Ritchie v Woodward

[2016] NSWSC 1715

Supreme Court

New South Wales

Medium Neutral Citation:

Ritchie v Woodward (Executor of the Estate of the late Brian Patrick Woodward); Rujo Pty Ltd v Woodward (Executor of the Estate of the late Brian Patrick Woodward); Barona Group Pty Ltd v Woodward (Executor of the Estate of the late Brian Patrick Woodward) [2016] NSWSC 1715

Hearing dates:

09/05/16, 10/05/16, 11/05/16, 12/05/16, 13/05/16, 16/05/16, 17/05/16, 18/05/16, 19/05/16, 20/05/16, 23/05/16, 24/05/16, 25/05/16, 26/05/16, 27/05/16, 30/05/16, 01/06/16, 02/06/16 and 03/06/16

Decision date:

12 December 2016

Jurisdiction:

Equity

Before:

Emmett AJA

Decision:

Direct that no later than 16 December 2016 the defendants bring in short minutes of order giving effect to my conclusions and, if there is any dispute as to costs, providing a timetable for submissions on all outstanding questions of costs.

Catchwords:

CONTRACTS – plaintiffs invested in series of hotel businesses due to advice from their accountant and subsequently lost entire investment – accountant allegedly promised to secure loans that the plaintiffs had made to the businesses but did not – plaintiffs allege that if they had been told that loans weren’t secured that they could have taken steps to recover their investment – implied terms – whether contract of retainer with accountant contained certain implied terms about plaintiffs being informed about all financial matters relevant to financial affairs of plaintiff and conflicts of interest – contractual promise of degree of care, skill and diligence – whether accountant breached contractual promise in retainer to exercise degree of care, skill and diligence that it was reasonable to expect of a competent chartered accountant in performing such a retainer – whether there was a promise to secure loans – whether there was failure to secure loans – in what capacity was accountant acting when loans were made and promise to secure the loans was made – whether failure to secure loans and failure to inform plaintiffs constituted contractual breach – causation – whether accountant’s actions caused financial loss to the plaintiffs – whether investment and/or loans could have been recovered in any case – whether cross-collateralisation of hotels caused any financial loss – breach – whether advice to invest constituted breach of contractual promise in retainer to exercise degree of care, skill and diligence – whether accountant should have performed due diligence – whether accountant should have relied on valuations of hotel – whether accountant should have shown plaintiffs business plan for the hotels – whether fourth and fifth defendants breached their contract of retainer for failing to provide ongoing monitoring services to plaintiffs

 

PROFESSIONAL NEGLIGENCE – torts – whether accountant owed the plaintiffs duty of care in advising to invest – in what capacity did accountant provide advice – whether accountant’s advice to invest constituted breach of duty – whether accountant had duty to show plaintiffs business plan for the hotels – whether failure to perform due diligence constituted breach of duty – whether alleged failure to advise plaintiffs to seek independent legal or accounting advice constituted breach of duty – whether existence of conflict of interest constituted breach of duty– whether causation was established in negligence – whether re-investment of funds from successful hotel investment into an unsuccessful hotel investment constituted breach of duty

 

TRADE AND COMMERCE – misleading and deceptive conduct – s 42 of Fair Trading Act 1987 (NSW) – whether accountant’s actions constituted misleading and deceptive conduct – whether accountant made false claims about cash flow of hotels – whether claims about investment in hotels providing good returns were misleading or deceptive – whether there were reasonable grounds for accountant to make representations about the hotels - whether purportedly unfair allocation of equity constituted misleading and deceptive conduct – whether purported misleading and deceptive conduct caused any loss

 

PARTNERSHIP – whether other defendants vicariously liable for actions of third defendant – whether second defendant was a partner in the accountant’s partnership during the relevant period – whether financial arrangements between second defendant and accountant’s firm constituted partnership – whether fourth and fifth defendants were part of the partnership

 

BANKRUPTCY – accountant subsequently became bankrupt – whether accountant released from liability for claims in professional negligence and under Fair Trading Act due to intervening bankruptcy and discharge – whether Supreme Court has jurisdiction to decide the question – whether liability in tort and for misleading and deceptive conduct were provable debts in bankruptcy – s 82 of Bankruptcy Act

INSURANCE – defendants seeking indemnification under insurance policy cross-claimed against insurer who denied liability – whether impugned conduct covered under definition of ‘Professional Services’ in the policy – meaning of “Accounting & Bookkeeping” – exclusion clauses – whether insurer’s liability excluded under clause excluding liability for “investment advice” whether defendants’ impugned conduct constituted “investment advice” – meaning of “investment advice” – whether insurer’s liability excluded due to purported non-disclosure of possible liability by the cross-claimants – limitation of liability - whether there was a single “claim” or multiple “claims” that were covered under the policy – whether statutory professional schemes limited liability of plaintiffs where defendants covered by insurance policy - Professional Standards Act 1994 (NSW)

Legislation Cited:

Bankruptcy Act 1966 (Cth), ss 27, 55, 57A, 73-76B, 82, 86, 108-114
Business Names Act 1962 (NSW), s 12
Civil Liability Act 2002 (NSW), ss 5D, 5E
Civil Procedure Act 2005 (NSW), 101
Corporations Act 2001 (Cth), s 601AA
Evidence Act 1995 (NSW), s 79
Fair Trading Act 1987 (NSW), s 42
Insurance Contracts Act 1984 (Cth), s 13
Judiciary Act 1903 (Cth), s 39B
Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth), ss 3, 4, 6
Partnership Act 1892 (NSW), ss 1(1), 10, 12
Professional Standards Act 1994 (NSW), ss, 4, 29

  The Accountants Scheme, New South Wales, Government Gazette, No 150, 5 October 2001, at 8472
The Institute of Chartered Accountants in Australia (NSW) Scheme, New South Wales, Government Gazette, No 139, 5 October 2007, at 7691

Cases Cited:

Aliferis v Kyriacou (2000) 1 VR 447; [2000] VSCA 123
Amadio Pty Limited v Henderson (1998) 81 FCR 149
American Home Assurance Company v Kirby [2003] NSWCA 395; (2004) 13 ANZ Insurance Cases 61-600
Astley v Austrust (1999) 197 CLR 1; [1999] HCA 6
Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99; [1973] HCA 36
Beckingham v Port Jackson & Manly Steamship Co (1957) 57 SR (NSW) 403
Brooker v Friend & Brooker Pty Ltd [2006] NSWCA 385
Burns v Grevler [2010] NSWSC 1219
CGU Insurance Limited v Porthouse (2008) 235 CLR 103; [2008] HCA 30
Citibank NA v Excess Insurance Co Ltd (t/a ITT London and Edinburgh) [1999] Lloyds Rep IR 122
Codelfa Construction Pty Limited v State Rail Authority (NSW) (1982) 149 CLR 337; [1982] HCA 24
Coventry v Charter Pacific Corp Ltd (2005) 227 CLR 234; [2005] HCA 67
Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500; [1986] HCA 82
Distillers Co Bio-Chemicals (Australia) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1; [1974] HCA 3
Drayton v Martin (1996) 67 FCR 1
Duke Group Ltd (in liq) v Pilmer (1999) 73 SASR 64; [1999] SASC 97
Electric Life Pty Limited v Unison Finance Group Pty Limited [2015] NSWCA 394
Ellis v Wallsend District Hospital (1989) 17 NSWLR 553
FAI General Insurance Co Ltd v McSweeney (1998) 10 ANZ Insurance Cases 61-443
Financial Industry Complaints Services Limited v Deakin Financial Services Pty Limited (2006) 157 FCR 229; [2006] FCA 1805
Fishwives Pty Limited v FAI General Insurance Co Limited [2001] NSWCA 193, (2001) 12 ANZ Insurance Cases 61-515
Government Insurance Office (NSW) v Council of the City of Penrith [1999] NSWCA 42; (1999) 102 LGERA 102
HIH Casualty & General Insurance Ltd v FAI General Insurance Co Ltd (1997) 9 ANZ ¶ 61-376
Insurance Commissioner v Joyce (1948) 77 CLR 39; [1948] HCA 17
Lloyds TSB General Insurance Holdings v Lloyds Bank Group Insurance Co Ltd [2003] All ER 43
MacDonald v Raupach [2011] NSWCA 320
Major Engineering Pty Ltd v CGU Insurance Ltd (2011) 35 VR 458; [2011] VSCA 226
McCarthy v St Paul International Insurance Co Ltd (2007) 157 FCR 402; [2007] FCAFC 28
Meriton Apartments Pty Ltd & Anor v Industrial Court of New South Wales (2008) 171 FCR 380; [2008] FCAFC 172
Mount Bruce Mining Pty Limited v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37
Murphy v Swinbank [1999] NSWSC 934
North v Marina [2003] NSWSC 64; (2003) 11 BPR 21,359
Oz Minerals Holdings Pty Limited v AIG Limited [2015] VSCA 346; (2015) 19 ANZ Insurance Cases 62-089
Quintano v BW Rose Pty Limited [2008] NSWSC 793; (2008) 15 ANZ Insurance Cases 61-805
Scott v Bagshaws (2000) 99 FCR 573; [2000] FCA 816;
Semrani v Manoun; Williams v Manoun [2001] NSWCA 337
Sinclair v Brougham [1914] AC 398
Stekel v Ellice [1973] 1 All ER 465
Swan & Baker Pty Limited v Marando [2013] NSWCA 233
Tomasetti v Brailey [2011] NSWSC 1446
Transfield Services (Australia) v Hall; Hall v QBE Insurance (Australia) (2008) 75 NSWLR 12; [2008] NSWCA 294
Wallace v Kam (2013) 250 CLR 375; [2013] HCA 19
West Wake Price & Co v Ching [1957] 1 WLR 45

Texts Cited:

WW Buckland, A Text-Book of Roman Law, (3rd ed 1963, Cambridge University Press)

Category:

Principal judgment

Parties:

In Matter No. 2011/409906:

 

Diana Ritchie (Plaintiff)
Mary-Ann Woodward as Executor of the Estate of the Late Brian Patrick Woodward (First Defendant / First Cross-Claimant in Third Cross-Claim)
Mary-Ann Woodward (Second Defendant / Second Cross-Claimant in Third Cross-Claim)
Anthony Woodward (Third Defendant / Cross-Claimant in Second Cross-Claim)
Andrew Rigney (Fourth Defendant / First Cross-Claimant in First Cross-Claim)
Bernice Bolton (Fifth Defendant / Second Cross-Claimant in First Cross-Claim)
AIG Australia Limited (Cross-Defendant in First Cross-Claim / Cross-Defendant in Second Cross-Claim / Cross-Defendant in Third Cross-Claim)

 

In Matter No. 2011/409891:

 

Rujo Pty Ltd (Plaintiff )
Mary-Ann Woodward as Executor of the Estate of the Late Brian Patrick Woodward (First Defendant / First Cross-Claimant in Third Cross-Claim)
Mary-Ann Woodward (Second Defendant / Second Cross-Claimant in Third Cross-Claim)
Anthony Woodward (Third Defendant / Cross-Claimant in Second Cross-Claim)
Andrew Rigney (Fourth Defendant / First Cross-Claimant in First Cross-Claim)
Bernice Bolton (Fifth Defendant / Second Cross-Claimant in First Cross-Claim)
AIG Australia Limited (Cross-Defendant in First Cross-Claim / Cross-Defendant in Second Cross-Claim / Cross-Defendant in Third Cross-Claim)

 

In Matter No. 2011/409900

  Barona Group Pty Ltd (Plaintiff)
Mary-Ann Woodward as Executor of the Estate of the Late Brian Patrick Woodward (First Defendant / First Cross-Claimant in Third Cross-Claim)
Mary-Ann Woodward (Second Defendant / Second Cross-Claimant in Third Cross-Claim)
Anthony Woodward (Third Defendant / Cross-Claimant in Second Cross-Claim)
Andrew Rigney (Fourth Defendant / First Cross-Claimant in First Cross-Claim)
Bernice Bolton (Fifth Defendant / Second Cross-Claimant in First Cross-Claim)
AIG Australia Limited (Cross-Defendant in First Cross-Claim / Cross-Defendant in Second Cross-Claim / Cross-Defendant in Third Cross-Claim)

Representation:

Counsel:
J C Kelly SC / E Finnane (Plaintiffs)
M W Sneddon (First and Second Defendants / First and Second Cross-Claimants in Third Cross-Claim)
N A Cotman SC / J S Tobin (Third Defendant / Cross Claimant in Second Cross-Claim)
I R Pike SC / C N Bova / J Burnett (Fourth and Fifth Defendants / First and Second Cross-Claimants in First Cross-Claim)
E Muston SC / M R Cairns (Cross-Defendant)

  Solicitors:
Uther Webster & Evans (Plaintiffs)
Robinson Legal Pty Limited (First and Second Defendants / First and Second Cross-Claimants in Third Cross-Claim)
Brown Wright Stein Lawyers (Third Defendant / Cross Claimant in Second Cross-Claim)
Gadens Lawyers Sydney Pty Ltd (Fourth and Fifth Defendants / First and Second Cross-Claimants in First Cross-Claim)
Clyde & Co (Cross-Defendant)

File Number(s):

2011/409906; 2011/409891; 2011/409900

EMMETT AJA:

Introduction   

1. These three proceedings involve allegations of professional negligence on the part of Mr Anthony Woodward (Tony Woodward), a chartered accountant who carried on practice in partnership under the name “BP Woodward & Associates”. The plaintiffs in the three proceedings are, respectively, Mrs Diana Ritchie (Mrs Ritchie) in proceedings 2011/409906, Rujo Pty Limited (Rujo) in proceedings 2011/409891 and Barona Group Pty Limited, which was called Clifton Ventures Pty Limited until August 2004 (Barona), in proceedings 2011/409900. The defendants in each of the three proceedings are the same. The first defendant is Mary-Ann Woodward, sued in her capacity as legal personal representative of her late father, Mr Brian Woodward (Brian Woodward). She is also the second defendant in her own right. Tony Woodward, who is the son of Brian Woodward and brother of Mary-Ann Woodward, is the third defendant. The fourth and fifth defendants are Mr Andrew Rigney and Ms Bernice Bolton respectively.

2. Each of the plaintiffs sues Tony Woodward on the basis that, when carrying on practice under the name “BP Woodward & Associates”, he was guilty of professional negligence as an accountant in acting for that plaintiff in connection with investments made in hotel businesses or making loans to such businesses. Each plaintiff also sues the other defendants on the basis that each of them is vicariously liable for the conduct of Tony Woodward as his partner in carrying on practice, at varying times, under the name “BP Woodward & Associates”. The plaintiffs assert that Mary-Ann Woodward and the estate of Brian Woodward are vicariously liable for the conduct of Tony Woodward, as their partner, up to 1 July 2008. They assert that Mr Rigney and Ms Bolton are vicariously liable for the conduct of Tony Woodward, as their partner, from 1 July 2008.

3. It is common ground that, at all relevant times, Tony Woodward was a member of a partnership carrying on practice under the name “BP Woodward & Associates” (the Partnership), that Brian Woodward was a member of such a partnership at all relevant times until 30 June 2008, and that Mr Rigney and Ms Bolton did not become members of a partnership carrying on practice under that name until 1 July 2008. It is also common ground that Mary-Ann Woodward was a member of the relevant partnership until 2 January 2003. However, while the plaintiffs contend that Mary-Ann Woodward continued to be a member of the Partnership until 1 July 2008, she claims that she ceased to be a partner on 3 January 2003. There is also a question as to whether, as from 1 July 2008, a new partnership carried on practice under the name “BP Woodward & Associates”.

4. Five specific transactions are the subject of complaints made by the plaintiffs. The first transaction in question involved the investment of $3,000,000 by Rujo in the acquisition of units in a unit trust (the Oxford Trust) established to purchase the freehold of the Oxford Hotel in Darlinghurst (the Oxford Hotel), refurbish it and then operate it. The second involved the making by Rujo of a loan of $1,000,000 to Oxford Property Investments Pty Ltd (Oxford Property), the operator of the Oxford Hotel. The third and fourth involved the investment of sums of $1,750,000 and $440,000 by Rujo and Barona respectively in the acquisition of units in a unit trust (the Mansions Trust) established to purchase the freehold of the Mansions Hotel in Kings Cross (the Mansions Hotel), refurbish it and then operate it. The fifth involved the making of loans of $500,000 by each of Mrs Ritchie and Barona to Oxford Property.

5. In addition, the plaintiffs complain about the cross-collateralisation of borrowings effected on the security of the Oxford Hotel and the Mansions Hotel and two other hotels, namely, the Vegas Hotel situated in Kings Cross, in which Barona already had an interest (the Vegas Hotel), and the Peakhurst Inn Hotel in Peakhurst, in which the plaintiffs had no interest (the Peakhurst Inn Hotel). The purpose of the cross-collateralisation was to assist in raising funds for both the purchase of the Peakhurst Inn Hotel and development of the existing hotels, and the refinance of existing borrowings secured on the Vegas Hotel, the Oxford Hotel and the Mansions Hotel.

6. Ultimately, the whole of the amounts invested by Rujo, Mrs Ritchie and Barona was lost. They allege that Tony Woodward was guilty of negligence in the provision of professional accounting services in connection with the investment of funds in the hotels and the loans and in failing to monitor those investments after they had been made. They also allege that, in relation to those matters, he engaged in conduct that was misleading and deceptive, in contravention of the Fair Trading Act 1987 (NSW) (the Fair Trading Act).

7. All of the defendants have filed cross-claims against AIG Australia Limited (AIG) in each of the three proceedings. First, Mr Rigney and Ms Bolton filed a cross-claim against AIG in each of the three proceedings, Anthony Woodward then filed a cross-claim against AIG in each of the three proceedings and, finally, Mary-Ann Woodward, as legal personal representative of Brian Woodward, and in her own capacity, filed a cross-claim in each of the three proceedings. Thus, there are nine cross-claims.

8. By each of the cross-claims, the cross-claimants claim to be entitled to indemnity from AIG in respect of any liability that they have to the plaintiffs in the three proceedings. They also claim to be entitled to indemnity from AIG in respect of the costs incurred in connection with the defence of the three proceedings, whether or not they have any liability to the plaintiffs. The claims for indemnity are made under a contract of insurance described as an “AIG Accountants Civil Liability Insurance Policy”, which AIG entered into with “BP Woodward & Associates” with effect from 4:00 pm on 17 February 2011 to 4:00 pm on 17 February 2012 (the Policy).

9. Before describing in more detail the transactions that are the subject of the plaintiffs’ complaints, I shall say something about the plaintiffs, and the relationship between Mrs Ritchie and her present husband, Mr David Ritchie (Mr Ritchie), on the one hand, and BP Woodward & Associates, on the other. That will involve describing other investments made by the plaintiffs at the suggestion of Brian Woodard and Tony Woodward. For reasons that will become apparent, the following account of that relationship is based almost entirely on the evidence of Mr Ritchie and Mrs Ritchie. I shall from time to time refer to Mr and Mrs Ritchies and Rujo and Barona together as “the  Ritchies”.

The Ritchies and BP Woodward & Associates

10. Mrs Ritchie grew up and was educated in Sydney. After completing her Higher School Certificate, she attended a secretarial college and several other institutions to further her education. After working for a number of companies in the role of personal assistant or secretary, she commenced studying for the degree of Bachelor of Arts at the University of New South Wales while working for the Head of the School of Sociology in that university. She did not finish her degree. She subsequently took employment with Qantas Airways Limited (Qantas), where she flew as a flight attendant, trained other flight attendants and worked with management in writing training and protocol manuals for cabin crew and State Rail.

10. In her early working life, Mrs Ritchie’s tax returns were attended to by her first husband. After her divorce, her parents’ accountants, Coopers & Lybrand, provided her basic accounting needs, including the preparation and lodgement of tax returns. In 1986, a colleague of Mrs Ritchie at Qantas suggested that she use his accountant, Brian Woodward. Mrs Ritchie believed that Coopers & Lybrand were too large for her needs and wanted to work with a smaller firm with whom she could form a working relationship. She believed that she would be better off using a smaller firm, since she had only a small income and her financial affairs were not complicated. Accordingly, she retained Brian Woodward to provide accounting services to her. Subsequently, Tony Woodward became more involved in providing services to Mr and Mrs Ritchie, taking over from his father.

11. Mrs Ritchie met Mr Ritchie in 1989 and they were married in 1991. At the time, Mr Ritchie was employed as a member of the Water Police of the New South Wales Police Force. Mr Ritchie owned an apartment in Strathfield, although he lived with his parents. Mrs Ritchie resided in a house that she owned in Double Bay. She bought her house using her own funds, with assistance from her parents.

12. Mrs Ritchie’s parents resided at Bellevue Hill, in what is now the site of Mrs Ritchie’s current home. In 1993, Mrs Ritchie’s mother died and Mrs Ritchie inherited from her a share portfolio and cash totalling some $2.6 million, together with ownership of the family home at Bellevue Hill, known as “Barona”. Following her mother’s death, BP Woodward & Associates continued to provide Mrs Ritchie with accounting services. Because of the size of the inheritance, the workload involved in Mrs Ritchie’s accounting needs increased.

13. In 1995, Mrs Ritchie’s father died. Under his will, Mrs Ritchie inherited a share portfolio having a value of approximately $9.5 million and cash deposits of approximately $2.5 million. Mrs Ritchie consulted Brian and Tony Woodward, who suggested that it would be better if the accountancy work of Mrs Ritchie’s father’s estate were transferred from Coopers & Lybrand to BP Woodward & Associates. That suggestion was adopted.

14. After Mrs Ritchie’s father died, the paperwork involved in managing his share portfolio, as well as the shares that Mrs Ritchie had inherited from her mother, built up to such an extent that it was too difficult for both Mr Ritchie and Mrs Ritchie to manage the portfolio as well as to work and raise their children. Accordingly, in October 1996, Mr Ritchie resigned from the Police Force to concentrate on family, since Mrs Ritchie had returned to work. Mr Ritchie dealt with the paperwork and managed the share portfolio on their behalf. Mr Ritchie did much of that work with assistance from Brian Woodward and Tony Woodward and became the main point of contact between the Ritchies, on the one hand, and BP Woodward & Associates, on the other. Mr and Mrs Ritchie met regularly with Tony Woodward at his office to discuss their taxation requirements, business arrangements and family planning issues. Such meetings occurred several times during each year and invariably coincided with times when Mr or Mrs Ritchie had to sign documents in connection with tax or accounting matters.

15. After the affairs of Mrs Ritchie’s parents had been transferred to BP Woodward & Associates, she and Mr Ritchie received numerous letters about accounting and corporate matters. The letters included recommendations that a planning review of their family business should take place and that a meeting should be organised in the offices of BP Woodward & Associates. Mr and Mrs Ritchie also began to receive letters and telephone calls from Tony Woodward about investing in projects in which he and his father had also invested.

16. At that time, Mr Ritchie was managing the day-to-day details and data entry for the share portfolio, as required by Tony and Brian Woodward, and he received most of the relevant communications from them. Mr Ritchie had the majority of conversations on behalf of Mrs Ritchie and himself and spoke with Mrs Ritchie separately about the decisions that he had made or which had to be made. Sometimes Mrs Ritchie was involved when she attended meetings at BP Woodward & Associates but usually Mr Ritchie made decisions on their behalf and communicated his decisions to BP Woodward & Associates.

17. In late 1995, each of Mr and Mrs Ritchie granted power of attorney in favour of Brian Woodward and Tony Woodward. Tony Woodward made all the arrangements for the preparation of execution of the relevant documents and their lodgement for registration.

The First Investments

19. As part of her flying schedule with Qantas, Mrs Ritchie often stopped in Cairns. A work colleague of Mrs Ritchie owned an investment apartment at Clifton Beach, north of Cairns, where she and Mr Ritchie stayed from time to time. In 1993, Mr and Mrs Ritchie had a meeting with Brian Woodward when they discussed buying an apartment like the one at Clifton Beach. Shortly after that discussion, Brian Woodward arranged for the incorporation of Barona, under the name Clifton Ventures Pty Limited. Brian Woodward advised that Barona could be used as the vehicle to manage their investments. Barona purchased an apartment at the Coral Sands Resort near Clifton Beach in October 1993. A year or two later, Barona purchased two more apartments at Clifton Beach.

20. Mr Ritchie gave evidence that Tony Woodward subsequently recommended that they invest in Microcatheters Pty Limited (Microcatheters), a medical device development company, and that Tony Woodward said that other clients of BP Woodward & Associates were undertaking similar investments. Mr Ritchie said that they followed Tony Woodward’s recommendations and Tony Woodward made arrangements for the preparation, execution and stamping of the documents establishing the Microcatheters Unit Trust. A unit certificate was issued in June 1995 for the units that Barona acquired in the Microcatheters Unit Trust. Mr Ritchie was a trustee of the Microcatheters Unit Trust with Tony Woodward.

21. Mr Ritchie said that the trustees of the Microcatheters Unit Trust had occasional meetings and discussed things that were going on with the business. He said that, at that time, he was not familiar with which documents comprised financial reports and that, during the period of their involvement with Microcatheters, the trustees only discussed the day-to-day affairs of the business. Mr Ritchie does not remember Tony Woodward ever circulating reports as to the financial affairs of the Microcatheters Unit Trust. At the meetings there was only brief comment as to the progress of the development and how Tony Woodward was working with the doctor who invented the device being developed, in order to identify a major medical company that might be interested in manufacturing the device. Eventually, it became apparent that the investment was unsuccessful.

22. In August 1995, Brian Woodward showed Mr and Mrs Ritchie a cutting from The Financial Review newspaper of 11 August 1995, which was seeking expressions of interest in a joint venture project for the development of a group of townhouses in Burwood called the “Cheltenham Road Trust”. Brian Woodward or Tony Woodward recommended that Mr and Mrs Ritchie invest in the joint venture project. The Ritchies followed the recommendation, partially because Brian Woodward and some of his clients were financially involved in the project. Brian Woodward or Tony Woodward made arrangements for the preparation, execution and stamping of the documents establishing the Cheltenham Road Trust. Neither Brian Woodward nor Tony Woodward advised Mr and Mrs Ritchie to seek independent legal or accounting advice in relation to the proposed investments. However, Mrs Ritchie gave evidence that the Ritchies “probably” paid lawyers, who were also investing in the project, to “do work in relation to, for example, the agreement in relation to under which [they] were going to invest” because the Ritchies wanted the lawyers’ professional assistance in looking at the investment agreement. The Ritchies invested $400,000 in the project.

23. In 1997, Tony Woodward recommended that Mr and Mrs Ritchie form their own superannuation fund, and Tony Woodward made all the arrangements for the documents necessary to establish the Clifton Ventures Superannuation Fund for them. He did not recommend that they obtain independent legal or accounting advice. Once the superannuation fund had been established, Tony Woodward gave Mr Ritchie instructions on what to do and assisted him with the day to day workings of the superannuation fund. From about July 2002, Ms Bolton, then an employee of BP Woodward & Associates, attended to the work of the superannuation fund on behalf of Mr and Mrs Ritchie.

24. On occasions when Mr and Mrs Ritchie met Brian Woodward, he spoke to them about real estate. In 1997, they bought an investment apartment in Kirribilli as well as apartments in Point Piper and Woollahra. Brian Woodward bid at auction for the Woollahra apartment and arranged for all of the conveyancing for the purchase of the apartments.

25. Mrs Ritchie resigned from Qantas in February 1999 in order to raise their two children with Mr Ritchie. Thereafter, she assisted Mr Ritchie in the management of the share portfolio that she had inherited from her parents.

The Margin Loan Facility

26. According to the evidence of Mrs Ritchie, in 1999, at one of the regular meetings between Brian Woodward and Tony Woodward, on the one hand, and Mr and Mrs Ritchie, on the other, discussion took place concerning the establishment of a margin loan facility. Mr Ritchie’s evidence was that they took out the margin lending facility at the suggestion of Tony Woodward, who said that the share portfolio had considerable value. He asserted that Mr Woodward told them that it would be an appropriate time to utilise the facility to borrow money to buy quality “blue chip” shares.

27. Mr Ritchie asserted that they were not provided with any information about the risks involved with margin loan facilities, such as what might happen if the share market dropped and the value of shares decreased or if a margin call was made. He said that he was unsure about the idea of a margin loan as he did not understand the concept. However, Mrs Ritchie accepted that Mr Jeff Travers, the stockbroker of the Ritchies, “may well have” explained what was involved in a margin loan but said that she did not understand what was being said to her. Nevertheless, Mrs Ritchie accepted that the margin loan was explained to her and that she understood it to a “certain extent” but said that she had to trust Tony Woodward, who was giving her the information.

28. Mr Ritchie said that, when Tony Woodward suggested a margin lending facility, he said that he would have to speak to Mr Travers. Mr and Mrs Ritchie subsequently attended a meeting with Mr Travers, and Tony Woodward, at Tony Woodward’s office, at which the question of whether or not to establish a margin loan facility was discussed. Mr Ritchie accepted that Mr Travers spoke about the risks involved and what was associated with it. He said that, if the securities that the Ritchies held went down in value sufficiently to get them below the lending ratio, the bank would call for either more security or a reduction in the loan. Mr Ritchie understood that he had to watch what the value of the portfolio was compared to with the leveraging, or lending, ratio. He said that he looked to see what the call margin figure was. Mr Ritchie understood that when he bought securities using the margin loan account, those securities themselves formed part of the security and the value of the security.

29. After discussions and meetings with Tony Woodward about establishing such a facility, Mr and Mrs Ritchie decided to proceed with the idea. Tony Woodward negotiated a margin loan facility with Challenger Limited (Challenger) and took carriage of the work to establish the facility. He produced bundles of documents for Mr and Mrs Ritchie to sign but did not suggest that they get legal advice about the documents and did not explain what the documents were. The Challenger margin loan facility was for $10 million.

30. The Ritchies then put in place a margin loan that would allow restoration of $6 million worth of shares plus another $4 million worth of shares trading on the margin account. Mrs Ritchie knew that, once the margin loan was put in place, $10 million worth of shares would be bought to replace the $6 million of shares that were sold to provide money for the new house, with another $4 million on top. Mr and Mrs Ritchie and Mr Travers sat down and worked out what shares should be bought to constitute the enhanced portfolio. Mrs Ritchie accepted that it was serious business that she and Mr Ritchie and Mr Travers attended to over the next few months, to spend $10 million in acquiring shares.

31. When the facility was in place, Mr Ritchie recorded the investment transactions on their home computer, using the then-current version of a cashbook accounting program. Mr Ritchie had no training in that form of work and taught himself about the program. Mr Ritchie asked Tony Woodward and Brian Woodward to make sure that they were recording their investments properly as they were still picking up what was needed to be done for tax purposes.

32. Mr Ritchie formed a set of investment accounts under the name “Diana Original Share Account” and another under the name “Diana Margin Loan Share Account”. He said that he set up the accounts in that way with guidance from Brian Woodward and Tony Woodward so that he was able to keep a watch on the original portfolio of shares that Mrs Ritchie inherited to make sure that there was appropriate growth. He was also able to watch the growth of the shares that were purchased using the margin loan facility to ensure that it was a worthwhile investment strategy and that it was not going to impact negatively on their existing investments. Each transaction was recorded under the account from which the funds came, so that Mr and Mrs Ritchie could see whether the investments in the margin loan facility were profitable. They wanted to be sure that the decision to take up the facility would work and not result in the loss of any of the inheritance that Mrs Ritchie received from her parents.

33. With the increase in work, Mr Ritchie needed to continue having someone to assist him. Many hours were involved in carrying out the data entry work generated by their share trading business. From early 1997 through to August 2009, Tony Woodward arranged a variety of people, through BP Woodward & Associates, to assist Mr Ritchie with the data entry activities in their business. All the information entered by Mr Ritchie was forwarded by the data entry staff to BP Woodward & Associates for the quarterly and end-of-year tax returns. Because Mr and Mrs Ritchie wanted to maintain their financial privacy, they did not seek help outside BP Woodward & Associates. They considered that the arrangements with BP Woodward & Associates made sense, as the staff who assisted Mr Ritchie had been recommended by Tony Woodward and were people whom he said he knew and trusted.

34. The margin loan facility with Challenger remained in place until 2003, when it was due to expire. Tony Woodward helped Mr Ritchie negotiate another margin loan facility for $10 million with the Commonwealth Bank of Australia (Commonwealth Bank), with a loan-to-security ratio of 34 per cent. Mr and Mrs Ritchie discussed the proposed new facility and, after consulting with other people, such as Jeff Travers, and using their own powers of observation, came “to an opinion” to enter into the facility. The new facility was arranged in the name of Clifton Ventures, with personal guarantees from Mr and Mrs Ritchie. In 2005, the new facility was transferred into Mrs Ritchie’s name.

35. Towards the end of 2005, Tony Woodward arranged for the limit of the Commonwealth Bank Margin Loan Facility to be increased to $16 million, with a fixed interest rate of 6.8 per cent for 3 years. Following the increase, the margin loan facility comprised a variable rate loan account and a fixed rate loan account. The fixed rate loan account comprised three advances of $10 million, $3.5 million and $2.85 million.

36. Mr Ritchie asserted that Tony Woodward did not discuss any risks involved with the margin loan facility or its extension, such as the consequences if the share market dropped in value so that there was insufficient security for the loan. Mr Ritchie said that they trusted that Tony Woodward knew what he was doing and that he would not jeopardise their investments. He said that, if he had known the risks, including that if the shares lost enough value then the bank could enforce their security over them, they would not have agreed to extend the margin loan facility. For reasons outlined below, I do not accept that assertion.

The Bellevue Hill Home

37. From about 1997 to November 2002, Mr and Mrs Ritchie engaged in the building of a new home on the site of Mrs Ritchie’s old family home in Bellevue Hill. In 1999, they were considering whether to borrow against their real estate holdings in order to fund the building of the new home, which was anticipated to cost about $5 or $6 million. One of the other possibilities was to sell shares from the share portfolio to fund the building of the house. They considered whether they should simply undertake a conventional borrowing against real estate, as a housing loan, or whether they should use commercial lending in respect of the acquisition of shares to replace shares sold out of the portfolio to fund the building of the house.

38. Mr Ritchie gave evidence that, when they were contemplating the building of the new home, they looked at the cash flows from Mrs Ritchie’s share portfolio and worked out what was going to be manageable, having regard to the approximate costings given to them by their architect. The ultimate cost was in the order of $5.5 million. Mr Ritchie said that he never considered a home loan to fund the building of the house because they did not want to borrow and they had sufficient funds coming in. They decided to sell some shares, which they chose after speaking to Jeff Travers. They tried to choose shares for sale that had value but were not impacting on the return they were getting. They determined that shares could be sold out of the portfolio, choosing shares so as not to create substantial capital gains tax liability.

39. In November 2002, Mr and Mrs Ritchie moved into their new home. They ran their business from a new office space that they had incorporated into the design of the new home. They continued to have data entry assistance from staff of BP Woodward & Associates. As time went on, more and more of the day to day general tax and accountancy matters were handled by Ms Bolton.

The Vegas Hotel

40. According to the evidence of Mr Ritchie, Tony Woodward spoke to Mr Ritchie in 2003 about the possibility of investing in the Vegas Hotel in Kings Cross. On 8 September 2003, Mr and Mrs Ritchie met with Tony Woodward in Tony Woodward’s office. During the course of the meeting, Tony Woodward gave a detailed presentation on a whiteboard about the Vegas Hotel, the financing of the investment, how it would be structured and the projected returns on the investment. He drew various boxes on the whiteboard and indicated that a syndicate would be established that would include himself.

41. Tony Woodward identified Mr Richard Wynne and a number of other investors as being interested in the Vegas Hotel. Mr and Mrs Ritchie did not receive written information about the identity of the other investors other than what they saw as suggested unit holdings on the whiteboard presentation. It appeared to them that the other investors were clients of Tony Woodward. That did not bother them, as they had worked with Brian Woodward and Tony Woodward for over ten years and trusted them. Tony Woodward’s oral and whiteboard presentation was the only analysis of the investment given to them.

40. Tony Woodward did not suggest that they have a lawyer or an independent advisor look over the transaction for them. He did not provide any explanation as to how the structure of the investment was going to affect Mr and Mrs Ritchie, the nature or extent of his interest, what money he was investing in the venture, what security there was for the Ritchie’s investment and the risk that it could be lost, how difficult it would be to liquidate the investment, and where their investment ranked in relation to other investors as well as current and future creditors.

41. Following a request from Tony Woodward, two days after the meeting on 8 September 2003, Mr Ritchie arranged for the transfer, from the margin loan facility with Challenger and Citibank Financial Investment Centre (Citibank), into the trust account of BP Woodward & Associates, of two amounts of $250,000, being a total of $500,000. It appears that Mr and Mrs Ritchie had banking arrangements with Citibank.

42. The Vegas Hotel was owned by the Vegas Hotel Pty Limited and Unikorn Pty Limited (Unikorn), as to 50 per cent each. Unikorn held its 50 per cent interest as trustee for the Vegas Property Unit Trust. Barona held one of the nine units in the Vegas Property Unit Trust (the Vegas Trust). The business of the Vegas Hotel was conducted by Jeyda Pty Limited, which was owned by the Vegas Hotel Pty Limited, and Lapoya Pty Limited (Lapoya) as to 50 per cent each. Lapoya held its 50 per cent interest as trustee for the Vegas Hotel Syndicate Unit Trust. Barona was the holder of one of nine units in the Vegas Hotel Syndicate Unit Trust.

43. Mr Ritchie said that, apart from some short letters from BP Woodward & Associates, they did not receive regular written reports in relation to their investment in the Vegas Hotel. However, he said, they initially received some reports called “quarterly reports” and some financial statements that they did not understand. Occasionally they had meetings with Tony Woodward and other investors, which were described as “syndicate meetings”. Such meetings occurred infrequently. They did not seek any further information.

44. On 5 November 2004, Mr and Mrs Ritchie received a distribution of $40,000 from their investment in the Vegas Hotel. At the same time, BP Woodward & Associates sent them financial accounts and income tax returns for the period 17 October 2003 to 30 June 2004 for the Vegas Hotel Partnership, the Vegas Syndicate Unit Trust and the Vegas Property Unit Trust.

45. In February 2005, a cheque for the sum of $15,000, as a partial distribution of profits from the investment in the Vegas Hotel was banked into Barona’s account. In May 2005, a cheque for the sum of $10,000, being a partial distribution of profits from the Vegas Hotel, was banked into Barona’s account. In September 2005, a cheque in the sum of $20,000, being a partial distribution of profits from the Vegas Hotel, was also received by Barona.

46. At that time, tax returns and financial accounts for the year ended 30 June 2005 were received from BP Woodward & Associates. Also in September 2005, a cheque for the sum of $260,000 was received by way of return of capital invested in the Vegas Hotel. That return was the result of internal refinancing. The cheque was paid into Barona’s account in October 2005. On 29 November 2005, a further cheque for the sum of $40,000 was received by Mr Ritchie by way of partial distribution of profits from the investment in the Vegas Hotel.

Ritchie Family Trust

49. Later in 2004, during a meeting with Mr Ritchie to discuss family planning issues, Tony Woodward suggested that a family trust be created. That led to the incorporation of Rujo on 21 February 2005, the establishment of the Ritchie Family Trust and the appointment of Rujo as trustee of the Ritchie Family Trust. Tony Woodward made the arrangements for the establishment of the Ritchie Family Trust, including preparation of the documents, payment of stamp duty and execution of documents. A bank account for Rujo was established with Citibank, with funds sourced from Barona. When Rujo made investments subsequently, funds came from a number of sources including loans from Mrs Ritchie’s personal bank accounts and the margin loan facility. Tony Woodward told the Ritchies the accounts from which the funds were to come.

Sleeping Property Trust

50. In September 2005, Tony Woodward spoke to Mr and Mrs Ritchie about investing in the Sleeping Property Unit Trust (the Sleeping Property Trust). Tony or Brian Woodward made arrangements for the establishment of the Sleeping Property Trust. The Ritchies did not receive any documentation in relation to the Sleeping Property Trust but, in due course, Rujo invested $2 million in it. Mrs Ritchie explained that the Sleeping Property Trust was a venture involving short term accommodation for overseas students coming to Sydney to learn English. The investment has continued and appears to have been a successful one to date.

51. No specific evidence was given regarding the success of the other investment transactions that I have briefly described (other than the Microcatheters investment, which was unsuccessful). However, it is worth noting that the Ritchies’ financial position at the end of 2007 had significantly improved after the initial inheritances were received by Mrs Ritchie in the mid-1990s. In particular, by the end of 2007, Mr and Mrs Ritchie together possessed a share portfolio worth somewhere between $50 million and $52 million, an art collection worth $4 million, “a few million dollars” in the superannuation fund, an portfolio of real property investments in New Zealand, Cairns and Sydney, and a house in Bellevue Hill that had involved $5.5 million in redevelopment. Given that Mrs Ritchie had inherited $2.6 million in 1993 and $12 million in 1995, I draw the inference that the investments and financial arrangements that I have briefly described above were, in fact, very profitable.

The Transactions in Question

52. There are various points at which it is alleged that Tony Woodward’s conduct gave rise to liability on the part of himself and his partners. Each point involved one of the transactions that are the subject of the complaints in the three proceedings. I shall deal with each separately, although there is a great deal of interaction among the various transactions.

The Oxford Hotel

53. Mr Ritchie’s evidence was that in late 2005 or early 2006, Tony Woodward told Mr Ritchie that an opportunity was coming up to purchase the freehold of the Oxford Hotel in Darlinghurst. He said that it was “a fantastic hotel” and would work “very well in line” with the Vegas Hotel. He said that Richard Wynne had the lease from the owner, and that Jason Gavin, his father, Roy Gavin, and he, Tony Woodward, would be involved in the running of the hotel. Mr Ritchie had not met Richard Wynne at that time but had met Jason and Roy Gavin. Jason Gavin was also an investor in the Vegas Hotel and ran the Vegas Hotel. Mr Ritchie had a couple of conversations with Tony Woodward concerning the Oxford Hotel proposal.

54. Mrs Ritchie’s evidence was that in late 2005 or early 2006, Mr and Mrs Ritchie met Tony Woodward in his office and discussed the Oxford Hotel. Mrs Ritchie’s account of the meeting was that Tony Woodward told them that the opportunity to invest in the Oxford Hotel had come up. He described it as “an iconic hotel” and said that he was going to invest in it, as were Roy and Jason Gavin and Richard Wynne. Mrs Ritchie had not met Richard Wynne before but understood that he was an investor in the Vegas Hotel. Tony Woodward told them that the Oxford Hotel was a major piece of real estate, with a big billboard on the top of it, and that the billboard itself brought in over half a million dollars of income a year. He said that he felt that, once the hotel had been brought back to its “former glory”, which is what he wanted to do, it would attract not just the “gay community” but also “the suits”, as Tony Woodward or Jason Gavin put it from time to time.

55. Mrs Ritchie said that Tony Woodward told them that the business of the Oxford Hotel was “going okay”, that it could “obviously” be brought up to a higher standard and that the turnover could be increased. She said that he told them that he would be doing the accounting and that Jason Gavin would be managing the hotel. She said that Tony Woodward told them that the Oxford Hotel was “running well” and that there was not an issue with it. However, he did not provide to Mr and Mrs Ritchie any specific financial information about the business of the Oxford Hotel. He said that everything would be fine because he would keep an eye on everything: he would be “doing the books” and Jason Gavin was doing such a “good job” with the Vegas Hotel. By that time, Barona had already received income and distributions from the investment in the Vegas Hotel, as indicated above.

56. Mrs Ritchie said that Tony Woodward told her and Mr Ritchie that the proposed investment was going to be set up in a similar manner to the investment in the Vegas Hotel, and that the investors would invest in unit trusts. At the meeting, Tony Woodward did a presentation on a whiteboard. He drew diagrams of the unit trusts, such that there were lots of boxes and arrows with initials in them. He wrote figures on the whiteboard. Mrs Ritchie said that it was all a bit overwhelming for her but that it all made sense at the time.

57. Mrs Ritchie said that Tony Woodward suggested that Mr and Mrs Ritchie invest $3 million. He said that the $3 million investment should come from the margin lending facility. They discussed who was going to invest and be part of it and Tony Woodward said that he was going to invest and so was Jason Gavin and his father, together with some of the other investors in the Vegas Hotel. He said not all of the investors from the Vegas Hotel would be involved, but only some of them were going to invest in the Oxford Hotel. Nothing was said during the conversation about how much the others were going to invest. Tony Woodward said that the $3 million should be invested as soon as possible. Mrs Ritchie thought that he was trying to get the finances together as soon as possible to buy the Oxford Hotel.

58. Mrs Ritchie said that she could not remember whether Tony Woodward said anything about cash flow at the meeting in which he made the whiteboard presentation. She could not remember whether Tony Woodward said anything on the topic of what return there would be on an investment in the Oxford Hotel. She could not remember whether he said anything about how the return from the Oxford Hotel might compare with interest paid to borrow the funds necessary to make the investment. She could not remember whether anything was said about the value of the Oxford Hotel once its acquisition and refurbishment had been completed.

59. Mr Ritchie’s account of the meeting was that Tony Woodward repeated what he had said to Mr Ritchie earlier, that he had the opportunity to purchase the freehold of the Oxford Hotel in Oxford Street, which was “an iconic hotel with a fantastic cash flow”. He said that it was a very well-known hotel and had a sign on the rooftop that itself brings in over $500,000 worth of income. Mr Ritchie’s evidence was that Tony Woodward said that he had done “the due diligence investigative work” concerning the business and that it had great potential but needed “some renovation”. Tony Woodward told them that Richard Wynne had the lease over the property and that Jason Gavin, Roy Gavin and he would be involved in the running of the hotel. He said that he would be looking to set up a similar syndicate as he did with the Vegas Hotel and contacting clients to come into the syndicate. He said that he would not be offering the opportunity to all of those who are currently investors in the Vegas syndicate because he did not want to have any “conflict issues”.

60. Mr Ritchie’s evidence was that Tony Woodward said that the property needed renovations, that Jason Gavin was skilled to oversee those renovations and that, once the property was up and running and the renovations had been completed and it had been brought back “to its glory days”, there would be even better returns on the cash flows in the business. Tony Woodward said it would be a wonderful opportunity for the Ritchies to get a very good return on an investment in the property. Tony Woodward said that the amount that they were being asked to invest was $3 million and Mr Ritchie responded “that’s a lot of money”. Mr Ritchie said that the amount took him by surprise.

61. Mr Ritchie asked Tony Woodward whether he was sure that Jason Gavin was up to managing the Oxford Hotel and whether he had “the skills”. Tony Woodward replied that he “has absolutely got the skills”. Mr Ritchie asked if Jason Gavin’s time might be being spread too thinly between the Sleeping Property Trust, the Vegas Hotel and overseeing the Oxford Hotel. Tony Woodward said “no” and that he had seen him work and had seen him in action, and that he was “very skilled and very good”. He said that he was “very confident with the figures” and that, once they “get the place up and running”, it would be a very good investment and Mr and Mrs Ritchie would get “very, very good” returns on their investment.

62. Tony Woodward said that Jason Gavin’s skills would “improve the business” but that, once the renovations were complete, that too would assist with the business. He also said that, with his “overseeing the books and managing the accounts”, he would be able to make sure that Mr and Mrs Ritchie’s investment was “looked after and cared for appropriately by him being in control”. He said that the other investors knew that that was not a negotiable situation and that he “must be involved in looking after the books”.

63. Mr Ritchie said that there was a whiteboard presentation similar to the presentation that had been done by Tony Woodward in connection with the Sleeping Property Trust and the Vegas Hotel investments. Mr Ritchie said that Tony Woodward set out diagrams on a whiteboard and seemed to be able to recall the figures involved “quite comfortably”. He told them that a property trust and an operating trust would be set up, and that the $3 million investment would give Mr and Mrs Ritchie units in the trusts.

64. Mr Ritchie said that he told Tony Woodward that he was not sure how all of that worked. Tony Woodward told him not to worry, that it was fine and that he would look after it and make sure that the “appropriate funds were recorded appropriately in [their] different investments”. Mr Ritchie asked how they would fund the investment and Tony Woodward replied that they could draw funds down from Mrs Ritchie’s margin lending account, since Mr Ritchie had had the facility increased. He said that they would do the investment in the name of Rujo. When asked when the money was needed, Tony Woodward said that they needed the money as soon as possible because they needed to be able to secure the real estate.

65. Mr Ritchie said that he and Mrs Ritchie subsequently had a discussion about the proposal. He said that it was not an easy decision to make, that it was something that he considered in great depth and that it was a very big decision to make an investment of that size. He said he considered the importance of what the Ritchies had always had as their principle, namely, that of maintaining the opportunity that Mrs Ritchie’s parents had given them but still “growing [their assets] in a conservative manner”. Mrs Ritchie also said that they discussed all of that and came to the conclusion that it was a good investment.

66. Mr Ritchie said that, when he and Mrs Ritchie made their decision to invest in the Oxford Hotel, they had in mind that the Vegas Hotel had “gone well” and that they had received money back from that investment. Mr Ritchie said that Tony Woodward had told them that the Oxford Hotel was a “substantial piece of property” and “most people knew about it”. He said that he and Mrs Ritchie believed what Tony Woodward said because Tony Woodward said that he had “always done the figures and that everything had gone well in the past”. He said that Tony Woodward assured them that their share portfolio and the income that they were getting were such that they would be “able to handle” the investment.

67. Mr Ritchie said that the information that Tony Woodward had given him, and the trust that they had in him, led him to believe that Tony Woodward had done thorough research on the proposal. He said that he believed that Tony Woodward had done what needed to be done for them to invest in the Oxford Hotel. He had said the information on the cash flows were excellent, that the sign on the top was turning over $500,000 a year, that any renovations that were carried out were for the improvement of the property and that it was an “iconic hotel”. That led him to the belief that this would be a sensible investment that gave them an opportunity for an extension of their commercial portfolio. He said that they had previously been told by both Brian Woodward and Tony Woodward that it was a sensible spreading of risk in their portfolio and a sensible management of their investments generally.

68. Mr Ritchie accepted that, in November 2005, Tony Woodward told him that he had received a copy of a valuation of the Oxford Hotel for $23.15 million. However, Mr Ritchie did not ask for copy of the valuation.

69. The valuation to which Tony Woodward referred was carried out by LandMark White (NSW) Pty Limited (LandMark White) as at 17 October 2005 (the 2005 Oxford Valuation). The 2005 Oxford Valuation assessed the market value of the fee simple for the licensed hotel and rooftop advertising signage as a going concern, subject to the existing tenancy, as $23,150,000. That was based on an assessed net operating profit of $2,013,644 and a capitalisation rate range from 10.5 per cent to 11 per cent, giving a valuation between $19,177,561 and $18,305,854. The 2005 Oxford Valuation adopted the sum of $19 million. That was apportioned as to $15,350,000 to the land and $3,650,000 to goodwill, plant and equipment. The signage component involved a net income of $500,000 per annum, with a capitalisation rate of 12 per cent, giving a figure of $4,166,677. The figure of $4,150,000 was adopted. The valuation of $23,150,000 was the aggregate of $19 million for the hotel and $4,150,000 for the signage. I shall describe the contents of the 2005 Oxford Valuation in more detail below.

70. Mr Ritchie was asked by senior counsel for the plaintiffs what his understanding was, at the time when he was making his decision to invest the $3 million, of what it was that the investment “would be in”. Mr Ritchie’s unresponsive answer was that he was told that the Oxford Hotel had very strong cash flows. There was no objection to that answer. He was then asked again, as he understood it, what the investment “would be in”. His reply was that it would be in the purchase of the Oxford Hotel. He said that it was his understanding that that would include the business of the Oxford Hotel.

71. On 28 February 2006, a deed of trust establishing the Oxford Trust was executed by Brian Woodward as settlor. Tony Woodward and Jason Gavin executed the deed on behalf of Oxford Property. It appears to be common ground that units in the Oxford Trust representing 13 per cent of the total units were issued to Mr Ritchie or his nominee. On 1 March 2006, Tony Woodward sent an email to the Commonwealth Bank requesting the transfer of $3 million from Mrs Ritchie’s margin lending account to the bank account of Oxford Property as trustee for the Oxford Trust and on 2 March 2006 the sum of $3 million was transferred to Oxford Property. The Oxford Hotel was subsequently purchased for $17,565,000.

72. The Oxford Hotel was owned by Oxford Property as trustee for the Oxford Trust. Units in the Oxford Trust were held as follows:

• White Height Pty Limited – 5 per cent;

(c)   whether in each instance the third defendant, and by him, New BPW, engaged in misleading or deceptive conduct; and

(d)   whether Rujo, Mrs Ritchie and Barona have suffered loss and damage as a consequence of the said conduct.

16.   As regards the claims against the first, second and third defendants:

(a)   whether any or all of the loss and damage suffered by the plaintiffs was the caused or contributed to by their own negligence, as pleaded by the first, second and third defendants;

b)   whether any or all of the loss and damage suffered by the plaintiffs was the caused by introduction of the “lockout” provisions in the Liquor Act 2007;

(c)   whether this was an unforeseen supervening event; and

(d)   whether, and to what extent, the liability of the defendants or any of them is limited by reason of the Accountants Scheme said to be approved under the Professional Standards Act 1994 (NSW).

17.   As regards the claims against the fourth and fifth defendants:

(a)   whether they are entitled to rely on a defence of proportionate liability;

(b)   if so, whether the third defendant, Jason Gavin, Richard Wynne and Ross Townhill are concurrent wrongdoers; and

(c)   whether, and if so, to what extent, the fourth and fifth defendants’ liability for damages should be reduced on this ground.

1. As regards the claims against the third defendant, whether the plaintiffs are barred from claiming any relief against him by reason of his bankruptcy in 2010 and/or the resolution of his creditors passed on 7 June 2011.

The Third Schedule

Calculation of Loss

The calculations of loss made by Mr Ferrier in his report dated 11 May 2016 are as follows, expressed as at 5 May 2016:

Scenario 1 Losses — Ritchie no investment and Barona invested in ASX200 portfolio	Ritchie	Rujo	Barona at ASX200 Investment return	Total Loss
$	$	$	$
Ritchie loan to Rujo - Oxford Hotel Investment	3,000,000	3,000,000
Ritchie loan to Rujo - Oxford Hotel Loan	1,000,000	1,000,000
Ritchie loan to Rujo - Mansions Hotel Investment	1,750,000	1,750,000
Ritchie - Oxford Hotel loan	500,000	500,000
Barona - Mansions Hotel	440,000	440,000
Barona - Oxford Hotel	500,000	500,000
Interest and consequential loss	3,354,362	363,871	3,718,233
Total loss at 5 May 2016	3,854,362	5,750,000	1,303,871	10,908,233
Scenario 1 Losses - Ritchie no investment and Barona invested at Cash Management Account Interest Rate	Ritchie	Rujo	Barona at Cash Management interest rate	Total Loss
$	$	$	$
Ritchie loan to Rujo - Oxford Hotel Investment	3,000,000	3,000,000
Ritchie loan to Rujo - Oxford Hotel Loan	1,000,000	1,000,000
Ritchie loan to Rujo - Mansions Hotel Investment	1,750,000	1,750,000
Ritchie - Oxford Hotel loan	500,000	500,000
Barona - Mansions Hotel	440,000	440,000
Barona - Oxford Hotel	500,000	500,000
Interest and consequential loss	3,354,362	225,094	3,579,456
Total loss at 5 May 2016	3,854,362	5,750,000	1,165,094	10,769,456
Scenario 2 Losses - Ritchie loans to Rujo recoverable and Rujo and Barona invested in ASX200 portfolio	Ritchie	Rujo at ASX200 investment return	Barona at ASX200 investment return	Total Loss
$	$	$	$
Ritchie - Oxford Hotel loan	500,000	500,000
Rujo - Oxford Hotel	3,000,000	3,000,000
Rujo - Oxford Hotel loan	1,000,000	1,000,000
Rujo - Mansions Hotel	1,750,000	1,750,000
Barona - Mansions Hotel	440,000	440,000
Barona - Oxford Hotel	500,000	500,000
Interest and consequential loss	65,590	3,576,956	363,871	4,006,417
Total loss at 5 May 2016	565,590	9,326,956	1,303,871	11,196,417
Scenario 2 Losses - Ritchie loans to Rujo recoverable, Rujo invested at Court Pre-judgment Interest Rate and Barona invested at Cash Management Account Interest Rate	Ritchie	Rujo at Court interest rate	Barona at Cash Management interest rate	Total Loss
$	$	$	$
Ritchie - Oxford Hotel loan	500,000	500,000
Rujo - Oxford Hotel	3,000,000	3,000,000
Rujo - Oxford Hotel loan	1,000,000	1,000,000
Rujo - Mansions Hotel	1,750,000	1,750,000
Barona - Mansions Hotel	440,000	440,000
Barona - Oxford Hotel	500,000	500,000
Interest and consequential loss	65,590	4,525,434	225,094	4,816,118
Total loss at 5 May 2016	565,590	10,275,434	1,165,094	12,006,118
Scenario 3 Losses – All funds invested at Court Pre-judgment Interest Rate	Ritchie at Court interest rate	Rujo at Court interest rate	Barona at Court interest rate	Total Loss
$	$	$	$
Ritchie - Oxford Hotel loan	500,000	500,000
Rujo - Oxford Hotel	3,000,000	3,000,000
Rujo - Oxford Hotel loan	1,000,000	1,000,000
Rujo - Mansions Hotel	1,750,000	1,750,000
Barona - Mansions Hotel	440,000	440,000
Barona - Oxford Hotel	500,000	500,000
Interest and consequential loss	302,170	4,525,434	640,750	5,468,354
Total loss at 5 May 2016	802,170	10,275,434	1,580,750	12,658,354

Endnotes

Decision last updated: 13 December 2016