Lukey v Corporate Investment Australia Funds Management Pty Ltd - [2005] FCA 298

FEDERAL COURT OF AUSTRALIA
Lukey v Corporate Investment Australia Funds Management Pty Ltd
[2005] FCA 298
SAMANTHA JAYNE LUKEY v CORPORATE INVESTMENT AUSTRALIA FUNDS MANAGEMENT PTY LTD & ORS
N1348 OF 2000
EMMETT J
23 MARCH 2005
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

N1348 OF 2000

BETWEEN:

SAMANTHA JAYNE LUKEY
APPLICANT

AND:

CORPORATE INVESTMENT AUSTRALIA FUNDS MANAGEMENT PTY LIMITED (ACN 059 438 514)
FIRST RESPONDENT

TRACKNET AUSTRALIA PTY LIMITED (ACN 079 730 466)
SECOND RESPONDENT

CARDINAL FINANCIAL SECURITIES LIMITED (IN LIQUIDATION) (ACN 058 650 212)
THIRD RESPONDENT

JOHN CHARLES KERIN
FOURTH RESPONDENT

GARRY MARTIN WHITE
FIFTH RESPONDENT

FIRST CROSS-CLAIM
Discontinued 6 February 2004

SECOND CROSS-CLAIM

BETWEEN:

CARDINAL FINANCIAL SECURITIES LIMITED (IN LIQUIDATION) (ACN 058 650 212)
CROSS-CLAIMANT

AND:

FINANCE AND PLANNING INSURANCE & SUPERANNUATION CONSULTANTS PTY LIMITED
(ABN 45 080 753 797)
FIRST CROSS-RESPONDENT

SHERIN IBRAHIM
SECOND CROSS-RESPONDENT

THE HARTFORD GROUP PTY LIMITED (ACN 084 348 167)
THIRD CROSS-RESPONDENT

ANTHONY ARTHUR CUNNINGHAM
FOURTH CROSS-RESPONDENT

GLEN-JOHN LACELLES SMITH
FIFTH CROSS-RESPONDENT

THIRD CROSS-CLAIM
Dismissed 11 December 2003

FOURTH CROSS-CLAIM
Dismissed 11 December 2003

FIFTH CROSS-CLAIM
Dismissed 4 June 2004

SIXTH CROSS-CLAIM
Discontinued 8 December 2003

JUDGE:

EMMETT J

DATE:

23 MARCH 2005

PLACE:

SYDNEY

THE COURT ORDERS THAT:
1.The Cross-Claim be dismissed.

2.The Cross-Claimant pay the second and third cross-respondents’ costs of the Cross-Claim.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

N1348 OF 2000

BETWEEN:

SAMANTHA JAYNE LUKEY
APPLICANT

AND:

CORPORATE INVESTMENT AUSTRALIA FUNDS MANAGEMENT PTY LIMITED (ACN 059 438 514)

FIRST RESPONDENT

TRACKNET AUSTRALIA PTY LIMITED (ACN 079 730 466)

SECOND RESPONDENT

CARDINAL FINANCIAL SECURITIES LIMITED (IN LIQUIDATION) (ACN 058 650 212)

THIRD RESPONDENT

JOHN CHARLES KERIN

FOURTH RESPONDENT

GARRY MARTIN WHITE
FIFTH RESPONDENT

FIRST CROSS-CLAIM
Discontinued 6 February 2004

SECOND CROSS-CLAIM

BETWEEN:

CARDINAL FINANCIAL SECURITIES LIMITED (IN LIQUIDATION) (ACN 058 650 212)
CROSS-CLAIMANT

AND:

FINANCE AND PLANNING INSURANCE & SUPERANNUATION CONSULTANTS PTY LIMITED
(ABN 45 080 753 797)

FIRST CROSS-RESPONDENT

SHERIN IBRAHIM

SECOND CROSS-RESPONDENT

THE HARTFORD GROUP PTY LIMITED (ACN 084 348 167)

THIRD CR0SS-RESPONDENT

ANTHONY ARTHUR CUNNINGHAM

FOURTH CROSS-RESPONDENT

GLEN-JOHN LACELLES SMITH

FIFTH CROSS-RESPONDENT

THIRD CROSS-CLAIM
Dismissed 11 December 2003

FOURTH CROSS-CLAIM
Dismissed 11 December 2003

FIFTH CROSS-CLAIM
Dismissed 4 June 2004

SIXTH CROSS-CLAIM
Discontinued 8 December 2003

JUDGE:

EMMETT J

DATE:

23 MARCH 2005

PLACE:

SYDNEY

REASONS FOR JUDGMENT
PRELIMINARY
THE PROJECT
THE PROSPECTUS
FACTUAL FINDINGS
THE POSITION OF MS IBRAHIM AND HARTFORD
MS LUKEY’S INVOLVEMENT IN THE PROJECT
MS LUKEY’S REASONS FOR INVESTING IN THE PROJECT
BARKLEY’S INVOLVEMENT IN DECEMBER 1998
MS LUKEY AND THE AUSTRALIAN TAXATION OFFICE
MS LUKEY’S DEALINGS WITH BARKLEY
MS LUKEY’S CLAIMS AGAINST CIAFM AND CARDINAL
CARDINAL’S LIABILITY TO MS LUKEY
PLEADING OF CARDINAL’S LIABILITY TO MS LUKEY
BREACH OF TRUST
BREACH OF THE PROJECT DEED BY CARDINAL
CONCLUSION AS TO CARDINAL’S LIABILITY
CARDINAL’S CROSS-CLAIM
CARDINAL’S PLEADING
LIABILITY OF MS IBRAHIM
Alleged Breaches
Ms Ibrahim’s Obligations to Ms Lukey

LIABILITY OF HARTFORD
CONTRIBUTION
Claim Under The Tortfeasors Contribution Act
Contribution In Equity For Co-Ordinate Liability

CONCLUSION AS TO THE CROSS-CLAIM
PRELIMINARY

Ms Samantha Jayne Lukey (also known as Samantha Jayne Macdonald) (‘Ms Lukey’) brought a proceeding in the Court under Pt IVA of the Federal Court of Australia Act 1976 (Cth) (‘the Federal Court Act’). The proceeding was brought on her own behalf and on behalf of other persons (‘the Group Members’) who subscribed for prescribed interests (‘Interests’) in a project known as ‘The First TrackNet Project’ (‘the Project’). The Project was to be established pursuant to a deed dated 12 December 1997 (‘the Project Deed’) between Corporate Investment Australia Funds Management Pty Limited (‘CIAFM’), as manager, and Cardinal Financial Securities Limited (In Liquidation) (‘Cardinal’), as trustee.
The Group Members applied for Interests in the Project following upon the publication of a prospectus dated 22 December 1997 (‘the Prospectus’) inviting subscription for such Interests. The Prospectus was issued by CIAFM. Ms Lukey applied for her Interest with assistance from Ms Sherin Ibrahim (‘Ms Ibrahim’), who was an authorised representative of CIAFM.
The Project failed and Ms Lukey and other Group Members claimed that they suffered loss as a consequence of that failure. In the proceeding, Ms Lukey claimed damages, on her own behalf and on behalf of the Group Members, against:
- CIAFM;
- TrackNet Australia Pty Limited (‘TrackNet’), which was the operational manager of the Project;
- Cardinal; and
·Mr John Charles Kerin, Mr Garry Martin White and Professor Thomas James Valentine, who were the directors of CIAFM at the time of the issue of the Prospectus (‘the Directors’).
Ms Lukey contended that, by distributing the Prospectus and a supplementary prospectus dated 18 June 1998 (‘the Supplementary Prospectus’), CIAFM engaged in conduct that was misleading or deceptive, or likely to mislead or deceive, in contravention of s 995(2) of the Corporations Law of New South Wales and other States and Territories (‘the Law’) and s 52 of the Trade Practices Act 1974 (Cth) (‘the Trade Practices Act’).
Ms Lukey also contended that, in contravention of s 995(2) of the Law, Cardinal engaged in conduct that was misleading or deceptive, or likely to mislead or deceive, in relation to the Prospectus. In addition, there were further claims by Ms Lukey against CIAFM and Cardinal alleging breaches of the Project Deed and against Cardinal alleging breaches of trust. Ms Lukey’s claims against the Directors were based on the Law and the Fair Trading Act 1987 (NSW) and its equivalents in other States and Territories (‘the Fair Trading Acts’).
Various respondents, including Cardinal, filed cross-claims. Most of the cross-claims were for contribution or indemnity from other respondents, although some, including Cardinal’s, were against third parties. All of the cross-claims, other than the cross-claim by Cardinal, were subsequently disposed of by consent.
On 8 December 2003 Ms Lukey’s claims against Professor Valentine were dismissed by consent and approval was given for settlement of the proceeding as against him pursuant to s 33V(1) of the Federal Court Act (see [2003] FCA 1602).
During 2003, finishing on 18 December 2003, I heard all of the evidence and argument on the questions of whether the impugned conduct of CIAFM, the Directors or Cardinal contravened the relevant legislation, whether the Directors were involved in any contravention by CIAFM and whether there were breaches of the Project Deed or breaches of trust by CIAFM or Cardinal. On 11 March 2004, with the consent of the parties then remaining in the proceedings, I published my provisional conclusions concerning those questions. At that time, I invited further written submissions on certain questions and further submissions were subsequently made by several of the parties. However, before I finally decided those questions, all of Ms Lukey’s claims on her own behalf and on behalf of the Group Members were settled. On 4 June 2004, Ms Lukey’s claims against Mr Kerin were dismissed by consent and approval was given for settlement of the proceeding as against him pursuant to s 33V(1) of the Federal Court Act.
Judgment for damages to be assessed was entered against TrackNet at an early stage in the proceeding. On 30 June 2004, I made declarations that CIAFM had contravened provisions of the Law, but ordered that the proceeding be otherwise dismissed as against CIAFM and TrackNet, on the basis that there was no utility in prosecuting the proceeding further against those respondents, since it appeared highly unlikely that any judgment could be met by them and further costs would be incurred (see [2004] FCA 1555).
On 28 June 2004, orders were made by consent as a result of a settlement between Cardinal and Ms Lukey, both on her own behalf and on behalf of the Group Members. The proceeding was settled on the basis that Cardinal would pay sums totalling $1,700,000 to Ms Lukey and the other Group Members, and would pay the sum of $2,600,000 in respect of Ms Lukey’s costs of the proceeding to date. On 28 June 2004 I gave approval for the settlement pursuant to s 33V(1) of the Federal Court Act (see [2004] FCA 1579).
Ms Lukey’s claim against Cardinal had been for the sum of $3,572.80, being the sum of $500 paid by her to Cardinal and $650 paid by her to CIAFM in December 1998, and the sum of $2,422.80 paid by her to Barkley Finance Corporation Pty Limited (‘Barkley’) in January 2000. I shall describe the circumstances of those payments in some detail in due course. The amount payable to Ms Lukey under the settlement was $2,337.28, which included interest under s 51A of the Federal Court of Australia Act.
In the result, Cardinal’s cross-claim is the only matter remaining for determination. In its amended cross-claim (‘the Cross-Claim’), Cardinal claims contribution or indemnity in respect of its liability to Ms Lukey. The cross-respondents to the Cross-Claim are:
- Finance and Planning Insurance and Superannuation Consultants Pty Limited (‘Finance and Planning’);
- Ms Ibrahim;
- The Hartford Group Pty Limited (‘Hartford’);
- Anthony Arthur Cunningham and Glen-John Lacelles Smith (‘Tony Cunningham and Associates’).
Cardinal has made no submissions in respect of its claims against Finance and Planning and Tony Cunningham and Associates. The Cross-Claim should therefore be dismissed as against those cross-respondents, neither of whom has participated in the proceeding. Neither has made any application for costs.
Cardinal makes similar allegations against each of Ms Ibrahim and Hartford, although the allegations against Ms Ibrahim are wider than those against Hartford in some respects. For the purposes of the Cross-Claim, it has been agreed between Cardinal, on the one hand, and Ms Ibrahim and Hartford, on the other, that the reasonable costs and disbursements, as assessed on a party/party basis, of Ms Lukey’s claim against Cardinal, were $2,150,000. Cardinal’s claim against Ms Ibrahim and Hartford is for contribution towards or indemnity in respect of the sum of $2,152,337.28. That sum consists of the amount of the judgment entered in favour of Ms Lukey of $2,337.28, together with the sum of $2,150,000 for costs.
Cardinal makes no claim against Hartford in respect of the sums totalling $1,150 paid by Ms Lukey in December 1998. Its claim against Hartford is limited to the sum of $2,422.80 paid by Ms Lukey in January 2000. The claim against Ms Ibrahim, however, is with respect to both of those sums, totalling $3,572.80. Cardinal claims contribution in respect of the whole of the sum of $2,337.28 from Ms Ibrahim. However, Cardinal claims contribution from Hartford in respect of only 68% of that sum: that is the proportion that $2,422.80 bears to the sum of $3,572.80.
In relation to the costs of $2,150,000, Cardinal claims contribution from Harford and Ms Ibrahim in the same proportions. That is to say, Cardinal claims contribution or indemnity from Ms Ibrahim in respect of the whole of the sum of $2,150,000 and claims contribution or indemnity from Hartford in respect of 68% of that sum.
Cardinal’s claim for contribution or indemnity is based on:
- s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (‘the Tortfeasors Contribution Act’); or alternatively
- general equitable principles relating to equivalent coordinate liability.
Before dealing with the Cross-Claim, it is necessary to say something more about the Project and the Prospectus and about Ms Lukey’s claims against CIAFM and Cardinal. Those claims may have a bearing on the liability of Ms Ibrahim and Hartford to Ms Lukey, since Ms Lukey claimed that she was induced to apply for an Interest in the Project by reason of misleading statements in the Prospectus.
I shall also say something about Ms Lukey’s claims against Cardinal based on breach of the Project Deed and breach of trust. While Ms Lukey originally made a claim against Cardinal alleging breach of a duty of care alleged to be owed to her by Cardinal, that claim was abandoned in the course of the hearing. The provisional conclusions that I reached in relation to the remaining claims formed the basis of the settlement between Cardinal and Ms Lukey. For the purpose of the Cross-Claim, Cardinal, Hartford and Ms Ibrahim accept those conclusions as binding.
THE PROJECT
By participating in the Project, each ‘Participant’ was to purchase an individual ‘Market Entitlement Area’, consisting of the area covered by a single Australian postcode. Each Participant was to become the proprietor of a business involving the marketing, sale and distribution, in that area, of a vehicle communications and tracking system ‘employing the latest in satellite and digital mobile telecommunications technologies using the TrackNet trademark’. The Prospectus described the ‘TrackNet technology’ in the following terms:
‘a multi-purpose satellite based tracking and digital telephone based messaging system providing, initially, a means of tracking vehicles in the event of theft, or pinpointing the location of the transponder unit in the event of a range of crises, including personal duress, mechanical breakdown, activation of the vehicle’s air bag, or a myriad of other applications.’
The TrackNet system involved monitoring signals from transponder units to be inserted in motor vehicles. Each business was intended to generate income in the form of proceeds from sales of such transponder units and in the form of monitoring fees. Each Participant was to enter into a management agreement with CIAFM (‘the Management Agreement’), under which CIAFM was to manage the business of that Participant and to undertake the commercialisation of the products and services to be delivered by that Participant’s business. The income from all of the businesses was to be pooled and the pooled proceeds were to be divided equally among the Group Members according to the number of Market Entitlement Areas held by them.
The Project Deed was approved by the Australian Securities Commission (as it then was) (‘the Commission’) pursuant to s 1067(4) of the Law. It recited that:
- CIAFM and Cardinal had agreed to establish a venture to be known as ‘The First TrackNet Project’;
- to enable the Project to commence, each Participant and CIAFM would enter into a Management Agreement under which CIAFM would agree to manage the business of each of the Participants, together with the business of all other Participants in a collective manner and CIAFM would agree to sell the rights to a specified Market Entitlement Area for the Project to each Participant.
By Clause 3.2 of the Project Deed, the Project was to commence upon the date of issue of the first ‘Interest’ (as defined) after ‘the Expenditure Qualifying Conditions’ were satisfied. An ‘Interest’ was to consist of the Participant’s rights and obligations under the Management Agreement, an interest in the ‘Participant’s Undistributed Income’ (as defined) at any time and all other rights and obligations conferred or imposed upon the Participant under the Project Deed.
The Expenditure Qualifying Conditions were defined as:
(a)the achievement of minimum subscriptions under the Prospectus (which was 350);
(b)the grant or assignment of the rights to the technology necessary for the delivery of the ‘Vehicle Tracking and Communications Services’ (as defined); and
(c)the execution of a contract for the manufacture of at least 1,000 ‘Vehicle Transponders’ (as defined).
The term ‘Vehicle Tracking and Communication Services’ was defined as the marketing and sale of vehicle tracking units and the ongoing monitoring of those units for customers of the proposed businesses of Participants. ‘Vehicle Transponder’ is defined in clause 1.1 of the Project Deed as:
‘the physical communication and satellite signal receiver unit designed for installation in a motor vehicle.’
Under clause 3.2 of the Project Deed, the Project was to terminate at the time specified in clause 12.1. Under clause 12.1(b), the Project was to be terminated, inter alia, ‘where the Project is to be terminated under Clause … 41.1’ (sic; scilicet 40.1). Clause 40.1 provided that, if, by 30 June 1998, the Expenditure Qualifying Conditions had not been satisfied then, subject to clause 40.2, the Project would terminate. Clause 40.2 provided that the date of 30 June 1998 referred to in clause 40.1 ‘may be amended … by supplemental deed … executed and approved by the Commission before 30 June 1998’ (emphasis added). No such supplemental deed was ever executed.
It was common ground that the first Expenditure Qualifying Condition was satisfied. Further, CIAFM and Cardinal also treated the second and third Expenditure Qualifying Conditions as having been satisfied in circumstances to which reference will be made below. One of the principal issues in the proceeding was whether they were, in truth, satisfied. In my provisional conclusions I found that they had not been satisfied.
Under clause 17.1 of the Project Deed, CIAFM was given the absolute discretion as to whether to accept or reject any application for an Interest, provided that it was not to accept any application for an Interest until the Expenditure Qualifying Conditions had been met. Under clause 17.2, CIAFM was required to execute a Management Agreement in favour of the prospective Participant within five days of resolving to accept an application. The form of the Management Agreement was a schedule to the Project Deed. The Management Agreement was also set out in full in the Prospectus.
The parties to a Management Agreement were to be the Participant, CIAFM and TrackNet. Clause 4 of the form of Management Agreement provided that the ‘Business’ (as defined in clause 1) was to commence ‘on the date of the satisfaction of [the] Expenditure Qualifying Conditions and due execution of the Management Agreement’. The term ‘Business’ was defined as:
‘… the commercial marketing, sale and distribution for a Market Entitlement Area of Vehicle Tracking and Communication Services and includes such actions undertaken to enable the Participant to derive income or an interest in income as part of the business activities…’.
Clause 5 of the form of Management Agreement dealt with fees. Under clause 5.1, on the issue of the Interest, the Participant was required to pay to CIAFM ‘as Agent and Manager’ a ‘Market Area Entitlement Fee’ of $500. Under clause 5.2, the Participant was required, on the issue of the Interest, to pay to CIAFM ‘as the Agent and as Manager of the Business’ a management fee for the ‘Initial Period’ of $25,000. The Initial Period is defined as the period of 12 months from the issue of a Participant’s Interest. Clause 5.3 provided that, on receipt of the amount referred to in clause 5.2, CIAFM ‘as the Agent and as Manager of the Business’ was to pay, direct or disburse those amounts as follows:
- to CIAFM the sum of $17,500 representing prepaid marketing fees;
·to CIAFM the amount of $7,500 representing prepaid business management fees.
The distinction between marketing fees and business management fees is not relevant for present purposes.

Clause 6 of the Project Deed dealt with the payments to be made under the Management Agreement. Under clause 6.2, Management Fees paid under a Management Agreement were to be dealt with, relevantly, as follows:
‘(a)the Management Fee for the Initial Period will be paid by the Participant directly to [Cardinal] and, on the issue of an Interest [Cardinal] shall be obliged to pay the Management Fee received by it to [CIAFM] by way of payment of the Management Fee under the Management Agreement for the Initial Period for the Participant….’
By clause 6.5, CIAFM and the Participants agreed that the ‘Total Project Sales’ (as defined) from time to time would be paid to Cardinal as received by CIAFM, to be allocated to each Participant and disbursed in accordance with the Project Deed. Payment of those amounts in that way was to satisfy CIAFM’s obligations under the Management Agreements.
On 22 December 1997, an agreement was made between CIAFM and TrackNet (‘the Responsibility Agreement’). By clause 3 of the Responsibility Agreement, TrackNet agreed to make available to CIAFM and all the Participants all ‘Intellectual Property’ (as defined) required by CIAFM and all the Group Members for the conduct of the Project. Under clause 4.1, TrackNet agreed that it would, at its own cost, perform all of the responsibilities of CIAFM under each Management Agreement and the Project Deed.
Clause 5.1 of the Responsibility Agreement provided that, subject to clauses 5.3 and 5.4, CIAFM would pay to TrackNet, as remuneration for performing its responsibilities, a fee equivalent to the aggregate of the management fees in respect of the Initial Period received from Participants under the Management Agreements. Under clause 5.2, CIAFM was to pay to TrackNet, in subsequent periods, by way of remuneration for performing its responsibilities, a fee equivalent to the aggregate of the management fees received from Participants under the Management Agreements. Clause 5.3 provided for TrackNet to subscribe for shares in CIAFM and to pay all CIAFM’s costs incurred in relation to the establishment of the Project and the issue of the Prospectus.
An instrument described as Technology and Intellectual Property Licence Agreement, which bears the date 1 September 1997 (‘the Licence Agreement’), made between Global Positioning Systems Development Corporation (‘GPSD’), as licensor and TrackNet, as licensee, was of some significance in the proceeding. Ms Lukey placed considerable emphasis on its terms in the context of statements made in the Prospectus that were said to be misleading or deceptive. It is also significant in relation to the question of whether the second Expenditure Qualifying Condition was met.
Part A of the Licence Agreement consists of recitals to the following effect:
·GPSD is the owner/licensee of ‘Intellectual Property’ (as defined) and copyright subsisting in the ‘TrackNet Vehicle Tracking System’ (as defined);
·GPSD has agreed to grant to TrackNet, who has agreed to accept, a licence to use the ‘Intellectual Property’ and the ‘TrackNet Software’ (as defined) upon the terms of the Licence Agreement;
·GPSD has agreed to supply the ‘TrackNet Vehicle Tracking System’ and to provide ‘Support Services’ (as defined) upon the terms of the Licence Agreement.
The Licence Agreement contains the following definition:
‘“TrackNet Vehicle Tracking System” means the TrackNet Vehicle Tracking System as described in Schedule 5 and as further detailed in Schedule 20 as varied from time to time by [GPSD].’
Schedule 5, in turn, refers the reader to Schedule 4, which describes the ‘TrackNet Software’ as comprising:
‘… the system of integration between the Global Positioning System (GPS) hardware and the Global System for Mobiles (GSM) hardware, and any software required to operate the two pieces of hardware to be integrated. The TrackNet Software also extends to the integration of local digital mapping software to be incorporated into the operational Control Room.’
‘TrackNet Software’ is defined as the software designated in Schedule 4, consisting of a set of instructions or statements in executable code medium, together with any associated materials and documentation. The term ‘Support Services’ is defined as support services relating to the TrackNet Software to be performed by GPSD pursuant to Part C of the Licence Agreement.
Clause B4 is the pivotal provision so far as the grant under the Licence Agreement is concerned. By clause B4.1.1, GPSD:
‘… grants to [TrackNet], who accepts, an exclusive licence to use the Intellectual Property and TrackNet Software for the purpose of operating and maintaining TrackNet Vehicle Tracking Systems within the Territory during the term (sic) and to sell the Products and Services within the Territory during the Term’.
‘Territory’ is defined as Australia and New Zealand. The term ‘Products’ is defined as products made in accordance with, or using, or comprising Intellectual Property. The term ‘Services’ is defined as services provided in accordance with, or using, or comprising the Intellectual Property and which are in support of the Products.
While the Licence Agreement is, on its face, of some complexity, it contains little of actual substance and particularity as to the subject of the grant purportedly made by it. In fact, GPSD had nothing of substance to make the subject of any grant. The Licence Agreement contains no operating specifications or performance criteria. Rather, it might fairly be described as a broad specification for a vehicle tracking system, rather than a detailed description of the technology for operating such a system.
GPSD did not have any relevant rights that were capable of grant or assignment under the Licence Agreement, other than rights under an instrument described as ‘Heads of Agreement for the Licensing of SiRF GPS Application Software’ (‘the SiRF Heads of Agreement’). The SiRF Heads of Agreement bear the date 1 September 1997, although it is clear that they were not actually signed until November 1997.
The SiRF Heads of Agreement purport to be made between SiRF Technology Inc (‘SiRF’) and GPSD and contain recitals to the effect that:
- SiRF is a technology company that provides innovative, cost-effective, silicon and software solutions for a broad range of GPS applications, and is the manufacturer of the SiRFstar I/LX GPS chipset;
- the parties wished to negotiate an agreement under which SiRF would agree to supply its SiRFstar products and considerable GPS expertise and services to GPSD or GPSD’s customers;
·the parties acknowledged that the SiRF chipsets may be supplied only as part of a complete unit, through an approved manufacturer;
·GPSD would acquire SiRF products initially through NAViS Technology Inc, subsequently Navtel Technology Inc (‘Navtel’), or such other SiRF approved manufacturer as both parties may agree upon.
The SiRF Heads of Agreement contain a statement that they were intended ‘to become legally binding on the Effective Date of a GPS/GSM license agreement to be entered into on or about 1 September 1997 between [GPSD] and [Navtel] (the “[Navtel] Agreement” which is deemed to be annexed to this Agreement’. Under clause 2, the SiRF Heads of Agreement were to commence on the ‘Effective Date’ of the Navtel Agreement and were to terminate on the termination of that agreement.
Clauses 3 and 4 of the SiRF Heads of Agreement dealt with the respective obligations of SiRF and GPSD in the following terms:
‘3.       OBLIGATIONS OF SiRF
3.1      Facilities
SiRF will agree to ensure that it has and maintains the SiRF Facilities and that such SiRF Facilities are adequate for the prompt and efficient provision of its services to [GPSD], and for the ongoing supply of SiRF Products to [Navtel], or such other manufacturer as may be agreed between the parties.
3.2      Services
SiRF, in conjunction with [Navtel], and at [GPSD’s] cost, will provide:
(a)the engineering staff support necessary to configure, install and test all of the electronic components of the Australian Response Centre;
(b)the technical staff to assist in the Australian Response Centre installation…;
(c)instructors who will provide the necessary training of Australian Response Centre personnel. …;
(d)the necessary technical support to localise the SiRF system to accommodate Australian telecommunications technology.
4.OBLIGATIONS OF [GPSD]
4.1Market SiRF Products and Services
[GPSD] will agree to actively market the SiRF Products and Services to its Customers, as part of the TrackNet Vehicle Tracking System.
4.2      Payments
[GPSD] will pay to SiRF an initial payment of $AUD 2,000,000 for use of the SiRF name, introduction to a manufacturer and ongoing access to SiRF for the purposes of future developmental work and assistance. …’.
The term ‘SiRF Facilities’ was defined in the SiRF Heads of Agreement as the SiRFstar suite of products described in Schedule 1, which contains a description of components and software.
Thus, the SiRF Heads of Agreement did not purport to grant or assign to GPSD any rights to technology. Under the SiRF Heads of Agreement, SiRF’s obligations (clause 3) were limited to maintaining certain facilities and providing services in relation to an ‘Australian Response Centre’. In any event, clause 2 provided that the SiRF Heads of Agreement would only commence on the Effective Date of the Navtel Agreement between GPSD and Navtel. No such agreement was ever made.
THE PROSPECTUS
The Prospectus consisted of a booklet comprising 76 printed pages. The front cover of the Prospectus contained the following:
‘PROSPECTUS FOR
PARTICIPATION
IN THE FIRST
TRACKNET PROJECT’.
The TrackNet trade mark also appeared on the front cover. The inside of the front cover contained further printed material to which reference will be made later.
The back cover contained the following:
‘CORPORATE INVESTMENT AUSTRALIA FUNDS MANAGEMENT LTD (ACN 059 438 514).
For the issue of up to 3068 Interests in the First TrackNet Project. This Prospectus is dated 22nd December 1997.
A copy of this Prospectus has been lodged with the Australian Securities Commission on 22nd December 1997. The ASC does not take any responsibility as to the contents of this Prospectus.’
The contents of the Prospectus were divided into seventeen sections under the following heads:
1         DIRECTORY
2         CONTENTS
3         IMPORTANT NOTICE TO APPLICANTS
4         DETAILS OF THE INDUSTRY
5         SUMMARY OF PARTICIPATION
6         THE MANAGER
7         THE TRUSTEE
8         THE OPERATIONAL MANAGER
9         INDICATIVE FINANCIAL FIGURES
10       REPORT ON FINANCIAL FIGURES
11       TAXATION ADVISER’S REPORT
12       ADDITIONAL INFORMATION
13       DIRECTORS
14       MANAGEMENT AGREEMENT
15       INSTRUCTIONS TO APPLICANTS
16       APPLICATION FORM AND POWER OF ATTORNEY
17       DEFINITION AND GLOSSARY OF TERMS
Section 4 of the Prospectus contained two reports by Valutech Pty Limited (‘Valutech’) dated 17 December 1997. The first is entitled ‘Automatic vehicle location systems market assessment’ (‘the Valutech Market Assessment’). The second is entitled ‘Independent technical expert’s report’ (‘the Valutech Technical Report’).
Section 5 of the Prospectus began by stating that, to participate at the minimum level in the Project, each Prospective Participant would be required to pay management fees for the first year of the Participant’s business, totalling $25,000 (‘Management Fees’). It stated that, in addition, there is a ‘once only’ market entitlement area fee of $500 (‘Market Entitlement Area Fee’). Thus, the total payment required for participation was $25,500. Section 5 also stated that Participants would be allocated an individual market entitlement area per Interest, in which they were to have ‘marketing rights’ for the TrackNet System. Section 5 also stated that the minimum subscription under the Prospectus was to be 350 Interests and that the offer was for a maximum of 3,068 Interests. 3,068 is the number of separate postcodes in Australia.
Section 5 also contains the following warnings:

‘Risks of Participation
Marketing risk   There is no guarantee that it will be possible to either penetrate existing markets, or widen them, in order to achieve the revenue projections set out in the section titled Indicative Financial Figures. Alternative and competitive products may appear on the market. Anticipated returns may not occur. Market development may be slower than anticipated, or markets for the products produced may not eventuate. Projected prices for products may not be achieved.
…

Technical risk   There is no guarantee that the research and development work of the Developer will be successful in maintaining the marketability of TrackNet^TM. New technology and techniques need to be continually developed to meet evolving consumer, market and regulatory standards.

Tax risk   Taxation consequences of the Project are detailed in the Taxation Adviser’s Report, pages 39-49 of this Prospectus. The Manager refers Participants to the risks identified by Deloitte Touche Tohmatsu and advises that Participants should seek their own independent tax advice.’

Section 6 described each of the three Directors but otherwise said nothing about CIAFM. Section 7 described Cardinal and Section 8 described TrackNet and its directors, Messrs Pawsey and Flanagan, and Mr White.
Section 9 set out projected returns and cash flow per Interest on the basis of assumptions that were set out in that section (‘the Projections’). It projected a profit per Interest for the year ending 30 June 1999 of $2,423. The Projections were as follows:
‘1. PROJECT RETURNS

1998 1999 2000 2001 2002

Transponder Unit Sales (no.) - 6,500 13,000 13,650 14,333

Income ($,000)

Transponder Unit Sales - 5,038 10,377 11,223 12,137

Monitoring (units sold in current year) - 1,560 3,214 3,476 3,759

Monitoring (units sold in previous years) - - 1,366 4,009 6,553

Stand Alone Systems - - 1,000 1,030 1,061

Total Income ($,000) - 6,598 15,957 19,738 23,510

Total Expenditure ($,000) 25,000 4,175 9,637 12,061 14,477

Profit ($,000) (25,000) 2,423 6,320 7,677 9,033

Per Interest ($) (25,000) 2,423 6,320 7,677 9,033
2. Cash flow Per Interest

Inflow 1998 1999 2000 2001 2002

Net Income - 2,423 6,320 7,677 9,033

Total Inflow - 2,423 6,320 7,677 9,033

Outflow

Management Fee 25,000

Market Entitlement Area Fee 500

Tax on gross revenue @ 48.5% - 1,175 3,065 3,723 4,381

Total Outflow 25,500 1,175 3,065 3,723 4,381

Net Cash Flow (25,500) 1,248 3,255 3,954 4,652

Cumulative Cash Flow per Interest (25,500) (24,252) (20,997) (17,043) (12,391)’.

Section 10 consisted of a report dated 17 December 1997 (‘the PKF Report’) from PKF Corporate Advisers Pty Limited (‘PKF’). The report was described as a review of the Project and the Projections contained in Section 9.
Section 11 consisted of an opinion dated 19 December 1997 (‘the Tax Opinion’) from Deloitte Touche Tohmatsu (‘Deloittes’). The Tax Opinion was generally directed to whether:
- income from a Participant’s business will be assessable income;
·whether losses or outgoings would be allowable deductions for tax purposes.
Specifically, the Tax Opinion addressed the deductibility of the Market Entitlement Area Fee, the Management Fees and interest paid in respect of borrowings to acquire an Interest.
Section 12 described the effect of the Project Deed and other relevant documents in a number of respects. In particular, relevantly for present purposes, it had information under the following heads:
- Duties and Obligations of the Trustee;
- Application Money;
·Material Contracts.
Under the head of Material Contracts, the following were described:
- the Licence Agreement;
- the GTW Heads of Agreement;
- the Responsibility Agreement;
- the Project Deed.
Section 13 contained the signatures of each of the Directors. The entire form of the Management Agreement to be entered into between each Participant and CIAFM was set out in Section 14. Section 15 contained instructions for the completion of application forms and two application forms were contained in Section 16. Section 17 contained a dictionary of terms used in the Prospectus.
On 18 June 1998, CIAFM issued a Supplementary Prospectus. The Supplementary Prospectus was prompted entirely by taxation considerations. It refers to a request by the Commission to bring to the attention of prospective Participants an announcement made by the Commissioner of Taxation (‘the Taxation Commissioner’) on 12 June 1998 of the intention of the Australian Taxation Office (‘the ATO’) to ‘target tax driven schemes’. It also refers to the Taxation Commissioner’s warning that ‘schemes driven by the intention to minimise tax may be struck down by the [ATO] with expenditures claimed, disallowed’. The Supplementary Prospectus contains CIAFM’s response to seven factors listed by the Commissioner that might be taken into account by the ATO when looking at expenditure claims by individuals related to intended investments.
A letter dated 23 September 1998 (‘the 23 September 1998 Letter’) was circulated in conjunction with the Prospectus. The letter was in the following terms:
‘Current Operational Status
Since the end of the financial year there have been several matters of significance that have taken place at TrackNet which have positive implications for the future of The First TrackNet Project.
·Subsequent to the end of the financial year, we have completed the acquisition of Mobiletrack Pty Limited from Spectrum Networks Limited (now PowerTel Limited). …
…
…there is an existing revenue stream in Mobiletrack of approximately $2 million pa. TrackNet Pty Limited has agreed to make all of this Australian revenue available to participants in The First TrackNet Project pursuant to its obligations under the Tracknet Project Deed. With all of their management and marketing fees paid for this first year, participants are assured of receiving substantial revenue for the year ended 30 June, 1999.
·    Tracknet has appointed Mr Tom Scollon, former Managing Director of QuikTrack Limited, as CEO, with specific responsibility for Mobiletrack and the marketing of TrackNet. …
·    TrackNet has entered into a marketing contract with Autoforce Pty Limited, a company associated with the Wynn’s Group, and who holds the extended warranty insurance programme for the Hyundai, Audi and Chrysler groups. …
·    TrackNet has appointed Kennedy Rea Advertising and a PR firm to handle all aspects of the launch and ongoing advertising of TrackNet at both a corporate and retail level in a multi million dollar campaign, due for launch in November.
·    TrackNet is currently designing a sales package for all participants, (both new and old) by means of which all participants will receive a TrackNet “BlackBox” (value $1200 - $1500) to be installed in their cars for demonstration purposes, as well as a sales kit. …
The above mentioned income stream and other very positive developments as well as the manner in which TrackNet Pty Ltd has managed The First TrackNet Project on behalf of the Participants sets this project apart from any other.’
FACTUAL FINDINGS
I shall set out in narrative form my findings and conclusions, which are derived from the contemporaneous documentary evidence, together with the oral evidence given by Ms Lukey, Ms Ibrahim and, in some respects, Professor Valentine. Their evidence is relevantly consistent and I consider that it is generally reliable. The oral evidence extended not only to objective circumstances but also, in the case of Ms Lukey, to her subjective state of mind. That latter matter is of significance in relation to any question of a causal connection between the conduct of Ms Ibrahim, on the one hand, and the loss and damage claimed by Ms Lukey against Cardinal, on the other. In that regard, it is not without significance that Ms Lukey made no claim in the proceeding against either Hartford or Ms Ibrahim.

While evidence as to oral communications given some years after the event will never be entirely accurate, I am satisfied that Ms Lukey, Ms Ibrahim and Professor Valentine were honest witnesses and were endeavouring, as best they were able, to give an accurate recollection of the matters in question. I should add that, while the evidence in question was given some considerable time ago, my assessment of their evidence is based on the notes that I made at the time when the evidence was given.
THE POSITION OF MS IBRAHIM AND HARTFORD
Prior to April 1998, Ms Ibrahim was appointed as a representative of CIAFM within the meaning of s 88 of the Law. By letter of 15 April 1998, CIAFM informed Ms Ibrahim that on 29 April 1998 there was to be a workshop for representatives CIAFM. The letter said that the one day workshop had been arranged to provide representatives with a sound basis for advising clients on the range of products provided by CIAFM.
Ms Ibrahim attended the workshop held at CIAFM’s office in Bligh Street, Sydney. At the workshop, representatives were addressed by various people, including Mr Kean Flanagan and Mr Neil Green of TrackNet, Mr Keith Watson of Barkley, Mr White of CIAFM and Mr Edward Russell of Cardinal. Ms Ibrahim was given brief details of all of the speakers.
On 15 June 1998, CIAFM wrote to Ms Ibrahim in connection with a speech given by the Commissioner for Taxation on 12 June 1998. The speech was entitled ‘Taxing Times or Beware the Magic Pudding’. The letter enclosed a copy of the speech, which was said to be ‘for your essential reading’, and relevantly said:
‘The speech issues a warning to investors that schemes driven by the intention to minimise tax may be struck down by the Australian Tax Office with expenditures claimed disallowed. You should be aware of what the Commissioner has said and taken to account his statements.
Your clients may enquire as to whether [the Taxation Commissioner’s] remarks relate particularly to the products of [CIAFM]. As you know our products [include] the First TrackNet Project.
…
[The Taxation Commissioner] lists the seven factors shown in italics that may be taken into account when looking at expenditure claims by individuals related to their project investments. We have reviewed the Commissioner’s seven factors and include a synopsis of our responses:
…
6. The taxpayer’s participation in the scheme is financed wholly, or substantially, by a non-recourse loan. Further doubt would arise if the loan is effected by a round-robin of cheques and the transactions are not underpinned by genuine commercial considerations…
Comment:No CIAFM products include any loan arrangements as an integral component. We believe that our products stand on their own merits without the need for leverage. However, we are aware that loans are available to participants and in so far as we are aware, none of the financing options are non-recourse in nature.
…
[The Taxation Commissioner] announced that promoters will be able to obtain a public ruling by approaching his office with full details of arrangements. As CIAFM views that its products are not of the kind characterised by the seven factors set out in his speech we see no need to apply for a product ruling. Your clients should therefore, be advised that no product ruling has been applied for in respect of our products.
As you know all of CIAFM’s products are supported by a prospectus that has been registered with the Australian Securities Commission. Representatives are reminded that they should be fully appraised of CIAFM’s products and always ensure that their clients refer to the relevant prospectus and the enclosed tax opinion. In each instance, the tax opinion has been prepared by a reputable tax expert who is independent of the promoter. Representatives should also advise their clients that if they are uncertain as to their tax position, or are a company, it is advisable that they obtain independent professional advice as to their particular circumstances.
…’
The enclosed speech by the Commissioner of Taxation included the following:
‘Our objective is simply to understand the reality of the arrangements and apply the law accordingly.
In this context our attention is at least aroused where the effect of the arrangements are such that the “investor” is not subject to significant, or indeed any, risks when the tax benefit is taken into account whether because of the use of limited or no-recourse financing, put-options or whatever combination of ingenious financing arrangements.
Limited or no-recourse funding, broadly under which repayment is limited wholly or in large part to profits from the underlying activity, are often used to leverage up by many multiples the amount of any direct contribution by the “investor”. The result is that the sought after tax benefit on the leveraged up amount “guarantees” the “investor”. The result is that the sought after tax benefit on the leveraged up amount “guarantees” the “investor” a profit because it exceeds his or her personal contributions.
Of particular concern to us at the moment are arrangements whereby their practical effect is that the loaned funds are simply not capable of ever being invested in the underlying activity. For example the arrangements might involve a round-robin of payments under which the investment, to the extent of the loan, is effectively used to repay the loan to the original financier.
In these cases, while there is an underlying activity with the potential for profit, the actual amount going to that activity is a small fraction only of the claimed investment. In some cases you only have to aggregate the claimed investment to realise the underlying activity simply could not sustain the total level of investments claimed.
It will come as no surprise to you that we have concluded that deductions claimed in these particular types of arrangements are not available under the law.
We do not accept that the “investors” in these types of arrangements are carrying on a business and as such do not accept that deductions claimed for the fees funded under the arrangements are available under the general provisions of the law. Even if they could technically pass that hurdle – and as I said we do not accept that – we believe the tax benefit sought would be precluded by the operation of the general anti-avoidance provision – Part IVA.’
On 27 August 1998, CIAFM wrote again to Ms Ibrahim inviting her to a further training seminar for representatives, to be held on 23 September 1998. Ms Ibrahim attended that seminar, which also included presentations by Mr Flanagan, Mr Russell, Mr Green and Mr White. After the seminar, Mr Flanagan gave a presentation about the TrackNet Project and said that the Expenditure Qualifying Conditions had been met.
In October 1998, the First TrackNet Project was being marketed by telephone to clients of Tony Cunningham & Associates. At that time, Ms Ibrahim shared office accommodation with Tony Cunningham & Associates. Ms Ibrahim observed Ms Heather Kennedy, who was an accountant employed by Tony Cunningham & Associates, discussing which clients they were going to telephone. Ms Kennedy told Ms Ibrahim that she would refer clients to her who had indicated that they wanted further information about the First TrackNet Project. From October 1998, Ms Ibrahim began forwarding copies of the Prospectus to potential Participants, in her capacity as a representative holder of CIAFM.
On 18 November 1998, Tony Cunningham & Associates conducted a seminar at the Novotel Hotel, North Beach, Wollongong. The speakers included Mr Flanagan, who described the First TrackNet Project as an investment opportunity. Ms Ibrahim also attended that seminar.
From about November 1998, Ms Ibrahim distributed approximately 100 packages comprising copies of the Prospectus, the Supplementary Prospectus and the 23 September 1998 Letter. Of the 100 packages, approximately 80 were distributed after the seminar of 18 November 1998 just described. The packages were distributed during the course of interviews with potential Participants, many of whom had attended the seminar.
Sixty Interests in the Project were purportedly sold by Ms Ibrahim. Fifty were sold as a consequence of referrals from Tony Cunningham & Associates. Ms Lukey was one of the referrals to Ms Ibrahim from Tony Cunningham & Associates.
Ms Ibrahim had an arrangement with CIAFM to receive a commission of $1,250, less an administration fee, for each Interest in the Project sold by her. The commission was to be paid by two instalments. The first instalment was to be $650 and was to be forwarded prior to Christmas 1998. The second instalment was to be $600, to be forwarded during January 1999. Ms Ibrahim was to share that amount 50/50 with Tony Cunningham & Associates for those Interests that had been sold by reason of referral. On 23 December 1998, CIAFM paid to Ms Ibrahim the sum of $20,475, described as the ‘first instalment’ of commissions payable on the 60 Interests that she had sold at that stage, including the Interest sold to Ms Lukey.
On 17 December 1998, CIAFM wrote to Ms Ibrahim informing her of CIAFM’s decision to withdraw her proper authority as a representative, effective from 31 January 1999. The letter said that the decision arose from a recent decision by the board of CIAFM to consolidate CIAFM’s efforts in funds management. The letter went on to say:
‘However, in view of your valued contribution as a CIAFM representative I would like to commend you to, The Hartford Group. They have been appointed as CIAFM product distributors in 1999. Moreover, they are more than happy to consider appointing ex CIAFM proper authority holders for a limited number of places as proper authority holders.’
The letter then described Hartford and explained the ways in which Ms Ibrahim could take up the invitation to be appointed as a representative of Hartford.
Hartford was incorporated in September 1998 and was granted a dealers license by the Commission in November 1998. Hartford was formed to provide:
- an effective advisory distribution network for the products of CIAFM and other approved products;
- financial planning services to clients;
·access to financial planning services for other financial planning and accounting firms, and to levy a fee for the provision of those services.
Professor Valentine was a director of Hartford at all relevant times. As at February 1999, the directors of Hartford were Professor Valentine, who was the responsible officer under Hartford’s license, Messrs Kean Flanagan and Garry White, as non-executive directors and Messrs Wayne Pratt and David Kerr as executive directors.
In February 1999, Hartford published a training manual for its representatives, who were the holders of proper authorities from Hartford. The training manual summarised the position of representatives, relevant provisions of the Law and the functions of the Commission in relation to representatives. The training manual also set out conditions attached to Hartford’s dealer’s licence and contained advice on relevant matters for representatives.
In addition, the training manual contained a section entitled ‘Financial Products in the Market Place’. That section included the following:
‘Advisors are required to aim for an investment strategy that best suits the financial needs and objectives of the client. As reiterated throughout the Manual investment recommendations should be soundly based. This advice should be reduced to writing and the advisor should keep a copy of that advice along with other details on the client.
…
Licensees and its (sic) representatives as a matter of law, are required to disclose to investors the fundamental terms and obligations attaching to a financial product as well as the risks involved with the product and all fees, commissions and changes.
It is imperative that the investor is provided with clear and easy to understand information. Information provided to the client is required to be in a form which will enable the client to make an informed decision based on a rational assessment of the relative merits of the product compared with other alternative investments. Information provided to clients must set out the basic features of an investment product including risks, fees and charges. On occasions, this will mean providing the investor with information that is not especially favourable to a particular product. It may also require advising the client to seek additional specialist advice (e.g. from their Accountant/Lawyer or Tax agent).
…
… advisors are required to have sound product knowledge. It is imperative therefore, that before advising a client, that (sic) the advisor has a grasp of what products are generally available. The advisor is required to have the skills to research these products further and to arrive at an assessment that is useful, relevant and meaningful to the client’s particular circumstances.
…
As a general “rule of thumb” investors should be cautioned against placing all their investment eggs in the one basket. However, the decision to invest ultimately rests with the client. Nevertheless, it is incumbent on the adviser to ensure that in making the decision that the client is provided with up to date, accurate and reliable information and that the client is fully cognisant of any risks associated with that decision. Accordingly, advisors and proper authority holders should ensure that they conduct themselves openly and honestly with clients. The penalties for doing otherwise are severe.
Tax Based Schemes
People are often attracted to some products for tax reasons. Many products currently on the market offer a substantial tax deduction in the first year and smaller deductions during the project’s life. These products are usually marketed before the end of the financial year. However, investors should be warned of the risks of investing in products that appear to be principally tax driven and in particular, they should be alerted to Tax Rulings involving anti avoidance… .
In addition, investors should be advised that the published taxation benefits of certain products can be highly variable and vary with the individual circumstances of the tax payer. Therefore, advisors should advise clients to consult their own tax advisors for an assessment on how these schemes apply to their own specific circumstances.
…
Aggressive marketing of a products [sic], risks breaching the Law, especially if accompanied by inattention to the client’s particular financial circumstances. It is imperative that advisors adhere to the Law in respect of providing advice and avoid making exaggerated claims or quarantining important information from the client. Omitting important details about a product may amount to misleading and deceptive conduct.’
On 11 January 1999, Hartford wrote to Ms Ibrahim with respect to her interest in becoming a representative of Hartford. A copy of Hartford’s commission structure was attached to the letter, which set out the facilities that would be available for financial planners who were to become representatives of Hartford. A copy of Hartford’s Approved Product List was also attached. The Project was not included in that list.
Whether Ms Ibrahim received a copy of the training manual has no bearing on the question of what duties, if any, she owed to Ms Lukey in December 1998. Ms Ibrahim had no relationship with Hartford until some time during 1999. While, as will appear below, Ms Ibrahim subsequently sent to Ms Lukey information received from Hartford concerning possible further investments, the training manual has no bearing on Ms Ibrahim’s obligations to Ms Lukey in relation to the financing of Ms Lukey’s investment in the Project in the circumstances described below.
On 3 March 1999, Ms Ibrahim sent a facsimile to Hartford attaching her completed application for a proper authority. That application included particulars of her qualifications, including particulars of registration of the business name ‘Enhance Consultancy’. On 3 March 1999, Hartford wrote to Ms Ibrahim telling her that the directors of Hartford had approved her application as a representative and that the Commission had been advised accordingly. An authorised copy of her proper authority as a representative was enclosed with the letter.
Some time after 3 March 1999, Ms Lukey received a document on Hartford letterhead entitled ‘Advisory Services Guide’. That document included statements to the following effect:
‘Your advisor will be Sherin Ibrahim.
…
Sherin will be acting on behalf of [Hartford], who are responsible to you for any advisory services she provides.
…
We only recommend an investment to you after considering its suitability for your individual investment objectives, financial situation and needs. Our advisory service can include ongoing monitoring of your portfolio.
…
We will explain to you any significant risks of investments and strategies which we recommend to you.
…’
On 7 April 1999, Hartford wrote to Ms Ibrahim again saying that Hartford was formalising its arrangements with its representatives. An authorised representative agreement was attached for Ms Ibrahim’s consideration, execution and return. Clause 7.9 of the agreement provided as follows:
‘7.9 The Authorised Representative undertakes to take all reasonable steps to ensure that:
…
(g)he or she will only recommend or provide advice on those products which are on the Approved Products List and for which the Authorised Representative is accredited or approved by [Hartford].’
On 20 April 1999, Ms Ibrahim wrote to Ms Lukey on letterhead that contained references to ‘Enhance Consultancy’ and Hartford. The letter relevantly said:
‘I write to inform you of changes to my Proper Authority. I have ceased holding a Proper Authority with [CIAFM] on 24 February 1999 and have commenced a Property Authority with [Hartford] on 3 March 1999.
…
As a financial planner and a Proper Authority Holder, I see this transition from CIAFM to Hartford being greatly beneficial to you, my client, as I will be able to extend the range of financial planning services provided, supported by in depth research. As well as offering a broad range of investments, managed funds, insurance and superannuation products, Hartford is willing to incorporate some of CIAFM’s investment products on their Approved Product List, where taxation product rulings have been issued.’
The letter went on to enclose copies of prospectuses for other investments unconnected with the Project. It is more likely than not that the Advisory Services Guide was sent to Ms Lukey at about the same time as the letter of 20 April 1999.
On 19 May 1999, an agreement for the appointment of Ms Ibrahim as authorised representative of Hartford was executed on behalf of each of them. The agreement included clause 7.9(g) to the effect that Ms Ibrahim would only recommend or provide advice on those products that are on the Approved Products List and for which Ms Ibrahim was accredited or approved by Hartford. As I have said, the Project was not on the Approved Products List.
MS LUKEY’S INVOLVEMENT IN THE PROJECT
In 1998, Ms Lukey was a part-time teacher at the Illawarra TAFE and was a PAYE taxpayer. She was a co-ordinator of community aged care packages with the Benevolent Society and also a voluntary co-ordinator of Advocates for Survivors of Child Abuse. She had responsibility as a sole parent for three children aged 18, 14 and 4. At that time, Ms Lukey’s earnings were between $45,000 and $50,000 per annum and she had not undertaken any investment activities of any size. She was renting her home but wished to increase a current deposit that she had in order to purchase her first home.
Ms Lukey first heard about the Project in the second half of 1998 when her tax return was being prepared by Ms Heather Kennedy, who was a friend of Ms Lukey’s. Ms Kennedy mentioned the Project to her and said that Cunningham & Associates were involved in it. She also told Ms Lukey that Ms Ibrahim, who was sharing the Figtree office of Cunningham & Associates, was also involved with the Project. Ms Kennedy told Ms Lukey that Ms Ibrahim was a financial adviser. Ms Kennedy gave Ms Ibrahim’s telephone number to Ms Lukey. On 23 November 1998, Ms Lukey telephoned Ms Ibrahim and told her that she was a friend of Heather Kennedy. An appointment was made for 8.30 am on the following day. Ms Lukey told Ms Ibrahim that she had had her tax return prepared by Ms Kennedy, who had said that she should make an appointment to talk to Ms Ibrahim about the Project.

On 24 November 1998 Ms Lukey and her boyfriend attended Ms Ibrahim’s office. Ms Lukey said that she would like to increase her current deposit to purchase her first home. Ms Ibrahim told Ms Lukey that she was a financial planner and a representative of CIAFM employed to work on the Project. Ms Ibrahim showed Ms Lukey a package consisting of a copy of the Prospectus, the Supplementary Prospectus and the 23 September 1998 Letter.
At this meeting, Ms Lukey told Ms Ibrahim that Ms Kennedy had told her a little bit about the Project and that she could find out more from Ms Ibrahim. Ms Ibrahim told Ms Lukey that the Project was the subject of a prospectus lodged with the Commission and that, before they spoke about the Project, they should look at her financial situation to see if it was suitable.
Ms Ibrahim had a financial plan to show Ms Lukey. She explained what the plan would consist of and that it was to evaluate an individual’s financial circumstances. Ms Ibrahim explained to Ms Lukey that the cost of a financial plan would be approximately $600 to $800. Ms Lukey said that she did not want a financial plan but wanted to find out about TrackNet. Ms Ibrahim then opened the Prospectus and began to talk to Ms Lukey about the TrackNet Project. At some stage towards the beginning of the meeting, Ms Lukey spoke briefly to Ms Ibrahim about a deposit to buy a house and said that she and Grant were interested in buying a property together.
Ms Ibrahim spoke about the Prospectus and went to a number of pages to explain details contained in it. Ms Ibrahim and Ms Lukey sat on the same side of Ms Ibrahim’s desk and together they went through the Prospectus in considerable detail. Ms Ibrahim first took Ms Lukey to the pages of the Prospectus that described the ‘TrackNet technology’. They spent some time talking about the technology. Ms Ibrahim made a note that she gave the ‘full TrackNet presentation’ and explained the ‘cash flow effect’. Ms Ibrahim also made a note that:
‘[Ms Lukey] may be entitled to DSS payments when taxable income is reduced, will apply for review.’
Ms Ibrahim’s note records that the Prospectus, finance documents and cash flow were given to Ms Lukey, who was to contact Ms Ibrahim for a future appointment.
Ms Ibrahim told Ms Lukey that the Project represented a really good opportunity, that it was a very good project and that the technology was new, innovative and advanced. Ms Ibrahim also told her that there were some tax advantages involved in becoming involved in the Project. Ms Ibrahim then led her into the cash flow analysis in the Prospectus and went through the cash flow analysis on a computer.
Ms Ibrahim told Ms Lukey about the risks associated with being involved in the Project, told her that it was speculative and told her that there were no guarantees that it was going to work. Ms Ibrahim also told her that, because of the nature of the Project, TrackNet had bought another company providing technology that had the same principles behind it and that it was a really good opportunity. Ms Ibrahim spent some time talking to Ms Lukey about the risks.
Ms Ibrahim explained that, with the borrowing of the money to purchase the Interest in the Project, Ms Lukey would be responsible for paying the interest component on the loan and that, if the Project did not continue, Ms Lukey would be responsible for paying the interest component for the life of the loan. She said that that was a risk because that meant Ms Lukey would be responsible for paying $12,000 or $13,000.
Ms Ibrahim told Ms Lukey that, as she did not know Ms Lukey’s financial position, she could only talk about the TrackNet Project. Ms Lukey said that she was ‘OK’ with that. Ms Ibrahim said that the Prospectus needed to be read in its entirety, that Ms Lukey should go away and think about everything and that if Ms Lukey had any questions, she should not hesitate to contact her. Ms Lukey said that she would read the Prospectus.
At the end of the meeting, Ms Ibrahim handed Ms Lukey the package comprising the Prospectus, the Supplementary Prospectus and the 23 September 1998 Letter and said to her:
‘You need to take this home and read it thoroughly to understand the Project and what you are thinking about getting involved in.’
After Ms Lukey’s meeting with Ms Ibrahim on 24 November 1998, Ms Lukey contacted Ms Kennedy and they got together and talked about the benefits of the Project, including what was good and what was not so good about it. Ms Kennedy told her a lot about the technology and talked mostly about the technology. Ms Kennedy was really excited because she has a particular interest in that kind of thing. She did not discuss non-recourse loans or tax to any great extent. Ms Lukey had confidence in Ms Kennedy’s judgment as her accountant and that was a factor in her decision to enter into the Project.
After the meeting of 24 November 1998, Ms Lukey read through the Prospectus. She did not sit down and read the whole thing at once, but spent about 5 or 6 hours doing so, over a period of time. On 2 December 1998, she rang Ms Ibrahim and made an appointment for 4 pm on 4 December 1998.
Ms Lukey and Ms Ibrahim met on 4 December 1998. Ms Ibrahim asked Ms Lukey whether she had had an opportunity to read through the Prospectus and whether she understood it. Ms Lukey replied that she had read through the Prospectus and understood it to the best of her ability. Ms Ibrahim showed Ms Lukey some paperwork and they talked about the cost of the Project. Ms Ibrahim asked Ms Lukey whether she was interested in being involved in the Project and signing up to purchase an Interest.
They had further discussion about the TrackNet technology. Ms Lukey asked Ms Ibrahim some questions about how the technology would actually work. In that context, they went back to the pages of the Prospectus that described the TrackNet technology (pages 6 and 7). Ms Ibrahim said that it was new and innovative technology. Ms Lukey also asked about the management and how the Project would run. Ms Ibrahim then took Ms Lukey back to the pages of the Prospectus that dealt with the management structure, in particular Chapter 6 (at page 27) of the Prospectus. She referred again to Mr Kerin, Mr White and Professor Valentine. As a result of looking at those parts of the Prospectus, Ms Lukey felt ‘comfortable’ enough to have a look at the paperwork. She was satisfied that the questions that she had asked had been answered.
At the meeting of 4 December 1998, Ms Lukey signed a number of documents, including several cheques. First, she signed a document entitled ‘LIMITED ADVICE AGREEMENT’.   The Limited Advice agreement was in the following terms:
‘  LIMITED ADVICE AGREEMENT
Name Of Authorised Representative: Sherin Ibrahim
Licensed Dealer In Securities:        Corporate Investment Australia Funds Management Limited (“CIAFM”) (Dealer No. 66769)
Client’s Full Name:   Ms Samantha MacDonald
Address:…
Phone:…
Sherin Ibrahim has informed me of the range of financial planning and advisory services available through Corporate Investment Australia Funds Management Limited (“CIAFM”) (Licensed dealer in Securities – Dealer No. 66769) and Finance & Planning Insurance & Superannuation Consultants. She has advised me of the importance of providing sufficient personal information and the limitations of her recommendation to me.
However, I have informed Sherin Ibrahim that I do not wish to take up the financial planning services or investment portfolio advice other than that relating to The First TrackNet Project.
I understand the limitations of her recommendation as it relates to my financial situation, needs and investment objectives and agree that Sherin Ibrahim, CIAFM’s Authorised Representative, is to be limited in the recommendations made to me.
I am of the opinion and/or have received advice from my accountant and/~~or solicitor~~ that The First TrackNet Project is appropriate to my particular investment needs and financial circumstances.
Name:     Samantha Macdonald
Signed:    [Signature] 4^th day of Dec 1998
Witness:   …………….’
Ms Ibrahim asked Ms Lukey to sign the Limited Advice Agreement. Ms Lukey read it and said she understood it. Before Ms Lukey signed it, Ms Ibrahim told her that she could put together a whole financial plan for her, looking at a range of different investment options. However, Ms Lukey made a decision not to accept that offer. Ms Lukey could not recall whether she or Ms Ibrahim struck out the words ‘or solicitor’. She understood the reference to ‘my accountant’ to be a reference to Heather Kennedy.
Ms Lukey signed the Limited Advice Agreement. When she did so, she understood that Ms Ibrahim was asking her to sign it because Ms Ibrahim was not giving her financial planning services. When Ms Lukey signed the Limited Advice Agreement, Ms Ibrahim did not question the truth of the statement that Ms Lukey was ‘of the opinion and/or have received advice from my accountant… that the First TrackNet Project is appropriate to my particular investment needs and financial circumstances’.
Secondly, Ms Lukey signed the ‘Application Form and Power of Attorney’ attached to her copy of the Prospectus. By that document, she applied to CIAFM for one Interest in the Project. Ms Lukey also signed a document addressed to Tony Cunningham & Associates entitled ‘Documentation Release Authority’.
Thirdly, Ms Lukey signed a document entitled ‘Offer to Borrow’ addressed to Australian Technology Finance Pty Limited (‘ATF’). By the Offer to Borrow, Ms Lukey undertook to borrow from ATF the sum of $25,000 (‘the Advance’). The Offer to Borrow provided for an establishment fee of $500 and a monthly account service fee equal to 0.075 per cent of the amount of the Advance. The Advance was repayable 84 months from the date that it was to be made. Provision was made for the payment of interest at an average rate of 9.95 per cent per annum from the drawing of the Advance. The Advance was to be drawn in one instalment and paid, on the date of drawing, to CIAFM as manager of the Project.
Clause 6 of the Offer to Borrow provided for repayment of the Advance in the following terms:
‘I will repay the Advance to you as follows:
(a) The Advance is repayable by me in full at the end of the Term.
(b)During the Term all income or entitlements from the Project will be paid by the Manager to You to be held by You on deposit to meet my obligation to repay the Advance at the end of the Term. However you will have or procure a performance bond or other undertaking … to repay such part of the Advance which may not have been repaid by the distribution of income from the Project. …
(c)The moneys on deposit will earn interest at a rate nominated by you, and such interest will be paid to You to offset in part or in whole my interest payment obligations hereunder. …’
The reference to ‘the performance bond or other undertaking’ was apparently regarded as having the effect that the borrower would have no liability to repay the Advance beyond the bond or undertaking. That is to say, it was regarded as a limited recourse loan. Ms Lukey also said that the limited recourse nature of the loan that was being offered to her was a positive factor but she would still have gone into the Project if limited recourse financing had not been available. That seems surprising, but I would be disposed to conclude that Ms Lukey genuinely believed that was her state of mind at the time.
It is not clear why the Offer to Borrow referred to the sum of $25,000, in circumstances where Ms Lukey also drew a cheque for $650 for part payment of the Management Fee. The total amount payable by way of Management Fee was $25,000. Accordingly, the amount that she needed to borrow was only $24,350. It appears that the sum of $25,000 was inserted in the Offer to Borrow by mistake.
Finally, Ms Lukey signed four cheques drawn on her account with Illawarra Credit Union Limited (‘the Credit Union’). The cheques were as follows:
- $106.65 payable to ATF for stamp duty;
- $393.35 payable to ATF for finance fee;
- $500 payable to Cardinal for market establishment fee;
- $650 payable to CIAFM for part payment of management fee.
On 18 December 1998, a Management Agreement, in the form contained in the Prospectus and the Project Deed, was signed by Mr White on behalf of CIAFM and TrackNet and by Mr David Kerr, the secretary of CIAFM, on behalf of Ms Lukey. CIAFM purported to issue an Interest in the Project to Ms Lukey. The Register kept on the premises of CIAFM disclosed Ms Lukey’s name as one of the persons to whom an Interest had purportedly been issued.
MS LUKEY’S REASONS FOR INVESTING IN THE PROJECT
Ms Lukey said that the principal aspects of the Prospectus that interested her in investing in the Project were the technology and the explanation of the technology in the Prospectus. Another aspect was that she understood that $12 million had been spent on the Project and it seemed to her a great opportunity. She understood that the management structure and accountability mechanisms in place would ensure that the Project worked well. She clearly understood that there were going to be some risks around borrowing nearly $25,000 and that she would be responsible for the interest component on that money for the life of the contract. At the same time, because of what Ms Lukey understood to be available in terms of the technology, she understood there would be a good future income projection, which would mean that she would be able to manage the repayment of the loan or at least the interest component. Ms Lukey also said that if what she understood about the technology was not true she would not have signed any of the documents in December 1998.
When she signed the documents, Ms Lukey understood that Ms Ibrahim was a financial planner with financial expertise. She trusted Ms Ibrahim. Based on what Ms Ibrahim told her, Ms Lukey believed that Ms Ibrahim thought the Project was a good one. Ms Lukey’s belief that Ms Ibrahim thought the Project was a good one was an aspect of her decision, but not the only aspect. However, Ms Lukey did not understand Ms Ibrahim to be recommending the Project to her.
Further, Ms Lukey said that she did not consider the tax advantages, as she perceived them, were important to her in deciding to enter into the Project, although they were an aspect of the decision. She said that, if she had not been able to get a tax deduction, she would still have invested in the Project.
Ms Lukey was cross-examined concerning a document that was brought into existence by her, after the Project started to go wrong, as a note of her thoughts about the reasons why she had entered into the investment. She was asked whether, when she prepared the document, her recollection was that Ms Ibrahim had been instrumental in persuading her to enter into the investment. She replied ‘No’. While she had written the phrase ‘Financial Planner’ on the document, she could not categorically recall why she had done so. She also wrote on the document:
‘Latest Technology
Non Resource Loans
Accountability Structure
Future Financial Projections’
She agreed that they were all factors that, when she prepared the document, she considered had been important in causing her to make the investment in the Project.
Ms Lukey agreed that, when she prepared the document, it was in her mind that one of the reasons why she had made the investment was that the structure gave her a tax break and that she had only a small amount of money and wanted to maximise it. However, she said that the availability of the tax break was not an important factor in her decision to enter into the Project. Ms Lukey refused to accept that in late 1998, the TrackNet Project was the only investment that she was aware of that would put her in a position to get the money to put down on a house. She said that she was looking at the Project as a long term investment and that she was not simply looking at TrackNet as a means of getting a deposit on a house.
It is clear that Ms Lukey gave considered attention to the Prospectus. She went through it with Ms Ibrahim and subsequently spent some hours examining it herself. It is clear that Ms Lukey exercised independent judgment in deciding to proceed with investment in the Project. She denied that Ms Ibrahim was recommending such an investment to her although, based on what Ms Ibrahim told her, she thought that the Project was a good one.
However, Ms Lukey also considered that the role of Cardinal, as trustee, in ensuring that the correct processes occurred prior to expenditure, was of importance in making her decision to invest in the Project. That evidence is credible. She was influenced by the following statement on the inside of the front cover of the Prospectus:
‘All Application Monies will be held in a separate bank account in trust for the Applicants until the issue of the Interests which will not occur until the Expenditure Qualifying Conditions are satisfied.
[Cardinal] has been appointed the Participants’ Trustee pursuant to the Project Deed dated 12 December 1997 and lodged with the [Commission].’
She also had regard to section 7 of the Prospectus, which described Cardinal as a trustee company, specifically established to provide a range of trustee, custodial and other financial services to institutions, companies, individuals, including several similar prescribed interest based investments.
It is also clear that Ms Lukey placed reliance upon the statements contained in the Prospectus, that CIAFM had access to all hardware, software and infrastructure necessary for the Project and had access to all necessary technology to enable the Project to generate a positive cash flow in the first year of participation. Ms Lukey’s reliance upon those statements had nothing to do with Ms Ibrahim, who took pains to ensure that Ms Lukey read and understood the Prospectus herself.
BARKLEY’S INVOLVEMENT IN DECEMBER 1998
For some reason, ATF did not provide finance to Ms Lukey pursuant to the Offer to Borrow. On 19 December 1998, without the knowledge of Ms Lukey or Ms Ibrahim, Messrs Flanagan and White approached Mr Keith W Watson, the managing director of Barkley, and asked, in substance, whether Barkley would provide ‘temporary finance’ to a group of individuals who were waiting finance approval from ATF. In addition, a letter dated 18 December 1998 was signed by Mr Ian Yates, who acted as a supervisor of the holders of proper authorities of CIAFM. In the letter, Mr Yates asked Mr Watson to arrange ‘temporary finance’ for Mr Yates’ clients and clients introduced by, inter alia, Ms Ibrahim. The period of the temporary finance was to be 60 days.
The proposal put to Barkley was that, after the 60 days, a company called ‘Capital Corp’ would provide loan facilities to those who had signed Offers to Borrow to ATF and that, if Capital Corp was unable to proceed in that way, Barkley would offer an alternative facility. Mr Watson informed Messrs Flanagan and White that Barkley would be willing to provide the temporary finance for 60 days, for a small fee, which would be paid out of the ‘finance fees’ paid to ATF by the relevant borrowers. In fact, no such fee was ever deducted, because the total of $500 paid by Ms Lukey to ATF was subsequently refunded to her.
On 21 December 1998, a cheque in the sum of $43,426,500 was drawn by Barkley on an account with National Australia Bank Limited (‘NAB’). The account was in the name of ‘Barkley as trustee for the BFC TrackNet Trust’ (‘the BFC Account’). The cheque was payable to Cardinal and was forwarded to Cardinal under cover of a letter from Barkley dated 21 December 1998 saying:
‘Please find attached a cheque for a total of 1,703 Interest (sic) as follows:
1,703 Interests at $25,500 = $43,426,500…’.
Mr Watson signed the letter, as managing director of Barkley. On 21 December 1998, the cheque was deposited in Cardinal’s Applications Account with NAB (‘the Cardinal Applications Account’). It was debited to the BFC Account on 22 December 1998 and was credited to the Cardinal Applications Account on that day.

In any event, it is difficult to characterise a cause of action that arises solely as a consequence of statute as a cause of action in tort. In the absence of anything further, a contravention of s 1073(1A) of itself would not give rise to a cause of action. Absent a provision such as s 1005, there would be no cause of action arising by reason of the contravention. Section 1073(1B) provides that a person who contravenes s 1073(1A) is not guilty of an offence. However, s 1005(1) provides that a person who suffers loss or damage by conduct of another person that was engaged in in contravention of s 1073(1A) may recover the amount of the loss or damage by action against that other person. While s 1005(3) provides that s 1005(1) does not affect any liability that a person has under any other law, that reservation cannot alter the character of a claim under s 1005.
Ms Lukey’s claim against Cardinal in respect of the payments made by her (other than the claim for breach of trust in respect of the sum totalling $1,150) are entirely statutory. The right to bring it is conferred by s 1005. In a case based on breach of statutory duty, the cause of action is tortious. The statute does not in terms confer the cause of action. Rather, the Court determines that, on the proper construction of the statute, the legislature intends a person within its purview, who is injured as a result of its breach, to have a right of action – see Australia and New Zealand Banking Group Limited v Turnbull & Partners (1991) 33 FCR 265 at 277.
I do not consider that Cardinal’s liability to Ms Lukey by reason of its contravention of s 1073(1A), by breaching the covenants in the Project Deed, constituted a tort by Cardinal within the meaning of the Tortfeasors Contribution Act.
Apportionment of the Costs
The right conferred by the Tortfeasors Contribution Act on a tortfeasor to recover contribution from a concurrent tortfeasor, extends to, and includes any, costs recoverable by the claimant (see James Hardie & Co Pty Ltd v Wyong Shire Council (2000) 48 NSWLR 679) (“James Hardie”). However, the rationale for that principle must be understood in order to determine the extent to which a tortfeasor is entitled to contribution from a concurrent tortfeasor. I have concluded that the Tortfeasors Contribution Act does not apply. If I had concluded to the contrary, it would have been necessary to determine the appropriate proportion of the costs that Cardinal agreed to pay to Ms Lukey that would be appropriate for contribution pursuant to the Tortfeasors Contribution Act.
The underlying concept is that costs properly incurred in establishing the damage suffered as a consequence of the conduct of two joint tortfeasors are properly the subject of contribution. However, costs incurred in establishing the negligence of one tortfeasor are not properly the subject of contribution, except to the extent that those costs also establish the liability of the second joint tortfeasor. That is to say, it must be possible to show that the costs visited on the first tortfeasor could properly have been visited on the second tortfeasor.
The principle is one of natural justice, operating both at law and in equity, directed to achieving an equality of benefit and burden. It can be brought within the concept of unjust enrichment (James Hardie at [36]). The assumption is that the tortfeasor found liable and the concurrent tortfeasor are under coordinate liabilities to make good the one loss as to damage. The Tortfeasors Contribution Act reinstated the principle of natural justice, but went further by specifically providing for unequal contribution between the tortfeasors. The tortfeasor found liable and the concurrent tortfeasor are, in one sense, not under coordinate liabilities to make good the one loss as to costs. That is because the order in favour of the claimant is made only against the tortfeasor found liable. For there to be complete recognition of the principle of natural justice and equity of benefit and burden, costs should be treated in the same way as damages. If the claimant had sued the concurrent tortfeasor, and the concurrent tortfeasor would have been ordered to pay the costs, natural justice and equality of benefit and burden would require the concurrent tortfeasor to contribute to the costs incurred by the tortfeasor found liable.
However, natural justice and equity of benefit and burden would not require a concurrent tortfeasor to contribute to costs incurred by the tortfeasor found liable that had nothing to do with the liability of the concurrent tortfeasor (see James Hardie at [40]). In the present case, a substantial part of the costs that Cardinal has agreed to pay to Ms Lukey were incurred by Ms Lukey in establishing the liability of Cardinal. Much of that had nothing to do with the possible liability of either Ms Ibrahim or Hartford. For example, a considerable part of the hearing was directed to establishing whether or not the Expenditure Qualifying Conditions had been satisfied and whether there was misleading or deceptive conduct on the part of Cardinal in relation to the Prospectus. If any contribution were appropriate under the Tortfeasors Contribution Act, the contribution should only be in respect of a relatively small proportion of the total costs in question of $2,100,000. Hartford and Ms Ibrahim contend that no more than 30 to 40 per cent of the costs were referable to establishing matters that were irrelevant to the liability of Hartford or Ms Ibrahim.
The question of Ms Ibrahim’s liability to Ms Lukey required an examination of the circumstances that led to Ms Lukey making the proposed investment in the Project. Those matters were also necessarily examined in order to determine Ms Lukey’s entitlement to recover damages from CIAFM and Cardinal, based on her reliance upon statements in the Prospectus. However, Cardinal was not liable to Ms Lukey in respect of alleged contravention of the Law by reason of the statements contained in the Prospectus. Cardinal’s liability in respect of the sums of $1,150 paid by Ms Lukey in December 1998 was for breach of trust.
On the other hand, it was necessary to examine in detail the circumstances in which Ms Lukey paid the sum of interest to Barkley in January 2000, in order to establish Cardinal’s liability to her for that sum. There was a degree of overlap, therefore, in relation to establishing Ms Lukey’s entitlement, if there were any, to recover damages from Ms Ibrahim and Hartford in respect of that loss. If it were necessary for me to determine the matter, I would conclude that no more than 30 per cent of the sum of $2,150,000 is referable to matters that natural justice and equity of benefit and burden would require should be the subject of contribution by Ms Ibrahim.
Cardinal says that the effect of the agreement between Hartford and Ms Ibrahim, on the one hand, and Cardinal, on the other, concerning the quantum of costs is to preclude Hartford and Ms Ibrahim from advancing the contentions just outlined. As I have said, the parties to the Cross-Claim agreed that the reasonable costs and disbursements of Ms Lukey’s claim against Cardinal, as assessed on a party/party basis, was $2,150,000. The parties further agreed that Cardinal’s claim against Hartford and Ms Ibrahim was for contribution towards the sum of $2,152,337.28, being the amount of the judgment entered in favour of Ms Lukey against Cardinal together with the sum of $2,150,000 for party/party costs. Cardinal contends that under this agreement, if it is entitled to an amount in respect of contribution or indemnity, it is entitled to the full amount. Cardinal says that it is not open to Ms Ibrahim and Hartford to contend that contribution or indemnity should be considered only in respect of a lesser sum.
I raised with the parties at a relatively early stage in the argument on the Cross-Claim whether any issue was to be taken by Hartford and Ms Ibrahim concerning the quantification of the claim for contribution in respect of costs. Initially, an unequivocal intimation was given that Hartford and Ms Ibrahim accepted that, if there was any right to contribution or indemnity on the part of Cardinal, the right of indemnity or contribution would extend to the whole of the costs. It was not until after the agreement to which I have just referred that arguments were advanced on behalf of Ms Ibrahim and Hartford to the effect that contribution should be limited to only a proportion of the sum of $2,150,000 for costs.
In the light of the conclusion that I have reached concerning liability on the part of Hartford and Ms Ibrahim to Ms Lukey, it is unnecessary to resolve any question as to the effect of the agreement. However, if I were required to do so, I would conclude that the effect of the agreement is that Ms Ibrahim and Hartford accept that the amount in respect of which contribution or indemnity should be determined is the sum of $2,152,337.28.
Appropriate Contribution
It is important to observe at the outset that, if Cardinal had not breached its obligations under the Project Deed and under the Law, Ms Lukey would have suffered no loss at all. Further, questions arise, in determining the respective responsibility of Cardinal and Ms Ibrahim for the damage suffered by Ms Lukey, as to whether the statutory duty owed by Cardinal under the Law was owed not only to prospective Participants, but also to their advisers, such as a person in the position of Ms Ibrahim.
That is to say, whether or not the Project was an appropriate investment for Ms Lukey, the loss and damage that she suffered would have been avoided if Cardinal had ascertained that the Expenditure Qualifying Conditions had not been satisfied. Had it done so, Ms Ibrahim would never have been in a position to speak to Ms Lukey about investment in the Project and there could be no question of breach of duty in Ms Ibrahim.
Had the Expenditure Qualifying Conditions been satisfied, the Project may well have been successful. In those circumstances there would be a real question as to whether, irrespective of any breach of duty by Ms Ibrahim, Ms Lukey would have suffered no loss. Putting it in another way, it would be just and equitable for Ms Lukey to be exempted from liability to make contribution, having regard to the overreaching responsibility of Cardinal to ensure that Subscription Moneys are kept safe and the Project not be permitted to commence until the Expenditure Qualifying Conditions had been satisfied.
It has not been suggested that Ms Lukey was any worse off under the arrangement entered into with Barkley in August 1999 than she would have been, had ATF provided finance pursuant to the offer that she signed on 4 December 1998. Cardinal seeks, in effect, to take advantage of the purely fortuitous fact that, before Ms Lukey had actually entered into the arrangement with Barkley, there was ground for significant disquiet concerning the health of CIAFM and the Project itself.
Cardinal’s breach of the covenants of the Project Deed, giving rise to a contravention of s 1073(1A), clearly resulted in Ms Lukey’s loss in paying interest to Barkley in January 2000. Cardinal’s breach was a continuing one. Cardinal was under an obligation to inform Participants at all times after 30 June 1998 that it had failed to act diligently in protecting their interests. Cardinal’s claims that Ms Lukey and Hartford should be held liable for failing to ascertain the egregious breaches which Cardinal itself had committed. It says, in effect, that Hartford and Ms Ibrahim ought to have known that the Project was failing, because it had no technology, and should therefore have advised Ms Lukey of the risk of breaching her obligations under the contract made when she signed the application form. Cardinal makes that assertion in circumstances where it had all of the machinery and procedures available to it under the Project Deed to know precisely what the position was. Cardinal chose to exercise none of the rights that it held for the benefit of Participants. Yet, it says that Ms Ibrahim and Hartford should contribute to the loss that it received fees to avoid.
If the question arose, I consider that it would be just and equitable to exempt Ms Ibrahim and Hartford from liability to make contribution.
Contribution In Equity For Co-Ordinate Liability
In the Cross-Claim Cardinal says that, if Cardinal is liable to Ms Lukey for damages or compensation on any of the bases alleged in the Statement of Claim, then each of Ms Ibrahim and Hartford is a person who would, if sued by Ms Lukey, have an equivalent co-ordinate liability to her. Cardinal then claims from Ms Ibrahim and Hartford contribution or indemnity in Equity for any liability that Cardinal is held to have to Ms Lukey.
Cardinal says that it was liable to Ms Lukey under s 1005 of the Law by reason of its contravention of s 1073(1A), which is a statutory liability. It says that Ms Ibrahim and Hartford are liable to Ms Lukey, by reason of their contravention of s 42 of the Fair Trading Acts and s 52 of the Trade Practices Act respectively. Thus, Cardinal says, the respective liabilities of Cardinal, on the one hand, and Ms Ibrahim and Hartford, on the other hand, are co-ordinate because:
- each is a statutory liability;
- each involves liability without any subjective element;
- each is directed to consumer protection, and
- each gives rise to a liability for the same loss or damage.
In the course of address, Cardinal stated that that is the only basis of its claim to contribution or indemnity in equity.
Having regard to the conclusion that I have reached concerning liability of Ms Ibrahim and Hartford, it is necessary to deal with the question of equitable contribution only on a hypothetical basis. A distinction must be drawn between liability for the loss of $1,150, liability for the loss of $2,452.80 and liability for the costs of $2,150,000.
The principle of equitable contribution requires that those who are jointly or severally liable in respect of the same loss or damage should contribute to the compensation payable in respect of that loss or damage. The doctrine applies both at common law and in equity and is usually expressed in terms requiring contribution between parties who share co-ordinate liabilities or a common obligation to make good the one loss. The doctrine of coordinate liability depends on common interest and common burden. The right to contribution depends upon whether the liability was of the same nature and to the same extent. That requirement includes notions of equal or comparable culpability and equal or comparable causal significance – see Burke v LFOT Pty Limited (2002) 209 CLR 282 at [14] to [16].
The doctrine of equitable contribution is founded on concepts of fairness and natural justice. In this context, natural justice requires that, if one of several persons has paid more than his proper share towards discharging a common obligation, he is entitled to be compensated by those who have not – Albion Insurance Co Ltd v Government Insurance Office of New South Wales (1969) 121 CLR 342 at 351.
The circumstances in which a court will order contribution are not closed and a difference in the causes of action pursuant to which two parties are liable will not necessarily preclude an order for contribution, provided liability of each is of the same nature and to the same extent. Nevertheless, the doctrine will not apply if the obligations in question are merely owed to the same party or are otherwise connected in time or circumstance. Nor will it apply merely because the claimant’s payment has benefited or relieved the other party financially. It is only where there is a community of interest, such as where the parties are involved in a common design to achieve a common end, that it would be inequitable for the party against whom the contribution is sought to keep the benefit it derives from the claimant discharging its obligations – Burke v LFOT Pty Ltd at [44], [48] and [49].
So far as concerns the liability in relation to the loss of $1,150 in December 1998, there could be no basis for concluding that any liability of Ms Ibrahim is co-ordinate with that of Cardinal. Cardinal is liable for paying away, in breach of trust, money that it held on trust. Ms Ibrahim’s liability, if she had any in respect of that sum, would be for failing to advise Ms Lukey as to the risks that the subscription moneys that she was to pay partly from her own funds and partly from a loan from ATF, may not be allowed as deductions. However, if the Project had been a success, whether or not she was allowed a deduction for the payments, she would have suffered no loss.
From another point of view, however, if Cardinal had performed its obligations as trustee and had discharged its obligations under the covenants contained in the Project Deed, the loss could never have occurred, because the Project would never have commenced. The Expenditure Qualifying Conditions were to be satisfied by 30 June 1998, or such later date as might have been fixed before then. Ms Ibrahim was just as much a victim of Cardinal’s default as was Ms Lukey. It is completely without substance to suggest that Ms Ibrahim’s liability, if she had any, to Ms Lukey was coordinate with that of Cardinal in relation to the loss of the sum of $1,150.
Cardinal says, however, that its liability for breach of trust should be ignored and that the only liability that should be taken into account is its liability under s 1005 of the Law by reason of its contravention of s 1073(1A). Cardinal contends that, while it may have been liable for breach of trust in paying away money that it held on trust, that should be ignored in favour of its liability under s 1005 by reason of its contravention of s 1073(1A). There has been some fluidity in Cardinal’s position in that regard. It was only at the end of oral submissions in reply that it became apparent that Cardinal’s position was founded upon liability under s 1005 of the Law.
However, even if one ignores Cardinal’s breach of trust in paying away $1,150, its liability under s 1005 in respect of that amount is not in any way commensurate with any liability that Ms Ibrahim might have under s 42 of the Fair Trading Act. For the reasons advanced above, Ms Ibrahim would never have been in a position to offer Interests in the Project if Cardinal had discharged its duty and ascertained that the Expenditure Qualifying Conditions had not been satisfied.
It is by no means clear that Ms Lukey suffered a loss in respect of the sums totalling $1,150 by reason of Cardinal’s contravention of s 1073(1A) of the Law. If Cardinal had not acted in breach of trust, Ms Lukey would not have suffered any loss in that regard. I am not persuaded that Cardinal was liable to Ms Lukey for the sum of $1,150 under s 1005 of the Law. On the other hand, it was clearly liable to Ms Lukey for its breach of trust in paying away the money that it held on trust for Ms Lukey.
The loss in relation to the payment of interest to Barkley may be in a different category. The thrust of Cardinal’s complaint is that Ms Lukey should have been advised not to enter into the arrangements with Barkley, or with anyone else, to borrow money to pay for Subscription Moneys to CIAFM.
However, the underlying cause of the loss in that regard is referable to Cardinal’s default as at July 1998 and its continuing default thereafter, in acting on the basis that the Expenditure Qualifying Conditions had been satisfied as at that date. Had Cardinal discharged its obligations, by exercising due diligence in its position under the Project Deed, the occasion for consideration of whether Ms Lukey should enter into alternative financing arrangements concerning her investment in the Project would never have arisen. The dilemma in which Ms Lukey found herself in 1999 would never have arisen but for Cardinal’s default.

Ms Ibrahim and Hartford, on the one hand, and Cardinal, on the other, were involved with Ms Lukey in totally disparate and unconnected capacities. On the hypothesis upon which the question of contribution arises, Ms Ibrahim and Hartford were in breach of a duty to advise Ms Lukey not to make any payment to CIAFM pursuant to her application for an Interest in the Project. The hypothesis is that Hartford and Ms Ibrahim knew, or ought to have known, enough about the deficiencies of the Project that they were under a duty to advise Ms Lukey not to obtain fresh finance for her obligation to pay application monies, or alternatively were in breach of some duty to her in advising her that she should make arrangements to finance the obligation that had arisen pursuant to her application for an Interest in the Project.
On the hypothesis upon which the claimed contribution in equity by reason of co-ordinate liabilities arises, Ms Lukey was advised to enter into the arrangements with Barkley in order to discharge her obligation to CIAFM to pay the balance of the sum of $25,000 for her Interest in the Project. However, there was no community of interest on the part of Hartford and Ms Ibrahim, on the one hand, and Cardinal, on the other, in having Ms Lukey make that payment, through her borrowing from Barkley. There was no common design on the part of Hartford and Ms Ibrahim, on the one hand, and Cardinal, on the other, in causing Ms Lukey to enter into the arrangements with Barkley. Cardinal had no interest whatsoever in having Ms Lukey discharge her obligations to CIAFM. Even if, on the hypothesis in question, Hartford and Ms Ibrahim have a liability to Ms Lukey by reason of their advice in relation to the arrangements with Barkley, it would not be inequitable for Cardinal to bear the whole of the loss suffered by Ms Lukey, which would never have been suffered had Cardinal acted diligently in looking after the rights and interests of Ms Lukey as it was obliged to do.
I do not consider that the liability of Ms Ibrahim or Hartford in relation to Ms Lukey’s commitment in August 1999 to Barkley is, in any relevant sense, co-ordinate with the liability of Cardinal for failing to act diligently in ascertaining whether or not the Expenditure Qualifying Conditions had been satisfied as at 30 June 1998. In those circumstances, no question of contribution towards the costs for which Cardinal became liable in resisting Ms Lukey’s claims would arise.
CONCLUSION AS TO THE CROSS-CLAIM
The Cross-Claim should be dismissed. Cardinal should pay Ms Ibrahim’s costs of the Cross-Claim and Hartford’s costs of the Cross-Claim.

I certify that the preceding three hundred and sixty-five (365) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.
Associate:
Dated: 23 March 2005

Counsel for the Cross-Claimant:

T G R Parker with R E Steele

Solicitors for the Cross-Claimant:

Allens Arthur Robinson

Second Cross-Respondent:

Ms Ibrahim appeared in person

Counsel for the Third Cross-Respondent:

G Lucarelli

Solicitor for the Third Cross-Respondent:

Sparke Helmore

Date of Hearing:

8, 9, 10, 11, 12, 15, 16, 17, 18, 22, 23, 24, 25, 26, 29, 30 September, 1, 20, 21, 22, 23, 24, 28, 29, 30 October, 8, 9, 11, 12, 16, 17, 18 December 2003, 28, 29, 30 June, 2 July, 29, 30 November, 1, 2, 3, 15 December 2004

Date of Judgment: 23 March 2005

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N1348 OF 2000

BETWEEN:	SAMANTHA JAYNE LUKEY APPLICANT
AND:	CORPORATE INVESTMENT AUSTRALIA FUNDS MANAGEMENT PTY LIMITED (ACN 059 438 514) FIRST RESPONDENT TRACKNET AUSTRALIA PTY LIMITED (ACN 079 730 466) SECOND RESPONDENT CARDINAL FINANCIAL SECURITIES LIMITED (IN LIQUIDATION) (ACN 058 650 212) THIRD RESPONDENT JOHN CHARLES KERIN FOURTH RESPONDENT GARRY MARTIN WHITE FIFTH RESPONDENT
FIRST CROSS-CLAIM Discontinued 6 February 2004
SECOND CROSS-CLAIM
BETWEEN:	CARDINAL FINANCIAL SECURITIES LIMITED (IN LIQUIDATION) (ACN 058 650 212) CROSS-CLAIMANT
AND:	FINANCE AND PLANNING INSURANCE & SUPERANNUATION CONSULTANTS PTY LIMITED (ABN 45 080 753 797) FIRST CROSS-RESPONDENT SHERIN IBRAHIM SECOND CROSS-RESPONDENT THE HARTFORD GROUP PTY LIMITED (ACN 084 348 167) THIRD CROSS-RESPONDENT ANTHONY ARTHUR CUNNINGHAM FOURTH CROSS-RESPONDENT GLEN-JOHN LACELLES SMITH FIFTH CROSS-RESPONDENT
THIRD CROSS-CLAIM Dismissed 11 December 2003
FOURTH CROSS-CLAIM Dismissed 11 December 2003
FIFTH CROSS-CLAIM Dismissed 4 June 2004
SIXTH CROSS-CLAIM Discontinued 8 December 2003
JUDGE:	EMMETT J
DATE:	23 MARCH 2005
PLACE:	SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N1348 OF 2000

‘Risks of Participation	Marketing risk There is no guarantee that it will be possible to either penetrate existing markets, or widen them, in order to achieve the revenue projections set out in the section titled Indicative Financial Figures. Alternative and competitive products may appear on the market. Anticipated returns may not occur. Market development may be slower than anticipated, or markets for the products produced may not eventuate. Projected prices for products may not be achieved. …
Technical risk There is no guarantee that the research and development work of the Developer will be successful in maintaining the marketability of TrackNet^TM. New technology and techniques need to be continually developed to meet evolving consumer, market and regulatory standards.
Tax risk Taxation consequences of the Project are detailed in the Taxation Adviser’s Report, pages 39-49 of this Prospectus. The Manager refers Participants to the risks identified by Deloitte Touche Tohmatsu and advises that Participants should seek their own independent tax advice.’

1998	1999	2000	2001	2002
Transponder Unit Sales (no.)	-	6,500	13,000	13,650	14,333
Income ($,000)
Transponder Unit Sales	-	5,038	10,377	11,223	12,137
Monitoring (units sold in current year)	-	1,560	3,214	3,476	3,759
Monitoring (units sold in previous years)	-	-	1,366	4,009	6,553
Stand Alone Systems	-	-	1,000	1,030	1,061
Total Income ($,000)	-	6,598	15,957	19,738	23,510
Total Expenditure ($,000)	25,000	4,175	9,637	12,061	14,477
Profit ($,000)	(25,000)	2,423	6,320	7,677	9,033
Per Interest ($)	(25,000)	2,423	6,320	7,677	9,033

Inflow	1998	1999	2000	2001	2002
Net Income	-	2,423	6,320	7,677	9,033
Total Inflow	-	2,423	6,320	7,677	9,033
Outflow
Management Fee	25,000
Market Entitlement Area Fee	500
Tax on gross revenue @ 48.5%	-	1,175	3,065	3,723	4,381
Total Outflow	25,500	1,175	3,065	3,723	4,381
Net Cash Flow	(25,500)	1,248	3,255	3,954	4,652
Cumulative Cash Flow per Interest	(25,500)	(24,252)	(20,997)	(17,043)	(12,391)’.

Counsel for the Cross-Claimant:	T G R Parker with R E Steele
Solicitors for the Cross-Claimant:	Allens Arthur Robinson
Second Cross-Respondent:	Ms Ibrahim appeared in person
Counsel for the Third Cross-Respondent:	G Lucarelli
Solicitor for the Third Cross-Respondent:	Sparke Helmore
Date of Hearing:	8, 9, 10, 11, 12, 15, 16, 17, 18, 22, 23, 24, 25, 26, 29, 30 September, 1, 20, 21, 22, 23, 24, 28, 29, 30 October, 8, 9, 11, 12, 16, 17, 18 December 2003, 28, 29, 30 June, 2 July, 29, 30 November, 1, 2, 3, 15 December 2004
Date of Judgment:	23 March 2005