Lockyer v Bermingham [No 3] - [2018] WASC 61

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: LOCKYER -v- BERMINGHAM [No 3] [2018] WASC 61

CORAM: TOTTLE J

HEARD: 16-18, 21-23 NOVEMBER, 2 & 20 DECEMBER 2016, 8 FEBRUARY, 17 MARCH 2017 & FINAL CLOSING SUBMISSIONS FILED 29 MARCH 2017

DELIVERED : 26 FEBRUARY 2018

FILE NO/S: CIV 1726 of 2013

BETWEEN: PHILLIP LOCKYER
Plaintiff
AND
MARY BERMINGHAM
First Defendant
BEPAD PTY LTD
Second Defendant

Catchwords:

Misleading or deceptive conduct - Provision of taxation advice by financial planner - Whether advice misleading - Whether contravention of s 12DA of the Australian Securities and Investment Act 2001 (Cth) established.

Damages - General principles applicable to claims under s 12GF of the Australian Securities and Investment Act 2001 (Cth) - Net gains and losses approach to measure of damages - The rule in Potts v Miller - Damages awarded - No contribution by plaintiff to loss - Proportionate liability not established.

Negligent misstatement - Liability established - No contributory negligence - Proportionate liability not established.

Turns on own facts.

Legislation:

Australian Securities and Investment Act 2001 (Cth), s 12BAB, s 12BB, s 12DA, s 12GF, s 12GP, s 12GR
Civil Liability Act 2002 (WA), s 5AI, s 5AK
Income Tax Assessment Act 1936 (Cth), s 139B, s 139E
Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947 (WA), s 4
Trade Practices Act 1974 (Cth)

Result:

Plaintiff entitled to damages of $2,900,853 under s 12GF of the Australian Securities and Investment Act 2001 (Cth).

Category: B

Representation:

Counsel:

Plaintiff:     Mr J C Yeldon
First Defendant              :     Mr C M Slater
Second Defendant         :     Mr C M Slater

Solicitors:

Plaintiff:     Huggins Legal
First Defendant              :     Valenti Lawyers
Second Defendant         :     Valenti Lawyers

Case(s) referred to in judgment(s):

ABN Amro Bank NV v Bathurst Regional Council [2014] FCAFC 65; (2014) 224 FCR 1
Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60;; (2004) 218 CLR 59
Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304
Forrest v Australian Securities and Investments Commission [2012] HCA 39; (2012) 247 CLR 486
Google Inc v Australian Competition and Consumer Commission (ACCC) [2013] HCA 1; (2013) 249 CLR 435
HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640
Jamieson v Westpac Banking Corporation [2014] QSC 32
Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494
North East Equity Pty Ltd v Proud Nominees [2010] FCAFC 60
Potts v Miller [1940] HCA 43; (1940) 64 CLR 282
Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254
Sykes v Reserve Bank of Australia [1998] FCA 1405; (1998) 88 FCR 511
Tobacco Institute (Aust) Ltd v Australian Federation of Consumer Organisations Inc [1992] FCA 962; (1992) 38 FCR 1
TOTTLE J:

Introduction

The plaintiff, Mr Lockyer, sues his former financial adviser, the first defendant, Ms Richardson,[1] and her company, the second defendant, Bepad Pty Ltd, for damages for losses he claims he suffered as a result of relying on advice provided by Ms Richardson concerning his tax and financial affairs.
[1] Although in the title of these proceedings the first defendant's surname is 'Bermingham', by the time of the trial the first defendant had changed her surname to Richardson. I will refer to her as such in these reasons.
In May 2007 and April 2008 Ms Richardson advised Mr Lockyer that he had a substantial liability to pay income tax. The liability was said to have arisen from the exercise by his wife, Mrs Jill Lockyer, of 500,000 options (the Options) to subscribe for shares in the capital of Jubilee Mines NL, a listed company. Mr Lockyer was a director of Jubilee Mines when the options were issued in November 2004. The Options were part of his remuneration and he had directed that they be issued to his wife. Mrs Lockyer exercised the Options and substantial profits were made when the shares so acquired were sold as part of a takeover of Jubilee in early 2008.
In both 2007 and 2008 Ms Richardson advised Mr Lockyer to make a number of negatively geared investments to enable him to set off the resulting tax deductions against his taxable income thereby reducing his tax liability. Mr Lockyer made investments in accordance with Ms Richardson's advice. He incurred significant expenditure to make the investments and he suffered losses on a number of them.
The premise on which Ms Richardson's advice was based, namely that Mr Lockyer had a substantial liability to pay tax arising from the exercise of the Options, was flawed. This was not in dispute.
Mr Lockyer alleges that the advice and recommendations made by Ms Richardson involved negligent misstatements and that they constituted misleading or deceptive conduct. Mr Lockyer claims damages at common law and compensation pursuant to the Australian Securities and Investments Commission Act2001 (Cth) (ASIC Act), alternatively the Trade Practices Act 1974 (Cth) (TPA). The TPA has no application and I have determined the misleading or deceptive conduct claim by reference to the provisions of the ASIC Act.
Ms Richardson and Bepad deny liability. In the alternative, if found liable, Ms Richardson and Bepad allege that Mr Lockyer's former accountants were concurrent wrongdoers and that Mr Lockyer's claim is an apportionable claim within the meaning of ASIC Act, the TPA and the Civil Liability Act 2002 (WA) (CLA).[2] Ms Richardson and Bepad contend their liability should be limited to an amount that reflects the proportion of the loss claimed by Mr Lockyer that the court considers is just having regard to their responsibility for the loss. Additionally, Ms Richardson and Bepad allege that Mr Lockyer contributed to his loss in various ways and seek a reduction in damages on that basis.[3]
[2] ASIC Act s 12GP, s 12GR; CLA s 5AI, s 5AK.
[3] Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947 (WA) s 4; ASIC Act

The evidence and credit and reliability assessment

The events giving rise to this litigation took place between 2004 and 2008. In making factual findings I have had regard primarily to contemporaneous documents along with objective factual circumstances and the inferences that may be drawn from the combination of those matters and the inherent probabilities as to what occurred.
A trial direction was made for witness statements to constitute the evidence‑in‑chief of witnesses but on reviewing the witness statements prior to trial I decided that I would be able to form a better view of the reliability of the evidence of Mr Lockyer and Ms Richardson if their evidence‑in‑chief was adduced orally.

Mr Lockyer

Mr Lockyer was able to recall the major events that form the background to his claim but was unable to recall the detail. He could recall the process by which he and Mrs Lockyer were provided with advice by Ms Richardson and could recall some meetings with Ms Richardson but, with limited exceptions, could not recall what was said at those meetings. Given the elapse of time, this was entirely understandable. No attempt was made by him to supplement his limited recollection with evidence that might be thought to assist his claim. Mr Lockyer was cross-examined thoroughly and answered questions put to him in a direct manner without being evasive. I am satisfied that Mr Lockyer gave his evidence truthfully and that his evidence was reliable.

Ms Muriel Oliver

In early 2008 Mr and Mrs Lockyer and Mr Lockyer's consulting company retained Ms Muriel Oliver, an accountant, as their tax agent. Ms Oliver gave evidence on behalf of Mr Lockyer. I am satisfied that Ms Oliver gave her evidence truthfully and that her evidence was reliable.

Ms Richardson

My impression of Ms Richardson was that she was an experienced financial planner with considerable confidence in her own ability and these qualities were combined with a forceful personality. I am sure that it has been difficult for her to accept that her advice was flawed. This may have contributed to her attempts to attribute responsibility for the error to others.
I am not satisfied that I am able to rely upon Ms Richardson's evidence unless it is corroborated by other evidence that I find to be reliable. In the course of setting out my factual findings I identify specific aspects of Ms Richardson's evidence that concern me. In making my assessment of Ms Richardson's evidence I have taken into account that it is difficult, perhaps impossible, for a party who is giving evidence about events that occurred many years ago, and who for the purposes of giving instructions has reviewed relevant documents on many occasions, to be able to distinguish between what is recollection and what is a reconstruction of events. I accept that it is possible that the process of reviewing documents and being questioned about what occurred may revive recollections or may lead to an honest reconsideration of an earlier account of events. Even making allowances for those factors, I find her evidence unreliable and I have the strong impression that it was tailored to suit the defence being advanced. The primary feature of Ms Richardson's evidence that has led me to consider it to be unreliable is that she gave detailed accounts of what was said in conversations in the period between 2005 to 2008 and of what she understood and thought at the time, that were either not mentioned in her pleadings, her witness statement or contemporaneous file notes, or were inconsistent with the accounts given in those documents.
The defendants also relied upon a witness statement of Ms Leanne Rowley (nee Dellow), one of Ms Richardson's assistants. Ms Rowley was not cross‑examined.
Opinion evidence was called for both sides. Mr Lockyer called Mr Patrick Canion to give opinion evidence on the liability issues and Mr Mark Pollock to give opinion evidence on the quantification of damage. The defendants relied upon the opinion evidence of Mr Paul Green on both liability and quantum issues. I will refer to their evidence in more detail later.

The tax issue and the correct position

Before setting out the facts it is helpful to identify the tax issue that was central to the advice provided by Ms Richardson and to state how the Options should have been treated for tax purposes.
At the material times Division 13A of the Income Tax Assessment Act 1936 (Cth) (ITAA) governed the taxation treatment of shares and rights acquired under employee share schemes. A brief overview of the relevant provisions will suffice to explain the issue.
The key principle was that any discount from the market price of the shares or rights was assessable income.[4] The discount had to be included in the taxpayer's assessable income for the year in which the share or right was acquired unless:
•the share or right was a qualifying right; and
•the taxpayer had not made an election under s 139E of the ITAA for the year of income in which the share or right was acquired.
[4] ITAA s 139, s 139B(1).
If these two conditions were satisfied then the discount was included in the taxpayer's assessable income of the year of income in which the 'cessation time' occurred.[5] For present purposes it is sufficient to state that in the case of a qualifying right in the nature of an option (ignoring irrelevant exceptions) 'cessation time' included the date the right was exercised.[6]
[5] ITAA s 139B(2) and (3).
[6] ITAA s 139CB.
Section 139E provided that a taxpayer could elect that s 139B(2) applied to qualifying shares or rights, that is the taxpayer could elect that the discount would be assessable income in the year in which the qualifying share or right was acquired.
To constitute a 'qualifying right' a right had to satisfy a number of conditions including a condition that the company granting the right was the employer or a holding company of the employer of the taxpayer.[7]
[7] ITAA s 139CD.
Finally if a share or qualifying right was acquired by a taxpayer in respect of an associate's employment then the discount amount was included in the associate's assessable income instead of the taxpayer's income.[8]
[8] ITAA s 139D(2).
The Options issued to Mrs Lockyer were not qualifying rights as Jubilee was not her employer. The discount formed part of Mr Lockyer's assessable income in the financial year ending 30 June 2005 as he was an associate of Mrs Lockyer and the Options had been issued in respect of his employment. The error made by Ms Richardson was that she considered the Options to be qualifying rights and focused on the question of whether Mr Lockyer had made an election pursuant to s 139E. As the Options were not qualifying rights this question was irrelevant to Mr Lockyer's circumstances.

The facts

Mr Lockyer's background

Mr Lockyer was born in 1944. In about 1999 he retired from employment as a mining engineer having held a number of senior positions with mining companies. Thereafter he started working as an independent consultant providing his services through a company, Phil Lockyer & Associates Pty Ltd. Mr Lockyer also served as a non-executive director of a number of mining companies.
In the early 1990s Mr Lockyer engaged an accountant, Mr Michael Lee, to act as a tax agent for himself and his wife. Mr Lee prepared Mr and Mrs Lockyer's tax returns on an annual basis. Mr Lee also prepared financial statements and tax returns for Phil Lockyer & Associates Pty Ltd. Following the introduction of GST Mr Lee prepared Business Activity Statements for Phil Lockyer & Associates Pty Ltd. Mr Lockyer's evidence, that I accept, was that Mr Lee's role was 'about doing a tax return' and was not about 'minimising tax'.[9]
[9] ts 484.7.
Until 1999 Mr Lockyer had been a client of a financial planner. As a result of illness that financial planner had been unable to continue to work. Mr Lee referred Mr Lockyer to Ms Richardson (who then went by the name Ms Marie White) who was working as a financial planner in a business conducted by Lonsdale (WA). Mr Lee and Ms Richardson had 30 or 40 clients in common.[10] Mr and Mrs Lockyer met Ms Richardson and engaged her to provide financial planning advice. Mr Lee and Ms Richardson were authorised to divulge information to each other about Mr and Mrs Lockyer's affairs.
[10] ts 756.9.
In 1999 Mr and Mrs Lockyer's financial affairs were relatively straightforward. They lived in their own home on which there was a modest mortgage. They owned a residential unit from which they derived a rental income. They had some savings and investments in their own name. They had no borrowings of any significance. Excluding the value of their home their 'net investment position' in their own names was approximately $293,000. Mr and Mrs Lockyer managed their own superannuation fund which held shares and other investments worth approximately $1,830,000. The trustee of the superannuation fund was Blueblaze Pty Ltd.

Ms Richardson's background

Ms Richardson commenced her career as a bookkeeper before moving into financial planning. She undertook studies to become an authorised representative of a financial services licensee. In 1988 together with two partners she established her own business. She has been a long-standing member of the Financial Planning Association of Australia and its predecessor organisation. She has been a member of the Taxpayers Association of Australia for many years and has served as the State Chairman of that Association as well as a member of its national board.
In 2002 Ms Richardson incorporated Bepad and subsequently used it as the vehicle for the provision of her services as a financial planner. Bepad traded as Sovereign Bridge Capital Group. Bepad held an Australian Financial Services Licence. Ms Richardson was an Authorised Representative of Bepad.

Bepad's 'Doc File' notes

Bepad maintained an electronic record of dealings with each of its clients, including Mr Lockyer, referred to by Ms Richardson as 'Doc File notes'. This was a 'Word' document into which notes of communications with a client were typed and emails sent and received were copied. Ms Richardson's evidence, which I accept because it is consistent with the contents of the Doc File notes, was to the effect that she had constant access to the Doc File notes for clients and this was how she and Bepad's employees kept up to date with developments on a client's matter. Ms Richardson's evidence was that if she was talking on the telephone to Mr Lockyer she would generally have Doc File notes for his matter open on her computer screen and would type in 'bullet points' to remind herself of the conversation.[11] Ms Richardson said that her staff were told as part of their induction into the business that it was important that Doc File notes were accurate and that entries had to be completed each day.[12]

Terms of engagement

[11] ts 766.4.

[12] ts 766.8.

On 6 June 2004 Mr and Mrs Lockyer signed a document entitled 'Terms of Engagement' prepared by Bepad which set out the terms upon which Bepad's services would be provided to them. The Terms of Engagement were as follows:
TERMS OF ENGAGEMENT
Between
Phillip Clive Lockyer & Jillian Farrar Lockyer ("You")
&
Bepad Pty Ltd trading as Sovereign Bridge Capital Group
Australian Financial Services No. 221892 ("Us")
1. We will review in detail your current financial position, including;
a.Investment Assets - Private, Company & Super Fund,
b.Investment Liabilities,
cCash flow - income & expenditure,
d.Your individual goals and financial objectives.
2. In order achieve our service standards. We have an obligation to determine your relevant personal circumstances and given this, we may require additional information from you. We agree to provide you with the following services ("the services"):
a)Retirement Planning
a.Review your current superannuation fund(s) and required objectives for retirement
b.Establish & Maintain funds required to meet your retirement objectives
c.Determine annual superannuation contributions required to meet your goals, in line with legislative requirements
d.Regularly review your retirement goals
b)Taxation Planning
a.Explore the use of superannuation in order to effectively manage tax
b.Review Company structure - determine required changes
c.Review current income structure and determine an appropriate income planning strategy
d.Review Company Franked Dividend policy
c)Cash Management
a. Provide for an adequate cash reserve for unexpected expenses
d)Strategic Planning
a.Pension commencement for Jill
b.Consider RBL Issues for Phil
e)Asset & Investment Management
a.Review current investments & asset allocations taking into account goals and objectives, investment time lines & cash flow
3. Although we will help you to consider these matters at the appropriate time, you bear the prime responsibility for advising us of any change to your circumstances and of the potential for any advice we provide at the time of a review to be inappropriate due to the general financial well-being of you or your family.
4.During our meetings, we will discuss our recommendations to you, and at this point, you can instruct us to implement the agreed strategies. You are required to take ownership of your financial decisions. We can guide you in making the appropriate decisions, but those decisions ultimately remain yours. If you do not feel totally comfortable with the decisions then you must seek more information and advice from us until you are comfortable.
5. You agree with the following:
a)We are not liable for any inappropriate advice if you provide us with incomplete or inaccurate information
b)We are not liable for any decrease in value of any of your investments
c)We are not liable for any investment or financial strategy that you have not requested us to consider or advise on
6.Bepad Pty Ltd trading as Sovereign Bridge Capital Group holds and Australian Financial Services License, No. 221892. Our mission is to help our clients organise their personal financial affairs in order to achieve their financial and lifestyle goals. Our specialty is strategic financial planning. Our clients expect personalised financial advice, aimed at improving asset use, capital accumulation and goal achievement.
7.We do not offer services regarding stock broking, real estate valuations, real estate advice, income tax preparation, superannuation fund accounting, superannuation fund administration, and the preparation and review of any legal documents, such as Wills or Trusts, we can however refer you to an appropriate supplier.
8. Bepad Pty Ltd trading as Sovereign Bridge Capital Group will act on behalf of Phil & Jill, without bias or conflict and adopt due care, diligence and competence. We must ensure our relationship is based on trust, confidence, dependence, vulnerability, influence and discretion.

The provision of advice – the usual process

The usual process by which Ms Richardson provided advice to Mr and Mrs Lockyer was for Ms Richardson with the assistance of her staff to prepare a 'statement of advice' in letter form addressed to Mr and Mrs Lockyer that would be given to them at a meeting in which Ms Richardson would go through the contents of the statement of advice. Mr and Mrs Lockyer would take the statement of advice away and consider its contents and if they wished to proceed in accordance with the advice they signed an 'authority to proceed' which was attached to the statement and returned it to Ms Richardson.

The relationship between Ms Richardson and Mr and Mrs Lockyer - 1999 - 2005

Mr Lockyer was 'very impressed' with Ms Richardson's work. He said that she had done an 'excellent job' in assisting him and his wife with their superannuation fund and had identified a mistake made by his previous employer in the calculation of the payment due to him for superannuation.[13]
[13] ts 437.2.
Ms Richardson provided written advice to Mr and Mrs Lockyer on eight occasions between May 2004 and August 2005.[14]
[14] These were identified in the further amended statement of claim at par 4.
Mr Lockyer did not obtain financial planning or tax planning advice from any other source.[15] I find that he had complete confidence in Ms Richardson. In his evidence‑in‑chief Mr Lockyer said he could not recall an occasion on which he had not followed Ms Richardson's advice.[16] Whilst this statement was not entirely accurate as in cross‑examination Mr Lockyer's attention was drawn to an occasion in September 2005 when he did not follow a recommendation to invest in a particular company, it reflects the high level of trust and confidence Mr Lockyer reposed in Ms Richardson.

The grant of the Options: 23 November 2004

[15] There was no dispute that the advice provided by Ms Richardson included tax planning advice.

[16] ts 442.

In November 2004 Jubilee issued the Options to Mrs Lockyer.[17] Mr Lockyer said that the Options were granted to him at an annual general meeting of Jubilee but following a 'brief general discussion' with Mr Lee in which Mr Lee said that Mr Lockyer should consider putting the Options into Mrs Lockyer's name as she was the lower income tax payer,[18] Mr Lockyer asked for the Options to be issued to Mrs Lockyer.
[17] Exhibit P1, 617.
[18] ts 435.6.
The Options were exercisable in the following tranches and at the following prices:[19]
Tranche 1    150,000     $4.75 Exercisable between 23/11/05 and 31/12/07
Tranche 2    150,000    $5.00 Exercisable between 23/11/06 and 31/12/07
Tranche 3    200,000   $5.25 Exercisable between 23/11/07 and 31/12/07

Mr Lockyer seeks Ms Richardson's advice regarding the Options

[19] Exhibit P1, 618.

In September 2005 Mr Lockyer informed Ms Richardson that the Options had been issued to Mrs Lockyer and he wished to exercise them.[20] Mr Lockyer told Ms Richardson he proposed to sell some of the assets held in his superannuation fund to pay the exercise price with the result that the shares so acquired would be owned by the superannuation fund.[21] When Mr Lockyer told Ms Richardson that he proposed to acquire the shares in his superannuation fund she told him that was not a good idea. Mr Lockyer asked Ms Richardson whether she could assist him and she said she could. At that time Mr Lockyer was not familiar with the provisions of the income tax legislation relating to employee share schemes.[22] He described the Options as 'whole new area [he] had little understanding of'.[23] He did not know what a 's 139 election' was.[24]
[20] Exhibit D3, 3260.
[21] Notes recorded in the Doc File notes suggest that Mr Lockyer may have first discussed the topic of the Options with one or more of Ms Richardson's colleagues but whether he did so or not is of no consequence.
[22] ts 572.3.
[23] ts 484.9.
[24] ts 698.7.
On 20 September 2005 Mr Lockyer, Mr Lee and Ms Richardson met to discuss exercising the Options. I make this finding on the basis of an entry in Mr Lockyer's appointment diary recording an appointment with Mr Lee and Ms Richardson fixed for 1.00 pm on 20 September 2005 regarding 'Jubilee', and an entry in the Doc File notes that records a meeting held on 20 September 2005 between Ms Richardson and Mr Lee.[25] On the basis of the entry in Mr Lockyer's appointment diary I am satisfied that he attended the meeting even though his name does not appear in the Doc File notes entry. Ms Richardson said that a colleague, Mr Michael Bennett, also attended this meeting. The evidence does not permit me to make a finding that Mr Bennett did attend the meeting but whether he did so or not is of no consequence.
[25] Exhibit D3, 3260 and 6645.
Based on the contents of the Doc File notes entry I find that at the meeting Mr Lockyer told Ms Richardson that the Options were exercisable in three tranches and gave her the details of the exercise price and exercise date for each tranche. Mr Lockyer said that he wanted to exercise the Options and there was some discussion as to how the exercise of the Options might be funded. Ms Richardson said that she could provide advice to Mr Lockyer as to how to fund the exercise of the Options but she could not advise as to whether Mr Lockyer should exercise them. She told Mr Lockyer that she could provide a 'strategy document' containing advice within three weeks and she would provide him with a fee quote so he could decide whether he wanted her to proceed.
Following the meeting Mr Lee sent Ms Richardson an email attaching the 'Securities Acknowledgment' in relation to the Options and the terms and conditions governing them.[26]
[26] Exhibit D3, 3382.
In her evidence‑in‑chief Ms Richardson said that at the meeting Mr Lee said that he had asked Mr Lockyer to have the Options issued in Mrs Lockyer's name because that would have a better tax consequence as when the shares were eventually sold they would be taxed at a lower tax rate.[27] She also gave evidence that:
There [were] discussions around the election and the decision on whether to pay the tax upfront or on exercise, understanding that on exercise would be quite significant. Michael Lee talked about that for some period of time.[28]
…
Mr Lee explained to all of us in the room that there was an opportunity to declare the tax on issue – “tax upfront” I believe is the word he used – on issue of the options. He then said the other option is to defer the tax on those options until there was value in them and that they were chosen to be exercised.[29]
…
Mr Lockyer explained to us about previous options that he had had that had lapsed, worthless. I don't remember the company name. But he said that he didn't feel that he would want to pay the tax upfront on the options in case they were – were not of value at a later point. Mr Lee went on to talk about the fact that to take them up upfront had to be all three tranches and Mr Lockyer was fairly clear that there was no way he was paying tax upfront.[30]
[27] ts 796.10–797.2.
[28] ts 798.4.
[29] ts 800.7
[30] ts 801.1.
I am not satisfied that any of these topics were discussed at the meeting on 20 September 2005 for the following reasons.
(i)There is no reference to these topics in the Doc File entry for the meeting held on 20 September 2005.
(ii)There is a striking contrast between the comprehensive account of this meeting given by Ms Richardson in her oral evidence and the brevity of the account given by her in her witness statement which was as follows:
110.Doc File-notes has an entry on 20 September 2005 referring to a meeting between Michael Lee and me. In that meeting it appears from the notes I was informed (or I was informed by the email dated the same date) that the options were granted in 2004 and were in Jill Lockyer's name.
(iii)As is apparent from par 110 of Ms Richardson's witness statement at the time she made the statement she did not recall that Mr Lockyer was present.
(iv)Ms Richardson's witness statement made no reference to a discussion about the possibility of paying tax 'up front'.
(v)Ms Richardson's evidence to the effect that at the meeting Mr Lee said that Mr Lockyer had elected not to pay the tax upfront is not consistent with the defence. In the defence the defendants rely upon a statement allegedly made by Mr Lockyer on 14 October 2005 to the effect that he had elected not to pay income tax arising from the issue of the Options in the year in which they were issued.[31] In her witness statement Ms Richardson says that her employee (although not named in the statement the employee was Ms Rowley) telephoned Mr Lockyer and asked if he had made a tax election on the issue of the Options to which he said 'no'.[32] There is no reference in the defence to the discussion about the payment of tax up front that Ms Richardson says occurred at the meeting on 20 September 2005. Moreover, if Mr Lockyer had told Ms Richardson at the 20 September 2005 meeting that he did not want to pay the tax up front it is unlikely that it would have been necessary for Ms Rowley to have telephoned Mr Lockyer on 14 October 2005 to ask whether he had made a s 139E election, that is, an election to pay the tax 'up front'.
(vi)Ms Richardson's oral evidence to the effect that Mr Lockyer did not want to pay the tax up front because he was concerned that the Options 'were not of value at a later point' is inconsistent with the description of Mr Lockyer's intentions contained in her witness statement in which she stated:
117.I understood from these conversations that the options were already granted and that Phil Lockyer wished to exercise them because the shares that he would acquire would be worth more than the costs he would pay to exercise the shares (that is the options were 'in the money').

The request for advice to fund the exercise of options

[31] Further re re amended defence 11 November 2016 [5(f)] – for brevity I refer to the pleading as 'the defence'.

[32] Exhibit D7 [126].

Ms Richardson quoted $4,500 to $6,500 plus GST as the cost of providing advice to Mr Lockyer on how to fund the exercise of the Options.[33] Mr Lockyer instructed Ms Richardson to provide the advice.[34]

Information provided to the defendants in late September and October 2005

[33] Exhibit D3, 3298.

[34] Exhibit D3, 3299.

In her evidence‑in‑chief Ms Richardson gave the following evidence about discussions with Mr Lockyer following the meeting on 20 September 2005.
All right. Well, can you tell his Honour what you recall about the words you said [and] the words Mr Lockyer said?---Your Honour, while we were preparing the document for presentation at the meeting in about two or three weeks time, several of my staff brought to my attention the issues around the options in relation to the taxation treatment of them. So I called Phil and said, 'Please go back and talk to Michael and make a decision on what you want to do about that issue of acquisition or' - acquisition or - my mind has gone blank - exercise.
And what did Mr Lockyer say to you?---He said he was still very clear that he would not be paying tax upfront because he did not, at that time, have an expectation - he didn't want to risk paying tax upfront because he was worried that the stock would not stay at a price, for the second and third tranches, where they were in the money.
(indistinct) any further conversations with Mr Lockyer in this period just after that 20 September meeting that you can recall today?---I know that some of my staff talked to him as well, but I can't tell you how many times. I just know that there was a number of different occasions where we talked about it during that period leading up to the presentation of the 2005 advice.[35]
[35] ts 803–804.
I am not satisfied that the conversations referred to by Ms Richardson took place. No entries in the Doc File notes relating to such conversations were identified and Ms Richardson did not refer to the conversations in her witness statement. The evidence that Ms Richardson asked Mr Lockyer about whether he wanted to pay 'tax upfront' is difficult to reconcile with the advice provided by her some two weeks later in the 2005 Strategy Document the effect of which was that Mr Lockyer could not pay the 'tax upfront'.
On 12 October 2005 in response to a request to do so Mr Lee provided Ms Richardson's assistant, Ms Berryman, with copies of the Lockyers' tax returns for the 2004 tax year together with the tax return of Phil Lockyer & Associates Pty Ltd for the 2004 tax year.[36]
[36] Exhibit D3, 3300.
As referred to earlier, on 14 October 2005 Ms Rowley telephoned Mr Lockyer and asked him whether he made a tax election upon the issue of the options to which he responded 'no'.[37] Contrary to the terms in which this telephone conversation is pleaded in the defence Mr Lockyer did not say that he had elected not to pay income tax arising from the issue of the Options in the income tax year in which the Options were issued. He simply replied 'no' to the question he was asked. As noted earlier the question was irrelevant to Mr Lockyer's circumstances and reveals the error in Ms Richardson's consideration of Mr Lockyer's tax position.
[37] Exhibit D3, 3372.
I digress from the narrative to refer to an issue of credit concerning Ms Richardson's evidence in relation to the telephone conversation on 14 October 2005.
In a minute of proposed draft amended defence filed on 23 August 2016 the defendants pleaded that it was Mr Lockyer or Mr Lee who informed the defendants that Mr Lockyer had elected not to pay income tax arising from the issue of the Options in the income tax year in which the Options were issued but in particulars they specifically pleaded that it was Mr Lee who informed the employee in a telephone call that Mr Lockyer had not made a s 139E ITAA election to pay income tax in the income tax year in which the Options were issued.[38]
[38] Exhibit P3 [5(e)].
As noted above, in the defence it was pleaded that it was Mr Lockyer who informed the defendants that he had elected not to pay income tax on the Options in the year in which they were issued and that it was Mr Lockyer who had informed the employee of this fact in the course of a telephone conversation.[39] Ms Richardson was cross‑examined extensively about the inconsistency between the proposed draft amended defence of 23 August 2016 and the defence.[40] She said that there was no doubt in her mind that Mr Lee had spoken on the telephone to the employee and said that Mr Lockyer had not made an election to pay tax in the year in which the Options were issued.[41] She also said that there were two conversations - one with Mr Lee and one with Mr Lockyer.[42] There is, however, no entry in the Doc File notes of a conversation between an employee and Mr Lee in which an election to pay income tax on the Options was discussed. The inconsistency in the pleadings does not of itself cause me concern but what is of concern is that having amended the pleading (I assume on her instructions) to rely solely on a conversation between Mr Lockyer and an employee of Bepad, Ms Richardson was insistent that there were two conversations in which the information was conveyed, one of which was with Mr Lee. Her insistence on there being two conversations is even more surprising as she was not a party to either of them.
[39] Defence [5(f)].
[40] ts 938–951.
[41] ts 941.4.
[42] ts 945.10.
I was left with the impression that Ms Richardson was concerned to ensure that her evidence conformed to her case as she wished to present it, namely that in formulating her advice she relied on information provided by Mr Lee concerning Mr Lockyer's tax affairs.

The 2005 Strategy Document

Ms Richardson prepared advice for Mr and Mrs Lockyer. It was recorded in a letter from Ms Richardson to the Lockyers dated 13 October 2005 (the 2005 Strategy Document).[43]
[43] Exhibit P1, 216, although the document was dated 13 October 2005 it was not finalised until some days later.
The 2005 Strategy Document contained an 'Executive Summary' that stated:
As requested, this report covers the funding & process management of the Jubilee Mining Options, which were issued to Jill on 23^rd November 2004, which are due to be exercised on 31^st December 2005. This report outlines the strategies and recommendations involved in funding the exercise price of the options, however we have taken into account your full personal & financial situation. [44]
[44] Exhibit P1, 219.
It then summarised the information that has been taken into account in its preparation:
üPhil currently has a directorship agreement with Jubilee Mines NL, as part of his overall remuneration package, he has been issued unlisted options in the company.
üOn the 23^rd November 2004, Phil was issued with 500,000 Jubilee Mining Unlisted Options, details as follows:
1.Tranche 1 - exercise price of $4.75, 150,000 options, vesting date – 31st December 2005
2.Tranche 2 - exercise price of $5.00, 150,000 options, vesting date – 31st December 2006
3.Tranche 3 - exercise price of $5.25, 200,000 options, vesting date – 31st December 2007
üYou have advised you are not required to take the first tranche at once, you can stagger the exercise process over a period if required
üYou have indicated that you would like to take up the full 150,000 options, as the shares are currently 'in the money'
üYou have advised that you have not made a section 139E tax election upon issue of the options
üThe options were issued in Jill's name, not Phil's
üPhil's current annual income is paid 50% to him via taxable salary & 50% to salary sacrifice to super. Phil receives approximately $100,000 before tax, and Jill receives approximately $14,000 after tax, which is sufficient to fund personal living expenses.
üYou commuted (ceased) your pension from Lockyer Super Fund in September 2004
üYou are considering salary sacrificing your benefits to Jill's member balance once the new legislation takes effect on 1^st January 2006
The executive summary then set out a number of recommendations, one of which was as follows:
üPhil to consider further investments in additional tax effective issues, or possibly a private margin loan…
The Strategy Document then expanded upon the topics in the Executive Summary. [45] It is necessary to reproduce this part of the letter at some length.
[45] Exhibit P1, 220.
STRATEGY CONSIDERATIONS & RECOMMENDATIONS
Following are the strategies we believe are most appropriate to your current position, lifestyle and financial goals. If the information provided previously was incorrect, this will affect the validity of these recommendations, and you should contact us with the correct information prior to going ahead with these recommendations, so that we may ensure that they are appropriate to your needs and circumstances.
We will also highlight some of the alternative strategies that could be implemented and why we have not recommended them.
Employee Share Plans / Options
Taxable Income upon Exercise
It's becoming a trend in Australia for large (particularly Mining Companies) to offer unlisted or listed options as part of an executives remuneration package. Quite often the long term benefits are far more significant to the employee than receiving a large taxable salary.
However, there is a trap, relating to a 139E tax election. Although benefits from employee share plans are "taxed under special provisions", the basic principle indicates that any discount received by the employee is to be added to your taxable income in the year in which the share or right is acquired. In your case, you can not defer this tax, as there are no restrictions placed on the sale of the shares after exercise. Meaning, it is our understanding that you cannot make a 139E election.
The discount amount, which is to be added to Phil's taxable income in the 2005 - 2006 financial year is the current market value of the shares
(at exercise, meaning this price may vary),

less the option price paid
= $1,087,500 - $712,500 = $375,000
Although the options were issued in Jill's name, it is still Phil who is taxed on the benefit amount. This measure is designed to ensure that no tax advantage can arise when shares or rights are provided to an "associate" of the taxpayer whose marginal rate is lower.
So, in summary:
•Upon exercise of the options, Phil's taxable income increases by approximately $375,000.
•Jill becomes owner of 150,000 fully paid ordinary Jubilee Mines NL shares, valued at approximately $1,087,500.
CGT Upon Sale of Shares
As you are aware, upon the sale of an income producing asset, there is tax payable on any gains realised during the period of ownership. However, from 21^st September 1999, if you have held the asset for longer than 12 months, you are entitled to a 50% discount on any realised gains.
With options exercised, with no tax election made, the cost base (Original Cost) is assumed to be the market value at time of purchase...NOT the exercise price paid. So, assuming the share price as at 31^st December 2006 is $8.25, your Capital Gains will be as follows:
Market Value at time of purchase (assumed $7.25)        $1,087,500

Market Value at time of sale (assumed $8.25)  $1,237,500

Capital Gain  $150,000

50% discount  $75,000
The $75,000 is the taxable gain, which is to included [sic] in JILL's taxable income for the year in which the shares are sold.
The real saving here is that fact that you only paid $712,500 for the shares, so your true gain is actually $525,000.
The question now is, how do we pay for them?

The issues of managing the taxation consequences arising from the exercise of the Options was revisited on page 8.[46]
Other Opportunities
Super splitting legislation
There is a draft ruling which was tabled on 12^th October 2005, due to take effect on 1^st January 2006, which would allow Phil's super contributions to be split into Jill's super fund. This is a wonderful opportunity for you to manage taxation levels whilst further building Jill's superannuation assets. This will also ensure greater tax efficiency of income streams in retirement.
[46] Exhibit P1, 227.
The 2005 Strategy Document contained various 'disclosures and disclaimers'. These were in substantially the same terms as those contained in the 2007 Advice, the relevant parts of which are reproduced later. For present purposes it is sufficient to record that the 2005 Strategy Document contained the following statement:
You should seek specialist advice with regard to taxation and estate planning issues.
When asked about the statement in the 2005 Strategy Document, that he should seek specialist tax advice, Mr Lockyer's evidence was to the effect that: he understood that Ms Richardson was giving specialist taxation advice; he was paying her to do that; because of his previous relationship from 2000 to 2005 he trusted Ms Richardson's judgment; and he did not consider that he needed to obtain further advice.[47]
[47] ts 699.5–670.5.
Having regard to Ms Richardson's explanation of the taxation treatment of employee share scheme options in the 2005 Strategy Document it is difficult to make findings about precisely how she understood the relevant provisions of the ITAA to apply save that she considered that the Options were qualifying rights. In her witness statement she gave the following account of her understanding of employee share options in 2005:
115.I understood from my work related to the exercise of employee options and the tax consequences that the options were treated as income which a taxpayer could elect to pay in the financial year when the options issued and if no election was made the income had to be reported on a date as set out in the legislation. I understood in broad terms that the date to report the benefit as revenue or income was the date when (in this case): Jill sold the options (as options): or, exercised the rights in the options to acquire the shares; or, sold the shares.[48]
[48] Exhibit D7, 115.
In the light of the findings I have made about the 20 September 2005 meeting and the events that occurred between that meeting and the preparation of the 2005 Strategy Document, I find that when Ms Richardson formulated the views expressed by her in the 2005 Strategy Document about Mr Lockyer's tax liability she did so on the basis of her own understanding of how the relevant provisions of the ITAA applied to the Options. Further, other than to take into consideration Mr Lockyer's negative answer to the irrelevant question of whether he had made a 's 139E election' and the terms and conditions of the Options, she did not use or rely upon any information provided to her by Mr Lee or Mr Lockyer.
On the morning of 19 October 2005 Ms Rowley sent a copy of the 2005 Strategy Document to Mr Lee 'for his review'.[49]

19 October 2005 meeting

[49] Exhibit D3, 3398.

The 2005 Strategy Document was handed to Mr and Mrs Lockyer by Ms Richardson at a meeting held on 19 October 2005. There is an entry in the Doc File notes for a meeting held on 19 October 2005.[50] I find the entry was made by Ms Richardson because it contains her initials (as they were at the time) 'MW'. The entry reads as follows:
Meeting notes
Presented plan with zero cost collar options strategy and went through all pros and cons.
Explained strategy to them both. They liked it at first glance. Will do some more reading and get back to us.
Understand there is not much to do until closer to the time. Will come back and see me after he has digested it. (emphasis added)
[50] Exhibit D3, 3423.
The entry does not record who was present at the meeting. Mr Lockyer's recollection was that the only persons present were himself, his wife and Ms Richardson. He accepted, however, that it was possible that Mr Lee may have been present.[51] The defence pleads that Mr Lee attended the meeting along with Mr and Mrs Lockyer. Ms Richardson's evidence-in-chief was that Mr and Mrs Lockyer and Mr Lee were present though she admitted that when she prepared her witness statement she was not sure at all whether Mr Lee was at the meeting.[52] She said that she asked Mr Lee whether he was present and he said he was.[53] The entry in the Doc File notes relating to the 19 October 2005 meeting suggests that Ms Richardson explained the strategy contained in the 13 October 2005 letter to two people.[54] On that basis, I think it is likely that those present at the meeting were Mr and Mrs Lockyer and Ms Richardson and that Mr Lee did not attend the meeting.
[51] ts 567.6–570.1, 545.9.
[52] ts 814.5, 994.6.
[53] ts 994.7.
[54] Exhibit D3, 3423.
Mr Lockyer's recollection of what was discussed at the meeting was limited to recalling that there was a discussion about how to finance the exercise of the first tranche of Options and that once those Options had been exercised there would be tax to pay. He did not recall discussing the exercising of the subsequent tranches of Options.[55]
[55] ts 562.
I find that at the meeting Ms Richardson went through the 2005 Strategy Document with Mr and Mrs Lockyer. They then took the 2005 Strategy Document away with them to consider in greater detail. It is likely that there was some discussion about how Mr Lockyer would fund the payment of the tax that Ms Richardson advised he would have to pay but I am not satisfied that there was any discussion about the possibility of making 'a s 139E election'. In this respect, it is significant (though also confusing given that Ms Richardson had asked Ms Rowley to ask Mr Lockyer whether he had made a s 139E election), that in the 2005 Strategy Document Ms Richardson records her understanding as being, 'that [Mr Lockyer] cannot make a 139E election' (emphasis added).[56]
[56] Exhibit P1, 220.
In her witness statement Ms Richardson's evidence about the meeting held on 19 October 2005 was limited to the following:
Doc File-notes has an entry on 19 October 2005 indicating that I met with Phil Lockyer, Jill Lockyer and someone else. My notes do not indicate whether Michael Lee was there but to the best of my recollection he was at the meeting. I explained to them the funding strategy and they indicated they liked it but would consider it further.[57]
[57] Exhibit D7 [128].
Parenthetically, contrary to what was said by Ms Richardson in this paragraph of her witness statement, the entry in the Doc File notes does not indicate that Ms Richardson met with Mr and Mrs Lockyer and someone else. There is nothing in the entry that suggests that a fourth person was present at the meeting.
The very limited account of the 19 October 2005 meeting contained in Ms Richardson's witness statement is to be contrasted with the much more detailed account given in her evidence-in-chief which was as follows.
I gave a summary of what we had come up with in terms of the, yes, I thought we should be using the zero cost collar that I had mentioned in the earlier meeting. We had worked out the collar and cap rates by way of getting a quote from the provider. And I remember saying to Phil, 'Are you comfortable with a 20 per cent uplift in the share price as being the upside that would be required.' And he said, 'If you get 20 per cent a year, that would be awesome.' I was more concerned with controlling the downside risk to make sure that the money that had been lent by the provider to pay for the option was gone and, because of the price that there was at the time, there was actually more money available had we wanted it to be pulled from the provider. So making sure that they understood how that facility worked and how it would tie in with their existing situation, and particularly noting that the rest of the options would be left to run up or down, however the consequences of what happened to the company were. I asked Michael in the meeting and then again later if he could check that everything that we had put in the document around the tax implications were correct. I believe he said in the meeting that he would like time to consider it, but he felt that in essence it was correct. We then spoke about the future proposition and talked about how much and when we would be exercising. There was some considerable discussion around the capital gains tax that would be payable by Gill at the end of the collar's maturity. And for that reason we decided that we would go with the first hundred thousand. It would be likely that we would go with either 50 or 100,000 in the February and then possibly straight after the end of the financial year to consider taking up the rest of what was available. So most of that was discussed in that presentation. They had a few questions and then they took the report away to consider again.
…
[Mr Lee] was talking and, as I said before, he said that, on first glance, what we had put in the report was correct but that he would check it, and could he have a copy of the report emailed to him and that he would come back and confirm that we had got it right. It wasn't specific to just the acquisition. It was were the tax implications contained in this document correct. [58]
[58] ts 814.5–816.1.
As already stated, I am not satisfied that Mr Lee attended the meeting on 19 October 2005 and thus I do not accept Ms Richardson's evidence about what she says Mr Lee said at the meeting. Even if I had been satisfied that Mr Lee did attend the meeting I would not have accepted Ms Richardson's evidence because the detailed recall of the meeting that she appeared to demonstrate in her oral evidence was inconsistent with the paucity of her recollection at the time she made her witness statement, (she was not 'sure at all' whether Mr Lee attended the meeting)[59] and the limited account of the meeting given in the witness statement. This is a further example of Ms Richardson taking an opportunity to emphasise Mr Lee's participation in discussions and communications to support her case that Mr Lockyer relied upon Mr Lee's advice and not on her advice.
[59] ts 994.6.
Before leaving the subject of the 19 October 2005 meeting it is necessary to refer to the plea in the defence which stated that the discussions at the 19 October 2005 meeting and the Strategy Document:
[W]ere consistent with the defendants' information on the intentions of the plaintiff namely that the plaintiff had not made a s 139E Income Tax Assessment Act 1936 election to pay in the income tax year in which the Options were issued the tax on the discount and that the plaintiff intended to pay tax on the discount as the Options were exercised in the financial year in which the Options were exercised. After these discussions there was no material change to the 2005 Strategy Document.[60]
[60] Exhibit P3 [5(i)].
I do not accept that either Mr Lockyer or Mr Lee said to Ms Richardson or any Bepad employee that Mr Lockyer had not elected to pay tax on the issue of the Options 'up front' meaning in the 2005 tax year. Mr Lockyer's negative response to Ms Rowley's question cannot be equated with a positive statement by Mr Lockyer that he had not made an election to pay tax on the issue of the Options in the 2005 tax year.

Mr Lockyer's response to the 2005 Strategy Document

On 20 October 2005 Mr Lockyer telephoned Ms Richardson and said that he had read through 2005 Strategy Document, that he was pleased with it, and that it was an 'elegant solution' to the issue of funding the exercise of the options.[61]

Telephone conversation between Ms Richardson and Mr Lee - 26 October 2005

[61] Exhibit D3, 3424.

On 26 October 2005 Ms Richardson had a telephone conversation with Mr Lee. She made an entry in the Doc File notes in the following terms:
PC m lee checked with him again that our understanding of the tax implications is correct.
Minor issue is why they were issued in phils name not straight inot [sic] jills or company.[62]
[62] Exhibit D3, 3431.
In her witness statement Ms Richardson gave an account of this telephone conversation in terms which suggested that she had no actual recollection of the conversation. She stated:
130.Doc File-notes has an entry on 26 October 2005 indicating that I had a phone conversation with Michael Lee. It appears that I asked whether my views on the tax implications were correct. Considering the File-notes document now and the relevant advice then being considered by Phil Lockyer as I recall it my views on the tax implications were that because Phil Lockyer had not made an election in the year when the options were issued to his wife (to pay the tax on the options in that year) then, when Phil Lockyer's wife Jill Lockyer exercised the options, Phil Lockyer had no option but that to disclose the options as income. The exercise date became the date for the disclosure of the revenue for Phil Lockyer and had a tax consequence for Phil Lockyer in the financial year of the exercise of the tax options as explained in the strategy document dated 13 October 2005. As the note records, consistent with my recollection, Michael Lee agreed with my views and then he mentioned there was a minor issue as to how they were allocated. The note does not indicate what that other issue was and I do not recall the issue now.[63]
[63] Exhibit D7 [130].
In her evidence-in-chief Ms Richardson said that she recalled the substance of the conversation. She said that she asked Mr Lee:
•whether he had read the report (the 2005 Strategy Document) in detail;
•whether he had checked it; and
•whether it was representative of what he was going to put in the tax returns,
and Mr Lee responded that there was nothing wrong with what Ms Richardson had assumed in the report.[64] Ms Richardson went on to say that there was a discussion about when Mr Lee was likely to lodge Mr and Mrs Lockyer's 2005 tax returns.[65]
[64] ts 820.1.
[65] ts 820.3.
In light of the limited account of the conversation contained in Ms Richardson's witness statement, I am unable to accept that she was able to recall the conversation and I am unable to accept the account given by her of the conversation in her oral evidence‑in‑chief.
On the basis of the entry in the Doc File notes I find that Ms Richardson did speak to Mr Lee on the telephone on 26 October 2005 and that she asked him whether the understanding of the tax implications arising from the issue of the Options set out in the 2005 Strategy Document was correct. I am unable to make any finding as to what Mr Lee said but I think it is unlikely that he said anything to Ms Richardson to suggest that her understanding was incorrect. This evidence must be considered, however, in the context of Ms Richardson's insistence that she had received no advice from Mr Lee. She said that Mr Lee 'wouldn't and couldn't and didn't give me any advice.'[66]

Exercise of Options in 2006

[66] ts 918.9.

On 22 February 2006 Mrs Lockyer exercised 100,000 Options and on 24 August 2006 she exercised a further 50,000 Options. In each case the exercise price was $4.75 per Option.
The exercise of these Options was funded by a facility with Macquarie Bank Ltd referred to as a Zero Cost Collar facility. It is unnecessary to consider the terms of this facility in detail. Relevantly its key feature was that it protected Mrs Lockyer against a fall in the price of the Jubilee shares below an agreed percentage. Conversely, however, if the price of the shares rose by more than an agreed percentage then Mrs Lockyer benefited only to the extent of the agreed percentage and the counterparty to the transaction standing behind the Bank took the benefit of the increase above the agreed percentage. The benefit above the agreed percentage was referred to by Ms Richardson as the 'variable premium'. As will be seen, the price of Jubilee shares rose very considerably and when the facility matured Mrs Lockyer had to pay a variable premium of approximately $715,000. This was an outcome which angered Mr Lockyer.

Mr Lee prepares 2005 tax returns

In 2006 Mr Lee prepared Mr and Mrs Lockyer's tax returns for the 2005 tax year. Neither tax return referred to any taxable benefit derived from the issue of the Options.

Mr Lee's communications with Ms Rowley and Ms Richardson in early February 2007

In her evidence‑in‑chief Ms Richardson said that in early 2007:
We were asking [Mr Lee] to go and check his records again in light of the movement in the Jubilee share price, which meant the taxation on exercise was going to be significantly larger than any of us had dreamed of. And we talked about the 139E election and the decision of Mr Lockyer not to tax up-front, and I asked him to research whether there was any chance that it could be - his 2005 tax return could be amended.
And do you recall what he said to you?‑‑‑I don't recall it in specific words, again, but he did agree to go and check.[67]
[67] ts 833.6.
There was no reference to these conversations in Ms Richardson's witness statement. No entry in the Doc File notes referring to any such conversations was identified. There was no reference to any such conversation in the defence or in any earlier version of it. As recounted below, Mr Lee sent Ms Richardson copies of Mr and Mrs Lockyer's tax returns for the 2006 year and sent Ms Rowley a copy of Mr Lockyer's 2005 tax return by email but did not make any reference to a request for consideration as to whether the 2005 return could be amended. I am not satisfied that Ms Richardson or anyone on her behalf had a conversation with Mr Lee as described by Ms Richardson in her evidence.
On 6 February 2007 Mr Lee sent Ms Richardson copies of the tax returns that he had prepared for Mr and Mrs Lockyer for the 2006 tax year. Neither tax return referred to any taxable benefit derived from the exercise by Mrs Lockyer of 100,000 Options on 22 February 2006.[68]
[68] Exhibit D3, 3636.
Ms Richardson prepared a further letter of advice dated 8 February 2007 to Mr and Mrs Lockyer. In the letter Ms Richardson referred to Mrs Lockyer's exercise of 100,000 Options on 22 February 2006 and under the heading 'Tax Returns 2006' noted:
Upon review of the tax returns for 2006, we have determined that the option benefit (which is the difference between the exercise price and the market value on the date of exercise) was not included in Phil's return. We have notified Michael Lee of this and are awaiting his outcome.
We have determined, based on the option benefit and other factors that Phil will have a tax liability of approximately $125,000 in the 2006 financial year, due to the exercise of the options.[69]
[69] Exhibit P1, 449.
Ms Richardson noted that the current market price of Jubilee shares was $15.75 and then went on to observe that the next tranche of 150,000 Options was available to be exercised at $5.00 per share. Ms Richardson commented on the 'tax impact' of the exercise of these Options stating:
As you are aware, and as previously discussed, the difference between the exercise price and the market value on date of exercise (option benefit) is added to Phil's taxable income in the year the options are exercised.[70]
[70] Exhibit P1, 451.
Ms Richardson set out a calculation which purported to illustrate that, following the exercise of the next tranche of 150,000 Options and taking into account the 50,000 Options exercised in August 2006, Mr Lockyer would have a tax liability of $872,131.
Ms Richardson went on to outline options for funding the exercise of the 150,000 Options. She advised, in effect, that it might be prudent for the exercise price of the 150,000 Options to be funded by way of a margin loan rather than by a further Zero Cost Collar facility.

The fact that Ms Richardson determined that Mr Lockyer had a tax liability of approximately $125,000 in the 2006 financial year due to the exercise of the Options even though Mr Lee had not included the 'option benefit' in either Mr Lockyer's or Mrs Lockyer's tax return is an indication that Ms Richardson placed no reliance on the 2006 tax returns prepared by Mr Lee in forming her views as to Mr Lockyer's tax liabilities and I make a finding to that effect.
On 8 February 2007 Ms Rowley made an entry in the Doc File notes as follows:[71]
[71] Exhibit D3, 3703.

8/2/07

Pc to Phil – issue with returns – no option exercise details within the returns – no interest costs in Jill's return either interest is in Jills return – just didn't see it!!! – He said that Michael Lee advised they would not pay tax until they sold the shares – I said that was capital gains, and a different tax – there is a liability on the exercise.

Said I would speak with Michael Lee

LR

I infer from this entry that Ms Rowley spoke by telephone to Mr Lockyer about the 2006 tax return prepared by Mr Lee and that Mr Lockyer said to Ms Rowley that he had been advised by Mr Lee that no tax would be payable as a result of the exercise of the Options until the shares so acquired were sold to which Ms Rowley said that Mr Lee was referring to capital gains tax, a different tax, and that there was a liability to income tax when the Options were exercised. Ms Rowley said that she would speak to Mr Lee.
On 9 February 2007 Mr Lee sent a copy of Mr Lockyer's tax return for the year ending 30 June 2005 to Ms Rowley.[72]
[72] Exhibit D3, 3706.
In her evidence‑in‑chief Ms Richardson said that she spoke to Mr Lockyer after Mr Lee had sent through the 'draft tax returns'. Her evidence was as follows.
With having received those draft tax returns, do you recall a conversation with Mr Lockyer?---Yes. I do. Phil had also received a copy of the returns, and I can't remember if he called me or I called him. But essentially he said he felt that they were also wrong.
Now, what did you say to him?---I believe we discussed the tax up front question again.
So just your words to him. What were they?---I said, 'Michael has to decide on what to do about the '05 and '06 tax returns. You should have a chat to him. We've had a chat to him, and whatever he comes back with, that's what we will work with.”'
And what did he say to you?---He said, 'I will leave it up to you and Michael to work it out.'[73]
[73] ts 848.
In her witness statement Ms Richardson refers to the entry in the Doc File notes of Ms Rowley's conversation with Mr Lockyer on 8 February 2007 and seems to suggest that the conversation the subject of that note was between her and Mr Lockyer but there is no account in the witness statement of a discussion of the 'tax up front question' or that Ms Richardson said to Mr Lockyer that Mr Lee had to decide what to do about the 2005 or 2006 tax returns.[74] In the absence of any contemporaneous note or any mention of the conversation recounted by Ms Richardson in her oral evidence as set out above, I am not satisfied that such a conversation between Mr Lockyer and Ms Richardson took place.
[74] Exhibit D7 [152].
On 9 February 2007 Ms Rowley sent an email to Mr Lee referring to the fact that Mr Lockyer exercised some of the Options on 22 February 2006 and stating 'our understanding with employee options is that the difference between the exercise price and the market value on the date of exercise is added to the employee assessable income'. Ms Rowley referred to the fact that 'the option benefit amount of $232,700' was not included in Mr Lockyer's 2006 tax return.[75] She incorporated in the email the paragraphs in the 2005 Strategy Document dealing with the tax treatment of options which I have set out earlier in these reasons. Ms Rowley was pointing out to Mr Lee what she considered to be a mistake in the 2006 returns. I infer from the observations about the 2006 tax returns made by Ms Richardson in her 8 February 2007 letter that she also thought that there was a mistake in Mr Lockyer's 2006 tax return and, indeed, that she had asked Ms Rowley to raise the issue with Mr Lee.
[75] Exhibit D3, 3766.
On 12 February 2007 Mr Lee responded to Ms Rowley's email. He stated, 'Yes, I missed it and so I will have to amend the return for Phil and I will explain to him my mistake'.[76] Later that day Mr Lee sent Ms Rowley an amended tax return for Mr Lockyer for the year ending 30 June 2006.[77] In the amended 2006 return what Ms Rowley had described as the 'option benefit of amount of $232,700' was recorded as a capital gain.[78]
[76] Exhibit D3, 3798.
[77] Exhibit D3, 3800.
[78] Exhibit D3, 3815.
The defendants' case that they relied upon the tax returns prepared by Mr Lee is undermined by the fact that they were suggesting to Mr Lee that he had made an error in the preparation of Mr Lockyer's 2006 tax return and this reinforces my finding that Ms Richardson placed no reliance on the 2006 tax return.

Meeting Ms Richardson and Mr and Mrs Lockyer - 15 February 2007

On 15 February 2007 Mr and Mrs Lockyer met with Ms Richardson. She went through her letter of 8 February 2007 with them. Ms Richardson made an entry in the Doc File notes about the meeting. It appears from what was written that the entry was made after the meeting. The entry is as follows:[79]
[79] Exhibit D3, 3818–3819.

15/02/07

Meeting notes

Presented review document and explained the issues re why the document had no recommendations pending the discussion paper.

Feb 2006 Zero cost collar

Decision is likely to be to sell it to the super fund as a deductible and undeducted contribution for Jill. Final decision to be made over next week and proceed with Macquarie process. Further explanation re the date extension to 8/3 would be good.

FEB 2007 options

Take up using margin loan at this stage. Monthly in arrears for now as we may plan to Zero cost collar some of the holding just before or just after the July 1^st date. Look to move the ZCC away from the directors meeting date and the half year results so we don't have issues with later sales. Also keeps opportunity to move into super if we decide too.

TAXPLANNING around election

Look at a $3 million dollar protected portfolio in phils name to diversify risk. $450K prepayment of interest and set for 3 years or consider for 5. use stuart beattie to set this up?? Ie stock selection to maintain phils connection with him.

this deals with 2007 and 2008 tax election issues in part and builds up dividend flow to keep funding lifestyle needs in the meantime. How to fund? using margin loan funds from 0207 options.

Also look at how much more wilmots we might take up? I am thinking 10 lots max in personal name with 10 years IO loan.

Tax planning inside super as well. Stay with last years strategy.
Consider tax planning for Jill as well.
Possible gift structure to the children (4 girls) 2008 year and may be a parcel of shares.

P lockyer and Assoc

Probable go ahead with this but delay under after legislation is passed. Look at the CGT implications as to minimize it and see if there is a need to keep the company open. Also look more closely at how to get the net profit out of the company and into their hands ie super contrib salary next year or franked dividend next year which means sell down in two stages. Note company has $80K in cash and another $70K in private investment that will be returned before 30/6

CASH NEEDS

They have $40K in CMT and another $20K in the day to day account. They don't think they will need cash from allocated pension but understand it might be in their best interests to take it anyway.

Allocated pension

Turn fund to allocated pension for jill in 2007 and Phil in 2008 or 2009. depending on treatment of tax free income in its effect on other income.

Other issues

Possible gift to kids of maybe $100k each (4)
Possible consideration of private charity foundation with the final tranche of shares.
Amanda is refinancing the loan away from their property so a Line of credit is available.

Possible upgrade to home of $100k next year

No options or positions in other companies.

Mark Casey is the contact at Jubilee.

Execution advice

Open a Macquarie margin loan and exercise the options 150K pay loan monthly in arrears.

MEB

The evidence about the meeting on 15 February 2007 contained in Ms Richardson's witness statement appears to be based on what is contained in the entry in the Doc Files notes and was as follows.
159.Doc File-notes has an entry on 15 February 2007 being the notes of a meeting I had. To the best of my recollections it was with Phil Lockyer and Jill Lockyer because there is a discussion about giving some money to the children. The notes record the discussion about the exercise of the options, the tax planning for the tax obligations that would arise at that point and diversification of the risks associated with the accumulation of a large parcel of Jubilee Mines NL shares which affected the diversity of their investment as a whole. The notes refer me to Mark Casey of Jubilee as I recall things he was the person who I would need to contact to exercise the options.[80]
[80] Exhibit D7 [159].
In her evidence‑in‑chief Ms Richardson gave a significantly more detailed account of what was said at the meeting.[81] She said she discussed the taxation implications of the options with Mr and Mrs Lockyer. Her evidence in relation to the discussion of the taxation implications was as follows.
Okay. Well, what was the discussion? Who said it first?---Phil was asking questions around whether the tax was payable on the variable premium, so he - and I referred him back to talk to Michael - Michael Lee and we also talked about the difference between revenue - taxation revenue and taxation capital in relation to what was actually happening because there were two or three transactions in this particular piece. We had the maturity, we had the sale and we had the next lot of vesting of the next tranche. So there were basically three different tax transactions and I do remember we talked about the fact of what are the tax - taxes that will become applicable in the 2007 year.
Your words to Mr Lockyer were (indistinct) is that what - - - ?---Yes and we also discussed the taxation - - -
You - - - ?---The actual returns that Michael was now working on.
Do you recall whether those returns had been completed at that time?---I think we only had the drafts at that meeting. The amended ones came along a little bit later.
Had you discussed what you had seen in those drafts?---With Mr Lockyer, yes. What I had not seen.
Had not seen? What - what did you say to Mr Lockyer about his 2006 income tax returns?---We went back over the original conversations around tax up front versus tax on exercise and I said to him it's really between Michael and you as to which one you want. Michael is having a looking into whether you can amend 2005 or not or whether you're out of time.
And what did he - - - ?---Whatever. We won't start work on this next piece of advice until that decision made.
And what did he say to you?---Keep in touch with Michael and let me know the outcome.
[81] ts 852–853.
I do not accept Ms Richardson's recollection of this conversation. In particular I am not satisfied that she went 'back over the original conversations around tax up front versus tax on exercise' or that she said to Mr Lockyer anything to the effect that Mr Lee was considering whether Mr Lockyer could amend his 2005 tax return. Ms Richardson's detailed oral evidence about this aspect of her discussions with Mr and Mrs Lockyer is to be contrasted with the very general account of the discussion contained in her witness statement. If Ms Richardson had such a detailed recollection of discussing these topics with Mr and Mrs Lockyer, then I would have expected her to have included this in her witness statement. When Ms Richardson was asked in cross‑examination why she had not referred in her witness statement to conversations in which there was a discussion about paying 'tax up front', she said that she did recall the conversations at the time she prepared her witness statement but '[w]e chose not to put them in the witness statement'.[82] This is not a convincing explanation as to why there is no reference to these discussions in Ms Richardson's witness statement. I have a further concern about this aspect of Ms Richardson's evidence and that is that there is no evidence that Mr Lee was in fact considering whether Mr Lockyer could amend his 2005 tax return.
[82] ts 1042.1.
On the basis of the entry in the Doc File notes read against the background of what was occurring at the time I find that at the 15 February 2007 meeting the following occurred.
(i)Ms Richardson explained the contents of her letter dated 8 February 2008 to Mr and Mrs Lockyer.
(ii)Ms Richardson suggested that the exercise of the next tranche of Options be funded by taking out a margin loan.
(iii)There was a discussion about the amount of the variable premium payable to Macquarie Bank Ltd under the Zero Cost Collar facility.
(iv)There was a discussion about Mr Lockyer's tax liability arising from the exercise of the Options. In this context I think it is likely that there was discussion of Ms Richardson's view that Mr Lockyer was liable to pay income tax on the benefit derived from the exercise of the Options in the year in which they were exercised. Ms Richardson proposed various tax planning steps that might be taken by Mr Lockyer to reduce his tax liability and that these included taking out a $3 million protected portfolio loan and pre-paying the interest on the loan. Ms Richardson also raised the possibility of Mr Lockyer investing in 'Wilmots' (this being a reference as subsequent documents show to Willmotts, an agribusiness investment which generated a tax deduction).
(v)Ms Richardson discussed the topic of tax planning for Mr and Mrs Lockyer's superannuation fund.
(vi)There was discussion about setting up a 'gift structure' for Mr and Mrs Lockyer's four daughters.
(vii)There was a discussion about Mr and Mrs Lockyer's requirements for cash to meet living expenses. The entry in the Doc File notes to 'CMT' under the heading 'CASH NEEDS' is a reference to a 'Cash Management Trust' account into which various forms of income were paid and out of which expenses were paid. The funds credited to this account assume significance in the context of the defendants' case on the quantification of Mr Lockyer's losses.
(viii)There was a discussion about the possibility of Ms Richardson speaking with Mr Mark Casey of Jubilee about the options.

Communications with Nicola Gill of Jubilee

Ms Richardson did not speak to Mr Casey of Jubilee after the meeting with the Lockyers but Ms Rowley spoke to Ms Nicola Gill of Jubilee on the afternoon of 15 February 2007. I infer from an entry in the Doc File notes made by Ms Richardson on 16 February 2007, to which I refer in more detail below, that Mr Lockyer may have asked Ms Gill to telephone Ms Rowley. I infer that the conversation between Ms Rowley and Ms Gill took place after Ms Richardson's meeting with Mr and Mrs Lockyer. I also infer from the email communications subsequently exchanged between Ms Rowley and Ms Gill that in their telephone conversation Ms Rowley sought information from Ms Gill as to the number of the Options held by Mrs Lockyer and the terms and conditions governing their exercise. I also infer that Ms Rowley and Ms Gill discussed the tax treatment of Options more generally.
Emails were exchanged between Ms Rowley and Ms Gill on 15 February 2007. The first in time was an email sent by Ms Rowley to Ms Gill at 3.24 pm in the following terms.
Hi Nicola,
As per our discussion, I have attached a copy of some pages from the Australian Taxpayers book
Do you need our fax number for the option information for Mr Lockyer?[83]
[83] Exhibit D3, 3828.
Ms Gill attached to her email a number of pages from a publication 'Taxpayers Australia 2006 & 2007' commenting on the tax implications of 'Employee share schemes'. It appears that this email may not have been received by Ms Gill until the morning of 16 February 2007.
In any event, at 4.23 pm on 15 February 2007 Ms Gill sent an email to Ms Rowley attaching a letter and the terms and conditions governing the Options.[84] The letter was in the following terms.
[84] Exhibit D3, 3836.
Dear Leanne,
Re: Options held by Jillian Lockyer in Jubilee Mines NL
In response to your query on the options held by Mrs Jillian Lockyer. Our records show that as of today Jillian holds 350,000 options over ordinary shares of Jubilee Mines NL. These are detailed as follows:
-150,000 options at an exercise price of $5.00 per share which have vested (Tranche 2); and
-200,000 options at an exercise price of $5.25 per share which vest on 23 November 2007 (Tranche 3).
Attached for your reference are the terms and conditions of these options.
I trust this answers your query.
At 9.26 am on 16 February 2007 Ms Gill replied by email to Ms Rowley's email of the previous afternoon.[85] She wrote:
Morning Leanne,
Looks like your e-mail is back up again, I just received the below.
I will take a good look at it on Monday, but E&Y have advised me that the S139E election is OK - you will just miss out on the $1,000 exemption. However, in Phil's case I am assuming he was not been able to make the election as the options were issued in Jillian's name - which throw's [sic] him into another area.
I will not be in the office this afternoon, can you please let me know as soon as possible if you require any further information regarding the options.
Regards,
(emphasis added)
[85] Exhibit P1, 502.
I infer from the highlighted sentences that Ms Rowley had asked Ms Gill about the possibility of a 's 139E election' on behalf of two clients and that in relation to one Ms Gill had received advice that an election could be made but in relation to 'Phil's case', that is Mr Lockyer, Ms Gill assumed that he could not make an election because the Options had been issued to Mrs Lockyer.
On 16 February 2007 Ms Richardson made the following entries in the Doc File notes.[86]
[86] Exhibit D3, 3847.

16/02/07

Phone call Nicola.

Issue could be difference between director and employee plans.

She will talk to E & Y and get back to me.

Question who decided to put them in Jills name to start with ?

Possibility that they should have been taxed up front. I cant see how though.

MEB

16/02/07

Phone call

M lee re 139E election. He is also convinced it cant be used. Happy for me to talk to E & Y.

Bit surprised by the amount paid to Macq. Reminded the both about the protection of downside risk.

PC phil

He asked Nicola to call us more for her sake than his. He thinks we know more than she does. He is worried about her giving advice to other employees.

He is still taking in the amount of money paid to Macquarie but realizes that the downside was our biggest issue.

He will call me next week to conifm [sic] that he wants to sell the first ZCC to the super fund. further decision to be made. Whether to cost collar them inside the fund. And use the funds to buy Macquarie shares????

MEB MEB MEB MMEB

These entries appear in reverse chronological order. The last entry was the first in time.
On the basis of these entries in the Doc File notes I infer the following events took place on 16 February 2007.
(i)Mr Lockyer and Ms Richardson spoke on the telephone and Mr Lockyer said that he had asked Ms Gill to call Ms Richardson or Ms Rowley. Mr Lockyer expressed concern about the cost of the Zero Cost Collar facility but said he realised that the facility gave protection against a fall in the price of the Jubilee shares acquired on the exercise of the first tranche of Options. Mr Lockyer and Ms Richardson spoke about the possibility of selling Jubilee shares acquired on the exercise of the first tranche of the Options to the Lockyer superannuation fund and they spoke about the possibility of the using a 'cost collar' facility within the superannuation fund.
(ii)Ms Richardson read Ms Gill's emails to Ms Rowley.
(iii)Ms Richardson spoke to Mr Lee on the telephone about the possibility of Mr Lockyer making a 's 139E election', that is, electing to pay tax in the year in which the Options were issued rather than when they were exercised. Mr Lee said he thought that no such election could be made. Mr Lee said that he was surprised at the amount paid to Macquarie Bank under the Zero Cost Collar facility and Ms Richardson reminded him that the facility protected Mrs Lockyer against a fall in the price of the Jubilee shares acquired on the exercise of the Options. Ms Richardson raised the possibility that she might speak to Ernst & Young, Jubilee's accountants, about the possibility of making an election and Mr Lee said he was happy for her to do so.
(iv)Ms Richardson spoke to Ms Gill on the telephone. They discussed the possibility that options to acquire shares issued to directors might be treated differently for tax purposes from options issued to employees who were not directors. Ms Gill said that she would talk to Ernst & Young. Ms Richardson and Ms Gill discussed who decided to issue the Options to Mrs Lockyer. Ms Richardson and Ms Gill discussed the possibility that Mr Lockyer should have paid tax on the issue of the Options, that is 'up front'. Ms Richardson could not understand how that could have been so and included an observation recording that understanding in her entry about the conversation with Ms Gill in the Doc File note.[87]
[87] ts 1009.9.

Mr Green's primary criticism - Mr Pollock failed to take into account other benefits

Mr Green's primary criticism of Mr Pollock's approach to Mr Lockyer's losses was that he did not take into account benefits received by Mr Lockyer, Mrs Lockyer and Blueblaze that should have been brought to account.
In the conferral memorandum Mr Green's position was expressed as follows:
3.1.2(i)
Under this alternative, and isolated of other factors referred to below, the losses to the family group, which the Plaintiff benefits from, would be the difference between the tax benefits that presented to Mrs Lockyer less the tax benefits actually received by Mr Lockyer.
Mr Green's preliminary review indicates that:
•The tax benefits derived by the Plaintiff allowed Mrs Lockyer to exercise and certain shares and receive significant gains that would not otherwise have been received;
•The funding benefit was consistent with the motivation for entering into the strategy;
•Upon disposal those gains were distributed to the benefit of a number of family members including significant benefits distribution to the Plaintiff and entities associated with the Plaintiff; and
•These gains were applied directly by the Plaintiff in the payment of some costs specifically referred to in Mr Pollock's calculations.
For example:
•In February 2008 the Plaintiff received $230,000 for his 10,000 JBM shares (deposited into the joint CMT account with Mrs Lockyer);
•In February/March 2008 Mrs Lockyer received $9,200,000 for her 400,000 JBM shares. $1,500,000 was deposited directly into the joint CMT account, whilst the remaining $8,050,000 was deposited into Mrs Lockyer's margin loan. After extinguishing Mrs Lockyer's margin loan (approximately $2,500,000) with the sale proceeds, the remaining funds of $5,543,373 were also deposited into the joint CMT account;
•The joint CMT account was used to:
•Deposit the Plaintiff's salary/wages income;
•Deposit Dividends/Distributions from the Plaintiff's investments;
•Pay professional/adviser fees for the Group;
•Pay fees associated with agricultural investments for both the Plaintiff and Mrs Lockyer (including agricultural investments which have been excluded from Pollock's calculations);
•Pay Superannuation contributions for Mrs Lockyer;
•Pay the Plaintiff's interest payments associated with his interest Prepayment Loan (established to prepay the interest on the Macquarie Geared Equities Investment of $5,000,000);
•Pay the Plaintiff's prepaid interest bill on the Macquarie Geared Equities Investment of $5,000,000 in June 2009;
•Pay the Plaintiff's prepaid interest and provide a cash collateral for his Tailored Portfolio Collar ($10,000,000) in June 2009 of $2,022,773;
•Transfer approximately $2,000,000 to Sakajam Investments, which from my review appears to be the Trustee of the Lockyer Family Trust;
•Pay the Plaintiff's prepaid interest on his margin loan in June 2008; and
•Pay Mrs Lockyer's prepaid interest on her margin loan in June 2008. …
In the course of cross-examination Mr Green expanded on his views as follows:
Your Honour, there are a range of other benefits that - that came from the overall advice, that needed to be considered, the information for which I didn't have and the complexities of which, I believe, would be left in - in your hands to make a decision on. None of those factors were obviously addressed in Mr Pollock's report. I believe they're significant and I believe that they would take a significant amount of time to - to do.
…
By the time I had obtained the information, there was inadequate time to do the work before the trial commenced.[190]
[190] ts 1258.8.
And
[G]oing back to the 2005 advice - so the advice is a continuum, starting in 2005. And it became apparent from all the advice and repeated as they went through that the key objectives of the advice which was written to both the plaintiff and Mrs Lockyer, together, was that it was necessary to do a number of things. The options needed to be capable of being exercised and retained. They needed to be capital secured and they needed to be funded in a manner that didn't affect their personal lifestyle or living requirements.
And as the advice transpired it became very apparent that it was a conjoined advice in that the purpose of the advice to invest in the agricultural investments at all was part of a rationale. Now, Mr Pollock mentioned earlier that there were about a million dollars worth of tax refunds that the plaintiff received. Those moneys, combined with margin loans, combined with a dividend paid from the company, combined with some shares being sold into a super fund and money coming out of the super fund, that collective or potpourri of funding was critical to the purchase of the - exercise of the options and the retention of the options and, obviously, the wealth that flowed on from that.
Now, any of those pieces, if you take them out, means that at the strategic point when the advice is given you wouldn't have been able to exercise the options, wouldn't have been able to retain them, wouldn't have been able to profit in the manner that Mrs Lockyer did. So what that means is if the investments weren't made in Mr Lockyer's name, either we wouldn't have had enough money to do those things or Mrs Lockyer would have had to make those investments.
So that's a conclusion that I've drawn and I think that's fairly evident from the statements of advice that I've looked at which are the '05, '07 and '08 advices.[191]
[191] ts 1268.8.
And
So the whole thing is - in many ways it's like putting different cordials into the water. Once it's in there, it's very difficult to disentangle it. But the thrust of the advice was primarily focussed around overall funding, the overall strategy ‑ ‑ ‑
…
‑ ‑ ‑ of which the tax refunds were fairly - or from the theme of the advices was pretty critical to that overall funding issue. So once the money is going in to the ‑ ‑ ‑
But by 2008 the money was in the bank, though. So from the 2008 advice, as I understand, it was really directed to mitigating tax consequences, because the options have been exercised by them.
Yes. So it's primarily the 2007 refund that we're talking about.[192]
[192] ts 1270.10.
I do not accept that Mr Green's observations are valid for the following reasons.
(i)As I have stated earlier the 2007 Advice did not contain advice about funding the exercise of the Options and by the time of the 2008 Advice the Options had been exercised and the Jubilee shares acquired thereby had been sold. The overriding purpose of both Advices was to address Mr Lockyer's significant tax liabilities as assessed by Ms Richardson. The object of the recommendations contained in the 2007 Advice was not the funding of the exercise of the Options.
(ii)Further, the argument that the tax refunds or deductions secured by Mr Lockyer by making the 2007 and 2008 Investments were a necessary element of funding the exercise of the Options falls away upon appreciation of the true tax position, namely that Mr Lockyer's tax liability generated by the issue of the Options to Mrs Lockyer in 2004 was a comparatively modest $83,175 in the 2005 tax year and no liability in either the 2006 or 2007 tax years. If there was no tax liability it follows that there was no point in borrowing very significant amounts of money to make investments to create tax deductions.
(iii)The argument that the advices were 'conjoint' or that some benefits received by Mrs Lockyer or by Blueblaze as a result of other advice should be set off against Mr Lockyer's losses is factually and conceptually flawed. Mr Lockyer was misled into making the investments in order to mitigate the consequences of non-existent tax liabilities. At the risk of unnecessary repetition that advice had nothing to do with funding the exercise of the Options or the benefits that flowed to Mrs Lockyer. Conceptually the 'conjoint advice' argument ignores the obvious point that each of Mr and Mrs Lockyer and Blueblaze are separate legal entities. The other fundamental difficulty is that the 'benefits' are referred to in general terms but they have not been quantified.
(iv)The fact that Mr and Mrs Lockyer operated a CMT account into which money from various sources was paid and various expenses were paid does not make good the lacuna in the defendants' evidence constituted by the failure to identify with precision any benefits received by Mr Lockyer as a result of making the 2007 or 2008 Investments that they contend should be set off against Mr Lockyer's claim. Further the fact that Mrs Lockyer made substantial profits on the sale of the Jubilee shares acquired by exercising the Options and may have used those profits in a way that benefitted Mr Lockyer or other family members is not a basis for reducing Mr Lockyer's losses by the amount of any such benefits.

Mr Green's alternative transaction hypothesis

For the reasons I have already given the correct approach to Mr Lockyer's claim is to treat it as a 'no transaction' case and the task Mr Green undertook to compare the position Mrs Lockyer would have been in had she funded the exercise of the Options and consequential tax liabilities by selling Jubilee shares is not relevant.

Willmotts and BioForest investments

Mr Lockyer's evidence was to the effect that his investments in the Willmotts and BioForest projects were lost because the companies went into 'some form of receivership'.[193] There was no connection between the failures of those companies and the advice provided by Ms Richardson. In those circumstances the defendants contended that there was no casual connection between the loss of those investments and their advice. The defendants contend that the loss of the value of the Willmotts and BioForest investments was due to extraneous circumstances and thus they are not liable for those losses.
[193] ts 696.4.
As Ms Richardson observed in the 2007 Advice agribusiness investments are generally illiquid, long term (10 to 30 years) investments. I am satisfied that Mr Lockyer would not have invested in either Willmotts or BioForest, both agribusiness investments, had he not been misled as to the size of his tax liabilities. He was induced to make very substantial illiquid investments and he was 'locked into' those investments. To apply the limitations on the recovery of damages in the rule in Potts v Miller would deny Mr Lockyer fair compensation for the loss he suffered. In my view Mr Lockyer is entitled to recover the full extent of the losses suffered by him on the Willmotts and BioForest investments and taking this approach is consistent with the observations of the House of Lords in Smith New Court Securities Ltd on the circumstances in which the general rule (the comparison between price and value) will not apply.

Capital losses on the sale of investments

In their closing written submissions the defendants submitted that they are not liable for capital losses incurred on the sale of shares when the sale was not the subject of advice from the defendants.[194] This submission was not supported by any detail. I take the submission to refer to the shares purchased by Mr Lockyer using the Geared Equity Investment facility and the Tailored Portfolio Collar facility and to the sale of those shares when the facilities were terminated by Mr Lockyer before their respective maturity dates. In my assessment the termination of those facilities involving the consequent sale of the shares held by Mr Lockyer pursuant to them was a step taken by Mr Lockyer to mitigate his loss. Mr Lockyer was in a difficult position. Had he not terminated the facilities he would have been exposed to the ongoing interest costs on these facilities and would have been exposed to many millions of dollars of debt that he did not require. Mr Lockyer acted reasonably and losses on the sale of the shares are a direct consequence of the impugned conduct.

Conclusion on Mr Lockyer's claim for losses

[194] Defendants' written closing submissions 1 March 2017 [161].

I am satisfied that the losses claimed by Mr Lockyer and quantified in Mr Pollock's report arise directly from Mr Lockyer's reliance on Ms Richardson's misleading conduct.

Ms Richardson and Bepad's liability for the loss and damage

As the person who engaged in the contravening conduct Ms Richardson is liable for the damage suffered by Mr Lockyer. At all times Ms Richardson was acting in her capacity as a director of Bepad and accordingly Bepad is vicariously liable.[195]

Mr Lockyer did not suffer loss as a result of his failure to take reasonable care

[195] ASIC Act, s 12GH(2).

In my view there is no basis for finding that the losses suffered by Mr Lockyer were suffered partly as a result of a failure on his part to take reasonable care. There was no such failure on Mr Lockyer's part.

No proportionate liability

On the basis of the factual findings there is no basis for reducing the defendants' liability on the grounds that Mr Lee or Ms Oliver was a concurrent wrongdoer. My reasons for reaching this conclusion can be stated quite shortly.
First, assuming in the defendants' favour that Mr Lee was negligent in failing to include the discount amount in Mr Lockyer's 2005 tax return the compensable loss that would flow would be the penalties payable by Mr Lockyer for failing to declare assessable income. This is not the same loss as the loss suffered by Mr Lockyer by the contravening conduct and thus Mr Lee and Ms Richardson would not be concurrent wrongdoers within the meaning of s 12GP(3) of the ASIC Act.
Second, I have found that Ms Richardson did not rely on the tax returns prepared by Mr Lee for the purposes of formulating her views on Mr Lockyer's tax liability for the purposes of the 2007 Advice and thus there is no basis for any finding of fault on his part in relation to the 2007 Advice or (indirectly) the 2008 Advice. Mr Lee did not give Mr Lockyer any advice in relation to the subject matter of the 2007 and 2008 Advices and there is no basis for making a finding of proportionate liability on the basis of his conduct.
Third, there was no basis for suggesting that Ms Oliver was a concurrent wrongdoer. The 2007 Investments had been made before she became Mr Lockyer's tax agent. There was no conduct on the part of Ms Oliver or anyone at Forum Accounting that could possibly be said to have caused the loss for which I have held the defendants liable as a result of Mr Lockyer making the 2008 Investments or indeed any loss.

The negligent misstatement claim

In the light of my decision on Mr Lockyer's claim for damages for misleading or deceptive conduct under the ASIC Act it is unnecessary for me to determine his claim for damages at common law for negligent misstatement. The common law claim provides no benefits beyond those conferred by the statutory claim.
In deference to the attention devoted to the common law claim by counsel in their submissions I will state my conclusions in relation to that claim in summary form.

Duty of care

For present purposes it is sufficient to refer to the summary of the applicable principles referred to in ABN Amro Bank NV v Bathurst Regional Council [2014] FCAFC 65; (2014) 224 FCR 1 [573] - [575]:
[The] applicable principles may be summarised as follows. First, for there to be a duty to exercise reasonable care in making a statement or giving advice:
(1)The speaker must realise, or the circumstances must be such that the speaker ought to have realised, that the recipient of the information or advice intends to act on that information or advice in connexion with some matter of business or serious consequence; and
(2)The circumstances must be such that it is reasonable in all the circumstances for the recipient to seek, or to accept, and to rely upon the utterance of the speaker.
In respect of the second limb, the nature of the subject matter, the occasion of the interchange, and the identity and relative position of the parties as regards knowledge (actual or potential) and relevant capacity to form or exercise judgment will all be included in the factors which will determine the reasonableness of the acceptance of, and of the reliance by the recipient upon, the words of the speaker. It is important to recognise that the list is not exhaustive.
Second, proof of the criteria at [573] and [574] above establishes an assumption of responsibility or known reliance (or the converse, vulnerability) sufficient for a duty to be imposed. (citations omitted)

Ms Richardson and Bepad owed Mr Lockyer a duty of care

There was no serious dispute about the existence of a duty of care and I find that Ms Richardson and Bepad owed Mr Lockyer a duty to take reasonable care in giving advice to him. In such a case as this where the existence of a duty of care has been recognised in many analogous fact situations it does not appear to me that much is gained by defining the content of the duty with greater specificity, (and it is somewhat artificial to do so), but I accept that Ms Richardson owed the separate duties identified by Mr Lockyer in the statement of claim, that is:
(i)a duty to utilise with reasonable care the information and sources of information at Ms Richardson's disposal;
(ii)a duty to employ with reasonable care what capacity Ms Richardson had for judgment in relation to a matter under consideration; and
(iii)a duty to exercise reasonable care in the expression of what Ms Richardson was prepared to convey by way of information or advice to Mr Lockyer.
I would add that I consider Ms Richardson owed a duty not to provide advice on matters beyond her competence and expertise.
The existence of the duty of care was not negated by the statements in the 2007 and 2008 Advices relied upon as disclaimers.

Breach

As noted earlier both parties adduced opinion evidence on the issues of the scope of the duty of care and whether there had been a breach of duty. The essential point made on Mr Lockyer's behalf by Mr Canion was that a reasonable financial planner who was not also qualified as a taxation adviser should ensure that a financial planning client obtained tax advice from a suitably qualified tax adviser. Conformably with that view, Mr Canion's opinion was that the 2007 and 2008 Advices contained tax advice, which was central to the financial advice provided, that was beyond the competence of a reasonable financial planner and a reasonable financial planner would not have provided the advice contained in either the 2007 or 2008 Advices without first obtaining written tax advice from a suitably qualified tax adviser.[196] Mr Green agreed that options granted to employees as part of their remuneration gave rise to complex tax issues that fell outside the scope of the day to day practice of most financial planners.[197] The 2007 and 2008 Advices recommended investments that required Mr Lockyer to borrow more than $15 million. The expense, the risks and the potential for losses were significant. Against that background I have no difficulty in accepting Mr Canion's evidence. It encapsulates a central principle of professional practice that professionals should not give advice on matters that fall outside their areas of competence.
[196] Exhibit D6, 4-5.
[197] ts 1400.4.
In my view Ms Richardson (and through her, Bepad) breached the duty of care owed to Mr Lockyer. She provided tax advice on a matter that was relatively complex and fell outside her area of expertise and competence. She made an error in the interpretation and application of the ITAA. Although I have expressed the breach of duty in different terms from those pleaded by Mr Lockyer I find that the breaches of duty alleged by him are established. I would add that in my view the misleading conduct that established the defendants' liability under the statute constituted a breach of duty.

Causation

Mr Lockyer relied upon the 2007 and 2008 Advice and suffered loss as a result. I am satisfied that factual causation has been established and that it is appropriated for the defendants' liability to extend to those losses.[198]

Damages

[198] CLA s 5C(1).

The approach to the assessment and quantification of damages under the statutory claim is open at common law and I am satisfied that Mr Lockyer suffered the losses claimed by him as a result of the defendants' negligence.

Contributory liability and proportionate liability

My conclusions in relation to the contributory negligence submissions and proportionate liability submissions are the same as those reached by me in the context of the statutory claim.

Conclusion

Judgment should be entered in Mr Lockyer's favour in the sum of $2,900,853. I will hear the parties in relation to interest and costs.

s 12GF(1B).