Mongan v Sambevski
[2009] VSC 140
•16 April 2009
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 6861 of 2008
| PETER MONGAN | Appellant |
| v | |
| LOU SAMBEVSKI | First Respondent |
| and | |
| BOBBY SAMBEVSKI | Second Respondent |
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JUDGE: | SMITH J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 19 March 2009 | |
DATE OF JUDGMENT: | 16 April 2009 | |
CASE MAY BE CITED AS: | Mongan v Sambevski & Anor | |
MEDIUM NEUTRAL CITATION: | [2009] VSC 140 | |
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Appeal from VCAT – claim for moneys invested in reliance on representations of appellant – misleading and deceptive conduct – misrepresentations as to present and future matters – unsuccessful challenge to findings and whether reasonably open.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr M Black | McNamaras |
| For the Respondents | Mr P Lithgow | Hall & Wilcox |
HIS HONOUR:
The Appeal
This is an appeal from the decision of the Victorian Civil and Administrative Tribunal made on 27 May 2008 in proceedings brought by Lou Sambevski and Bobby Sambevski (the brothers) against Peter Mongan (Mongan) alleging misleading and deceptive conduct under the Fair Trading Act 1999 (the Act). On that date, the Tribunal ordered Mongan to pay to the brothers, the sum of $35,000.00 each. Costs were reserved.
The original proceeding – the relevant facts as found
For a period of over 10 years prior to July 2004, Mongan had assisted the brothers and their wives and family members with taxation and other business affairs. He did not have formal qualifications and was not registered as a tax agent. He was throughout the 10 years employed by an accountant who was registered as a tax agent. He also assisted the first respondent with company documents.
In July 2004, two meetings occurred. The first occurred on 10 July 2004 and involved Mongan and the brothers, together with the latter's wives and sister. They provided him with instructions for the preparation of their taxation returns. Mongan remained for a meal or drinks. He raised with them the possibility of them investing in a project to convert the Grandview Hotel, West Brunswick, to apartments. The Tribunal found that at this meeting[1]
"the Respondent informed them…that he would be an investor in the project, as would be the developer Gary Stewart. And in so saying, I am satisfied, he meant them to understand he was committed."
[1]Reasons [16].
The second meeting occurred on 18 July 2004. The same people were present. The principal purpose of the meeting was a further discussion about the hotel development. Mongan produced three documents;, an outline of proposed development costs and projected sales, projected income and expense statement concerning the operation of the hotel, and a series of concept drawings of the development. It was common ground that the third document, the drawings, had been prepared by an architect. There was a dispute on the evidence as to whether Mongan had said he had prepared the other two documents. The Tribunal did not resolve this issue saying this was not necessary and found that Mongan had put them forward
"to provide information upon which the Applicants could rely as to the proposed development."[2]
[2]At [20].
The Tribunal also found that Mongan knew that the brothers, "regarded the documents as having his endorsement".[3] At this meeting, Mongan repeated that he was to be an investor, that there were two others (Stewart and Johnson) and that two places were reserved for the brothers.
[3]At [20].
On the following day, the brothers paid to Stewart a cheque for $70,000 representing an investment in the project by each brother of $35,000.
The reality was that Mongan had difficulties obtaining finance for the project. He did not have the funds and did not in fact invest in the project. His place was taken by Hagberg. The deposit payable under the contract to purchase the hotel of $185,000 was paid but only after a notice of rescission had been given. The balance of purchase money was not paid and the contract was rescinded and the deposit forfeited.
The essence of the claim made by the brothers was that they invested in the project because of Mongan's representations that he was going to be an investor in the project. They argued that the representations were false and misleading. As a result of the representations, they invested, and lost, $35,000 each.
Critical findings of the Tribunal
The following passages contain the relevant findings of the Tribunal as to the representations and the reliance upon them:
“27…I accept their evidence that their decision to invest in the project was strongly influenced by the understanding that they had, based upon what the Respondent had said to them, that he was also committed to be an investor in the project. He was committed in the sense it was not a case of ‘all things being equal’ or ‘if my finances permit’ he would be an investor. Because of what was said by the Respondent, it was a case of, in effect, ‘if it was good enough for him it was good enough for them.”
The Tribunal went on to say that
“28.…the determination of the matters in dispute does turn upon the representations regarding his investment in the project made by the Respondent, particularly at the second meeting on 18 July 2004. The Applicants made their decision to invest in the project at and immediately following that meeting and they made payment of $70,000.00 on 19 July 2004. The payment was made directly to the trust account of the solicitor who acted for the vendor, Anthony Joseph Zucco”.
Its is also relevant to note that the Tribunal found that the representations made contained misleading statements
· as to the intention of Mongan at the time they were made, namely, that he was then committed as an investor in the project, and
· as to a future matter, that he would invest in the project.
The passages from the reasons directly relevant to these issues are the following;
“31.…The reason why the Respondent did not invest in the project was never satisfactorily explained. He had not ‘put his money up’ at the time the 1st and 2nd applicants paid their $70,000.00. What did transpire demonstrated that at the time of the second meeting the Respondent was not committed to the project and the statements he made to them were accordingly misleading.
32.The statements made in July 2004 by the Respondent to the 1st and 2nd Applicants in particular and also as witnessed by other three members of their family, clearly were to the effect the Respondent intended to be an investor in the project. He would be one of six investors. When that statement was made, the Respondent must have known that that was a statement that would influence the 1st and 2nd applicants in making a decision. It was a statement as to the future and in accordance with section 4 of FTA the Respondent has the onus of establishing the reasonableness of the statement made. And, as was pointed out by Toohey J in James v ANZ Banking Group Limited (1986) 64 ALR 347 at 372; a statement relating to the future may contain an implied statement as to present or past fact. ‘It may represent impliedly that the promisor has a present intention to make good the promise and it may represent impliedly that he has the means to do so’.
33.It was misleading for the Respondent to represent that he was to be an investor. And the onus of him to pursuant (sic) to section 4 of the FTA was not discharged.”
As to causation, the following passage contains relevant findings
“31.I am satisfied the 1st and 2nd Applicants became involved in the project because of the representations made by the Respondent in July 2004, that he was to be an investor in the project. They relied on his skill and experience and his recommendation. While it might be said that it was open to them to obtain independent advice they did not do so. I am satisfied that occurred because they did not see the need for independent advice in view of what the Respondent had represented. The Respondent was aware of the nature of the relationship he had developed with the whole of the family and was aware that they relied on him and trusted him and his judgment”.
The Tribunal held that the brothers had established the necessary causal link between the loss and the misleading or deceptive conduct. The Tribunal accepted that the test was whether that conduct was "the real material cause of the loss"[4].
[4] [34]
The appeal - questions of law raised
By Notice of Appeal filed 28 August 2008, Mongan seeks orders, inter alia, that the above decision be set aside and the original application be dismissed. Costs are also sought of the appeal. The following questions of law are stated:
“1. Question of law
Whether it was reasonably open to the Member to find that at the meeting held on 15 July 2004 the appellant was not committed to investing in the project the subject matter of the proceeding.
2. Question of law
Whether the statement by the appellant that he would be an investor in the project, the subject matter of the proceeding (‘the Project’) was a representation as to a future matter in accordance with s.4 of the Fair Trading Act 1999.
3. Question of law
Whether it was reasonably open to the Member to find that the appellant had failed to provide a satisfactory explanation as to why he did not invest in the project.
4. Question of law
Whether it was reasonably open to the Member to find that the appellant had failed to discharge the onus of proving that he had reasonable grounds for making the representation that he would be an investor in the project.
5. Question of law
Whether the Member erred in holding that:
(a)The respondents were under no obligation to obtain independent advice about the project; and
(b)The respondents’ loss and damage was caused by the appellant’s conduct.
6. Question of law
Whether the Member failed to take a relevant consideration into account, namely that the respondents failed to take proper care of their own interests by:
(a)failing to obtain independent advice in relation to the project prior to investing and
(b) investing in a project with an unrealistic rate of return.”
In essence, Mongan argues that
1.the representations made concerned his intention at the time they were made and it was not reasonably open to find that they were at the time misleading or deceptive (Question of law 1);
2.the representations made did not refer to any future matters (Question of law 2);
3.if the representations made did refer to any future matters, it was not reasonably open to the Tribunal to find that the explanation was unsatisfactory or that he had failed to discharge the onus of proving that he had reasonable grounds for making the representation (questions of law 3 and 4);
4.the brothers had failed to prove the necessary causal connection between the representations and the loss (questions 5 and 6).
Question 1-whether the representation that he was committed was false and misleading
Counsel for Mongan submitted that it was clear from the evidence of all witnesses that what Mongan had said was that he intended to invest in the project. His counsel submitted that it was never put to Mongan that he was lying, incorrect or being misleading. Counsel submitted that it was not reasonably open to find that the statement was untrue. On the evidence he did intend to invest when he made the representations, in July. At that time, however, he was waiting for something else to settle to be put into funds to enable him to invest. Counsel further submitted that he did not say at the time of the representations, and prior to the payment of the $35,000, that he had contributed his investment. Referring to paragraph 31[5], counsel also submitted that the Tribunal had concluded that Mongan was not committed to the project on the basis of what transpired after the representations were made and that it was not open to find that he did not have the commitment merely on the evidence that he did not ultimately invest in the project. Counsel submitted that there was no reason for Mongan to misrepresent his position in relation to the project and that he did not stand to make any gain by deceiving the brothers into investing; the monies were to be paid to the vendor, not to Mongan, and he could not share in the profits without putting in his own $35,000.
[5]See above
It is correct to say that he did not represent that he had paid his $35,000. The finding made by the Tribunal, however, one which was plainly open to it, was that in making representations, Mongan was representing that he was committed to the project at the time the representations were made. As was pointed out in the reasons, his statements were not qualified in any way.
As to whether there was evidence upon which it was open to find his statements were false, there was, in my view, ample evidence and, assuming the Briginshaw principles applied, sufficient to support the finding made. I draw attention in particular to the following:
· Reference should be made to the evidence of Mr Zucco, the solicitor acting for the vendor,[6] in which he describes Mongan presenting himself as being responsible for raising finance to enable the project to proceed.
[6]Reasons - (para.29).
· In his evidence as to why he did not make an investment in the project between July and September 2004, he gave evidence of the vaguest nature stating in substance that he was waiting for a transaction to settle which would have enabled him to invest in the project. He relies on that evidence.
· He did not give any details of the transaction in question, the money involved or other relevant information from which it might be possible to gauge how realistic, or unrealistic, his hopes might have been. Leaving aside the problems posed for his credibility by this evidence, accepting it at face value, he was saying that he did not have the capacity to invest in the project at the time the representations were made and could not commit to the project until the unidentified transaction was settled.
· There was also his evidence about the way he was replaced in the consortium by Hagberg. He was simply told that Hagberg was going to invest in the project and that as a result he would not be able to invest in it himself. After giving evidence that in September he was intending to invest $35,000, the following exchange occurred.
“What happened as a result of Mr Hagberg’s expression of interest?...Well his expression to Lou was pretty overwhelming and I said to Gary, ‘well what do we do’ and he said, ‘we’ll put him in’. You know, so Charles ended up with my – my share.
If Mr Hagberg had not put in $35,000 into the project would you have put in $35,000? - -- yes I would have.
At this stage you are the Director of the company. Who was the trustee of the trust?....that’s correct. Why did you allow for Mr Hagberg to become involved in the project?...because I asked Mr Stewart and Mr Stewart said ‘put him in”[7].
This conduct was inconsistent with any suggestion that he was a person who had made a commitment to the project.
[7]Transcript 169-170.
It is true that some of this evidence related to subsequent happenings, but they shed light on the situation at the time the representations were made. It is also true that, on the evidence, he did not stand to gain any direct pecuniary benefit from the investment by the brothers, but he was not engaged in the exercise out of the kindness of his heart and at the time he made the representations he was wanting to be involved in the project, trying to keep it alive and seeking the assistance of the brothers for that purpose. If successful, he stood to make a lot of money – if the projections were correct.
There was sufficient evidence, therefore, to support the inference that he was not committed to the project at the relevant time. He failed to produce any evidence that he was. It was reasonably open to the Tribunal to find that he was not.
Questions 2, 3 and 4 - whether the representation concerned a future matter and, if so, whether the defence was made out
Counsel for Mongan submitted that the representation did not involve a representation as to a future matter. Counsel submitted that the statements made were of present intention at the time they were made.
The reality was that the representation was both a representation as to present intention and a representation about a future matter- that he would be investing in the project. The conclusion of the Tribunal was plainly open.
As to the other matters, counsel for Mongan submitted that there being no general finding against him of being an unreliable untruthful witness, it was not open to the Tribunal to reject his evidence as to why he was unable to invest funds and, in those circumstances, it was not open to the Tribunal to find that there was no satisfactory explanation involved or that Mongan had failed to discharge the onus of proving that he had reasonable grounds for making the representation that he would be an investor in the project.
It is sufficient to note that he gave no satisfactory evidence about how he was going to fund his share of the investment. In cross-examination about how he came to be replaced by Hagberg, he stated the following
“Well it wasn’t – it wasn’t an issue of dropping out or not dropping out. There was an issue of people who were investing in it and had the funds right there. I was waiting for something else to settle to be able to put funds in, and Mr Hagberg came along and put funds in”.[8]
What something else was, was not explained. Further, he had considerable time in which to borrow the $35,000 needed to join the project, a project which according to him would have netted him about $450,000. His failure to provide the funds was never satisfactorily explained.
[8]Transcript 198.
In my view, it is hardly surprising that the Tribunal came to the conclusion that he had not given a satisfactory explanation. In addition, it was hardly surprising that the Tribunal concluded that he had not discharged the onus of proving that he had reasonable grounds for the representations he had made in July. The vagueness of his evidence made it very difficult to accept it or any part of it. It had to be accepted before the quality of the explanation, or the reasonableness of the basis for the representations could be assessed. The Tribunal was correct in stating that the reason why he did not invest in the project was never satisfactorily explained. Absent a full and frank explanation of his financial position at the time he made the representations he could not discharge the burden of proving that he had reasonable grounds for making the representations.
Questions five and six - causation issues
In support of Mongan's case on causation, his counsel submitted that the conduct of the brothers was such that their loss was a result of their own negligence not the conduct of Mongan.
Counsel referred to the paucity of financial information available to the parties at the relevant time, the need for the project to be substantially self funding through the pre-sale of apartments and the alleged individual profits[9]. Arguing that the project appeared to be too good to be true, counsel submitted that the failure of the brothers to make their own inquiries amounted to a break in the chain of causation.
[9]On the figures supplied by Mongan, about $450,000 based on their $35,000 investment.
Counsel referred to authorities but did not identify an error of law by the Tribunal. The issue concerns what was a classic question of fact. The Tribunal addressed the issue in the passage cited above. It considered the point that it was open to the brothers to obtain advice but they did not do so. The Tribunal concluded that this occurred because of what Mongan had represented and that Mongan was well aware that, because of the relationship he had developed with the whole family, he was trusted, as was his judgment, and they relied upon him. The Tribunal's finding of a causal connection was plainly open, and, in fact, amply justified.
Conclusion
Mongan has failed to substantiate the alleged errors of law identified in the question raised. The appeal should be dismissed.
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