Selig v Wealthsure Pty Ltd - [2013] FCA 348

FEDERAL COURT OF AUSTRALIA
Selig v Wealthsure Pty Ltd [2013] FCA 348

Citation: Selig v Wealthsure Pty Ltd [2013] FCA 348

Parties: RONALD SELIG AND JANNA SELIG v WEALTHSURE PTY LTD (ABN 93 097 405 108), DAVID BERTRAM, RICHARD WILLIAM SPENCER, SILVANA PEROVICH, MARK RICHARD NORTON, PETER MAURICE TOWNLEY, NEOVEST LIMITED (IN LIQUIDATION) ACN 104 915 906, NORTON CAPITAL PTY LIMITED (IN LIQUIDATION) ACN 086 207 169, DANIEL GEOFFREY LILLEY, DAMIEN BERNARD GREER, ROBERT NOEL GALLAGHER, STEPHEN JAMES DICKENS and MICHAEL JOSEPH CROUCH

File number: SAD 11 of 2010

Judge: LANDER J

Date of judgment: 18 April 2013

Corrigendum: 12 June 2013

Catchwords:
CORPORATIONS – investment advice given by Australian Financial Services Licensee and authorised representative thereof – whether investment scheme advised “Ponzi scheme” – actions under Corporations Act 2001 (Cth) and Australian Securities and Investments Commission Act 2001 (Cth) for loss or damage arising from misleading and deceptive conduct – whether disclosure document or statement defective – whether reasonable basis for investment advice given – whether obligation to warn client if investment advice based on incomplete or inaccurate information – whether representations as to future matters misleading – whether false or misleading statements made – whether statements made to induce dealings in financial products where maker knows or is reckless to whether statement is misleading, false or deceptive – whether false representations made in relation to standard of financial services – whether investment advice acted upon

CONTRACTS – whether investment advice given pursuant to express terms – whether advice appropriate for plaintiffs’ needs, objectives and circumstances – whether term of reasonable care implied by law, and implied by fact, breached – whether breach of warranty implied by s 12ED of Australian Securities and Investments Commission Act 2001 (Cth) – whether financial services rendered with due care and skill

NEGLIGENCE – whether duty and content thereof established – whether breach of duty established

PARTNERSHIP – whether conduct of partner within ordinary course of business of, or with authority of, partnership

DAMAGES – loss of initial investment, interest on compounding basis, and consequential loss upon collapse of dependent investments sought – whether plaintiffs’ damages to be reduced on account of plaintiffs’ failure to take reasonable care – first and second defendants cross-claim brought against other defendants seeking apportionment, indemnity and contribution – whether concurrent wrongdoers – application of statutory contributory negligence and proportionate liability provisions within Corporations Act 2001 (Cth) and Australian Securities and Investments Commission Act 2001 (Cth) – discussion of principles of apportionment – whether plaintiffs “consumers” for purposes of Civil Liability Act 2003 (Qld)

Legislation:
Australian Securities and Investments Commission Act 2001 (Cth), ss 5, 12BAB, 12BB, 12BC, 12DA, 12DB, 12ED, 12GF, 12GR, 30
Bankruptcy Act 1966 (Cth), s 58(3)
Civil Liability Act 2002 (NSW)
Civil Liability Act 2003 (Qld), ss 28, 31
Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (Cth), schedules 3, 12
Corporations Act 2001 (Cth), ss 79, 254J, 254K, 254T, 471B, 476, 500(2), 588G, 670A, 670B, 710, 728, 729, 763A, 766A, 766B, 769C, 916A, 944A, 945A, 945B, 946A, 946C, 947A, 947B, 947C, 953A, 953B, 1022A, 1022B, 1041E, 1041F, 1041G, 1041H, 1041I, 1041L, 1041M, 1041N, 1041O, 1041P, 1324(1), 1325, 1466
Evidence Act 1995 (Cth), s 79
Federal Court of Australia Act 1976 (Cth), s 51A
Federal Court Rules 2011, r 23.13
Financial Services Reform Act 2001 (Cth)
Partnership Act 1981 (Qld), s 13
Tourism, Racing and Fair Trading (Miscellaneous Provisions) Act 2003 (Qld)

Trade Practices Act 1974 (Cth), ss 52, 82, 87

Cases cited:
Angas Securities Ltd v Valcorp Australia Pty Ltd (2011) 277 ALR 538
Astley v Austrust Ltd (1999) 197 CLR 1
Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012] FCA 1200
Bennett v Elysium Noosa Pty Ltd (2012) 291 ALR 191
BHPB Freight Pty Ltd v Cosco Oceania Chartering Pty Ltd (No 2) [2008] FCA 1656
BP Refinery Pty Ltd v Hastings Shire Council (1978) 52 ALJR 20
Bullock v London General Omnibus Co [1907] 1 KB 264
Burke v LFOT Pty Ltd and Others (2002) 209 CLR 282
Cachia v Hanes (1994) 179 CLR 403
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64
Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd (2007) 164 FCR 450
Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1
Henville v Walker (2001) 206 CLR 459
Hungerfords v Walker (1989) 171 CLR 125
Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10
Ingot Capital Investments & Ors v Macquarie Equity Capital Markets & Ors [2002] NSWSC 853
I&L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109
Keith Woods v Rodney Mario De Gabriele [2007] VSC 177
March v E & MH Stramare Pty Ltd (1991) 171 CLR 506
Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494
Miletich v Murchie [2012] FCA 1013
Murphy v Overton Investments Pty Ltd (2004) 204 ALR 26
Pennant Hills Restaurants Pty Ltd v Barrell Insurances Pty Ltd (1981) 145 CLR 625
Re La Rosa and Another; Ex parte Norgard v Rodpat Nominees Pty Ltd & Anor (1991) 31 FCR 83
Reinhold v New South Wales Lotteries Corporation (No 2) [2008] NSWSC 187
Sanderson v Blythe Theatre Co [1903] 2 KB 533
Shrimp v Landmark Operations Ltd (2007) 163 FCR 510
Valcorp Australia Pty Ltd v Angas Securities Ltd [2012] FCAFC 22
Wingecarribee Shire Council v Lehman Brothers Australia Ltd (In Liq) [2012] FCA 1028

Yates v Mobile Marine Repairs Pty Ltd [2007] NSWSC 1463

Date of hearing: 7-9, 13, 14 March 2012, 2-5, 10-13, 18 April 2012

Place: Adelaide (Videolink to Brisbane)

Division: GENERAL DIVISION

Category: Catchwords

Number of paragraphs: 1300

Counsel for the Plaintiff: Mr P Heywood-Smith QC with Mr D Riggall

Solicitor for the Plaintiff: Radbone and Associates

Counsel for the First and Second Defendants: Mr P O’Sullivan QC with Mr T Cox

Solicitor for the First and Second Defendants: Cosoff Cudmore Knox

Counsel for the Third Defendant: The Third Defendant appeared in person

Counsel for the Fourth Defendant: The Fourth Defendant appeared in person

Counsel for the Fifth Defendant: The Fifth Defendant did not appear

Counsel for the Sixth Defendant: The Sixth Defendant appeared in person

Counsel for the Seventh Defendant: The Seventh Defendant did not appear

Counsel for the Eighth Defendant: The Eighth Defendant did not appear

Counsel for the Ninth to Thirteenth Defendants: Mr R Anderson

Solicitor for the Ninth to Thirteenth Defendants: Herbert Geer

FEDERAL COURT OF AUSTRALIA
Selig v Wealthsure Pty Ltd [2013] FCA 348
CORRIGENDUM

In [1274], the words “for six years” should read “for seven years”.

I certify that the preceding one (1) numbered paragraph is a true copy of the Corrigendum to the Reasons for Judgment herein of the Honourable Justice Lander.
Associate:
Dated: 12 June 2013

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY

GENERAL DIVISION

SAD 11 of 2010

BETWEEN:
RONALD SELIG AND JANNA SELIG
Plaintiffs

AND:
WEALTHSURE PTY LTD (ABN 93 097 405 108)
First Defendant

DAVID BERTRAM
Second Defendant

RICHARD WILLIAM SPENCER
Third Defendant

SILVANA PEROVICH
Fourth Defendant

MARK RICHARD NORTON
Fifth Defendant

PETER MAURICE TOWNLEY
Sixth Defendant

NEOVEST LIMITED (IN LIQUIDATION) ACN 104 915 906
Seventh Defendant

NORTON CAPITAL PTY LIMITED (IN LIQUIDATION) ACN 086 207 169
Eighth Defendant

DANIEL GEOFFREY LILLEY
Ninth Defendant

DAMIEN BERNARD GREER
Tenth Defendant

ROBERT NOEL GALLAGHER
Eleventh Defendant

STEPHEN JAMES DICKENS
Twelfth Defendant

MICHAEL JOSEPH CROUCH
Thirteenth Defendant

JUDGE:

LANDER J

DATE OF ORDER:

18 APRIL 2013

WHERE MADE:

ADELAIDE (VIDEOLINK TO BRISBANE)

THE COURT ORDERS THAT:
1.The plaintiffs’ claim against the ninth to thirteenth defendants be dismissed.
2.The plaintiffs have judgment against the first, second, fifth and sixth defendants in the sum of $1,760,512.
3.If the plaintiffs want to seek leave to enter judgment for the sum of $1,760,512 against the third and fourth, and seventh and eighth defendants, the plaintiffs file an application together with a supporting affidavit within 14 days of the making of these orders.
4.If the plaintiffs make an application pursuant to paragraph 3, the application be heard on Tuesday, 4 June 2013 at 9.30am.
5.The first and second defendants’ claims for a declaration that the third to eighth defendants are proportionately liable be refused.
6.The first and second defendants’ claims for indemnity and contribution against the third to eight defendants be dismissed.
7.The first and second defendants’ claim against the ninth to thirteenth defendants be dismissed.
8.The first and second defendants pay the plaintiffs’ costs of the plaintiffs’ proceeding against the first and second defendants.
9.The fifth and sixth defendants pay the plaintiffs’ costs of the plaintiffs’ proceeding against the fifth and sixth defendants.
10.The question of the plaintiffs’ costs against the third and fourth, and seventh and eighth defendants be reserved pending any application by the plaintiffs pursuant to paragraph 3 of these orders for judgment against those parties.
11.The plaintiffs and the first and second defendants pay the ninth to thirteenth defendants’ costs.
12.The plaintiffs have leave to make an application for an order that the first and second defendants indemnify the plaintiffs against the order that the plaintiffs pay the ninth to thirteenth defendants’ costs by filing written submissions, not exceeding 5 pages, in support of such an order within 10 days.
13.If the plaintiffs make an application that the first and second defendants indemnify the plaintiffs against the order that the plaintiffs pay the ninth to thirteenth defendants’ costs, the first and second defendants file written submissions, not exceeding 5 pages, in reply within 10 days.
14.The first and second defendants pay the third to eighth defendants’ costs (if any) in relation to the first and second defendants’ claims against those defendants.

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY

GENERAL DIVISION

SAD 11 of 2010

BETWEEN:
RONALD SELIG AND JANNA SELIG
Plaintiffs

AND:
WEALTHSURE PTY LTD (ABN 93 097 405 108)
First Defendant

DAVID BERTRAM
Second Defendant

RICHARD WILLIAM SPENCER
Third Defendant

SILVANA PEROVICH
Fourth Defendant

MARK RICHARD NORTON
Fifth Defendant

PETER MAURICE TOWNLEY
Sixth Defendant

NEOVEST LIMITED (IN LIQUIDATION) ACN 104 915 906
Seventh Defendant

NORTON CAPITAL PTY LIMITED (IN LIQUIDATION) ACN 086 207 169
Eighth Defendant

DANIEL GEOFFREY LILLEY
Ninth Defendant

DAMIEN BERNARD GREER
Tenth Defendant

ROBERT NOEL GALLAGHER
Eleventh Defendant

STEPHEN JAMES DICKENS
Twelfth Defendant

MICHAEL JOSEPH CROUCH
Thirteenth Defendant

JUDGE:

LANDER J

DATE:

18 APRIL 2013

PLACE:

ADELAIDE (VIDEOLINK TO BRISBANE)

REASONS FOR JUDGMENT
The Plaintiffs’ Claim

In this proceeding, the plaintiffs, who are husband and wife, claim relief for losses allegedly arising from conduct relating to the giving of investment advice. The plaintiffs allege that the conduct was misleading and deceptive in that it contained misrepresentations, breached contractual obligations, and was negligent.
The plaintiffs’ principal claim, pursuant to the originating process filed 4 February 2010, is for damages against the first and second defendants:
(a)pursuant to ss 1041I, 1324(1) and 1325(1) of the Corporations Act 2001 (Cth) (the Corporations Act);
(b)pursuant to s 12GF of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act); and
(c)for negligence, misrepresentation, and breach of contract.
The plaintiffs’ statement of claim underwent several amendments and ultimately sought damages against the first and second defendants of the kind in the originating process, with the exception that it also sought damages pursuant to s 953B(2)(b) and (c) of the Corporations Act, but no longer under s 1324(1).
The plaintiffs’ claim is that the first and second defendants are wholly responsible for the plaintiffs’ damages.
In the alternative, the plaintiffs claim damages against each of the third to thirteenth defendants:
(a) pursuant to ss 1041I and 1325(1) of the Corporations Act;
(b) pursuant to s 12GF of the ASIC Act; and
(c) for negligence and misrepresentation.
The Corporations Act and ASIC Act expressly confer jurisdiction on this Court. The claims for negligence, misrepresentation, and breach of contract can be entertained by this Court as a proper exercise of the accrued jurisdiction of this Court.
The plaintiffs’ claim against the third to the thirteenth defendants was only brought because the first and second defendants, in their Fourth Amended Defence and Second Cross-claim (FAD&SCC) not only denied that the plaintiffs were entitled to any relief against them but asserted that they were entitled to:
Contribution and Apportionment
The first and second defendants claim against the third to thirteenth defendants and each of them:
46.1Orders for indemnity to the extent that the first and second defendants, or either of them, are or is liable to the plaintiffs pursuant to section 729, section 1041H and section 1325 of the Corporations Act, and section 12GF of the ASIC Act.
46.2Orders for contribution to the extent that the first and second defendants, or either of them, are or is liable to the plaintiffs pursuant to section 729, section 1041H and section 1325 of the Corporations Act, and section 12GF of the ASIC Act.
46.3Declarations as to the extent of the liabilities of the first and second defendants to the plaintiffs having regard to the comparative responsibility of each and all of Neovest, Norton Capital, Spencer, Perovich, Norton and Townley as concurrent wrongdoers pursuant to section 1041N of the Corporations Act, section 12GR of the ASIC Act and section 31 of the Civil Liability Act.
In addition to summarising those claims for indemnity, contribution and apportionment against the third to thirteenth defendants, the first and second defendants also sought in the body of their Second Cross-Claim to recover amounts against the third to eight defendants pursuant to ss 1041I and 1041N of the Corporations Act.
The conduct of the ninth through to the thirteenth defendants is not directly impugned. It is alleged that they are liable because they were in partnership in Nicol Robinson Halletts (NRH), a firm of solicitors practising at Eagle Street in Brisbane in Queensland with the sixth defendant at the relevant time: s 13 of the Partnership Act 1981 (Qld) (the Partnership Act).
As mentioned in [2], the plaintiffs rely on both statutory and common law causes of action.
The statutory cause of action under the Corporations Act and ASIC Act are:
(a) conduct in breach of s 945A and s 945B of the Corporations Act;
(b)misleading and deceptive conduct: s 1041H of the Corporations Act; s 12DA of the ASIC Act;
(c)breach of implied warranty as to due skill: s 12ED of the ASIC Act;
(d)false representations in relation to the standard of services: s 12DB of the ASIC Act;
(e)misleading representations as to future matters: s 769C of the Corporations Act; s 12BB of the ASIC Act;
(f)false or misleading statements: s 1041E of the Corporations Act.
The originating process did not include a claim under ss 769, 945A, or 945B of the Corporations Act, but those sections were pleaded in the statement of claim in its final form.
The plaintiffs’ claim, by reason of the breaches of those causes of action, that they are entitled to damages pursuant to s 953B: s 1041L and s 1325 of the Corporations Act; and s 12GF of the ASIC Act.
The conduct which is complained of to support the statutory causes of action is identified in paragraph 49 of the Third Amended Statement of Claim (TASOC), in which it is pleaded:
49.The plaintiffs were induced to believe that an investment in Foundation shares was a safe and effective investment which met their financial requirements by:
49.1.     the November 2004 advice;
49.2.     the November 2004 written advice;
49.3.     the 2005 advice;
49.4.     the April 2005 written advice.
49.5.     the Norton Flyer silence
49.6.     the financial stringency silence.
49.7.     the risk profile silence.
(Collectively, “the conduct”)
It is further pleaded in paragraph 49A:
49AThe conduct which consisted of advice was not appropriate to the personal circumstances of the plaintiffs as particularised in paragraph 10 of this pleading.
In paragraph 52 the plaintiffs identify the way in which they put their case against the first and second defendants:
52.In engaging in the conduct and accepting the authority to transfer the amount of $450,000 prior to lodgement of the second prospectus the defendants breached the provisions of the Corporations Act.
PARTICULARS
The plaintiffs rely on Part 6D.2 and Part 6D.3 [of] the Corporations Act and in particular sections 704-707, 715-718, 721, 727-734, and 737-738. The plaintiffs further rely on Part 7.7 of the Corporations Act and in particular Sections 945A, and 945B.
FURTHER PARTICULARS
Bertram ascertained the relevant personal circumstances of the plaintiffs for the purposes of Section 945A(1)(a) of the Corporations Act in the circumstances set out in paragraphs 10 and 11 of this pleading.
Bertram was obliged by virtue of Section 945A(1) of the Corporations Act to give advice that was reasonable in the relevant personal circumstances of the plaintiffs (the reasonable basis for advice rule) but did not do so in the circumstances set out in paragraphs 38-49 of this pleading.
Bertram and Wealthsure were obliged by virtue of the matters set out in paragraphs 38-49 of this pleading and by virtue of Section 945B of the Corporations Act to warn the plaintiffs that the advice constituted by the conduct was incomplete or inaccurate but did not do so contrary to the obligation contained in Section 945B(1) of the Corporations Act.
The November 2004 written advice and the April 2005 written advice were disclosure documents or statements within the meaning of section 953B (1) (b) of the Corporations Act and which were required, by virtue of section 946A of the Corporations Act, to be given to the plaintiffs. They were “defective” (as defined in section 953A (1) (b) (i) of the Corporations Act) contrary to section 953B (1) (b) because they were misleading and deceptive as alleged in paragraph 60 of this pleading.
As a result of the matters particularized above, section 953B of the Corporations Act applies.
The defendants deny these claims, but the second defendant contends, rightly, that insofar as the claims rely upon s 953B, the plaintiffs can only recover against a “liable person” as defined in s 953B(3), which the second defendant, Mr David Bertram, is not.
The plaintiffs have included a common law action in negligence and have pleaded the alleged breach of duty by the first and second defendants in paragraph 62 of the TASOC.

The plaintiffs have not, unfortunately, identified how the duty arises and the content of the duty.
The breach of duty pleaded is:
62.In breach of the retainer and negligently in breach of the duty of care owed by the defendants to the plaintiffs by virtue of proximity and the retainer:
62.1.Mr Bertram never provided Mr & Mrs Selig with any prospectus relating to Neovest Limited nor did he give advice in relation to the contents of a draft prospectus. The second prospectus for equities was not lodged with ASIC until the 31^st of March 2005.
62.2.Bertram did not have a reasonable basis for making the recommendation to invest in Neovest.
62.3.Neither Wealthsure nor Bertram either carried out research or analysed the Neovest investment opportunity nor did they use research or analysis generated from sources external to Neovest.
62.4.Neither Wealthsure nor Bertram analysed the plaintiffs’ financial position and either did not identify the plaintiffs’ financial objectives as pleaded above or simply failed to have regard to them.
62.5.Neither Wealthsure nor Bertram provided advice which would have enabled the plaintiffs to achieve the financial objectives pleaded above.
62.6.Wealthsure failed to make a suitable initial choice of investment products either after conducting a due diligence or at all and then failed to instruct Bertram as its representative to confine himself to such products.
62.7.Wealthsure failed to supervise, train and control its representative Bertram.
62.8.Wealthsure failed to know the Neovest product and match it with the needs and requirements of the plaintiffs and thereby breached the “know your client rule”.
62.9.The defendants breached a term of the retainer and the warranty implied into the retainer by Section 12ED of the ASIC Act by rendering financial advice to the applications without due care and skill.
62.10.The defendants breached a term of the retainer and the warranty implied in the retainer by Section 12ED of the ASIC Act, as the plaintiffs having made known to the defendants the particular purpose for which the financial advice was required, provided financial advice which was not reasonably fit for purpose and not of such nature and quality that it might reasonably be expected to achieve the results desired by the plaintiffs.
62.11.Breached a specific recommendation set out in an email from Wealthsure (David Pawski) to “Dear Advisers” dated 16 September 2004 namely that due to the risks of mezzanine products the maximum permitted client investment was 15% of net assets and borrowing was not permitted.
62.12.Breached a specific recommendation set out in an email from Wealthsure (David Pawski) to “Dear Advisers” dated 16 September 2004 namely that due to the risks of mezzanine products the maximum permitted client investment was 15% of net assets not including the family home and borrowing was not permitted.
62.13.Breached the policy determination namely that due to the risks associated with Neovest redeemable preference shares the maximum investment per client was to be 15% of nett assets other than the clients family residence and that borrowing was not permitted.
The contract, which is said to be breached, is contained in a document described in the TASOC as the “Financial Services Guide” (FSG), which was issued by the first defendant on 15 January 2004.
The terms of the contract are set out in paragraph 7 of the TASOC:
7.1.The defendants would only recommend an investment after considering its suitability for the plaintiffs’ individual needs, objectives and circumstances (express written term page 3).
7.2.The defendants would only offer products selected from an approved list of products carefully researched and approved by a team of research experts (express written term page 4).
7.3.The defendants would exercise reasonable care in the provision of services to the plaintiffs (implied at law by virtue of section 12 ED of the ASIC Act and from the terms of the agreement in order to give business efficacy to the FSG).
The plaintiffs rely upon paragraph 62 of the TASOC again, for evidence of the breach of the retainer referred to in paragraph 7 of the TASOC.
In that regard, as the first and second defendants have contended, the plaintiffs’ claim is no higher in contract than that which is available to them in tort and in the statutory causes of action under the Corporations Act and ASIC Act.
The plaintiffs also claim that the first and second defendants were guilty of misrepresentation, which I think relies upon the plea in paragraph 59 of the TASOC, which is in the following terms:
59. The conduct was:
59.1.Misleading and deceptive conduct contrary to section 12DA of the Australian Securities and Investments Commission Act 2001 (the ASIC Act).
59.2.A false representation as to the standard, quality and value of the services provided by the defendants contrary to Section 12 DB of the ASIC Act.
59.3.A breach of the warranty implied into the retainer by Section 12ED of the ASIC Act that the financial advice would be rendered with due care and skill.
59.4.The plaintiffs having made known to the defendants the particular purpose for which the financial advice was required and the results the plaintiffs sought to achieve, a breach of the warranty implied by Section 12ED of the ASIC Act that the financial advice would be reasonably fit for it’s (sic) purpose and of such nature and quality that it might reasonably be expected to achieve those results.
59.5.In so far as the representations set out in this claim relate to a future matter the plaintiffs rely on section 12 BB of the ASIC Act.
59.6.Misleading and deceptive conduct contrary to Section 1041H of the Corporations Act.
59.7.False and misleading contrary to Section 1041E of the Corporations Act.
59.8.In so far as the representations set out in this claim rely on a future matter, the plaintiffs rely on S769C of the Corporations Act.
In paragraphs 60 and 61 of the TASOC, the plaintiffs plead the facts upon which the plaintiffs rely for saying that the conduct was misleading and deceptive, and contrary to the provisions of the Corporations Act and ASIC Act:
60.The conduct was misleading and deceptive contrary to the provisions of the ASIC Act and Corporations Act and was also negligent and a breach of the contract of retainer in that:
60.1.The consulting services and marketing agreements which Neovest entered into with Norton Capital and financial services licensees indicated that up to 19.5% of the investment monies it received would go as commissions to Norton Capital and agents, and financial services licencees (sic) plus success fees, making it highly unlikely that there would be any dividends available to be paid to the plaintiffs in the course of the first year of the investment.
60.2.Wealthsure was or should have been aware of the appointment of the receiver on the 27^th day of September 2004 to Neo Lido and Holdings, and made further enquires (sic) with the receiver and other charge holders.
60.3.Mr Bertram wrongfully stated that a 20% dividend would be paid to Mr & Mrs Selig and that their capital was “guaranteed”. This was contrary to the statements regarding risks contained in the Norton “flyer”, and the second prospectus and the explicit warnings in the prospectus that there was no guarantee that any dividends would be paid to shareholders.
60.4.The profit and loss information in the Neovest prospectus showed that Neovest would never be in a position to pay any dividend to investors, particularly on the financial results for the six months to December 2004.
60.5.Neovest’s financial history as set out in the prospectus was that it paid almost all its revenue to “borrowing costs”.
60.6.Neovest only had a profit for the half year to 31^st December 2004 of $1,335.00, notwithstanding that it issued approximately $4,000,000.00 worth of shares to the 31^st of December 2004.
60.7.Neo Lido, Holdings and their subsidiaries had “borrowing costs” of $7,539,754.00 and had sustained losses of $250,857.00 during the 2004 financial year.
60.8.The statement in the 2005 advice that the directors had personally guaranteed the debts of the company made no reference or enquiries with respect to the financial status of the directors.
60.9.Loans by Neovest to the Neolido Group were not properly or adequately secured.
60.10.Any company searches of charges taken by Neovest over Neo Lido or Holdings prior to March 2005 would have revealed the matters pleaded at paragraph 23.3 hereof namely that no proper or adequate steps were taken to secure the monies provided by Neovest to Neo Lido or Holdings.
60.11.Any land title searches would have shown that no mortgages were taken over the properties of Neo Lido, Holdings or their subsidiaries in favour of Neovest. A search would have disclosed that debentures had not been registered in accordance with the provisions of the Corporations Act.
61.The advice that Neovest had been fully researched was false and misleading and deceptive in that neither Wealthsure nor Bertram had independently investigated Neovest. Had they done so they would have ascertained, as was the fact, that:
61.1.There was an identity of directors between Neovest and the Neolido Group; and;
61.2.Any money invested in Neovest was already committed to reducing the existing financial stringency of the Neolido Group and;
61.3.An investment in Neovest could never have been recommended as an appropriate investment to the plaintiffs.
Both plaintiffs claimed to have suffered financial loss, including the loss of an investment. They also claimed damages for personal injury. Mrs Selig claimed to have suffered a severe anxiety reaction and psychiatric illness “as a result of the hardship caused by the conduct of the defendants”: paragraph 68 of the TASOC. Both plaintiffs claimed to have suffered “severe inconvenience, stress and vexation”. They claimed in paragraph 79 of the TASOC:
The plaintiffs have suffered symptoms of stress including disturbed sleep and changes in mood. As a result of the pressure caused by the failure of the investments and consequent financial hardship the marriage between the plaintiffs has failed.
On the fourth day, which was after Mrs Selig was cross-examined by Mr Cox, junior counsel for the first and second defendants, Mr Heywood-Smith QC, leading counsel for the plaintiffs, announced that the personal injury claim was not pursued. He advised the Court that a medical practitioner who was to be called as an expert witness on that aspect of the plaintiffs’ claim would not be called to give evidence.
The plaintiffs, in my opinion, were wise to abandon that claim. Although nothing more needs to be said about that aspect of the plaintiffs’ claim for damages, that does not mean that the cross-examination of Mrs Selig on this aspect became irrelevant. She was also a witness on liability. The whole of her evidence is relevant in assessing the reliability of her evidence on liability, and that is a matter to which I will return.
The plaintiffs’ claim for economic loss is identified in paragraph 63 of the TASOC and arises, as can be seen in the plea, “[b]y reason of the insolvency of the Neovest and the Neolido Group”, and comprises:
63.1. loss of their investment of $450,000.00; and
63.2. interest on a compounding basis; and
63.3.consequential loss upon the collapse of investments dependent upon a return from the Neovest investment.
As can be seen, paragraph 63.3 talks of consequential loss, which is identified in paragraphs 64 to 67 of the TASOC:
64.The defendants knew as at 17 March 2005 that the plaintiffs had borrowed money to purchase real estate in Queensland in the expectation of a return on their investment in Neovest. As a result they knew that if the plaintiffs were deprived of a return on their investments they would be obliged to pay accumulating interest on a compounding basis in terms at a default rate and might suffer a forced sale of properties.
PARTICULARS
Mr Ron Selig on behalf of the plaintiffs orally informed Bertram on behalf of the defendants in the course of the meetings and in particular in about November 2004 that the plaintiffs would borrow money to purchase real estate in Queensland. Bertram was aware that the plaintiffs intended to borrow to purchase real estate because he personally arranged the borrowing of the money. Bertram recorded his awareness of the defendants’ intentions in the April 2005 advice.
65.As a result of being deprived of the sum of $450,000 the plaintiffs have incurred an obligation to pay accumulating interest on a compound basis at a default (higher) rate of interest together with bank penalties, fees and charges.
66.As a further result of being deprived of the sum of $450,000 and having no return on their investment in Neovest the plaintiffs have suffered loss as a result of both the purchase and forced sale of properties at unit 1, 78 Berrima Street Wynnum, Unit 7, 78 Berrima Street Wynnum, Unit 9, 78 Berrima Street Wynnum, Units 3 and 12, 143 Burnett Street Buderim, and 7 Wattle Street, Point Arkwright.
67.The defendants were aware at the time of engaging in the conduct that the consequential losses subsequently sustained by the plaintiffs as pleaded above were the reasonable and likely consequence of reliance upon their advice and in particular the reasonable and likely consequence of the failure of the Neovest investment. The defendants were so aware because they had ascertained the financial position of the plaintiffs prior to recommending the Neovest investment in the course of the meetings.
As I have already said, the plaintiffs’ proceedings against the third to thirteenth defendants were brought reluctantly, and for the reasons identified in [7] of these reasons.
The plaintiffs put their case against the third to thirteenth defendants in the TASOC:
71.On the grounds pleaded in this third amended statement of claim the plaintiffs have sought relief including damages pursuant to ss. 1041 (1), 1325 (1) and 953B (2) of the Corporations Act 2001 and damages pursuant to s. 12GF of the Australian Security and Investments Commission Act 2001 together with damages for negligence, misrepresentation and breach of contract against the first and second defendants.
72.The first and second defendants have, by their fourth defence and second cross claim denied that the plaintiffs are entitled to any relief. The first and second defendants assert pursuant to s.1041I and, 1041N of the Corporations Act 2001, s.12GP and s.12GR of the ASIC Act and s.28 of the Civil Liability Act 2003 (Qld) that the liability of the first and second defendants to the plaintiffs is limited to the extent of the first and second defendants’ responsibility for loss in proportion to the liability of the third to eighth defendants as concurrent wrongdoers.
73.The plaintiffs say that:
73.1. The claims are not apportionable.
73.2.Alternatively the claims under section 953B (2) of the Corporations Act 2001 and the claims in contract are not apportionable claims.
73.3. The first and second defendants are wholly responsible for the loss.
74.To the extent that the plaintiffs’ claims are apportionable (which the plaintiffs deny), then the plaintiffs seek relief from the third to thirteenth defendants on the grounds set out in the fourth defence and second cross claim in respect of the loss and damage set out in the second amended statement of claim.
In the prayer for final relief, the claims against the third to thirteenth defendants are put as an alternative to the claims against the first and second defendants.
The First and Second Defendants’ Defence
The first and second defendants admit that from December 2003, or at the latest 15 January 2004, the second defendant became an agent of the first defendant by becoming an authorised representative of the first defendant. The first and second defendants do not dispute that the Statements of Advice mentioned in paragraph 49 of the TASOC were given to the plaintiffs. They say, however, that the Statements of Advice were not read by the plaintiffs – in the case of Mr Selig because of his reading problems; and in the case of Mrs Selig because of disinterest; and, therefore, any claims based on the provision of the Statements of Advice were not maintainable under s 953A and s 953B of the Corporations Act.
They denied that any oral misrepresentations were made as pleaded and that if they were made they had any causal consequences.
In respect of the documents that are mentioned in paragraph 49 of the TASOC, the first and second defendants denied that any misrepresentations were made by silence. They say that those documents contained appropriate disclosure of all of the risks, but that the plaintiffs did not read the documents.
In relation to the plea in paragraph 49.6 of the TASOC, they say that those matters were not known by the first and second defendants, and could not have been known.
In addition, the first and second defendants say that the plaintiffs entered into speculative investments on the advice of others, as a result of which they suffered losses.
The first and second defendants plead that the plaintiffs agreed, in the Statements of Advice, that the first and second defendants would not be liable to the plaintiffs for any loss or damage suffered by the plaintiffs, as a result of any error or omission from any statement set out in either Statement of Advice, including fault or negligence on the part of the first and second defendants.
They plead in the alternative that if the plaintiffs are entitled to damages, the damages should be reduced on account of the plaintiffs’ failure to take reasonable care.
In the further alternative, the first and second defendants claim that the plaintiffs’ losses were caused by the third to eighth defendants, and if the first and second defendants are partly responsible for the plaintiffs’ loss or damage, the damages to be awarded to the plaintiffs should be apportioned between those defendants.
I will address those pleas in more detail later in these reasons.
The First and Second Defendants’ Claim for Apportionment
The first and second defendants have also brought a cross-claim against all other defendants, in which they seek apportionment and orders for indemnity and contribution against each of the third to thirteenth defendants, including the seventh defendant, Neovest Limited (in liquidation) (Neovest) and the eighth defendant, Norton Capital Pty Limited (in liquidation (Norton Capital), and the bankrupt directors of Neovest on the basis that those parties are also liable to the plaintiffs for the plaintiffs’ loss. They say that the directors of Neovest are concurrent wrongdoers for the purpose of the apportionment legislation. Although Neovest is in liquidation, the first and second defendants say it is a concurrent wrongdoer and that it was responsible to the first and second defendants and the plaintiffs, as were its directors. The same plea is made in respect of Norton Capital, which is also in liquidation.
The first and second defendants claim that the Neovest directors, Mr Richard Spencer, Ms Silvana Perovich, Mr Mark Norton and Mr Peter Townley, caused Neovest to invest in a Ponzi scheme, and breached ss 254T and 588G of the Corporations Act, by paying dividends monthly to investors out of the investments of new investors, in circumstances where Neovest was not making a profit from which to declare those dividends.
They say that the directors engaged in misleading and deceptive conduct in making representations by Neovest to the first and second defendants. They say that the directors improperly promoted the 2004 Neovest prospectus, which was misleading and in contravention of s 710 of the Corporations Act. They say that the directors improperly promoted the 2005 Neovest prospectus, which was misleading and in contravention of s 710 of the Corporations Act.

The first and second defendants’ case against the ninth to thirteenth defendants, being the partners of Mr Townley in the firm NRH, is on the basis that they are vicariously liable to the plaintiffs and to the first and second defendants, for the conduct of Mr Townley pursuant to s 13(1) of the Partnership Act. The first and second defendants seek indemnity from the ninth to thirteenth defendants to the extent that Mr Townley is found to be liable to indemnify or provide contribution to the first and second defendants.
They make the same plea against the ninth to thirteenth defendants as is made by the plaintiffs in paragraph 74 of the TASOC.
The Other Defendants’ Defences
Originally the third, fourth, fifth and sixth defendants filed a defence to the plaintiffs’ statement of claim and a defence to the first and second defendants’ cross-claim.
Later, the third, fourth and sixth defendants filed amended pleadings.
The fifth defendant did not file any further pleadings after the third, fourth and sixth defendants filed their amended pleadings.
The seventh and eighth defendants, each in liquidation, did not ever file a defence to either the plaintiffs’ claim or the first and second defendants’ cross-claim.
The fifth, seventh and eight defendants, therefore, did not defend themselves against the claims made.
The third, fourth and sixth defendants, being the Neovest directors, Mr Spencer, Ms Perovich and Mr Townley, deny that they were guilty of any of the conduct complained of by the plaintiffs or by the first and second defendants, and deny that they are liable to an apportionment pursuant to the Corporations Act or the ASIC Act.
They also claim that if the plaintiffs are entitled to any damages, the liability for those damages was caused by or contributed to by the conduct of the plaintiffs and the first and second defendants.
In the alternative, they plead that the fifth and eighth defendants, Mr Norton and Norton Capital, had the responsibility for the 2005 Neovest prospectus and any omissions or misrepresentations made in that document were made by the fifth and eighth defendants.
They say in their defence, but not by way of cross-claim, that they relied upon advice provided by McCullough Robertson to Neovest and its directors concerning the 2004 Neovest prospectus. They also say they relied upon the advice provided by NRH to Neovest and its directors concerning the 2005 Neovest prospectus.
It is not entirely clear what the purpose of those pleas is, as I say, because no claim is brought against any other party.
The ninth to thirteenth defendants deny that they are vicariously liable for the conduct of Mr Townley, because if Mr Townley is liable to contribute to the plaintiffs, or to indemnify the first and second defendants, Mr Townley was not acting within the ordinary course of business of the partnership of NRH. In that regard, those defendants rely upon s 13(2) of the Partnership Act and rely upon a decision of the Supreme Court of New South Wales, Ingot Capital Investments & Ors v Macquarie Equity Capital Markets & Ors [2002] NSWSC 853.
The ninth to thirteenth defendants say that if the plaintiffs did suffer any loss or damage the same was caused as a result of the plaintiffs’ own conduct, and/or the conduct of the first and second defendants, and/or the conduct of the third, fourth, fifth, seventh and eighth defendants.
In the alternative, they claim that if Mr Townley contravened the Corporations Act or the ASIC Act as pleaded and the plaintiffs suffered loss or damage of a kind that renders NRH liable, then any loss or damage allegedly suffered by the plaintiffs was caused as a result partly of the plaintiffs’ failure to take care, and any damages recoverable by the plaintiffs should be reduced having regard to the plaintiffs’ own conduct.
I will say more about that plea in due course.
The parties
The plaintiffs, Mr Ronald Selig and Mrs Janna Selig, are husband and wife who by the time of trial were separated. Mr Selig was born on 20 December 1956. Mrs Selig was born on 21 December 1972 in Kazakhstan. They met in 1994 and they married on 15 August 1996 and have two children. At the relevant time they had one child, Brokk born on 28 August 2002.
Mr and Mrs Selig were at the relevant time the shareholders and directors of Jarone Pty Ltd (Jarone), a company incorporated in Australia on 15 February 2002 for the purpose of holding the plaintiffs’ investments.
The first defendant, Wealthsure Pty Ltd (ABN 93 097 405 108) (Wealthsure), was incorporated in Western Australia on 5 July 2001 and is the holder of Australian Financial Services Licence 238030. It is a provider of financial services as defined in the ASIC Act.
Its shareholders are DKB Qld Pty Ltd as trustee for the DKB Investment Trust, Jean Kaminski as the trustee for the Kaminski Family Trust, and Andrew Barry Pawski. Andrew Pawski is the sole director and secretary.
The second defendant, Mr David Bertram, was a director of David Bertram & Associates Pty Ltd (DBA), and after 15 January 2004, an authorised representative of and acting with the authority of Wealthsure, with the ASIC Authorisation Representative number 255366, until DBA’s winding up.
DBA was incorporated in the Australian Capital Territory on 21 March 1990. At all relevant times David Bertram was the sole director and secretary of that company. He and his wife, Kerry Michelle Bertram, were its shareholders. On 3 September 2007, the Supreme Court of Queensland made an order for the winding up of DBA in insolvency and appointed Mark William Pearce as liquidator.
The third defendant, Mr Richard Spencer, was between 20 November 2001 and 24 August 2007, a director of Neo Lido Pty Ltd (Neo Lido), a company incorporated in Queensland on 14 November 2000; and between 10 October 2002 and 24 August 2007 a director of Neolido Holdings Pty Ltd (Neolido Holdings), a company incorporated in Queensland on 10 October 2002; and a director of the seventh defendant Neovest, a company incorporated on 29 May 2003 and now in liquidation. Mr Spencer became bankrupt when an order was made for the sequestration of his estate on 24 August 2007. He remains an undischarged bankrupt.
The fourth defendant, Ms Silvana Perovich, was a director of Neo Lido between 14 November 2000 and 20 August 2007; a director of Neolido Holdings between 10 October 2002 and 20 August 2007; and a director of Neovest between 29 May 2003 and 20 August 2007. Ms Perovich became a bankrupt when an order for the sequestration of her estate was made on 20 August 2007. She remains an undischarged bankrupt.
The fifth defendant, Mr Mark Norton, was appointed a director of Neovest from 14 September 2004. Mr Norton was, at all relevant times, also a director of the eighth defendant, Norton Capital, a company incorporated in Australia and an Australian Financial Services Licensee, which went into liquidation on 25 June 2008. Although Mr Norton initially filed a defence in the proceeding he thereafter took no part.
Mr Townley was at all relevant times a lawyer and partner in the firm NRH and was a director of Neovest from 29 May 2003.
The seventh defendant Neovest was incorporated on 29 May 2003 and had as its directors, as I have said, Mr Spencer, Ms Perovich, Mr Norton, and Mr Townley. It was incorporated to obtain investments for the purpose of providing loan facilities to Neo Lido and Neolido Holdings, which were developers. Neovest was placed into liquidation on 5 February 2008.
The eighth defendant Norton Capital had as its sole director the fifth defendant, Mr Norton, but it is, as I have said, now in liquidation.
The ninth defendant Mr Daniel Lilley, tenth defendant Mr Damien Greer, eleventh defendant Mr Robert Gallagher, twelfth defendant Mr Stephen Dickens, and thirteenth defendant Mr Michael Crouch were at all relevant times lawyers practising in partnership with Mr Townley at the firm NRH.
The third and fourth defendants are bankrupt. The seventh and eighth defendants are in liquidation. On 8 December 2010, leave was given, pursuant to s 58(3) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act), for proceedings to be commenced and continued against the third and fourth defendants up to the date of entry of the judgment. On the same day, leave was given for proceedings to be commenced and continued against the seventh defendant, Norton Capital, pursuant to s 500(2) of the Corporations Act up to the date of entry of the judgment. Again, on the same day, leave was given for proceedings to be commenced and continued against the eighth defendant, Neovest, pursuant to s 471B of the Corporations Act up to the date of judgment.
The Trial
The plaintiffs were represented by Mr Heywood-Smith QC and Mr Riggall, and the first and second defendants by Mr O’Sullivan QC and Mr Cox.
On the first day of the hearing the third and fourth defendants, and the sixth and the ninth to thirteenth defendants, were represented by Mr Adams.
The fifth defendant, and the seventh and eighth defendants, did not attend and did not take part in the trial. As previously mentioned, the seventh and eighth defendants did not file a defence to the plaintiffs’ claim or the first and second defendants’ cross-claim. As I have said, the fifth defendant did file a defence, but thereafter did not participate in the proceeding. The seventh and eighth defendants did not file any documents in the proceeding before trial.
The trial was conducted in Adelaide on 7-9, 13, 14 March 2012, in Brisbane on 2-5, 10-13 April 2012, and in Adelaide again on 18 April 2012.
Mr Adams sought and obtained leave for the parties he represented not to attend that part of the trial that was held in Adelaide.
When the trial resumed in Brisbane, the third and fourth and sixth defendants represented themselves. Mr Anderson, of counsel, represented the ninth to thirteenth defendants, but only appeared at part of the hearing in Brisbane.
Witnesses
Both plaintiffs gave evidence. Mr Selig is dyslexic, although that was not known to anyone apart from his wife and, as a result, he has difficulty reading. I thought Mr Selig was an honest witness but, in some respects, he was vague and, in other respects, his memory was not good.
Although he has been involved in developments, he did not give the impression of being a business man or, indeed, having much business acumen. In my opinion, he was an unsophisticated man and an unsophisticated investor.
Mrs Selig was not a good witness. She was, as the first and second defendants contend, evasive in giving her evidence. Her evidence included some inconsistencies.
She did not play much part in the circumstances giving rise to the investments and, because she was not a good witness and for that reason, I have placed little reliance upon her evidence.
Mr Wybrow was an expert called by the plaintiffs. In due course, it will be necessary to discuss his evidence and its import. However, I was impressed by Mr Wybrow, who I thought was a careful witness whose evidence could be relied upon.
The plaintiffs called Mr Selig’s brother, Mark Selig, who gave evidence of a dinner at which he was present on 29 September 2004 at the plaintiffs’ home. I accept Mr Mark Selig’s evidence.
The plaintiffs called Mr Erik Diegmann and Mr Raymond Bernard, both of whom had invested in Neovest on the advice of Mr Wayne Mackintosh.
I think their evidence was of little use and I have put little reliance upon it.
Mr Dean Ind was called. He was present at a number of meetings at which the plaintiffs and Mr Mackintosh and Mr Bertram were present.
The first and second defendants contended that Mr Ind’s evidence contained inconsistencies and he was an unreliable witness whose evidence should not be relied upon.
That was not my assessment of Mr Ind’s evidence, although he stood to gain by the transactions which took place. In my opinion, Mr Ind was an honest witness, whose evidence can be relied upon.
The first and second defendants called the managing director and chief executive officer of the first defendant, Mr Darren Pawski, who I thought was a poor witness. His evidence, I thought, was designed to exculpate Wealthsure. I place little reliance on Mr Pawski’s evidence for that reason.
Mr Bertram gave evidence. I thought Mr Bertram was an honest witness who was willing to admit to mistakes that he had made. I accept his evidence.
Mr Marc Robinson was called by the first and second defendants to give evidence of a report which he had prepared as a senior accountant employed by Australian Securities and Investments Commission in its National Insolvency Coordination Unit (NICU).
ASIC became aware of Neo Lido and Neolido Holdings some time before March 2005 and, on 29 March 2005, began surveillance activities in relation to those companies and those companies’ controlled entities, which it described as the Neolido Group.
Mr Robinson described the activities which had taken place and ASIC’s conduct in relation to the Neolido Group generally.
He was cross-examined extensively by Mr Spencer, on behalf of the former directors of Neovest but, in my opinion, his evidence may be relied upon for the opinion contained in his evidence in relation to the solvency of Neolido Group at various times.
Ms Perovich gave evidence. She was, unfortunately, a very poor witness. She was evasive and argumentative. She tried to argue her case from the witness box.
Mr Spencer was a better witness, but he was not forthright and it was difficult to have confidence in his evidence.
Mr Townley, who, as I have said, was also a director of Neovest and was at the relevant time a partner in the law firm of NRH, who were solicitors for the Neolido Group, answered questions in cross-examination precisely and carefully.
I think I can rely on Mr Townley’s evidence.
Mr Norton did not give evidence, nor did he appear at the trial. Neovest and Norton Capital took no part in the trial. At the time of the trial, both were in liquidation.
Mr Gallagher was the only one of Mr Norton’s four partners who gave evidence. He was clearly a truthful witness. Indeed, he could be described as an excellent witness. I have no doubt I can rely upon his evidence.
History
I shall address the relevant facts in chronological order, although from time to time it will be convenient to complete a topic before moving to a new topic that might have started earlier in time. Where there is a dispute as to the facts I will identify the evidence and make appropriate findings.
Mr Selig – Early History
Mr Selig was born and raised in Robe and has been involved in mainly heavy manual labour jobs and building work for the whole of his working life. He first worked as a deckhand on a cray fishing boat. For several years he worked importing/exporting and processing seafood. Later he worked as a landscape gardener and then as a builder/developer. He suffered a progressive loss of working capacity due to a back injury which first occurred in 1991 while working as a landscape gardener. He suffered other injuries while working on multi-storey buildings in Adelaide.
In 1998, he and his brother moved to Queensland to be close to their parents. Between 1998 and 2004, he and his family were involved in two successful building projects in Queensland. He and his father and mother purchased land at Buderim upon which they built four apartments. He and his brother acted as builder for the development, for which he and his parents contributed the capital. The development, which was financially successful, was completed and sold by Easter 1999.
Sea Aura Apartment Development
During late 1999, Mr Selig and his brother Mark purchased land at 143 Burnett Street, Buderim, which they developed by building 12 residential units known as the “Sea Aura Apartments”.
The Sea Aura Partnership was formed in 2000. The partners were Renstef Pty Ltd, which was a company controlled by Mr Selig’s parents, which had a 45% share in the development; Mr and Mrs Selig who had a 50% share directly in the development; and Mr Selig’s brother Mark and his wife, who shared a 5% holding.
On 15 February 2002, during the course of the development, Jarone was incorporated to hold Mr and Mrs Selig’s interest in the partnership.
Mark Selig was the designated builder of the project. The first building work for the Sea Aura Apartments started at the end of March 2002 and continued until 2003.
During 2003, Mr Selig met Mr Dean Ind, a real estate property marketer. The pair commenced a business relationship when Mr Ind began acting as marketing agent for the sale of the Sea Aura Apartments. They later became friends.
Mr Selig carried out labouring work on the project and during the course of the project suffered a further back injury. He underwent a decompression laminectomy to relieve leg pain. He was assessed as being effectively permanently disabled due to low back pain and sciatica. Mr Selig realised that his predisposition to back pain meant that he would be unable to carry out the sort of physical labour that he had been undertaking in previous years.
In August 2003, the plaintiffs moved in to apartment number 3 of the Sea Aura Apartments. Between October and December 2003, the apartments were fully completed.
The first apartment, number 2, was sold in 2003 for $463,000. Apartment number 6 sold for $455,000; apartment number 7 sold for $245,000; apartment number 8 sold for $290,000, apartment number 10 sold for $795,000; apartment number 5 sold for $495,000; and the last apartment to sell was number 4, which was sold in about September 2004 and settled in December 2004 for $545,000.
Mr and Mrs Selig occupied apartment number 3, which Mr Selig said was larger and better than the other apartments. It had been built on the assumption that it would be their home.
Mr Selig said that he was approached by a realtor, before the apartments were finished, who advised him that he had a client who wished to purchase apartment number 3 for $2,000,000. Mr Selig said he was not prepared to sell for that price, but that approach left him with a view about the value of the apartment. Whilst I do not doubt that Mr Selig had the conversation of which he deposed, I very much doubt that apartment number 3 had a market value of $2,000,000 or anything near it. It is excessive, having regard to the prices at which the other apartments sold and for the price at which apartment number 3 subsequently sold.
After the sale of the apartments to which I have referred, five apartments were left. It was agreed between the partnership that Mr and Mrs Selig would be entitled to apartments 3 and 12, and Mark Selig would be entitled to apartments 1 and 11. The agreement recognised that Mr Selig and Mark Selig had remained the owners of the land upon which the apartments had been built throughout the whole of the project. Mr Selig’s parents retained apartment 9. Apartment 11 was subsequently sold by Mark Selig for $750,000.
When the project completed, neither the partnership nor Mr and Mrs Selig, owed any money in relation to the project.
In about September 2004, which was after the plaintiffs had sold several of the Sea Aura Apartments, they were looking to invest in a development known as the “Cedar Rise” development.
Mr Selig’s taxable income for the financial year ended 30 June 2003 was $58,238. His taxable income for the year ended 30 June 2004 was $21,003. In that year, his only income was a director’s fee of $21,831.
By November 2004, both plaintiffs were not working. The only income they had was $370 per week being rental income from apartment number 12 of the Sea Aura Apartments. The plaintiffs had not proceeded with the Cedar Rise development opportunity with Mr Jacques Mamet. The plaintiffs turned to explore other investment opportunities that would provide an income and Mr Selig discussed this with Mr Bertram.
Neolido and the Neolido Group
On 14 November 2000, Neo Lido was, as I have said, incorporated in Queensland. Its directors were Ms Perovich, Mr Spencer, and Matthew James Neibling. Mr Neibling resigned that same day. Its shareholders were Ms Perovich and Mr Spencer, each holding one share.

On 10 October 2002, Neolido Holdings was incorporated in Queensland. Its directors were Ms Perovich and Mr Spencer. Its shareholders were Silvana Perovich Pty Ltd and Richard Spencer Pty Ltd, each holding 60 shares, and Mango Capital Pty Ltd (Mango Capital), which was incorporated on 6 June 2005 and deregistered on 28 October 2007, held 30 shares. The directors of Mango Capital were Ms Perovich and Mr Spencer, with Ms Perovich resigning on 20 August 2007 and Mr Spencer resigning on 24 August 2007. The shareholders of Mango Capital were Ms Perovich and Mr Spencer with 60 shares each.
Neolido Holdings and Neo Lido, together with the later subsidiary entities, were known as the Neolido Group. Neo Lido was the trading arm of the Neolido Group with Neolido Holdings and its subsidiaries holding the real property and stock of the Neolido Group. Although it was referred to as a “Group”, that term should not be understood as referring to a group in an accounting sense. Neo Lido was not the subsidiary of Neolido Holdings. The companies had common shareholders.
The Neoldio Group was formed using Ms Perovich’s and Mr Spencer’s combined skills and interest in property development, for the purpose of developing projects in the city of Brisbane, in the shires of Pine Rivers, Shi Redlands, Caboolture, Isis and Tia. When it started trading it used Ms Perovich’s and Mr Spencer’s financial resources, which were supplemented by profits from early projects and funds obtained via bank guarantees and from a consulting agreement in relation to a major broad-acre development site located at Mango Hill, north of Brisbane, in which Ms Perovich and Mr Spencer held significant interests.
The Neoldio Group began by using a diversity of second tier lenders to finance individual projects. The Neolido Group’s profile grew and, in due course, Neolido was persuaded by Suncorp Finance, a first tier financier, to choose it as a replacement for its existing second tier financing.
David Bertram
DBA was incorporated on 21 March 1990 and carried on business under the name “DBA Financial Designs”. It employed David Bertram. Some time in the mid-1990s, David Bertram became acquainted with Mr Wayne Mackintosh, who conducted a business advice and mortgage brokerage business. They became friends. Eventually, Mr Bertram was engaged by a group of companies controlled by Mr Mackintosh, “Asset Acceleration Group”, to provide para-planning services.
Mr Townley and NRH
On 1 July 1997, Mr Townley became a partner of NRH. On the same day, Mr Gallagher, Mr Greer and Mr Crouch also became partners. Mr Townley remained a partner of that firm until 30 June 2008 when NRH merged with Herbert Geer & Rundle Lawyers and became Herbert Geer. He remained a partner of that firm until 30 November 2011, when he resigned to practise as a sole practitioner.
During the relevant time, the partners of NRH were Messrs Lilley, Greer, Gallagher, Dickens, Crouch and Townley.
In 2000, Mr Spencer and Ms Perovich approached Mr Townley to act as solicitor for a new real estate venture “Neo Lido”. Mr Townley said that he had known Mr Spencer since 1982 when they had served in articles together, and later when he had been involved in the private mortgage lending practice of GPS Solicitors. He also came to know Ms Perovich, who had been a client of Halletts Solicitors, which subsequently became NRH and a firm of which Mr Townley was a partner. Mr Townley knew David Kelly and Mark Phillips, who were appointed CEO and CFO respectively of the Neolido Group.
Prior to 2003, NRH provided legal professional services to the Neolido Group and Mr Spencer and Ms Perovich, through Mr Townley who was designated as the client relationship officer for NRH.
In early 2003, Mr Townley had a number of discussions with Mr Spencer and Ms Perovich about the possibility of raising capital through a public company to invest in primarily Neolido Group projects, but also in other property development projects in Queensland that might be suitable.
NRH provided legal advice to Mr Spencer, Ms Perovich and the Neolido Group to the effect that any public company would have to have at least three directors. Mr Spencer and Ms Perovich told Mr Townley that they did not, at that time, have a third person who was willing to accept an offer as a director of a proposed public company and inquired of Mr Townley whether he would be willing to act as a non-executive director. He agreed.
On 29 May 2003, NRH, acting on instructions, applied for the incorporation of Neovest as a public company limited by shares and Neovest was incorporated that day. The founding directors were Mr Spencer, Ms Perovich and Mr Townley.
Neovest was incorporated for the purpose of offering investors the opportunity to build on “Neolido’s extensive and high quality Queensland portfolio, and to be part of Neolido’s vision to be a leader in sustainable urban design and development – not just in Queensland, but throughout Australia”.
Prior to the incorporation of Neovest, the Neolido Group had, as I have said, borrowed monies for property development from commercial lenders on commercial terms.
Mr Townley said that at some time in late 2003 he told Mr Spencer and Ms Perovich that he would prefer that they find another person to act as director prior to the issue of the first Neovest prospectus. He was told there was no-one else suitable to act as a director of Neovest and Mr Spencer and Ms Perovich asked him to continue in the role. Mr Townley said that he would be prepared to continue to act as a director of Neovest if a director’s and officer’s policy was in place.
In late 2003, Mr Gallagher was the managing partner of NRH which had, as I have said, as its partners Messrs Lilley, Dickens, Crouch, Greer, Gallagher and Townley.
Mr Townley raised with his partners, at Mr Spencer and Ms Perovich’s request, that he continue to act as a director of Neovest while Neovest issued a prospectus to raise capital. Mr Townley said that he cannot remember whether all of the partners of NRH were present at that meeting. His recollection was that Messrs Crouch, Greer and Gallagher agreed to him continuing to act.
Some time in January 2004, Ms Perovich told Mr Townley that she had been told, when making enquiries about a director’s and officer’s policy, that it would be prohibitively expensive.
At the relevant time, NRH was covered by a compulsory professional indemnity insurance policy through Lexon Pte Ltd (Lexon), an insurer under the control of the Queensland Law Society Inc.
Mr Townley formed the view, having reviewed the terms of the Lexon insurance policy, that if Neovest director’s fees were paid to NRH, he would be covered by that policy while acting as a director of Neovest.
Some time after 12 January 2004, he spoke to Mr Gallagher as managing partner of NRH and proposed that NRH should open a client file for Neovest to be called “Directorship” (Directorship File); that Mr Townley should require Neovest to pay his director’s fees for any attendance as a director of Neovest at his solicitor’s hourly rate rather than a fixed fee; and that those fees should be invoiced to Neovest under the Directorship File and paid into the NRH general account in the same manner as any fees for legal services. He proposed that only his fees as a director should be recorded in the Directorship File and that all other legal services be recorded on other files and invoiced in the usual manner.
Mr Townley accepted that the Directorship File was not opened until some time after he became a director of Neovest. He also accepted no written fee agreement was entered into, nor was any retainer executed. He said it was not a legal file in the ordinary sense. There were no instructions taken in respect of it.
Mr Townley said that Mr Gallagher agreed with his analysis of the Lexon insurance policy and his proposals.
Subsequently, some time after 12 January 2004, Mr Townley put the proposal, which he and Mr Gallagher had discussed, to Mr Spencer and Ms Perovich who accepted.
Mr Townley said that he authorised the issue of the first Neovest prospectus after a discussion with Mr Spencer and Ms Perovich, and after a meeting of directors and, on 3 February 2004, Neovest lodged its first prospectus with ASIC.
Neovest and Neolido
On 1 January 2004, seven months after it was incorporated, Neovest entered into a loan agreement with Neolido Holdings by which Neovest agreed, at the request of Neolido Holdings, to provide a loan facility to Neolido Holdings to assist that company in its general purposes of property development. The loan agreement was executed by Ms Perovich and Mr Spencer on behalf of both companies. The agreement provided for the provision of an advance, which was defined to be “$270,000 and/or such other additional amounts as agreed to between the parties from time to time to be advanced by the Lender whilst this agreement remains on foot”. It is not clear where Neovest obtained the $270,000 to lend to Neolido Holdings, but nothing turns on that. Clause 3 of the agreement provided that the lender should provide the advance to the borrower by way of a cash advance on the drawdown date, which was defined to be “such date as the Lender and the Borrower agree but not later than 30th June 2004”, on the terms and subject to the conditions set out in the agreement.
Neolido Holdings was to repay the loan in full to Neovest in accordance with the repayment schedule, which was identified in Schedule 1 of the document to be 24 months from the drawdown date.
On 3 February 2004, Neovest lodged its first prospectus with ASIC (the Neovest 2004 prospectus). The purpose of the issue of the first prospectus, Ms Perovich said, was to augment the Neolido Group’s capital requirements by raising money for the high end risk of finance – for equity and mezzanine funding purposes – via Neovest. In the prospectus, the directors are identified as Mr Spencer, Ms Perovich and Mr Townley. Mr Spencer wrote the introduction in which he said:
Neovest is closely associated with Neolido, being largely owned and controlled by the principals of Neolido. Neolido is an experienced and active developer in the south east Queensland property market.
… By virtue of its close relationship with Neolido, Neovest is uniquely positioned to take advantage of attractive investment opportunities in the property development projects of Neolido.
… Neovest invests its funds with Leolido as Leveraged Project Finance for Neolido to undertake particular property developments. …
The investments made by Neovest may appropriately be described as “mezzanine” or “leveraged equity” as their performance is enhanced by the utilisation of prior ranking debt finance by Neolido in the funding mix of a development project. This form of project finance is typically the layer of finance between the senior and institutional forms of finance on the one hand, and any equity funds used in a development.
…
While the potential returns of this Offer are higher than those generally available from other asset classes, they do involve a greater degree of risk and illiquidity. As such this class of investment is not suitable for all potential investors. Potential investors are advised to consider in particular section 7, which addresses some of the risk factors relevant to an investment in Neovest and the contents of the Important Notice at the front of this Prospectus.
The prospectus identifies the “A Class Investors” as the two shareholders who subscribed for and were each allotted 60,000 “A Class Shares” prior to the prospectus being issued. They were Mr Spencer and Ms Perovich, via Richard Spencer Pty Ltd and Silvana Perovich Pty ltd respectively.
In clause 1.1, the prospectus addresses “About the Offer”. It states:
Neovest Ltd was formed for the purpose of investing primarily in property development projects undertaken by the developer Neolido with a view to providing returns to Shareholders. The Directors are associated with Neolido, an innovative and successful young group of companies which to date has undertaken a number of successful property developments. For more information on the Leolido Group, see section 6. Neovest is seeking to raise up to $20 million through the issue of 20 million Shares at $1.00 each and will be looking to invest its liquid assets within six months of this capital raising. The Directors reserve the right to accept oversubscriptions of a further $5 million for each class of Share.
In clause 1.4 “Risk Factors” it is said:
Neovest has not yet reached a decision regarding where it will invest its liquid assets. For this reason, an investment in Neovest should be considered highly speculative. Investors should consider all risks carefully and seek professional financial advice before investing. More detailed risk factors are contained in section 7.
In clause 1.5, “Financial structure” it is stated:
It is Neovest’s intention to partner with Neolido and provide a source of Leveraged Project Finance. While Neovest’s project investments with Neolido are structured as debt instruments they might ordinarily or otherwise be equity investments. While not having the same potential upside as a pure equity investment, the investments have priority over Neolido’s equity and may be supported with collateral security (second and following mortgages and company and personal guarantees when appropriate).
Clause 1.8 addresses “Dividends”:
The Shares carry the right to a non cumulative dividend (if any) at their relevant coupon rate. The coupon rate is only a right ascribed to the Share and should not be construed as a representation or a guarantee that the Company will, in fact, have profits to be able to meet the coupon rate, or the Company will have the capacity in the future to declare dividends. The Company has not previously traded and therefore has no basis to guarantee or represent that the dividend can be paid.
The dividend coupon rate is calculated on a simple interest basis on the subscription amount paid for the issue of each Share divided by the period during which the relevant Shares have been on issue.
The rights attaching to a particular Share are set out in section 5. In essence, any dividends paid are paid in the order of priority of those Shares. This means that where the Company is able to declare a dividend, Equity Shareholders are entitled to receive up to 15% per annum on their investment, before any dividend is paid to Foundation or A Class Shareholders.
Provided that the 15% per annum has been paid (if at all) to Equity Shareholders, the Company may at its discretion then pay up to 20% per annum to Foundation Shareholders before any payment of a dividend to A Class Shareholders.
Once all the above dividends are paid (if at all) in any financial year, then the Company may pay additional dividends to A class or Ordinary Shareholders as it sees fit.
In the event that a dividend is paid more regularly than on the anniversary of the issue of a particular class of Shares within either the Equity Series or the Foundation Series, Shareholders within that class of Shares will receive a proportion of the declared dividend representing the period between the date of the issue of the Shares of that class of Shares and the payment of that dividend.
As indicated above, investors should note that there can be no guarantee that the Company will have sufficient profit as required by section 254T of the Corporations Act to pay the dividend entitlements at the coupon rate. Under section 254T, dividends may only be paid out of profits of the Company. Due to dividends constituting a debt of the Company once they have been declared and the time fixed for payment has arrived, there can also be no guarantee that the Directors will declare a dividend where the Directors may be in breach of their duty to prevent insolvent trading under section 588G of the Corporations Act.
The dividend rate is a non-cumulative entitlement. This means that should a dividend not be paid in a particular year, then entitlement to that dividend will lapse. Where there are insufficient profits in one year to fully pay a preferential dividend entitlement, the Company may pay a lesser dividend out of profits. The payment of a lesser dividend may only be made in the order of priority discussed above. No dividend may be paid to Foundation Shareholders prior to payment in full of the entitlement to Equity Shareholders.
Section 2 addressed the “Directors’ Profiles”.
Section 3 addressed “The Directors’ Investment Strategy”. The “Investment philosophy” was said to be:
Neovest will seek to provide investors with the opportunity to invest in a Company whose Directors’ experience and qualifications are detailed in section 2.
The Company’s objectives will be to generate returns for Shareholders adopting the following investment approaches:
Ÿinvest in speculative property development opportunities to generate higher returns than that expected from long term investments. It should be noted that higher returns generally mean higher risk of capital loss; and
Ÿwhere applicable, acquire existing income producing property to be re-developed or held for potential capital gain.
Prior to entering into any transaction, the Board will, after taking appropriate advice from qualified investment advisers (where the Board considers this prudent or appropriate), carefully consider and thoroughly evaluate the investment opportunity, including considering the historical and likely performance of the potential investment, evaluating current market conditions and likely market trends which may affect the investment.
Under the heading “3.2 Type of investments” it is said that Neovest will invest its funds with the Neolido Group by providing “Leveraged Project Finance”, which is defined earlier in the prospectus; “… these are collective investments made by Neovest. They are also known as mezzanine finance, leveraged equity or equity finance …”. The purpose of the lending is so the Neolido Group can undertake residential and commercial developments.
The prospectus stresses the “close relationship” between Neovest and the Neolido Group. The prospectus states that an “investment review process will be undertaken prior to any project investment by Neovest”. It states:
The investment review process is designed to determine if the development is of sufficient quality to provide finance to, and to determine an adequate risk adjusted return for an investment in the development.
Accordingly, the investment review process includes the following:
Ÿ review of the financial records and current position of Neolido;
•financial analysis of the proposed project to determine its viability;
Ÿforecast profit including assessment of end value, construction estimates, and general review of the project feasibility to ensure all possible costs and contingencies have been included;
Ÿqualitative assessment of the project including project location, design, competing projects and project timeframe; and
•satisfaction of specific risk issues including building costs, local authority issues and end sales risk.
The prospectus makes it clear that Neovest is seeking funds to finance the Neolido Group’s developments. Under the heading “Nature of project investments” it is stated:
Neovest wil invest in Leveraged Project Finance to allow members of the Neolido Group to undertake property development projects.
The form of project finance that Neovest will provide to members of the Neolido Group may be termed mezzanine or Leveraged Project Finance, and is typically the layer of finance between the senior and institutional forms of finance on the one hand, and any equity finance used in the funding of a development. On occasion, Neovest may provide equity finance to Neolido for deposits for site acquisitions. Loans to members of the Neolido Group may be secured or unsecured. If secured, the loan will generally rank behind the senior debt lender but before unsecured creditors. Where the loan is unsecured, the loan will rank equally with all unsecured creditors. Any equity finance provided will mean that the type of finance will rank behind unsecured creditors.

Unit 12, in which the plaintiffs did not live, was rented at $380 per week and generated $19,760 per annum, which was a return on capital of 2.63%.
It may have been that the plaintiffs could have rented out the better unit, Unit 3, but the return was not likely to be able to give the plaintiffs a living income – certainly not $52,000, which they said they needed. If the better unit had been sold and the monies invested in a conservative interest bearing deposit, the investment could have maintained an income of $52,000 for about 20 years, but at the end of that time the capital would have been exhausted.
The plaintiffs could not look forward to the type of lifestyle that they sought with the assets that they had.
The fact is that the plaintiffs were positively advised to adopt the strategy that they did. That caused the loss and damage for which they are entitled to damages.
The defendants cannot exculpate themselves from the damages, for the loss and damage caused, by pointing to the risk that the plaintiffs would have engaged in some other speculative investment, which also would have been disastrous.
In this case, the plaintiffs claim that they lost the value of their investment in Neovest. For all the reasons I have previously given, the plaintiffs invested $450,000 in Neovest, acting upon the advice of Mr Bertram, as agent for Wealthsure, who in turn relied upon the advice of Mr Norton and Norton Capital who had carried out what they said was a due diligence assessment of Neovest, whose directors were responsible for the prospectus which was relied upon. The prospectus included misstatements in relation to the Neolido Group and it failed to disclose that if Neovest were to lend money to Neo Lido, Neolido Holdings, or the Neolido Group, that loan would be unlikely to be able to be repaid. The plaintiffs invested in Neovest and they suffered loss or damage.
For the reasons I have already given, the plaintiffs established the damages for that loss or damage by proving, uncontroversially, that Neovest was insolvent. Because Neovest is insolvent, the plaintiffs, as shareholders, have no recourse to their investment.
As I have mentioned, the first and second defendants claim that that aspect of their damages has not been established because the plaintiffs have not established that Neovest’s liabilities exceed its assets, or that the guarantees given by Mr Spencer and Ms Perovich to Neo Lido, Neolido Holdings and the Neolido Group are not sufficient for those entities to repay the loans to Neovest.
In my opinion, that argument cannot be accepted. The plaintiffs have established that Neo Lido, Neolido Holdings and the Neolido Group were insolvent at the time that the prospectus was issued. Indeed, that was the first and second defendants’ case as well. Neo Lido and Neolido Holdings have been wound up in insolvency. The plaintiffs have also established that Neovest is insolvent and Neovest has been wound up in insolvency.
In those circumstances, the plaintiffs need go no further to prove that the investment in Neovest has been lost. The whole of the investment must have been lost if Neovest’s liabilities exceed its assets. There can be no return to the equity investors in those circumstances.
In my opinion, the plaintiffs made out their claim for damages in respect of their investment in Neovest. They are entitled to interest on that loss, which I shall address later.
Next, the plaintiffs claim that they suffered loss or damage by reason of their investments in the Wynnum units because Neovest did not pay dividends and they were not able to service the borrowings that they had undertaken for the purpose of purchase of those units.
In my opinion, the conduct of the defendants led to the investment in the three units at Wynnum and led to the loss or damage suffered by the plaintiffs.
The loss or damage suffered by the plaintiffs in those investments are a little more difficult to identify, but that does not mean that they are not entitled to the damages sought.
The plaintiffs also claim that they were put to the cost of refinancing from time to time in an endeavour to minimise their loss.
I would uphold the plaintiffs’ contentions in relation to the loss and damage suffered in the first stage.
The plaintiffs are entitled to damages for the loss of the $450,000 investment in Neovest. They are entitled to the compound interest on that amount to trial. The compound interest to which they are entitled represents their loss. They had to pay interest on interest (compound interest) to their financiers. Compound interest is, therefore, one item of their loss. It is not interest of the kind provided for in s 51A of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act). It is not awarded in this case because the plaintiffs have been kept out of their money which is the purpose of s 51A. It is awarded because it is a loss suffered by the plaintiffs. It is part of the damage suffered by the plaintiffs and should form part of their damages. It was not put by any party that the Court should adopt the pre-judgment interest rate in Practice Note CM16. The calculation of the compound interest was agreed at $310,567. The interest rate relied upon was 8.8%. The use of that interest rate was never satisfactorily explained. The evidence shows that the plaintiffs borrowed at 8.19%. Later they paid a higher rate. In the absence of evidence, it would be appropriate to use 8.19%. The plaintiffs should have compound interest because they became liable to pay interest on interest and so that liability forms part of their damages: Hungerfords v Walker (1989) 171 CLR 125.
The losses on the three units are made up of:
(a)       the capital losses on each unit;
(b)       the acquisition costs of each unit;
(c)       the selling costs of each unit; and
(d)       the holding costs of the units.
There was a capital loss of $10,000 on each of Units 1 and 7, but no loss or profit on Unit 9 at Wynnum. The capital loss is assessed at $20,000.
The plaintiffs established the acquisition and selling costs as follows:

Unit 1/78 Berrima Street, Wynnum Amount

7/9/2005 Purchase of Property

Sellers release of mortgage fee $108.30

Contract default penalty interest $1,489.98

Fuss Law – costs and outlays $2,063.60

Government contract stamp duty $11,600.00

Total $15,261.88

20/12/2007 Sale of property

Fuss Law – costs $1,092.80

Orio Mortgage Finance Company $660.00

Gadens National Mortgage Services $195.25

Ray White – agents commission $10,532.50

Total $12,480.55

Unit 7/78 Berrima Street Wynnum

7/9/2005 Purchase of property

Seller release of mortgage fee $216.60

Contract default penalty interest $1,509.83

Fuss Law costs and disbursements $1,265.00

Government contract stamp duty $11,775.00

Total $14,766.43

Sale of property

14/12/2007

Agents fees Ray White Wynnum Manly

$9,670.00

Orio Mortgage $660.00

Transferring solicitors costs Fuss Law $1,291.80

Total $11,621.80

Unit 9/78 Berrima Street Wynnum

7/9/2005 Purchase of property

Sellers release of mortgage $216.60

Contract default penalty interest $1,708.32

Fuss Law costs and outlays $1,300.00

Government contract stamp duty $13,525.00

Total $16,749.92

9/1/2008 Sale of property

Sellers release on mortgage fee $115.00

Ray White – Wynnum Manly $12,320.00

Agents fees Gadens National Mortgage Services

$228.25

Orio Mortgage Finance Company Limited

$660.00

Bank cheque fees

$50.00

Gadens solicitors mortgage

$228.25

Interest and costs for settlement date extension

$215.00

Total

$13,816.50

The acquisition and selling costs on the three units are assessed at $84,697.08.
The holding costs were a little more difficult to identify because the plaintiffs changed financiers during the period they owned the units. The costs of establishing the initial loans by the RX01 and RX02 accounts with the Adelaide Bank Ltd and including the extension of those two loans were:

22/3/2005

RX01 Loan from Adelaide Bank Limited for $399,000

Loan contract fee

$80.00

Establishment fee

$512.50

Valuation fees

$512.50

Settlement fee

$100.00

MacGillivrays costs and outlays on preparation of mortgage documents

$2,186.97

DBA Financial Designs – Cash Flow Monitoring Software first year fee

$330.00

Diverse Enterprises – Finance and Property Settlement Service fee

$495.00

Total

$4,216.97

22/3/2005

RX02 Loan from Adelaide Bank Limited for $560,000

Loan contract fee

$80.00

Establishment fee

$512.50

Valuation fees

$512.50

Settlement fee

$100.00

MacGillivrays costs and outlays on preparation of mortgage documents

$2,879.27

National Mortgage Company Pty Ltd processing fee

$30.00

Total

$4,114.27

7/9/2005

Extension of RX01 loan amount from $399,000 to $600,000.
Loan from Adelaide Bank.

Application fee

$285.00

Contract preparation fee

$80.00

Valuation fees

$220.00

National Mortgage Company Pty Ltd settlement fee

$100.00

Legal fees

$1,125.37

Total

$1,810.37

21/8/2006

Discharge administration fee

$150.00

21/8/2006

Wholesale deferred establishment fee

$3,192.00

Total

$3,342.00

7/9/2005

Extension of RX02 loan amount by $120,000 to a credit limit of $680,000. Loan from Adelaide Bank.

Contract fee

$80.00

Application fee

$285.00

Valuation fees

$220.00

Legal fees – MacGillivray’s solicitors

$910.32

Settlement fee

$100.00

Total

$1,595.32

21/8/2006

Wholesale deferred establishment fee

$4,480.00

Total

$4,480.00

The cost of establishing the loss upon the initial loan is assessed at $19,558.93.
The plaintiffs subsequently borrowed the sum of $920,000 from ING on 7 September 2005. It was necessary to borrow a further amount than that which had been borrowed from the Adelaide Bank, because the sums borrowed from the Adelaide Bank were not sufficient to meet the whole of the strategy in the Statement of Advice and the Cash Flow and Debt Management Strategy Paper of 18 April 2005.
The cost of establishing the ING loan was:

Application fees

$550.00

Valuation fees

$1,760.00

Settlement fee

$100.00

Legal fees and outlays

$6,699.71

Bank cheque fees

$90.00

Loan mortgage insurance

$4,993.82

Settlement fee ING Bank

$25.00

Settlement fee – National Mortgage Company Pty Ltd

$100.00

Loan mortgage insurance

$543.68

Total

$14,862.21

The cost of the plaintiffs establishing the ING loan is $14,862.21.
The total borrowings from the Adelaide Bank and ING were, at the time of the ING loan:

(a)

7/9/05

RX01 (including increase)

$600,000

(b)

7/9/05

RX02 (including increase)

$680,000

(c)

7/9/05

ING

$920,000

Total

$2,200,000

That leaves for consideration the borrowing costs.
The plaintiffs’ total borrowings at 7 September 2005 were $2.20 million. That sum was greater than the plaintiffs had needed to borrow to make the recommended investments. I do not think the plaintiffs were good financial managers.
The sum that the plaintiffs needed to borrow, if they were to act in accordance with the advice given by Mr Bertram, was the cost of the investment in Neovest $450,000; the cost of the purchase of the three units which was $1,185,000; and the purchase cost of those units which, as shown above, was a little more than $46,000, say $50,000. The total required was $1,685,000.
Two things follow from that. The first is that the plaintiffs were right when they contended that they needed to borrow more money than they had already obtained from the Adelaide Bank, if they were to implement the strategy. Secondly, they borrowed more money than they needed to implement that strategy. Some further money was spent on other investments, but there is no suggestion that any of those other investments failed, so they can be left out of account.
By 18 April 2005, the plaintiffs were receiving $380 per week for the existing investment unit (Unit 12), which would have returned $19,760 per annum.
The three units at Wynnum were expected to return $1,020 per week, which amounted to $53,040 per annum.
The other income that the plaintiffs were expected to receive was the 20% on the $450,000 investment with Neovest, being $90,000 per annum.
I have already indicated the compensation that is to be payable for the loss of the investment in Neovest. Therefore, the Neovest investment ought to be taken out of account in relation to the total amount borrowed, otherwise the plaintiffs would be compensated twice for that investment. That leaves a notional borrowing of $1,235,000, which would have cost $101,147 per annum to service at 8.19% interest.
The rental income on the three units did not meet the amount needed to service the borrowings.
The cost would not be as high as $101,147 because, as I have said, it would be partly offset by the income received from the units.
It would be appropriate, in my opinion, to assume that the damages for which the plaintiffs should be compensated in relation to the cost of money be calculated by reference to the difference between the amount notionally borrowed less the Neovest investment, which has already been compensated for, less the amounts received from the rental of the units.
The holding costs on the units can be addressed by identifying the interest payable at 8.19% on $1,235,000, which is the amount notionally borrowed less the Neovest investment. The cost of the borrowings was $101,147.
It has not been suggested that the plaintiffs did not receive the income on the units over the period that they held them and up until the time of sale in December 2007/January 2008. The income was $53,040 per annum.
Some allowance needs to be made for outgoings, such as rates and taxes, but that will have to be estimated.
The loss therefore, apart from outgoings, was in the vicinity of $55,000 per annum, say after outgoings $60,000 per annum.
The plaintiffs are entitled to be compensated for the interest losses incurred on the units that were bought on 7 September 2005 and sold in December 2007/January 2008. The period over which the properties were held is about 28 months and the holding costs, therefore, should be assessed at $140,000.
The plaintiffs would be entitled to have compound interest on that amount since that time to judgment in the same manner as they were entitled to compound interest on the Neovest investment.
The plaintiffs were obliged to refinance their loans with Orio Mortgage. Orio provided the finance for the acquisition of the Wattle Street, Yaroomba property. As I have found that acquisition was not a consequence of the defendants’ conduct, those acquisition fees are not to be brought into account.
However, on 17 August 2006, the plaintiffs refinanced the three units at Wynnum and the two units at the Sea Aura apartments. In my opinion, it was reasonable for the plaintiffs to refinance at that time and refinancing was a consequence of the defendants’ conduct.
During the period up until the refinancing, Mr and Mrs Selig continued to receive assurances from Mr Bertram that he was doing everything in his power to get the situation with Neovest resolved as quickly as possible. He made that representation in an email of 4 July 2006.
On 7 July 2006, Mr and Mrs Selig had a meeting at their home with other investors in Neovest and with Mr Bertram. The following day Ms Perovich sent an email to Mr and Mrs Selig attaching a “Receivable [discount] Offer”.
On 7 August 2006, Mr and Mrs Selig were advised by Ms Perovich that approval for Mango Hill would be ready by the end of the month.
On 10 August 2006, Mr Bertram sent an email stating that the “Neovest situation [was still] looking OK but the timing is still dragging on”.
On 4 September 2006, Mr Bertram emailed Mr and Mrs Selig stating that “just the timing now as to when this all gets finalised”.
On 11 September 2006, Mr Bertram emailed Mr and Mrs Selig stating that:
… the valuation process has commenced and they have 30 days from the 29th August for the initial valuations and then a further 10 days for mediation.
On 25 January 2007, Mr Bertram emailed Mr and Mrs Selig advising that “despite another dispute, the time frame for repayment is still on-track”.
Mr Selig said in his statement that between April and December 2007, he and his wife engaged in a series of correspondence with Wealthsure to complain and to attempt to resolve the situation.
In those circumstances, it was reasonable for Mr and Mrs Selig to refinance with Orio in the hope that the Neovest investment would not be lost and the dividends would be paid. For those reasons, I intend to allow the cost of the financing with Orio. The costs are:

Orio Loan Account No 100045065 – Loan No 164783 – 1/78 Berrima Street Wynnum - $356,250

17/8/2006

Establishment Fee

$350.00

17/8/2006

Lenders Mortgage Insurance

$14,423.68

Sub Total

$14,773.68

8/1/2008

Discharge Administration fee

$555.00

8/1/2008

Deferred establishment fee

$8,906.25

Sub Total

$9,461.25

Orio Loan Account No 100045062 – Loan No 165255 – Re 7/78 Berrima Street Wynnum - $301,480.02

17/8/2006

Fees and charges for loan

$3,939.12

Sub Total

$3,939.12

10/12/2007

Discharge Administration fee

$300.00

10/12/2007

Deferred establishment fee

$3,617.76

Sub Total

$3,917.76

Orio Loan Account No 100045064 – Loan No 164786 – 9/78 Berrima Street Wynnum - $380,000.00

17/8/2006

Lenders mortgage insurance

$15,010.00

Establishment fee

$350.00

Office of State Revenue

$1,520.00

Department of Natural Resources

$222.60

Orio Mortgage Finance Co Pty Ltd

$880.00

Bank cheque fees

$11.00

QMS Queensland fees

$555.19

Sub Total

$18,548.79

9/1/2008

Discharge Administration fee

$555.00

9/1/2008

Deferred Establishment fee

$9,500.00

Sub Total

$10,055.00

Orio Loan Account No 100045131 – Loan No 163543 – re Unit 3/43 Burnett Street Buderim - $686,093.27

17/6/2006

Title insurance

$212.85

Settlement fee

$75.00

Orio Mortgage Finance Company Pty Ltd

$600.00

Galilee Solicitors costs

$517.00

Lenders mortgage insurance

$6,093.27

Bank cheque fees

$60.00

Registration fees

$222.60

Office of State Revenue

$2,744.40

MacGilivray’s solicitors

$577.50

National Mortgage Company

$600.00

Sub Total

$11,702.62

Orio Loan Account No 100045128 – Loan No 163542 re 12/143 Burnett Street Buderim - $605,376.41

17/8/2006

Settlement fees

$75.00

Title insurance

$212.85

Orio Mortgage Finance Company Pty Ltd

$660.00

Galilee Solicitors costs

$517.00

Lenders mortgage insurance

$5,376.41

Bank cheque fees

$40.00

Registration fees

$222.60

Office of State Revenue

$2,421.60

Sub Total

$9,525.46

Deferred establish fee and discharge administration fee

$7,564.52

Sub Total

$7,564.52

25/5/2007

Loan – Capital Access

8/6/2007

Gadens – Fees

$1,386.17

Application fee

$3,632.00

Brokerage fee

$3,058.00

Sub Total

$8,076.17

The damages incurred by the plaintiffs in refinancing with Orio are assessed at $97,564.37.
The plaintiffs’ damages exclusive of interest on the first of the three claims are:

1. Loss on investment in Neovest $450,000.00

2. Capital losses on Units 1 and 7 at Wynnum $20,000.00

3. Acquisition and selling costs of units at Wynnum $84,697.08

4. Establishing the initial loan $19,558.93

5. Establishing the ING loan $14,862.21

6. Borrowing costs $128,000.00

7. Orio refinancing $97,564.37

$814,682.59

say $814,680.00

That sum should bear compound interest at the rate of 8.19%. I will return to that.
Next, the plaintiffs claim that they suffered loss or damage by reason of the purchase of the property at Lot 7 Wattle Street, Yaroomba, which they contracted to purchase on or about 16 November 2005 for $285,000.
The property at Lot 7 Wattle Street, Yaroomba was vacant land. It was a one minute walk from the Coolum Golf Course, 900 metres from the beach and four kilometres from the Airport. It was purchased for $285,000. The contract for the purchase of the property was signed on 16 November 2005 for settlement on 23 June 2006. A deposit of $10,000 was paid by Mr and Mrs Selig.
Because it was vacant land, it was not capable of generating income. The plan, so Mr Selig said, was to build a duplex on the property.
On 16 February 2006, the land was valued, for the purchase price, by Lever Valuers for Orio when Orio became the new financiers.
Mr Selig said that he had been told by a land agent that he should be able to receive $650,000 for each duplex.
In March 2006, Mrs Selig arranged for an engineering report from Coffey Engineering for the proposed duplex development on the Yaroomba block. On 22 August 2006, they obtained development approval from the Maroochy Shire Council for what was termed “dual occupancy”.
In October/November 2007, because of their financial position, the plaintiffs entered into a contract with Mr Selig’s son, Aaron Selig, for the sale of the property to him for the sum of $350,000. Mr Selig said that he sold the Yaroomba property because the investment properties at Wynnum had effectively taken away his cash reserves and he had no money to develop the Yaroomba property. By the time the property was sold Mr and Mrs Selig were in financial difficulties.
I accept that Mr and Mrs Selig were in financial difficulties between the date of purchase and the date of sale, and were unable to develop the Yaroomba property.
However, I am not satisfied that if they had not implemented the strategy suggested by Mr Bertram and Wealthsure that they would have been able to develop the property at Wattle Street, Yaroomba.
Settlement on the Wattle Street, Yaroomba contract occurred, as I have said, on 23 June 2006. Suppose that Mr and Mrs Selig had not implemented the strategy suggested by Mr Bertram and Wealthsure, then they would have had to have lived off their assets for a period of nearly two years. If their living expenses were in the order of $52,000 per annum, and that, in my opinion, would have been at the lower end of the range, they would have spent nearly $100,000 in the intermediate period. They would have had to have made the tax payments and other payments that they were obliged to make in any event.
They would have had no assets except the two units at the Sea Aura Apartments and, by that stage, one of those units, which was the investment unit may have had to have been financed.
I am not satisfied, in those circumstances, that Mr and Mrs Selig had the capacity to develop the Yaroomba property, even if the Wealthsure and Wynnum investments had not been made.
I am not prepared to allow damages in that respect.
I am not satisfied that any loss that was occasioned in respect of the failed development was caused by, or was because of, the conduct of any of the defendants.
It seems to me that the plaintiffs’ decision to enter into the contract to purchase Lot 7 Wattle Street, Yaroomba was made independently of the investments in Neovest and the three units at Wynnum. Any connection between the loss they suffered in relation to the purchase of that property and the conduct of any of the defendants is not established.
The third element of the plaintiffs’ loss, mentioned in opening and as developed in closing, are the further losses to meet ongoing interest and like obligations.
The third aspect of the plaintiffs’ claim is even more difficult to assess. The failure by Neovest to pay its dividends of $90,000 per annum in circumstances where the plaintiffs had notionally borrowed $1,235,000 on which the plaintiffs were paying (at 8.19% interest) $101,147 against a return from the three units of about $53,000 (less outgoings) and other income of $19,760 and Centrelink payments to Mrs Selig must have caused the plaintiffs financial stress. The plaintiffs were entitled to sit and wait for events to improve in circumstances where they were being assured by Mr Bertram, Wealthsure and the Neovest directors that it would be sorted out.
However, while waiting, the plaintiffs were suffering an ongoing loss of $90,000 per annum, which would have about met the shortfall in the borrowings, but still left them without living expenses. Their plight was exacerbated by the Wattle Street, Yaroomba purchase and their own failure to understand now desperate their position was. Eventually all of their assets were lost. In particular, their two units at the Sea Aura Apartments were lost. The Neovest investment started the rot, but the plaintiffs’ further investment assisted to continue the rot and caused further loss.
By about April 2005 when the plaintiffs received the advice in relation to the strategy to invest in Neovest, the plaintiffs only assets were realty; the two units numbered 3 and 12 at Burnett Street, Buderim, one of which they occupied.
Unit 12 was valued by Mr Manzie on 6 March 2006 at $750,000, and Mr Madden on 25 May 2010 at $720,000, and was sold to meet debts on 7 December 2007 (at the time of the sale of the Wynnum units) for $600,000. It would be appropriate to infer that because of the circumstances of a forced sale, the plaintiffs lost about $135,000 in equity.
Unit 3 was valued by Mr Lever on 21 January 2005 at $700,000, by Mr Manzie on 6 March 2006 at $850,000, and by Mr Madden on 28 May 2010 at $740,000. The unit was sold by the mortgagor on 15 March 2010 for $550,000. I infer that the plaintiffs lost equity in the order of $200,000 by reason of that sale.
The plaintiffs lost, in my opinion, $335,000 by reason of their assets being sold because of their parlous state.
Doing the best I can I would attribute $200,000 of that loss to the defendants.
This is not a case where there are different causes for the same damage, one of which is compensable and the others are not. In that case, the plaintiffs would be entitled to the whole of the damages which reflected that same damage.
This is a case where the plaintiffs’ financial position deteriorated because of the implementation of the strategy and also because of the manner in which they lived, and because monies were expended on living expenses.
As I have said earlier, I reject the proposition in Schedule 2 that the whole of the plaintiffs’ financial position is as a result of the implementation of the strategy.
That is why I have attempted to make a rough and ready assessment of the financial loss caused by the implementation of the strategy, as distinct from the financial loss caused by the plaintiffs’ own lifestyle.
I assess the plaintiffs’ damages at $1,014,680.
The plaintiffs have been paying interest on that amount since they first borrowed money to implement the strategy. They suffered some aspect of their loss at 22 April 2005 and some other aspects later. It is not possible to be precise as to when each aspect of their damages was suffered. I think justice would be served if the plaintiffs were awarded compound interest at the rate of 8.19% (the only rate of which there is some evidence) for six years. In a rough and ready way, that allows for some damage being suffered more than a year after the strategy was implemented. I calculate compound interest on the figure of $1,014,680 at 8.19% to be $745,832.
The plaintiffs’ damages are assessed at $1,760,512.
Because the plaintiffs’ damages have included compound interest to judgment, the plaintiffs are not entitled to pre-judgment interest under s 51A of the Federal Court Act.
Orders and Costs
The plaintiffs shall have judgment against the first and second defendants in the sum of $1,760,512.
It will be necessary to reconsider the orders made on 8 December 2010 which allowed for the plaintiffs and the first and second defendants to proceed against the third, fourth, seventh and eighth defendants up to the point of judgment. Although the first and second defendants are not entitled to any relief against the third to eighth defendants, the plaintiffs have established contraventions by those defendants which would entitle them to relief against all those defendants.
However, the third and fourth defendants are bankrupt and the seventh and eighth defendants are in liquidation. The orders made on 8 December 2010 gave leave to proceed against those defendants up to the date of entry of judgment. The plaintiffs cannot obtain a judgment against those defendants without having those orders varied to delete the limitation on the leave or obtaining fresh leave.
In either case the third and fourth defendants’ trustees, and the seventh and eighth defendants’ liquidators, are entitled to be heard if the plaintiffs wish to proceed.
It may be that the plaintiffs, who as I have said only proceeded against those defendants because the first and second defendants sought to have them made proportionately liable, do not wish to incur the cost of obtaining judgment against those defendants when, as I suspect, they would not obtain any dividend in the bankruptcy or winding up. But that is a matter for the plaintiffs.
If the plaintiffs wish to obtain a judgment against the third, fourth, and seventh and eighth defendants, they should within 14 days file and serve on those defendants, and the third and fourth defendants’ trustees, and the seventh and eighth defendants’ liquidators, an application seeking leave to proceed to obtain judgment. The application should be accompanied by an affidavit stating the grounds upon which the orders are sought and insofar as is known to the plaintiffs, the assets and liabilities of each of the defendants.
If an application is not made within 14 days of today’s date, the plaintiffs’ proceeding against the third, fourth, and seventh and eighth defendants will be dismissed.
If an application is made it will be heard at 9.30am on Tuesday, 4 June 2013.
The plaintiffs are entitled to judgment against the fifth and sixth defendants, who are not bankrupt, for the amount of the assessed damages.
The plaintiffs have failed against the ninth to thirteenth defendants and the plaintiffs’ proceeding against those defendants must be dismissed.
The first and second defendants have failed in their claim that all of the plaintiffs’ claims should be apportioned between the defendants and, in those circumstances, I refuse to make any declarations in relation to proportionate liability, because the declarations would have no force or effect.
The first and second defendants have also failed in their claim for indemnity of contribution against those defendants and the claim for indemnity and contribution must be dismissed.
The plaintiffs have succeeded against the first and second defendant, and there is no reason why they should not have their costs. The plaintiffs are also entitled to their costs against the third to eighth defendants.
The plaintiffs and the first and second defendants have failed against the ninth to thirteenth defendants. As I have previously indicated, the plaintiffs only joined the ninth to thirteenth defendants because the first and second defendants raised the question of proportionate liability as against Mr Townley and therefore, under the Partnership Act, against the ninth to thirteenth defendants.
The ninth to thirteenth defendants must have their costs against the plaintiffs and the first and second defendants. Because it was the first and second defendants who introduced the ninth to thirteenth defendants to the proceeding, the plaintiffs might seek an order against the first and second defendants in relation to their liability for costs. Because I have not heard the first and second defendants in relation to any claim that the plaintiffs might make for indemnity in respect of any liability for costs to the ninth to thirteenth defendants, it would not be appropriate to make a Sanderson order: Sanderson v Blythe Theatre Co [1903] 2 KB 533. However, I give leave to the plaintiffs to make an application to the Court, if so advised, for a Bullock order: Bullock v London General Omnibus Co [1907] 1 KB 264.
That leaves the question of the plaintiffs’ costs in the proceeding against the third to eighth defendants. It is not possible at present and in advance of leave to make an order for costs against the third and fourth, and seventh and eighth defendants.
In my opinion, there is no reason why the plaintiffs and the first and second defendants should not have their costs against the fifth and sixth defendants.
The question of costs against the third and fourth, and seventh and eighth defendants will be reserved to await the outcome of any application by the plaintiffs for judgment against those parties.
The third to eighth defendants were successful in relation to the first and second defendants’ claims against them, and should be entitled to costs if they have incurred any costs.
However, because they were unrepresented they probably have not incurred any costs: Cachia v Hanes (1994) 179 CLR 403.
If the plaintiffs seek a Bullock order in relation to their liability for costs to the ninth to thirteenth defendants, they should file written submissions within 10 days setting out the order that is proposed and the reasons for the order.
If submissions are not filed within that time, then the plaintiffs’ liberty to apply expires.
If written submissions are made in that time, the first and second defendants should file written submissions in reply within 10 days.
In both cases, the written submissions should not exceed five pages.

I certify that the preceding one thousand three hundred (1300) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lander.
Associate:
Dated: 18 April 2013

Citation:		Selig v Wealthsure Pty Ltd [2013] FCA 348
Parties:		RONALD SELIG AND JANNA SELIG v WEALTHSURE PTY LTD (ABN 93 097 405 108), DAVID BERTRAM, RICHARD WILLIAM SPENCER, SILVANA PEROVICH, MARK RICHARD NORTON, PETER MAURICE TOWNLEY, NEOVEST LIMITED (IN LIQUIDATION) ACN 104 915 906, NORTON CAPITAL PTY LIMITED (IN LIQUIDATION) ACN 086 207 169, DANIEL GEOFFREY LILLEY, DAMIEN BERNARD GREER, ROBERT NOEL GALLAGHER, STEPHEN JAMES DICKENS and MICHAEL JOSEPH CROUCH
File number:		SAD 11 of 2010
Judge:		LANDER J
Date of judgment:		18 April 2013
Corrigendum:		12 June 2013
Catchwords:		CORPORATIONS – investment advice given by Australian Financial Services Licensee and authorised representative thereof – whether investment scheme advised “Ponzi scheme” – actions under Corporations Act 2001 (Cth) and Australian Securities and Investments Commission Act 2001 (Cth) for loss or damage arising from misleading and deceptive conduct – whether disclosure document or statement defective – whether reasonable basis for investment advice given – whether obligation to warn client if investment advice based on incomplete or inaccurate information – whether representations as to future matters misleading – whether false or misleading statements made – whether statements made to induce dealings in financial products where maker knows or is reckless to whether statement is misleading, false or deceptive – whether false representations made in relation to standard of financial services – whether investment advice acted upon CONTRACTS – whether investment advice given pursuant to express terms – whether advice appropriate for plaintiffs’ needs, objectives and circumstances – whether term of reasonable care implied by law, and implied by fact, breached – whether breach of warranty implied by s 12ED of Australian Securities and Investments Commission Act 2001 (Cth) – whether financial services rendered with due care and skill NEGLIGENCE – whether duty and content thereof established – whether breach of duty established PARTNERSHIP – whether conduct of partner within ordinary course of business of, or with authority of, partnership DAMAGES – loss of initial investment, interest on compounding basis, and consequential loss upon collapse of dependent investments sought – whether plaintiffs’ damages to be reduced on account of plaintiffs’ failure to take reasonable care – first and second defendants cross-claim brought against other defendants seeking apportionment, indemnity and contribution – whether concurrent wrongdoers – application of statutory contributory negligence and proportionate liability provisions within Corporations Act 2001 (Cth) and Australian Securities and Investments Commission Act 2001 (Cth) – discussion of principles of apportionment – whether plaintiffs “consumers” for purposes of Civil Liability Act 2003 (Qld)
Legislation:		Australian Securities and Investments Commission Act 2001 (Cth), ss 5, 12BAB, 12BB, 12BC, 12DA, 12DB, 12ED, 12GF, 12GR, 30 Bankruptcy Act 1966 (Cth), s 58(3) Civil Liability Act 2002 (NSW) Civil Liability Act 2003 (Qld), ss 28, 31 Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (Cth), schedules 3, 12 Corporations Act 2001 (Cth), ss 79, 254J, 254K, 254T, 471B, 476, 500(2), 588G, 670A, 670B, 710, 728, 729, 763A, 766A, 766B, 769C, 916A, 944A, 945A, 945B, 946A, 946C, 947A, 947B, 947C, 953A, 953B, 1022A, 1022B, 1041E, 1041F, 1041G, 1041H, 1041I, 1041L, 1041M, 1041N, 1041O, 1041P, 1324(1), 1325, 1466 Evidence Act 1995 (Cth), s 79 Federal Court of Australia Act 1976 (Cth), s 51A Federal Court Rules 2011, r 23.13 Financial Services Reform Act 2001 (Cth) Partnership Act 1981 (Qld), s 13 Tourism, Racing and Fair Trading (Miscellaneous Provisions) Act 2003 (Qld) Trade Practices Act 1974 (Cth), ss 52, 82, 87
Cases cited:		Angas Securities Ltd v Valcorp Australia Pty Ltd (2011) 277 ALR 538 Astley v Austrust Ltd (1999) 197 CLR 1 Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012] FCA 1200 Bennett v Elysium Noosa Pty Ltd (2012) 291 ALR 191 BHPB Freight Pty Ltd v Cosco Oceania Chartering Pty Ltd (No 2) [2008] FCA 1656 BP Refinery Pty Ltd v Hastings Shire Council (1978) 52 ALJR 20 Bullock v London General Omnibus Co [1907] 1 KB 264 Burke v LFOT Pty Ltd and Others (2002) 209 CLR 282 Cachia v Hanes (1994) 179 CLR 403 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd (2007) 164 FCR 450 Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 Henville v Walker (2001) 206 CLR 459 Hungerfords v Walker (1989) 171 CLR 125 Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10 Ingot Capital Investments & Ors v Macquarie Equity Capital Markets & Ors [2002] NSWSC 853 I&L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 Keith Woods v Rodney Mario De Gabriele [2007] VSC 177 March v E & MH Stramare Pty Ltd (1991) 171 CLR 506 Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 Miletich v Murchie [2012] FCA 1013 Murphy v Overton Investments Pty Ltd (2004) 204 ALR 26 Pennant Hills Restaurants Pty Ltd v Barrell Insurances Pty Ltd (1981) 145 CLR 625 Re La Rosa and Another; Ex parte Norgard v Rodpat Nominees Pty Ltd & Anor (1991) 31 FCR 83 Reinhold v New South Wales Lotteries Corporation (No 2) [2008] NSWSC 187 Sanderson v Blythe Theatre Co [1903] 2 KB 533 Shrimp v Landmark Operations Ltd (2007) 163 FCR 510 Valcorp Australia Pty Ltd v Angas Securities Ltd [2012] FCAFC 22 Wingecarribee Shire Council v Lehman Brothers Australia Ltd (In Liq) [2012] FCA 1028 Yates v Mobile Marine Repairs Pty Ltd [2007] NSWSC 1463
Date of hearing:	7-9, 13, 14 March 2012, 2-5, 10-13, 18 April 2012
Place:	Adelaide (Videolink to Brisbane)
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	1300
Counsel for the Plaintiff:	Mr P Heywood-Smith QC with Mr D Riggall
Solicitor for the Plaintiff:	Radbone and Associates
Counsel for the First and Second Defendants:	Mr P O’Sullivan QC with Mr T Cox
Solicitor for the First and Second Defendants:	Cosoff Cudmore Knox
Counsel for the Third Defendant:	The Third Defendant appeared in person
Counsel for the Fourth Defendant:	The Fourth Defendant appeared in person
Counsel for the Fifth Defendant:	The Fifth Defendant did not appear
Counsel for the Sixth Defendant:	The Sixth Defendant appeared in person
Counsel for the Seventh Defendant:	The Seventh Defendant did not appear
Counsel for the Eighth Defendant:	The Eighth Defendant did not appear
Counsel for the Ninth to Thirteenth Defendants:	Mr R Anderson
Solicitor for the Ninth to Thirteenth Defendants:	Herbert Geer

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION	SAD 11 of 2010

JUDGE:	LANDER J
DATE OF ORDER:	18 APRIL 2013
WHERE MADE:	ADELAIDE (VIDEOLINK TO BRISBANE)

JUDGE:	LANDER J
DATE:	18 APRIL 2013
PLACE:	ADELAIDE (VIDEOLINK TO BRISBANE)

Unit 1/78 Berrima Street, Wynnum	Amount
7/9/2005	Purchase of Property
Sellers release of mortgage fee	$108.30
Contract default penalty interest	$1,489.98
Fuss Law – costs and outlays	$2,063.60
Government contract stamp duty	$11,600.00
Total	$15,261.88
20/12/2007	Sale of property
Fuss Law – costs	$1,092.80
Orio Mortgage Finance Company	$660.00
Gadens National Mortgage Services	$195.25
Ray White – agents commission	$10,532.50
Total	$12,480.55
Unit 7/78 Berrima Street Wynnum
7/9/2005	Purchase of property
Seller release of mortgage fee	$216.60
Contract default penalty interest	$1,509.83
Fuss Law costs and disbursements	$1,265.00
Government contract stamp duty	$11,775.00
Total	$14,766.43
Sale of property
14/12/2007	Agents fees Ray White Wynnum Manly	$9,670.00
Orio Mortgage	$660.00
Transferring solicitors costs Fuss Law	$1,291.80
Total	$11,621.80
Unit 9/78 Berrima Street Wynnum
7/9/2005	Purchase of property
Sellers release of mortgage	$216.60
Contract default penalty interest	$1,708.32
Fuss Law costs and outlays	$1,300.00
Government contract stamp duty	$13,525.00
Total	$16,749.92
9/1/2008	Sale of property
Sellers release on mortgage fee	$115.00
Ray White – Wynnum Manly	$12,320.00
Agents fees Gadens National Mortgage Services	$228.25
Orio Mortgage Finance Company Limited	$660.00
Bank cheque fees	$50.00
Gadens solicitors mortgage	$228.25
Interest and costs for settlement date extension	$215.00
Total	$13,816.50

22/3/2005	RX01 Loan from Adelaide Bank Limited for $399,000
Loan contract fee	$80.00
Establishment fee	$512.50
Valuation fees	$512.50
Settlement fee	$100.00
MacGillivrays costs and outlays on preparation of mortgage documents	$2,186.97
DBA Financial Designs – Cash Flow Monitoring Software first year fee	$330.00
Diverse Enterprises – Finance and Property Settlement Service fee	$495.00
Total	$4,216.97
22/3/2005	RX02 Loan from Adelaide Bank Limited for $560,000
Loan contract fee	$80.00
Establishment fee	$512.50
Valuation fees	$512.50
Settlement fee	$100.00
MacGillivrays costs and outlays on preparation of mortgage documents	$2,879.27
National Mortgage Company Pty Ltd processing fee	$30.00
Total	$4,114.27
7/9/2005	Extension of RX01 loan amount from $399,000 to $600,000. Loan from Adelaide Bank.
Application fee	$285.00
Contract preparation fee	$80.00
Valuation fees	$220.00
National Mortgage Company Pty Ltd settlement fee	$100.00
Legal fees	$1,125.37
Total	$1,810.37
21/8/2006	Discharge administration fee	$150.00
21/8/2006	Wholesale deferred establishment fee	$3,192.00
Total	$3,342.00
7/9/2005	Extension of RX02 loan amount by $120,000 to a credit limit of $680,000. Loan from Adelaide Bank.
Contract fee	$80.00
Application fee	$285.00
Valuation fees	$220.00
Legal fees – MacGillivray’s solicitors	$910.32
Settlement fee	$100.00
Total	$1,595.32
21/8/2006	Wholesale deferred establishment fee	$4,480.00
Total	$4,480.00

Application fees	$550.00
Valuation fees	$1,760.00
Settlement fee	$100.00
Legal fees and outlays	$6,699.71
Bank cheque fees	$90.00
Loan mortgage insurance	$4,993.82
Settlement fee ING Bank	$25.00
Settlement fee – National Mortgage Company Pty Ltd	$100.00
Loan mortgage insurance	$543.68
Total	$14,862.21

(a)	7/9/05	RX01 (including increase)	$600,000
(b)	7/9/05	RX02 (including increase)	$680,000
(c)	7/9/05	ING	$920,000
Total	$2,200,000

Orio Loan Account No 100045065 – Loan No 164783 – 1/78 Berrima Street Wynnum - $356,250
17/8/2006	Establishment Fee	$350.00
17/8/2006	Lenders Mortgage Insurance	$14,423.68
Sub Total	$14,773.68
8/1/2008	Discharge Administration fee	$555.00
8/1/2008	Deferred establishment fee	$8,906.25
Sub Total	$9,461.25
Orio Loan Account No 100045062 – Loan No 165255 – Re 7/78 Berrima Street Wynnum - $301,480.02
17/8/2006	Fees and charges for loan	$3,939.12
Sub Total	$3,939.12
10/12/2007	Discharge Administration fee	$300.00
10/12/2007	Deferred establishment fee	$3,617.76
Sub Total	$3,917.76
Orio Loan Account No 100045064 – Loan No 164786 – 9/78 Berrima Street Wynnum - $380,000.00
17/8/2006	Lenders mortgage insurance	$15,010.00
Establishment fee	$350.00
Office of State Revenue	$1,520.00
Department of Natural Resources	$222.60
Orio Mortgage Finance Co Pty Ltd	$880.00
Bank cheque fees	$11.00
QMS Queensland fees	$555.19
Sub Total	$18,548.79
9/1/2008	Discharge Administration fee	$555.00
9/1/2008	Deferred Establishment fee	$9,500.00
Sub Total	$10,055.00
Orio Loan Account No 100045131 – Loan No 163543 – re Unit 3/43 Burnett Street Buderim - $686,093.27
17/6/2006	Title insurance	$212.85
Settlement fee	$75.00
Orio Mortgage Finance Company Pty Ltd	$600.00
Galilee Solicitors costs	$517.00
Lenders mortgage insurance	$6,093.27
Bank cheque fees	$60.00
Registration fees	$222.60
Office of State Revenue	$2,744.40
MacGilivray’s solicitors	$577.50
National Mortgage Company	$600.00
Sub Total	$11,702.62
Orio Loan Account No 100045128 – Loan No 163542 re 12/143 Burnett Street Buderim - $605,376.41
17/8/2006	Settlement fees	$75.00
Title insurance	$212.85
Orio Mortgage Finance Company Pty Ltd	$660.00
Galilee Solicitors costs	$517.00
Lenders mortgage insurance	$5,376.41
Bank cheque fees	$40.00
Registration fees	$222.60
Office of State Revenue	$2,421.60
Sub Total	$9,525.46
Deferred establish fee and discharge administration fee	$7,564.52
Sub Total	$7,564.52
25/5/2007	Loan – Capital Access
8/6/2007	Gadens – Fees	$1,386.17
Application fee	$3,632.00
Brokerage fee	$3,058.00
Sub Total	$8,076.17

1.	Loss on investment in Neovest	$450,000.00
2.	Capital losses on Units 1 and 7 at Wynnum	$20,000.00
3.	Acquisition and selling costs of units at Wynnum	$84,697.08
4.	Establishing the initial loan	$19,558.93
5.	Establishing the ING loan	$14,862.21
6.	Borrowing costs	$128,000.00
7.	Orio refinancing	$97,564.37
$814,682.59
say	$814,680.00