Polon v Dorian
[2014] NSWSC 571
•13 May 2014
Supreme Court
New South Wales
- Summary available
Medium Neutral Citation: Polon v Dorian [2014] NSWSC 571 Hearing dates: 25-28 March 2013; 2 April 2013; 3 May 2013 Decision date: 13 May 2014 Jurisdiction: Common Law Before: Hall J Decision: (1) Subject to the leave referred to in [912], I propose to enter judgment in favour of the plaintiff against the second and fourth defendants in accordance with these reasons for judgment.
(2) The parties are to bring in Short Minutes of Order to give effect to this judgment and any agreed orders as to interest and costs.
(3) The proceedings will be re-listed on Tuesday, 20 May 2014 at 2.00pm for the purpose of orders (1) and (2) above.
Catchwords: COMMON LAW - negligence - negligent misstatement by solicitor - misleading and deceptive conduct - breach of s 42 of the Fair Trading Act 1987 (NSW) - representations made concerning operation of an investment scheme and alleged safeguards in place for investors' funds - representations made by proponents of the investment scheme and their solicitor - absence of a disclaimer - defendant solicitor in making representations was not a mere conduit - continuing duty to inform the plaintiff prior to investment of funds in the scheme - failure to exercise reasonable care - failure by defendant solicitor to verify the accuracy of the representations - representations induced the plaintiff to make the investments - plaintiff's reliance on representations was reasonable - defendant solicitor owed a duty of care to the plaintiff - defendant solicitor drafted the investment contracts on behalf of both parties, provided services and, in securing investors' funds used for bridging finance to third parties, drafted and completed mortgages and caveats - defendant solicitor was available to answer plaintiff's questions in relation to the investments - professional negligence - implied retainer existed between the plaintiff and the defendant solicitor - breach of fiduciary duty - defence of contributory negligence not established - proportionate liability in accordance with Part 4 of the Civil Liability Act 2002 (NSW) - principles and approach in application of the statutory proportionate liability regime - causes of action in negligence, breach of s 42 of the Fair Trading Act 1987 (NSW) and breach of fiduciary duty predicated on and arising from failure of solicitor to take reasonable care - claim based thereon apportionable claim - assessment of respective degrees of responsibility of concurrent wrongdoers - apportionment of liability between concurrent wrongdoers - damages pursuant to s 1324(10) of the Corporations Act 2001 (Cth) only available where an injunction is actually sought Legislation Cited: Civil Liability Act 2002 (NSW)
Civil Procedure Act 2005 (NSW)
Corporations Act 2001 (Cth)
Fair Trading Act 1987 (NSW)Cases Cited: Artistic Builders Pty Ltd v Elliot & Tuthill (Mortgages) Pty Limited [2002] NSWSC 16
Astley v Austrust Ltd (1999) 197 CLR 1; [1999] HCA 6
Australian Energy Ltd v Lennard Oil NL [1986] 2 Qd R 216
Australian Securities and Investments Commission v Fuelbanc Australia Limited [2007] FCA 960
Australian Securities and Investments Commission v PFS Business Development Group Pty Ltd & Ors [2006] VSC 192
Australian Securities Investment Commission v Sydney Investment House Equities Pty Ltd (2008) 69 ACSR 1; [2008] NSWSC 1224
Awad v Twin Creeks Properties Pty Ltd [2012] NSWCA 200
Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012] FCA 1200
Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1
Blackmagic Design Pty Ltd v Overliese [2011] FCAFC 24; (2011) 191 FCR 1
Booksan Pty Ltd v Wehbe [2006] NSWCA 3; (2006) Aust Torts Rep 81-830
Borzi Smythe Pty Ltd v Campbell Holdings (NSW) Pty Limited [2008] NSWCA 233
Breen v Williams (1996) 186 CLR 71
Briginshaw v Briginshaw (1938) 60 CLR 335
Brownlie v Campbell (1880) 5 AC 925
Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592
Commonwealth v Cornwell [2006] ACTCA 7
Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd [2007] FCA 1216
Dean v Allin & Watts (a firm) [2001] EWCA Civ 758
Dungowan Manly Pty Ltd v McLaughlin [2012] NSWCA 180
Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241
Executor Trustee Australia Ltd v Deloitte Haskins Sells (1996) 22 ACSR 270
Fox v Percy [2003] HCA 22; (2003) 214 CLR 118
Gardam v George Wills & Co Ltd (No 1) (1998) 82 ALR 415
GE Capital Australia v Davis [2002] NSWSC 1146
George v Webb [2011] NSWSC 1608
Ghunaim v Bart [2004] NSWCA 28
Goodrich Aerospace Pty Ltd v Arsic [2006] NSWCA 187; (2006) 66 NSWLR 186
Google Inc v Australian Competition and Consumer Commission (2013) 294 ALR 404; [2013] HCA 1
Gran Gelato Ltd v Richcliffe (Group) Ltd [1992] 1 All ER 865
Groom v Crocker [1939] 1 KB 194
Hawkins v Clayton (1988) 164 CLR 539
Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] 2 All ER 575
Hendriks v McGeoch [2008] NSWCA 53
Henville v Walker [2001] HCA 52; (2001) 206 CLR 459
Hill v Van Erp (1997) 188 CLR 159
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10; (2013) 247 CLR 613
Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Aust) Pty Ltd (1988) 5 BPR 11,110
Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343; (2008) 77 NSWLR 205
McCullagh v Lane Fox & Partners Ltd [1995] EWCA Civ 8
McDonald v Grech; Bank of Western Australia Limited v McDonald [2012] NSWSC 717
Meerkin & Apel v Rossett Pty Ltd (1998) 4 VR 54
Meredith v Commonwealth (No 2) [2013] ACTSC 221
Midland Bank Trust Co Ltd v Hett Stubbs & Kemp (a firm) [1979] Ch 384
Mitchell Morgan Nominees Pty Ltd v Vella [2011] NSWCA 390
Mutual Life & Citizens' Assurance Co Ltd v Evatt (1968) 122 CLR 556
Nocton v Lord Ashburton [1914] AC 932
Origin Energy LPG Ltd v BestCare Foods Ltd [2012] NSWCA 407
Pegrum v Fatharly [1996] 14 WAR 92
Permanent Trustee Australia Ltd v Perpetual Trustee Co Ltd (1994) 15 ACSR 722
Perpetual Trustee Company Limited & Anor v Peter Ishak [2012] NSWSC 697
Podrebersek v Australian Iron & Steel Pty Ltd (1985) 59 ALR 529
Porter v OAMPS Ltd (2005) 215 ALR 327
Pritchard v DJZ Constructions Pty Ltd (2012) 16 BPR 31,141; [2012] NSWCA 196
Rawlinson & Brown Pty Ltd v Witham (1995) Aust Tort Rep 81-341 at 62,412-3
Reinhold v New South Wales Lotteries Corporation (No 2) (2008) 82 NSWLR 762; [2008] NSWSC 187
Rennie Golledge Pty Ltd v Ballard (2012) 82 NSWLR 231; [2012] NSWCA 376
San Sebastian Pty Ltd v Minister Administering Environmental Planning Act (1986) 162 CLR 340
Shrimp v Landmark Operations Limited [2007] FCA 1468; (2007) 163 FCR 510
St George Bank Ltd v Quinerts Pty Limited [2009] VSCA 245; (2009) 25 VR 666
Stringer v Flehr & Walker (a firm) [2003] QSC 370
Tepko Pty Ltd v Water Board (2001) 206 CLR 1
Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505
Waterhouse v Waterhouse (1998) 46 NSWLR 449
Watkins t/as Watkins Tapsell v De Varda [2003] NSWCA 242
Watson v Ebsworth & Ebsworth (a firm) (2010) 278 ALR 487
Watson v Foxman (1995) 49 NSWLR 315
World Series Cricket Pty Ltd v Parish (1977) 16 ALR 181
Yates v Mobile Marine Repairs Pty Ltd [2007] NSWSC 1463
Yorke v Lucas (1985) 158 CLR 661Texts Cited: GE Dal Pont, Lawyers' Professional Responsibility (4th ed, 2010, Lawbook Co) Category: Principal judgment Parties: Hazel Beverley Polon (Plaintiff)
David Dorian (First Defendant)
Renae Fowler (Second Defendant)
Tiernan & Associates Lawyers Pty Ltd (Fourth Defendant)Representation: Counsel:
C J Birch SC, M Vincent (Plaintiff)
No appearance (First Defendant)
D Priestley (Second and Fourth Defendants)
Solicitors:
TressCox Lawyers (Plaintiff)
No appearance (First Defendant)
HWL Ebsworth Lawyers (Second and Fourth Defendants)
File Number(s): 2010/361702
Judgment
PART A - INTRODUCTION
The plaintiff, Hazel Beverley Polon, claims damages against the defendants with respect to losses she suffered after investing $1,190,000 in a scheme styled as a bridging finance scheme ("the Scheme"). The Scheme was originally operated by a company, Skyder Investments Pty Ltd ("Skyder") and subsequently by another company, Silkwater Group Pty Ltd ("Silkwater").
The principals of Skyder and Silkwater, Mr Sam Hraiki and Mr Darryl Tombleson, have been declared bankrupt. Skyder and Silkwater are in liquidation.
Mr Dorian, the first defendant, who introduced the plaintiff to the operators of the Scheme, has also been declared bankrupt. He took no part in the proceedings.
The plaintiff alleges that the second defendant, Ms Renae Fowler-Hay, solicitor, made a number of representations concerning the Scheme. These representations, on the plaintiff's case, played a material part in her decision to invest in it. The second defendant was referred to throughout these proceedings as "Ms Fowler", notwithstanding that she is otherwise known by her married name, her marriage having taken place subsequent to the events with which these proceedings are concerned.
At all material times Ms Fowler was an employee of the fourth defendant, Tiernan & Associates Lawyers Pty Ltd ("Tiernan & Associates"), an incorporated legal practice conducted by Mr Phillip Tiernan. The plaintiff alleges that the fourth defendant is vicariously liable for Ms Fowler's conduct. The second and fourth defendants will subsequently be referred to as "the defendants".
The proceedings were originally brought against Mr Tiernan as the named third defendant. However, when it was established that the practice was an incorporated practice, they were discontinued against him.
Overview
The plaintiff alleges that Ms Fowler made representations centred upon the safety and security of the Scheme as an investment proposition.
The Scheme, in essence, involved the provision of money by members of the public, "investors", who would place monies with the proponents of the Scheme, Skyder/Silkwater, which were then used by the proponents to operate a business in short-term bridging finance.
A potential investor in the Scheme, in order to assess any risk of such an investment, would require information on the following:
(a) The safeguards that were available for protecting or for securing investors' loan monies provided to the proponents under a "Loan Agreement".
(b) The security available in respect of the monies then on-loaned by the Scheme proponents to third parties by way of short-term bridging finance.
On the plaintiff's evidence, the representations made to her by Ms Fowler were related to both the security of the Scheme itself and to the security of the transactions between Skyder/Silkwater and third-party borrowers.
The representations allegedly made by Ms Fowler to the plaintiff (and others) included, in particular, representations as to the existence and operation of a trust structure said to have been established for investors' funds so that:
(a) Investors' funds would be held in a separate trust account from the "workings" of Skyder and Silkwater;
(b) The loan monies of individual investors would be held in the trust account and be separated from the monies of other investors/lenders.
Additionally, the plaintiff's case relies upon representations allegedly made by the Scheme's proponents and by Ms Fowler that monies lent by way of bridging finance would be protected by mortgage security (usually second mortgages) over property offered as security by the third party borrowers, thereby, in effect, providing another tier or level of protection.
The plaintiff further alleges that representations were made by Ms Fowler to the plaintiff, and to other potential investors, that their interests would be protected by caveats registering the interest of the relevant investor on the title of the property offered as security for the short-term finance.
Additional representations relied upon by the plaintiff are discussed below.
The "Loan Agreement" as drafted by Ms Fowler referred to the individual investor as "the Lender" and to Skyder/Silkwater as "the Borrower". It contained recitals in the following terms:
"A The Borrower is in the business of providing bridging finance to Third Parties;
B The Lender seeks to invest a sum of [amount specified] with the Borrower to allow the Borrower to conduct its Business;
C At the request of the Borrower, the Lender has agreed to loan and the Borrower has agreed to accept the Lender's [amount specified] subject to the terms and provisions herein."
Clause 1 of the Investor Loan Agreement set out relevant definitions. They included:
"'Security' means any mortgage, pledge, lien, hypothecation, security interest or other encumbrance or charge now or in the future given by the borrower or any guarantor in favour of the lender to secure the obligations of the borrower under this agreement and includes any guarantee executed by any guarantor.
'Third Party Loan' means a contract for the provision of bridging finance entered into between the Borrower and a third party."
The plaintiff's case in negligence raises issues as to (i) alleged representations concerning the Scheme, including in particular, as to the safeguards said to be in place to protect investors' funds; (ii) the content and nature of the alleged representations; (iii) the duty of Ms Fowler as a representor to exercise reasonable care; (iv) the content of any duty of care owed by her; (v) reliance; (vi) breach, and (vii) causation.
Whilst the plaintiff, together with her former husband, had been investors in residential real estate, there is no evidence to suggest that she was otherwise an experienced investor in the area of money-lending (including multi-tiered lending schemes) or other forms of investment involving investment experience or prowess.
The plaintiff's case, essentially, was that Ms Fowler made the relevant representations supposedly in her capacity as a legal practitioner, in particular, one with a working knowledge of the Scheme.
The Credibility or Demeanour of Witnesses
Central to the dispute in the present case is the conflicting testimony as to what was said during a meeting with potential investors held on 19 September 2005, and otherwise between the plaintiff and Ms Fowler.
A period of several years passed between the relevant events and when the affidavits in these proceedings were sworn. Given that delay, and the importance, in particular, of the conversation that took place on 19 September 2005, the onus is on the plaintiff to establish with a degree of precision the words spoken by Ms Fowler constituting the alleged representations: Watson v Foxman (1995) 49 NSWLR 315 at 318 per McLelland CJ in Eq.
In resolving the conflicting testimony, it has been necessary to carefully consider the reliability of the evidence given by the respective witnesses in terms of both the evidence itself and the manner in which it was given. In this respect, it has been necessary to bear in mind inherent risks involved in making findings of fact based on the demeanour of witnesses, that is, of the dangers of too readily drawing conclusions about truthfulness and reliability based solely or mainly from appearances of witnesses: see Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 at 128-9 [30]-[31]; Goodrich Aerospace Pty Ltd v Arsic [2006] NSWCA 187; (2006) 66 NSWLR 186 at 189-191 [16]-[27].
In Fox v Percy, Gleeson CJ, Gummow and Kirby JJ said (at 128-9):
"[30] It is true, as McHugh J has pointed out, that for a very long time judges in appellate courts have given as a reason for appellate deference to the decision of a trial judge, the assessment of the appearance of witnesses as they give their testimony that is possible at trial and normally impossible in an appellate court. However, it is equally true that, for almost as long, other judges have cautioned against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses ...
[31] ... Considerations such as these have encouraged judges, both at trial and on appeal, to limit their reliance on the appearances of witnesses and to reason to their conclusions, as far as possible, on the basis of contemporary materials, objectively established facts and the apparent logic of events. This does not eliminate the established principles about witness credibility; but it tends to reduce the occasions where those principles are seen as critical."
Accordingly, whilst impressions as to demeanour may assist, they are to be weighed in light of the evidence in the proceedings, in particular, the evidence concerning undisputed and incontrovertible facts: Goodrich Aerospace Pty Ltd v Arsic, supra, at 191 [27] per Ipp JA.
The principles and approach considered in the above cases accordingly must be kept in mind in determining the factual issues.
Summary of Material Events
The central events leading up to the plaintiff's investment in the Scheme occurred between August 2005 and March 2006. They include the following:
(a) A meeting held in early September 2005 in the boardroom at Skyder's offices ("the Skyder boardroom meeting").
(b) A public meeting of the Chat Club at Seven Hills RSL Club on 19 September 2005 ("the Chat Club meeting").
(c) A number of conversations between the plaintiff and Ms Fowler in relation to the Scheme subsequent to the Chat Club meeting.
The plaintiff alleges that at the Skyder boardroom meeting:
- The second defendant, Ms Fowler, was introduced as being an expert in bridging finance contracts;
- A representative of Skyder stated in her presence that Ms Fowler would manage the monies invested in the Scheme;
- A statement was also made by the Skyder representative in her presence that investors' funds would be deposited in and controlled by way of a trust account; and
- The operation of the Scheme was explained by Mr Hraiki to the plaintiff in the meeting in the presence of Ms Fowler.
Ms Fowler disputed each of the above matters. As neither she nor the plaintiff made any contemporaneous notes or any other form of record of the Chat Club meeting, it has been necessary to closely consider their evidence in light of other matters established in the proceedings.
Subsequent to the Skyder boardroom meeting, a promotional meeting was organised by Messrs Dorian, Tombleson and Hraiki at the Seven Hills RSL Club on 19 September 2005, that is, at the Chat Club meeting. The plaintiff's evidence is that Ms Fowler was present for the greater part of that meeting.
Two speakers, Mr Tombleson and Ms Fowler, addressed members of the public who were in attendance. The plaintiff's evidence was that a number representations were made by Mr Tombleson concerning the operation of the Scheme and its claimed benefits and safeguards.
The plaintiff's evidence was that Ms Fowler made statements to the effect, that:
(a) Members of the Scheme would be registered as second mortgagees and their names would be placed on title deeds of properties offered as security by the third party borrowers, together with caveats on the titles of the properties.
(b) She would prepare and retain the documents in respect of investors' loans to the Scheme and oversee the protections in place for investors.
(c) She would manage the funds in a trust.
(d) She would provide legal assistance as required to the Chat Club members.
The plaintiff said that Mr Tombleson made statements at the meeting to the effect that:
(a) Ms Fowler would be involved with and be responsible for investments by drawing up the investor loan contracts.
(b) The funds would be secured against properties with low LVRs.
The plaintiff's evidence was additionally:
- That statements were allegedly made by Ms Fowler and Mr Tombleson to the effect that there was no or little risk to investors.
- That statements were allegedly made by Ms Fowler and Mr Tombleson to the effect that the "loan deals" would be initially sourced by Mr Tombleson and Mr Hraiki and that registered valuers with current indemnity insurance would be required to provide accurate valuations.
The plaintiff said in evidence that at the meeting Mr Dorian, in Ms Fowler's presence, said that Mr Tombleson had agreed to cover the legal and administrative costs of paying for Ms Fowler's role, including drawing up contracts and registering the second mortgages and caveats for Chat Club members.
The plaintiff said that during the meeting she asked Ms Fowler a question. She said Ms Fowler responded by stating:
- That investors' funds would be held in a nominated trust account that she would personally manage.
- That the funds would be quarantined from the workings of Skyder so that they would be safe if the company failed.
- That the funds would be "pigeon-holed" from other investors' funds so that they could only be lent out on specific projects about which they would be fully informed.
Ms Fowler denied that she participated in any way in Mr Tombleson's PowerPoint presentation at the meeting. She also denied that she made the statements as alleged by the plaintiff. Ms Fowler's evidence was that the only statements she made are those set out in paragraph [29] of her affidavit sworn 26 April 2012.
As with the Skyder boardroom meeting, no contemporaneous notes were made of the Chat Club meeting on 19 September 2005.
The plaintiff gave evidence that a couple of weeks after the Chat Club meeting she rang Ms Fowler on a number of occasions for the purpose of discussing the Scheme. She said that these calls related to:
- Skyder;
- Ms Fowler's role in relation to Skyder and the Scheme generally; and
- The period over which she had known Messrs Tombleson and Hraiki.
The plaintiff said that mostly when she rang Ms Fowler after the Chat Club meeting she would always take her calls. If, however, she was unavailable, Ms Fowler would always return her calls promptly. During certain of those calls the plaintiff said Ms Fowler reiterated comments she had made at the Chat Club meeting, saying words to the effect:
"Your investment will always be safe and managed by me." (Plaintiff's affidavit sworn 8 November 2011 at [81])
It was put to the plaintiff in cross-examination that Ms Fowler did not say those words. She insisted that she had.
The plaintiff said that she rang Ms Fowler at times when she had felt anxious or unsure about any aspect of the Scheme. Her evidence was that she asked Ms Fowler questions to the effect:
"Is it 100% legal? ...";
"Is it a commonly used strategy? ...";
"Had she litigated against anyone who had defaulted? ...";
"Are Daryl and Stan Hraiki trustworthy people? ..."; and
"Would the caveats and second mortgages provide me sufficient security?" (at [82])
The plaintiff said that she could not recall Ms Fowler's specific responses to such questions. She said that at no stage did she receive an answer from Ms Fowler that made her consider that there were any concerns with the Scheme.
She said that on one occasion when she rang Ms Fowler she asked her whether, in the event any of "the deals" associated with the Scheme experienced difficulties, she would commence litigation against the defaulting party. She said Ms Fowler replied to the effect:
"In the very unlikely event that this would happen, I will immediately litigate against the defaulting party" (at [85])
The plaintiff gave evidence of her belief that it was her clear impression that Ms Fowler was acting in the interests and/or for the benefit of the investors in the Scheme: at [86].
In paragraph [87] of her affidavit the plaintiff said:
"Further, and at about this time and prior to my investing any money in Skyder, Mr Dorian said to me words to the effect that 'If you are concerned about Skyder, just ask to look at their books and records and that will satisfy you that it is financially secure'. I did ask a few time for this information from Mr Tombleson but it was never provided. On discussion of the same with Mr Tombleson, he always said that he was in the process of making them 'fully available' (but it never happened). I also asked Ms Fowler-Hay words to the effect of: 'I have asked Darryl if I can see Skyder's financial records, do you know when they are going to be available?' She responded in words to the effect of: 'If you have asked Darryl, I am sure he will given them to you as soon as he can."
In response to paragraphs [81] to [86] of the plaintiff's affidavit, Ms Fowler in her affidavit sworn 26 April 2012 said that, to her recollection, the plaintiff did not after the Chat Club meeting ask her in any telephone call about the operation of the Scheme.
The only calls that Ms Fowler recalled from the plaintiff were concerned with loan documentation. She said she found it to be "unusual" that investors called her about the Scheme. She said that when that occurred she would always suggest that they speak to their lawyers, Mr Hraiki or Mr Tombleson: at [37].
Ms Fowler said that she recalled the plaintiff ringing in late October 2005 and telling her that she had recently invested $80,000 with Skyder in the Scheme but that she had not received any written loan contract. The plaintiff asked her if she could provide the contract.
Ms Fowler said she prepared an agreement which had the plaintiff's details in it as well as details of her investment. She said that she forwarded it to the plaintiff with a covering letter (Tab 1 to Ms Fowler's affidavit was said to be a copy of the letter and Tab 2 a copy of the agreement).
Challenge to Ms Fowler's Evidence Regarding Advice to Potential Investors
Ms Fowler's evidence that she had never said anything to prospective investors in the years 2005 and 2006 regarding the way in which the Scheme operated, or the level of security that potential investors would enjoy, was strongly challenged in cross-examination: T 174:35-40; T 175:20-25; T 175:48-T 176:1-2. It was put to Ms Fowler:
"Q. And that is similar to what you said in paragraph 37, but I understand that in that passage you are speaking generally about the practice that you adopted while you were working in 2005 and 2006 on the bridging finance scheme, is that correct?
A. That's correct.
Q And you are seeking to convey by that, that you had an invariable practice of not answering the investors' questions about their investments, but of always referring them on to Mr Tombleson and Mr Hraiki?
A. And their lawyers.
Q. And their lawyers? And this was the case, whether they were people who were considering investing or people who had already invested, is that correct?
A. That's correct.
Q. And so that evidence that you wish to give this morning is that it was not your practice, and could not have been the case, that you gave advice to prospective borrowers about the way the scheme would operate and the level of security available to them, is that your evidence?
A. That's not entirely true, because I did talk about what is a mortgage and what is a caveat, what is a trust account at the seminar. So I talked about the legalities, so." (T 175:21-42)
It was then put to Ms Fowler that this evidence by her (to the effect that she had not given advice to potential investors) was incorrect:
"Q. And I want to suggest to you that that is false. I invite you to reconsider that evidence. Are you prepared to, this morning, continue to persist with that expression about what you did and the answer you have just given?
A. No, I maintain that I did not give financial advice.
Q. I didn't ask you about financial advice. I asked you whether you gave advice to potential investors about the operation of the scheme and the security that was available to potential investors in regard to the scheme. So, just considering carefully the question I have put to you --
A. Mm-hmm.
Q. -- do you maintain that you did not give any such advice, other than that that you have referred to in your affidavit?
A. That's correct." (T 176:8-21)
Ms Fowler, a little later in cross-examination, was asked about information that she had sent to a Mr Ayoub about the Scheme:
"Q. And so, because you have had a conversation with Mr Ayoub you have decided to send him some details about the scheme, is that correct?
A. I've probably, I think, looking at this I think what's happened, I've gone back to Sam and said: 'Sam Ultra Management Sam wants the particulars'.
Q. Yes?
A. And Sam, Hraiki Sam has instructed me to give him this document or this email.
Q. I asked you at the beginning of this cross-examination whether or not it was true that you had never described to prospective investors the nature of the bridging scheme and the security that was in place and you told me confidently that you had not done that. That you had not given those descriptions to investors. Do you agree now that that answer was false?
A. Well, looking at this, it appears that I have." (T 212:12-27)
Ms Fowler was also cross-examined on information she provided to a Mr McCarthy, solicitor, who had sought information about the Scheme on behalf of his clients, Mr and Mrs Croker:
"Q. That is a document on Tiernan & Associates letterhead dated 24 September 2005?
A. Sure.
Q. Addressed to Mr McCarthy, do you see that?
A. Yes. (T 219:24-29)
...
Q. You then see you said this. 'As discussed please find below a synopsis of our clients' use and protections afforded to your client on monies they propose to advance'. You see that?
A. Yes, I do.
Q. Then you will see that in the body of the letter you then set out a series of statements about the way in which the bridging finance scheme was to work. That is correct, isn't it?
A. Yes, it is. (T 219:41-50)
...
Q. And you will see under the second numbered paragraph on the second page it says:
'Therefore at all times you will know where your money is and that it is not being used for any other purpose than that for the transactions which you have been a co signatory to'. (T 220:37-42)
...
Q. In fact, do you agree now that what had happened was that Mr McCarthy had contacted you on behalf of his clients because he did want to know how the scheme operated and that you had told him various things and then you had followed it up with the written assurances and record that you have put in that letter?
A. Yeah. It looks like he wanted more detail." (T 221:7-13)
In relation to the information supplied to Mr McCarthy it was then put to Ms Fowler:
"Q. In any event, you understood this was the position though, that Mr McCarthy had concerns on behalf of his client?
A. Yes.
Q. And it was to you he had turned for reassurance about the investment that they were intending to make; that's correct, isn't it?
A. Yes.
Q. That's what you understood?
A. Yes.
Q. And rather than refer him to Mr Hraiki or Mr Tombleson --
A. No, he also spoke to Mr Hraiki and Mr Tombleson at length. In fact he had numerous meetings with them.
Q. And then in addition to those meetings, he spoke with you and you then provided him with this letter of reassurance, I would suggest; do you agree?
A. I know I actually met with him afterwards, but, yes I definitely sent - well, it appears that I have sent this letter, yes.
Q. And in doing so you made substantially the same representations that you made to Mr Ayoub, do you agree?
A. Yes." (T 223:5-27)
The Australian Securities & Investments Commission "(ASIC") conducted investigations into Skyder and Silkwater. In the submissions for the defendants it was contended that the plaintiff's recollections as to Ms Fowler's involvement were significantly expanded in her affidavit beyond the matters appearing in her ASIC statement, which was made in 2008: Defendants' Written Submissions at [35]. In response, Dr Birch for the plaintiff submitted that it was necessary to take into account the context in which the ASIC statement was made. The focus of that investigation differed from that of her lawyers' questions concerning the involvement of Ms Fowler: Revised Plaintiff's Outline of Argument at [20](d). In any event, it was submitted that an examination of the plaintiff's handwritten statement to her solicitors, created in 2007, and the ASIC statement, corroborated her evidence on the representations she alleges in these proceedings.
It was also contended that the plaintiff's evidence was supported in material respects by the evidence of corroborative witnesses called in her case. The submission was that they gave evidence of "substantially similar" representations having been made by Ms Fowler at the Chat Club meeting. Dr Birch submitted that Ms Fowler's written communications with Mr Ayoub and Mr McCarthy contained similar representations to those detailed by the plaintiff. In this respect reliance was placed upon what Dr Birch contended amounted to "advice" set out in Ms Fowler's email to Mr Ayoub on 3 August 2005 and, additionally, in her letter dated 24 September 2005 to Mr McCarthy.
Pleaded Causes of Action
In the Amended Statement of Claim filed on 16 September 2011, the following causes of action are pleaded:
(i) Negligence;
(ii) Breach of implied retainer/breach of fiduciary duty;
(iii) Alleged misleading or deceptive conduct contrary to the provisions of the Fair Trading Act 1987;
(iv) Contravention of the Corporations Act 2001 (Cth), in particular ss 911A or 911B of that Act.
(a) Claim in Negligence
In relation to the claim in negligence, the following issues arise:
(i) The issue of the alleged "representations" by Ms Fowler;
(ii) The issue of reliance - whether the plaintiff relied upon any statements and information made or supplied by Ms Fowler;
(iii) Ms Fowler's alleged conduct in her dealings with the plaintiff concerning the Scheme;
(iv) Whether Ms Fowler was aware that the plaintiff was relying upon her to protect her interests;
(v) Whether, in her dealings with the plaintiff, Ms Fowler ought to have realised that she was being trusted to warn or otherwise advise the plaintiff as to the basis upon which her alleged representations were made before the plaintiff commenced investing in the Scheme;
(vi) Issues of duty and the scope of any duty of care owed by Ms Fowler to the plaintiff;
(vii) Whether Ms Fowler owed a duty of care to the plaintiff in circumstances in which she was required to act on and discharge the instructions given on behalf of Skyder and Silkwater;
(viii) Whether, on the evidence, Ms Fowler breached a duty of care owed to the plaintiff; and
(ix) Whether the plaintiff's loss was caused by a breach of duty by Ms Fowler.
(b) Retainer / Breach of Fiduciary Duty
It is the plaintiff's claim that, by implication, she retained Ms Fowler to advise her in relation to the Scheme and to protect her interests in relation to it: Amended Statement Claim at [63]. The plaintiff relies upon a number of pleaded circumstances from which the implication is said to arise.
The plaintiff's case is that an implied retainer existed between her and Ms Fowler from which a fiduciary duty arose.
The claim against Ms Fowler for breach of fiduciary duty is pleaded in the Amended Statement Claim at paragraphs [79]-[82]. The plaintiff alleges that in advising her to invest in the Scheme, in the circumstances pleaded, Ms Fowler assumed a fiduciary obligation to her in the giving of that advice.
The factual circumstances relied upon in support of this are pleaded in paragraph [62] of the Amended Statement of Claim. These include that Ms Fowler was aware that the plaintiff had not received independent legal advice and that the plaintiff had reposed trust and confidence in her as adviser.
The plaintiff pleads her cause of action for fiduciary breach, inter alia, upon the basis that Ms Fowler was obliged to avoid any conflict between her interests and the interests of parties related to her and not to subjugate the plaintiff's interests to those of third parties with whom she had a professional relationship.
The plaintiff contended that Ms Fowler breached her duty of care by advising her to invest in the Scheme notwithstanding a conflict of interest in that she had been retained by Skyder and Silkwater, that the advice she had given to the plaintiff was without proper regard to her interests in circumstances where such advice advanced the interests of Skyder and Silkwater.
In these circumstances the plaintiff alleges that Ms Fowler is liable to pay equitable compensation to her in respect of the former's alleged breach of fiduciary duty in an amount representing the totality of the loss suffered.
It was further contended on behalf of the plaintiff that the claim of breach of fiduciary duty is not a claim arising from and based on a failure to take reasonable care and that accordingly the apportioning provisions of the Part 4 of the Civil Liability Act 2002 do not apply to that claim.
The case for the defendants is that, even on the plaintiff's version of events, nothing was said by Ms Fowler which could give rise to a reasonable apprehension that she, as solicitor, would be acting in the plaintiff's interests, or that could have given rise to an understanding in the plaintiff that Ms Fowler had undertaken to act as her legal representative.
It was submitted that, on Ms Fowler's version of events, nothing was said to suggest that she would be, or might be, acting for potential investors (including the plaintiff) at the relevant time: Defendants' Written Submissions at [7].
(c) Claim Based on the Fair Trading Act 1987
The claim under s 42 of the Act, as formulated in plaintiff's final submissions, was argued upon the basis that Ms Fowler's representations constituted conduct engaged in by her in trade or commerce, and that the representations were misleading or deceptive or likely to mislead or deceive.
It was contended for the plaintiff that Ms Fowler's conduct occurred in the course of professional activity as a solicitor thereby falling within the extended definition of conduct in trade or commerce for the purposes of s 42(1) of the Act: Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343; (2008) 77 NSWLR 205 at 279.
Liability under s 42 additionally depends upon the provision of financial investment advice to the plaintiff and whether, in providing such advice, Ms Fowler acted unconscionably in all the circumstances in the meaning of s 43 of the Fair Trading Act. If so, the issue arises as to whether loss and damage was suffered by the plaintiff by virtue of the alleged contraventions of the Act.
To the extent that the representations were about a future matter, namely how the sums invested by the plaintiff would be dealt with in the future, the plaintiff relied upon the provisions of s 41(1) of the Act. Section 41(2) of the Act provides that the onus of establishing that the person had reasonable grounds for making the representation is on that person, the representor. Ms Fowler did not plead in her defence that what was alleged was said by her had a reasonable basis, as she denied having made the representations.
The plaintiff's case is that Ms Fowler had no reasonable basis for making the representations. The alleged representations in question were those allegedly made by Ms Fowler: (i) at the Skyder boardroom meeting, (ii) at the Chat Club meeting on 19 September 2005 and (iii) in verbal communications post-dating the Chat Club meeting.
In the Plaintiff's Submissions in Reply at paragraph [30] it was accepted that in light of the decision of the High Court in Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10; (2013) 247 CLR 613 the proportionality provisions of the Civil Liability Act 2002 applied in respect of any finding of breach of duty of care or breach of the Fair Trading Act.
(d) Claim Based on ss 911A and 911B of the Corporations Act 2001 (Cth)
The plaintiff pleaded a cause of action under the above provisions on the basis that Ms Fowler allegedly provided financial services advice without holding a financial services licence or without being exempt from holding such a licence. In that respect, it is alleged that Ms Fowler acted in contravention of ss 991A or 991B of the Corporations Act. The plaintiff claims that she suffered loss and damage in acting on her advice to invest in the Scheme and thereby suffered loss and damage in consequence of the above mentioned contraventions.
The plaintiff alleges that Ms Fowler is liable to be ordered pursuant to s 1324 of the Corporations Act to compensate her for the losses incurred by her in consequence of the contravention: Amended Statement of Claim at [76]-[78].
It was contended in the Revised Plaintiff's Outline of Argument at paragraph [90] that the claim under s 1324 of the Act is not an apportionable claim under the provisions of Part 4 of the Civil Liability Act.
Affidavit and Other Evidence
The affidavit evidence in the plaintiff's case included:
- Affidavits of the plaintiff sworn on 8 November 2011 (referred to in this judgment as "the plaintiff's first affidavit") and 23 May 2012.
- Affidavit of Charles Galea sworn on 23 November 2011.
- Affidavit of Geoffrey Cohn sworn on 30 November 2011.
- Affidavit of Aisling Frances Monahan sworn 15 June 2012.
The defendants relied upon the affidavit of Renae Jean Fowler sworn 26 April 2012.
The following exhibits were tendered in the proceedings:
- Exhibit A - Plaintiff's Tender Bundle Vol 1 (pages 6-56)
- Exhibit B - Plaintiff's Tender Bundle Vol 2
- Exhibit C - Plaintiff's Tender Bundle Vol 3
- Exhibit D - Bank statements for Silkwater Group Pty Ltd for period 24/1/06 to 23/9/07 in respect of Account XXXXX X28
- Exhibit E - Bank statements for Silkwater Group Pty Ltd for period 22/11/05 to 21/3/08 in respect of Account XXXXX XX70
- Exhibit 1 - Defendants' Tender Bundle
part B - facts
The Plaintiff
The plaintiff was born in 1952. She holds a Bachelor Degree in Psychology, an H/Dip Ed and a Bachelor of Social Work (Hons). Between approximately 1986 and 2002 she practised on a part-time basis as a psychologist.
The plaintiff was married in 1978 and separated from her husband in June 2001. There are two children by that marriage. When they separated, she continued to own investment properties previously acquired with her former husband during their marriage.
In about 2001 the plaintiff met a Mr David Dorian at an Amway of Australia Pty Ltd function. Thereafter she would see him at Amway functions and, subsequently, in or about April 2003, she met him again at a property seminar at Star City Casino.
The plaintiff said that she attended three meetings of the "Follow Me Chat Club" ("the Chat Club"), with which Mr Dorian was associated, between 2003 and September 2005.
The Chat Club comprised a group of persons interested in property development. The plaintiff attended her first meeting of the Chat Club in or about late 2003. She understood Mr Dorian was the founder and supervisor of the Club and she said it was promoted by him as being a "safe space".
The plaintiff received regular emails from the Chat Club including newsletters concerning meetings and investment opportunities.
The plaintiff's matrimonial proceedings were finalised in or about October 2004. As a result of a property settlement with her former husband she retained ownership of the family house in Wolseley Road, Coogee together with investment properties that they had co-owned, apart from one property in Beach Street, Coogee which her former husband retained. He also retained their share portfolio and his medical practice rooms.
The plaintiff said that after the property settlement there was a shortfall between her income and the mortgage payments on the investment properties of the order of $8,000 to $10,000 per month.
In due course Mr Dorian mentioned to the plaintiff that he had been involved in developing an investment scheme known as the Bridging Finance Investment Scheme ("the Scheme"). He told her that the investment return was set at 2% per month. She said she was sceptical. She was told at that time that those involved had been working on the Scheme for about 18 months in order to make it 100% safe before they introduced it to the Chat Club.
The plaintiff recalled that in about June 2005 the Chat Club newsletters began to discuss the potential for investment in the Scheme. In late August or early September 2005 Mr Dorian told her that the formal parts of the Scheme were being set up and monitored by a lawyer who was an expert in the relevant field of investment.
At this time the plaintiff was working on a casual basis for a real estate agency. She told the principal of the agency, Mr Giltinan, about the Scheme. He told her that she should be careful about investing any money in such a scheme because there could be a risk if anything went wrong.
The plaintiff said that she was concerned by his comments. For that reason she said she raised queries with Mr Dorian. The plaintiff said that Mr Dorian, "precisely and methodically" addressed each of her concerns. She later told Mr Giltinan of her discussion with Mr Dorian. Mr Giltinan convinced her to meet with her local Westpac Branch Manager, a Mr Coelho, which she did. At the meeting with Mr Coelho, Mr Giltinan explained the Scheme to Mr Coelho, which explanation the plaintiff said reflected Mr Giltinan's views. After some discussion Mr Coelho told the plaintiff that he agreed with Mr Giltinan's view. She subsequently discussed what Mr Coelho had said with Mr Dorian. Mr Dorian, in effect, stated that a "simple bank manager" would not be able to understand or comprehend the Scheme.
Notwithstanding the plaintiff's interest in these proceedings vis-a-vis the defendants, I gained the impression during her evidence that she was a careful witness who did not display any tendency towards obfuscation or evasiveness and was prepared to acknowledge limitations on her ability to recall certain matters.
Tiernan & Associates Lawyers
In her affidavit sworn on 26 April 2012, Ms Fowler stated that she was admitted as a solicitor in New South Wales in February 2004. During 2003 she had worked at Leitch Hasson & Dent Solicitors as a legal clerk. She remained with that firm after her admission as a solicitor. Before and after admission her practice mainly involved work on retail leases and general commercial and property litigation. She met and worked with Phillip Tiernan, solicitor, at that firm.
In February 2005, Mr Tiernan left Leitch Hasson & Dent Solicitors and set up his own firm, Tiernan & Associates. In early March 2005, Ms Fowler left Leitch Hasson & Dent and commenced working as an Associate at Tiernan & Associates, whose offices were located in Cronulla.
She stated that her practice with Tiernan & Associates was mostly general commercial work, including retail leasing, conveyancing, partnership agreements and the like.
From approximately May 2005, Tiernan & Associates provided legal services in relation to the Scheme.
Ms Fowler agreed in cross-examination that in 2005 she had a qualified practising certificate and, accordingly, it was her obligation to submit to the supervision of a senior solicitor. In her case, the senior solicitor was Mr Tiernan.
After she left Tiernan & Associates Ms Fowler set up her own practice.
In relation to the regulation concerning the public offering of investments in financial products, Ms Fowler stated that when she was with Tiernan & Associates she was aware of the existence of laws designed to establish and give effect to such regulation:
"Q. And you understood that there were indeed quite wide ranging laws by 2005 which govern the offer of financial products generally where they were offered by a business in many cases?
A. Yes.
Q. Is that correct?
A. That is correct.
Q. You understood, for example, that it may be that if a company or business was offering to the public financial products or securities there could be a need for a prospectus or something of that sort, is that correct?
A. I didn't know the detail of the requirements but I had a general knowledge, yes.
Q. You knew enough to know that that is an issue that might have to be considered if a company was engaged in conduct of that sort?
A. That's right.
Q. And did you know by the time you had completed your studies and attained your legal practitioner's certificate that for certain business engaged in selling or marketing financial products they may need to have a licence from ASIC?
A. Yes.
Q. Again I take it that did not have a detailed knowledge of the term that apply to those licences or their requirements but it was part of your working knowledge that something like that might well apply to business in the financial sector?
A. That is correct." (T 167-168).
A little later Ms Fowler stated that as at May 2005 she had not previously done legal work concerning a public offering of financial products nor had she been involved in legal work associated with the obtaining of financial services licences for businesses: T 168.
Ms Fowler said that the work undertaken by Tiernan & Associates for Messrs Tombleson and Hraiki formed quite a substantive part of the legal work that she did in the years 2005 and 2006: T 168. In that respect, she was asked:
"Q. Were they and their associated businesses your major clients in 2005 and 2006?
A. Of the practice or me personally?
Q. Of you personally?
A. I would say they are, yes." (T 168)
The Skyder Boardroom Meeting In Early September 2005
At a boardroom meeting held at the offices of Skyder in early September 2005, the plaintiff met, for the first time, Ms Fowler and Messrs Tombleson and Hraiki. The meeting assumes significance in light of the following matters:
(i) At that time, despite Mr Dorian's attempts to reassure the plaintiff about the Scheme, the plaintiff had not then committed herself to investing in it.
(ii) There is a strong inference that the meeting was set up to "sell" the Scheme to her as being a worthwhile investment proposition.
(iii) As the plaintiff had not decided to invest at that stage, Ms Fowler's presence at the meeting was not for the purpose of her performing any legal services for the plaintiff. As discussed below, that is a relevant matter in understanding the basis upon which Ms Fowler rendered her fee invoice for attending the meeting. It may be readily inferred that Ms Fowler's attendance was seen by the Scheme's promoters as giving the Scheme credibility.
(iv) On the findings discussed below, Ms Fowler was present at the meeting during the presentation by Messrs Hraiki and Tombleson.
In early September 2005, Mr Dorian told the plaintiff that he was having a meeting in Cronulla with the lawyer and other persons who had been working on the Scheme. He suggested that she should come along and meet them and hear more about the investment strategy involving the Scheme.
She came to understand that the Scheme was operated by Skyder and that that company's offices were located in Cronulla. She was, in due course, introduced by Mr Dorian to Messrs Darryl Tombleson and Sam Hraiki, who were then both directors of Skyder.
The plaintiff said that for the introductory meeting they went into a boardroom at Skyder's offices. The company's offices were in the same building and adjacent to the offices of Tiernan & Associates. She was told that a lawyer, Ms Fowler from Tiernan & Associates, would be joining them shortly.
The plaintiff's evidence was that Mr Hraiki started to discuss the Scheme and he demonstrated on a whiteboard how investment funds would be used. She recalled him talking about people making investments in the Scheme of about three or four million dollars which she said made her very nervous as she did not have that amount of money to invest.
According to the plaintiff, Ms Fowler arrived soon after the meeting commenced. The plaintiff said that Mr Dorian said that:
"This is Renae Fowler-Hay the lawyer from Tiernans that I told you about. She is an expert on bridging finance contracts. She will be setting up the loan investor contracts, managing the trust and taking care of all of the legal aspects of the Bridging Finance Scheme for investors."
Ms Fowler in evidence, denied hearing Mr Dorian say those words.
According to the plaintiff, Ms Fowler remained in the room and the presentation continued. She recalled Mr Hraiki saying words to the following effect:
"As a mortgage broker, there is a huge pool of clients that I have who need bridging finance. There are deals happening all over the place which give enormous potential to the Bridging Finance Scheme. That is why we have developed this investment opportunity - the work that has gone into it by Darryl, Renae and myself has been to make the investment 100% safe for investors."
The plaintiff said that she recalled Mr Tombleson saying words to the effect:
"As you can see from Sam's diagram on the whiteboard, there are safeguards in place to protect investors' money, which will be administered by Renae and her firm. There are checks and balances put in place by her, including unregistered mortgages, caveats and loan agreements placed over borrowers' properties so there will always be safety for investors of their principal."
The plaintiff said that she said to Mr Hraiki, Mr Tombleson and Ms Fowler, words to the effect:
"But won't there be issues with valuing the property for the purposes of putting security in place? Isn't property quite subjective for valuations?"
She said that Mr Tombleson replied:
"We only use registered valuers with indemnity insurance to protect investors - and even then, we only go ahead with a loan to borrowers of bridging finance if there is at least 40% equity in every property - so there's plenty of fat in each loan made by Skyder. The property market would have to crash over 40% for the investments to have any trouble!"
According to the plaintiff, Ms Fowler was present during the majority of Mr Hraiki's demonstration on the whiteboard and was present during the above discussion. Ms Fowler, on the other hand, said she was only present for about five minutes.
The plaintiff said that from time to time Ms Fowler interrupted Mr Hraiki's presentation to elaborate on and clarify matters he had raised, including his comments on the practical implications of the Scheme. She said she could not now recall precisely Ms Fowler's comments.
The plaintiff said she thought Ms Fowler appeared young for someone who was said to be an expert on bridging finance. Shortly after the meeting she said she asked Mr Dorian about her age. He in reply said words to the effect that she was about "fortyish".
The plaintiff's evidence in paragraph [52] of her first affidavit was admitted only as to her then belief. She there said that from her observations at the meeting she had the impression that Ms Fowler was working very closely with Mr Hraiki, Mr Tombleson and Mr Dorian on the development of the Scheme. She said she thought that Ms Fowler was acting for the benefit and on behalf of the interests of the investors in the Scheme. However, in cross-examination she accepted that Ms Fowler did not say in the meeting that she was acting on behalf of investors or for their benefit.
The plaintiff said that following the Skyder boardroom meeting she had a number of conversations with Mr Dorian about the Scheme, principally on the telephone. He told her that he was impatient to introduce the Scheme to the Chat Club and that there were people in it who were keen to invest in the Scheme. However, he said he had held back until he was content with the final detail of it and that "all checks and balances were in place".
She said she recalled after that conversation reading in Chat Club documents that Ms Fowler should be contacted for legal advice concerning the Scheme. She also said that Mr Dorian made similar comments to her saying that Ms Fowler would speak to her if she had any concerns or questions.
In relation to the plaintiff's account of the meeting, set out in her handwritten statement provided to her then solicitor in April 2007, the following are noted:
- The operation of the Scheme was the subject of a promotional presentation by Mr Hraiki at the Skyder boardroom meeting.
- Whilst the plaintiff's account does not record Ms Fowler's presence throughout the whole of the Skyder boardroom meeting, it is not inconsistent with that having been present for the greater part of the meeting. In the plaintiff's ASIC statement made in September 2008 it was noted that she said: "After our meeting, I was asked to wait outside as Mr Dorian had a meeting with Messrs Tombleson, Hraiki and Ms Fowler-Hay".
- The plaintiff's account, including the lastmentioned statement, is not consistent with Ms Fowler's account of her having entered the boardroom, met the plaintiff and then leaving within approximately five minutes of being introduced.
- The plaintiff's account reflects her apprehension about investing, she stating her concern that her "money was safe".
The Chat Club Meeting at the Seven Hills RSL Club on 19 September 2005
The plaintiff attended a meeting of the Chat club on 19 September 2005 at the Seven Hills RSL Club. She estimated that approximately eighty people were present. Not all were members of the Chat Club. In particular, the evidence was that neither the plaintiff nor Dr Geoffrey Cohn were members.
The plaintiff's evidence was that she understood the meeting was to be an occasion on which the Scheme would be explained to members of the Chat Club. In reality, it was a promotion for the Scheme. Prior to the meeting she had been told by Mr Dorian that she would need to fill out a form. He explained that it was an ASIC requirement for her to fill it in and to sign it because there was going to be a lawyer present.
On the plaintiff's arrival at the Seven Hills RSL Club, she went to the front desk and was handed a Chat Club attendance register. There was also a disclaimer document which she was told she needed to sign before attending the meeting. A copy of the document, entitled "Acknowledgment and Disclaimer" is at p 160 of Exhibit A. The plaintiff said she assumed it was the document that Mr Dorian had previously referred to. She said she skim read it and signed it.
The plaintiff agreed that the document said that the Chat Club received a referral commission. When asked whether she read that at the time or not, she said she read it very quickly and understood that the Chat Club would get a commission if she invested: T 51:15-20.
She said that it was her understanding from the Chat Club Newsletters that the Club was structured as a "safe space", that it was a not-for-profit organisation, and that accordingly the fee to be paid to the Chat Club would be a nominal amount towards covering administration expenses. She said that she did not consider the disclaimer document she was required to sign before attending the meeting (as to which see discussion below) bore any relevance at all to the investment in the Scheme, other than it being a requirement for attendance at the meeting.
She said that after the meeting Mr Dorian approached her with the document and asked her to complete parts of it. She said that Mr Dorian said to her "Hazel, can you fill this out? You can say on it that you have had bridging finance experience, as you have, haven't you?".
The plaintiff said that she told him that when she purchased her home in Coogee she and her husband had borrowed over a period of three months by way of bridging finance to complete the purchase.
Mr Dorian said that as she knew what bridging finance was, just to write down "No problems".
The plaintiff said she attended the meeting in the company of a friend, Dr Geoffrey Cohn.
Mr Tombleson and Ms Fowler were present and the plaintiff said they were introduced by Mr Dorian at the commencement of the meeting.
According to the plaintiff, Ms Fowler was introduced by Mr Dorian at the meeting in words to the effect of:
"This is Renae Fowler-Hay from Tiernan & Associates Lawyers, the lawyer who will be drawing up the bridging loan documentation and contracts on behalf of investors."
She said she recalled Ms Fowler acknowledging the introduction.
The plaintiff said that there then followed a PowerPoint presentation which she said was jointly conducted by Mr Tombleson and Ms Fowler. Ms Fowler's evidence was to the contrary, that is, that it was not a joint presentation. The PowerPoint slides for the presentation are in Exhibit C, Tab 175. No printed copies of them were handed out at that time. The plaintiff acquired a copy of them at a later time.
The plaintiff's evidence was that Mr Tombleson and Ms Fowler were both standing up at the same time speaking to Chat Club members but that Mr Tombleson was the person primarily presenting and explaining the PowerPoint presentation as it proceeded through a number of slides. She said the presentation lasted for approximately 45 minutes.
The evidence, as earlier discussed, establishes that the plaintiff was hesitant and nervous about investing her own monies and the monies she subsequently received from her matrimonial settlement. In that context, she turned to Mr Dorian and received his views from time to time in favour of investing in the Scheme. She also was subjected to persuasion at the hands of Mr Hraiki and, in particular, Mr Tombleson.
However, it is not without significance that up to 19 September 2005, that is before she heard the representations of Ms Fowler, despite the "advice" or "selling" of the Scheme to her by Messrs Dorian, Tombleson and Hraiki, the plaintiff was not yet ready to be persuaded.
As the High Court in Astley v Austrust Ltd, supra, stated the "duties and responsibilities of the defendant" are a central consideration in determining contributory negligence. Depending upon the nature and scope of the responsibility assumed by a defendant, the Court observed that the nature and duty owed by a defendant may exculpate the plaintiff from a claim of contributory negligence.
In the present case, unlike in Astley v AustrustLtd, the central issue is not concerned with determining the scope of the retainer of the solicitor. This is a case involving affirmative statements (the "representations") made at a meeting of potential investors by a solicitor upon matters capable of influencing investment decisions. Further, as discussed above, and as noted in the defendants' written submissions, notwithstanding the fact that Ms Fowler experienced obstruction on the occasions when she sought information on the Scheme from its proponents, Messrs Tombleson and Hraiki, no attempt was made by her to convey or emphasise to the plaintiff that she herself was not or had not been in a position to verify the representations before the plaintiff commenced to place her funds with Skyder/Silkwater.
As indicated above, this is a representation case and not only a case involving a failure or omission by a solicitor, although the failure in this case is, of course, also a matter of significance.
I have concluded on the basis of the matters to which I have referred and the provisions of ss 5R(1) and (2) of the Civil Liability Act that there is no proper basis for a finding of contributory negligence.
Conclusions on Proportionality
As recorded above, I have determined that the defendants are liable on the basis of negligence, breach of s 42 of the Fair Trading Act, breach of retainer, and breach of fiduciary duty. The liability arising in respect of each cause of action pleaded in those respects, in my assessment, is predicated and arises from a failure to take reasonable care within the meaning of s 34(1)(a) of the Civil Liability Act. The claim under s 42 also falls within s 34(1)(b) of that Act.
In relation to the action for breach of fiduciary duty, I note the reasons of Ward J in George v Webb [2011] NSWSC 1608, in which her Honour observed that an "action for damages", as required under s 34(1) of the Civil Liability Act, encompasses a claim for equitable compensation where the claim is one "arising from a failure to take reasonable care" and in proceedings in which the claim has been predicated on, or arising from, such a failure. Her Honour proceeded to conclude that:
"In my view, irrespective of the fact that the failure to take reasonable care may have contributed to or been the underlying cause of the conduct that amounted to the relevant breach of trust, the principal liability here is a liability for breach of trust by the payment out of the funds other than in accordance with the express purpose trust on which they were held. This breach of trust would have occurred (and the liability arises) whether or not there had been a failure on the part of the solicitors to take sufficient care in complying with the directions that were given to them. Therefore I consider that the liability, as found, is not one predicated on or arising from a failure to take reasonable care and this is not an apportionable claim..." (at [325])
Having regard to the observations on proportionate liability to which I have referred, I proceed to assess the plaintiff's damages on the basis that the plaintiff's total loss amounted to $1,190,000.
The various factors concerning the role and actions of each of the concurrent wrongdoers in these proceedings to which I have referred above is to be assessed having regard to all matters relevant to the twin issues referred to in [809] above, recognising that this is largely a discretionary evaluation or judgment that involves a balancing of those factors. On that basis, I assess the proportionate liability as follows:
(i) The combined proportionate liability of Messrs Tombleson and Hraiki, the directors of Skyder/Silkwater, I assess at 60%, which I further apportion as to 50% to Mr Tombleson and 10% to Mr Hraiki. 60% of the total loss is the amount of $714,000.
(ii) The proportionate liability of Mr Dorian I assess at 10% of the total loss, which is the amount of $119,000.
(iii) The proportionate liability of the second and fourth defendants I assess at 30%. 30% of the total loss is $357,000.
Accordingly, there is to be judgment in favour of the plaintiff against the second and fourth defendants in the amount of $357,000.
Pre-judgment Interest
In the Amended Statement of Claim the plaintiff claims "interest on such sums as the defendants are ordered to pay".
Section 100 of the Civil Procedure Act 2005 provides that in proceedings for the recovery of money the Court may include interest in the amount for which judgment is given, with interest to be calculated at such rate as the Court thinks fit:
(a) On the whole or any part of the money, and
(b) For the whole or any part of the period from the time the cause of action arose until the time the judgment takes effect.
Practice Note SC Gen 16 prescribes the rate of pre-judgment interest that may be awarded under s 100 of the Civil Procedure Act as being:
(a) In respect of the period from 1 January to 30 June in any year - the rate that is 4% above the cash rate last published by the Reserve Bank of Australia before that period commenced, and
(b) In respect of the period from 1 July to 31 December in any year - the rate that is 4% above the cash rate last published by the Reserve Bank of Australia before that period commenced.
The plaintiff received interest payments on her investment from October 2005 to 18 December 2006. A schedule of all payments made is contained in paragraph [34] of the Amended Statement of Claim.
I have determined that the interest rate payable is the average of the pre-judgment interest rate for the period December 2006 to the date of this judgment. The table below sets out the relevant pre-judgment interest rates during this period:
Period
Pre-judgment interest rate (RBA cash rate + 4%)
1 July 2006 to 31 December 2006
9.75%
1 January 2007 to 30 June 2007
10.25%
1 July 2007 to 31 December 2007
10.25%
1 January 2008 to 30 June 2008
10.75%
1 July 2008 to 31 December 2008
11.25%
1 January 2009 to 30 June 2009
8.25%
1 July 2009 to 31 December 2009
7.00%
1 January 2010 to 30 June 2010
7.75%
1 July 2010 to 31 December 2010
8.50%
1 January 2011 to 30 June 2011
8.75%
1 July 2011 to 31 December 2011
8.75%
1 January 2012 to 30 June 2012
8.25%
1 July 2012 to 31 December 2012
7.50%
1 January 2013 to 30 June 2013
7.00%
1 July 2013 to 31 December 2013
6.75%
1 January 2014 to 30 June 2014
6.50%
The average interest rate for this period is 8.58%.
I propose to grant leave to the parties to deal with and be heard in respect of ancillary and consequential orders as to:
(1) Pre-judgment interest;
(2) Costs.
Orders and Directions
(1) Subject to the leave referred to in [912], I propose to enter judgment in favour of the plaintiff against the second and fourth defendants in accordance with these reasons for judgment.
(2) The parties are to bring in Short Minutes of Order to give effect to this judgment and any agreed orders as to interest and costs.
(3) The proceedings will be re-listed on Tuesday, 20 May 2014 at 2.00pm for the purpose of orders (1) and (2) above and any ancillary orders.
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Decision last updated: 15 May 2014
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