NMFM Property Pty Ltd v Citibank Ltd (No 10)
[2000] FCA 1558
•10 NOVEMBER 2000
FEDERAL COURT OF AUSTRALIA
NMFM PROPERTY PTY LTD v CITIBANK LTD (No 10) [2000] FCA 1558
NG 765 OF 1994
SUMMARY
In accordance with the practice of the Federal Court in certain cases of public interest, I have prepared this brief summary to accompany the Reasons for Judgment that are being delivered today. But the only authoritative pronouncement of my reasons is that contained in the full Reasons for Judgment. This summary is necessarily incomplete.
The applicants (“National Mutual”) sue the respondent (“Citibank”) to recover contribution towards compensation of $10,240,440 that National Mutual claims to have paid to 132 individuals or couples (“the Investors”) who invested in National Mutual investment products, in particular, units in a National Mutual property trust. The investment took place in the period from early 1989 to late 1992/early 1993.
In order to succeed, National Mutual had to prove in the case of each of the 132 Investors that both National Mutual and Citibank were liable to the Investor in respect of the same damage. Accordingly, the case can be viewed as 132 cases in one. But pursuant to an order, the claim has been heard to date in respect of only 23 of the 132 Investors. The hope of the parties is that upon reading the Reasons for Judgment, they will understand how I would have decided in relation to the remaining 109 Investors.
The Investors were not experienced in financial or investment matters and were not in receipt of high levels of income. They were persuaded to invest by National Mutual agents in accordance with a “Negative Gearing Package”. They borrowed 20 per cent of the cost of the investment from Citibank by means of its Mortgage Power product, and the remaining 80 per cent from National Mutual itself. National Mutual’s case is that its agents were also the agents of Citibank for the purpose, so that, for example, when they made statements extolling the virtues of the property trust, they did so on behalf of Citibank, as well as on behalf of National Mutual. There is no doubt that one of the agents, Lance Kelly, who was a central figure in the marketing of the Package, was an agent of Citibank: he was formally appointed as an agent of Citibank by a written agreement. Whether the other agents of National Mutual were agents of Citibank has been a matter of controversy. And Citibank’s case has been that even in the case of Mr Kelly, representations about the National Mutual property trust and about the Negative Gearing Package were made on behalf of National Mutual, but not on behalf of Citibank. None of the Investors complained that any of the agents misrepresented Mortgage Power itself.
The investments took place at a time of high interest rates. It was hoped that the value of the units would increase to such an extent and so rapidly that, taking into account the income returns from the investment and the taxation benefit of the negative gearing aspect, wealth would be created for the Investors, provided they retained their investment for a certain period.
The Investors claimed that their modest levels of income, the returns from the investment in the units and the taxation benefits from the Package did not enable them to sustain their investment. Complaints began to be made to National Mutual and elsewhere. The Australian Securities Commission commenced an investigation. As well, there was adverse publicity. National Mutual settled with the Investors.
Originally National Mutual was suing the agents as well as Citibank but it also settled with the insurer of the agents. In return for a payment by that insurer, National Mutual released the agents and undertook to indemnify them against any liability they might be found to have to Citibank.
National Mutual’s case that Citibank is liable to the Investors is twofold. First, it says that Citibank owed them a personal non-delegable duty of care to take certain steps directed to protecting them, for example, by ensuring that they received certain warnings of the risks involved. Secondly, it says that Citibank is liable to the Investors because it actually authorised the statements made to them by the agents about which complaint is made. If so, Citibank would be liable to the Investors directly, not merely vicariously with the possibility of a right of indemnity against the agents. National Mutual says that Citibank incurred liability to the Investors under general law principles relating to negligence, the Trade Practices Act 1974 (Cth) and the Securities Industry Code (later the Corporations Law).
I have concluded that National Mutual’s claim that Citibank is liable to the Investors is not made out.
If I had held Citibank vicariously liable, I would have decided that National Mutual is entitled to recover from it 5 per cent of the amount of compensation that National Mutual provided to the Investors and that Citibank is entitled to be fully indemnified by the agents.
The Reasons for Judgment are divided into Chapters and there is a Table of Contents. Generally, I have addressed the issues of law involved in Chapter 3. They relate chiefly to the law of agency.
The Court orders that the proceeding be stood over to 5 December 2000 at 9.15 am for the making of orders, including orders as to costs, by consent, and if the parties have not by then agreed on the orders that should be made, for the giving of directions for the making of submissions as to those orders.
I publish my reasons.
LINDGREN J
10 NOVEMBER 2000
FEDERAL COURT OF AUSTRALIANMFM Property Pty Ltd v Citibank Ltd (No 10) [2000] FCA 1558
AGENCY – Insurer devises and, through its agents, promotes negative gearing arrangement involving investment in units in property trust managed by company associated with insurer, and borrowing of 80% of cost of investment from fund also associated with insurer, remaining 20% to be found by investor, the 80% to be secured by mortgage over all units – particular agent of insurer devises scheme in which investor funds the 20% by borrowing on Bank’s revolving credit facility on security of mortgage over investor’s home (“Mortgage Power”) – that agent promotes scheme and introduces his clients to Bank for the purpose, assisting them to fill in Bank’s forms – agent subsequently secures appointment as agent for Bank to promote and sell Mortgage Power at commission of $175 per introduction – agent continues introducing clients to Bank and promotion scheme as previously – agent also introduces to Bank clients of other agents of insurer – “investors” persons inexperienced in investing, property trusts and negative gearing, and generally unsophisticated in financial matters and of relatively low income – investors eventually complain to insurer that they are unable to sustain interest on both Mortgage Power facility and on borrowing from insurance group – investors claim to be suffering losses – insurer settles with them and then seeks contribution from Bank as person coordinately liable with insurer to investors as a result of statements made by common agent – vicarious liability of principal for tortious statements made by selling agent – difference between “agent” and “mere introducer of business” – whether principal vicariously liable for statements made by sub-agents not in direct agency relationship with principal – dual agency – same person said to be agent of two principals – whether same agent can make the one statement as representative of two principals (not jointly) so as to give rise to coordinate vicarious liability – right of principal rendered vicariously liable by statements of agent to be indemnified by agent – contribution as between two principals rendered coordinately vicariously liable by statements of their common agent – extent of their respective responsibilities for loss suffered
TORT – negligent representations and advice – vicarious liability of principal for statements made by agent – Insurer devises and, through its agents, promotes negative gearing arrangement involving investment in units in property trust managed by company associated with insurer, and borrowing of 80% of cost of investment from fund also associated with insurer, remaining 20% to be found by investor, the 80% to be secured by mortgage over all units – particular agent of insurer devises scheme in which investor funds the 20% by borrowing on Bank’s revolving credit facility on security of mortgage over investor’s home (“Mortgage Power”) – that agent promotes scheme and introduces his clients to Bank for the purpose, assisting them to fill in Bank’s forms – agent subsequently secures appointment as agent for Bank to promote and sell Mortgage Power at commission of $175 per introduction – agent continues introducing clients to Bank and promotion scheme as previously – agent also introduces to Bank clients of other agents of insurer – “investors” persons inexperienced in investing, property trusts and negative gearing, and generally unsophisticated in financial matters and of relatively low income – investors eventually complain to insurer that they are unable to sustain interest on both Mortgage Power facility and on borrowing from insurance group – investors claim to be suffering losses – insurer settles with them and then seeks contribution from Bank as person coordinately liable with insurer to investors as a result of statements made by common agent – vicarious liability of principal for tortious statements made by selling agent – difference between “agent” and “mere introducer of business” – whether principal vicariously liable for statements made by sub-agents not in direct agency relationship with principal – dual agency – same person said to be agent of two principals – whether same agent can make the one statement as representative of two principals (not jointly) so as to give rise to coordinate vicarious liability– right of principal rendered vicariously liable by statements of agent to be indemnified by agent – contribution as between two principals rendered coordinately vicariously liable by statements of their common agent - extent of their respective responsibilities for loss suffered
TORT – duty of care – whether bank owes personal non-delegable duty of care to borrower to safeguard or to warn customer in respect of proposed investment – whether bank assumed role of financial adviser or planner
TRADE PRACTICES – whether allegedly misleading and deceptive statements made “on behalf of” alleged corporate principal for purposes of subs 84(2) of Trade Practices Act 1974 (Cth)
SECURITIES INDUSTRY – Securities Industry Code ss 6H, 61A, 61C, 68C, 68E, 68F – Corporations Law ss 9, 94, 817, 819, 849, 851, 852 – securities representatives made liable by statute to pay damages to “client” in respect of loss or damage in respect of “securities recommendation” made by securities adviser – as a result, securities representatives rendering licensed dealer in securities which they represented liable to clients – whether they also rendered corporation which was not a dealer in securities and of which they were also allegedly agents vicariously liable to the clients under general law principles or under statutory provisions – whether securities representatives made the recommendations about securities as representatives of, or for or on behalf of, the other (non-dealer) corporation, for purpose of general law principles of vicarious liability – whether representatives were “representatives” of that other corporation and made the recommendation and engaged in conduct in question “as a representative of” that corporation for purposes of s 61A of Securities Industry Code and s 817 of Corporations Law
CONTRIBUTION – as between two principals rendered liable by statements made by their common agent – equitable compensation in respect of liabilities arising from common agent’s misleading and deceptive conduct in contravention of s 52 of Trade Practices Act 1974 (Cth) – maxim “equity is equality”
LIMITATION OF ACTIONS – time of accrual of cause of action – negligent representations and advice – whether loss suffered when induced investment made or at later time when loss is clear
WORDS AND PHRASES – “on behalf of” – “representative”
Securities Industry Code, ss 6H, 61A, 61C, 68C, 68E, 68F
Corporations Law, ss 9, 94, 817, 819, 849, 851, 852
Trade Practices Act 1974 (Cth), subss 82(2); 84(2)
Wrongs Act 1958 (Vic), ss 23A, 23B, 24
Limitation Act 1969 (NSW), s 26
Law Reform (Miscellaneous Provisions Act 946 (NSW), s 5(1)(c), (2)Esanda Finance Corporation Ltd v Peat Marwick Hungerfords
(1997) 188 CLR 241, referred to
(1998) 195 CLR 232, referred to
(1996) 66 FCR 246, referred to
(1999) 163 ALR 611, discussed
(1940) 64 CLR 282, distinguished
(1877) 2 CPD 469, referred to
(1995) ATPR 41-414, distinguished
(1999) 161 ALR 155, discussed
(1999) Aust Torts Reports 81-535, referred to
Ltd (1931) 46 CLR 41, applied
(1934) 52 CLR 430, applied
[1969] 1 AC 552, followed
[1993] 2 VR 469, followed
(Supreme Court of Vic, Full Court, 27 November 1990, unreported), referred to
(Supreme Court of NSW, Cole J, 3 February 1989, unreported), referred to
[1904] AC 423, applied
(1988) 6 ACLC 57, discussed
(1994) ATPR 41-326, discussed
(1995) 62 FCR, discussed
(1997) 188 CLR 313, discussed
(1996) 186 CLR 574, discussed
(Supreme Court of South Australia, Martin J, 13 September 1999, unreported), discussed
(Supreme Court of South Australia, Full Court, 11 June 1999, unreported), discussed
(1999) 93 FCR 117, discussed
(1826), 5 B & C 547, referred to
(1998) ATPR 41-614, distinguished
(1989) ATPR 40-928, distinguished
(1878) 8 Ch D 286, referred to
[1927] NI 85, followed
v Barnes [1981] Com LR 205, followed
(1990) 23 FCR 1, followed
(1988) ATPR 40-861, followed
(Supreme Court of NSW, Cole J, 14 August 1990, unreported), followed
(Supreme Court of NSW, Staff AJ, 12 August 1991, unreported), followed
(FCA, Branson J, 27 November 1997, unreported), followed
(Supreme Court of NSW, Rogers CJ Com Div, 7 June 1990, unreported), followed
(Supreme Court of Vic, Mandie J, 9 October 1997, unreported), followed
(Supreme Court of Vic, Hedigan J, 17 October 1995, unreported), followed
(Supreme Court of Qld, De Jersey CJ, 23 April 1998, unreported), followed
[1993] 1 Qd R 135 (FC) at 138 (Macrossan CJ, dissenting), followed
(Supreme Court of Vic, Beach J, 9 August 1996, unreported), followed
[1918] AC 626 (HL), followed
(1991) 102 ALR 453, followed
(Supreme Court of NSW, Cole J, 21 June 1991, unreported), followed
(FCA, Lindgren J, 23 October 1998, unreported), followed
(1995) 8 ANZ Insurance Cases 76,233, discussed
(1994) 179 CLR 520, distinguished
(1975) 133 CLR 72, referred to
(1843) 6 Man & G 236 (134 ER 879), referred to
(1927) 27 SR (NSW) 509, referred to
[1914] AC 197, followed
Maxsted& Co. v Durant (t/a Bryan Durant & Co) [1901] AC 240 (HL), followed
(1956) 97 CLR 36, referred to
(1949) 79 CLR 428, referred to
(1980) 145 CLR 374, referred to
(1982) 61 FLR 52, referred to
(1983) 47 ALR 719 (FCA), referred to
(1985) 8 FCR 27 (FC), followed
(1992) 111 ALR 502 (FCA), followed
(1990) 170 CLR 394, referred to
(1990) 28 NSWLR 354 (CA), referred to
(1992) 175 CLR 514, applied
(1995) 59 FCR 35(FC), cited
Ltd (1993) 113 ALR 667, cited
(1996) 140 ALR 313, cited
(1998) 83 FCR 1 (FC), followed
(1992) 35 FCR 535, referred to
[1979] Ch 218, referred to
[2000] FCA 1155, followed
[1938] 3 All ER 517, followed
(1953) 53 SR (NSW) 552, followed
Lister v Romford Ice & Cold Storage Co Ltd [1957] AC 555, followed
(1985) 156 CLR 672, referred to
[2000] HCA 52, referred to
Chappel v Hart
Qantas Airways Ltd v Cameron
Kenny & Good Pty Ltd v MGICA (1992) Ltd
Potts v Miller
Twycross v Grant
Morgan Corporate Ltd v GWG Leviny Pty Ltd
Astley v Austrust Ltd
Hollis v Vabu Pty Ltd (t/a “Crisis Couriers”)
Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Cooperative Assurance Co of Australia
Australasian Brokerage Ltd v Australian and New Zealand Banking Corporation Ltd
Branwhite v Worcester Works Finance Ltd
Custom Credit Corporation Ltd v Lynch
Custom Credit Corporation Ltd v Luff
Octapon Pty Ltd v Esanda Finance Corporation Ltd
Citizens’ Life Assurance Co v Brown
Clayton Robard Management Ltd v Siu
Heidelberg Graphics Equipment Ltd v Andrew Knox & Associates Pty Ltd
Henderson v Amadio Pty Ltd (No 1)
Northern Sandblasting Pty Ltd v Harris
Thompson v Australian Capital Television Pty Ltd
Opie v Collum
Donut King Australia Pty Ltd v Barber
Forestview Nominees Pty Ltd v Perron Investments Pty Ltd
Laugher v Pointer
Tantipech v IOOF Australia Trustees (NSW) Ltd
Warnock v Australia & New Zealand Banking Group Ltd
De Bussche v Alt
O’Keefe v London and Edinburgh Insurance Co Ltd
Williams & Glyn’s Bank Ltd
David Securities Pty Ltd v Commonwealth Bank of Australia
Kullack v Australia & New Zealand Banking Group Ltd
Ralik Pty Ltd v Commonwealth Bank of Australia
Cappers Holdings Pty Ltd v Deutsche Capital Markets Australia Ltd
Truebit Pty Ltd v Westpac Banking Corporation
Mehta v Commonwealth Bank of Australia
Australia & New Zealand Banking Group Ltd v Clenae Pty Limited
ANZ Banking Group Ltd v Dunstan’s Hotel
Commonwealth Bank of Australia v Finding
Potts v Westpac Banking Corporation
Commonwealth Bank of Australia v Gatto
Banbury v Bank of Montreal
Commonwealth Bank of Australia v Smith
Lenin v Australian Bank Ltd
Radin v Commonwealth Bank of Australia
Dorrough v Bank of Melbourne Ltd
Burnie Port Authority v General Jones Pty Ltd
Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Company Pty Ltd
Wilson v Tumman
Dawson v Bulli Shire Council
Eastern Construction Co Ltd v National Trust Co Ltd
Keighley
Darling Island Stevedoring and Lighterage Co Ltd v Long
R v Portus; Ex parte Federated Clerks Union of Australia
The Queen v Toohey; Ex parte Attorney General for the Northern Territory of Australia
Trade Practices Commission v Queensland Aggregates Pty Ltd (No 3)
Trade Practices Commission v Tubemakers of Australia Ltd
Walplan Pty Ltd v Wallace
c– Western Australian Branch
The Commonwealth v Verwayen
China Ocean Shipping Co Ltd v P S Chellaram & Co Ltd
Wardley Australia Ltd v The State of Western Australia
Karedis Enterprises Pty Ltd v Antoniou
Qanstruct Pty Ltd v Bongiorno
MGICA (1992) Ltd v Kenny & Good Pty Ltd
Bialkower v Acohs Pty Ltd
Lezam Pty Ltd v Seabridge Australia Pty Ltd
In re Steel, dec’d; Public Trustee v Christian Aid Society
Burke v LFOT Pty Ltd
Ryan v Fildes
Davenport v Commissioner for Railways
McGrath v Council of the Municipality of Fairfield
Scott v Davis
NMFM PROPERTY PTY LIMITED (formerly called “National Mutual Property Services (Australia) Pty Ltd”) v CITIBANK LIMITED (formerly called “Citibank Savings Limited”)
NG 765 of 1994
LINDGREN J
SYDNEY10 NOVEMBER 2000
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NG 765 OF 1994
BETWEEN:
NMFM PROPERTY PTY LIMITED (formerly called “National Mutual Property Services (Australia) Pty Ltd”)
First ApplicantNATIONAL MUTUAL ASSETS MANAGEMENT LIMITED
Second ApplicantTHE NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LIMITED
Third ApplicantAND:
CITIBANK LIMITED (formerly called “Citibank Savings Limited”)
Respondent
FIRST CROSS-CLAIM
CITIBANK LIMITED (formerly called “Citibank Savings Limited”)
Cross-Claimant[Lance Kelly Financial Management Pty Ltd, removed as a party]
First Cross-RespondentLANCE KELLY
Second Cross-Respondent[Dennis Jones & Company Pty Limited, removed as a party]
Third Cross-RespondentDENNIS JONES
Fourth Cross-RespondentTONY BAHR
Fifth Cross-RespondentALAN J BLEE
Sixth Cross-Respondent[Wayne Fitcher, removed as a party]
Seventh Cross-RespondentNORMAN KIRBY
Eighth Cross-RespondentPAUL KENNEDY
Ninth Cross-RespondentPETER KINROSS
Tenth Cross-RespondentJAMES NAUGHTON
Eleventh Cross-Respondent[D Rodstead, removed as a party]
Twelfth Cross-Respondent[G Blaiklock, removed as a party]
Thirteenth Cross-RespondentERIK JAMES BUTTARS
Fourteenth Cross-RespondentROMMEL HACOPIAN
Fifteenth Cross-RespondentCRAIG BYRON ROBERTS
Sixteenth Cross-RespondentANNA WASS
Seventeenth Cross-RespondentALLAN STEWART CRAWFORD
Eighteenth Cross-RespondentPERMANENT TRUSTEE COMPANY LIMITED
Nineteenth Cross-RespondentAMERICAN HOME ASSURANCE COMPANY
Twentieth Cross-RespondentLAWRENCE C GRIMA
Twenty-first Cross-Respondent
SECOND CROSS-CLAIM
LANCE KELLY
Cross-ClaimantCITIBANK LIMITED (formerly called “Citibank Savings Limited”)
Cross-Respondent
THIRD CROSS-CLAIM
DENNIS JONES
Cross-ClaimantCITIBANK LIMITED (formerly called “Citibank Savings Limited”)
Cross-RespondentJUDGE:
LINDGREN J
DATE OF ORDER:
10 NOVEMBER 2000
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1. The proceeding be stood over to 5 December 2000 at 9.15 am for the making of orders, including orders as to costs, by consent, and if the parties have not by then agreed on the orders that should be made, for the giving of directions for the making of submissions as to those orders.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
TABLE OF CONTENTS
CHAPTER 1: INTRODUCTION & PLEADINGS
PARTIES AND GENERAL INTRODUCTION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [1]
THE CASE IN OUTLINE........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [23]
PLEADINGS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [41]
NM’s Fifth Further Amended Statement of Claim (“the Pleading”)........ ........ ........ ........ ........ ........ ..... [42]
Part A (pars 1-14 of the Pleading [par 14 is deleted]) – “PARTIES”........ ........ ........ ........ ........ ........ ........ ... [43]
Part B (pars 15-44 of the Pleading [pars 16, 18 and 38-44 are deleted]) – “DJC AND JONES”........ ........ ..Prefatory........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [44]
Trade Practices Act 1974 (Cth) ("TP Act")........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [47]
Securities Industry Code ("SIC") and Corporations Law ("Law")........ ........ ........ ........ ........ ........ ........ ..... [56]
Negligence........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [58]
DJC’s position........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [59]
Reliance of the Jones Investors........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [60]
Suffering of loss or damage........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [61]
Liability under SIC and the Law........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [62]
NM’s liability........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [63]Part C (pars 45-101 of the Pleading [pars 46, 48-75 and 96-101 are deleted]) – “LKFM AND KELLY”....
Prefatory........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [64]
TP Act........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [68]
SIC and the Law........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [73]
Negligence........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [74]
LKFM’s position........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [75]
Reliance of the Kelly Investors........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [76]
Suffering of loss or damage, liability under SIC and the Law, and NM’s liability........ ........ ........ ........ . [77]Part D (pars 102-151 of the Pleading [pars 130-137 and 141-151 are deleted]) – “CASE AGAINST CITIBANK”
Agents for Citibank........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [78]
TP Act........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [79]
SIC and the Law........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [85]
Negligence........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [86]
LKFM’s authority from Citibank to make the Negative Gearing Package Representations........ ........ . [87]
The other Advisers’ authority from Citibank to make the Negative Gearing Package Representations [88]
Citibank’s vicarious liability for the Advisers’ conduct........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [89]
Reliance of the Investors........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [92]
Suffering of loss or damage, liability under the SIC and the Law........ ........ ........ ........ ........ ........ ........ ...... [93]
Citibank’s personal duty of care to the Investors........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [94]
Reliance........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [99]
Suffering of loss or damage........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [100]
Liability for breach of implied contractual duty to process the Investors’ applications carefully in their interests [101]
The claim for contribution or indemnity........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [102]
Citibank’s defence to the Claim........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..
General........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [104]
Limitation defence........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [108]
Special SIC defence........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [110]
Illegality........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [111]
Excessiveness of amounts provided to the Investors in settlement........ ........ ........ ........ ........ ........ ........ .. [112]
Absence of causation........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [113]
Just and equitable that Citibank be “exempted from liability to make contribution” having regard to extent of NM’s responsibility........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [114]
Just and equitable that Citibank be “exempted from liability to make contribution” having regard to extent of Citibank’s responsibility........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [115]
NM’s reply to Citibank’s defence........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [116]
Citibank’s cross claim........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [117]Citibank’s cross-claim against the Advisers........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [118]
Citibank’s cross-claim against Permanent........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [120]
Citibank’s cross claim against AHA........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [127]
The defences to Citibank’s cross-claim........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...
The Advisers’ defences........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [129]
Permanent’s defences........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [131]
AHA’s defences........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [132]
Citibank’s reply to AHA’s defence to Citibank’s cross-claim........ ........ ........ ........ ........ ........ ........ ...... [134]
The cross-claims by Kelly and Jones against Citibank........ ........ ........ ........ ........ ........ ........ ........ ........ ... [135]Kelly – credit........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [137]
CHAPTER 2: NM’S LIABILITY TO THE INVESTORS
introduction........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [143]
A. SUMMARY ACCOUNT OF THE FACTS RELATING TO EACH OF THE 23 INVESTORS.. [147]
1. Geoffrey Ian Alder and Susan Patricia Alder........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [150]
2. Cornelius Anthony Appelman and Martina Mary Appelman........ ........ ........ ........ ........ ........ ........ ........ .... [169]
3. Leigh Charles Bachmann and Christine Anne Bachmann........ ........ ........ ........ ........ ........ ........ ........ ........ . [184]
4. Ian Geoffrey Boulter and Helena Johanna Boulter........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [196]
5. Allan Stewart Crawford and Heather Joy Crawford........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [208]
6. Ross Newton Daniels and Shirley Rae Daniels........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [216]
7. Colin John Douglass and Julie Irene Douglass........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [223]
8. Andrea Martina Eberts (formerly "Eberts-Vergura")........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [234]
9. Barbara Anna Emery and Edwin Arthur Emery........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [241]
10. Daryl John Farrar and Debra Vicki Farrar........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [251]
11. Sharn Stuart Fraser-Bell and Jennifer Jane Fraser-Bell........ ........ ........ ........ ........ ........ ........ ........ ........ .... [259]
12. Paul Frederick Garden and Denise Valda Garden........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [268]
13. Gregory Alan Jorgensen and Anne Maree Jorgensen........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [278]
14. Frank Lorenz and Ann Gudrun Lorenz........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [284]
15. Phillip Ross Lowe and Deborah Joan Lowe........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [292]
16. Giuseppe Guido Minichini and Rosa Minichini........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [300]
17. Robert Leonard Parsons and Ngaire Carmel Parsons........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [308]
18. Gary Allan Pickworth and Tina Jane Pickworth........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [318]
19. Peter John Quaife and Gail Christine Quaife........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [327]
20. Peter James Richards and Beverley Anne Richards........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [337]
21. Dominic Tavoletti and Melina Tavoletti........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [347]
22. David Bruce Weaver........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [358]
23. Barry Philip West and Jacqueline Anne West........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [367]
B. ELEMENTS OF THE INVESTORS' CAUSES OF ACTION AGAINST THE ADVISERS AND NM....... [377]
1. Did each Investor have a good cause of action in negligence against the relevant Adviser?....
(i) Did the Advisers owe the Investors a duty of care?........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [378]
(ii) Did the Advisers breach their duty of care to the Investors?........ ........ ........ ........ ........ ........ ........ ........ ........
General........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [403]
“Safe and risk free” representation and failure to give the Warnings........ ........ ........ ........ ........ ........ ..... [410]
Failure to give the particular Warnings........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [423]
Unsuitability........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [444](iii) Did the Advisers’ breach of their duty of care to the Investors cause the Investors to suffer loss or damage? [449]
(a) Did the Advisers’ conduct cause the Investors to invest in the units in accordance with the Package? [451]
(b) Was it investment in the units in accordance with the Package that caused the Investors to suffer loss or damage? [457]
2. Was NM liable to each Investor, either vicariously through the Adviser or directly in tort?
(i) Was NM directly or vicariously liable in respect of the Advisers’ conduct?........ ........ ........ ........ .... [490]
(ii) Did NM itself owe the Investors a personal non-delegable duty of care?........ ........ ........ ........ ........ . [491]
(iii) If so, did NM breach its personal non-delegable duty of care to the Investors?........ ........ ........ ...... [491]
(iv) If so, did NM’s breach of its personal non-delegable duty of care to the Investors cause the Investors to suffer loss or damage?........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [491]
3. Were the Investors guilty of contributory negligence?........ ........ ........ ........ ........ ........ ........ ........ ... [492]
CHAPTER 3: LEGAL PRINCIPLES AND OTHER GENERAL MATTERS
Introduction........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [501]
PART A – LEGAL PRINCIPLES AND CERTAIN ISSUES IN THE CASE........ ........ ........ ........ ........ ........ ........ .
Personal liability and vicarious liability........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [502]
Actual authority and apparent authority........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [511]
Vicarious liability and agency........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [516]
Rights of indemnity........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [523]
Negative gearing........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [529]
Citibank’s “Casbah” analogy and the question of “dual agency”........ ........ ........ ........ ........ ........ ...... [539]
The distinction between an agent and a mere introducer of business........ ........ ........ ........ ........ ....... [544]
Colonial........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [563]
The juridical bases of vicarious liability of Citibank for the conduct of Kelly suggested by NM....... [596]
Dual agency – the law........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [604]
citibank’s dichotomy in its business system between “mere introducers” and “agents”........ ... [618]
Sub-agency: is Citibank vicariously liable as a result of the statements made by DJC/Jones and the K/J Associates, if they were not agents of Citibank, but sub-agents?........ ........ ........ ........ ........ ........ ...... [630]part b – factual matters of relevance to the circumstances of all 23 investors
Some background facts about Citibank, lkfm/Kelly and NM........ ........ ........ ........ ........ ........ ........ ...... [644]
LKFM’s express and implied authority arising from its agency agreement of 3 April 1989..... [667]
Were the Advisers agents of NM?........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [671]
Citibank’s knowledge that individuals other than Kelly introduced applicants for Mortgage Power [676]
The various relationships between Citibank, LKFM/Kelly, DJC/Jones and the K/J Associates........ ........ [680](a) The relationship between Citibank and LKFM/Kelly........ ........ ........ ........ ........ ........ ........ ........ ........ .... [682]
(b) The relationships between Citibank, LKFM/Kelly and DJC/Jones........ ........ ........ ........ ........ ........ .... [683]
(c) The relationships between Citibank, LKFM/Kelly and FKB/Fitcher, Kirby, Bahr........ ........ ........ . [693]
(d) The relationships between LKFM/Kelly and the Kelly Associates, Blee, Grima, Kennedy, Naughton (and Kinross) [705]Blee........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [713]
Grima........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [723]
Kennedy........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [726]
Naughton........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [729](e) The relationships between Citibank, DJC/Jones and the Jones Associates, Blee, Hacopian, Crawford, Wass, Buttars and Roberts........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [733]
Blee........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [735]
Hacopian........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [738]
Crawford........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [741]
Wass........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [743]
Buttars........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [747]
Roberts........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [750]
Did Kelly make the statements complained of as representative of or for or on behalf of Citibank? [753]
Conclusion........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [772]
CHAPTER 4: PERSONAL (OR DIRECT) LIABILITY OF CITIBANK TO THE INVESTORS THROUGHT FAILURE TO PERFORM NON-DELEGABLE DUTY
Introduction........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [773]
Outline of NM’s submissions relating to direct liability........ ........ ........ ........ ........ ... [775]
Concessions by Citibank officers........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [787]
The expert evidence and my conclusions in relation to it........ ........ ........ ........ ........ [791]
Reasoning otherwise........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........
General........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [799]
Dorrough v Bank of Melbourne Ltd (1995) 8 ANZ Insurance Cases 76,233........ ........ ........ ........ ...... [809]
Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520........ ........ ........ ........ ........ ........ .. [822]Conclusion........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [834]
CHAPTER 5: APPARENT AUTHORITY
Introduction........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [835]
holding out by NM of the Advisers as having authority to represent NM and to act for it and on its behalf in promoting the sale of NM units to the Investors........ ... [848]
The supply of citibank stationery........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [862]
the understandings of the Individual investors........ ........ ........ ........ ........ ........ ........ ........ [865]
1. Geoffrey Ian Alder and Susan Patricia Alder........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [872]
2. Cornelius Anthony Appelman and Martina Mary Appelman........ ........ ........ ........ ........ ........ ........ ...... [882]
3. Leigh Charles Bachmann and Christine Anne Bachmann........ ........ ........ ........ ........ ........ ........ ........ .... [889]
4. Ian Geoffrey Boulter and Helena Johanna Boulter........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [893]
5. Allan Stewart Crawford and Heather Joy Crawford........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [901]
6. Ross Newton Daniels and Shirley Rae Daniels........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [906]
7. Colin John Douglass and Julie Irene Douglass........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [917]
8. Andrea Martina Eberts........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [922]
9. Barbara Anna Emery and Edwin Arthur Emery........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [929]
10. Daryl John Farrar and Debra Vicki Farrar........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [934]
11. Sharn Stuart Fraser-Bell and Jennifer Jane Fraser-Bell........ ........ ........ ........ ........ ........ ........ ........ ....... [939]
12. Paul Frederick Garden and Denise Valda Garden........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [944]
13. Gregory Alan Jorgensen and Anne Maree Jorgensen........ ........ ........ ........ ........ ........ ........ ........ ........ .. [949]
14. Frank Lorenz and Ann Gudrun Lorenz........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [953]
15. Phillip Ross Lowe and Deborah Joan Lowe........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [958]
16. Giuseppe Guido Minichini and Rosa Minichini........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [961]
17. Robert Leonard Parsons and Ngaire Carmel Parsons........ ........ ........ ........ ........ ........ ........ ........ ........ .. [966]
18. Gary Allan Pickworth and Tina Jane Pickworth........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [973]
19. Peter John Quaife and Gail Christine Quaife........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [978]
20. Peter James Richards and Beverley Anne Richards........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [985]
21. Dominic Tavoletti and Melina Tavoletti........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [993]
22. David Bruce Weaver........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [997]
23. Barry Philip West and Jacqueline Anne West........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [1005]
Conclusion........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [1015]
CHAPTER 6: ACTUAL AUTHORITY OUTSIDE LKFM’S AGENCY AGREEMENT OF 3 APRIL 1989
INTRODUCTION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [1019]
The evidence on which NM relies as showing that the Advisers had actual authority from Citibank to sell Mortgage power as its representatives and for it and on its behalf, outside the written agency agreement between Citibank and LKFM of 3 april 1989........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......
Introduction........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [1030]
1. The existence of authority........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......1.1 Promoting and selling Mortgage Power as part of the Negative Gearing Package........ ........ ..... [1032]
1.2 On behalf of Citibank, answering questions from the Investors........ ........ ........ ........ ........ ........ ....... [1045]
1.3 Conducting all face-to-face dealings with the Investors on behalf of Citibank........ ........ ........ ..... [1048]
1.4 Completing mortgage finance application documents when closing sales........ ........ ........ ........ ..... [1055]
1.5 Making contracts between Citibank and the Investors at point of sale........ ........ ........ ........ ........ ... [1059]
1.6 Discharging various legal obligations of Citibank........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [1073]
1.7 Performing the functions of a Citibank branch........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [1079]
1.8 Obtaining information on behalf of Citibank, including information concerning the needs and financial circumstances of the Investors........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [1083]
1.9 Quality control........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [1086]
1.10 Delegation of authority........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [1102]
2. The scope of Kelly’s authority from Citibank........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [1115]
2.1 The voice of Citibank........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [1117]
2.2 The Negative Gearing Package........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [1121](a) Did Citibank know about the second tier of lending by NM on the security of both the initial units and the further units?........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [1124]
(b) Did Citibank authorise Kelly as its representative and for it and on its behalf, to make representations about NM products and the advantages of investing in them in accordance with Kelly’s Negative Gearing Package? [1185]2.3 The manner of sale........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [1186]
2.4 Financial advice........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [1187]
Conclusion........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [1188]
CHAPTER 7: RATIFICATION
1. Did the Advisers act on behalf of Citibank?........ ........ ........ ........ ........ ........ ........ ........ [1200]
2. Did Citibank have sufficient knowledge of the STATEMENTS said to have been ratified?........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [1204]
3. Was Citibank’s act of alleged ratification of an appropriate kind? [1208]
CHAPTER 8: NM’S CLAIMS BASED ON THE SECURITIES INDUSTRY CODE AND THE CORPORATIONS LAW........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [1210]
CHAPTER 9: TRADE PRACTICES ACT........ ........ ........ ........ ........ ........ ........ ........ ........ [1233]
CHAPTER 10: CITIBANK’S “SPECIAL” OR “POSITIVE” DEFENCES
INTRODUCTION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [1248]
Limitation defences........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [1259]
Richards........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [1270]
Eberts........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [1273]conclusion........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [1282]
CHAPTER 11: AMOUNT OF CONTRIBUTION RECOVERABLE BY NM FROM CITIBANK
INTRODUCTION AND General........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [1283]
The most persuasive considerations........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [1298]
Commercial background........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [1299]
The evidence that the Advisers were faithfully implementing instructions from, and the policy of, senior management levels within NM........ ........ ........ ........ ........ ........ ........ ....... [1300]
Citibank’s responsibility........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [1340]
Conclusion........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [1342]
CHAPTER 12: CITIBANK’S CROSS-CLAIMS AGAINST THE ADVISERS, PERMANENT AND AHA FOR INDEMNITY OR CONTRIBUTION........ ........ ........ ........ ........ ........ ........ ........ ........ [1343]
CHAPTER 13: CONCLUSIONS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [1357]
ANNEXURES
1. “JONES INVESTORS” AND “KELLY INVESTORS” – SCHEDULES 2 AND 4 TO THE PLEADING
2. SCHEDULE OF INVESTORS AND OF THE ADVISERS RELEVANT TO THEM
3. DRAMATIS PERSONAE – CITIBANK OFFICERS
4. EQUITY REMAINING AFTER DEDUCTING AMOUNT SECURED BY PREVIOUS MORTGAGE, AS COMPARED WITH TOTAL AMOUNT INVESTED IN nm UNITS
5. LIMITATION DEFENCE TABLE
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NG 765 OF 1994
BETWEEN:
NMFM PROPERTY PTY LIMITED (formerly called “National Mutual Property Services (Australia) Pty Ltd”)
First ApplicantNATIONAL MUTUAL ASSETS MANAGEMENT LIMITED
Second ApplicantTHE NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LIMITED
Third ApplicantAND:
CITIBANK LIMITED (formerly called “Citibank Savings Limited”)
Respondent
FIRST CROSS-CLAIM
CITIBANK LIMITED (formerly called “Citibank Savings Limited”)
Cross-Claimant[Lance Kelly Financial Management Pty Ltd, removed as a party]
First Cross-RespondentLANCE KELLY
Second Cross-Respondent[Dennis Jones & Company Pty Limited, removed as a party]
Third Cross-RespondentDENNIS JONES
Fourth Cross-RespondentTONY BAHR
Fifth Cross-RespondentALAN J BLEE
Sixth Cross-Respondent[Wayne Fitcher, removed as a party]
Seventh Cross-RespondentNORMAN KIRBY
Eighth Cross-RespondentPAUL KENNEDY
Ninth Cross-RespondentPETER KINROSS
Tenth Cross-RespondentJAMES NAUGHTON
Eleventh Cross-Respondent[D Rodstead, removed as a party]
Twelfth Cross-Respondent[G Blaiklock, removed as a party]
Thirteenth Cross-RespondentERIK JAMES BUTTARS
Fourteenth Cross-RespondentROMMEL HACOPIAN
Fifteenth Cross-RespondentCRAIG BYRON ROBERTS
Sixteenth Cross-RespondentANNA WASS
Seventeenth Cross-RespondentALLAN STEWART CRAWFORD
Eighteenth Cross-RespondentPERMANENT TRUSTEE COMPANY LIMITED
Nineteenth Cross-RespondentAMERICAN HOME ASSURANCE COMPANY
Twentieth Cross-RespondentLAWRENCE C GRIMA
Twenty-first Cross-Respondent
SECOND CROSS-CLAIM
LANCE KELLY
Cross-ClaimantCITIBANK LIMITED (formerly called “Citibank Savings Limited”)
Cross-Respondent
THIRD CROSS-CLAIM
DENNIS JONES
Cross-ClaimantCITIBANK LIMITED (formerly called “Citibank Savings Limited”)
Cross-Respondent
JUDGE:
LINDGREN J
DATE:
10 NOVEMBER 2000
PLACE:
SYDNEY
REASONS FOR JUDGMENT (No 10)
CHAPTER 1
INTRODUCTION AND PLEADINGSPARTIES AND GENERAL INTRODUCTION
The three applicants (I find it convenient to use the general abbreviation “NM” to refer to them and to any one or more of them as appropriate in the particular context, but will use the more specific abbreviations mentioned below when I intend to refer specifically to one of them as distinct from the others) seek to recover contribution or indemnity from the respondent (“Citibank”) in respect of amounts totalling $10,240,440 which NM claims to have paid to 132 individuals or couples (“the Investors” – I treat a couple who invested jointly as one “Investor”, and will use the expression “the Investors” also to refer simply to the 23 Investors in respect of whom the case has been conducted at this stage). NM claims that the Investors invested in a “Negative Gearing Package” (or “the Package” or “Kelly’s Negative Gearing Package”) which it claims was promoted by both NM and Citibank, not jointly, but severally through persons who were at once agents for both NM and Citibank. Citibank denies responsibility for the Package but agrees that it lent the Investors part of the money which they used to invest in NM investment products. The Investors borrowed the remainder from NM.
Citibank does not appear to dispute that the Investors invested in NM investment products in accordance with a plan or scheme. But, although convenient, abbreviated forms of expression can lead to error. For example, it may be convenient to refer to investment “in” the Package, but it seems to me that this involves an elision and a potentially prejudicial emphasis: the Investors did not invest in a plan or scheme but in NM investment products in accordance with a plan or scheme. My abbreviated forms of reference should not be taken to reflect any views: for example, although the Investors did invest, Citibank contends that from its viewpoint they were simply “customers” or “borrowers” of a bank, and that in their role as investors in NM investment products they were of no concern to Citibank.
NM claims that Citibank is concurrently liable with NM to the Investors and that it is entitled to recover contribution or indemnity from Citibank under s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (“LR (MP) Act”) or s 23B of the Wrongs Act 1958 (Vic) (“Wrongs Act”) or under general equitable principles.
At an earlier stage, NM, with the Investors as fourth applicants sued Citibank as first respondent, Lance Kelly Financial Management Pty Limited (“LKFM”) as second respondent, Lance Kelly (“Kelly”) as third respondent, Dennis Jones & Company Pty Limited (“DJC”) as fourth respondent, its principal Dennis Jones (“Jones”) as fifth respondent, and American Home Assurance Company (“AHA”) as sixth respondent, for contribution or indemnity. LKFM was the alter ego of Kelly and DJC was the alter ego of Jones. Both companies later went into liquidation. Generally, I will not distinguish between the individual and his company, using “Kelly” and “LKFM” interchangeably, and “Jones” and “DJC” interchangeably. As a result of an earlier judgment of mine ((1995) 132 ALR 514 – application for leave to appeal dismissed by Lehane J on 16 November 1995 (unreported)), the fourth applicants ceased to be parties, leaving NM as the only applicants. NM claimed that LKFM, Kelly, DJC and Jones had, by their acts as agents for NM, caused NM to incur liability to the Investors, in respect of which NM had, acting reasonably, settled by paying the Investors the money referred to earlier as compensation for their losses. NM claimed that AHA was the liability insurer of DJC and Jones and NM claimed against AHA under s 6 of the LR (MP) Act.
The acquisition of units in the National Mutual Australia Property Trust (No. 1) (“the Property Trust” or “the Trust”) was the central feature of the Package. All but one of the 23 Investors mentioned later invested in it (the exceptional Investor invested in units in another NM fund).
The trustee of the Property Trust was Permanent Trustee Australia Ltd (“PTA”), formerly called “Permanent Trustee Nominees (Canberra) Ltd.” PTA is not a party to the proceeding. The manager of the Property Trust was the second applicant (“NMAM”), which was a wholly owned subsidiary of the third applicant (“NMLA”).
The Investors borrowed 20 per cent of the money they invested in NM units from Citibank and the remaining 80 per cent from NM. (These were the percentages from 1989 to 1991, but they changed to 30 per cent and 70 per cent respectively for the period 1991 to 1992, but for convenience I will refer only to 20 per cent and 80 per cent.) Apparently on occasions the NM funds came from NMLA but usually they came from the National Mutual Australian Income Fund No 1 (“the Mortgage Trust” or the “NMAIF”) of which the nineteenth cross-respondent (“Permanent”) was the trustee. NMAM was also the manager of the Mortgage Trust.
Another NM company was much more active in relation to the Mortgage Trust than NMAM, namely, the first applicant (“NMPS”). In the evidence NMPS is referred to as a “finance broker” and as agent for NMAM. NMAM paid NMPS for its services out of NMAM’s management fees. NMPS was a wholly owned subsidiary of National Mutual Funds Management (Global) Pty Ltd, and both that company and NMLA were wholly owned subsidiaries of National Mutual Holdings Ltd. The Investors’ applications for loans from the Mortgage Trust were made to NMPS, and NMPS, rather than NMAM, corresponded with them. Therefore, for convenience I will sometimes refer to “NMPS loans” and to loans and borrowings “from NMPS,” when, more precisely, what is referred to is a loan from Permanent as trustee of the Mortgage Trust, arranged by NMPS, apparently as agent for NMAM.
NMPS featured in the case of at least 22 of the 23 Investors with whom I am concerned – the Alders seem to be an exception. Eleven borrowed from Permanent as trustee of the Mortgage Trust, ten borrowed from NMLA, and one borrowed from both, in all these 22 cases on the security of a mortgage over the units. The Alders borrowed, apparently from Permanent, but against the security of insurance policies only. It has not been suggested that there would be any difference in result according to whether the “NM loan” (to use a general expression) came from NMLA or the Mortgage Trust. Indeed, generally speaking, the precise relationships between the three NM companies is not important for present purposes.
By a cross-claim filed on 23 October 1996, Citibank cross-claimed for contribution or indemnity against, relevantly, LKFM, Kelly, DJC, Jones, the then fifth to eighteenth cross-respondents (I will refer to them individually by their surnames that appear in the title to the proceeding), who had been associated at different times and in different ways with Kelly or Jones, and against Permanent and the twentieth cross-respondent, AHA. (I have not been able to think of an entirely satisfactory expression to describe the numbered individual natural person cross-respondents to whom I have just referred and will use the expressions “Kelly Associates”, “Jones Associates” and, together, “Kelly/Jones Associates” or “K/J Associates”, without prejudging any of the relationships involved. I will use the similarly neutral expression “Advisers” to refer to them as well as to Kelly (including LKFM) and Jones (including DJC).
The twenty-first cross-respondent (“Grima”), another K/J Associate, was joined when Citibank filed its current Amended Cross-Claim on 16 January 1998. The former first, third, seventh, twelfth and thirteenth cross-respondents have been removed as parties, leaving Kelly, Jones, twelve K/J Associates, AHA and Permanent as respondents to Citibank’s cross-claim.
In their defences at that time to Citibank’s cross-claim, the cross-respondents claimed that NM should fail against Citibank (and so Citibank should fail on its cross-claim against them) because, inter alia, NM had, in substance, been well aware of and acquiesced in the alleged making of representations by Kelly, Jones and the K/J Associates to induce the Investors to enter into the Package.
In November 1997 NM and AHA entered into a deed of settlement which led to a radical reconstitution of the proceeding. AHA agreed to pay $6,000,000 to NM. NM agreed to discontinue against LKFM, Kelly, DJC, Jones and AHA. NM and AHA agreed to bear their own respective costs of the proceeding and of the deed. AHA agreed to provide reasonable assistance to NM in the further conduct of the proceeding and to do other things to assist NM’s cause. NM agreed to indemnify AHA “and/or its insureds and/or alleged insureds” against and in respect of any liability, demand or claim by any party against AHA “or any of its insureds” arising out of or in connection with the Package or the facts or issues (or both) the subject of the proceeding. In particular, and importantly, NM agreed to indemnify AHA and any of its “insureds and/or alleged insureds” in respect of any amounts which AHA or any of its “insureds and/or alleged insureds” might be held liable on any cross-claim to pay to Citibank by way of contribution towards, or indemnity in respect of, any award obtained by NM against Citibank.
It was after this deed of settlement of November 1997 that NM ceased to sue the respondents other than Citibank. Moreover, the defences to Citibank’s cross-claims ceased to make positive allegations against NM of the kind referred to earlier, and, in substance simply did not admit Citibank’s liability to NM, while making positive allegations against Citibank.
Moreover, NM’s legal representatives have appeared for Kelly and Jones as, respectively, second and fourth cross-respondents to Citibank’s cross-claim and as cross-claimants against Citibank on cross-claims of their own against Citibank for contribution or indemnity (in the case of Jones, pursuant to leave granted by me, because, unlike Kelly, Jones did not cooperate with NM). Although the K/J Associates have been independently represented, NM has been paying their costs of defending Citibank’s cross-claim. In sum, as a result of the deed of settlement of November 1997, NM stands behind the Adviser cross-respondents to Citibank’s cross-claim and would not welcome a result according to which it succeeded against Citibank if Citibank succeeded in its claim for full indemnity on its cross-claim against them.
Through its senior counsel’s opening address, NM made an open offer to resolve the entirety of the proceeding as follows:
“(a) Citibank pay to National Mutual $4,125,355 within 14 days;
(b)the above sum is calculated on the basis that National Mutual is entitled to 33% contribution with respect to all payments made to investors, plus interest to the date of trial [as set out in an attached schedule], less a contingency allowance of 20%;
(c)Citibank pay the costs of National Mutual to the date of acceptance of the offer;
(d)interest on the principal sum the subject of the offer is running at $1,130.23 per day and is to be paid by Citibank up to the date of settlement;
(e)if the offer is accepted, National Mutual would pay the cost of AHA and the advisers of the proceedings.”
The offer was not accepted. During the hearing the parties resorted to mediation but this did not lead to a settlement either.
The hearing occupied seventy-two days. Computer technology, including real time transcript and the computer imaging of documents, was used; 126,960 documents were imaged; fifty-six witnesses gave evidence; the documents in evidence occupied 102 lever arch folders. Senior counsel and two junior counsel were retained on behalf of each of NM and of Citibank, while junior counsel appeared for the K/J Associates. Many witnesses came from Melbourne and others came from New Zealand, Western Australia and Tasmania. Some of these witnesses had to be accommodated in Sydney, in some instances for more than one night. The total of all parties’ legal costs, witnesses’ expenses and the cost of NM and Citibank executive time, must surely exceed the sum of $4,125,355 mentioned earlier.
I do not know why two large public corporations have fought this case at such great cost. The case has, of course, delayed other litigants with claims on the attention of the Court. Although the delay has to some extent been “spread” by a re-allocation of some other cases in my docket to other Judges, this merely causes the problem to take a different form: the delay is shared among more litigants.
Originally it was estimated that the hearing would occupy some five to six months (say 110 hearing days). At that time, it was envisaged that all 132 Investors would be called to give evidence in NM’s case, which can be fairly regarded as 132 individual cases. NM’s evidence began with that of the Investors. After thirteen of them had given evidence, I made the following orders on 17 September 1998.
“1.Pursuant to Order 29 rule 2, the applicants’ claim in respect of those Citibank investors who have given evidence to date, being [13 identified Investors], together with such further Citibank Investors up to a maximum of five as the respondent may nominate in writing to the applicants by 23 September 1998, and such further Citibank Investors up to a maximum of five as the applicants may nominate in writing to the respondent by 30 September 1998, be determined separately from and before the applicants’ claim in respect of all other Citibank investors,¼
2.The respondents shall be entitled to have recalled for further cross-examination any or all of the 13 Citibank Investors first referred to in Order 1 above, upon giving written notice of that requirement to the applicants by 2 October 1998.”
NM and Citibank each nominated five further Investors and the hearing proceeded by reference to the resultant 23 Investors rather than all 132. In my estimate, this reduced the hearing time by some two months (say forty hearing days). The hearing extended over a broken period of just under a year.
The facts relating to no two Investors are identical, although there are certain common features. In substance, NM’s case in respect of each Investor is distinct from its case in respect of each other one, but all were heard together. My hope, and that of the parties, was that once the parties had read these Reasons, they would be able to agree how I would have decided the proceeding in so far as it relates to the remaining one hundred and nine Investors.
THE CASE IN OUTLINE
The Package can be described at different levels of generality. It was structured generally as follows: investors would apply for an initial number of units in the Property Trust (“the initial units”). The acquisition of the initial units would be funded from the Investor’s own funds or by a borrowing from a source other than NM. The present case is concerned only with funding of the acquisition of the initial units provided by a borrowing from Citibank. Citibank commenced operations in Australia in 1929 as “Citicorp”. Following the deregulation of banking, it became “Citibank” and became entitled to offer banking services in December 1985. Citibank is wholly owned by Citicorp, a holding company with headquarters in New York. The funding by Citibank was effected by means of a “Citibank Mortgage Power (Credit Line Facility)” (“Mortgage Power”) which Citibank had introduced in late 1986. Initially Mortgage Power was marketed to corporations and “professionals”, but it was made available more generally as from late 1988. It is with this later period, characterised by the more widespread and successful promotion of Mortgage Power, that the present case is concerned.
Mortgage Power was in substance an “overdraft” or “line of credit” facility secured by a first mortgage over the borrower’s home. Apparently the name of the facility was derived from the notion that by “unlocking the equity” in a person’s home, the homeowner would have the “power” of a line of credit beyond the amount required to discharge the existing mortgage and up to a ceiling that represented an approved percentage of the value of the home. In the following paragraphs I will explain the Package by reference to a simplified hypothetical case.
Assume that an individual owned a home worth $200,000 on which there was an existing first mortgage securing a debt to a bank or building society of $30,000. Citibank might approve a credit facility of $150,000 (75 per cent of valuation - in fact the “Loan/Security Ratio” (“LSR”) used by Citibank varied from time to time). The individual might have other debts. As well, he or she might aspire to effect additions or renovations to the home or to take an overseas holiday or to buy a motor car or to have money available for other purposes. Mortgage Power enabled consolidation of the person’s existing debts into one debt and gave him or her the capacity to draw down further amounts up to the approved limit for such other purposes as and when desired.
Our hypothetical homeowner would have to draw down $30,000 to discharge the existing first mortgage. He or she might also draw down say a further $20,000 to acquire 20,000 initial units in the Property Trust (on the assumption that their value at the time was $1). The individual, who was provided with a cheque book on the Mortgage Power account, might, at the same time or subsequently draw down further moneys to pay out other existing debts or to satisfy other needs or desires, subject, of course, to the ceiling of $150,000. On the other hand he or she might not draw on the facility beyond the total of $50,000.
The Mortgage Power loan was an “interest only” facility and it was a matter for the customer whether, when, in what amounts and for what purposes to draw down further amounts. Interest was payable only on the balance drawn down from time to time. The borrower could make deposits into the account and so reduce that balance and, therefore, the amount of interest payable. The events with which we are concerned occurred at a time of high interest rates. Although the rates varied from time to time, I will assume the not atypical interest rate of 17.5 per cent per annum for the purposes of the hypothetical example. On the assumption that the person drew down no more than the sums of $30,000 to discharge the existing first mortgage and $20,000 for the initial units and made no deposits, he or she would have incurred a liability to pay interest of $8,750 on $50,000 in respect of the first twelve months.
Interest was calculated on daily balances and was payable monthly. Citibank was entitled to vary the rate each month, so that although Citibank always advised successful applicants for the Mortgage Power facility of the initial interest rate, the rate was variable. The borrower was required to pay interest within fifteen days of a monthly statement of account being sent to him or her. The monthly interest payable to Citibank was not permitted to be made directly from the Mortgage Power account. That account could, however, be used for that purpose indirectly: the customer could draw a cheque on the account, deposit the amount into his or her personal account, then draw a cheque on the personal account in favour of Citibank. Principal fell due only if and when the Investor defaulted – by not paying interest, for example.
The second stage of the Package involved the borrowing of money from NM, also on “interest only” terms, in order to fund the acquisition of further units in the Property Trust (“further units”). The security for the loan from NM was a “unit mortgage” – a mortgage over both the initial units and the further units. Where the borrowing was from the Mortgage Trust, the unit mortgage was to Permanent as its trustee. The second stage of the Package was effected after the first stage but usually only shortly afterwards, and sometimes in substance simultaneously. The loan from NM was of a fully drawn kind rather than a line of credit. The term of the loan was five years, although the antecedent application for it was in a standard form which referred to an “option to extend for a further 5 years”, but the necessary time for this provision to become significant did not elapse in the present case (there is evidence that within NM, the option was thought of as that of NM!) The practice was for the further units to number four times the number of the initial units. In our hypothetical case, on the assumption that the further units were also able to be acquired at $1 each, the investor would subscribe for 80,000 further units at a cost of $80,000 which he or she would borrow from NM on the security of a mortgage to Permanent over both the initial units (20,000) and the further units (80,000) – the total of 100,000 units.
Again the rate of interest was high. For the sake of our hypothetical example, it might be assumed that the rate was 17.5 per cent per annum. On this basis, the individual would incur an interest liability to NM of $14,000 for the first year. Each year’s interest was payable to NM monthly in advance as at the first day of each month, but in fact Kelly and the other Advisers encouraged the Investors to pay the whole of the first year’s interest “up front”. An obvious source of the funds to pay interest was the Mortgage Power facility. A cheque could be drawn on the Mortgage Power account for the interest payable to NM.
Our hypothetical investor’s total interest liability to Citibank and NM for the first year would be $22,750 – $8,750 to Citibank and $14,000 to NM. The investor would receive dividends on the units. The dividends were paid into the Mortgage Power account and the interest was paid out of it in the manner already mentioned. But the dividends were much less than the interest payable. Again, the rate of return from the units varied from time to time but in our hypothetical example I will assume a rate of 8 per cent, that is, $8,000 on the 100,000 units. Leaving to one side the matter of the taxation benefit discussed later, the investor would have a shortfall of $14,750 ($22,750 – $8,000). Part of NM’s case is that the Investors were not people who had high incomes. More will need to be said in due course in relation to this, but if one assumes that our hypothetical investor had an income of $30,000 per year, he or she would, after paying the shortfall of $14,750, have only $15,250 left out of which to pay his or her other outgoings and living expenses. To the extent that the investor drew on the Mortgage Power facility to fund the shortfall, both the interest liability to Citibank would increase.
A further aspect of the Negative Gearing Package should be mentioned. Some of the Investors took out an insurance policy with NMLA. The first year’s premium on the policy would also be funded from the Mortgage Power facility. Accordingly, to return to the hypothetical example, by the end of the first year, the borrower would have drawn on the Mortgage Power facility, $30,000 to discharge the existing mortgage over the home, $20,000 for the initial units in the Property Trust, $14,750 for the shortfall on the first year’s interest on both loans, and, say, $5,000 for the first year’s premium on a NMLA policy – a total of $69,750. In addition, there would be a Mortgage Power loan establishment fee, a valuation fee, Citibank’s solicitors’ fees, stamp duty and other transaction fees and expenses. Then there was also the indebtedness of $80,000 to NM.
Our hypothetical investor with a modest income but perhaps well on the way to paying off the mortgage of $30,000 over his or her home, would owe by the end of the first year an amount of the following order:
Drawdown to pay outgoing mortgage:
Drawdown for initial unitsDrawdown to pay first premium on NMLA policy
Borrowing from NM for further units
Interest to Citibank
Interest to NM
Application fee, valuation fee, Citibank’s solicitors’ fees, stamp duty and other “transaction expenses”, sayLess
Dividends from units$30,000
20,000
5,000
80,000
8,750
14,0004,000
161,750
8,000
153,750
These figures do not take into account the income tax benefit mentioned below. Moreover, of course our hypothetical investor owned 100,000 units, worth more or less than $100,000, and a policy, and had the capacity by means of a cheque book to draw from the Mortgage Power account further amounts up to $76,250 ($150,000 – ($153,750 –$80,000)). But he or she was dependent for financial survival on a sufficiently large and rapid increase in the value of the units in the Property Trust. The “unlocking of the equity” would lead to financial ruin for our hypothetical investor if the value of the real estate underlying the Trust, and thus the value of the units in the Trust, did not increase at an appropriate rate to provide a way of escape.
There were two particular “selling features” of the Negative Gearing Package. The first was related to income tax. Not all the dividends from the units ($8,000 in the hypothetical case) were immediately taxable. A small proportion was not taxable at all and the tax liability on a further proportion was “deferred”. But more importantly, the Investors were told that they would have the benefit of a deduction for income tax purposes in respect of the excess of the interest liability to Citibank and NM on the amount paid to acquire the units over the income received from the units. But this advantage would be greatest for persons paying a high marginal rate of income tax, and NM’s case is that none of the Investors were doing so. In any event, the shortfall between interest payable and dividends received still had to be found, and, as noted earlier, although it could be funded from the Mortgage Power facility, this process of capitalisation of interest would itself increase the interest payable to Citibank, as previously mentioned.
The transactions with all 132 Investors were entered into over a period which can be usefully conceived of as running from the beginning of 1989 to late 1992/early 1993. The transactions of the 23 Investors with whom I am concerned were entered into from March 1989 to December 1992. Down to 31 December 1990, Citibank did not have in place a procedure for testing the capacity of its Mortgage Power borrowers to service the facility unless their “equity” in their home was less than $20,000 or the facility sought exceeded $300,000. But for proposals dated 1 January 1991 and later, “capacity testing” was carried out. The test was of the borrower’s capacity to pay what his or her interest bill to Citibank would be if the Mortgage Power facility were fully drawn down. The test proceeded generally on the basis that a borrower should not be permitted to incur a maximum potential annual interest bill to Citibank exceeding 30 per cent (later, 33 per cent) of his or her gross annual income.
By late 1992 some of the Investors began to get into financial difficulty. Allegations were made to NM that the Package had been misrepresented by the Advisers. Complaints became claims against NM for compensation. Their number increased. On another front, the Australian Securities Commission (“ASC”) became involved and commenced an investigation. In January 1993, NM issued instructions that the “selling” of the Package was to cease immediately. On 15 February 1993 there was a “Four Corners” programme about NM in general and about the Package in particular. There was also publicity in “The Australian Financial Review” about litigation commenced in this Court by one investor, Lester Neil Potts. NM decided to explore resolution of the mounting claims against it. Accredited financial planners independent of NM investigated the claims and administered questionnaires to claimants. These financial planners made recommendations to NM as to the amounts of compensation that should be paid. As noted earlier, NM claims to have paid $10,240,440 to the 132 individuals or couples whose funder was Citibank. A deed of settlement was entered into between NM and each Investor.
The last matter that should be referred to in this outline is the central roles of Kelly and Jones. In so far as NM alleges that Citibank incurred a vicarious liability to the Investors, it is through them and the K/J Associates that it is said to have done so.
Kelly was a NM agent who operated out of an office at 266 Charman Road, Cheltenham, Melbourne where he was assisted by Penny Van Minnen (“Van Minnen” – in the documents in evidence, the name is spelt sometimes with, and sometimes without, a hyphen). Kelly is central to the case. As will be recounted later, NM devised a negative gearing arrangement involving the investment in units in the Trust and the borrowing of 80 per cent of the amount to be invested from NM on the security of a mortgage over the totality of the units, and Kelly’s contribution was to popularise Citibank’s Mortgage Power facility as a desirable source for the funding of the initial 20 per cent. Kelly “successfully” marketed the Package as so understood. Accordingly, one could say that it was Kelly who devised the Package in the form that involved Citibank, and this is the reason why I will also sometimes call it “Kelly’s Negative Gearing Package”. But it must be understood that the 20 per cent could be and was also found elsewhere: indeed, Kelly himself recommended the Bank of Melbourne rather than Citibank to some of his clients.
Van Minnen was not a solicitor or land broker but her name was filled in by the Adviser on the Investor’s application for the Citibank Mortgage Power loan in a box headed “SOLICITOR’S/LAND BROKERS DETAILS”. She in fact “represented” or “acted for” Investors on the transaction and was paid a fee out of the facility for her troubles.
Jones was an NM agent who operated in the Northern Beaches area of Sydney out of an office originally at Manly and later at “Bridgepoint”, Mosman. Jones submitted applications to NM and Citibank through Kelly. Accordingly, Kelly, and his association with the Melbourne office of Citibank, are at the heart of NM’s claim that Citibank incurred liability to the Investors. Through Jones, and more so through Kelly, a significant volume of business was introduced to both NM and Citibank.
PLEADINGS
The following are summaries of the pleadings. It will be clear from the context when I am summarising, and when commenting. Numerals in bold are references to paragraphs of them.
NM’s Fifth Further Amended Statement of Claim (“the Pleading”)
NM’s case is pleaded in its fifth further amended statement of claim filed on 19 October 1998 (“the Pleading”). References to Schedules are references to Schedules to the Pleading.
Part A (pars 1-14 of the Pleading [par 14 is deleted]) – “PARTIES”
Part A (pars 1-14) describes the “PARTIES” in the sense of the persons and companies involved. I have given an account of them earlier.
Part B (pars 15-44 of the Pleading [pars 16, 18 and 38-44 are deleted]) – “DJC AND JONES”
Prefatory
Part B (pars 15-44) is headed “DJC AND JONES”. Its structure and content are similar to those of Part C (pars 45-101) and, less so, Part D (pars 102-151), which deal respectively with “LKFM AND KELLY” and “THE CASE AGAINST CITIBANK”. When dealing with Parts C and D, I will refer back to the following account of Part B.
From at least January 1989 until at least April 1993, Jones was an agent for NMPS and NMAM to obtain applications to NMPS and NMAM for financial products including units in the Trust and loans from the NMAIF to purchase units in the Trust. From at least January 1989 until at least January 1993, DJC was an agent for NMPS, NMAM and NMLA to obtain applications and proposals for financial and insurance products. Jones personally or with others or by such others acting on his behalf, solicited applications for Citibank Mortgage Power facilities, units in the Trust, loans from the NMAIF to purchase units in the Trust, and insurance products of NMLA. These “Jones Investors”, as they are called in the Pleading, are identified in Schedule 2 (there are fifty-nine of them). Schedule 2 states in respect of each “Jones Investor”: the agent of NM, the actual “presenter” to the Jones Investor, the date, place and content of the representations; the amount borrowed from Citibank; how that amount was disbursed; payments made by NM in settlement of the Jones Investor’s claim; any deduction on account of redemption of the Jones Investor’s units; and the amount of NM’s resultant loss. The Negative Gearing Package is described as follows and given the name “Negative Gearing Package” for the purpose of the Pleading:
“(a)a Citibank mortgage power facility would be taken which was a flexible line of credit up to a set limit;
(b)the Citibank mortgage power facility would be used, in some cases, to refinance an existing mortgage or other debts or allow the borrower to make other expenditures;
(c)the Citibank mortgage power facility would be used to fund the purchase of an initial number of units in the Property Trust (the ‘Initial Units’);
(d)the Citibank mortgage power facility would be used to fund an application to be made to NMPS for a loan from the Mortgage Trust or NMLA (which would be on interest only terms) to enable the purchase of further units in the Property Trust (‘the further units’);
(e)both the Initial Units, funded through the Citibank mortgage power facility, and the further units would be offered a security for the loan by NMPS or NMLA;
(f)in most cases, the Citibank mortgage power facility would be used to fund the payment of premiums on insurance policies issued by NMLA;
(g)in some cases, the Citibank mortgage power facility would be used to prepay interest on the loan from NMPS;
(h)the Citibank mortgage power facility would be used as an account into which all dividends from the Property Trust (including those on the units funded by NMPS) and all tax refunds would be paid, and an account from which interest to NMPS would be paid and, in some cases, interest on the Citibank loan itself.
(i)loans would be sought thereafter from NMLA against the value of any policies issued and applied either to fund the ongoing premium liability for the said policies or to purchase further units in the Property Trust;
(j)any reduction in the tax payable by the Jones Investor arising from this package would be utilised either to pay interest on the Citibank Mortgage Power facility or to pay interest on the loan from the Mortgage Trust (referred to in sub-paragraph (d) above);
(k)income from the units would be applied to pay interest on the loans referred to in subparagraph (j) above;
(l)at the end of a nominated number of years the units would be redeemed and the policies surrendered and the monies thereby obtained applied to repay the loans referred to in (j) leaving the investor with a substantial sum as a profit from the investment.”(19)
Although the Negative Gearing Package was defined for the purpose of the Pleading so as to refer to Citibank as the source of the funds used to acquire the initial units, as noted earlier for the purposes of the Pleading other sources of those funds could be and were used.
The solicitation was by Jones personally where Jones alone is shown in Schedule 2 as the “presenter”; the solicitation was by Jones and another where Schedule 2 records the name of Jones and another as presenters; and the solicitation was made on Jones’ behalf where a name other than that of Jones appears alone as “presenter”.
Trade Practices Act 1974 (Cth) (“TP Act”)
Jones or the other persons made express representations and gave express advice to the Jones Investors to the effect of the statements set out in Item 6 of Schedule 2 against the Jones Investor’s name, and to the effect that the Jones Investors would have a solicitor engaged on their behalf who would look after their interests, or, in the alternative, that they did not need to obtain a solicitor because Van Minnen would do all of the solicitor’s, or alternatively legal, or alternatively, conveyancing, work on their behalf (the “solicitor/Van Minnen representations and advice”)(20).
Annexure 1 to these Reasons for Judgment includes the pages from Schedule 2 in respect of those Jones Investors who are among the 23 Investors with whom I am presently concerned. Table 1 below lists all 23 Investors, comprising, according to the Pleading, 10 Jones Investors and 13 Kelly Investors in alphabetical order. Table 2 below lists the 23 Investors in chronological order, showing, where possible, the date of the application for the Mortgage Power facility (Citibank’s form of application was called a “Mortgage Finance Proposal”), and in all cases the date of Citibank’s letter of offer.
TABLE 1 Name Kelly or Jones as per Schedules 2 & 4
Alder (Jones Investor) Appelman (Kelly Investor) Bachmann (Jones Investor) Boulter (Kelly Investor) Crawford (Jones Investor) Daniels (Kelly Investor) Douglass (Kelly Investor) Eberts (Kelly Investor) Emery (Kelly Investor) Farrar (Kelly Investor) Fraser-Bell (Jones Investor) Garden (Jones Investor) Jorgensen (Kelly Investor) Lorenz (Kelly Investor) Lowe (Jones Investor) Minichini (Jones Investor) Parsons (Kelly Investor) Pickworth (Jones Investor) Quaife (Kelly Investor) Richards (Kelly Investor) Tavoletti (Jones Investor) Weaver (Kelly Investor) West (Jones Investor)
TABLE 2 Name Date of application
Date of letter of offer Quaife No date on application but cheque for Citibank application and valuation fees dated 2/2/89 and application received by Citibank on 6/2/89 9/2/89 Richards 28/4/89 12/5/89 Eberts No date on application but cheque for Citibank application and valuation fees dated 10/5/89 and application received by Citibank on 15/5/89 17/5/89 Garden 7/6/89 19/6/89 Tavoletti 9/6/89 19/6/89 Weaver 10/9/89 – but this cannot be right, since letter of offer is dated 19/6/89 and settlement of the facility occurred on 30/8/89 (13/6/89 date of cheque for Citibank application and valuation fees) 19/6/89 Minichini 8/6/89 23/6/89 Crawford No date visible on application but application received by Citibank on 20/6/89 26/6/89 Parsons 19/9/89 24/10/89 West No date visible on application but application received by Citibank by mid-October 1989 2/11/89 Fraser-Bell 6/11/89 27/11/89 Bachmann 15/11/89 21/12/89 Emery 28/11/89 8/1/90 Lorenz No date visible on application but cheque for Citibank application and valuation fees dated 20/3/90 14/5/90 Boulter No date visible on application but cheque for Citibank application and valuation fees dated 19/7/90 9/8/90 Douglass 25/10/90 6/12/90 Pickworth No date visible on application but 6/12/89 date from Credit Profile Number for Pickworth 7/12/90 Daniels No date visible on application but Daniels stated he signed application on 13/2/91 which is also date of cheque for Citibank application and valuation fees 5/3/91 Appelman 4/9/91 16/10/91 Lowe 17/6/92 3/7/92 Alder 27/12/91 28/1/92 Farrar 2/6/92 12/6/92 Jorgensen 9/11/92 25/11/92
Table 1 above accords with Schedules 2 and 4. But the evidence presents a far more complex picture than the one in that Table as to the division into “Jones Investors” and “Kelly Investors”. That more complex picture is indicated in summary form in Annexure 2 to these Reasons and will also be apparent from the discussion of the individual cases of the 23 Investors in Chapter 2.
The representations and advice referred to in Schedule 2 differed as between the 10 Jones Investors, although there are similarities. The solicitor/Van Minnen representations and advice, on the other hand, are pleaded in the same form in relation to all 10 Jones Investors, although no doubt there were differences in what was said. I will refer to all the representations and advice, including the solicitor/Van Minnen representations and advice, as “the express representations and advice”.
In the circumstances of Jones’ position as a financial adviser to the Jones Investors, the relative experience of Jones in comparison to that of the Jones Investors in dealing with investments of the nature contemplated by the Package, the relative inexperience of the Jones Investors compared to that of Jones in assessing the risk of an investment and in particular, of investments of the nature contemplated by the Package, the entitlement of Jones to earn substantial commissions or payments from the entry of the Jones Investors into the Package, the nature of the underlying investment as commercial real estate, the nature and complexity of the transactions involved in the Package, and the requirements of the Securities Industry Code (“SIC”), Jones had a duty to warn the Jones Investors of the following six matters:
“(i)the risk of the Investor suffering loss if the value of the units in the Property Trust, or the returns from the Property Trust, declined;
(j)for those Jones Investors entering the scheme between June 1988 and September 1990, the risk of the investor suffering loss as a result of significant increases in debt in an environment where interest rates were for much of the period increasing and in any event at extremely high levels throughout the period; for Citibank Investors entering the scheme after September 1990 that although interest rates were now tending to fall, they remained at significant levels and there was still a risk of loss through a significant increase in debt;
(k)that the Negative Gearing Package was best suited to persons with a consistently high income who were paying and were likely to continue to pay into the forseeable future significant amounts of income tax at the highest marginal rate.
(l)that the unused limit in the Citibank facility might be exhausted through the funding of the negative element of the scheme, at which point the client might be able to continue to fund interest commitments from other sources and so go into default on the Citibank mortgage such that the client’s home would be sold up;
(m)that should the client lose his or her job, or the marriage split up, he or she might be immediately faced with greatly increased debts and might be unable to service the interest or principal on the Citibank loan without loss of the home;
(n)for investors after 23 July 1991, there was a statutory freeze on redemptions for all unlisted property trusts (including the Property Trust) unless 12 months notice was given with the result that it may be difficult for the investor to extricate themselves from the negative gearing package should their financial circumstances change.”(21)
I will refer to the “duty to warn” and “the Warnings”. In the circumstances, Jones had a duty to provide a written explanation of the Package and the risks associated with the investment to each Jones Investor (22). I will refer to the duty to provide “the Written Explanation”.
Since I have held that Citibank is not liable to NM, Citibank’s cross-claims against the Advisers, Permanent and AHA fall away, and the First Cross-Claim will be dismissed. But I will address Citibank’s cross-claim against the Advisers for indemnity or contribution, the facts relevant to which have been canvassed in earlier chapters.
The pleading of Citibank’s cross-claim against the Advisers was summarised in Chapter 1 at [118], [119]. As putative vicariously liable tortfeasor, Citibank cross-claims for indemnity, alternatively for contribution, under subss 5(1)(c) and (2) of the LR (MP) Act and subss 23B(1) and 24(2) of the Wrongs Act (those provisions were set out in Chapter 11 at [1284]). The parties treated this claim as enlivened only if Citibank’s liability is purely vicarious and I will proceed on the assumption that Citibank is so liable, contrary to my conclusion arrived at earlier. Accordingly, the submissions of Kelly and Jones were, in large part, directed to establishing that Citibank was directly liable, rather than merely vicariously liable - a submission which I have rejected. The Adviser cross-respondents submitted that Citibank was directly liable to the Investors on two bases. First, they submitted that Citibank was directly liable by reason of breach of a personal and non-delegable duty of care – a submission that I rejected in Chapter 4. Second, they submitted that Citibank actually authorised the particular statements of the Advisers that constituted their tortious conduct – a submission that I rejected in Chapter 6.
On the assumption that Citibank incurred a purely vicarious liability to the Investors, it would be liable to them jointly and severally with the respective Advisers. More precisely, Citibank would be jointly and severally liable to each Investor with the Adviser whose conduct gave rise to the liability to that Investor.
Citibank pleads and submits that on the supposed facts, the Adviser cross-respondents were in breach of implied terms of their agencies from Citibank (pars 14 and 15 of Citibank’s cross-claim referred to in Chapter 1 at [118]).
Ordinarily, a faultless party bearing a purely vicarious liability will be entitled to indemnity from the primary tortfeasor – a proposition that has often, though not always, been discussed in the context of vicarious liability based on the master-servant relationship (cf Ryan v Fildes [1938] 3 All ER 517; Davenport v Commissioner for Railways (1953) 53 SR (NSW) 552; Lister v Romford Ice & Cold Storage Co Ltd [1957] AC 555; and see Sinclair v William Arnott Pty Ltd (1963) 80 WN (NSW) 798 at 800, on appeal at (1963) 81 WN (Pt 2) (NSW) 204 at 210-212; Voli v Inglewood Shire Council (1963) 110 CLR 74 at 100; Canberra Formwork Pty Ltd v Civil and Civic Ltd (1982) 67 FLR 66 at 87; Higgins v William Inglis & Son Pty Ltd [1978] 1 NSWLR 649; Sherras v Van der Maat [1989] 1 Qd R 114; Thompson v Henderson & Partners Pty Ltd (1990) 58 SASR 548 at 562).
In McGrath v Council of the Municipality of Fairfield (1985) 156 CLR 672, the High Court noted (at 679) that it had not been settled at High Court level whether an employer is entitled to a full indemnity where it incurs vicarious liability because of its employee’s negligence and is not itself at fault. In the master-servant context in New South Wales, the Employees’ Liability Act 1991 (NSW) makes the question moot, but it remains a live one in the principal-agent context.
In my opinion, the general proposition set out in [1347] above is also applicable in the context of the principal-agent relationship.
The Kelly/Jones Associates contend that I should accept the submission made by Citibank in response to NM’s head claim that they were not agents of Citibank. They submit as follows:
“2.Citibank’s primary argument and the only one it has adopted while the oral evidence was being given, was that apart from the written agency agreement between Kelly and it, Jones and the Kelly/Jones Associates were not agents.
3.The Kelly/Jones Associates in their affidavits, say that they did not believe they were agents of Citibank.
4.The agency relationship therefore arises out of legal and factual inferences and is now to be imposed upon them ex post facto. In those circumstances, it is submitted that any assessment of the course of conduct between the Kelly/Jones Associates and Citibank should not infer any recognition by them at the relevant times of an existing relationship of principal and agent.
¼
12.¼it is submitted that the Kelly/Jones Associates were merely gratuitous agents acting as introducers for Citibank either through Kelly’s or Jones’ office or directly when Kelly lost his authority to make those arrangements.”
I have in fact already held that the Advisers other than LKFM/Kelly were not agents or representatives of Citibank with authority from it to sell Mortgage Power for it and on its behalf, but were mere introducers of business. This is a reason why NM’s claim against Citibank has failed in so far as it is based on the statements made by them. But for the purpose of Citibank’s cross-claim against them, I assume, contrary to that conclusion, that they were such agents or representatives of Citibank, as LKFM itself was. Moreover, I assume, contrary to my earlier conclusion, that the statements of LKFM/Kelly and of the other Advisers were made by them within the course of the execution of an agency to promote and sell Mortgage Power. That is, I assume that they fell within the general class or scope of statements that Citibank authorised them to make as its agents, even though Citibank did not authorise the particular tortious statements that gave rise to the liability.
On the assumption that Citibank incurred vicarious liability to the Investors as a result of the negligence of the Advisers, those Advisers are, in my view, prima facie liable to indemnify Citibank fully because they were subject to a duty to Citibank, contractual in the case of LKFM, tortious in the case of the other Advisers, not to exceed their actual authority and to exercise the degree of skill and care reasonably to be expected of them, in particular, with a view to ensuring that they did not expose their principal to that liability; cf Bowstead & Reynolds on Agency (16th ed, 1996) Articles 38, 42, 44; Halsbury’s Laws of England vol 1 (4th ed, Reissue), pars 92, 93, 100. (By its written agency agreement, LKFM promised Citibank “[n]ot to engage in misleading or deceptive conduct or practices in relation to the promotion and sale of CITIBANK products”.)
I do not see why there is not a concomitance between the duty the Advisers owed to the Investors and that which they owed to Citibank. It was, ex hypothesi, their failure to exercise reasonable care in the discharge of their duty to the Investors that gave rise to their own liability to them. It was, ex hypothesi, obvious that that failure would render their supposed principal, Citibank, vicariously liable to the Investors commensurately. On the finding I have made that Citibank did not incur direct liability to the Investors, the failure of the Advisers to exercise reasonable care renders them liable to indemnify Citibank fully in respect of its vicarious liability.
Citibank made further submissions in relation to the respective Advisers’ “responsibility for the damage” if that question should arise. Citibank submitted that the Advisers’ misrepresentations fell into two classes: those authorised by NM, and those not authorised by NM but the Advisers’ own work. Citibank submitted in respect of the first class, that the Advisers are entitled to full indemnity from NM, and as to the second class, that the misrepresentations were not merely negligent but dishonest and fraudulent, so that the only “just and equitable” contribution for the Advisers to make is 100 per cent, as against nil for Citibank. The cross-respondent Advisers strongly resisted Citibank’s characterisation of the misrepresentations of any of them as fraudulent, fraud not having been pleaded. Citibank relied on testimony of Kelly denying the statements attributed to him by the Investors and agreeing that the statements would have been untrue. Citibank submitted that there was no requirement that it plead fraud in the circumstances, since it relied on fraud, not to establish a cause of action, but merely to support its submission on the question of contribution that a fraudulent tortfeasor (supposedly Kelly) should indemnify a merely negligent one (supposedly Citibank).
In view of my conclusion that Citibank is not liable to NM, and that if it had been, the Advisers should provide a complete indemnity under the apportionment legislation for other reasons, I see no reason why I should seek to resolve the issues mentioned.
Since Kelly and Jones did not, as to the particular tortious statements made, simply implement actual authority or direction given them by Citibank, their cross-claims against Citibank for indemnity or contribution will also be dismissed.
CHAPTER 13
CONCLUSIONS
The following is a summary of my conclusions which appear in more ample and detailed form in the preceding chapters.
(1) Of all the Advisers, only LKFM/Kelly was an agent or representative of Citibank with authority, for it and on its behalf, to promote and sell Mortgage Power.
(2) All of the other Advisers were mere introducers of business, but if I am wrong, in that any were sub-agents, a principal is not vicariously liable in respect of the tortious conduct of a sub-agent with whom (as here) the principal is not in a direct principal-agent relationship.
(3) It follows that only statements by LKFM/Kelly (including any employees) had the potential to render Citibank vicariously liable to the Investors.
(4) The agency of LKFM/Kelly was confined to that established by the written agency agreement of 3 April 1989.
(5) The scope or class of statements Citibank authorised LKFM/Kelly to make by virtue of its appointment of LKFM as its agent to promote and sell Mortgage Power was limited to statements about the nature of Mortgage Power, its merits and its appropriateness to serve purposes suggested.
(6) That scope or class of statements did not include statements promoting the sale of NM products in accordance with the Negative Gearing Package.
(7) If, contrary to my findings, any of the other Advisers were agents or representatives of Citibank with authority, for it and on its behalf, to promote and sell Mortgage Power, conclusions (5) and (6) above, with necessary adjustments, apply in respect of those other Advisers.
(8) The notion, for the purposes of vicarious liability, of the scope or class of statements an agent is authorised to make is synonymous with the notion of statements made by an agent in the course of the execution of the agency.
(9) In so far as it may be relevant, except as to Investor Daniels the Advisers did not have operative apparent authority to promote and sell Mortgage Power as representatives of or for or on behalf of Citibank.
(10) If I am wrong as to (9), an apparent authority of the kind there described would not include apparent authority to make statements promoting the sale of NM products in accordance with the Negative Gearing Package.
(11) It follows from (1) to (10) that Citibank did not incur vicarious liability to the Investors as a result of any negligence of any of the Advisers.
(12) Citibank did not ratify the tortious statements of any of the Advisers.
(13) Citibank did not owe a personal non-delegable duty of care to the Investors arising from its having assumed the role of their financial adviser or because of an analogy between Mortgage Power and dangerous physical things.
(14) Citibank did not actually authorise the making of any particular tortious statements by any of the Advisers that rendered the Advisers directly liable to the Investors.
(15) As a result of (13) and (14), Citibank did not incur personal or direct liability to the Investors.
(16) Because the Advisers did not act “on behalf of” Citibank when making the statements of which complaint is made, Citibank is not liable to the Investors under ss 52 and 82 of the TP Act.
(17) For the same reason, and also as a matter of statutory construction, Citibank is not liable to the Investors under the SIC or the Law.
(18) If, contrary to my conclusion, Citibank is vicariously liable to the Investors, the amount NM is entitled to recover from it by way of contribution is 5 per cent of the amount of compensation NM provided to the Investors.
(19) If, contrary to my conclusion, Citibank is vicariously liable to the Investors, it is entitled to be indemnified fully by the respective Adviser cross-respondents in relation to that liability and, therefore, in respect of the amount of contribution referred to in (18) in so far as it applies to Investors introduced by them.
Since the above was written, the High Court delivered judgment on 5 October 2000 in Scott v Davis [2000] HCA 52. The case concerned the negligent flying of a light aircraft with the owner’s consent for a social purpose connected with the owner. Their Honours’ reasons for judgment contained discussion of the question of the vicarious liability of principals for the negligent conduct of their agents. But because the present case, unlike Scott v Davis, concerns statements made by A to induce TP to contract with P, that is to say, a situation of a kind in respect of which the Colonial principle establishes the possibility of vicarious liability, I have not thought it necessary, with respect, to revise what I have written in order to refer to what their Honours have said. Scott v Davis is of special relevance to the cases on the negligent driving of motor cars with the owner’s consent to which I referred in Chapter 3 at [520]. Colonial is referred to in several of the judgments, in some detail in that of McHugh J (dissenting) at [56]-[72], (his Honour concluded that there is a general principle of vicarious liability of principals for the acts of their agents committed in the course of the execution of their agency).
I will make no orders at present but will publish these reasons and give the parties an opportunity to consider them and their implications, not only for the 23 Investors of present concern, but also for the other 109 Investors. The proceeding will be listed on 5 December 2000 for the making of orders, if the parties by then agree on the orders to be made; if not, for the giving of directions for the filing of written submissions as to the orders to be made, including orders to be made as to costs.
I certify that the preceding one thousand three hundred and seventy-eight (1378) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren. Associate:
Dated: 10 November 2000
Counsel for Applicants; 2nd, 4th, 19th and 20th Cross-Respondents; and Cross-Claimants on 2nd and 3rd Cross-Claims: Mr J C Kelly SC, Mr J T Gleeson and Mr C Moore Solicitor for Applicants; 2nd, 4th, 19th and 20th Cross-Respondents; and Cross-Claimants on 2nd and 3rd Cross-Claims: Cutler Hughes & Harris Counsel for Respondent; Cross-Claimant on 1st Cross-Claim; and Cross-Respondent to 2nd and 3rd Cross-Claims: Mr B W Rayment QC, Mr S D Epstein and Ms R P Rana Solicitors for the Respondent; Cross-Claimant on 1st Cross-Claim; and Cross-Respondent to 2nd and 3rd Cross-Claims: Deacons Graham & James Counsel for 5th, 6th, 8th, 10th, 11th, 14th to 18th and 21st Cross-Respondents: Mr J A Loxton Solicitors for 5th, 6th, 8th, 10th, 11th, 14th to 18th and 21st Cross-Respondents: Wood Marshall Williams The 9th Cross-Respondent did not appear. Dates of hearing: 24-28, 31 August 1998
1-4, 11, 16, 17, 23 September 1998
13-16, 19-23, 26-30 October 1998
1-5, 8-12, 15-19, 22-26 February 1999
1-5, 8-12, 15-19, 22-25 March 1999
3-7 May 1999, 25 May 1999Date last submission received: 8 June 1999 Date of judgment: 10 November 2000 annexure 1
“jones investors” AND “kelly investors”
SCHEDULES 2 AND 4 TO THE PLEADING
annexure 2
Schedule of Investors
and OF the Advisers relevant to them
annexure 2
Schedule of Investors and of the Advisers relevant to them
Investor Name Time of solicitation according to
the PleadingAdviser Comments 1. Alder 1990 - March 1992 Jones, Roberts
NM pleads that Jones and Roberts gave the presentation to the Alders and submits the Alders are “Jones/Roberts” Investors, whereas Citibank classifies them simply as Jones Investors.
Alder had known Jones as a family acquaintance for approximately twenty-five years. Roberts was Alder’s brother’s insurance agent. Alder organised a meeting with Roberts at Jones’ Manly office to discuss sickness and accident insurance. That meeting, however, was conducted by Jones, who presented the Package. Roberts was also present. A second presentation was made by Jones and Roberts. Subsequent presentations were made by Jones or Roberts or both.
Roberts regularly phoned Alder, encouraging him to invest. Roberts gave the Alders the presentation which substituted the Equity Imputation fund for the Property Trust. Jones was also present. Alder testified that he invested as a result of the representations made by Roberts and Jones. Roberts looked after the Alders’ paper work for the Mortgage Power facility and in March 1993 arranged for them to invest $4,500 in the Equity Imputation fund. Roberts wrote to Alder in May 1991 on DJC letterhead, although Roberts’ company, Folborn Pty Ltd, was a NMLA corporate agent of which Roberts was the nominated accredited agent, and Roberts himself was a representative of NMAM. The evidence relating to the sharing of commissions was complex: see [751].
2. Appelman August 1991 - 10 July 1992
Kelly
Both NM and Citibank treat the Appelmans as Kelly Investors.
Clear 3. Bachmann November 1989 - April 1990 Blee, Buttars
Both Citibank and NM refer to the Bachmanns as Blee clients and NM submits that Blee made the presentations to the Bachmanns “under the Jones umbrella”.
Buttars was the Bachmanns’ insurance agent and it was he who first mentioned the Package to them and organised an appointment with them. Blee, in the presence of Buttars, gave a whiteboard presentation at Jones’ office. It seems that this was during the period when Blee had moved to Sydney to work in Jones’ office. Bachmann gave evidence that he invested in the Package as a result of the statements made to him by both Buttars and Blee.
4. Boulter July - 12 September 1990 Kelly
Both NM and Citibank treat the Boulters as Kelly Investors.
Clear 5. Crawford 1989 - March 1990 Jones
Both NM and Citibank treat the Crawfords as Jones Investors.
The first presentation was by Jones, assisted by someone from Melbourne who Crawford believed was an employee of Citibank, although he could not recall the basis of this belief. The second presentation appears to have been by Jones alone. The identity of the person from Melbourne is irrelevant as Crawford relied on the assurances given by Jones in deciding to enter the Package. Crawford testified that the man from Melbourne was not Kelly.
6. Daniels January 1991 - April 1991
Naughton, Kelly
NM pleads that Naughton was the presenter and made the solicitations on behalf of Kelly. Citibank classifies the Daniels as Kelly Investors.
Daniels responded to a newspaper advertisement by returning a coupon to Citibank. Judd (identifying himself as Kelly’s marketing manager) contacted him in response and conducted the first meeting at the Daniels’ home. Judd then invited the Daniels to Kelly’s office for a second meeting where Naughton was introduced and took over. Kelly was introduced to the Daniels once, probably on this occasion. Naughton had a third meeting with the Daniels. Daniels said he was induced to enter the Package as a result of the meeting with, and the statements made by, Naughton. LKFM paid the Citibank Mortgage Power application and valuation fees, for which it was later reimbursed on settlement. The Daniels’ applications for units in the Trust show that the NM commissions on the applications were shared equally by Naughton’s company, JPN Financial Planner P/L, and Kelly, which is curious as such a share would suggest that Kelly took part in the presentation, and did not simply process the Daniels’ applications.
Kelly could not recall having met the Daniels and Daniels stated he met Kelly only once and that it was Naughton who “organised everything” “all the way through”. The Daniels’ “Status of Your Investment Questionnaire” referred to LKFM as their Adviser.7. Douglass December 1990 - August 1991 Blee, Jones
NM submits that Blee made the presentation “under the Jones umbrella” and Citibank classifies the Douglasses as Blee Investors.
Blee made at least 3 whiteboard presentations and all of the pleaded representations were made by him. The Citibank application and valuation fees were paid by Jones. According to the Douglasses’ applications for units in the Trust, commission was shared amongst DJC, Blee and Kelly as follows: DJC 50%, “Alve Enterprises Pty Ltd” (Blee’s company) 30% and Kelly 20%. Blee was originally associated with Kelly’s office in Melbourne and travelled to Sydney to do presentations for clients of Jones and the Jones Associates. At some unspecified time, Blee moved to Sydney to work with Jones full time. The evidence suggests Blee’s status with DJC was that of an employee.
8. Eberts May 1989 - 30 June 1989 Kelly
Both NM and Citibank treat Eberts as a Kelly Investor.
Clear 9. Emery 1988 - 4 May 1990
Kelly
Both NM and Citibank treat the Emerys as Kelly Investors.
Clear 10. Farrar February 1992 - 23 July 1992 Kirby
Both NM and Citibank treat the Farrars as Kirby clients.
Clear 11. Fraser-Bell November 1989 - 30 March 1990 Jones
Both NM and Citibank treat the Fraser-Bells as Jones Investors.
Clear
12. Garden June 1989 - 6 December 1989 Jones
Both NM and CB treat the Gardens as Jones Investors.
Jones was Mrs Garden’s cousin and had been the Gardens’ insurance agent since 1979. The Gardens attended a presentation by Jones at his office. A NM representative from Melbourne was also present. Regardless of his identity, it is clear that Jones conducted the presentation and wrote on the whiteboard. The pleaded representations were all allegedly made by Jones.
13. Jorgensen August - 25 November 1992
Bahr
Both NM and Citibank treat the Jorgensens as Bahr clients.
Clear 14. Lorenz January - June 1990 Jones, Kelly
NM treats the Lorenzes as Kelly Investors while Citibank submits they are Jones Investors.
Jones had been the Lorenzes’ insurance agent since 1975 and it was he who first mentioned to the Lorenzes the possibility of investing in commercial property and contacted them to arrange a meeting. The first presentation was made by Kelly. Kelly did most of the talking. Jones was also present. The second presentation was given by Jones and was similar to the first. Hacopian was present. The Lorenzes attended a third meeting at Jones’ office, with Jones alone. Lorenz maintained in cross-examination that Kelly (not one of the Kelly Associates) gave one of the presentations, although he was later unclear as to whether he met Kelly at the first or second meeting. Kelly could not remember meeting the Lorenzes. The commission on the NM applications for units in the Trust was shared between Kelly (20%) and Jones (80%), which suggests that Kelly’s role was a “paperwork only” one in comparison to that of Jones. Jones and Blee are named as personal referees on the Mortgage Finance Proposal form.
15. Lowe November 1991 - July 1992
Jones
Both NM and Citibank treat the Lowes as Jones Investors.
Clear 16. Minichini August 1989 - September 1990 Jones
Both NM and Citibank treat the Minichinis as Jones Investors.
Jones was a close family friend of the Minichinis. The first presentation was conducted by Jones alone. The second presentation was conducted by a man with a “major role in the scheme down in Melbourne”. Despite references to Kelly in Minichini’s affidavit, Minichini was unable in cross-examination to identify Kelly positively as the man from Melbourne. Minichini gave affidavit evidence that the man from Melbourne dominated the second presentation, while his oral evidence was to the effect that it was Jones who wrote on the whiteboard during that presentation. Minichini testified that he was induced to enter the Package by representations made by Jones. Kelly testified that he had never met the Minichinis and the NM commission split of Jones –80% - and Kelly- 20% - tends to confirm this, since that was the “split” when Kelly did no more than attend to the paperwork.
17. Parsons October 1989 - February 1991 Wass/Jones/Kelly
Both NM and Citibank treat the Parsons as Kelly Investors, but NM’s submissions refer to Wass/Jones/ Kelly as the agents.
Wass was the insurance agent for the Commonwealth Department of Administrative Services where Parsons worked. Mrs Parsons purchased a superannuation policy through Wass in 1988. Wass first contacted the Parsons in October 1989 and gave a presentation at their home. A few weeks later, she called the Parsons and invited them to attend a presentation by Jones at his office. Wass played a secondary role of reassuring the Parsons that what Jones was saying was correct. After the meeting, the Parsons, particularly Mrs Parsons, had doubts about investing, so Wass invited them to attend a presentation by Kelly at Jones’ office. Parsons gave affidavit evidence that as a result of the meetings with Wass, Jones and Kelly, they decided to invest. It appears that the presentations had a cumulative effect, with Kelly’s presentation “selling” Parsons the Package and overcoming his concerns. Kelly’s presentation seems to have clinched the matter. (Mrs Parsons still had concerns). The Parsons invested in several stages. The commission for the first three stages was shared as follows:
Original investment on 6 December 1989: 25% Anna Wass & Assoc Pty Ltd Manly; 25% DJC; 25% Alve Enterprises Vic; 25% Kelly
7 May 1990: 60% Wass; 20% DJC; 20% Kelly
Kelly could not recall meeting Parsons and said the commission share indicated he would not have had a major part in the transaction. He suggested that as Alve Enterprises Pty Ltd was Blee’s company, Blee may have been the man from Melbourne who gave the whiteboard presentation. Parsons maintained it was Kelly who gave the second presentation and that he had never met Blee. For reasons given in the judgment as to Kelly’s credit, I prefer Parsons’ evidence, and find that Kelly gave the Parsons a whiteboard presentation.
The Parsons’ claim assessment report completed by Wall does not mention Kelly and cites Wass and Jones as the Parsons’ Advisers. However, the Parsons’ “Statement of Your Investment Questionnaire” refers to the Parsons having received “independent” advice from Kelly in relation to the Citibank loan. NM pleads its case in relation to the Parsons in terms of solicitations made between October 1989 and February 1991. The commission share on the investment subsequent to 6 December 1989, and Parsons’ evidence, suggest that Wass was instrumental in the Parsons increasing their investment in the Trust after the initial investment in December 1989. Wass also advised the Parsons to take out two Business Security Plans in December 1989 with yearly premiums of $5,000 each (Policies Nos 2032950/4 and 2032949/6). Moreover, it was Wass who initially promoted the scheme to the Parsons and singled them out as a couple for whom the scheme would be suitable. She, Kelly and Jones were involved in inducing the Parsons to invest. In the Mortgage Finance Proposal form filled in by Wass, Wass and Jones were identified as personal referees.18. Pickworth 1989 - December 1990
Jones
Both NM and Citibank treat the Pickworths as Jones Investors.
Clear 19. Quaife March - June 1989 (however, the Pleading is incorrect. The Quaifes applied for Mortgage Power on or about 2 February 1989)
Kelly
Both NM and Citibank treat the Quaifes as Kelly Investors.
Clear 20. Richards June 1989 - 29 June 1990
Blee, Kelly
NM pleads that Blee conducted the presentation on Kelly’s behalf (NM does not put the Richards in a “pure Kelly” category). Citibank treats the Richards as Blee Investors.
The Richards met Kelly in early 1988 when he organised insurance policies for them and a home loan which they used to buy an investment property. When Richards experienced a drop in income in April 1989, he arranged a meeting with Kelly, who referred him to Blee, stating Blee would be able to help him with his financial difficulties. Blee gave Richards a presentation at Kelly’s office and all the pleaded representations were allegedly made by Blee. The commission on the Richards’ applications for units was shared equally between Kelly and Blee. Kelly knew that Richards’ income had dropped significantly since purchasing the insurance policies and the investment property in 1988, and that Richards was finding it difficult to meet the insurance premiums. According to Richards, although Blee conducted the presentation, Kelly oversaw Blee’s work and was “in on the act”. The evidence is unclear as to whether Kelly attended the presentation given by Blee. Richards’ affidavit evidence suggests that Blee alone was present, however, the Richards’ Claim Assessment Report refers to Kelly and Blee as the Advisers and states that both were present at the meetings. Although Kelly played a role in connection with the Richards’ decision to invest in the Package, the Richards were principally Blee Investors.
21. Tavoletti January – October 1989 Jones
Both NM and Citibank treat the Tavolettis as Jones Investors.
The Tavolettis attended a meeting with Jones at his office. Another man, whose name Tavoletti could not recall, was also present. Jones conducted the whiteboard presentation and the pleaded representations were all allegedly made by him. Tavoletti’s cross-examination proceeded on the basis that he was a Jones Investor. Application fees on the Mortgage Power application were paid by Jones and refunded to him on settlement.
22. Weaver August – 29 September 1989 Kelly, Jones
Both NM and Citibank treat Weaver as a Kelly Investor.
Weaver attended whiteboard presentations at Jones’ office on two occasions. At the first meeting, Kelly made the presentation, with Jones in the room part of the time. Weaver testified that Kelly did most of the presentation. At the second meeting, Kelly, Jones and another couple were present. Weaver does not explicitly state that Kelly gave this presentation, however, his evidence as a whole centres on Kelly and the representations made by him. The pleaded representations were all allegedly made by Kelly. Kelly was not cross-examined about Weaver.
23. West October 1989 - 26 March 1990
Jones
Both NM and Citibank treat the Wests as Jones Investors.
Clear
annexure 3
dramatis personae — citibank OFFICERS
annexure 3Dramatis Personae – Citibank Officers
ALLEN, James Gerard: became employed by Citibank about 10 October 1989; after three days’ training was employed as a Mortgage Specialist Officer (credit approving officer) in Sydney in the Central Processing Unit (“CPU”) which was the credit approving area for residential mortgage loans for the whole of Australia; until May 1991 Allen reported initially to Greg Fiedler.
BARBOUR, Robert Thomas: employed by Citibank as a Settlements Supervisor from 1987/88 to 1992/93, in the Bank’s Settlements Department in Victoria.
CARTER, Martin James: employed by Citibank as State Sales Manager, Victoria from 1986-1993; responsible for several Account Managers and the sales support team known as the Central Sales Unit (“CSU”). In the period 1988-1992, the Account Managers who reported to him included Tracie Storm, Tim Stewart, Jane Durnan and Craig Hall. He reported to the State Manager Martin Clark.
CHRISTIE, Wayne Keith: joined Citibank in March 1990; previously employed by CBC Bank then National Australia Bank for 17 years; employed by those banks for eight years “in a credit role”; at Citibank title was “Mortgage Specialist Officer” or “Mortgage Acceptance Officer” from March 1990 to 1992; assessed applications for loans to be secured on real estate; also had function supervising settlements; for a time reported to Moses.
CLARK, Martin John: first joined Citibank in 1986 as State Investment Manager; had a short period away and returned and was appointed State Manager for Victoria and Tasmania in relation to “the consumer side” in 1989; he initially reported to Gary Lemair, General Manager and Head of Distribution; the staff under his supervision included Martin Carter (State Sales Manager) Neil Herron (State Operations Manager), Bart Dyring (State Agency Manager) and Sally Meyrick (then Garvey) (Head of the CSU).
DAVIES, Kevin John: Acceptance Specialist Officer in the CPU for about the first half of 1989; involved in the administration aspects of the loan approval process; had previously worked for National Mutual Royal Bank and before that for its predecessor, The United Permanent Building Society for some eight years, approving residential and personal loans.
DURNAN, Jane: (see Jane HAWKINS)
DYRING, Bart: Account Manager from June 1987 to mid 1988 in the Mortgage Sales Division in Victoria, then State Agency Manager, Victoria, from mid-1988 to September 1989 when he was made National Agency Manager and moved to Sydney; as State Agency Manager, Victoria, he reported to the State Manager, Clark; in September 1989, he was replaced by Andrew Padgham as State Agency Manager, Victoria.
FIEDLER, Gregory: employed by Citibank since 7 November 1988 in credit role; in 1989 commenced working for Citibank as a supervisor in “Variations and Loans Increases” in the CPU (had previously worked for Westpac at Neutral Bay for, he thought, a 12-18 month period from 1987 to 1988 as the manager’s assistant); in March 1990 became Loans Processing Manager there; he reported directly to Horsfield; he was the manager of the team dealing with New South Wales and the Australian Capital Territory although on occasions he was called on to approve applications from Victoria because of his senior ranking; he was on the second tier in the CPU; in 1992 he moved to the loans settlements area; expressed concerns to Horsfield that Mortgage Power was being provided to “ordinary folk” and that area managers were making substantial commissions as a result of its availability to the wider market and that “ordinary folk” might end up losing their homes.
GARVEY, (now MEYRICK) Sally Anne: (see “Sally Anne MEYRICK”)
GILROY, Chantal: her comments were recorded on certain Total Quality Control Mortgage Checklists; she was not a witness.
HALL, Craig Anthony: from November 1989 to September 1991, Account Executive in the CSU reporting to Meyrick (then Garvey); for first six months assisted Jane Durnan; after she left the Bank in September 1990 dealing with Kelly from about October 1990 to September 1991.
HAWKINS, Jane (formerly Jane DURNAN): employed from April 1988 to September/October 1990 in the CSU, at first handling telephone inquiries; in late 1989 she became an Account Manager in place of Tim Stewart; as such she assumed responsibility for day to day dealings with Kelly; she reported to Victorian State Sales Manager, Martin Carter.
HEYES, Tracie: (see Tracie RAVANELLI)
HERRON, Neil Sidney: employed from June 1981 to July 1994; from 1982-1994 as Operations Manager for Victoria; responsible for Settlements Department.
HORSFIELD, Jennifer: employed from 1979 to 1997; General Manager of the CPU, and as such responsible for its overall administration, from March 1986 to March 1990; reported successively to “Risk Managers” David Gardner and Jay Bishop; supervised Gregory Fiedler.
LEMAIR, Gary: General Manager (also “Head of Distribution”).
MACROW Bill: Account Manager in the Sydney office of Citibank to whom Jones sent his clients’ Mortgage Finance Proposal forms after LKFM’s agency for Citibank was terminated on 25 March 1992.
MEYRICK (formerly GARVEY) Sally Anne: became employed in 1987; initially an Account Manager then Manager of the CSU from May 1988 to 1996; reported to State Manager, Martin Clark; became State Manager, Sales and Service in 1996.
MOSES, Gayle: employed by the Citicorp/Citibank group since about 1976; from about early to mid 1988 to about early to mid 1989 as an area manager in Queensland sold Citibank products directly to the public and through introducers; from mid 1989, Senior Manager, Mortgage Operations in CPU Sydney; in about March 1990 became Executive Manager of Loans Processing at CPU, taking over from Horsfield; held that position until mid to late 1991.
NIXON, Geoff: from February 1990 for two years as Mortgage Specialist Officer, then Supervisor; then a Manager then took on Project Management role; reported directly to Horsfield (among others); he was the manager of the team dealing with New South Wales and the Australian Capital Territory; he was on the second tier in the CPU; in 1992 he moved to the loans settlements area.
PADGHAM, Andrew John: employed from November 1989 to 1997; appointed as State Agency Manager, Victoria in November 1989, replacing Bart Dyring; remained in that position until he became Operations Manager, Victoria in 1995; as State Agency Manager, serviced existing agents and sourced (found) new ones in country Victoria.
RAVANELLI, Tracie Joy (formerly Tracie Storm and before that, Tracie Heyes): from 1987 to August 1988 (appointed when called Tracie Heyes) “Account Manager” or “area manager” with Citicorp Australia Ltd’s Consumer Services Group, responsible for direct selling on telephone and sourcing (finding) new business in south eastern suburbs of Melbourne, including Cheltenham; married in 1988, becoming Tracie Storm; reported to State Sales Manager, Martin Carter; she was the person at Citibank whom Kelly first contacted about Mortgage Power (in early 1988).
ROSS, Ian Alistair: employed from July 1989 apparently to April 1995, including a period as Account Manager in the Melbourne office from May 1990 to April 1995; he reported to the Victorian State Sales Manager, Martin Carter.
STEWART, Timothy Douglas Capel: Account Manager who took over from Tracie Ravanelli in May 1988; in March 1989 promoted to Senior Account Manager; from August to October 1989, State Agency Manager for Victoria and Tasmania; as Account Manager and Senior Account Manager reported to the State Sales Manager, Martin Carter.
STORM, Tracie: (see Tracie RAVANELLI)
WEBSTER, Peter David: employed in the CPU as a Mortgage Specialist Officer from March 1990 to mid 1991 when promoted to supervisor.
ANNEXURE 4
Equity remaining
after deducting amount secured by previous mortgage,
as compared with total AMOUNT investED
in NM unitsannexure 4
Equity remaining after deducting amount secured by previous mortgage, as compared with total amount invested in NM units
Investor
Citibank Mortgage Power limit Amount secured by previous mortgage** Equity remaining after deducting amount secured by previous mortgage** Total Investment
in NM Units***
Date on which NM Units issued Number of Units Allocated Amount Invested Alder $160,000 $53,203 $106,797 $4,500
[Equity Imputation Fund]23 June 93 3,027 $4,500 Appelman $120,000 $33,712 $86,288 $60,000 10 July 92 35,936 $42,000 14 July 92 15,402 $18,000 Bachmann $297,500 $55,313 $242,187 $200,000 5 April 90 27,765 $40,000 17 May 90 110,947 $160,000 Boulter $105,750 $45,265 $60,485 $54,000 14 Sept 90 10,059 $14,000 14 Nov 1990 28,740 $40,000 *Crawford $146,000 $75,000 $71,000 $200,000 23 Nov 89 28,480 $40,000 “Citi2nd” 14 Feb 90 111,121 $160,000 *Daniels $126,000 Owned own home $126,000 $150,000 8 Apr 91 36,677 $50,000 16 Apr 91 73,353 $100,000 Douglass $189,000 $70,300
$118,700 $100,000 8 Apr 91 22,006 $30,000 23 Apr 91 51,347 $70,000 *Eberts $132,000 $75,648 $56,352 $75,000 30 Jun 89 10,658 $15,000 30 Jun 89 42,631 $60,000 *Emery $206,400 $23,615 (Westpac home loan)
$80,116 (purchase of the Frankston investment property
Total: $103,731
$102,669 $125,000 4 Apr 90 17,353 $25,000 7 May 90 69,411 $100,000 *Farrar $108,750 $68,290 $40,460 $80,000 23 Jul 92 68,437 $80,000 *Fraser-Bell $176,250 $59,080 $117,170 $150,000 23 Feb 90 20,836 $30,000 30 Mar 90 83,293 $120,000 Garden $88,000 $37,104 $50,896 $50,000 12 Oct 89
(based on the Pleading)
7,172 $10,000 6 Dec 89 28,480 $40,000
Investor
Citibank Mortgage Power limit Amount secured by previous mortgage** Equity remaining after deducting amount secured by previous mortgage** Total Investment
in NM Units***Date on which NM units issued Number of Units Allocated Amount Invested *Jorgensen $96,000 $28,168 $67,832 $100,000 4 Jan 93 89,954 $100,000 *Lorenz $250,800 $52,593 $198,207 $300,000 29 Jun 90 41,606 $60,000 29 Jun 90 166,421 $240,000 Lowe $180,000 $37,500 $142,500 $83,000 18 Aug 92 21,297 $24,900 2 Sep 92 49,811 $58,100 *Minichini $141,600 $29,500 $110,842 $150,000 13 Nov 89 14,240 $20,000 7 Dec 89 56,959 $80,000 16 Aug 90 6,955 $10,000 20 Sep 90 28,740 $40,000 Parsons $185,000
(decreased to $175,000 in Oct 91)$12,699 $172,301 $100,001 14 Dec 89 3,560 $5,000 14 Mar 90 13,891 $20,001 5 Jun 90 10,402 $15,000 22 Jun 90 41,606 $60,000 *Pickworth $141,700 $44,413 $97,287 $100,000 4 Jan 91 21,555 $30,000 24 Jan 91 50,291 $70,000 *Quaife $90,400 $55,746 $34,654 $50,000 24 May 89 7,124 $10,000 6 Jun 89 28,420 $40,000 *Richards $112,000 $60,633 $51,367 $100,000 26 Jun 89 14,211 $20,000 30 Jun 89 56,841 $80,000 Tavoletti $150,000 Owned own home $150,000 $100,000 10 Oct 89 14,344 $20,000 31 Oct 89 56,959 $80,000 *Weaver $100,000 $60,526 $39,474 $50,000 8 Sep 89 7,172 $10,000 29 Sep 89 28,688 $40,000 *West $108,750 $23,380 $85,370 $100,000 6 Apr 90 13,883 $20,000 7 May 90 55,474 $80,000 * An asterix indicates where an Investor would have been unable to finance the purchase of the NM units from the Mortgage Power facility after the Investor’s previous mortgage had been discharged.
** The amount shown as secured by previous mortgage does not include amounts drawn down at settlement for reimbursement of application and valuation fees, stamp duty, legal fees and disbursements, life insurance premiums, and pre-payment of interest. In the result, the total drawn down at settlement was, in every case, greater than the base amount paid to discharge the previous mortgage. The amount remaining available was correspondingly less than the amount shown above. As a result some Investors in addition to the fourteen indicated by * could not have funded their investment in NM units from their Mortgage Power facility.
*** I include subsequent investments in units that were not part of the initial transaction.
ANNEXURE 5
LIMITATION DEFENCE TABLE
ANNEXURE 5
Limitation Defence Table
Name of Investor Date of Citibank application Date of original investment (settlement of Mortgage Power facility)
Date of deed of settlement with NM Date NM sought contribution from Citibank in respect of Investor ALDER (NSW) 27 December 1991 2 March 1992 18 May 1994 15 March 1996 APPELMAN (VIC) 4 September 1991* 30 October 1991 7 May 1995 15 March 1996 BACHMANN (NSW) 15 November 1989 27 March 1990 23 May 1995 15 March 1996 BOULTER (VIC) 19 July 1990* 31 August 1990 9 May 1994 4 November 1994 CRAWFORD (NSW) 20 June 1989** 25 October 1989 7 September 1994 4 November 1994 DANIELS (VIC) 13 February 1991* 26 March 1991 13 January 1995 15 March 1996 DOUGLASS (VIC) 25 October 1990 22 March 1991 16 June 1994 4 November 1994 EBERTS (VIC) 10 May 1989* 29 June 1989# 30 June 1995 15 March 1996 EMERY (VIC) 28 November 1989 26 February 1990 3 August 1995 15 March 1996 FARRAR (VIC) 2 June 1992 14 July 1992 21 August 1995 15 March 1996 FRASER-BELL (NSW) 6 November 1989 12 January 1990 25 May 1994 4 November 1994 GARDEN (NSW) 7 June 1989 31 August 1989 18 January 1995 15 March 1996 JORGENSEN (VIC) 9 November 1992 23 December 1992 10 November 1993 4 November 1994 LORENZ (NSW) 20 March 1990* 27 June 1990 20 July 1994 4 November 1994 LOWE (NSW) 17 June 1992 20 July 1992 10 November 1993 4 November 1994 MINCHINI (NSW) 8 June 1989 2 November 1989 20 July 1994 4 November 1994 PARSONS (NSW) 19 September 1989 6 December 1989 9 May 1994 4 November 1994 PICKWORTH (NSW) 6 December 1989*** 17 December 1990 27 September 1994 4 November 1994 QUAIFE (VIC) 2 February 1989* 31 March 1989 22 February 1994 4 November 1994 RICHARDS (VIC) 28 April 1989* 21 June 1989 15 June 1995 15 March 1996 TAVOLETTI (NSW) 9 June 1989* 14 September 1989 20 July 1994 4 November 1994 WEAVER (NSW) 13 June 1989* 30 August 1989 18 May 1994 4 November 1994 WEST (NSW) Mid October 1989** 26 March 1990 27 October 1994 15 March 1996 # Units issued 30/6/89
* Date from cheque for application/valuation fees
** Date received by Citibank
*** Date from Credit Profile Number in loan file
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