Lewis v Hickox

[2005] NSWSC 516

CITATION:	Lewis & Anor v Hickox [2005] NSWSC 516
HEARING DATE(S):	09/05/05, 10/05/05, 11/05/05, 12/05/05, 13/05/05, 17/05/05
JUDGMENT DATE :	8 June 2005
JUDGMENT OF:	Gzell J
DECISION:	Further amended statement of claim to be dismissed.

CATCHWORDS:	CONTRACTS - General Contractual Principles - Construction and Interpretation of Contracts - Plaintiffs placed funds with defendant for investment in a fund dealing in futures - Defendant said funds were repayable at any time - Whether a personal gaurantee - Whether representations misleading or deceptive under Fair Trading Act 1987 - Whether plaintiffs entitled to refund of investments - No principles involved
LEGISLATION CITED:	Fair Trading Act 1987
PARTIES:	Brian James Lewis - 1st Plaintiff Megan Natalie Lewis - 2nd Plaintiff Fraser Hickox - Defendant
FILE NUMBER(S):	SC 2432/03
COUNSEL:	Mr F G Lever SC - Plaintiffs Mr S Finch SC/ Mr R N Gye - Defendant
SOLICITORS:	Swaab Attorneys Stanford Lawyers

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

GZELL J

WEDNESDAY 8 JUNE 2005

2432/03 BRIAN JAMES LEWIS & ANOR v FRASER HICKOX

JUDGMENT

1 The plaintiffs, Brian James Lewis and his wife Megan Natalie Lewis, invested funds through the defendant, Fraser Hickox. The moneys were lost. Mr and Mrs Lewis claimed that Mr Hickox was liable to repay the funds.

1st Contract Claim

2 In June and July 1994, Mr and Mrs Lewis were on holidays in the Cotswalds in England. Mr Hickox met with them on a number of occasions. He had invested $50,000 in HKST Pty Ltd, a company through which Hamish Watson was trading in the futures markets in Australia.

3 Mr Lewis was aware that Mr Hickox had invested some money on his behalf, but did not ask how much. He was told that profits had been earned. He was aware that Mr Watson was working the floor of the Sydney’s futures exchange. In August and September 1994, he received communications from Mr Watson that his investment was intact and making profits. Mr Lewis said he had no knowledge of HKST and was not interested in the investment as he had not sought it.

4 In October 1994, Mr Lewis met Mr Hickox in Sydney. He said that as Mr Hickox was apparently making money for him, he should give him some capital. He said Mr Hickox replied: “Why don’t you give me $50,000. I will put the money into a fund that I control. You can have the money back at any time; just let me know”. He said that Mr Hickox also said: “You’ll get quarterly interest and profit payments. And you can have your capital back, whenever you want it”. Mr Hickox said he asked Mr Lewis to make the cheque out to HKST and Mr Lewis did so. Mr Lewis did not recall anything about HKST. He said if he made out the cheque to HKST he did so at the direction of Mr Hickox.

5 To determine the precise terms of a contract gleaned from informal discussions is a difficult task. Whether he identified the fund as HKST or not, Mr Lewis was aware that Mr Hickox was to invest the $50,000 in a fund. The money was not to be invested by Mr Hickox himself. Mr Lewis was also aware that the moneys he was refunding to Mr Hickox were invested on the Sydney futures exchange by Mr Watson. The fund to which Mr Hickox referred must be taken, in my view, to be the one for which Mr Watson was making money in futures trading. It was from that fund that Mr Lewis was to get quarterly interest and profits. Mr Hickox must be taken, in my view, to have indicated by his remark that the constitution of the fund provided for such disbursements. And when Mr Hickox said that Mr Lewis could have his capital back at any time, Mr Hickox was, in my view, referring to an entitlement of fund members to call upon the fund to redeem their investment. I do not construe the statements of Mr Hickox as a personal promise that he would repay Mr Lewis whenever he wished his money back.

6 By their further amended statement of claim, Mr and Mrs Lewis alleged that in October 1994, Mr Lewis and Mr Hickox entered into an agreement pursuant to which Mr Lewis agreed to provide $50,000 to Mr Hickox to invest for him, Mr Hickox agreed to pay Mr Lewis interest or other profits quarterly and Mr Hickox agreed to repay the $50,000 to Mr Lewis on request. I do not construe the contract in that fashion.

7 In the course of cross examination, Mr Lewis agreed that he did not understand the arrangement to be one pursuant to which Mr Hickox had to pay him back from his personal resources if the investment were lost.

8 The further amended statement of claim alleged that in January 2002, Mr Lewis requested Mr Hickox to return the $50,000, together with other amounts invested by Mr and Mrs Lewis, and Mr Hickox failed to repay the money in breach of contract.

9 In my view, this cause of action must fail. On its proper construction, the first contract did not require Mr Hickox to repay the funds. The funds were to be repaid by the fund controlled by Mr Hickox. The failure of the fund to reimburse Mr Lewis was not a breach by Mr Hickox of the first contract.

2nd Contract Claim

10 Soon after making his $50,000 investment, Mr Lewis received from Mr Watson a financial markets report stating the account balance to be $42,000. Mr Lewis said he did not ask anybody what it meant. He did not recognise it as an indication that the investment was a risky one. Mr Lewis maintained that he did not understand futures, although he knew that high rates of return were associated with high risk and the rate of return he was receiving on his investment was high, much higher than the return on his share portfolio.

11 From September 1995 until May 1996, Mr Lewis received regular statements in the name of HKST stating the net value of one $50,000 lot as at a specified date. The figures varied between $50,725.71 and $53,863.16. While Mr Lewis acknowledged that he understood his investment of $50,000 was valued at the specified figures from time to time, he maintained that he did not understand that he had his investment with HKST. He maintained that he had a personal agreement with a friend. For the reasons expressed above, I am of the view that the agreement between Mr Lewis and Mr Hickox differed from this understanding of Mr Lewis. In cross examination, Mr Lewis agreed that Mr Hickox had told him that Watson was involved in HKST and he was trading in futures. Mr Lewis knew this by February 1996.

12 In December 1995, Mr Lewis was interviewed by representatives of the Australian Securities Commission and the Sydney Futures Exchange. A memorandum of that meeting recorded Mr Lewis as saying that he had invested $50,000 in HKST. He denied that he had given this information to the officers. In cross examination he agreed that he told the officers that Mr Hickox had invested $50,000 on his behalf with HKST and that he had paid him back. Mr Lewis was aware that his investment was in futures.

13 On 8 March 1996, Mr Lewis received a memorandum to shareholders from Perpetual Funds Management Ltd enclosing a bearer share certificate certifying that the bearer was entitled to one share at a par value of US$1. The memorandum stated that the share was transferable by delivery, the subscription price was A$50,000, the shareholder had an interest in the company and its revenues from the date on the certificate and the share might be redeemed by delivery of the certificate upon the expiry of a current investment period, the value of the share being then determined by reference to the net worth of the investment portfolio inclusive of revenues during that period.

14 Mr Lewis said that after the meeting with the representatives of the Sydney Futures Exchange, Mr Hickox said he was formalising the fund. Mr Lewis said he was not interested in the paperwork. He understood that he had an interest in PFM. His investment had been formalised in that fashion.

15 In his tax returns for the years ended 30 June 1996 to 30 June 1998, Mr Lewis recorded amongst his investments one share in PFM at a cost of $50,000 in varying market values.

16 Mr Lewis continued to receive regular statements of the net value of his investment. But from about the middle of 1996, they became statements by PFM rather than HKST. Mr Lewis received regular, although he said overdue, payments credited to his bank accounts.

17 In an affidavit, Mr Lewis identified $182,584.14 as having been received from his investment and subsequent investments through Mr Hickox from January 1996 to October 2001. That amount was understated, as were the amounts disclosed in his tax returns. Mr Lewis said he had given instructions to rectify the disclosures to the Commissioner of Taxation. A list of dividend payments revealed that Mr Lewis received at least $286,836.01 as dividends from his investments through Mr Hickox. Mr Lewis agreed that the investments were very successful until 2002.

18 I do not accept that Mr Lewis was as naive as he represented himself to be. He continued to say that he knew nothing about futures. Yet he understood that his rate of return on his investment was much greater than his rate of return on his domestic share portfolio. He understood that high returns were associated with high risk.

19 Mr Lewis knew his investment in PFM had gone into futures trading and he knew, generally, what that was. He conceded in cross examination that he understood the higher risk with respect to futures to mean the chance, not only of losing the income flow, but also of losing the investment itself. But in cross examination, Mr Lewis maintained that his investment could not be lost or devalued because he had a personal relationship with Mr Hickox and he would have warned him if his investment was devalued and he would have taken it out. However, the cause of action was not framed in terms of a breach of a contractual term requiring Mr Hickox to warn Mr Lewis that his investment was in danger of being lost or devalued.

20 If it were necessary for me to determine whether the state of mind of Mr Lewis was as he stated it to be, I would not accept his assertion. Mr Lewis had an extensive investment portfolio of Australia shares and he had other investments. He entered rough budgets of his expectations from his investments in his annual diaries including rough rates of return. I find it difficult to believe that he did not know that investment in futures was a risky business and his capital could be lost.

21 In September 1997, Mr Hickox visited Mr and Mrs Lewis at their home at Rose Bay. Mr Lewis said that he was asked by Mr Hickox what his bank interest was. When he informed him, Mr Hickox said he could do better than that. Mr Lewis said that he and Mrs Lewis could not afford to lose their money. But Mr Hickox responded that he would keep an eye on it for them and any time they wanted their money back he should let him know.

22 Mrs Lewis said she had a conversation with Mr Hickox in which he inquired she was happy how they were coping financially. She said she was not happy with present bank interest. Mr Hickox said he would look after her investment and do better than bank interest for her. Mrs Lewis said she would like to invest $50,000 with him. She asked whether it was safe. She said if there was any risk she preferred to leave her money with the bank. She said that Mr Hickox said she could get her money back at any time. She should just ask him. She had his word on it.

23 Mr Lewis invested a further $100,000 and Mrs Lewis invested $50,000 in PFM. The investments were disclosed in the tax returns of Mr and Mrs Lewis as investments in PFM.

24 The funds transferred by Mr Lewis to PFM were $120,020. By a late amendment to the pleading it was alleged that the additional investment by Mr Lewis was in that amount. That was specifically denied by Mr Lewis in evidence. He said the figure was not correct. The further investment by him was $100,000.

25 Mr Hickox denied that he told Mrs Lewis that she could have her money back at any time. She had his word on it. Mr Hickox said of his conversation with Mrs Lewis that when asked whether the money was safe he said money in the bank is safe but the return on this investment is higher. Mrs Lewis approached him and said she would like to invest some funds.

26 Prior to that, Mr Hickox said he had a conversation with Mr Lewis at which Mr Watson was present. Mr Lewis addressed Mr Watson and said that Mrs Lewis had some money she wanted to invest in PFM to which Mr Watson responded: “No problems, whenever she is ready, but remember the risk can be like a casino.”

27 Roger Francis Marin gave evidence that he invested funds through Mr Hickox who informed him that returns as high as 20% had been achieved, but the investment was risky: “It is as close as you can get to gambling on the horses.”

28 Mr Lewis said it was his idea to further invest with Mr Hickox and the relationship was the same as with the first contract. There was no new element to it.

29 Mrs Lewis interpreted what Mr Hickox had said to her as an obligation on his part to repay $50,000 from his own pocket. She said he had promised to do that. He did not say that she would be paid by PFM. She believed this when Mr Hickox said she could have her money back at any time. She knew that the investment represented a significantly higher risk than her bank investment or her share portfolio. When asked in cross examination what she gave in return for the promise of Mr Kickox to pay from his own funds, she was unable to do so.

30 In my view, the statement by Mr Hickox should be interpreted as no more than a statement that PFM would redeem the investment at any time. It should not be construed as a personal undertaking by Mr Hickox to refund the moneys.

31 Again, the pleading was a simple one. The terms of the second contract were the same as the terms of the first agreement. It was not alleged that it was a term of the agreement that Mr and Mrs Lewis would not lose their capital, that the investment was safe. Nor was it a term that Mr Hickox would refund the capital to them. The agreement was that PFM would redeem the investment at any time.

32 In my view, Mr and Mrs Lewis have failed to establish their second contract case.

3rd Contract Claim

33 In April 1998, at a car rally in San Francisco, Mr Lewis said he spoke with Mr Hickox. Mr Hickox said Mr Lewis should have his money working harder. Mr Lewis said he could not afford to lose his retirement fund to which he said Mr Hickox responded: “I’ll look after it for you Brian. It’s totally safe. And you know you can have it back anytime you want it. You’ve always got my personal guarantee of that.”

34 Mr Hickox said that about March 1998, Mr Lewis telephoned him and said he had some surplus funds in Hong Kong that he would like to invest in PFM. Mr Hickox said that the investment could be made at the start of the next quarter, that Mr Lewis had the PFM account details, that he should transfer the money across quickly. Mr Hickox denied that he said the investment was totally safe, that Mr Lewis could have his money back at any time, that it was a personal guarantee.

35 The resolution of the differing versions of the conversation is not important because Mr Lewis said that his third investment was on exactly the same terms as the prior investments and there was no new element to it. The further amended statement of claim alleged that the terms were the same as the first agreement.

36 For the reasons already expressed, I am of the view that Mr and Mrs Lewis failed in their third contract claim.

37 In March and April 1998, Mr and Mrs Lewis invested over $1,000,000 through Mr Hickox. Nothing turns upon those investments because, having decided that it was unwise to have all their retirement moneys in one investment, Mr and Mrs Lewis requested that the funds be repaid, and they were.

38 In November 2000 the bearer shares in PFM were converted into units in the PFM unit trust.

39 In February 2002, Mr Lewis sent an email to Mr Hickox indicating that he and Mrs Lewis were considering pulling out of PFM. He finally indicated that he wished to do so, in an email to Mr Hickox of 17 April 2002. The moneys were not repaid.

40 On 15 May 2002, Mr Lewis sent an email to Mr Hickox complaining that moneys had still not been paid and asking him to chase them up. Mr Hickox replied on 17 May 2002 that he would be bringing their dividend payouts with him. Mr Hickox paid Mr Lewis $12,950 and Mrs Lewis $2,030 from his own funds.

41 Mr and Mrs Lewis relied on this fact to support their contention that Mr Hickox had given a personal undertaking that their investments would be refunded. But the subsequent payment cannot alter the terms of the agreements which I have found, as Mr Lewis conceded, did not include a term that Mr Hickox should repay the funds from his own resources. Mr Hickox said he paid the moneys in an effort to help Mr and Mrs Lewis.

42 There is no doubt that Mr Hickox lacked commercial morality. Knowing that local members of the Sydney Futures Exchange were not entitled to trade for clients, he suggested that the moneys traded by Mr Watson were paid in reduction of pre-existing debts owed to him. HKST was suspended in 1996, but it took Mr Hickox some 14 months to put in place a restructure. Blackshort Pty Ltd replaced HKST but it was never licensed. When it became clear to Mr Hickox that funds would not be available to repay the investors, he deliberately concealed that state of affairs and, instead, pretended that all was well. In April 2003, he directed the solicitors for PFM not to pay the dividend due to Mr Lewis. He conceded he was wrong and intended to mislead the court in swearing that he did not control PFM.

43 But the credit of Mr Hickox was not the issue. The question remained, what were the terms of the investment contracts into which Mr and Mrs Lewis entered?

Guarantee Claim

44 Mr and Mrs Lewis pleaded that in the period between 26 February 2002 and 25 November 2002, Mr Hickox agreed in writing that if they did not move to withdraw their funds he would personally guarantee their repayment in the near future.

45 In cross examination, Mr Hickox conceded that by July 2002 he was under a lot of pressure and desperate to have the investors wait before they tried to withdraw their funds from PFM. It was in that context that Mr Hickox sent his facsimile of 20 July 2002 offering to purchase the investment of Mr and Mrs Lewis in PFM:

“Hi Brian,
Have heard of your anxiety with regard your investment with PFM, the easiest way to resolve this is for me to purchase your interest, which I will gladly do and to this end I am now closing on the sale of a property for which I am urging urgent completion and which will provide the necessary funds. You can consider this a personal commitment.
Have a great weekend, dose up on the Mariachii and keep the Kadoos under control (if that is possible).
Cheers
Fraser.”

46 The facsimile did not constitute an offer to repay Mr and Mrs Lewis their principal if PFM did not. It was an offer to purchase their investment. Neither Mr Lewis nor Mrs Lewis accepted the offer. Nor did either inform Mr Hickox that they agreed with his proposal.

47 Furthermore, the offer was conditional upon the sale of the property. A prospective purchase did not go ahead and Mr Hickox informed Mr Lewis of this fact on 24 November 2002.

48 Mr and Mrs Lewis have failed to make out their claim that Mr Hickox guaranteed PFM’s obligation to refund their investments.

Misleading and Deceptive Conduct Claim

49 Mr and Mrs Lewis pleaded that the representations made by Mr Hickox in the conversations constituting the first, second and third contracts, were made when Mr Hickox was engaged in trade and commerce and were misleading and deceptive in terms of the Fair Trading Act 1987, s 42, were unconscionable in contravention of s 52A, falsely represented that Mr Hickox’s investment services were of particular standard, quality or value in contravention of s 44(b) and were liable to mislead Mr and Mrs Lewis about the nature, characteristics, suitability for purpose and quality of the investment services to be provided by Mr Hickox in contravention of s 50.

50 The representations relied upon may be summarised as follows:

(a) that the funds would be placed into a fund controlled by Mr Hickox;
(b) that the funds would be repaid upon request;
(c) that Mr Hickox would ensure that interest was paid quarterly;
(d) that Mr Hickox would ensure that Mr and Mrs Lewis earned more that 8%;
(e) that Mr Hickox would look after the funds;
(f) that the funds would be totally safe;
(g) that Mr Hickox would guarantee that the funds were repaid.

51 Mr Hickox was in control of PFM, Mr and Mrs Lewis were paid interest quarterly and they earned in excess of 8% on their investments in PFM. The representations in paragraphs (a), (c) and (d) above did not give rise to any entitlement to relief under the Fair Trading Act 1987 and no final submissions to the contrary were made on behalf of Mr and Mrs Lewis.

52 For the reasons already given, the representations in paragraph (b) above were no more than an assertion that the investments were structured so that HKST and, subsequently, PFM were obliged to repay funds upon request. There was no evidence that the constitutions of HKST or PFM were to the contrary.

53 For the reasons set forth above Mr Hickox gave no guarantee and the allegation in paragraph (g) fails.

54 So far as the representation in paragraph (e) above is concerned, the looking after the funds invested in PFM by Mr Hickox, left a lot to be desired. There were no control systems in place and nobody effectively audited Mr Watson’s conduct. By mid-2001, Mr Hickox knew that Mr Watson was dishonest. But, investment in futures was a risky business and Mr Lewis understood that to be so. The investments were, for many years, highly successful and there was no evidence that proper systems of control would have obviated the ultimate loss.

55 Furthermore, in the absence of any personal liability on the part of Mr Hickox for a loss of funds, any representation that the funds would be looked after cannot have been relied upon by Mr and Mrs Lewis in entering into any of the three contracts.

56 As already indicated, the making of the representation in paragraph (f) above was in dispute. But even if the representation was made, it could not have induced Mr Lewis to enter into the investments. He knew that investment in the futures market was a risky business. He conceded that one could not predict how share markets were going to move with any degree of certainty and this was particularly so with respect to futures markets. He did not think that Mr Hickox “had a magic pair of glasses to look into the future and know what would happen”. Mr Lewis accepted that Mr Hickox could not reliably tell him whether or not PFM would, in the future, make or lose capital.

57 I am not satisfied that it was reliance upon this representation, if made, that induced Mrs Lewis to enter into her investment. She was influenced by her husband in many of her investment decisions. She misunderstood the nature of the representation by Mr Hickox as to refunding of her investment. That misunderstanding is likely to have been foremost in her mind if she made any independent decision to invest in PFM. If she thought that Mr Hickox guaranteed a refund, it mattered little whether the investment was safe.

58 In my judgment Mr and Mrs Lewis failed to make out any claim to relief under the Fair Trading Act 1987.

General

59 Mr and Mrs Lewis also pleaded a trust claim and a claim for moneys had and received, neither of which was pressed in final submissions.

60 Voluminous documents were tendered in evidence. Few of them were referred to by counsel during the examination of witnesses or in final addresses. A great deal of time was spent in cross examination as to credit. In the end, it was not necessary for me to decide the issues of credit nor to have recourse to documents upon which counsel placed no reliance.

Conclusion

61 In my judgment, the further amended statement of claim should be dismissed. I will hear the parties on the appropriate terms of orders and I will hear the parties on costs. I direct the parties to bring in short minutes of orders reflecting these reasons.

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