Messer v Lotus Securities Limited
[2018] FCA 1147
•3 August 2018
FEDERAL COURT OF AUSTRALIA
Messer v Lotus Securities Limited [2018] FCA 1147
File number: VID 612 of 2017 Judge: DAVIES J Date of judgment: 3 August 2018 Catchwords: CORPORATIONS – unconscionable conduct under ss 12CA and/or 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) – scope of statutory unconscionability under s 12CB – whether inference could be drawn that respondent acted unconscionably – whether first applicant suffered cognitive impairment – whether first applicant’s cognitive impairment apparent to persons without medical training – when first applicant’s cognitive impairment was apparent – whether first applicant had capacity to sign legal documents – non-disclosure of true financial position of company procuring investments
DAMAGES – whether loss claimed has been established – measure of damages
Legislation: Australian Securities and Investments Commission Act 2001 (Cth) Cases cited: Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2000) 96 FCR 491
Australian Competition and Consumer Commission v Samton Holdings Pty Ltd (2002) 117 FCR 301
Commercial Bank of Australia v Amadio (1983) 151 CLR 447
Director of Consumer Affairs Victoria v Scully (No 3) (2013) 303 ALR 168
Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388
Paciocco v ANZ Banking Group (2015) 236 FCR 199
Date of hearing: 9 and 10 July 2018 Registry: Victoria Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Category: Catchwords Number of paragraphs: 43 Counsel for the Applicants: Mr D Collins QC with Mr J Richardson Solicitor for the Applicants: Mansour Lawyers Counsel for the First Respondent: The First Respondent did not appear Counsel for the Second Respondent: The Second Respondent did not appear
Table of Corrections 15 August 2018 References to “applicant” in the catchwords have been changed to “first applicant”. 15 August 2018 References to “the applicant” have been changed to “the applicants” throughout the judgment. 15 August 2018 Tracey Anne Messer has been listed as the second applicant on the Orders page. 15 August 2018 In paragraph 1, “first” has been inserted before “applicant”, and “the second applicant,” has been inserted before “his litigation representative”. ORDERS
VID 612 of 2017 BETWEEN: KEITH BRIAN MESSER
First Applicant
TRACEY ANNE MESSER (in her capacity as trustee of the Keith Messer Superannuation Fund)
Second ApplicantAND: LOTUS SECURITIES LIMITED (ACN 121 418 317)
First Respondent
AMMA PRIVATE EQUITY PTY LTD (ACN 141 464 208)
Second Respondent
JUDGE:
DAVIES J
DATE OF ORDER:
3 AUGUST 2018
THE COURT ORDERS THAT:
1.The second respondent pay damages to the applicants in the sum of $6,600,000.
2.The second respondent pay the costs of the applicants, such costs to be taxed in default of agreement.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
DAVIES J:
The first applicant (“Mr Messer”), by the second applicant, his litigation representative and daughter (“Ms Messer”), seeks damages against the second respondent (“AMMA”) for the contravention of ss 12CA and/or 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) (“the ASIC Act”) in relation to financial services that AMMA provided to Mr Messer.
Section 12CA provides:
(1)A person must not, in trade or commerce, engage in conduct in relation to financial services if the conduct is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories.
(2)This section does not apply to conduct that is prohibited by section 12CB.
Section 12CB provides:
(1) A person must not, in trade or commerce, in connection with:
(a)the supply or possible supply of financial services to a person (other than a listed public company); or
(b)the acquisition or possible acquisition of financial services from a person (other than a listed public company);
engage in conduct that is, in all the circumstances, unconscionable.
(2)This section does not apply to conduct that is engaged in only because the person engaging in the conduct:
(a)institutes legal proceedings in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition; or
(b)refers to arbitration a dispute or claim in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition.
(3)For the purpose of determining whether a person has contravened subsection (1):
(a)the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and
(b)the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section.
(4)It is the intention of the Parliament that:
(a)this section is not limited by the unwritten law of the States and Territories relating to unconscionable conduct; and
(b)this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and
(c)in considering whether conduct to which a contract relates is unconscionable, a court’s consideration of the contract may include consideration of:
(i) the terms of the contract; and
(ii)the manner in which and the extent to which the contract is carried out;
and is not limited to consideration of the circumstances relating to formation of the contract.
(5)In this section:
listed public company has the same meaning as it has in the Income Tax Assessment Act 1997 (Cth).
Mr Messer is in his 80s and since 2012 has suffered from Alzheimer’s disease. The alleged unconscionable conduct of AMMA was procuring Mr Messer to subscribe for shares in a company called Guvera Limited (“Guvera”) when it would have been apparent that he was suffering from a disability and was not in a position to evaluate and exercise proper judgment concerning the investment by reason of his disability. Mr Messer seeks damages in the amount of $6,600,000.
Mr Messer has not pursued the other causes of action set out in his amended concise statement against AMMA or his claim for damages against the first respondent (“Lotus”). AMMA had legal representation until the last business day prior to the trial commencing on 9 July 2018, but on 6 July 2018 AMMA terminated the retainer of its lawyers and did not appoint another lawyer to represent it. AMMA also gave notice to Mr Messer’s lawyers that it did not intend to appear at the hearing and the hearing proceeded unopposed. Evidence was led on behalf of Mr Messer in support of his claim. For the reasons that follow I find that AMMA engaged in unconscionable conduct in contravention of ss 12CA and 12CB of the ASIC Act and that the loss claimed by Mr Messer by reason of AMMA’s unconscionable conduct has been established.
Until its liquidation in 2016, Lotus was a provider of financial services advice and held an Australian Financial Services Licence that permitted it to provide advice about and to deal in securities. AMMA was a licenced representative of Lotus and, relevantly, it was exclusively responsible for raising capital for Guvera by procuring investors to subscribe for shares in Guvera.
In an offer to shareholders sent in April 2014, Guvera gave the following description of its business:
The Company is a technology company established to provide a solution to the current global problem of illegal downloading of copyright digital content while simultaneously addressing the need of marketers for a more targeted medium than currently being offered by traditional methods.
The Company provides a transactional model for digital entertainment to be bought and sold. The Company has developed a software application that makes the transactional model available over web and mobile interfaces. The transactional model is linked to the Company’s database that tracks content transacted and enables payment to content owners, thereby investing in the entertainment industry and enabling consumer brands to build campaigns that target consumers.
Sometime in late 2012, Mr Messer was introduced to representatives of AMMA by his accountant, Vince Cook of Summit Financial Services. Over the next two years, on the advice and recommendation of AMMA, Mr Messer entered into contracts to purchase shares in Guvera both on his own account and as trustee of his superannuation fund (“KMSF”). The table below sets out the relevant purchases.
Purchaser
Date of Agreement
Number of shares purchased
Price per share
Total contract price
Date purchase price paid
1
Messer
17/11/12
500,000
$1.00
$500,000.00
19/11/12
2
KMSF
6/8/13
500,000
$1.00
$500,000.00
30/7/13
3
KMSF
5/2/14
200,000
$2.50
$500,000.00
5/2/14
4
KMSF
22/5/14
33,334
$3.00
$100,000.00
26/5/14
5
KMSF
28/7/14
524,416
$2.50
$1,311,716.70
28/7/14
and 30/7/14
6
Messer
28/7/14
675,585
$2.50
$1,688,283.30
28/7/14
7
Messer
7/10/14
600,000
$1.00
$600,000.00
7/10/14
8
Messer
7/10/14
1,200,000
$2.00
$2,400,000.00
7/10/14
TOTAL
$7,600,000.00
Evidence was led from Dr Samantha Hutson (“Dr Hutson”), a medical specialist practising in the field of geriatric medicine, about Mr Messer’s ability in 2012, 2013 and 2014 to understand, evaluate and make decisions about his business and financial affairs. Dr Hutson first saw Mr Messer in December 2014, after a referral from Mr Messer’s GP. Dr Hutson opined that Mr Messer had a cognitive impairment which was clinically evident at his appointment on 15 December 2014, and met the diagnostic criteria for brain disease classified as a major neurocognitive disorder, also known as dementia. In her opinion the level of impairment at the appointment in December 2014 was at an advanced stage, with severe loss of brain function. Dr Hutson further opined that even to people without any healthcare related experience or any knowledge about cognitive impairment disorders, Mr Messer’s cognitive problems would have been overt to the untrained person in 2014. She stated that they would have noticed his poor word production and sentence structure which made understanding the content of his speech difficult, his repetition of comments and vague answers would further have impacted upon communication, and it would have been very obvious that he had memory problems. Further, Dr Hutson gave oral evidence that “in no way at the time of mid-2014 would I expect he [had] been able to sign any legal documents [with any true understanding], since he was unable really to remember his wife’s name, [and] took time to describe his current living arrangements”; that his “ability to then project his thoughts to complex abstract matters would be sincerely impaired”; and that his ability to communicate was such that “it would be very, very difficult, in fact, to understand, if he was trying to express complex abstract concepts, because he was unable to state them simply and succinctly”.
Dr Hutson also expressed her expert view on Mr Messer’s decision making abilities in 2012. Based on her clinical experience, information provided by Ms Messer, as well as the way that Mr Messer presented at the appointment, Dr Hutson was able to infer Mr Messer’s “most probable abilities” in 2012. In her opinion, in 2012, Mr Messer had changes of dementia consistent with a “mild” stage as various people had noted problems with complex and abstract cognitive abilities. In her opinion it is highly probable that people who had regular contact with him for some years would have noticed a change in his thinking compared to prior interactions and this would have been more apparent in situations requiring decisions about complex matters, and progressively more so as the details and intricacies were considered. She believed that it is highly probable that Mr Messer would not have been able cognitively to perform to his usual standard in 2012 when attending to the details of business and business-related financial matters, and of a sufficient degree to be apparent to those who had business relationships with him in the past. However, it was not her evidence that it would have been apparent to people in 2012 who had not had prior dealings with him that his cognitive abilities were impaired. Ms Messer on Mr Messer’s behalf accordingly does not pursue a damages claim for the investment that Mr Messer made on 17 November 2012. Likewise, whilst in Dr Hutson’s opinion Mr Messer’s dementia was “moderate” by late 2013, the evidence did not establish that his cognitive problems would have been overt to the untrained person in 2013 and accordingly a damages claim is also not pursued for the second investment that he made on 6 August 2013. The claim for damages is pursued only with respect to the investments made in 2014.
In her expert report Dr Hutson set out in detail her reasons for the opinions that she expressed. There is no reason to doubt the reliability of her expert evidence, which I accept.
Evidence was also led from Ms Messer and from Valeen Christensen (“Ms Christensen”).
Ms Messer gave evidence of Mr Messer leaving school early in high school and the fact that prior to 2012 he was a very conservative investor. She also gave evidence of Mr Messer’s unfamiliarity with such things as computers, iPads and mobile phones. Ms Messer’s evidence was that she first really started to notice her father’s decline in around 2013 when “he would have difficulty recalling what he had done”.
Ms Messer first became aware that her father had invested in Guvera when she visited her father at Christmas 2012. He told her about a trip to the Gold Coast with his accountant and purchasing $500,000 of shares in a company with a name he could not recall. He also could not tell her what the company did other than it was something to do with free music on the internet. He could not locate any paperwork relating to this purchase.
In late 2013, Ms Messer became aware through her father’s accountants that her father had purchased a further $500,000 of shares in Guvera, this time in the name of his superannuation fund of which she was a co-trustee. Ms Messer sought more information from them about the investments because her father was unable to tell her anything about Guvera or how much he had invested. They suggested to her that she attend a seminar that AMMA was having soon about investment in Guvera.
In March 2014 Ms Messer attended a seminar on Guvera conducted by James Forrestel (“Mr Forrestel”) of AMMA. Her father went with her. Whilst Ms Messer’s recollection of what was said at the seminar was hazy, she did recollect that Mr Forrestel said that Guvera was doing very well and there was no mention of any losses. Contemporaneous notes that she took during the seminar confirmed the reliability of this evidence.
After the seminar Ms Messer briefly met with Mr Forrestel and her father’s accountants, Vince and Corina Cook, and arranged to meet with Mr Forrestel the following day.
Ms Messer could not recall whether it was at the seminar or on the following day that she learnt from Mr Forrestel, who had been dealing with Mr Messer since mid-2013, that her father had already invested $1.5 million in Guvera. Mr Forrestel also advised that her father could invest further in the company. She said that she told Mr Forrestel that she did not believe that her father would be investing further in Guvera as he had invested enough. Her father was present at that meeting but said nothing as she and Mr Forrestel spoke about his financial affairs, other than to ask about his paperwork on several occasions. After the meeting she spoke with her father about Guvera and her father said he was not going to invest any more.
Concerned with her father’s business affairs, on 13 March 2014 she visited Vince Cook and signed an authority so that in future she would be kept informed of her father’s financial affairs as she was concerned that her father did not have all his faculties to make those decisions.
Later in July 2014 she was also appointed her father’s sole power of attorney. On the day of signing the new power of attorney she visited the Commonwealth Bank and provided the bank with a copy and arranged for access to her father’s account information through internet banking so she could keep an eye on his finances from Clermont, where she lived.
Shortly after obtaining access to her father’s account details, Ms Messer noticed that there was another withdrawal from his Commonwealth Bank account for investment in Guvera. After discovering the further payment, she emailed Vince Cook stating that she had a concern about what was going on as her father had difficulty telling her very much about the investments. She asked for the documentation on the share purchases, including disclosure documents relating to the commissions or benefits that Summit Financial Services and AMMA received from her father’s purchases. She did not receive any reply or the information requested.
In or about September 2014 the Messer family (including Mr Messer and Ms Messer) went to Hamilton Island for a long weekend for Ms Messer’s brother’s 50th birthday. While the family were together it became apparent to them that Mr Messer’s condition had deteriorated significantly as he could not remember his ex-wife’s (and mother of Ms Messer and her siblings) name, could not recall anything in the past few months and was generally confused. As a result of the family’s observations of Mr Messer during the Hamilton Island trip it was agreed that Ms Messer, who had been living in Clermont, would move back to Hervey Bay to care for him, which she did the following month.
When back in Hervey Bay she attended Auswide Bank with her father and met with Ms Christenson, who told Ms Messer about two visits that her father had made to the bank with a man who assisted him to make large withdrawals which involved breaking term deposits. She then became aware that his investment in Guvera had reached to around $8 million. She raised these matters with her father who became very anxious and upset and said it was not true.
Ms Messer contacted AMMA and spoke to Andy Nematalla. She told him that she was very unhappy as she did not believe that her father was aware or had the capacity to invest that amount of money. Mr Nematalla said that Mr Forrestel would come to speak with her. He also offered her a laptop and Rolling Stones tickets, something he repeated in a letter to her and Mr Messer dated 28 October 2014.
Mr Forrestel contacted Ms Messer and arranged to meet her and Mr Messer in Hervey Bay. At that meeting Ms Messer aired her grievances about Mr Messer’s investments, saying that he could not remember and did not understand that he had made several investments and all he could tell her was that he did not get the paperwork. Mr Forrestel said that the company was going really well and Mr Messer would make in excess of $40 to $50 million. Mr Forrestel also said that he believed that her father did understand the investments and he had also spent a week explaining the investments to Mr Messer prior to the investments he made in July and October 2014.
Ms Christenson gave evidence that between 2001 and 2015 she was a customer services operator at Mr Messer’s local branch of Auswide Bank. During this time she came to know Mr Messer on a professional basis. She said that for the first ten years or so of dealing with Mr Messer, she saw him a dozen or so times a year, and he was an organised person and would always have his paperwork in order and was always well aware of the rates available for his various term deposits. She began to notice from around 2012/13 that Mr Messer began acting differently, turning up to the bank more frequently and up to two to three times a week when he would ask whether he had any term deposits maturing. She gave evidence that in July 2014 Mr Messer attended the bank with a man who Mr Messer introduced as “from Guvera”. His paperwork was in disarray and he wanted to break several term deposits which Ms Christenson found unusual and was something he had only ever previously done once. The meeting took approximately an hour, during which time Ms Christenson directed her questions to Mr Messer. Ms Christenson said that Mr Messer “hardly answered any of the questions” that she needed answered and was being prompted and guided by the man who was attending with him. On this occasion $2.5 million was transferred to Guvera. Ms Christenson gave evidence that she was so concerned by what had transpired given what she had observed of his decline over the past couple of years, and her concern that he was being taken advantage of, that she contacted the bank’s banking services department at the head office in Bundaberg and asked whether she ought to contact the police. She was advised that without evidence of Mr Messer’s incapacity the bank had no right to intervene.
She also gave evidence that in around October 2014 Mr Messer once again visited the bank with the same man, breaking another term deposit and transferring a further $3 million to Guvera. Once again the man was prompting Mr Messer, who Ms Christensen said “just really sat there and let himself be guided”.
I accept the evidence of both Ms Messer and Ms Christenson each of whom I consider gave reliable and credible evidence.
Due to Mr Messer’s incapacity, he was not called as a witness to give evidence of what occurred between him and the AMMA representatives between 2012 and 2014. Consequently the Court was urged to draw inferences from objectively established facts to establish that AMMA’s representatives were acting unconscionably at the time of the relevant transactions.
I am satisfied and find on the basis of the evidence of Dr Hutson that by 2014, Mr Messer was suffering from advanced dementia and his mental incapacities would have been apparent to anyone who met him in 2014 and would have been “overtly apparent” to those who had known him since 2012. I am also satisfied and find on the basis of the evidence of Ms Messer that Mr Forrestel from AMMA had been dealing with Mr Messer since mid-2013 and, accordingly, Mr Messer’s disability would have been apparent to him by 2014. It is also reasonable to infer that it was Mr Forrestel from AMMA who procured Mr Messer to make each of the investments in 2014 and that it was Mr Forrestel who accompanied Mr Messer to the bank on the two occasions in 2014 to withdraw an aggregate of around $5.5 million. That inference is drawn from the fact that AMMA was exclusively responsible for raising capital for Guvera by procuring investors to subscribe for shares in Guvera and from the evidence of Ms Messer that Mr Forrestel told her in March 2014 that Mr Messer should invest further in Guvera and at a meeting later in the year with her advised her that he had spent a week explaining the investments to Mr Messer prior to the July and October transactions. I also accept on the basis of Ms Messer’s evidence and her notes of the seminar in March 2014 that at that seminar Mr Forrestel, apart from stating that Guvera was doing very well, did not provide details of Guvera’s financial position. It is reasonable to infer that AMMA was aware of the financial position of Guvera at the time, given its role as the exclusive capital raiser for Guvera and its active marketing of the company. The omission to disclose the true financial position of Guvera at the time is relevant as the evidence showed that Guvera was, in fact, not doing well at all but was in a poor financial position with significant uncertainty as to whether it would be able to continue as a going concern.
The evidence showed that for the year ended 31 December 2011 the company and its controlled entities recorded:
(a)a loss of $8,555,577 and accumulated losses of $27,062,232; and
(b)that its liabilities exceeded its assets by $5,916,893, despite $5,379,467 having been raised by the issue of new shares.
The financial report for Guvera and its controlled entities for the half year ended 31 December 2012 recorded:
(a)a loss of $2,682,497 and accumulated losses of $33,662,884;
(b)that its liabilities exceeded its assets by $4,334,241, despite $6,324,241 having been raised by the issue of new shares; and
(c)the independent auditor reported that there was significant uncertainty whether Guvera would be able to continue as a going concern.
The financial report for Guvera and its controlled entities for the year ended 28 February 2014 recorded:
(a)a loss of $9,013,472 and accumulated losses of $46,289,235;
(b)that its liabilities exceeded its assets by $10,920,316, despite capital of $4,921,294 being raised by the issue of shares; and
(c)the independent auditor again reported that there was significant uncertainty about the company’s ability to continue as a going concern.
The financial report for Guvera for the year ended 28 February 2014 was attached to a Priority Offer for the Issue of Shares to Existing Shareholders (“Priority Offer”) which issued in April 2014 and sought to raise a maximum amount of $8,812,895. Given the reported deficiency of assets as at 28 February 2014, there would still have been a deficiency of assets even if the capital raising was fully subscribed. It is reasonable to infer that AMMA knew this because it was the exclusive capital raiser for Guvera.
I further note Dr Hutson’s evidence that Mr Messer by this time had advanced dementia and that, in her opinion, Mr Messer’s cognitive impairment would have been overt even to an untrained person. Based on what Mr Forrestel told Ms Messer, Mr Forrestel had spent a week explaining the investments to Mr Messer prior to the July and October transactions. There is no evidence that Mr Forrestel took Mr Messer through the Priority Offer and financial report for Guvera for the year ended 28 February 2014, but it is reasonable to infer that had he done so it would have been apparent to Mr Forrestel that Mr Messer lacked the cognitive ability to process and evaluate the content and the significance of the financial data in order to make an informed decision as to whether or not to invest further in Guvera.
The financial report for Guvera for the year ended 30 June 2016 (which also contained the 2016 figures) recorded:
(a)that four of the six directors of Guvera, and the company secretary, resigned during the year and no new directors were appointed;
(b)a loss of $577,626,450 for the 2016 year and a loss of $8,080,210 for the 2017 year, prior to an adjustment for discontinued operations;
(c)a profit for the year ended 30 June 2017, based on a profit from discontinued operations (being the liquidation of subsidiaries) of $15,843,614;
(d)that its liabilities exceeded assets by $27,155,793 as at 30 June 2016 and by $22,196,948 as at 30 June 2017;
(e)accumulated losses of $255,972,253 as at 30 June 2016 and accumulated losses of $248,208,849 as at 30 June 2017; and
(f)there was no subscription revenue during the year ended 30 June 2017, and a loss on advertising and branding revenue of $13,322,000.
The independent auditor’s report on the financial report of the year ended 30 June 2017 contained the following statements:
(a)that because of the significance of the matters described in the basis for disclaimer of opinion section of the report, the auditors had not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the financial report;
(b)the group had a working capital deficiency of $26,162,343 as at 30 June 2017, and had net liabilities of $22,195,948;
(c)the group had breached credit terms with all individual creditors comprising the balance of trade and other payables amounting to $7,603,130;
(d)the group’s financing arrangements totalling $19,914,453 had expired and remained unpaid;
(e)the group failed to secure funding from its planned initial public offering in June 2016 and during the financial year the income generating music application was closed down and, as a result, the group lost its market share and licencing arrangements with major music labels;
(f)the group had lost the majority of its key management personnel without replacement; and
(g)the auditors had been unable to obtain alternative evidence which would provide sufficient appropriate audit evidence as to whether the group may be able to obtain sufficient funding and financial support to continue as a going concern.
Unconscionability pursuant to s 12CA of the ASIC Act prohibits conduct, in relation to financial services, that is “unconscionable within the meaning of the unwritten law” and does not apply to conduct that is prohibited by s 12CB. Statutory unconscionability under s 12CB of the ASIC Act is wider than under equity and the general law: Paciocco v ANZ Banking Group (2015) 236 FCR 199 at [283]. Mr Messer’s case relies primarily on s 12CB but for the reasons that follow I am satisfied that AMMA acted unconscionably in relation to Mr Messer within the meaning of the unwritten law and within the wider statutory meaning in s 12CB.
It is well recognised that conduct able to be characterised as unconscionable according to the unwritten law is the knowing exploitation of a special disadvantage in the Amadio sense: see Commercial Bank of Australia v Amadio (1983) 151 CLR 447. To satisfy the Amadio criteria the following must be satisfied:
(a)there must be a person suffering a special disadvantage;
(b)the stronger party must have knowledge of the special disadvantage, or it must be sufficiently evident; and
(c)the stronger party must take advantage of the special disadvantage in a way that offends good conscience.
In Australian Competition and Consumer Commission v Samton Holdings Pty Ltd (2002) 117 FCR 301, the Full Federal Court at [65] explained that:
Characterisation of disadvantage as "special" involves the recognition that it would be unconscionable knowingly to deal with the person so affected without regard to his or her disability, be it constitutional, in the sense of inherent, or situational, in the sense of arising from a particular set of circumstances. In effect this may require some special conduct or care which is not necessary in the absence of such disadvantage. If, for example, the disability relates to language, illiteracy or lack of education, conscientious dealing may ensure the bargaining deficit is compensated for by the provision of special assistance such as independent advice which will either enable a proper understanding of the transaction or overcome the disadvantage arising from want of a proper understanding.
Section 12CC(1) of the ASIC Act sets out a non-exhaustive list of matters to which the Court may have regard for the purpose of determining whether a person has contravened s 12CB in connection with the supply of financial services to a person. The matters listed in s 12CC(1) relevantly include: the relevant strengths of the bargaining positions of the supplier and the service recipient (subpara (a)); whether the service recipient was able to understand any documents relating to the supply or possible supply of the financial services (subpara (c)); whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the service recipient by the supplier (subpara (d)); the extent to which the supplier failed unreasonably to disclose matters which might affect the service recipients’ interests (subpara (i)); and the extent to which the supplier and the service recipient acted in good faith (subpara (l)). The various indicia set out in s 12CC are not closed categories: Director of Consumer Affairs Victoria v Scully (No 3) (2013) 303 ALR 168 at [44]; Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2000) 96 FCR 491.
I find that AMMA’s conduct in inducing Mr Messer in 2014 to pay $6.6 million for shares in what is properly to be considered as a speculative venture was unconscionable in the Amadio sense of knowing exploitation of a special disadvantage and also within the statutory terms of s 12CB. Mr Messer was in a position of special disadvantage because of his cognitive impairment and, as found, it would have been apparent to Mr Forrestel by 2014 (or any other AMMA representative dealing with Mr Messer in 2014) that Mr Messer had a significant cognitive impairment. Additionally, Mr Forrestel had been advised in March 2014 by Ms Messer, in Mr Messer’s presence, that Mr Messer did not want to invest any further. Far from ceasing to approach Mr Messer for further investments, Mr Forrestel extracted a further $6 million from him, notwithstanding that it must have been apparent to him that Mr Messer did not have the cognitive capability to make an informed decision as to whether to invest more. It is readily inferred that Mr Forrestel consciously and deliberately put undue pressure upon Mr Messer to invest further by accompanying him to the bank on two occasions and speaking for Mr Messer in response to bank inquiries. The conduct of Mr Forrestel did not exhibit good faith and fair dealing but was exploitative and manipulative of a person whom Mr Forrestel must have known did not have the capacity to understand the investments that he was making at the urging of Mr Forrestel or the implications.
By s 12GF of the ASIC Act, a person who suffers loss or damage by conduct of another person that contravenes s 12CB may recover the amount of the loss or damage from that person. The Court’s power to award damages for unconscionable conduct under s 12CB is not restrained by the more rigid measures of damages under the unwritten law: Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388. In the present case, the evidence available demonstrates that the shares in Guvera were at all times worthless and that Mr Messer could never have disposed of them for any value. In the circumstances the appropriate measure of damage is the whole amount that he paid for the shares that he acquired in 2014, namely $6.6 million.
I certify that the preceding forty‑three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies. Associate:
Dated: 3 August 2018
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