Julian Emmanuel Levy v Peter Bablis
[2011] NSWSC 461
•19 May 2011
Supreme Court
New South Wales
Medium Neutral Citation: Julian Emmanuel Levy v Peter Bablis & Anor [2011] NSWSC 461 Hearing dates: 27, 28, 29, 30, 31 July 2009, 9, 10, 11, 14, 15, 16, 17, 18 December 2009, 27, 28, 30 April 2010 Decision date: 19 May 2011 Jurisdiction: Equity Division Before: Slattery J Decision: Judgment for the first defendant against the plaintiff. Judgment for the plaintiff against the second defendant the sum of $2 million plus interest to be calculated. Parties to bring in short minutes of order.
Catchwords: CONTRACT - alleged misleading and deceptive conduct - plaintiff claims to have invested $1 million with the first and second defendants - the second defendant admits and the first defendant denies the investment - HELD - plaintiff only invested with the second defendant by way of loan, not the first defendant - EQUITY - equitable remedies - alleged breach of fiduciary duty - first defendant said to have misused his fiduciary position in relation to the making of the plaintiff's $1 million investment - claim for equitable compensation - HELD first defendant is not the plaintiff's fiduciary - no equitable compensation awarded - MISLEADING AND DECEPTIVE CONDUCT - plaintiff alleges misleading and deceptive conduct and negligent misstatement against first defendant in relation to $1 million investment - HELD - no misleading or deceptive conduct - no conduct in trade or commerce - no duty of care. Legislation Cited: Australian Securities and Investments
Chiropractors Act (NSW) 2001
Commission Act (Cth) 2001, s 12BB
Corporations Act (Cth) 2001, s 769C
Fair Trading Act 1987 (Cth), s 12BB
Uniform Civil Procedure Rules (NSW) 2005, r 12.1Cases Cited: Barnes v Addy (1874) LR9ChApp 244
Brunninghausen v Glavanics (1999) 46 NSWLR 538
Esanda Finance Corp Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
Levy v Bablis & Anor [2009] NSWSC 768
Levy v Bablis & Anor [2009] NSWSC 890
Levy v Bablis & United Producers & Associates Pty Ltd [2009] NSWSC 740
Pilmer v The Duke Group Ltd (in liq) (2001) 207 CLR 165
The Duke Group Ltd (in liq) v Pilmer (1999) 73 SASR 64Texts Cited: T.G. Youdan, Equity, Fiduciaries and Trusts (1989) Carswell, Toronto at 34-5 Category: Principal judgment Parties: Plaintiff- Julian Emmanuel Levy
First Defendant- Peter Bablis
Second Defendant- United Producers & Associates Pty LimitedRepresentation: Counsel
Plaintiff- S.J. Stanton; M.B. Holmes
First Defendant- J. Simpkins SC; M. Condon; Ms P. McEniery
Second Defendant- Mr A.W.Street SC; Ms D.Hawkins
Solicitors
Plaintiff- Andrew Bruce Thorpe, McLachlan Thorpe Partners
First Defendant-Michael Raine, Minter Ellison Lawyers
Second Defendant- P.J. Livers, Slattery Thompson Solicitors
File Number(s): 2006/260173
Judgment
Introduction
Mr Peter Bablis practises as a chiropractor in Sydney's Central Business District ("CBD") and in Double Bay. From September 1999 until August 2006 Mr Julian Levy was one of his patients. Mr Bablis offered special therapies to patients such as Mr Levy, including Neuro Emotional Technique ("NET"), chiropractic adjustments, acupuncture and kinesiology. Mr Levy believed these therapies alleviated the effects of his chronic fatigue syndrome.
But especially from mid 2004 Mr Bablis and Mr Levy were more than just health professional and patient. Attracted by mutual empathy, compatible personalities and a passionate common interest in commercial investing, they saw one another regularly during and outside chiropractic consultations. Mr Levy described Mr Bablis as his confidante by late 2004. Mr Bablis described them both as firm friends.
For the first five years of their acquaintance they discussed investments but did not commit to any joint business endeavour. Their first mutual commercial transaction was in February 2005 when Mr Levy made a short-term loan of $175,000 to Mr Bablis. This sum was repaid within its terms.
Shortly after the February 2005 loan Mr Levy entered two substantial transactions totalling $1,000,000. The first of these transactions was in June 2005 and the second in October the same year. In these proceedings Mr Levy seeks the recovery of this sum and what he claims was an agreed return upon it. A central issue in the proceedings is whether Mr Levy entered these two transactions solely with the corporate entity, United Producers and Associates Limited ("UPA"), or whether Mr Bablis was also a party to them. Mr Levy commenced these proceedings against Mr Bablis as first defendant and UPA as second defendant.
Mr Levy says that in June 2005 he advanced $500,000 in an investment that he describes variously as a "private placement" or a "placement". A "private placement" is said to be a risk-free deposit with a reliable U.S. or European bank, which deposit could be used for the bank's purposes but which nevertheless could generate the startlingly attractive risk-free return of 100% per annum. For such a high rate of return the depositor was required to leave the private placement with the European or US bank for a full 12 months, at which time the principal and interest would be repayable. Other terms of private placements are described later in these reasons.
In June 2005 Mr Levy deposited his first $500,000 directly into a UPA bank account. Despite this, Mr Levy says: that he made his private placement with Mr Bablis; and, that because of the arrangements made orally between them that UPA received it in the capacity either of Mr Bablis' agent or business partner. Mr Bablis says: that he never accepted Mr Levy's money; but, that Mr Levy deposited it with UPA, not as a private placement but for some form of currency trading. Whether the June 2005 transaction was a private placement effected by way of loan or was an investment for currency trading is another central issue in these proceedings. Because of this contest about its nature, this first transaction will be described neutrally throughout these reasons simply as either "the June 2005 transaction" or the "June 2005 advance".
A few months later, in October 2005, Mr Levy made a second $500,000 advance ("the October 2005 transaction" or the "October 2005 advance"). This advance exhibited the same ambiguous features as the first advance. Mr Levy claims that it too was a private placement made by way of loan to Mr Bablis. But Mr Bablis contends that Mr Levy also entered the October 2005 transaction with UPA, not with him and that it too was a currency trading investment, and not one with a guaranteed 100% return.
Neither of Mr Levy's $500,000 advances in June and October 2005 was repaid upon its respective 12 month anniversary in June and October 2006. Mr Levy did not gain a 100% return on his capital. Rather he lost the full $1,000,000 he had advanced. After pursuing Mr Bablis personally between July and September 2006 for the return of his funds, Mr Levy put his claim in the hands of solicitors.
Mr Brendan O'Dowd is a controlling figure in UPA. He was described somewhat colourfully in the proceedings as an Irish "scientist, inventor and investor". Mr O'Dowd's UPA is undoubtedly responsible for the non-return of Mr Levy's $1 million investment. Mr O'Dowd admitted in oral evidence given by telephone early in the hearing and in writing that UPA owes Mr Levy $1,000,000.
Mr S.J. Stanton and Mr M.B. Holmes represented the plaintiff, Mr Levy. Mr J. Simpkins SC, Mr M. Condon and Ms P.M. McEniery appeared for the first defendant, Mr Bablis. Mr A. W. Street SC and Ms D. Hawkins represented UPA for a few days at the beginning of the hearing in July 2009. Later Mr Street SC and his junior no longer appeared at the hearing and UPA did not actively pursue any defence to the claim Mr Levy made against it in the alternative. The Court has received thorough assistance from all counsel and solicitors in these factually complex proceedings.
The principal issues in contest between the parties are whether Mr Levy made a "private placement" at all or whether he entered some different transaction; whether the transaction he did enter was with Mr Bablis and UPA or was just a transaction with UPA; and, even if the transaction was with UPA, whether Mr Bablis accepted some form of legal responsibility for advising Mr Levy to enter the transactions or for the return to Mr Levy of the value of his investment.
Mr Levy sues Mr Bablis in contract for breach of fiduciary duty; in tort for negligent misstatement; and, for various forms of statutory misleading and deceptive conduct. All these causes of action are considered in more detail at the end of these reasons.
(a) Mr Levy's contract case is that on 17 June 2005 Mr Levy agreed to lend Mr Bablis $500,000 on or before 1 July 2005, which Mr Bablis agreed to repay by 30 June 2006 at an interest rate of 100 per cent. Mr Levy alleges a second loan agreement was made in similar terms in October 2005, and that neither of these loans were repaid. In the alternative to the loan contract allegations against Mr Bablis, Mr Levy pleads parallel loan agreements against UPA.
(b) Mr Levy's breach of fiduciary duty case is that Mr Bablis owed fiduciary duties to Mr Levy in relation to the investment of the $1 million. The fiduciary duties are alleged to arise out of Mr Bablis' position of influence over Mr Levy and Mr Levy's vulnerability and dependence on Mr Bablis and trust in him. Mr Levy alleges that in breach of this fiduciary duty, Mr Bablis took a benefit directly or indirectly from the proceeds of the loan agreements and otherwise misused his position as Mr Levy's fiduciary. Mr Levy further alleges that UPA received the money through the June and October 2005 transactions knowing of Mr Bablis' breaches of fiduciary duty to Mr Levy.
(c) Mr Levy's misrepresentation case is grounded either in negligent misstatement or in the statutory action for misleading and deceptive conduct provided under Fair Trading Act 1987 (Cth), s 41, Australian Securities and Investments Commission Act ("ASIC") 2001 (Cth), s 12BB and Corporations Act (Cth) 2001, s 769C. Mr Levy alleges Mr Bablis made representations as to the future security of the funds to be advanced, as to Mr Bablis' control over and experience with such advances, and as to the existence of binding and enforceable loan contracts. Mr Levy alleges that he advanced $1 million and suffered loss and damage when neither Mr Bablis nor UPA repaid that sum.
In response Mr Bablis says: that none of these causes of action are made out; that there was no loan contract; that he owed Mr Levy no fiduciary duty, nor did he breach any such duty; that he owed Mr Levy no duty of care in making statements to him; that he did not engage in any relevant conduct in "trade or commerce" with Mr Levy; and, that he did not make the pleaded representations to Mr Levy.
But first it is necessary to decide what actually happened in a case in which most facts were in contest. The circumstances of the June 2005 and October 2005 transactions are the principal points of factual contest between the parties. But many other lesser factual issues help determine which of Mr Levy's or Mr Bablis' very different versions of the June and October 2005 transactions are correct. The Court's approach to the fact-finding task is to consider a chronological account of the principal facts, recording relevant uncontested matters and deciding the important matters in contest through that account. It is neither possible nor useful, in a case of such dense factual conflict as this one, for the Court to decide every factual issue.
These proceedings were originally set down for a five-day hearing. That time estimate was inadequate. After extensive cross-examination of the principals on both sides, the hearing occupied 16 days in blocks of reserved time from late July 2009 to late April 2010. The parties made oral submissions on the last hearing day, 30 April 2010. Even then, the parties were given an opportunity to put in short supplementary written submissions. When this process was complete judgment was finally reserved on 3 June 2010. The many contests about the extensive communications between Mr Levy and Mr Bablis over a four-year period between late 2002 and late 2006 has required the Court's consideration over an extended period.
The story starts with some background about Mr Levy and Mr Bablis and their first meeting in September 1999.
Mr Levy and Mr Bablis
Both Mr Levy and Mr Bablis are complex and driven individuals. An account of their personal backgrounds assists in understanding the motives and the outlook that each brought to their mutual contact in these disputed transactions. In this section I record my findings about their respective backgrounds.
Mr Levy
Mr Levy is the youngest of five children and was born in November 1974. His father died in 1980 when he was only five years old. His memory of his father is limited. He grew up in a financially secure household and received a private school education.
After leaving school he pursued an Advanced Certificate in Hospitality and Catering at the Ryde College of Tertiary and Further Education. Apart from taking an accounting module in basic bookkeeping in this Advanced Certificate course, Mr Levy gained no formal education in accounting, in legal matters, or in investment or financial management. Despite this lack of formal commercial education he was an energetic, effective and practical businessman who was able to create two successful food retail businesses.
After gaining his Advanced Certificate in January 1995 Mr Levy together with his eldest brother David opened a chicken shop in Rose Bay. They did so with the assistance of their mother who negotiated the shop's lease and arranged a business loan from Citibank. Mr Levy's brother executed the shop's fit out. The chicken shop opened and prospered in large part due to Mr Levy's and his brother's long hours and hard work. Mr Levy sold his interest in this shop to his brother in March 1999.
Mr Levy stayed within the restaurant and hospitality industry. In September 1999 he and a school friend formed a partnership trading as "Sapore" and took a lease of restaurant premises in Leichhardt. As he had with the chicken shop, Mr Levy again worked seven days a week to launch this business. After six months Mr Levy purchased his partner's interest in Sapore and then operated the restaurant on his own.
Mr Levy's hard work paid off. In August 2002 he sold his interest in the restaurant together with the lease of its premises for $1.1 million, banking the proceeds into his account at the Martin Place Branch of Westpac Bank. Since the sale of the restaurant Mr Levy has not worked in a vocation that requires his daily attendance at a workplace. Rather he has turned his attention to a variety of commercial investment activities, a direction in which he was naturally inclined.
Becoming an investor was a good fit for Mr Levy's situation for another reason. From the late 1990's he seemed increasingly to suffer from ill health. His daily attendance at a workplace to perform the demanding hours required to operate either a chicken shop or a restaurant, was probably beyond him after he sold the restaurant in November 2002. Although he was then only 28, he suffered from a number of illnesses. His account of these illnesses was not seriously contested in the proceedings and is one that I accept.
The next phase of Mr Levy's career briefly took him into private mortgage lending through solicitors. Initially Mr Levy invested the proceeds of sale of the Leichhardt restaurant conservatively, depositing it with major banks. In January 2004 he moved all his funds to City Pacific Limited, investing $850,000 for a period of 12 months at 8.75% per annum. He kept about $150,000 on call with ING.
Then in 2004 Mr Levy's accountant, Mr Lee La Rocca, introduced him to some of Mr La Rocca's accounting clients, who were looking for second mortgage funds. These clients were prepared to pay high rates of interest to secure those funds outside the banking system. In late July 2004, Mr La Rocca introduced Mr Levy to a mortgage broker, Ms Michelle Fleming, who sourced funds for borrowers who were looking for bridging finance.
Mr Levy's mother died in August 2004. He gave little thought to commercial investments of any kind until the end of that year. Then between December 2004 and March 2005 he loaned money on first or second mortgages in four transactions, which are detailed later in these reasons. Apart from Mr Levy's experience in the chicken shop, in the Sapore restaurant, and his purchase of two domestic properties, these four mortgage lending arrangements were the only commercial transactions in which he had been involved before he entered the June and October 2005 transactions.
Mr Levy was able to acquire residential property from his earnings in the chicken shop and in the restaurant. He purchased a studio apartment in Stanley Street, Woollahra in 1998, an apartment situated in the same block of units in which his mother was then living. He wanted to be closer to her and available for her care, as she was then unwell. The mortgage he signed over that unit was his first mortgage. Because of the pressures of work at the restaurant he moved out of the studio apartment in late 2000, let it out and rented in Leichhardt above the restaurant. This made his long hours working at the restaurant a little easier. Then in February 2002 he purchased and moved into a house in Prospect Street, Leichhardt. But later the same year, after he had sold the restaurant, he moved into his mother's household to assist in her care. At that time she was suffering from advanced emphysema. Apart from a trip he took overseas in the middle of 2003, Mr Levy then lived with his mother until she died in August 2004.
Mr Levy's Health
Mr Levy had suffered from poor health since August 1997. Whether this was exacerbated by the long hours he worked at the chicken shop until March 1999 and at the restaurant until August 2002 is unclear. But the genuineness of his symptoms and equally the genuineness of Mr Bablis' treatment of them are not in issue in these proceedings.
From August 1997 Mr Levy began to experience flu like symptoms including fever, severe headaches and neurological problems. He had difficulties with his balance and vision. He suffered from a perceived lack of mental clarity and from debilitating mental and physical fatigue. Initially, Mr Levy put his symptoms down to stress induced by his commencing new businesses and his long working hours. But in 1999 he was diagnosed with chronic fatigue syndrome. By mid 1999 Mr Levy's symptoms had worsened. He was then suffering from recurrent migraine headaches, swollen glands and a sore throat, fevers and night sweats and muscle weakness, neck pains and general stiffness. Although he was only 24 years old in 1999, he would nevertheless sometimes need to sleep for 9 or 10 hours at night and need to sleep during the day due to his excessive tiredness. He also suffered from feelings of depression and anxiety, was highly sensitive to light and sound, had blurry vision and experienced occasional loss of balance. He was sensitive to particular foods and suffered at times abdominal pain, cramps and gastro intestinal problems.
The correct diagnosis of Mr Levy's precise medical condition eluded medical professionals for quite a long time. It was not until the issues between Mr Levy and Mr Bablis were coming to a head in late 2006 that doctors from the Breakspear Hospital in the United Kingdom informed Mr Levy that he was suffering from a bacterial infection known as Lyme disease. Mr Levy has been treated in the United Kingdom and in the USA, for this disorder since then. His treatment has involved the administration of antibiotics and the taking of nutritional supplements. His overseas treatments were suspended in 2008 pending the outcome of these proceedings.
These health issues led Mr Levy to Mr Bablis in 1999. Mr Levy felt that conventional medical treatment was not solving his health problems. Mr Rick Schlederer, an old school friend of Mr Levy's, was then working as a chiropractor for Mr Bablis at the Double Bay clinic. In casual conversation Mr Schlederer suggested to Mr Levy that he consult Mr Bablis. Mr Levy responded by making his first appointment with Mr Bablis on 9 September 1999.
Mr Bablis
Mr Bablis is about 8 years older than Mr Levy. He was born in December 1966. When they met in 1999 Mr Bablis was 32 and Mr Levy 24. Mr Bablis has a University based tertiary education.
Mr Bablis is a chiropractor and specialist health care professional. At the time of the hearing he had practised as a chiropractor for well over 20 years. In 1988 he graduated with a Bachelor of Science from the University of New South Wales, majoring in Anatomy, Physiology and Pharmacology. He was awarded a Graduate Diploma in Chiropractic in the 1990s. He acquired other qualifications in acupuncture, exercise and sport science and homeopathy in the 1990s. After 2000, he gained a Post Graduate Diploma in Clinical Nutrition and Diplomas in Iridology, Medical Herbalism and Naturopathy.
Mr Bablis is registered with the New South Wales Chiropractic and Osteopath Registration Board, the Australian Traditional Medicine Society - Acupuncture, Medical Herbalism, Homeopathy, Naturopathy, Iridology and Kinesiology. He has served as both vice president and president of the Acupuncture Association of Australia.
Mr Bablis has published in the field of NET and chiropractic. NET is taught as an auxiliary study for chiropractic students. It is taught through NET Clubs at tertiary institutions in Australia and the United States of America, specifically at Macquarie University in New South Wales, and Parker College of Chiropractic in the USA.
Mr Bablis owns and operates two Holistic Health Care Clinics, trading under the name "Universal Health", one at Sydney Central Business District ("CBD") and the other at Double Bay. He, his family and his family trust control those clinics through a corporate structure, the detail of which is not relevant to the matters in issue in these proceedings.
Like Mr Levy's work schedule in a different context, Mr Bablis set a busy work schedule for himself in both the CBD and Double Bay clinics. That work schedule is relevant to determining some of the factual issues in the proceedings. He works 7am to 7pm each Monday, Tuesday, Thursday and Friday, treating patients at the Double Bay clinic, and from 7am to 1pm each Wednesday, treating patients in the CBD clinic. He completes practice administration each Wednesday at the Double Bay clinic between 2pm and 7pm.
Mr Bablis' consultations can run from about five minutes to about half an hour, depending on the patient's needs. Like many health professionals he moves fairly rapidly from one patient to the next apart from taking a break for lunch. This results in him quite often running over time and being late for appointments. Just how much time Mr Bablis had spare during consultations and whether he had any time between consultations to talk to Mr Levy is one of the issues in the proceedings. On this I accept the evidence of Mr Bablis' staff such as Ms Polly Georgeou and Ms Nicole Donald that he had little time between patients and thus very little time to talk to Mr Levy between consultations.
Mr Bablis is a busy chiropractor. On average he would see 80 to 100 patients per day. The precise therapeutic benefits of Mr Bablis' treatments were no doubt clearer to his patients than they at times sounded in the Courtroom. But the evidence in these proceedings gave the Court no reason to doubt Mr Bablis' capacity in his chosen field as a health professional. I find that Mr Bablis would tell a patient that he did not need treatment if he genuinely thought that the patient did not need his treatment. Mr Bablis never doubted that Mr Levy needed his frequent therapy and I find that Mr Levy did need that therapy.
Mr Bablis says that he does not have time to talk to patients on a casual basis during consultations. Mr Levy says that many of their discussions took place during or between consultations. On this issue I accept Mr Levy's evidence, not that of Mr Bablis. The factors of Mr Bablis' personality that I observed in Court, complemented by Mr Levy's enthusiasm to talk about his business life, together with Mr Bablis' own medical notes, recording for example in 2002 that Mr Levy was proposing to sell his restaurant for $1.1 million, are a basis to infer that Mr Bablis did sometimes discuss investments with Mr Levy in the course of consultations, despite his managing high volumes of patients through the clinics. Mr Bablis' evidence routinely attempted to quarantine all his investment related conversations with Mr Levy to periods outside therapeutic consultations. But I do not think they were contained this way, especially after mid 2004 when their relationship widened and became more informal. However, most of their discussions about investment took place outside therapy.
Both Mr Bablis and Mr Levy had an irrepressible interest in commercial investment. This interest was a dominant feature of all their personal contact. Their mutual interest in the subject was a mainspring of their friendship. Mr Levy describes, and I accept, that they were both passionate about examining commercial investment opportunities. This led to wide ranging and numerous discussions between them about the subject, resulting in them becoming firm friends. Some of the stressors that Mr Bablis was investigating in his consultations with Mr Levy, related to financial matters. According to Mr Levy, Mr Bablis' examination of these stressors led to discussion about Mr Levy's financial circumstances. Mr Bablis has a highly communicative nature. He has a well-developed emotional intelligence and is adept at projecting empathy and reassurance. I doubt that he could readily constrain himself from communicating ideas that he thought would be helpful to or of interest to his patients, including investment ideas. This is partly a product of his enthusiasm for his professional work but also partly a product of his specialised communication skills. Mr Levy too was a man who could not easily be stopped from talking about his investment interests. l accept Mr Levy's account that many of his face to face conversations with Mr Bablis about commercial investment opportunities took place during their treatment consultations but most of them were outside. They clearly reserved time outside consultations for more detailed discussions about commercial investment, generally on a Wednesday afternoon. The discussions for the June 2005 transaction were outside consultations and require special findings.
Nor do I accept that Mr Bablis gave formal warnings to Mr Levy, to corral all their discussions about commercial investment to times outside their consultations. Such artificiality did not appear to be a characteristic of the easy relationship that they enjoyed. For example, Mr Bablis says that when Mr Levy began to mention investments in the treatment room in January 2005 at the Double Bay clinic, that Mr Bablis said " Jules [a nickname that Mr Levy called himself and by which Mr Bablis also often addressed him in 2004 - 2005], we need to be clear now. Treatment is treatment and business is business. If we can't do this, you need to see Rick from now on ." Mr Bablis says that Mr Levy then agreed to keep their discussions separate. I do not accept this warning conversation or any of the other ones like it to which Mr Bablis deposes actually took place. Indeed Mr Bablis advancing such conversations in evidence as having occured did him no credit. But for the reasons, which follow later, I do not accept Mr Levy's account of the content of the critical conversations that took place.
Neuro Emotional Technique (NET)
NET therapy featured throughout the proceedings as the backdrop to many of the conversations between Mr Levy and Mr Bablis. I make findings in this section as to the NET practice based on Mr Bablis' evidence, which was not relevantly contested on this issue. The Court is not here making findings as to whether NET has a proper scientific basis or even whether its therapeutic effects are even scientifically measurable. Rather, the technique has been accepted by both parties to the proceedings as valid and my findings in this section are only based on that consensus.
NET is a therapy apparently based upon the premise that emotions such as fear, anger, grief (and many others) can negatively affect a person long after the original trigger for the emotions in the person has subsided. As described by Mr Bablis, NET is used to identify emotional patterns and to assist patients in becoming physiologically more congruent with their personal issues and to minimise or eliminate emotions that have a negative impact on them.
NET operates according to a defined protocol. NET techniques involve asking the patient a series of protocol questions in three identified areas, relating to relationships, family and business. By assessing the patient's physiological response to the protocol questions, the NET practitioner can determine what particular emotions are troubling the patient at the time.
The discipline of kinesiology is a therapeutic sub-component of NET. Kinesiology involves the practitioner assessing whether a patient exhibits muscle weakness in response to certain statements. Demonstration of that weakness determines whether the patient is harbouring unresolved emotional responses in relation to the area of his or her life under question.
The NET protocol questions, together with other diagnostic techniques, uncover for the practitioner, the treatment that is required. With the information so gained the practitioner then deploys acupuncture or chiropractic adjustment to resolve the physiological pain that may result from the patient's unresolved emotional patterns. Mr Bablis says, and on this I accept his evidence, that he does not use counselling or provide what he calls "advice therapy". Mr Bablis says that when he forms an opinion that a patient may benefit from counselling or advice therapy, that he would refer the patient to a counsellor.
The NET protocol questions are designed to encourage the patient to think about any problem that then concerns the patient, so the patient can deal with any accompanying emotion. This then allows the NET practitioner to measure physiological sub-conscious responses to muscle strength tests. The practitioner can infer the patient's conscious or sub-conscious stresses from these measured physiological factors.
The attraction of these techniques to therapists such as Mr Bablis is that they are said to be objective, based as they are, on a patient's apparently involuntary physiological response to protocol questions. Mr Bablis says that he does not deal with patients' mental health. Where such treatment is required he refers patients for counselling or advice to a counsellor, a psychologist, or other medical professional.
Rather, as Mr Bablis explains, the NET therapists specifically adjust the patient's body, restoring physiological congruency and function by removing aberrations that are related to the emotional and physio-pathological patterns identified in the NET protocol. Acupuncture and other physical techniques are used for this purpose.
Mr Bablis and Investment
Mr Bablis is an avid investor in shares, real property and any commodity that may realise a return. He denied making private placements and I accept this evidence. He has been an investor for 20 years and habitually looks at investments at night on his computer. He is keen to seek out any investment opportunity that comes his way. Mr Bablis bought his first property when he was 24. He is now 43. He has developed 9 or 10 properties over his business life. His email correspondence with Mr Levy shows a strong interest in investments almost to the point of obsession.
One of the ill defined but key relationships in these proceedings is that between Mr Bablis and Mr O'Dowd. Despite Mr Bablis' extensive apparently successful investment experience, he was nevertheless prepared to try the unusual and he could show very poor investment judgment. For example, he was impressed by the offerings of Mr Brendan O'Dowd and UPA, to which Mr Levy committed and lost his money. I have no doubt that Mr Bablis represented Mr O'Dowd in a good light to Mr Levy. His relationship with Mr O'Dowd is analysed later in these reasons.
Mr Levy and Mr Bablis did not have a social relationship beyond their contact through Mr Bablis' professional practice and through their mutual interest in investment discussions. They mainly pursued the latter interest in discussions at the Double Bay Clinic, by email or on the telephone. Mr Bablis invited Mr Levy to his home only on one occasion in late 2004.
Early Contact Between Mr Levy and Mr Bablis
From Mr Levy's first appointment with Mr Bablis on 9 September 1999, he felt that Mr Bablis' treatment assisted him. Mr Bablis explained the NET treatment and protocols to Mr Levy and told him what to expect from NET therapy. Mr Bablis recommended at the first consultation that Mr Levy attend in the future for therapy twice a week for four weeks. The plan was that Mr Levy would then be reviewed.
But Mr Levy became very excited about the positive NET results he felt that he was obtaining. He came back to Mr Bablis for daily appointments. In just the first month, September - October 2009, he came into the Double Bay Clinic for 19 sessions with a combination of Mr Bablis and Mr Schlederer.
Mr Levy embraced NET treatment. He felt it provided him with short-term relief. He also found that the acupuncture and the chiropractic adjustments helped him cope with his regular migraine headaches. He thought that NET therapy also helped him to cope with the psychological aspects of chronic illness and associated negative feelings. Mr Bablis says, and I accept, that Mr Levy attended the Double Bay Clinic between 1999 and 2006 on average twice a week until their last consultation together on 3 August 2006. During this whole period Mr Bablis gave Mr Levy 480 treatments and Mr Schlederer gave him a further 260 treatments. Other practitioners including chiropractors, naturopaths, laser therapists and doctors also treated Mr Levy during this period through the practice. Mr Levy became something of an ambassador for the Double Bay practice by referring other people to it for treatment.
So frequent were Mr Levy's visits to the practice that by 2001 he became what was described in the evidence as a "VIP" patient of the practice. Mr Levy's impression of that status was that it enabled him to receive treatment without a prior appointment. Mr Bablis' description of it was that he had "VIP slots" reserved in the practice diary for VIP patients at particular times of the day but that Mr Levy would arrive at the Clinic without making any prior booking and ignoring the designated times for VIP slots. I preferred Mr Bablis' evidence about this. He understood the system, which he had created. Mr Levy appears to have taken liberties and to have forgotten where the VIP boundaries originally were. Analysis of the content of Mr Levy's NET treatments is best dealt with in the course of the chronological account of the events relevant to the issues in these proceedings.
The Levy - Bablis Relationship by 2002
By mid 2002, after almost three years of frequent treatments, Mr Levy and Mr Bablis had a close relationship but one mostly explained by the exercise of functions of a therapist with his patient. Mr Levy says, and I accept, that by about this time he came to trust Mr Bablis completely, was confiding in him about matters with whom he could speak to no other close friend and that he lent on Mr Bablis in relation to his medical problems in a way he could not do with any other member of his family.
Mr Levy says and I accept that he came to place a great degree of trust and confidence in Mr Bablis because he was very sympathetic and understanding and because, through his therapy, he gave Mr Levy short-term relief of his symptoms. Mr Bablis' capacity to display quite intense empathy was demonstrated in the witness box. But Mr Bablis' display at times seemed as much the external habit of an accomplished health professional as it was of genuine feeling. On Mr Levy's side he viewed his relationship with Mr Bablis as one deep of trust in his therapist.
Mr Levy says, and I accept, that he looked up to Mr Bablis as something of a mentor. Mr Levy saw Mr Bablis as a self-made man, a successful professional living comfortably in the Eastern Suburbs, and a man in his prime with a satisfying career. Mr Levy says and I accept that he felt inspired by Mr Bablis and could continue to work in the restaurant without feeling pain and fatigue after his treatments from Mr Bablis.
Mr Bablis was keen to distance himself in evidence from giving any emotional or other kind of advice in his NET treatment to Mr Levy. Mr Levy says that in the course of any treatments he would tell Mr Bablis matters of a personal nature and Mr Bablis would offer opinions on the information he had given about all sorts of matters in Mr Levy's life. I generally accept Mr Levy's evidence about this, not the evidence of Mr Bablis. The advice that Mr Levy says that Mr Bablis gave related to family matters, "you need to distance yourself from your family"; covered relationship issues, "you probably will sue your brother and you will probably break up with your girlfriend"; included home spun philosophy, "when it comes to money people change"; and embraced the recommendation of possible professional advisors. Mr Bablis is an intensively engaging individual who is likely to have given such advice and I find that he did. The only odd part of Mr Levy's evidence about Mr Bablis giving this advice is in relation to the financial matters the subject of these proceedings. Mr Levy says that at one therapy appointment Mr Bablis said, "stop, I can get you 10% per month for 12 months". Mr Levy's statements about Mr Bablis' alleged financial offerings to him are the least reliable part of Mr Levy's evidence. When Mr Levy said that Mr Bablis acted as a money broker or directly offered Mr Levy financial opportunities his account is distorted by self-interest and profound dislike of Mr Bablis and must be approached with caution.
Mr Levy and Mr Bablis became distinctly closer friends in the second half of 2004. Mr Bablis admits this and describes them as "firm friends" from this period until late 2006. Their conversations about commercial investment intensified about this time. They both disagree about details of Mr Levy's attendances from mid 2004 at the Double Bay practice and about Mr Levy's relationships with its staff other than Mr Bablis. But on this I accept the evidence of Mr Bablis' staff in preference to Mr Levy's evidence. He was frequently at the Double Bay Clinic outside his therapy treatment. The strengthening of their friendship provided the platform for their first commercial transaction in February 2005.
Credit of the Principal Witnesses
When a close relationship fails it can be difficult for its parties to see their joint history clearly. So it is with this case. Both Mr Levy and Mr Bablis were most unsatisfactory witnesses, not because either of them was consciously dishonest but rather, because each was dominated by self interest and by a sense of betrayal of each by the other. Contemporaneous documents, the objective probabilities and the evidence of the few other witnesses in the case, who were all far more reliable than either Mr Levy or Mr Bablis, were an especially useful guide to the truth. To start though some observations about the credit of both the principal witnesses are required.
Mr Levy
A great obstacle to acceptance of Mr Levy's account of his dealings with Mr Bablis is that through his cross-examination the Court progressively lost confidence in the reliability of his evidence. His evidence could not be accepted on important events on the history and also on simple issues only relevant to credit. Despite these problems at times I preferred parts of his evidence to that of Mr Bablis, which at times was not credible. There are many examples of this throughout the chronological account of important events below.
Mr Levy's reliability as a witness was severely impaired by his strange account of his friendships with Mr Bablis and others such as Mr Banovec. He initially denied Mr Banovec was a "friend" at the time that Mr Levy attended Mr Banovec's wedding in Austria. Then he admitted he was Mr Banovec's "friend" at the time of the wedding, and a "close friend" of Mr Banovec's by July 2006.
At times Mr Levy addressed Mr Bablis in emails as a "champion" or "brother", terms of obvious familiarity. But he was not prepared to agree in cross-examination that Mr Bablis was a friend. Mr Levy could not give any example of any other person that he addressed as "brother", who was not a friend. Mr Levy used the nickname "Jules" to describe himself in many of his emails to Mr Bablis in 2005, another sign of familiarity. But Mr Levy avoided questions about whether he used nicknames such as "Jules" with any other class of persons other than friends.
Mr Bablis submitted that Mr Levy had memorised his evidence. I agree with this submission. At times he had to go back to earlier parts of conversations in order to try to remember specific words in conversations, as though they were in his mind in a memorised sequence. He seemed best able to find things if they were part of a recital commencing at the beginning of a conversation. This impaired his credibility.
Mr Levy's credibility was also impaired by his statements at times in answer to potentially embarrassing questions, "I can't recall" when I did not think the answer was always genuine. For example on the issue of the level of friendship that he had with Mr Bablis (Mr Levy strangely disputed in evidence that it was close - see above), Mr Levy was challenged as to why in one email he had called Mr Bablis, "you old bastard". He said in reply that he "can't recall" whether he had called anyone who was not a friend, "you old bastard". The expression seemed to be one that Mr Levy could hardly have used to anyone other than a friend.
Mr Bablis
Mr Bablis was well cross-examined and also proved to be a most unsatisfactory witness. In the result he was a little more credible than Mr Levy. His general credibility was boosted by the fact that all of his staff members were highly credible witnesses who corroborated elements of his account. Chief among these staff members was Mr Rick Schlederer to whom Mr Levy made some critical admissions. Findings about Mr Bablis' credit appear in the course of my detailed findings below.
Events Between 2001 and 2006
Early Events
Events relevant to making the Courts findings start in 2001, before Mr Bablis is alleged to have made his first representation about private placements to Mr Levy.
The November 2002 Representation
Mr Levy sold his interest in the Leichhardt restaurant and the sale settled shortly prior to November 2002. Mr Levy says he then recalls a treatment session with Mr Bablis in November of that year during which they had a discussion about private placements. This discussion is the source of Mr Levy's first pleaded representation and was said to be to the following effect:-
"Mr Bablis: 'The emotion (he then named an emotion from the muscle testing that I can no longer recall) is related to money or investments. What's happening around money or investments?'
Mr Levy: 'I have a certain amount of money, around a million dollars, that is invested in a major bank.'
Mr Bablis: 'I can double your million dollars in twelve months in a Private Placement within a major European or US Bank. This investment is not open to the public, but only to a privileged few who are generally very wealthy and high up in the banking world. It would be extremely difficult for you to understand the complexity of how it works. This placement is completely safe. All you need to know is that it returns 100%, carries absolutely no risk and runs for twelve months.
I have a close friend called Brendan O'Dowd who has access to the investment. I first met Brendan in 1999 when he came in for a treatment as one of my patients. Brendan had a bad leg and was compelled to use a walking stick. Brendan said to me that he had been to numerous doctors and surgeons about his leg, but nobody could fix it. He said he would give me a million dollars if I could make him walk again without his stick. So I treated Brendan and fixed him of his problem and then Brendan paid me one million dollars!!
At a doctor's conference I donated the million dollars. It was written up in an article and what I wanted to do was actually put the article up in the practice but I thought it might make me look a little too show-offish.
There is a Professor at Sydney University who has written an entire paper on private placements."
Mr Bablis denes that he had this discussion with Mr Levy. Many parts of it are objectively wrong. I accept Mr Bablis' evidence that Mr O'Dowd had not then paid him $1 million. I do not think Mr Bablis would have misstated this. Rather Mr Levy seems to be confused with something else that Mr Bablis told him. Mr O'Dowd did pledge $1 million to a foundation, the One Research Foundation, which Mr Bablis helped set up and which opened a study centre in Oxford, England in May 2004.
Moreover, Mr Levy's version of this conversation about when Mr O'Dowd became a patient of the practice is wrong. Mr O'Dowd became a patient in 2002 not 1999. Ms Catherine Pritchard, a therapist from the Double Bay Clinic, recalls Mr O'Dowd because he was her first client whom she saw in May 2002 after she had graduated as a naturopath in April 2002. Her recollection of her first client and that he first came to the practice in May 2002 is likely to be accurate. A patient record (Exhibit 6) showing she first saw Mr O'Dowd in May 2002, confirms her recollection. She was a highly credible witness who is likely to have remembered Mr O'Dowd not only because he was her first client but because as she says he was a rather loud man of larger build. She had an actual recollection of him as a patient of the practice from that time. She treated him once every two to three months after May 2002. There is no objective evidence to support a finding that Mr O'Dowd was a patient of the practice in 1999.
Mr Bablis somewhat surprisingly recorded in his clinical notes a reference to the amount of $1.1 million that Mr Levy received for the sale of his restaurant, in the circled words "1:1 sold" on 22 July 2003. This odd entry in the medical notes is one indicator that Mr Bablis was interested in recording and remembering how much Mr Levy had received from the restaurant sale. The entry does not seem necessary for purely health reasons. It is difficult to understand why Mr Bablis would want to record for any health related purpose the exact amount of the sale proceeds. This entry is in my view one small indication of Mr Bablis' almost obsessive interest in furthering investment activity at all times. There was a conversation in July 2002 in which Mr Levy did mention the amount of proceeds of the sale of his restaurant. It is likely also in my view that there was a conversation at this time about how Mr Levy would invest these funds. But it is unlikely that the conversation Mr Levy and Mr Bablis had was like the account Mr Levy gives of their conversation in November 2002.
Mr Levy's version has inherent improbabilities. Mr Levy thought that when it was made, the offer of him being able to double his money in 12 months was very attractive. It is odd that when offered an opportunity to invest in such an opportunity, that even on his own story, Mr Levy said nothing to Mr Bablis to pursue an interest in such an attractive idea. Particularly when Mr Bablis said that he "could double your million dollars in twelve months", it is improbable that Mr Levy would not have responded, if he actually then believed in the authenticity of what Mr Bablis was offering him. If no such offer were made, this is just the part of Mr Levy's evidence where weakness would be expected. The proper conclusion is that no such offer was made at this time. Rather I find that there was some discussion at the time between Mr Levy and Mr Bablis about the characteristics of private placements and about Mr O'Dowd in the context of Mr Levy investing the proceeds of sale of the restaurant, but no more.
The August 2004 Representation
The second representation that Mr Levy relies upon is said to have occurred almost two years after the first. Mr Levy says that during the afternoon of 13 August 2004 he had an appointment with Mr Bablis during which NET was conducted. Mr Levy's account is that the same morning his accountant Mr La Rocca, had told him of a prospective second mortgage investment deal that would return 5% per month, although finance checks on the prospective borrower were still underway.
At the appointment Mr Bablis conducted the muscle testing required under the NET protocol and evaluated the responses. Mr Levy and Mr Bablis had, according to Mr Levy, a discussion to the following effect:-
"Mr Bablis: 'What's happening around investments?'
Mr Levy: 'I've been offered to invest in a bridging loan that is returning 5% per month for three months, secured by way of a second mortgage'.
Mr Bablis: 'Stop. I can get you 10% per month for 12 months in a private placement where the money is never at risk. The way it works is that major banks in Europe or the USA offer contracts to place your money in one of their accounts for a period of 12 months. You can't touch your money over the course of the investment but the money doesn't leave the account and it returns 100%.
The banks can leverage off these funds ten fold and use them for home loans, that is why the return is so high. The banking system is all done on paper transactions, this is why the funds don't leave the account they just have to show they have them available on their ledger.
This is not open to the public. It's generally open to only very wealthy individuals high up in the banking world.
Brendan O'Dowd advised me to set up a non profit medical research facility in London, to use as a vehicle in which to run the placements through. The research facility is based at Oxford University. Boy, it cost me a hell of a lot of money to set up, but now I can run my own placements.'"
Mr Levy says that when Mr Bablis mentioned Mr O'Dowd's name in this conversation that he realised that he had recognised it from the previous time Mr Bablis had mentioned it in connection with private placements. Mr Levy says that Mr Bablis then continued to explain:
"Mr Bablis: 'I recently did a placement, personally for $500,000.00 and doubled my money in twelve months. I used the money to pay off my father's mortgage because he has cancer and I didn't want to feel bad if anything happened to him.'"
Mr Bablis denies having this conversation with Mr Levy and I accept that denial and Mr Bablis' corrections to the factual assertions that Mr Levy attributes to him. There are many implausibilities in Mr Levy's version. His evidence did not persuade me that this conversation happened the way he said it did.
Mr Levy appeared to have constructed his version of this conversation from fragments of other conversations between the pair. I accept Mr Bablis' evidence that he did not then have and Mr O'Dowd did not advise him to set up a non-profit medical research facility in London to run placements through. Such an idea seems unusual. There is no evidence Mr Bablis did organise private placements of any kind through such a facility. Indeed if this had been said it is a curiosity of Mr Levy's case that he did not inquire of Mr Bablis in 2005 about investing in a placement through Mr Bablis' facility in London rather than in UPA.
The private placements were supposed to be with a "major bank" but Mr Levy never asked Mr Bablis which major bank either on this occasion or at any other time, and strangely even after his money was not returned in 2006. This is odd and is good reason to doubt Mr Levy's version of this conversation. Mr Levy is someone who I find spontaneously seeks out commercial information. If he had truly seen Mr Bablis as the counterparty to the transaction he had no reason to hesitate in asking Mr Bablis what Mr Bablis knew about the banks that were involved. Their identity is a central feature of the security of the allegedly proferred scheme.
I do not accept that Mr Bablis made an offer to Mr Levy on this occasion that he, Mr Bablis "can get you 10% per month for 12 months in a private placement where the money is never at risk..." For the same reasons as apply to the November 2002 conversation, Mr Levy's version is doubtful because he does not give a complete account of what he said or did in response to this offer. There probably was some discussion between them about the subject of private placements but not in these terms.
The Mortgage Transactions
Between December 2004 and March 2005 Mr Levy began to actively use the restaurant sale proceeds to make mortgage advances to mortgagors referred through his accountant Mr La Rocca and Ms Fleming. The fact of these advances and the timing of repayment of one of them is relevant to some contested events in the proceedings. Mr Levy's first advance on 15 December 2004 was a small one, of $30,000 to a Mr Lo Sordo for 30 days at 40% per annum. Mr Levy soon continued with high interest rate transactions.
A few days later, on 17 December 2004, Mr Levy advanced $108,000 to a Mr Ferrando for one month term at 5% per month. Again this transaction was introduced by Ms Fleming. Mr Levy engaged specialist solicitors on this transaction at Mr La Rocca's suggestion. Mr Levy engaged Northwest Property Legal. Mr Levy took a registered first mortgage over a property in Mount Victoria. This loan was repaid on 1 February 2005.
The success of these first two smaller transactions induced Mr Levy to lift the scale of his investment in high interest rate mortgage lending. On 10 January 2005 he advanced $500,000 to Dr Van Nguyen Pty Limited for a three month term at 5% per month. The interest on the Van Nguyen loan was received in three payments on 31 October 2005, 3 November 2005 and April 2006. Mr Levy found this transaction through Mr La Rocca and Ms Fleming. He retained a Queensland firm of lawyers, Appleyard Lawyers, to act on the transaction because the security properties were based in Queensland. The borrower defaulted in repayment of this advance which was not recovered until after the middle of 2005, long past the original three month term. The repayment of this $500,000 enabled Mr Levy to source funds for the October 2005 transaction. Mr Levy suspended high interest rate mortgage lending from about April 2005 for reasons that I accept: the default on the Van Nguyen loan concerned him; he was planning to go overseas; and, he had already lent $175,000 to Mr Bablis in February 2005.
Finally on 9 March 2005 Mr Levy advanced $505,002 to Colys Investments Pty Limited for one month at a rate of 5% per month, as one part of a larger composite loan advance. Again Mr Levy retained Northwest Property Legal Limited to act on this transaction and took a second mortgage over a property in Kiama, New South Wales. The advance was paid on 28 April 2005 with total interest received being $49,500. These mortgage transactions gave him the confidence both to lend to Mr Bablis when the opportunity first arose early in 2005 and to enter the June and October 2005 transactions when even higher returns were offered to him.
The $175,000 Loan
Mr Levy and Mr Bablis made their first mutual commercial arrangement in February 2005. In an atmosphere of mutual informality Mr Levy lent Mr Bablis $175,000. Although this loan was made on terms that are not in dispute between the parties and indeed was repaid, the circumstances that gave rise to the lending are nevertheless controversial. This transaction is important because on Mr Levy's version it is the reason why Mr Bablis later offers him the opportunity to enter the June 2005 transaction. Although I reject much of Mr Levy's evidence about the June and October 2005 transactions, what he says about making this $175,000 loan I largely accept.
Mr Levy says that the idea of a loan arose when he went for one of his regular treatments with Mr Bablis. From his prior discussions with Mr Levy Mr Bablis did know that Mr Levy lent money on a short term basis. Mr Levy recalls and I accept that during a treatment Mr Levy had a discussion to the following effect with Mr Bablis:-
"Mr Bablis: 'I need a bridging loan of $175,000 for about one month'.
Mr Levy: 'I have just been offered another deal and I am waiting to see if it is going ahead or not. If it doesn't, I can do it.'
Mr Bablis: 'Okay, can you let me know once you hear'."
Mr Levy did follow up. The other lending deal he was contemplating did not proceed. He then emailed Mr Bablis in the following terms:-
"Hi Pete,
The deal fell through this afternoon.
I have $140,000 available straight away. I receive 7.5% PA not per month....!
Another $35,000 is coming back next week.
I also have $500,000 but this in a 1 year fixed term. It expires in one month. It can be broken but the interest goes down from 8.75% to 6.75% PA.
So if you require the funds send your BSB & account name & number. I will charge you what I am receiving 7.5% PA.
I am assuming you require the funds for approx 1 month?
Regards Julian"
These terms were generous. Mr Levy had been receiving returns on his various mortgage transactions of the order of 7.5% per month. His offer of a loan to Mr Bablis was a friendly gesture. Later on the same evening of 22 February 2005, Mr Bablis replied in the following terms:-
"Hi Julian,
Sorry the deal fell through.
I am happy to borrow the $140 straight away with the $35 to follow next week at the rate of 7.5% PA.
So if you can remit the $140 into my account tomorrow and the $35 to follow next week that would be much appreciated.
My account details are:- NAME BABLIS INVESTMENTS PTY LTD
BSB NO:- ###003
ACC NO:- ####263
BANK:- ANZ
I will require the funds for a minimum of 1 month to a maximum of 4 months. Will confirm term of period with you tomorrow.
Once again much appreciated,
Pete"
Mr Bablis' reply shows that he thought Mr Levy was doing him a favour. Despite the relative informality of the transaction, both of them record in their emails the essential terms of their bargain: $140,000 to be loaned immediately with a $35,000 advance to follow the next week; interest at 7.5% per annum; payment into an identified account of Mr Bablis; and, a defined term for the advance of between one and four months. But the important feature of the correspondence is that both Mr Levy and Mr Bablis took steps to document the essential terms of their loan transaction. This is to be contrasted with what happened later with the June and October 2005 transactions.
Mr Levy trusted Mr Bablis to pay the $175,000 borrowing back. But the parties' evidence differed markedly on the issues of security and interest associated with the borrowing.
On the issue of security, the level of friendship between them at this time was inconsistent with Mr Levy requesting security for his advance. Mr Bablis admitted that Mr Levy trusted him to repay this sum. I find that security was not discussed between them.
Mr Bablis said that security was discussed the following way:-
"Mr Bablis: 'Do you need me to sign any legal paperwork? Do you want to take a second mortgage as security for the money I've borrowed?'
Mr Levy: 'It's no problem, buddy. We'll work around it.'"
But I do not accept Mr Bablis' version of this conversation. Mr Bablis could not place "it's no problem buddy. We'll work around it" in any wider conversational context. It is unclear what "we'll work around it" means. It may mean that the security paperwork can be done later or it may mean such paperwork is not needed at all. Mr Bablis did not seem to be able to explain what he meant by this statement. In my view the issue of security was not discussed between them.
On 23 February 2005 Mr Levy withdrew $140,000 from his cheque account and deposited it into Mr Bablis' bank account. On 15 March 2005 he transferred the remaining $35,000 into Mr Bablis' account. Sometime after this in late February or March 2005, Mr Levy says that during a treatment with Mr Bablis, the issue of interest was discussed when Mr Bablis said to him:-
"Thank you very much for lending me the money. In addition to our agreement I am going to offer you 20 free treatments because you have helped me out. I will credit that to your account."
Mr Levy's version is that he was grateful for this offer of free treatments from Mr Bablis because there was a limit on the number of treatments he could receive and claim from his health fund. But Mr Levy's version, which I accept is that the 20 free treatments were in addition to the interest owing on the loan agreement.
Mr Bablis repaid the $175,000 loan without interest on 26 July 2005. Mr Levy explains the repayment without interest was the product of discussion between himself and Mr Bablis on 20 July 2005 in which Mr Levy, claims that he waived the interest. Mr Levy claims that he said to Mr Bablis "in regards to interest don't worry, there is no way I can charge you interest when you just invited me to do a placement where I will double my money over 12 months". Mr Levy says that Mr Bablis thanked him for this and that settled the matter between them.
Mr Bablis disagrees with this conversation. He says that Mr Levy said to him "I'd prefer payment of the interest in free treatments. I normally run out of health cover and this way I won't have to pay tax on the interest". Mr Bablis suggests that Mr Levy agreed "20 free treatments will cover it [meaning the interest]". I do not accept Mr Bablis' version. Mr Levy did agree to waive interest in July 2005 because of his gratitude for Mr Bablis putting him in touch with Mr O'Dowd in June of that year. But I do not accept that Mr Levy said on this occasion that Mr Bablis had "just invited me to do a placement". As my findings below show Mr Bablis had introduced Mr Levy to Mr O'Dowd and therefore to the opportunity of doing a private placement. But Mr Bablis did not "invite" Mr Levy to make a private placement.
Apart from this detail, I prefer Mr Levy's version that he waived the interest in gratitude for several reasons. First, as Mr Levy submits, the value of interest payments was considerably in excess of the $1100 in free treatments Mr Levy would receive under the arrangement. It is unlikely Mr Levy would just give up this interest unless he had received something more than the value of these free treatments.
Secondly, it is not easy to reconcile Mr Bablis' version with an email he sends to Mr Levy on 20 July 2005, in which Mr Bablis says, "I've got your $175K plus whatever the interest is". Mr Bablis thought in July 2005 that interest was still required to be paid to Mr Levy on the $175,000 loan.
Thirdly, there was no discussion on Mr Bablis' version of the differences between the interest due and the amount of the free treatments. Such a discussion would be expected if his version were correct.
It is common ground that Mr Bablis did not pay interest to Mr Levy. The best explanation for this non-payment is that Mr Levy waived the interest in gratitude for Mr Bablis' role in referring him to Mr O'Dowd and UPA. But this does not make good Mr Levy's contention that Mr Bablis was a party with Mr Levy to the June 2005 transaction. All it means is that Mr Levy was grateful for Mr Bablis facilitating Mr Levy's access to Mr O'Dowd and UPA.
Mr Levy also claims that this transaction was entered into in contravention of the Chiropractors Code of Professional Conduct, Rule 6 ("the Code") established under Chiropractors Act 2001 which provides that "A chiropractor must not exploit his or her relationship with a patient in any way". A contravention of the Code, Rule 6 might occur, whether or not Mr Bablis' request for a loan from Mr Levy occurred during a treatment. The event may still be able to be characterised as exploiting his relationship with his client. But it is not necessary for this Court to make a finding whether Mr Bablis has contravened the Code, Rule 6 because Mr Levy does not found any cause of action or claim for damages on such a breach if established.
But I do find that in February 2005 Mr Bablis requested his patient Mr Levy make a loan of $175,000 to him. Although Mr Bablis in part thought that his request was professionally justified because of his by then well developed friendship with Mr Levy outside therapy, I find that Mr Bablis' request Mr Levy was objectively more likely to accede to the request and Mr Levy did accede to it because of his existing patient/therapist relationship with Mr Bablis.
Between March and June 2005 Mr Levy and Mr Bablis continued to meet. They continued to discuss commercial investment opportunities, mainly outside therapy sessions but occasionally within them. I accept Mr Bablis' account of this three month period. Mr Levy was excited about travelling overseas, which he saw as an opportunity to expend his investment horizons. I find Mr Levy said to Mr Bablis, "I'll see if I can find anything worthwhile for us to invest in. If I do I'll bring it back and we can import it". I accept Mr Bablis' evidence that Mr Levy was also keen to take advantage of their mutual relationship on his trip and to take abroad any investment opportunities that Mr Bablis could give him. Mr Levy was excited to be meeting up overseas with a friend of his, Oliver Gilly. Mr Levy said to Mr Bablis about investment ideas that Mr Levy could take with him on his trip "Give me everything you've got. When I'm over there I'll suss it out." I accept Mr Bablis' version of these conversations and that Mr Levy was asking him to pass on whatever investment opportunities Mr Bablis had so that they could find investors and earn a commission together.
In fact Mr Bablis did refer a number of investment opportunities on to Mr Levy. Mr Levy identifies them as relating to the three businesses, Roses Only, Green Onion and NHI. Mr Bablis forwarded information to Mr Levy about all of these businesses whilst he was overseas. But this was at Mr Levy's invitation. In their friendship in 2004-2005 they both wanted to give investment information to the other. In their enthusiasm for commercial investment they both invited an open exchange of opportunities with the other. Mr Levy's evidence tended to suggest that Mr Bablis was pressing these investment opportunities upon him and that he had not solicited them from Mr Bablis. That is not the case. In their investment friendship there was a surprising degree of equality, founded on the open exchange of any information that would lead to profitable investment.
With this background the first of the major transactions in issue in the proceedings takes place in June 2005. This transaction fits well into the pattern of mutual exchange of information and joint facilitation of investment opportunities of one to the other that then characterised the relationship between Mr Levy and Mr Bablis.
The June 2005 Transaction
Mr Levy says the important conversation leading to the June 2005 transaction occurred at a consultation between Mr Levy and Mr Bablis on 17 June 2005. Mr Bablis disputed this conversation. This led to a contest about the content of the conversation and the dates on which the pair actually met at this time. Mr Bablis said that two relevant conversations occurred, one on 15 June 2005 and the other on 17 June 2005, and that the content of these conversations was very different from Mr Levy's version. In the result I find in this section that Mr Bablis' version of conversations on two occasions is generally to be preferred but I do not fully accept his version because of its inherent flaws.
17 June 2005
But the starting point is Mr Levy's version, which was a conversation he says took place between himself and Mr Bablis during a consultation in the following terms:-
"Mr Levy: 'I am leaving for overseas tomorrow'.
Mr Bablis: 'Julian, thank you for helping me out with my loan [referring to the $175K advance]. I would like to offer you to enter into a private placement for one million dollars.'
Mr Levy: 'I would like be interested but I currently only have $500,000 available with a further $500,000 due any day now'.
Mr Bablis: 'That's fine - you can start the initial investment with $500,000 and add on the other $500,000 later if you choose.
The placement will start on 1 July and you will have the $500,000 plus the other $500,000 back to you on the 30 th June 2006.
I can access the account at any time, because I am the signatory on the account, however if you need your funds back prior to 12 months, it can be done, but you will be penalised heavily interest wise.'
Mr Levy: 'Pete, I understand, but I definitely will be able to leave the funds there for 12 months.'"
Mr Levy says that after this conversation Mr Bablis left the room and walked to his office. Mr Levy says he waited outside while Mr Bablis went into his office, and that when Mr Bablis came out, he handed Mr Levy a sheet of paper which had the UPA account details on it. The text of the sheet of paper was a fax sent to Mr Bablis in the following terms:-
"United Producers & Associates Pty Ltd
Suite 7, Corporate House
155 Varsity Parade
Varisty Lakes QLD 4227
Phone: +61 7 5630 6507
Fax: +61 7 5630 6531
Date: 17 th June 2005
Dear Peter,
Please find account details for UPA Pty Ltd as follows:
Bank: Commonwealth
Branch: Brisbane, Adelaide St
Account Name: United Producers & Associates Pty Ltd
BSB: ####01
Account: ####98
Yours truly,
John Bettini"
Mr Levy then says Mr Bablis continued:
"Transfer the money to John up at UPA in Queensland. John works for Brendan and myself, and he runs that side of the business."
According to Mr Levy this concluded his conversation with Mr Bablis. He says that by the conclusion of his conversation with Mr Bablis he had decided to proceed with the private placement. Mr Bablis had a different version of the conversations leading up to the June 2005 transaction.
15 June 2005
Mr Bablis says that Mr Levy raised the subject of private placements not on 17 June 2005 but on 15 June 2005 whilst he was working in the office with his assistant Ms Polly Georgeou. Mr Bablis says that the 15 June conversation was in the following terms:-
"Mr Levy: 'Tell me about private placements again, because there are many people who have got this kind of money that I am going to meet overseas?'
Mr Bablis: 'As I have said before, I have been told the minimum entry is US$10 million, the money stays in your account, you enter into a private placement and the returns are above market interest and can be a lot, lot more'
Mr Levy: 'That sounds interesting. Tell me more'
Mr Bablis: 'Why don't you talk to Brendan direct. He can fill you in with all the details rather than getting it third person from me. I can get him on the phone and you talk to him. How about we do that later? I need to do my stuff with Polly [Georgeou] now'"
Mr Bablis said that after Ms Georgeou and he had finished their work at the Double Bay Clinic: that Mr Levy and he continued to talk; that Mr Bablis offered to call Mr O'Dowd; and that he did so from his mobile phone at about 6pm.
Mr Bablis says that he said to Mr O'Dowd words to the effect:-
"Brendan I want to introduce you to my friend, Julian. He wants to talk to you about private placements. Can I put him on the phone?"
Mr Bablis says that Mr O'Dowd agreed and he handed his telephone to Mr Levy and left the room. On Mr Bablis' account he returned to his office only about 10 or 15 minutes later, when he found Mr Levy off the phone. On Mr Bablis' account they then had a short conversation about Mr Levy's phone call with Mr O'Dowd:-
"Mr Levy: 'Sounds really good. He says its secure and I will double my money in 12 months'.
Mr Bablis: 'Great. Just make sure you are satisfied and do your checks'.
Mr Levy: 'No problem. I will use my short term finance team'.
Mr Bablis: 'Good'."
According to Mr Bablis that concluded the 15 June conversation.
Mr Bablis' Version - 17 June 2005
Mr Bablis agrees that there was contact with Mr Levy on the morning of 17 June 2005 at the Double Bay Clinic. Mr Bablis recalls that before commencing a consultation with him that Mr Levy opened a discussion in the following way:-
"Mr Levy: 'I have just discussed it with Brendan. I am moving ahead with one of Brendan's deals. I need the details of the account as soon as I can. As you know I am going overseas tomorrow and I want to finalise things before I go. Can I get them to fax it here?'
Mr Bablis: 'Ok. I will go and give Brendan a call'."
Mr Bablis says that he assumed that because Mr Levy was asking him to obtain the bank details that Mr Levy had already done any necessary checking on Mr O'Dowd. Mr Bablis then says that he spoke to Mr O'Dowd about 10am and asked Mr O'Dowd for UPA's bank account details to be faxed to the Clinic whilst Mr Levy was there and Mr O'Dowd agreed to do that. UPA did send a facsimile to the Double Bay Clinic at 10.33am.
Mr Bablis says that he then went on to treat Mr Levy and after the treatment gave the facsimile to him. They then spoke again about this subject:-
"Mr Bablis: 'Julian you are obviously satisfied with Brendan's investments. Goodluck, I am sure you have done your checks and are happy with everything.'
Mr Levy: 'It all sounds good. I will contact you when I am overseas.'
Mr Bablis: 'Have a good trip'."
Mr Bablis said he did not know what investment Mr Levy was making with Mr O'Dowd. However he says that he assumed it was not a private placement because he had understood from Mr O'Dowd that with private placements a minimum of US$10 million was required and the money stayed in an account controlled by the depositor.
Mr Levy denied seeing Mr Bablis at all on the afternoon of 15 June 2005. He says that he did not see Mr Bablis when Mr Bablis was doing his paperwork that afternoon because that afternoon he had a dentist appointment in Macquarie Street, in the city, an appointment for which he parked his vehicle at about 4pm. He was able to produce a receipt to verify this visit and this time. After visiting the dentist he says that he returned home and made a telephone call to a number in Brisbane about 5.39pm, an assertion also verified by the Optus telephone account record. The telephone call was only 8 seconds and is consistent with leaving a message on an unanswered telephone.
Was there a meeting on 15 June 2005?
Mr Levy denied having any conversation with Mr O'Dowd on 15 June 2005 and denied Mr Bablis' version of their conversation on 17 June 2005, generating a strong contest on both sides about the facts. I have ultimately preferred Mr Bablis' version of these conversations for a number of reasons, although I do not entirely accept Mr Bablis' version.
First, Mr Levy's version of what happened on 17 June 2005 is inherently improbable. It is just too fast. It involves Mr Levy giving a spontaneous response to Mr Bablis' unsolicited offer to invest just before he leaves to go overseas. Mr Levy immediately says that he is interested. He obtains the UPA account number by the conclusion of the conversation and had decided to proceed with a private placement. Thus within a space of a single treatment, which is usually no longer than half an hour and often much less, he had received and agreed to an offer committing him to invest half a million dollars. Then the same day he transferred the sum of $500,000 to UPA. Yet he had apparently not thought seriously about such a transaction and discussed it with Mr Bablis since about August 2004. This is simply too quick to be credible. Mr Levy's receptiveness to a slightly less quick transaction is far better explained on Mr Bablis' version in which Mr Levy himself brings the idea into the Clinic on 15 June 2005, an idea Mr Levy presumably had thought about beforehand. My finding is that there were two discussions between them, one on 15 and the other on 17 June 2005.
Secondly, Mr Levy did not successfully exclude the possibility of his being in the Double Bay Clinic on the afternoon of Wednesday, 15 June 2005. Although there were difficulties with Mr Bablis' own version of his meeting with Mr Levy that day, it is in my view the better version.
Mr Levy's legal representatives did very substantial damage to Mr Bablis' credit in relation to the 15 June meeting. The conversation cannot have taken place exactly as Mr Bablis says. The objective evidence supports Mr Levy's contention that he had a dental appointment in the city and that he was briefly on the phone at home at 5.39pm. Mr Bablis' principal evidence on the subject deposes to his having a conversation with Mr Levy of an hour to an hour and a half on that afternoon, in which they discussed a range of investment opportunities and then rang Mr O'Dowd. This cannot be right. A meeting of that length of time cannot easily be accommodated after 2.00pm that afternoon without Mr Levy leaving to go to the dentist and returning or leaving to make a telephone call from his own phone and returning. The other problem with Mr Bablis' version is that the idea that they were talking for a period, then he did administrative work with Ms Polly Georgeou and then resumed the conversations with him saying words to the effect, "let me call Brendan for you now", is difficult to fit into an afternoon with Mr Levy at the dentist and then going home. On top of that Mr Levy's legal representatives established that prior to his telephone call to Mr O'Dowd, that Mr Bablis made another telephone call at 17.51pm with a duration of 15 minutes and 12 seconds. Mr Bablis was on the phone, right up to the time when the phone call to Mr O'Dowd was made, apart from about a 40 second gap. Mr Bablis gave some inadequate explanations to attempt to answer Mr Levy's astute electronic detective work. Mr Bablis amended his version of events to accommodate Mr Levy leaving the premises and returning later. But it was odd that Mr Bablis did not remember Mr Levy's departure and return at the time he swore his first affidavit. If allowance was to be made for Mr Bablis possibly speaking to Mr Levy earlier in the afternoon, it is also strange that he did not take the simple course of giving Mr Levy Mr O'Dowd's phone number so that Mr Levy could ring Mr O'Dowd later at his own leisure. Mr Bablis agreed that it was not necessary for him to be present while Mr Levy made the phone call to Mr O'Dowd.
All of this is very difficult to reconcile. Mr Bablis' account of his evidence about the 15 June 2005 was very unsatisfactory. But I do not accept Mr Levy's denial that he was not at the practice that afternoon. And I do not accept Mr Levy's version of the encounter with Mr Bablis on 17 June 2005. But I do accept that Mr Levy spoke to Mr O'Dowd directly on this afternoon. Although Mr Levy was commercially nave in many ways I do not think he would have invested $500,000 with someone to whom he had never spoken. But nor do I think Mr Bablis was dealing himself with Mr Levy. Mr Bablis' conviction that he did put Mr Levy on the phone to Mr O'Dowd seemed to me in the end to be unshaken and I accept it.
How is all of this to be reconciled? I cannot wholly accept either version of this important conversation. I find that: Mr Levy did have a conversation with Mr Bablis about investments earlier that day, possibly about lunchtime or as late as 2.00pm; the conversation was not very lengthy; Mr Bablis did invite Mr Levy to speak to Mr O'Dowd directly; the conversation at the Clinic was interrupted for Mr Levy's dental appointment; Mr O'Dowd was not telephoned before Mr Levy went to the dentist; Mr Levy returned to the Double Bay Clinic at about 6pm; Mr Bablis was then on the telephone; when Mr Bablis finished on the telephone, he telephoned Mr O'Dowd directly and gave the telephone to Mr Levy; Mr Bablis then left the room.
The Pleaded Fiduciary Duty Case
Mr Levy's claim pleaded a relationship of practitioner and patient between Mr Bablis and Mr Levy in relation to Mr Levy's migraines and chronic fatigue, pleaded their regular consultations, and pleaded Mr Bablis' administration of treatment including acupuncture, cranial or chiropractic adjustments and NET. Then Mr Levy pleaded the fiduciary duty against Mr Bablis in the following terms:-
"22. By reason of the matters pleaded at paragraphs 4 to 7 above:
(a) Bablis was in a position of ascendancy or influence over Levy;
(b) Levy was in a position of vulnerability and dependence on Bablis; and
(c) Levy reposed trust in Bablis.
23. In the premises, Bablis owed the following fiduciary duties to Levy:
(a) a duty not to permit a conflict or a significant possibility of a conflict to occur between Bablis' interests or duties and the interest of Levy;
(b) a duty not to profit or to gain any unauthorised benefit from Bablis' relationship with Levy.
24. In breach of Bablis' fiduciary duties to Levy as set out in paragraph 23 above, Bablis had a interest in the proceeds of the First and Second Bablis Loan Agreements, or in the alternative, the First and Second UPA Loan Agreements (collectively, the 'Loan Agreements'), or some part thereof, which interest inhered to his own benefit or to the benefit of companies with which he is associated and to the detriment of Levy.
24A. The conduct identified in paragraph 24 above was conduct in breach of Rule 6 of the Chiropractors Code of Professional Conduct, established under s 19 of the Chiropractors Act 2001."
Mr Levy also pleaded a case against UPA that it was aware of the breaches of fiduciary duty pleaded against Mr Bablis, so as to support a first and second limb Barnes v Addy (1874) LR 9 Ch App 244 claim against UPA through the knowledge of Mr O'Dowd. That case fails because the breach of fiduciary duty case against Mr Bablis fails and so further analysis of it is not necessary. The breach of fiduciary duty claim against Mr Bablis and UPA was for equitable compensation for Mr Levy's lost $1 million transferred to UPA and for an account of profits.
Here the pleaded circumstances founding the claimed fiduciary duty are principally based on allegations of: (1) Mr Bablis' position of ascendency over Mr Levy, (2) Mr Levy's dependence and vulnerability, and (3) Mr Levy's trust in Mr Bablis. Each of these allegations raises special issues in defining the subject matter of any fiduciary duty in this case.
Ascendancy and Undue Influence. An issue of importance was whether a presumptive relationship of undue influence (such as that between therapist and patient) may be the basis to infer a particular fiduciary relationship between Mr Levy and Mr Bablis. In this respect Mr Levy deployed the observations of Gibbs CJ in Hospital Products (1984) 156 CLR 41 at [69] where his Honour said:-
"Fiduciary relations are of different types, carrying different obligations (see Re Coomber; Coomber v Coomber [1911] 1 Ch 723 at 728-9; Jenyns v Public Curator (Qld) (1953) 90 CLR 113 at 132-3 and Phipps v Boardman , supra, at 126-7) and a test which might seem appropriate to determine whether a fiduciary relationship existed for one purpose might be quite inappropriate for another purpose. For example, the relation of physician and patient, and priest and penitent, may be described as fiduciary when the question is whether there is a presumption of undue influence, but may be less likely to be relevant when an alleged conflict between duty and interest is in question."
In the present case Mr Levy submitted that he was entitled to rely upon the presumption of undue influence between physician and patient as supporting his claim of the existence of a fiduciary duty. I agree with Mr Levy's submission that the relationship between him as patient and his therapist Mr Bablis is a presumptive relationship of influence. But I am not prepared to find that Mr Bablis had a relationship of actual influence over Mr Levy at the time of and with respect to the subject matter of the June and October 2005 transactions. They conducted their investment friendship largely outside therapy sessions for mutual purposes unrelated to therapy, although, as I have found, the conduct of therapy was not an impermeable barrier to their holding investment discussions.
The therapist/patient relationship is an important contextual factor for assessing Mr Levy's vulnerability and for assessing whether a fiduciary relationship arises from their dealings. But this is not a case where, despite that background, I can infer a specific fiduciary duty relating to the transactions in question from their general patient therapist relationship, especially where I have found that the transactions were between Mr Levy and UPA, not between Mr Levy and Mr Bablis.
It should incidentally be observed that, for the reasons expressed here, even if Mr Levy had been permitted to amend his pleadings and to plead a full undue influence case, on the evidence before me it would have failed.
Vulnerability. The reason the fiduciary principle lies in the special vulnerability of those whose interests are entrusted to another is because of the possibility of the abuse of that power. As Mason J explained in Hospital Products at p 96-7:-
"The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other who is accordingly vulnerable to abuse by the fiduciary of his position".
The fiduciary obligation would ordinarily be inferred whether there is a fiduciary position of disadvantage or vulnerability, which causes one of the parties to place reliance upon the other and therefore requires the protection of equity acting upon the conscience of that other: Hospital Products , per Dawson J at [142]. The High Court described the operation of the fiduciary principle in Pilmer v The Duke Group Ltd (in liq) (2001) 207 CLR 165 at [70] in the following terms:-
" It is partly because the fiduciary's exercise of the power or discretion can adversely affect the interests of the person to whom the duty is owed and because the latter is at the mercy of the former that the fiduciary comes under a duty to exercise his power or discretion in the interests of the person to whom it is owed".
The language used in NET techniques complicated the issue of vulnerability in the proceedings. Entries such as "vulnerable" and "vulnerable/paranoid" often appeared in Mr Levy's therapy records. Mr Bablis did concede that these expressions meant "that the patient was stressed at the time with what he was going through". But the evidence was and I accept that these and the expressions like them are merely a conventional description in NET to measure certain physical responses based on the output of the adrenal glands. No inference about Mr Levy's legal vulnerability for the purposes of inferring a fiduciary relationship or a duty of care can be drawn from the use of such expressions.
When it came to investment activity Mr Levy was surprisingly resilient throughout mid 2004 to mid 2006 despite his general illness. He travelled extensively in 2005 - 2006. He grasped the opportunity to show his investment prowess through the Dabelic transaction. He undertook a steady stream of mortgage lending once he set his mind to involvement in this class of transaction after his mother's death. He initiated his connection with Mr O'Dowd and stayed in touch with Mr O'Dowd. He actively pursued investment opportunities on three continents. Despite his denial of it, I find that he fostered a romantic interest with Ms Donald at the Double Bay clinic.
Mr Levy was not generally vulnerable in this period of his life despite having some special health challenges. But the issue of Mr Levy's vulnerability is relevantly to be assessed by whether or not on analysis Mr Bablis was in a position to misuse any power or discretion in relation to Mr Levy. That is analysed below.
Relationships of Confidence. Mr Levy claims to have had a relationship of confidence with Mr Bablis. I find that he did have such a relationship in his patient/therapist relationship with Mr Bablis. The existence of a relationship of confidence can be one of the indicia of a fiduciary relationship. But it is not a necessary condition of a fiduciary relationship as Gibbs CJ explained " however an actual relationship of confidence - the fact that one person subjectively trusted another - is neither necessary for nor conclusive of the existence of a fiduciary relationship" : Hospital Products (1984) 156 CLR 41, at p 69. Mr Bablis did obtain sensitive and private information that was confidential to Mr Levy through his therapy. This much was not strongly contested.
Mr Levy's submissions tended to infer directly from their therapist/patient relationship and from the information Mr Bablis had thereby acquired about Mr Levy, that Mr Bablis undertook to act in the best interests of Mr Levy not to misuse any of the information acquired during the relationship and that anything that arose from the use of that information was the subject of a fiduciary relationship. That submission was made on the assumption that Mr Levy's version of his conversations with Mr Bablis about the June and October 2005 transactions would be accepted. Now that much of Mr Levy's evidence is rejected the scope of any such duty must be closely analysed. But one preliminary comment must be made.
The plaintiff did not plead a case seeking a remedy for misuse of confidential information. It is true, as I have found, that Mr Bablis did acquire information about Mr Levy's sale of his restaurant through administration of NET treatment to Mr Levy. But this was not a case of allegation of liability due to the misuse of that information to the advantage of UPA or of Mr Bablis himself. Rather, Mr Levy alleged, as was open to him, that Mr Bablis' possession of the confidential information was one indicator of Mr Levy's vulnerability.
Fiduciary Relationship Analysis - the June and October 2005 transactions
It is impermissible to reason merely from Mr Levy and Mr Bablis having a confidential relationship of therapist and patient that Mr Levy was entitled to expect that Mr Bablis would act in Mr Levy's interests in respect of the June and October 2005 transactions. It is always necessary to examine the particular features of the transactions in question.
My findings about the June and October 2005 transactions are that:-
(a) there was no loan advance from Mr Levy to Mr Bablis and no commercial transaction between them in respect to the June and October 2005 advances other than that Mr Bablis introduced Mr Levy to Mr O'Dowd and gave Mr Levy some background information about private placements;
(b) Mr Bablis did not undertake to be a signatory on any account in which Mr Levy invested his $1 million as a result of the June and October 2005 advances;
(c) Mr Bablis did not promise to be guarantor of the security of or of the return of Mr Levy's invested funds with UPA nor did Mr Bablis indicate to Mr Levy that he would have control of how UPA invested the funds; but
(d) Mr Bablis did accept a limited gratuitous role as conduit of information between UPA and Mr Levy, including to convey to UPA Mr Levy's instructions and to report to Mr Levy about UPA's management of Mr Levy's funds but he did not assume a role as Mr Levy's financial adviser in relation to these two transactions.
The question then arises, what precise powers or discretions did Mr Bablis have that he could exercise so as to affect the interests of Mr Levy and whether he did undertake to exercise those powers or discretions in Mr Levy's interests.
My findings compel the conclusion that Mr Bablis did not exercise any power or discretion in respect to either the raising or the application of the June and October 2005 advances. Nor did he undertake to Mr Levy that he would act in his interests with respect to either transaction. The only relevant power or discretion that he had was as to his function as the point of contact between Mr Levy and Mr O'Dowd. In my view, at least implicitly, he did undertake to make reasonable endeavours to communicate Mr Levy's instructions to Mr O'Dowd accurately and quickly. But Mr Levy's case is not one that Mr Bablis somehow mis-communicated instructions to or from Mr O'Dowd. He did not obviously fail in conveying any information between the two. Communications were very difficult at times. Mr Bablis had trouble getting information from Mr O'Dowd. What he did get from Mr O'Dowd he conveyed quickly to Mr Levy. The fact the information turned out to be inaccurate is not Mr Bablis' responsibility, as he mostly identified to Mr Levy that Mr O'Dowd was the source of the information.
In June 2005 Mr Levy was interested in pursuing a particular kind of investment. He asked Mr Bablis to put him in touch with Mr O'Dowd. That is what Mr Bablis then did and the transaction proceeded forward between Mr O'Dowd and Mr Levy. Mr Bablis continued to act as the point of contact between Mr Levy and Mr O'Dowd. But that is all he was.
Mr Bablis did not undertake to act in Mr Levy's financial interests in relation to the June and October 2005 transactions. He did not assume the role of financial advisor in respect of Mr Levy's investment.
But it is necessary to consider briefly, in the alternative, whether Mr Levy would have succeeded in establishing breach of fiduciary duty, even if such a duty had been established.
Consequences of any Breach of Fiduciary Duty
Mr Levy's case also was that his loss resulted from the conflict between Mr Bablis' interests and his fiduciary duty and that he had made a profit or gained an unauthorised benefit from the exercise of his fiduciary duty. This case fails on the facts. I make the following relevant findings.
Mr Bablis did not have an interest in UPA. None was established on the evidence. The indications of separateness between UPA and Mr Bablis were stronger than the indications of any joint enterprise between them.
(a) Nothing in the transaction documents that Mr O'Dowd or Mr Bettini issued in June 2005 indicated Mr Bablis had an interest in UPA;
(b) Mr Bablis denied having any interest in UPA or deriving any benefit from Mr Levy's placements with UPA and I accept his evidence on this subject;
(c) None of Mr Bablis' email correspondence betrays any indication that he had a financial interest in UPA and a financial interest in any profits or commissions from the subject transactions; and
(d) Mr Bablis having an interest in UPA was objectively improbable given the regular difficulty that Mr Bablis had in getting reliable information from Mr O'Dowd and the examples of Mr O'Dowd misinforming Mr Bablis.
Mr Levy also sought to establish that Mr Bablis gained indirect benefits from this transaction. This submission rightly pointed to some strange evidence about the extent of communications between Mr Bablis and Mr O'Dowd. But the contention failed to press home any concrete basis to conclude that Mr Bablis gained any indirect benefit from the June and October 2005 transactions. Mr Levy demonstrated that during this period Mr Bablis and Mr O'Dowd made a large number of telephone calls between them. They clearly had a highly communicative relationship extending into 2005 and 2006. But Mr Levy was unable to throw any light upon the content of those calls or any transactions between the two to which the calls could have related. When invited in final submissions to identify any indirect commercial benefit that Mr Bablis gained through referring Mr Levy to Mr O'Dowd, counsel for Mr Levy was unable to do so. The evidence does not demonstrate any such benefit.
A submission was put on behalf of Mr Levy about the subject of Mr Bablis' indirect benefits from this transaction that must also be rejected. Mr Levy's contention was that Mr Bablis had: kept Mr Levy away from Mr O'Dowd; maintained a very close business relationship with Mr O'Dowd; done business with Mr O'Dowd; acted as a "spotter" for Mr O'Dowd to find potential investors for Mr O'Dowd's risky and unreliable investments; failed to warn Mr Levy about Mr O'Dowd; and, then served up an unsuspecting Mr Levy to Mr O'Dowd's depredations. This case theory is just too cynical. Mr Bablis himself made miscalculations about Mr O'Dowd's reliability. For a man as experienced in business as Mr Bablis, his attraction to Mr O'Dowd's ideas is difficult to comprehend but his behaviour was not predatory in the sense being alleged by Mr Levy. He did not intentionally misuse his friendship with Mr Levy. Mr Levy's perception of the Bablis-O'Dowd relationship seems to me to be a product of his own severe financial misadventure. Mr O'Dowd and Mr Bablis were friends. Mr Bablis even cultivated that relationship because he admired Mr O'Dowd. To a degree he excluded Mr Levy from that relationship. But he was not in business with Mr O'Dowd in relation to the placements in which Mr Levy invested.
Negligent Misstatement
Mr Levy also claims in negligent misstatement and for statutory misleading and deceptive conduct. The principal issues arising in relation to negligent misstatement were: whether the words spoken by Mr Levy were said; whether, even if they were said, they amounted to a recommendation or advice; whether a duty of care arose in the circumstances; and, finally whether Mr Levy has suffered any loss.
Mr Levy's negligent misstatement and statutory misrepresentation cases were based upon three pleaded groups of representations. Mr Levy's final pleading, the Third Further Amended Statement of Claim described these as respectively the "Future Representations", the "Present Representations" and the "Contract Representations". Mr Levy's negligent misstatement and statutory misrepresentation cases both fail because I find that none of these representations is made out. But I also find in this section that the relationship between Mr Levy and Mr Bablis was inherently unlikely to give rise to a duty of care on Mr Bablis' part in making any statements about commercial matters.
The Future Representations that Mr Levy relied upon extracted material from Mr Levy's version of the November 2002, August 2004 and June 2005 conversations between them. I have generally preferred Mr Bablis' version of these three conversations to Mr Levy's version. That preference means that the elements of the Future Representations that Mr Levy relies upon are not made out. The elements are in summary: that moneys advanced to Mr Levy would be used in a private placement with a major European or US bank; that the money would be placed in a bank account with such a bank and the money would not leave the account; that the moneys advanced by Mr Levy and/the placement would be completely safe, carry absolutely no risk, be 100 per cent secure and risk free; that Mr Levy would obtain a 100 per cent return on the moneys advanced after 12 months; that the moneys advanced to either Mr Bablis or UPA would be repaid on 30 June 2006 (in respect of the June 2005 transaction) and otherwise one full year after they were advanced (in respect of the October 2005 transaction). In the statutory misrepresentation case Mr Levy pleads that Mr Bablis did not have reasonable grounds to make these representations and in any event has not discharged the statutory reversal of the onus of proof in respect of them effected by provisions such as Fair Trading Act , s 41.
The Future Representations are not made out. Mr Bablis did not make an unqualified statement to Mr Levy that private placements were completely safe, carried absolutely no risk, were a 100 per cent secure and risk free. To the extent that he described private placements he may well have mentioned that their proponents, such as Mr O'Dowd, made such claims. But Mr Bablis did not make any such unqualified statements for himself. But nor did he make any unqualified statements that Mr Levy would earn a 100 per cent return on his investment. To the extent that he told Mr Levy about private placements in order to introduce him to Mr O'Dowd, Mr Bablis described characteristics of these investments in terms that clearly identified that what he was saying he had been told by others.
Although Mr Bablis was attracted to Mr O'Dowd's ideas, there was some caution in his approach. There is no evidence that he invested with Mr O'Dowd himself in 2004 and 2005. Despite his involvement with the Sherwood Group which had some association with private placements, Mr Bablis did not appear to the Court to have sufficient expertise in the area to deal with any in depth questioning from Mr Levy about private placements. Mr Bablis did not strike me as the kind of person who would commit his own credibility to an investment, when dealing with his friend Mr Levy, when the true expertise about the qualities of the investment lay with others, such as Mr O'Dowd.
The Present Representations suffer a similar fate. Mr Levy pleaded three Present Representations: that Mr Bablis was a signatory on the bank account in which the moneys would be held; that Mr Bablis had paid $500,000 into a placement and doubled his money within 12 months; and, that Mr Bablis had established a non profit medical research facility based at Oxford University through which to run placements. I accept Mr Bablis' evidence that he did not say any of these things in his conversations with Mr Levy. I have already dealt above with the non-profit medical research facility. Mr Bablis had not established such a facility through which he could conduct placements. Mr Bablis denies that he had himself placed $500,000 into a placement and doubled his money in 12 months. I find that he had not done that and he did not say to Mr Levy that he had.
The alleged representation that Mr Bablis was the signatory on the bank account in which the moneys would be held deserves special mention. I also find that Mr Bablis did not say this. Apart from Mr Bablis' denial that he did not say this to Mr Levy at any stage, the objective probabilities do not support it having been said. It is afterall the ultimate guarantee to Mr Levy, that his money would be safe with Mr Bablis and could not be released to anyone except under Mr Bablis' signature. The great difficulty that Mr Levy's evidence encounters on this statement is what he says happens once the first default occurred in June 2005 through to October 2005. Although Mr Levy does ask Mr Bablis about the whereabouts of his money, it must have become increasingly clear to him by August and September 2005 that the private placement money that he had advanced had been paid away somewhere beyond Mr Bablis' signature and control. The odd thing about this period is that Mr Levy does not confront Mr Bablis by saying something like "why did you sign the money out of the account without telling me?" If this representation had indeed been made, that is the question Mr Levy would have been asking. Indeed at times he was informed in this period that Mr O'Dowd had control of his funds and that he should look to Mr O'Dowd, matters that should have been quite shocking to Mr Levy if this representation had been made. In my view no part of the Present Representations were made to Mr Levy.
Finally, Mr Levy did not make out the Contract Representations. Mr Levy pleads the Contract Representations as being no more than they were binding and enforceable contracts in place between Mr Bablis and Mr Levy in accordance with Mr Levy's contract case. The contentions that these representations that Mr Bablis made these representations fail for the same reasons that Mr Levy's contract claim fails.
The elements of a cause of action for economic loss for negligent misstatement are well established: Esanda Finance Corp Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241. It is necessary that there be some form of special relationship between the parties in order to found the duty of care and it is necessary but not sufficient that it be reasonably foreseeable that the plaintiff rely upon the defendant for the provision of advice. A number of factors have been recognised as relevant to the recognition of such a special relationship and the founding of a duty of care: reliance; reasonable foreseeability of reliance; intention to cause reliance; reasonableness of the plaintiff's reliance on the defendant to provide the advice; assumption of responsibility to provide advice; and, financial interest in the defendant in the provision of advice.
In the present case it can be seen that, on my findings, most of these elements are missing. First, there is force in Mr Bablis' submission that in form, the conversations to which Mr Levy deposes are not couched as advice. The case in which Mr Levy presented was one of, in effect, guaranteeing his private placement investment. But Mr Bablis did not take on an advisory role with Mr Levy. Their investment relationship was one of equality in the mutual exchange of information. Mr Bablis did not assume responsibility to provide advice to Mr Levy and it was not reasonable for Mr Levy to have relied upon him. Nor has it been established that Mr Bablis had any identifiable financial interest in providing the advice.
This cause of action fails at this point and it is not necessary to consider Mr Bablis' alternative arguments about reliance and failure to prove loss.
Misleading and Deceptive Conduct
Mr Levy's cause of action for statutory misleading and deceptive conduct in its various forms generated substantially similar issues to those that arose in relation to negligent misstatement. The principal issue was whether the various representations pleaded were made at all. On that I conclude on the facts, as I have found them, that none of the representations is made out. But here, instead of an issue about duty of care the other main question was whether the statements relied upon if made were made in "trade or commerce". I find too that such statements as I have found that Mr Bablis made to Mr Levy were not made in trade and commerce. It is convenient to consider the Fair Trading Act claim first.
Fair Trading Act 1987
There are two principal difficulties with Mr Levy's Fair Trading Act claim. The first is that Mr Levy has not made out any of the representations he pleads. In presenting such a case he is strictly entitled to rely on "conduct" but has chosen to define his case by reference to several pleaded representations, which have not been made out. Mr Levy's failure to make out these representations is analysed in relation to his negligent misstatement claim above. The claim can be dismissed on this ground alone.
But there is a second reason why this claim fails. Relief under the Fair Trading Act is only available in relation to conduct or a representation "in trade or commerce". All the discussions Mr Levy and Mr Bablis held were an expression of their firm personal friendship, especially in the period from mid2004 to mid 2006. Mr Bablis let Mr Levy get very close to him. None of the usual indicia or trade or commerce was present in or around the June or October 2005 transactions. The entire context was friendship. Mr Bablis did not issue any marketing material to Mr Levy. Mr Levy was not running a commercial organisation. Mr Bablis was not commercially interested in Mr O'Dowd's or UPA's placement business nor in the particular placements that Mr Levy made in June and October 2005. Nor was he taking a fee for advising Levy about investments. There is no written or oral contract formed between Mr Levy and Mr Bablis about the subject matter of the June and October 2005 placements. In contrast Mr Levy's and Mr Bablis' email exchanges during this period express the joys of pursuing investment opportunities and exchanging investment information on an equal basis for their mutual benefit and pleasure.
Mr Bablis happened to be a chiropractor and Mr Levy his patient. Beyond that relationship they had a friendship bonded by their mutual commercial interests. But the fact that their joint interest was in a commercial subject matter does not mean that their discussions are to be characterised as being held in trade and commerce. Occasionally their discussions spilled over into treatment times. But any investment discussions between them are entirely explained by their friendship not by Mr Bablis' role as Mr Levy's chiropractor.
ASIC Act , s 12BB and Corporations Act , s 769C
Mr Levy's reliance on both ASIC Act, s 12BB and Corporations Act , s 769C depended on findings that at least some of the representations Mr Levy pleads were made out. Mr Levy has failed to establish that the representations were made. The requirement in the ASIC Act , that the conduct be in trade or commerce, is not made out. The requirement in the Corporations Act that Mr Bablis be a person providing a financial service or financial product advice is not made out. These causes of action do not assist Mr Levy any more than that under Fair Trading Act , s 41.
Conclusions and Orders
In the result, for the reasons stated, Mr Levy fails on all of his causes of action against Mr Bablis but succeeds in his loan contract claim against UPA. He fails in his Barnes v Addy claim against UPA. Accordingly the orders of the Court will be:-
1. Judgment for the plaintiff against the second defendant in the sum of $2 million.
2. Judgment for the first defendant against the plaintiff.
3. Liberty to apply.
In the ordinary course the costs of the proceedings would follow the event unless it appears to the Court that some other costs order should be made. I will therefore also order that the plaintiff pay the first defendant's costs of the proceedings and that the second defendant pay the plaintiff's costs of the proceedings, unless one of the parties seeks a special costs order by Friday 27 May 2011. Such an application is encompassed within the grant of liberty to apply. If such an order is sought the proceedings will be listed before me for mention on the issue of costs at 9.30 am on Thursday 2 June 2011. If no such order is sought final costs orders in accordance with this paragraph will be entered in chambers on Monday 30 May 2011. If the plaintiff provides an interest calculation that can be added to his judgment sum against the second defendant.
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Decision last updated: 20 May 2011
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