Sam George Sarkis v Samuel Mbakwe

[2008] NSWDC 220

CITATION:	Sam George Sarkis v Samuel Mbakwe [2008] NSWDC 220
HEARING DATE(S):	2/9/08, 3/9/08, 4/9/08, 8/9/08, 9/9/08 and 11/9/08
EX TEMPORE JUDGMENT DATE:	11 September 2008
JURISDICTION:	Civil
JUDGMENT OF:	Rolfe DCJ
DECISION:	See paragraphs 85, 87 and 92 of Judgment
CATCHWORDS:	Action for negligent mis-statement - Examination of relationship between Plaintiff and Defendant - Defendant as financial adviser recommends the Plaintiff make loans to third party - Plaintiff acts on advice and suffers loss.
LEGISLATION CITED:	Fair Trading Act 1999 Uniform Civil Procedure Rules 2005
CASES CITED:	Jones v Dunkel (1959) 101 CLR 298 Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1995-1997) 188 CLR 241 at 249 Hedley Byrne & Co Limited v Heller and Partners Limited (1964) AC 465 at 503 Mutual Life & Citizens Assurance Co Limited v Evatt (1968) 122 CLR 556 at 571 L Shaddock and Associates Pty Limited v Parramatta City Council (No 1) (1981) 150 CLR 225 at 250-251 Tepko Pty Limited v Water Board (2001) 206 CLR 1 at 23
PARTIES:	Sam George Sarkis (Plaintiff) Samuel Mbakwe (Defendant)
FILE NUMBER(S):	159/07
COUNSEL:	M Rollinson (Plaintiff) N O'Brart (Defendant)

JUDGMENT

1 The plaintiff in these proceedings, Sam George Sarkis, has brought an action claiming damages against the defendant, Samuel Mbakwe. The statement of claim was filed on 19 January 2007, and a defence to the statement of claim was filed on 4 May 2007.

2 The plaintiff alleges that in early 2002 the defendant represented to him that the plaintiff had an opportunity to lend funds to enterprises associated with Mr Robert Orehek (I will refer to him as Orehek throughout this judgment), that such loans would attract interest of twenty-five per cent over a twelve month period, that it would be safe and secure to make such a loan, that Orehek was a successful property developer, that he had in the region of $20 million worth of property, he would have no difficulty in repaying any loan made by the plaintiff to him and that the plaintiff should therefore lend money to him. The plaintiff says that as a result of acting on that representation he lent $150,000 repayable after twelve months unsecured to Orehek and companies associated with him.

3 The plaintiff says that in August 2002 there was a further representation made by the defendant to him, namely, that he had another opportunity to lend more money to Orehek, and that the plaintiff could lend Orehek $45,000 with no risk. The plaintiff says that he then went ahead and advanced that amount of money repayable after three months to Orehek and companies associated with him.

4 The plaintiff says that in September 2002 the defendant made a further representation to him about having a further opportunity to lend funds to Orehek and that a loan of $50,000 could be made without any risk. The plaintiff says he acted on that representation and lent $50,000 to Orehek and associated companies for a period of three months.

5 The plaintiff also relies on some subsequent representations that were made about the likelihood of the plaintiff obtaining his funds back. In a sense those representations are not actionable because the plaintiff did not lose anything as a consequence of those latter representations other than perhaps the opportunity of pursuing Orehek at an earlier point in time.

6 With regard to the earlier representations that I have set out in the judgment, the plaintiff says that Orehek was insolvent, that he had few assets and very substantial liabilities, that he and his companies were indebted to third parties, that the properties that Orehek and his companies owned were heavily mortgaged and that they were not in a position to repay any loans made. The plaintiff relies on the fact that none of the loans was repaid, that Orehek became bankrupt and his companies were either wound up or went into administration.

7 The plaintiff brings his claim on three bases - negligent misstatement, alternatively, based on a breach of s 42 of the Fair Trading Act, alternatively on the basis of the tort of deceit. In each case, the plaintiff says that the defendant either knew that the representations made were false or he was negligent in making them, and did not make any reasonable inquiries to establish that they were accurate or truthful, and negligently omitted to advise the plaintiff (contrary to the advice that he actually gave) not to lend money to Orehek or any companies associated with him.

8 The evidence in exhibit 15 discloses that Orehek was a failed Sydney property developer, and, in 2002, a former member of the Pentecostal Hillsong Church. Orehek was a man driven by greed who accepted offers of investments of money when he totally lacked the management ability to deal with those investments. Orehek collected at least $4.6 million from investors and used the money on property projects in Sydney’s north whilst living a lavish lifestyle and owning various luxury cars and a luxury beachside apartment.

9 When problems occurred in relation to the repayment of these loans Orehek was expelled from his church. He was then dealt with in this court after pleading guilty to a criminal charge arising out of his activities. Orehek was given an eighteen month non-parole period by Bennett DCJ when his Honour sentenced Orehek on 21 November 2007.

10 These proceedings therefore indirectly arise out of Orehek’s activities.

11 I will turn now to the evidence of the parties.

12 The plaintiff’s evidence in exhibit A was that he is fifty-three years of age. He runs a seven day a week business looking after x-ray film processing machines and associated equipment. He is the sole shareholder and director of the company that does this, SGS Medical Imaging Services Pty Limited, which I will refer to as the company.

13 The plaintiff said he met the defendant in late 1999 through a person who became a mutual friend, Shirley McMinn, at her home at Randwick. The defendant lived nearby. The plaintiff said he told Ms McMinn he was looking for someone to give him financial advice at the time. He was doing a lot of work with Agfa and was not sure how to organise his business affairs. He said that he had a conversation with the defendant in which he told him how much he was earning and how much tax he was paying. The plaintiff asked the defendant if the defendant, whom he understood had some skills in that area, could assist him. The defendant said he could. They then had a subsequent conversation in which the plaintiff asked the defendant how much he would charge and he was told that he would charge $300 an hour for financial consulting.

14 In terms of advice sought from the defendant, the plaintiff said that he wanted to employ his nephew, Allan Sarkis, to help him with his growing workload and with a view to Allan taking over the business in due course. The plaintiff said he got advice from the defendant about engaging Allan Sarkis as a subcontractor rather than as an employee, and that he acted on that advice.

15 The plaintiff said in 2000 or 2001 he set up a superannuation fund. His evidence was that he relied on the defendant to do that for him.

16 The way in which the plaintiff’s evidence is set out, I should interpolate here, is that it does not follow a strict chronological order, but I am following the path of that evidence from exhibit A.

17 The first concrete thing that the defendant really did for the plaintiff occurred towards the end of 2000 when the defendant gave the plaintiff advice about purchasing an investment property in Surry Hills. The plaintiff said that it was the defendant who found the apartment, got the plaintiff to have a look at it and advised the plaintiff when they had both inspected it that it was a good investment property, and that he would, in effect, take care of everything if the plaintiff decided to go ahead, which is exactly what occurred on the plaintiff’s evidence. Solicitors were instructed and the property was acquired after contracts were exchanged and settlement occurred. The defendant organised a loan for the plaintiff.

18 The plaintiff’s evidence was that in early 2002 he had another conversation with the defendant about buying an investment property, that the defendant then came up with one at Camperdown, and advised the plaintiff to inspect it, which he did, but although the plaintiff was initially keen on pursuing the matter the arrangement fell through.

19 The plaintiff employs Heather Buxton, with whom he is in a relationship, as a bookkeeper. She works in his business one day a week. He said that after speaking with Heather Buxton he decided to involve the defendant in a bigger way in the conduct of his financial affairs. I accept the plaintiff’s evidence that he set up a special in-tray in his office at his home so that material that he wanted the defendant to look at and advise him on was placed in that in-tray.

20 As evidence of the fact that the defendant did become more involved in the plaintiff’s business there are minutes of the company’s meeting of 1 August 2002 which clearly show that the defendant was in attendance whilst the plaintiff and Ms Buxton were there as well, and a review of the affairs of the company to-date was conducted. Although it does not specifically identify what task the defendant was attending to, I am satisfied that his attendance at the meeting is corroborative of the plaintiff’s case that the defendant was from time to time assisting him by way of advising him and doing other things for him in the conduct of his affairs.

21 To the extent that Ms O’Brart, who appeared for the defendant, sought to suggest that the defendant was merely a gopher, which is, in my understanding, a person who simply does menial tasks, I do not consider that is supported by the evidence. The defendant was much more actively involved in the plaintiff’s affairs than he would otherwise have tried to convince the court.

22 I am also satisfied the plaintiff introduced the defendant to his accountant, Mr Fenton. In this respect, although the plaintiff was inclined to refer to Mr Fenton as a tax agent, the documentary evidence clearly shows that Mr Fenton was a chartered accountant. However, I accept that the plaintiff wanted Mr Fenton to meet the defendant because he thought it would be a good idea for them to coordinate their activities. I am also satisfied the plaintiff introduced the defendant to Mr Fenton as his financial adviser.

23 I am also satisfied that when there were problems between the plaintiff and Agfa in terms of his contractual arrangements, the plaintiff asked the defendant to accompany him to a meeting with Agfa, to meet with Mr Ware of that company, not just simply to assuage him in terms of any nervousness that he might have had, but to be there as his financial adviser. I am satisfied that that is in fact how he introduced the defendant to Mr Ware of Agfa on that occasion.

24 The plaintiff had lent $16,000 to the owner of a coffee shop business located in the blue mountains. He had done so because the business was being run by a friend of his. There were problems with the business and the plaintiff was concerned about its future; obviously, he also wanted to get his money back. The plaintiff therefore asked the defendant if the defendant could assist. The defendant agreed to do so provided he was remunerated for it. I accept the plaintiff’s evidence that the defendant went to the mountains on his instructions with a view to seeing what he could do for the coffee shop business in terms of turning it around. I will return to other aspects of that evidence later in this judgment.

25 I also accept the plaintiff’s evidence that he set up a meeting between the defendant and another friend of his, Joseph Lo Russo. Mr Lo Russo, who gave evidence to the court, was looking for financial advice about purchasing some property. The plaintiff mentioned this to the defendant, who agreed to go and give Mr Lo Russo some advice about that. I shall deal with Mr Lo Russo’s evidence shortly.

26 In exhibit A there are three invoices rendered by the defendant to the plaintiff for work done. In total they amount to $21,000. To my mind that demonstrates that the defendant was not simply a gopher but that he was doing quite a few things for the plaintiff. The first invoice was for $3,000 rendered in November 2000 and that was substantially for the work that the defendant did in organising the loan and purchase of the Surry Hills property for the plaintiff; from then on he agreed to make sure that all rental payments were made and mortgage payments were made to the bank. This was described in the evidence as “monitoring” that property. There is a second invoice dated 11 April 2002 which includes an amount for $6,000 for a joint venture, $2,400 for an annual monitoring fee and some GST and that totals $9,240. This amount was also paid by the plaintiff. There is a third invoice dated 13 July 2002 for $9,075. That includes a charge of $1,050 for the work done in connection with the coffee shop. It includes an amount of $1,500 which I infer from all the evidence relates to the Surry Hills property. It includes a charge of $1,200 for monitoring and a further charge for $3,000 for the joint venture and some GST.

27 The plaintiff said in his evidence-in-chief that he asked the defendant what the joint venture item was and the defendant said that that was for work that was done on the loan for the Surry Hills property. I think that the plaintiff may have been confused about the defendant actually saying those words. The plaintiff was challenged about not understanding what a joint venture was, but my assessment of him was that he is a relatively unintelligent person, a fairly simple man, very naïve and he is a little bit vague. Taking all those matters into account, notwithstanding his age and the fact that he has been involved in one business for quite a while, I think it is most likely, and I am satisfied on the balance of probabilities, that the plaintiff did not in fact know what a joint venture was, and the defendant had to explain that to him. The evidence establishes that the joint venture, if I could still call it that, in fact related to discussions which the plaintiff had with a friend of his, Mr Cummings, who was also in the same industry as the plaintiff. They had some discussions about setting up a business together. I will return to Mr Cummings’ evidence shortly.

28 I turn now to the critical part of the case in relation to the representations. The plaintiff’s evidence was that the plaintiff’s brother suggested he look at a property investment proposal. So the plaintiff got some material from Benjamin and Khoury, Solicitors. It was fairly thick so he gave it to the defendant and asked the defendant for advice about it. The bottom line was that the defendant told the plaintiff he was not convinced that the borrower would be able to repay the principal, and if it were him he would not go ahead with the arrangement, and so the plaintiff acted on that advice.

29 It was shortly after this occurrence that the defendant handed the plaintiff a brochure, the source of which was Orehek and his companies. There are two such brochures in evidence. On the balance of probabilities I am satisfied that the one that was shown to the plaintiff was another copy of exhibit 9. This document came from the defendant directly to the plaintiff. The defendant told the plaintiff that what was in it constituted a great opportunity and that if the plaintiff lent Orehek money the plaintiff would get interest of thirty per cent after a period of twelve months. The defendant said it was safe and secure, that Orehek had been doing that type of thing for ten years, that Orehek had owned over $20 million in property and he would not have a problem paying back the loan. The plaintiff said on that basis he did not need to be told anything more, he was interested and, importantly, if the defendant thought it was a good idea and it was safe, then he was very interested. The defendant reiterated that it was safe and a great opportunity and told the plaintiff that they were lucky to get in on the deal. The plaintiff’s evidence was that he said, “That’s great, so let’s do it.”

30 The defendant then introduced the plaintiff to Orehek at Orehek’s office at North Sydney. There was another man present at the time. He appears to be Mr Steve Crosbie, an associate of Orehek. The plaintiff said to Orehek that the defendant had advised him that he had been doing this sort of thing for a long time, that is to say, procuring investments and then doing property development. Orehek told him that was correct, that he had been in property development for a long time, it was a family business and the returns were as high as twenty-five to thirty per cent. The plaintiff said that he told Orehek that the defendant took care of all his financial matters and that he would leave it to the defendant to do that in this case.

31 The plaintiff’s evidence was that the next development was that the defendant told him he had some paperwork from Orehek that needed to be signed and that he was shown an original of a loan agreement. The loan documentation signed by the plaintiff is annexure F1 to exhibit A. The plaintiff’s evidence was that the documents that were given to him for signature had already been executed by Orehek and his companies, and that the defendant told him to sign both agreements (which he did) and the defendant then witnessed his signature. I am satisfied on the plaintiff’s evidence that he executed the document on the day it bears and that is made out by the documents put into evidence by counsel for the plaintiff, being documents sourced from subpoenas served on the liquidator of various companies. Those documents record the plaintiff making a loan of $150,000 on the date that he executed the deed of loan. The plaintiff said that, in terms of making the advances totalling $150,000, he acted on the advice of the defendant and sourced $100,000 from his superannuation fund and $50,000 from his personal account. There are documents in evidence which support that.

32 The plaintiff’s evidence was that in mid August 2002 the defendant came to his office and said there was another opportunity to lend money to Orehek and receive ten per cent over a three month period. The plaintiff told the defendant that he had no money, that he could ask his parents, and was told that was a good idea. As a result, the plaintiff’s parents lent him $45,000. He then gave a cheque to the defendant for that amount and that is evidenced by the documents H1 and H2 which are part of exhibit A.

33 The plaintiff made a third loan after the events which occurred in mid September 2002 when the defendant was at the plaintiff’s office and told the plaintiff there was another chance to lend money to Orehek like before. The plaintiff asked the defendant if he could afford it and the defendant told him he could, so the plaintiff then drew a cheque for $50,000 and that was advanced again to the Orehek empire.

34 The evidence discloses that in the months that ensued the plaintiff became concerned that he was not getting any of his money, in terms of interest payments and ultimately principal repayments, and that he received various assurances from the defendant about delays that were occurring as a result of world events, such as problems with the American share market, the Iraq war and so on. This caused the plaintiff to eventually contact Orehek’s office, and after speaking to Mr Crosbie, the plaintiff obtained copies of further deeds of loan dated 27 August 2002 and 12 September 2002 evidencing the smaller loans of $45,000 and $50,000 respectively that he had already made. The end result of all of this was that the plaintiff was out of pocket because, as I said earlier, Orehek became bankrupt and his companies were wound up and he has not recovered a cent since.

35 The defendant’s evidence was different. He said that he has a degree in public administration from North East University in the United Kingdom. Although he intended to join the public service, he did not do that. He came to Australia in 1985 and for over a year, between 1999 and September 2000, he was associated with Hart Financial Services. He said Hart was an accountancy firm that offered services in property management, financial planning, mortgage reduction and wealth creation. As an introducer for Hart he would attend appointments that Hart had made with prospective clients and he would use their presentation package to get a customer going to the next stage by making another appointment with them for a whole day during which the client was introduced to investment properties, mortgage reduction, tax benefits, superannuation, and with the purpose of getting the customer to make a commitment to buy an investment property through Hart. In that respect, although the defendant said he had no expertise in any of those areas other than introducing clients to Hart, by his own words in paragraph 4 of exhibit 10, the court infers that, in fact, the defendant knew quite a lot more about investing, tax benefits, superannuation and the like than he would otherwise have the court to believe. In any event, the defendant got directly involved with the plaintiff because Hart went broke. I prefer the plaintiff’s evidence about this in any event and I am satisfied that the plaintiff had all of these dealings directly with the defendant. Whilst Hart may have been in the background, I am satisfied the plaintiff was not aware of that.

36 The defendant said that between 1999 and 2004 he worked under the name of “One to One Equity Solutions” and his business card is in evidence. That shows that he had expertise, on the face of it anyway, with regard to mortgages, insurances, investment property and property management. Whilst one does not propose to get hung up on what those words necessarily mean simply because they are on a business card, nevertheless, the business card does demonstrate that the defendant was touting for work somehow or other in those various areas.

37 The defendant agreed that he met the plaintiff through Ms McMinn. He acknowledged that he was the one who mentioned Hart to the plaintiff. In any event, his version was that the plaintiff came to him and said he had been shown two properties by Hart. I do not accept that. I prefer the evidence of the plaintiff that it was the defendant that showed him the property at Surry Hills and took care of things after that on behalf of the plaintiff.

38 The defendant admits in paragraph 16 of exhibit 10 that he was the one who instigated the relationship of solicitor/client between Mr Fleiter and the plaintiff, and I am satisfied on the evidence that the defendant in fact had quite a few dealings with Mr Fleiter, probably through the initial Hart connection but certainly subsequently on many other occasions, and those dealings were not connected with the plaintiff.

39 The defendant agreed that he had been asked by the plaintiff to take care of the monitoring of the Surry Hills property, and the defendant agreed that the plaintiff had asked him to assist Heather Buxton in the arrangements that were being made for the purchase of a property by Ms Buxton. Although the defendant sought to play down his involvement with that, I am satisfied that he is the one who organised the loan for Ms Buxton in connection with that property, although it was Ms Buxton who instructed the solicitors to deal with the conveyancing aspect of the matter.

40 I reject the defendant’s evidence that he simply went to the Agfa performance meeting with the plaintiff as a friend. It was unconvincing evidence. The plaintiff was a person who needed help in many aspects of his business. The fact was he chose the defendant to go along and the defendant agreed to do so.

41 I am satisfied that the defendant then got involved in the proposed arrangements between the plaintiff and Mr Cummings. As the defendant would have it, he was simply charging for the financial advice work that he gave both of them. But I am satisfied that it went beyond that in the sense that the defendant was proposing that he receive a slice of the action. I am satisfied that this was one of the reasons why Mr Cummings decided not to go ahead with the matter.

42 The background to the representations emerges from the defendant's own evidence. His brother was a member of the Hillsong Church. His brother introduced him to a man called Paul Moody. Moody told the defendant that there was a man at the church who was a big property developer and people were investing money with him and some of them were getting good returns. According to the defendant, he simply passed this information on to the plaintiff and then Moody telephoned him and asked him if he would like to meet Orohek. The defendant said he had spare cash in the order of $47,000 and was looking for a good investment opportunity.

43 The defendant then went to meet Orohek who told him that he went to the Hillsong Church and was a property developer. He had been doing it for a number of years and getting good returns for people who invested with him. He said he passed that information on to the plaintiff and the plaintiff asked him what he thought about things and according to the defendant he said he “didn’t know the man but it could be worth exploring” and according to the defendant it was the plaintiff who asked to have an appointment. I do not accept that that is the way it occurred. I accept the plaintiff's version of what happened.

44 In my assessment, the reality was that the defendant had convinced himself he should invest $47,000 in the Orehek empire. He did not actually put that money in directly with Orohek but gave it to a friend of his, Mr Chikwdi, with the intention that Chikwdi would put the money in with a whole lot of other fellow investors from, or who had a connection with, Nigeria. Unfortunately from the defendant’s point of view, Mr Chikwdi has disappeared off the face of the earth and it is unclear on the evidence whether the money that the defendant gave Chikwdi, and I accept that he did, ever found its way into Orohek’s coffers.

45 The defendant said he and the plaintiff had a meeting with Orohek. He put it at the middle of 2002 when clearly it was earlier than that. According to the defendant he said the wisest thing to do would be for both him and the plaintiff to talk to their lawyers and accountants and that he said that to Orohek and Orohek then told them that because he was a Christian and could not afford to have his name soiled then in effect he was a good risk and that is how the documentation, a copy of which is exhibit 9, came into the possession of the plaintiff and the defendant. As the defendant would have it, this conversation went on in terms of enquiries about how things would work and importantly, according the defendant, the plaintiff said he wanted to “check it out” and that the defendant recommended that the plaintiff go and see the solicitor, Mr Fleiter. The plaintiff asked the defendant to go with him and according to the defendant they went to Mr Fleiter’s office and showed him the brochure and Mr Fleiter said it was a standard document that developers used but it should be left with him and he would have a closer look.

46 It may be that the defendant was intending to establish that the deed of loan was something that was given to Mr Fleiter at the same time. In any event, his evidence was that after the meeting with Fleiter the plaintiff told him he was prepared to invest $150,000 depending on what advice Mr Fleiter gave. According to the defendant a further appointment with Fleiter was booked and at that meeting all Mr Fleiter said was that it was a standard document with nothing unusual about it. At the same time the plaintiff told the defendant and Mr Fleiter that the plaintiff had inspected all the potential properties to ensure that they existed. According to the defendant he cautioned the plaintiff and said that the plaintiff should speak to the accountant, Mr Fenton, about it. The next step according to the defendant was that the plaintiff asked him to go to a meeting with Orohek and it was at that meeting that cheques totalling $150,000 were handed over. According to the defendant, with regard to the next loan that was made, the plaintiff told him that Orohek and Crosby had contacted him about a further loan and the defendant told him to get advice from his lawyer and accountant before he did anything. He said that that was the last point that he had any knowledge of the plaintiff's dealings with Orohek.

47 The brochure which is exhibit 9 was one that was distributed by Norton Investments Pty Limited, one of Orohek’s companies. It is promotional material printed in November 2001 advertising that company’s business as a developer and builder of projects at Balmoral, three at Northbridge, one at Wahroonga, another at Cherrybrook and two at Glenhaven and Mosman respectively. It records projects costs (which the court infers was a reference to the purchase price of the various properties) of amounts totalling slightly less than $24million in round figures and loans drawn down in amounts slightly more than $22million. Values were placed on each of the projects which were entirely unsubstantiated in the documentation. The total project end value was said to be slightly in excess of $37million. There was no mention made in exhibit 9 of proposals to borrow money from private investors.

48 Essentially the defendant denied the critical discussions that the plaintiff asserts they had about acting as a financial adviser. Specifically he denied having anything to do with the employment arrangements of the plaintiff's nephew Alan and about giving advice concerning superannuation. The defendant denied being proactive with regard to Surry Hills and Camperdown, or being involved in the day to day running of the plaintiff's business. He did however agree in cross-examination he would do specific tasks if asked and would charge the plaintiff for those tasks.

49 With regard to the coffee shop arrangement the defendant simply said that he was to go there to find out what was happening, and in cross-examination he said it was with a view to getting the plaintiff's money back. With regard to Lo Russo, the defendant’s evidence was that the plaintiff asked him to see Mr Lo Russo simply about buying a property and needing to organise finance. I do not accept the defendant’s evidence about either of these matters. I prefer the evidence of Mr Williams and Mr Lo Russo and I will turn to that shortly.

50 With regard to the arrangements between the plaintiff and Mr Cummings, the documentary evidence suggests quite a bit of time was spent in talking about how things could be set up, and I am referring to exhibit 11 here. With regard to the fee charged for the so-called “joint venture”, the defendant denied that the plaintiff had queried it or that he had told the plaintiff that the fee charged had been for work done on the loan. As I have said, I have accepted the plaintiff's evidence about him asking what a “joint venture” was. In that respect exhibit 11 makes actually no mention of a joint venture. It refers to partnerships in several places. It is a little hard however to see, notwithstanding the notes, how they translate to a fee totalling $12,000.

51 When the plaintiff was in the witness box he said that the superannuation documents were signed at his home. He had no knowledge of the firm of solicitors Munro and Associates whose back-sheet was on the documents. When one looks at the documents it is obvious that although a deed poll was specifically prepared for the plaintiff's superannuation trust deed the rest of the material which forms parts of it appears to be a standard document and the court infers that the deed poll was attached to the standard document. The defendant said he did not know the solicitors name on the document so the court is unable to determine how the solicitor’s name appeared on the document. Nevertheless I accept the plaintiff’s evidence that he trusted the defendant and that is why the defendant became the second trustee of the superannuation trust.

52 I also accept the plaintiff's evidence that he wanted to introduce the defendant to Mr Fenton because he wanted to feel safe and secure about his business and financial matters and he therefore considered it would be a good idea to introduce the two. The plaintiff impressed me in the witness box as a person who wanted others to do his business matters for him. I have concluded that the plaintiff had no real interest in attending to those business matters and expected whoever it was he engaged to do everything for him. The plaintiff was very trusting in this sense and in a sense it was also irresponsible because no matter how good a professional a person may be, a business person ought exercise some judgment in a matter himself or herself. However, in this case there is no plea of contributory negligence made by the defendant in answer to the claim for negligent mis-statement and it is not a case where, despite the fact that the plaintiff may have been irresponsible, one could say that it had anything to do with the reliance that he placed on the plaintiff. In fact, it reinforces the court’s conclusion that he was relying on the defendant. The plaintiff chose to go along with whatever an adviser’s recommendation was and that turned out to be a pitfall in the context of his dealings with the defendant.

53 I accept the plaintiff’s evidence that Mr Fenton was keen not to give him financial advice. Ms O’Brart submitted that, because Mr Fenton was mentioned in the company’s minutes of 1 August 2002, that implies he had a bigger role to play in the plaintiff's affairs. I am not satisfied that that is the case. I think he may have done some more tax work but I am not satisfied he gave the plaintiff any advice. More importantly, there is no evidence to suggest that the plaintiff's dealings with Orohek were the subject of any advice from Mr Fenton.

54 I have already made some comments about my assessment of the plaintiff but, I should add, he was a vulnerable person in the sense that if someone whom he liked and trusted suggested he should do something he went ahead with it. This was demonstrated by his evidence in cross-examination that his brother suggested that he look into superannuation and so he did by asking the defendant simply to set up his own superannuation fund. The defendant advised him it was a good idea. The plaintiff said he had no knowledge about how to go about it. He did not ask the defendant how he would go about it but the defendant agreed to do the job and presented the plaintiff with the documentation so the plaintiff signed it.

55 As further demonstration of the plaintiff's naiveté in his financial dealings, he said he had no knowledge of what qualifications the defendant had. He said he retained the defendant to do various things for him because he trusted him and he appeared to know what he was doing. In this respect I am satisfied that it was the defendant who instructed Mr Fleiter of Macquarie Legal Partnership to act for the plaintiff on the purchase of the Surry Hills property. That is because the defendant procured the loan from Citibank and tied up all the loose ends from the plaintiff's point of view. The fee that he charged of $3,000 cannot be explained on any other basis. The defendant was keen to continue to look after Surry Hills for the plaintiff by keeping an eye on the tenant through the agent, monitoring the rent payments and checking all bank statements. The plaintiff completely trusted the defendant with regard to these things.

56 Although the plaintiff's evidence about the in tray arrangement was vague I am satisfied there was definitely an in tray placed in the plaintiff's home for documents to be picked up and acted upon by the defendant. I am satisfied the defendant in fact reviewed these documents from time to time and acted on them when action was necessary. Although the defendant sought to completely play down his business relationship I accept the plaintiff's evidence that the defendant came to his house at least once, sometimes twice a week, and although they may have had a general chit-chat they almost invariably discussed business matters and the plaintiff sought the defendant’s advice about things. One of the reasons the plaintiff in my assessment was a bit vague about precisely what he spoke to the defendant about was because he handed documents over and left it to the defendant to sort them out rather than initiating any discussion himself. For example, as I have said, I have accepted the plaintiff's evidence that the defendant gave him advice about how the nephew should be engaged as a sub-contractor.

57 With regard to the coffee shop, the plaintiff's evidence was that he sent the defendant there to assist Mr Williams in the running of the business and so he would get his money back. The way in which the plaintiff explained this to the court was convincing and I accept his evidence. In particular he thought the defendant would come up with various options which would assist in the running of the coffee shop yet the plaintiff had no idea what these were but he trusted the defendant and was convinced the defendant had the expertise to do it.

58 Insofar as the plaintiff gave evidence that the $6,000 fee in the invoice dated 11 April 2002 was the defendant’s charge for arranging loans to Orohek, I regard that evidence as confused and I do not accept it. The reason I do not is because the plaintiff said he recalled the discussion because he had already paid the defendant $3,000 for so called “joint venture” work. That cannot be right because the $3,000 item was included in the third invoice dated 13 July at p 55 of exhibit A. Having considered this aspect of the matter I do not think that the plaintiff and the defendant had a specific discussion about the defendant charging the plaintiff any money for the Orohek arrangement. Having regard to the fact however that amounts totalling all up $9,000 were charged under the heading “Joint Venture” I think it is quite likely that the defendant included in these amounts time he spent in relation to the Orohek matter and I am so satisfied that he did so on the balance of probabilities but I am also satisfied he did not communicate that fact to the plaintiff.

59 In terms of the evidence-in-chief which the plaintiff gave about the meetings set up by the defendant with Orohek at North Sydney the plaintiff gave evidence in cross-examination consistent with his evidence-in-chief. I found his evidence about those meetings convincing and I prefer his version to that of the defendant. What happened was another example of the plaintiff relying entirely on the defendant. For example, when the defendant told the plaintiff that he would like the plaintiff to meet Orohek, the plaintiff would have preferred not to do so but the defendant urged it upon him and that is why the plaintiff agreed to go to the meeting. The defendant reiterated to the plaintiff and told him he had come across an opportunity to invest with Orohek, that Orohek had been a successful property developer for at least ten to twelve years, that Orohek had $20million worth of properties and it was safe and okay to invest with him and there would be no problem about Orohek paying the plaintiff back. I am satisfied they discussed how much the plaintiff should invest and the defendant advised him that it would be all right to use the super fund. In this respect the decision was made to allocate $100,000 from super and $50,000 from the plaintiff's business. I am also satisfied the plaintiff accepted the defendant’s representation that they were fortunate to come across the opportunity to invest with Orohek and were very luck to be able to go ahead with the investment. At the meeting at North Sydney I am satisfied the plaintiff received a brochure similar to exhibit 9 and that Orohek reiterated to the plaintiff what the defendant had already told him abut his business background. I accept the plaintiff's evidence that he accepted the high rate of interest because he thought it was a good deal and that it did not occur to him to dig down any further into the matter. This demonstrates both his naiveté and the fact that he was relying on what the defendant’s assessment of the prospective investment was.

60 I accept the plaintiff's evidence that he did not attend on the solicitor Mr Fleiter. He gave his evidence about this in a convincing way. I take a different view of the defendant’s evidence about this. I also accept the plaintiff's evidence that he did not inspect the properties that were identified in the Orohek brochure exhibit 9 until after the empire of Orohek collapsed. This is entirely consistent with the way the plaintiff does business. He was not about to look at the properties when he had the defendant to rely on in terms of what the defendant said to him about investing in Orohek’s empire.

61 I do not regard the defendant as a truthful witness. After he had given his evidence in the witness box I was convinced that he sought to completely and utterly play down the involvement he had in the plaintiff's affairs in order to avoid any liability. In particular, his evidence about accompanying the plaintiff to the office of the solicitor Mr Fleiter was untruthful. The defendant had the opportunity to call Mr Fleiter to support his evidence about Mr Fleiter’s involvements. There was no explanation proffered to the court by the defendant as to why Mr Fleiter was not called and so the court infers that Mr Fleiter’s evidence would not have assisted the defendant in any way shape or form: See Jones v Dunkell (1959) 101 CLR 298. In this regard, the diary entry of 26 February 2004, part of exhibit 14, demonstrates to my mind that Fleiter was engaged by the defendant on behalf of the plaintiff in relation to the proposed property purchase at Camperdown which fell through. In this respect documents were produced to the court by Mr Fleiter and they were tendered in evidence. There is nothing in those documents in any way shape or form to suggest that the plaintiff attended upon Mr Fleiter in February or March 2002. On the other hand, the defendant used Fleiter as a solicitor on many other occasions as his diary entry records, and those occasions were not on the whole, on the evidence, connected with the plaintiff.

62 Another reason I do not accept the defendant's evidence about the circumstances in which the loan agreements were executed is that the plaintiff said he signed the first deed of loan on 6 March 2002. This was five days after the deed of loan had been signed by Orohek and Crosby and, as I have said, the financial documents in evidence from the liquidator record an acknowledgment of this debt by Orohek on 6 March 2002, thus corroborating the plaintiff's evidence about the circumstances of the execution of the document. I also have rejected the defendant’s version about Fleiter’s involvement because it beggars belief that Mr Fleiter would need a week to look at the documentation which is in evidence. That documentation is something that a solicitor with a background in financial matters would have been able to give advice about on the spot.

63 Although it was submitted by the plaintiff that the defendant was acting as a mortgage introducer as far as Orohek is concerned I reject this submission. In my assessment the defendant himself decided to invest with Orohek, as I have earlier said in this judgment.

64 I am also satisfied that the defendant made the subsequent representations about the repayment of the money because he knew the plaintiff was anxious about what was going on as he himself was, and he was endeavouring to placate the plaintiff in the hope that all would come good in the end. He was concerned that he had advised a friend and client to go into a transaction that appeared to be going horribly wrong, but he was hoping that something might occur to avoid that consequence.

65 In rejecting the evidence of the defendant I have taken into account the evidence of some of the other witnesses, as I mentioned earlier in this judgment.

66 Rodney Alan Cummings in his affidavit evidence exhibit E said he had known the plaintiff for thirteen years in the context of working in the health care industry. He dealt with the plaintiff as a reliable and effective service contractor. Mr Cummings said he met the defendant at a meeting of service contractors at Agfa’s boardroom in Sydney in 2000. Mr Cumming’s evidence was that the defendant, when asked by a senior service manager of Agfa as to why he was at the meeting, said he was there at the plaintiff's request and as his adviser. Mr Cummings was not cross-examined. His evidence was that he had the discussions I mentioned earlier about the plaintiff and himself working together independently of the companies that they were contracted to and that the defendant was involved in their meetings. Mr Cummings’ uncontradicted evidence was that the defendant told him he took care of all of the plaintiff's business and financial affairs and that it would be logical for him to be the business adviser of both of them if they went ahead with some type of partnership. Mr Cummings said there was a discussion about what sort of remuneration would be paid by both of them to the defendant if such a structure was set up. In this respect Mr Cummings said he did not have faith in the defendant's expertise as a business or financial adviser and that was one of the reasons why he did not go ahead with the joint venture arrangement with the plaintiff.

67 Mr Cummings also gave evidence that he bumped into the plaintiff in the early part of 2002, that the plaintiff had told him about the Orehek investment and in that context, although Mr Cummings cautioned him about it, the plaintiff said he was not worried, that he trusted the defendant, he trusted the defendant’s advice and he had been following the defendant’s advice for a couple of years. I accept all of Mr Cummings evidence without reservation.

68 Mr Joseph Lo Russo, in his affidavit exhibit B, gave evidence that he has known the plaintiff for thirty years. In 2002 the plaintiff told him he had a person helping him with his investment and portfolio management and that he had faith in this person. Mr Lo Russo asked if the plaintiff would introduce him to that person because he had cash on hand from the proceeds of sale of a residential property and he wanted to make sure he maximised the return on those proceeds.

69 A short time later Mr Lo Russo met the defendant at his hairdressing salon. He asked the defendant quite a few questions and he recalled that during their conversation the defendant recommended that he consult Orehek whom the defendant described as a very astute guy and he said that Orehek was a property developer with an office in North Sydney. Mr Lo Russo said the defendant told him he had advised the plaintiff to contribute monies towards Orehek’s developments, that he himself had done business with Orehek and that any investment with Orehek would reap a great return.

70 As a result, Mr Lo Russo said that the defendant arranged an introduction to Orehek at his North Sydney office. After introducing Mr Lo Russo to Orehek the defendant left the office. Mr Lo Russo said that Orehek then tried to convince him that he had developments of high quality which would translate into good returns and that he was encouraged to invest at least $30,000 or more. Mr Lo Russo said he had a gut feeling that all was not right so he decided not to proceed. Mr Lo Russo was challenged in cross-examination about all of these matters but I am satisfied that he stuck to his guns and was unmoved by the challenges that were issued to him. I accept his evidence unreservedly was well.

71 Christopher Charles Williams, in his affidavit exhibit C, said he was the manager of the Springwood Coffee House at Springwood between 2002 and 2005. It was a business owned by his brother-in-law. Mr Williams has known the plaintiff for thirty years and they are good friends. He said the defendant came to the coffee house to meet Norma Samuel who was the coffee house’s bookkeeper. In this regard the plaintiff had told Ms Samuel, in Mr Williams’ presence, that he had a person who was his financial adviser that Ms Samuel ought to talk to. He described the defendant as being able to get the business going and to give advice in relation to finances. It was shortly after that conversation that the defendant attended the coffee shop.

72 Mr Williams said that at the first meeting between him, the defendant and Ms Samuel, Ms Samuel told the defendant he had been recommended as a very good financial and business adviser. The defendant said in effect he could help but he needed Ms Samuel to obtain the financial documents so he could put together a business and financial plan to assist the coffee shop. He said he would charge $700 to draft a business and financial plan. As it turns out, the defendant charged in the order of $1,000 which the plaintiff paid him. Mr Williams’ evidence was that ultimately Ms Samuel told him she did not want to follow the defendant’s advice or make any payments to him. Again, Mr Williams was challenged in cross-examination but notwithstanding the skill with which that was carried out Mr Williams’ evidence was not contradicted and I accept his evidence as well.

73 The defendant relied on Sue Allen Sutherland whose affidavit was made on 30 April 2008 and is exhibit 12. She is a sales person working at One World Telecom. She met the plaintiff ten years ago and she also met the defendant around the same time and is still friends with both of them. She said that she had a discussion with the plaintiff in 2002 when he told her he was investing a large amount of money in a property development scheme. Ms Sutherland had had her fingers burnt in something similar and told the plaintiff that she would not do it if she were him. According to Ms Sutherland in her evidence in exhibit 12 the plaintiff said, “It is fine, I have spoken to my solicitor and he says it is all legit and aboveboard and I can track it on line anytime.” Ms Sutherland also said she had never heard the plaintiff refer to the defendant as his financial adviser.

74 Although I consider Ms Sutherland gave her evidence honestly I do not accept that her recollection was so good six years after the event that she could specifically recall in fine detail that the plaintiff said to her that he had spoken to his solicitor, that the solicitor had said it was all legit and aboveboard and that the plaintiff could track it on line any time. One of the reasons I do not accept this is that I have found that the plaintiff did not discuss the matter with the solicitor. It seems to me more likely than not that the plaintiff may well have said to Ms Sutherland that the investment was fine and that he could track it on line at any time because this information was, on the evidence, given to the plaintiff by Mr Orehek. Accordingly I reject this part of Ms Sutherland’s evidence. I accept that she is likely to have told the plaintiff not to invest because of her own bitter experience. This non acceptance of her advice does not, however, impact on the court’s judgment in this case.

75 In the result, on the facts, I am satisfied that the plaintiff has made out the representations that I summarised earlier that are pleaded in the statement of claim. The plaintiff is entitled to succeed in his claim against the defendant on the basis of negligent misstatement.

76 The most useful authority from the court’s point of view is the High Court’s decision in Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1995-1997) 188 CLR 241 at 249, where Brennan CJ referred to the statement of principle in Hedley Byrne & Co Limited v Heller and Partners Limited (1964) AC 465 at p 503 thus:

“In a sphere in which a person is so placed that others could reasonably rely on his judgment or his skill or upon his ability to make careful inquiry a person takes it upon himself to give information or advice to or allows his information or advice to be passed on to another person who as he knows or should know will place reliance upon it, then a duty of care will arise.”

77 Brennan CJ also endorsed the remarks made earlier by Barwick CJ in Mutual Life & Citizens Assurance Co Limited v Evatt (1968) 122 CLR 556 at 571 thus:

“The speaker must realise or the circumstances be such that he ought to have realised that the recipient intends to act upon the information or advice in respect of his property or of himself in connection with some matter of business or serious consequence.”

78 The liability can arise in the absence of a request by the recipient of the advice. That can occur where the author of the remarks invites the recipient to act on them on the basis that the information or advice given is intended to induce the recipient to act in a particular way. This is what occurred in this instance. Liability exists if the representor realises or ought to realise that the representee will trust any special confidence to give the information, secondly, if it would be reasonable for the representee to accept and rely on it and thirdly if it is reasonably foreseeable that the representee is likely to suffer loss should the information turn out to be incorrect, or the advice turn out to be unsound.

79 Barwick CJ’s remarks in MLC v Evatt have been endorsed by the High Court in other cases - see L Shaddock and Associates Pty Limited v Parramatta City Council (No 1) (1981) 150 CLR 225 at 250-251 per Mason J and in Tepko Pty Limited v Water Board (2001) 206 CLR 1 at 23 where Gaudron J said:

“Reliance is not actual reliance but reasonable reliance taking into account the nature of the subject matter, the occasion of the interchange, the identity and relative position of the parties as regards knowledge, actual or potential and the capacity of the parties to form or exercise judgment.”

80 In this case I am satisfied that the defendant made the representations to the plaintiff about Orehek, that in effect he was inviting the plaintiff to act on them, that he was intending that that be so and that he realised that the plaintiff was trusting in his confidence to give the information. I am satisfied that it was reasonable for the plaintiff in those circumstances to accept and rely on the information given that from time to time the defendant had given him financial advice and acted as his financial adviser in the ways I have set out in the judgment. I am also satisfied it was reasonably foreseeable in the circumstances that the plaintiff was likely to suffer loss if the information turned out to be incorrect or the advice turned out to be unsound.

81 The evidence before the court establishes that between April 2003 and November 2003 all companies in the Orehek empire collapsed by either going into liquidation or voluntary administration. The plaintiff’s loans to the tune of $150,000 were recorded as debts in those administrations. There is no record of the other loans but the evidence clearly establishes that the plaintiff advanced those additional loans. There is no doubt that, on the date the liquidator/administrator provided his reports, and on the date that Orehek’s trustee in bankruptcy issued his notices to creditors at the end of 2003, that Orehek himself was horribly insolvent and the companies were in no better position. Ms O’Brart made no submission as to the state of affairs being any different at the time the misrepresentations which the court has found made out, were made. That is understandable because the court can infer, particularly from exhibit K, that that was the case.

82 The balance sheet of Norton Investments Pty Limited as at 30 June 2002 discloses an excess of liabilities over assets for that company in the order of $2,452,365. The previous year there was an excess of $1,006,766. Those documents also show a gross loss from trading of $564,183. So that company was certainly not in the position represented to the plaintiff by the defendant in March 2002 and the court infers in the absence of any other evidence that the position was the same as far as the other companies were concerned.

83 The plaintiff is therefore entitled to cover the amount of all the loans he made plus interest.

84 Before lunch I finished giving my reasons for judgment in the matter but it occurred to me I omitted to say one thing and that was that I have obviously decided the case on the basis of the plaintiff’s claim for negligent misstatement and in the circumstances it has not been necessary for me to deal with the alternate claims in deceit and under the Fair Trading Act or for me to deal with any aspect of the matter relating to contract. However, I wish to add that with regard to the claim in deceit I do not regard the defendant as a deceitful person and I wish to make it clear that my judgment against him has been based on the fact that I consider that he was deceived into going into the arrangements with Mr Orehek himself in the first instance and so I simply want to make that clear for the benefit of both parties.

85 There will be damages in the plaintiff’s favour in the amount of $245,000 and a verdict in that amount. That comprises the original loan of $150,000, the second loan of $45,000 and the third loan of $50,000 all of which are rightly claimed as losses by the plaintiff as a result of succeeding in his cause of action against the defendant. The plaintiff is entitled to interest on those respective amounts as from the date that the loan monies were provided by him to the Orehek empire. Mr Rollinson has handed up a handwritten calculation of the interest and Ms O’Brart accepts the calculation as being correct as does the court.

86 Without me having to read onto the record the various interest components I will have the handwritten calculation marked MFI 2 so that it remains with the papers in the court file.

87 The result of the interest calculation made by Mr Rollinson is that the plaintiff is entitled to the sum of $145,376 in interest on the damages so in the result judgment for the plaintiff against the defendant in the total amount of $390,376.

88 The plaintiff seeks an order for indemnity costs. The first basis is in reliance on r 42.5 of the Uniform Civil Procedure Rules. Mr Rollinson has submitted that this is a case where the defence was unreasonably maintained in effect. I do not agree with that submission. Everybody is entitled to their day in court and to have the facts determined one way or the other. There was a conflict between the principal witnesses as to what occurred. The defendant was entitled to have his version tested in court and so that does not attract the exercise of the court’s discretion in terms of making an order for indemnity costs.

89 The next submission made by Mr Rollinson was that an order for indemnity costs should be made as from 5 May when the Judicial Registrar directed the parties to attend a settlement conference. Again, I do not think that that attracts an order for indemnity costs in the sense that it is clear from the affidavit of Mr Corey sworn on 1 September 2008 (which I will admit as exhibit R on the costs question) that the defendant was reluctant to get to the settlement table, however having said that, the defendant ultimately got there.

90 Next, Mr Rollinson seeks an order for indemnity costs from 25 May 2008 when an offer was made to settle the case for $200,000 plus costs. It seems to me that that offer bears close scrutiny by the court. Having scrutinised it in the exercise of the Court’s discretion, I am of the view that the defendant did make a legitimate effort to resolve the matter. Events culminated with the offer made on his behalf which is set out in annexure AB to Mr Corey’s affidavit, whereby the defendant agreed to pay $50,000 to the plaintiff plus costs and to pay the amount of $50,000 and costs over a three year period. Importantly, the defendant acknowledged the plaintiff would have a right to “caveat” his home to secure the amounts I have just referred to. I take this as an offer by the defendant to grant the plaintiff some sort of mortgage or charge which would create a caveatable interest. That is important because the plaintiff picked up that offer and responded with his own of 29 August 2008, when he had offered to accept $100,000 from the defendant plus costs and the execution of a registrable mortgage which would be protected by the caveat that the defendant had offered.

91 It seems to me that the defendant’s rejection of that offer should carry with it the consequences that he ought to pay the plaintiff’s costs on an indemnity basis from and including 2 September 2008, bearing in mind that the plaintiff’s offer expired at lunch time the day before.

92 So the order I make on costs is: order the defendant to pay the plaintiff’s costs of the proceedings, such costs be agreed or assessed on the ordinary basis up to and including 1 September and thereafter on an indemnity basis.

93 I direct that the exhibits be returned.

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