negligence.
The hypothetical state of affairs against which the question is to be answered includes that Mr Jamieson was contemporaneously investing in the MQ Gateway Trust and associated loans. Thus, he was committed to fund at least an annual net payment of $187,500 per annum towards that investment from cash flow over the three years following May 2007.
As well, there were other amounts Mr and Mrs Jamieson were committed to pay in accordance with their existing loans and negatively geared investments, consistent with the statement of liabilities in the updated statement of advice.[96]
[96]I do not consider that the alleged error in the understatement of the amount that they owed on the loan for the Aspect apartment is important for this purpose.
Had Mr and Mrs Jamieson carefully analysed the impact of following the recommendations of the updated statement of advice they would have appreciated that the principal advantage to them of making the undeducted contributions would be the tax protection accorded to the earnings upon superannuation investments in a complying fund in comparison with privately held investments. However, borrowing for the purpose of making the relevant contributions affected the net advantage of contributions to the fund as a tax sheltered environment. Logically, the cost of the borrowing had to be taken into account in weighing up the pros and cons of the strategy.
In my view, in so doing, Mr and Mrs Jamieson would have questioned whether it was a good financial strategy to borrow $700,000 as the amount necessary to make the contributions for the purpose of the Trustee investing in self-funding instalment warrants. Had Mr and Mrs Jamieson considered the strategy, with the benefit of accurate advice as to the tax effectiveness of the outcomes if the funds were not readily available to repay the non-deductible borrowing, they would have had reason to pause and to consider whether the prospect of profit upon investment in self-funding instalment warrants was so appealing that they would carry the cost of the non-deductible borrowing in the longer term.
In my view, on the balance of probabilities, had Mr and Mrs Jamieson not been advised to borrow $700,000 from the Bank to make the undeducted contributions to their self-managed superannuation fund, they would not have done so.
Superannuation investment – interest on $700,000 loan - scope of loss and causation in law
In my view, it is appropriate that the Bank’s liability to Mr and Mrs Jamieson extend to the initial interest payments made. The question is not so easily answered in relation to ongoing interest payments. A detriment to Mr and Mrs Jamieson in accepting the Bank’s recommendations as to borrowing so as to make undeducted superannuation contributions is that once contributed, the funds were not available to them to mitigate any loss associated with the loan.
In calculating the loss in an ordinary case, where a plaintiff borrows funds to make an unsuccessful investment and the resultant loss is recoverable as damages for a wrong or contravention of statute, credit is given for the benefits obtained, including the value of the investment made. When judgment is given, the amount recovered on the judgment debt may be used to repay any lost borrowed amount, thereby eliminating any ongoing loss for interest.
Of course, as a result of their contributions, Mr and Mrs Jamieson had relevant credit balances in their accounts in the M&L Super Fund. Subsequently, the balances of their accounts were reduced by the losses made by the Trustee in investing in the self-funding instalment warrants. However, Mr and Mrs Jamieson did not claim those reductions as their losses as a result of the borrowing from the Bank in order to make the superannuation contributions. Instead, the Trustee makes a claim in relation to those losses as losses suffered by it as trustee of the M&L Super Fund.
By the plaintiffs splitting their losses in that way, Mr and Mrs Jamieson claim as loss their ongoing interest liability for the full period to date and for the future.
For a number of reasons, in my view the Bank is not liable on that basis. The ongoing periodic interest loss is suffered because the loan has not been repaid. Were Mr and Mrs Jamieson to repay the loan, there would be no ongoing loss. In fact, that was part of the strategy and recommendation of the updated statement of advice. So stated, the ongoing interest claim can be seen to be for the indefinite cost of replacing the $700,000 borrowed from the Bank. The capital value of that basis of compensation could be measured by taking the future cash flow of the interest to be incurred and discounting it for present receipt. However, to do so would be to treat Mr and Mrs Jamieson as having lost the full amount of the $700,000 by reason of the Bank’s breach of duty or breach of statute. That would be an error.
Ongoing trading losses are sometimes recoverable by a plaintiff where compensation is awarded according to the rule in Potts v Miller. In particular, that is accepted where a plaintiff is “locked in” to an unprofitable purchase. However, there are limits. Sometimes the limit is reached by application of the concept of remoteness of damage. In the context of different causes of action, the principles of remoteness are expressed differently and may operate differently for damages for breach of contract, damages for deceit or damages for negligence. Directness, not forseeability, distinguishes the limit of recovery of damages for the tort of deceit as opposed to the tort of negligence. In breach of contract, the formulation of the limit is different again, being the reasonable contemplation of the parties flowing from the breach, as expressed by the rule in Hadley v Baxendale.
In Burns v MAN Automotive (Aust) Pty Ltd,[97] the plaintiffs claim was for damages for breach of warranty as to the qualities of a truck. The claim included trading losses incurred over a lengthy period. The trial Judge rejected the claimed losses beyond the “determination of that point in time, beyond which any damage suffered by the [plaintiff] could not be said to have been within the reasonable contemplation of the parties as flowing from the breach”. His view was upheld as correct by the
High Court.[98]
[97](1986) 161 CLR 653.
[98]Ibid, 668.
How then is Mr and Mrs Jamieson’s claim for the loss by way of interest to be dealt with? In my view, a practical assessment of their loss can be approached on the footing that, first, they should be compensated for the interest paid as a loss unless they should have avoided that liability already. In my view, there was no immediate reason for Mr and Mrs Jamieson to realise that the advice they had been given to borrow for the purpose of making superannuation contributions was negligent.
However, even at the time of receiving the updated statement of advice, the recommendation was that the borrowing of $700,000 should be paid down as soon as possible. Mr and Mrs Jamieson did not do so. The reasons were not clear. Looked at from another perspective, from the time when they ought to have realised that the strategy of the private borrowing was flawed, Mr and Mrs Jamieson should have taken steps to repay the debt. Any reflection upon the cost of the borrowing in comparison to the performance of the assets acquired with them in the M&L Super Fund would have renewed the obvious need to repay the debt. That would have required them to sell other assets, because the proceeds of the loan had been contributed by them to their superannuation fund. It may have been that they were unable to do so because of other financial pressures, or unwilling to do so because they thought that market conditions were not optimal for sale. However, they did not say that they were locked in generally.
In my view, and recognising this is a rough estimate at best, it is reasonable in the circumstances to treat the interest payable for two years as caused by and as not too remote for the purpose of assessing damages. In my view, by mid 2009, Mr and Mrs Jamieson should have been able to realise other assets to repay the borrowing of $700,000.
Superannuation investment – ongoing interest - quantum
That amount is as follows:
Interest paid to year ended 30 June 2008 $52,757 Interest paid to year ended 30 June 2009 $53,830
Statutory pre-judgment interest must be added to those amounts. The borrowing was and is private and the interest paid was non-deductible. No adjustment by reason of tax is required.
Superannuation investment – loss on sale of self-funding instalment warrants
When the $700,000 borrowed by Mr and Mrs Jamieson from the Bank was contributed by them to the M&L Super Fund, the Trustee invested the contributions, in accordance with the recommendation in the updated statement of advice, in self-funding instalment warrants in Australian shares. It invested that amount in such warrants, as selected by Mr Elks.
Because of the impact of movements in the market value of shares the warrants lost value over time and were sold by the Trustee at a loss. The Trustee claims the difference between the amount of the initial investment in the warrants, $700,000 and the amount realised on sale as a loss, $249,739, being $450,261 and statutory pre-judgment interest on that sum.
Although I have found that the Bank was not in breach of contract or negligent or a contravener of a provision of Division 3 of Part 7.7 of the CA in respect of the recommendation to invest in self-funding instalment warrants, it is convenient to make findings on the Trustee’s claim for loss on the assumption that there could have been a breach of contract or duty of care or contravention owed by the Bank to the Trustee.
In passing it is convenient to note a curious feature of Mr Jamieson’s evidence, which I also reject, being his assertion that Mr Tindall and the Bank were responsible for selecting the warrants acquired. I observe that no complaint is made in the statement of claim about the particular warrants in which the investment in self-funding warrants was made. Despite Mr Jamieson’s dogged efforts in the witness box to make Mr Tindall responsible for the selection, it was clear on the documents that it was Mr Elks, not Mr Tindall, who recommended the particular warrants. His involvement was in a practical sense spent in recommending the strategy and discussing it with Mr Jamieson’s other advisors, including Mr Elks.
Superannuation investment – loss on sale of self-funding instalment warrants - causation in fact
The question for decision is whether the Trustee’s loss on the warrants was caused by any breach of contract, negligence or contravention of statute by the Bank.
The Trustee received the amount of $700,000 as contributions to Mr and Mrs Jamieson’s superannuation accounts. The Trustee contends that had Mr and Mrs Jamieson not borrowed $700,000 from the Bank and had the Bank not recommended the general strategy of investing the contributions in (high yielding) self-funding instalment warrants, the Trustee would not have received Mr and Mrs Jamieson’s contributions to the M&L Super Fund and would not have made the investment in warrants.
The starting point is whether any breach of duty was a necessary condition of the occurrence of the particular harm under s 11(1)(a) of the CL Act in respect of the found breaches of contract or negligence. Again, as a “no transaction” case, that question is adapted to whether the Trustee would have entered into the investment by investing in self-funding instalment warrants in June 2007, if the alleged breach of contract or negligence not occurred?
If the alleged breach is simply the recommendation that the Trustee invest in self-funding instalment warrants, the question of causation in fact is difficult to answer. I accept Mr Tindall’s evidence that Mr Jamieson was attracted to the feature of investing in such warrants because it “geared” the investment that could otherwise be made in the underlying shares when in other circumstances gearing was restricted or prohibited in the investment of superannuation funds.
It is difficult to find in the face of both that evidence and Mr Jamieson’s evidence of his understanding about such warrants, as previously set out, that a better explanation of the nature or risks of investing in self-funding instalment warrants would have altered the course he took in investing in those warrants in June 2007.
Superannuation investment – loss on sale of self-funding instalment warrants - scope of liability and causation in law
Under s 11(1)(b) of the CL Act, a decision that a breach of duty caused particular harm involves, as an element, whether it is appropriate for the scope of the liability.
It is an inherent risk of investment in self-funding instalment warrants that if there is a general adverse share market movement such as experienced in the global financial crisis, the value of the warrants, which is linked to the share value of the companies in which the warrants are issued, will fall.
Mr Jamieson, as an experienced investor in the share market, would not have failed to understand this. He did not say that he did not understand it. The Trustee’s investment in self-funding instalment warrants was not caused by Mr Jamieson’s failure to understand that risk.
In my view, the self-funding instalment warrants were liquid marketable securities. At the time the Trustee acquired them, it was not suggested that they were worth less than what was paid for them. They might have been sold at any time thereafter, in accordance with the Trustee’s view as to the prospects in the market. At June 2007, Mr Jamieson’s market view might have been bullish.
On 25 June 2007, Mr Elks sent an email to Mr Jamieson attaching a spreadsheet of the warrants purchased for the M&L Super Fund. Thereafter, the particular warrants might have increased in value, or fluctuated in value, long before any impact from the forces that developed into the global financial crisis were felt. At any time, the Trustee, via Mr Jamieson, might have altered its view about continuing the investment in self-funding instalment warrants, either about the prospects of the share market in general or about any of the particular warrants, as investors in the share market do every day. Nothing locked the Trustee into any particular view or course of action about that. Nothing done by the Bank obscured the view of the Trustee about the prospects of continuing investment in the warrants.
In my view, the harm constituted by the Trustee’s loss on sale of the self-funding instalment warrants is not appropriately within the scope of the liability of the Bank for any breach of duty in recommending the strategy of investing in self-funding instalment warrants to the Trustee.
Turning to the cause or causes of action based on breach of statute, a similar conclusion must be reached. There is no principled basis, in my view, for concluding that the Trustee’s loss on the investment in self-funding instalment warrants was caused in law by the Bank’s contravention of statute. To do so would mean that satisfaction of the “but for” test of causation as a matter of fact amounts to causation in law under the statutory provisions, in these circumstances. In my view, that conclusion should be rejected.
The conclusion which follows, in my view, is that the Bank’s updated statement of advice and found negligence, breach of contract or contravention of statute in connection with the recommendations made as to the superannuation investment did not cause the Trustee’s losses on investment in the self-funding instalment warrants.
Conclusions
For the reasons previously given, in my view:
(a) Mr Jamieson is entitled to judgment for damages in the sum to be calculated in accordance with paragraphs [217] to [247] above and to interest at the rate of ten percent per annum on the after tax amount from time to time until the date of the judgment;
(b) Mr and Mrs Jamieson are entitled to judgment for damages in the sum of $106,587 plus interest at ten percent from the dates of the payments referred to in paragraph [328] above to the date of the judgment; and
(c) The Bank is entitled to judgment on the Trustee’s claim for damages.
I will hear the parties as to the further orders or judgment that should be made in accordance with these reasons.
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