Newman v Financial Wisdom Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

LONG CASES LIST

No. 2066 of 2000

DALE NEWMAN & ORS	Plaintiffs
v
FINANCIAL WISDOM LIMITED	First Defendant
and
TWENTY FIRST AUSTRALIA INC	Second Defendant

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IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

LONG CASES LIST

No. 7702 of 2001

DALE NEWMAN & ORS	Plaintiffs
v
HOLD PTY LTD	First Defendant
and
PAMACORP SECURITIES LIMITED	Second Defendant

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JUDGE:	Mandie J
WHERE HELD:	Melbourne
DATE OF HEARING:	5–6, 11–14, 18–21 August, 3–4 September 2003
DATE OF JUDGMENT:	29 June 2004
CASE MAY BE CITED AS:	Newman v Financial Wisdom Limited; Newman v Hold Pty Ltd
MEDIUM NEUTRAL CITATION:	[2004] VSC 216

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CORPORATIONS – whether holder of dealers licence liable in the circumstances for conduct of persons with proper authority from dealer in the absence of actual or ostensible agency – proper construction of s.819 of the Corporations Law as in force from 1991–1997 – whether various investments constituted “prescribed interests”

NEGLIGENCE – whether investment advisers negligent in making recommendations to clients to invest in various forms of investments including “tax effective” schemes

DAMAGES – damages of investors for loss of opportunity and for anxiety and stress in addition to actual pecuniary losses

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Dr C Pannam QC with Mr B Quinn of Counsel	Corrs Chambers Westgarth
For Financial Wisdom Limited	Mr M Sifris SC with Ms C Mavroudis of Counsel	Ryrie Bridges

CONTENTS

A. PRELIMINARY............................................................................................................................. 1

B. FACTUAL INTRODUCTION.................................................................................................... 5

C. THE STATEMENT OF CLAIM IN THE FINANCIAL WISDOM PROCEEDING....... 15

D. THE CORPORATIONS LAW.................................................................................................. 38

E. THE CLAIMS OF ROGER DUNCAN..................................................................................... 47

Introduction................................................................................................................................. 47

Mr Duncan: the Lucky Country Film Fund............................................................................ 49

Mr Duncan: the Bearfire Film Fund......................................................................................... 54

Mr Duncan: the Bolshoi Ballet Scheme.................................................................................... 56

Mr Duncan: the Sentinel Group................................................................................................ 58

Mr Duncan: the Ostrich Schemes............................................................................................. 59

Mr Duncan: the Copperfield Investment................................................................................ 61

Mr Duncan: the Book Publishing Partnerships...................................................................... 63

Mr Duncan: the Video Documentary Partnerships............................................................... 65

Mr Duncan: the aftermath......................................................................................................... 67

Mr Duncan: Conduct of the representatives........................................................................... 68

Lucky Country Film Fund....................................................................................................... 74
Bearfire Film Fund................................................................................................................... 76
Bolshoi Ballet Scheme.............................................................................................................. 79
Ostrich Schemes....................................................................................................................... 79
Copperfield Investment............................................................................................................ 80
Book Publishing Partnerships................................................................................................. 81
Video Documentary Partnerships........................................................................................... 82

Mr Duncan: Liability of Financial Wisdom............................................................................. 83

Liability of principals for representatives’ conduct................................................................. 84
Submissions of Financial Wisdom 87

Mr Duncan: Liability of Twenty-First...................................................................................... 93

Mr Duncan: Liability of Pamacorp Holdings......................................................................... 93

Mr Duncan: Liability of Pamacorp Securities......................................................................... 94

Mr Duncan: Representative capacity....................................................................................... 94

Mr Duncan: Damages................................................................................................................. 94

F. THE CLAIMS OF ALLAN COLLINS...................................................................................... 95

Introduction................................................................................................................................. 95

Mr Collins: the Grand Hotel Film Fund.................................................................................. 98

Mr Collins: the Bolshoi Ballet Scheme................................................................................... 102

Mr Collins: the Sentinel Group............................................................................................... 102

Mr Collins: the Me and My Girl Scheme............................................................................... 104

Mr Collins: the DCL Shares Investment................................................................................ 106

Mr Collins: the Copperfield Investment................................................................................ 109

Mr Collins: the Book Publishing Partnerships...................................................................... 111

Mr Collins: the Video Documentary Partnerships............................................................... 113

Mr Collins: the Guard Finance Investment........................................................................... 115

Mr Collins: Conduct…

CaseChat Overview and Summary

In the case of Newman v Financial Wisdom Ltd, the plaintiff, Mr. Newman, sought to recover losses incurred from investments recommended by the defendant company's advisers. The investments included "tax effective" schemes, which were promoted as generating significant tax benefits. The court was tasked with determining whether the company, as a holder of a dealers licence, was liable for the conduct of its advisers and whether the investments qualified as "prescribed interests" under section 819 of the Corporations Law as it stood from 1991 to 1997. Additionally, the court examined whether the advisers were negligent in recommending the investments and the extent of damages recoverable by the plaintiff.

The court first considered the liability of the dealer under section 819 of the Corporations Law. It analysed the scope of the provision to ascertain whether the dealer could be held accountable for the conduct of its advisers, particularly in the absence of actual or ostensible agency. The court had to determine whether the recommended investments were "prescribed interests," which would implicate section 819 and potentially exempt the dealer from liability. Secondly, the court assessed the advisers' conduct to determine if they had breached their duty of care by recommending the investments, which led to the plaintiff's financial losses. Finally, the court examined the nature of damages recoverable by the plaintiff, including losses of opportunity, anxiety, stress, and pecuniary losses.

The court concluded that the dealer could be held liable under section 819 for the conduct of its advisers in the absence of actual or ostensible agency, as the advisers had proper authority from the dealer. The investments were not considered "prescribed interests" under the statute, thus the dealer's liability was not exempted. The court found the advisers negligent in their recommendations, leading to the plaintiff's financial losses. Regarding damages, the court allowed for compensation not only for the pecuniary losses but also for losses of opportunity and anxiety and stress experienced by the plaintiff.

The court ordered the defendant company to compensate the plaintiff for his pecuniary losses, loss of opportunity, and for the anxiety and stress suffered. The exact quantum of damages was left for further determination.

Continue reading Newman v Financial Wisdom Ltd

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Legal Principle Established