Taylor v Gosling
[2010] VSC 75
•15 March 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 8804 of 2003
| NEIL TAYLOR and ADELE TAYLOR | Plaintiffs |
| v | |
| GARRY LLOYD GOSLING & Ors (According to the schedule attached) | Defendants |
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JUDGE: | HARGRAVE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 29 and 30 September, 1, 5‑7 and 13 October 2009 | |
DATE OF JUDGMENT: | 15 March 2010 | |
CASE MAY BE CITED AS: | Taylor v Gosling | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 75 | |
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TRADE PRACTICES – Representation that loan involved no risk – Representation misleading – Whether representation relied upon – Held: representation relied upon and caused loss to the plaintiffs.
PROPORTIONATE LIABILITY – Proceeding commenced against three defendants before commencement of Part IVAA of the Wrongs Act 1958 (Vic) – Fourth defendant added after commencement of Part IVAA – Whether Part IVAA applied to the proceeding against added defendant – Held: Part IVAA of no application to the proceeding – Wrongs Act 1958 (Vic), ss 24AI, 24AJ and 24AS – Supreme Court (General Civil Procedure) Rules 2005, r 9.11(3)(a), (c) ‑ Premier Building and Consulting Pty Ltd v Spotless Group Ltd (2007) 64 ACSR 111, [34](b) not followed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr R E T Wodak | Tisher Liner & Co |
| For the Fourth Defendant | Mr J S Graham | Anne Hodgson & Co |
TABLE OF CONTENTS
Parties and Introduction................................................................................................................... 2
Factual narrative................................................................................................................................. 5
Did Mr Gosling mislead Mr and Mrs Taylor?........................................................................... 34
Did Mr and Mrs Taylor rely on Mr Gosling’s misleading conduct in deciding to invest? 38
Can Mr Gosling escape liability on the basis he acted as a mere ‘corporate organ’ of IBP? 42
Is Mr Gosling liable as a person involved in misleading conduct by IBP?......................... 43
Does the proportionate liability regime apply to the claims against Mr Gosling?............ 44
Is Mr Gosling entitled to seek contribution or indemnity from Mr Pennicott?.................. 47
What is the quantum of the loss suffered by Mr and Mrs Taylor?........................................ 48
HIS HONOUR:
Parties and Introduction
The plaintiffs are Neil Taylor and his wife Adele Taylor. They are both retired. Mr Taylor worked as a schoolteacher for most of his working life. There was a period when he pursued his love of music as a career. Mrs Taylor worked as a secretary for most of her working life. Towards the end of her career, she worked in an administrative capacity.
In April 2002, Mr and Mrs Taylor were nearing the end of their working lives. A year or two earlier, they had commenced planning for their retirement. They read some investment books and talked with friends and work colleagues about investment issues. They were inexperienced investors. At this time, Mr and Mrs Taylor owned their home without any encumbrances, worth about $300,000. They also owned a car each and had some small shareholdings worth about $20,000. They had combined superannuation entitlements of about $180,000.
The fourth defendant, Garry Lloyd Gosling, is and was at all relevant times experienced in business and investment. At the time of the events in question, in 2002, Mr Gosling had substantial experience in advising successful businesses, in sales and in raising capital from investors, including considerable experience in raising capital through ‘sophisticated investors’.
In April 2002, Mr and Mrs Taylor received a letter from their longstanding friends, Geoff Everett and June Everett, inviting them to attend an investment seminar to be conducted on 1 May 2002 by Urban Investment Services Pty Ltd (the ‘1 May seminar’).
At the time, Urban was a company beneficially owned by the second defendant, Gabriel Neil Pennicott, and the third defendant, Jan Li (also known as Jane Lee). At relevant times, Mr Pennicott and Ms Li were directors of Urban.
Mr Pennicott and Ms Li were also the beneficial owners of a related company, IBP Capital Pty Ltd. However, at relevant times, neither of them was a director or secretary of IBP. At relevant times until 14 August 2002, Mr Gosling was the sole director and secretary of IBP.
Mr and Mrs Taylor attended the 1 May seminar. Each of Mr Pennicott and Mr Gosling gave an oral presentation. They spoke generally about investment opportunities available through Urban and, in particular, about an investment being promoted by IBP. The proposed investment was in an apartment complex to be built on Phillip Island, to be called ‘Domain on Chapel’. The idea was for investors to buy units in a property trust which would be formed to buy the land and develop the proposed apartment complex. During the course of the 1 May seminar, both Mr Pennicott and Mr Gosling spoke at length about the lack of any material risk in this proposed investment.
Mr and Mrs Taylor were impressed by what they heard. As a result, they were interested in making an investment in the Domain on Chapel project. Towards this end, they applied for and obtained finance on the security of their home.
The Domain on Chapel project was delayed. Mr Gosling was unable to put in place key financing and insurance arrangements. In these circumstances, a meeting of proposed investors was arranged on 30 July 2002. The meeting was addressed by Mr Gosling alone. On behalf of IBP, he sought short-term loans from proposed investors. The purpose of the short-term funding was to enable IBP to complete the purchase of a number of assets, including the land on which the Domain on Chapel apartment complex was to be constructed.
According to Mr and Mrs Taylor, Mr Gosling stated at the 30 July meeting that there was ‘no risk’ in making the short-term loans because, consequent on IBP purchasing assets with the proceeds of the short-term loans, IBP would have assets which well exceeded the amount to be borrowed. Mr Gosling has a different version of events. In particular, he denies that he said that the short-term loans would carry no risk. He accepts that he said words to the effect that the short-term loans were ‘low risk’.
A short while after the 30 July meeting, Mr and Mrs Taylor mortgaged their home to the maximum amount obtainable (80 per cent of its value) and invested that sum in short-term loans to IBP Capital. They contend that they made these investments in reliance upon the statements made by Mr Gosling at the 30 July meeting.
Soon after Mr and Mrs Taylor invested in the short-term loans, Mr Gosling resigned as a director of IBP Capital. Mr and Mrs Taylor were not informed of this. Mr Gosling continued to deal with them in connection with the payment of interest on the loans. Mr and Mrs Taylor also had some unsatisfactory dealings with Mr Pennicott.
IBP paid interest on the loans from Mr and Mrs Taylor for some months. Payments then ceased. Numerous promises were made by Mr Pennicott that the loans would be repaid. However, apart from one capital repayment of $10,000, there were no further payments. Mr and Mrs Taylor have lost virtually the whole of their investment.
This proceeding was commenced by Mr and Mrs Taylor against Urban, IBP, Mr Pennicott and Ms Li. Mr Gosling was not initially joined as a defendant. This is probably because he initially assisted them in endeavours to achieve repayment of their loans, and later assisted them to obtain a copy of the powerpoint slides prepared by IBP for use at the 30 July meeting.
There is no prospect that Mr and Mrs Taylor will recover any money from Urban. It has been wound up and de‑registered. Nor will they recover any money from IBP. It is in liquidation and there is no prospect of any return to creditors.
In July 2006, Mr and Mrs Taylor obtained summary judgment against Mr Pennicott and Ms Li for damages to be assessed. However, there is little prospect of any recovery from either of them on that judgment. Ms Li is an undischarged bankrupt and it is unlikely that Mr Pennicott has any assets to satisfy the judgment. They have both been committed to stand trial in 2010 on charges relating to the collapse of Urban and IBP.
In these circumstances, Mr and Mrs Taylor proceeded to trial against Mr Gosling. The trial also included an assessment of the damages against Mr Pennicott and Ms Li pursuant to the judgment obtained against them. Mr Pennicott and Ms Li’s trustee in bankruptcy were given notice of the trial. There was no appearance on behalf of either of them.
Mr and Mrs Taylor seek damages comprising the moneys lent by them which remain unpaid, and interest. With interest, the amount claimed approximates $400,000.
Mr Gosling denies all liability. He contends that Mr and Mrs Taylor well knew that the loans were unsecured and that there was risk associated with them and that, notwithstanding this knowledge, they elected to continue with their investment. He contends that he made no representations on his own account. He says that he was acting as a mere ‘corporate organ’ of IBP and, if any representations made by him were false or misleading, he did not have actual knowledge of that fact. Accordingly, he contends that he is not liable as a person involved in any misleading or deceptive conduct by IBP.
In case he is liable, Mr Gosling contends that Mr Pennicott and Ms Li are ‘concurrent wrongdoers’ within the meaning of Part IVAA of the Wrongs Act 1958 (Vic). Accordingly, pursuant to the proportionate liability regime established by that Part, he seeks to have his own liability substantially reduced, so as to reflect the culpability of IBP, Mr Pennicott and Ms Li for the loss suffered by Mr and Mrs Taylor and his own lack of any material culpability.
Against this background, it is necessary to consider the facts in more detail.
Factual narrative
In late March or early April 2002, Mr Pennicott approached Mr Gosling and asked him to come and work for Urban. In particular, he asked Mr Gosling to assist with the Domain on Chapel project. At this time, Mr Gosling had known Mr Pennicott for about five years.
Mr Gosling commenced working for Urban in mid‑April 2002, prior to the formalisation of arrangements. Following discussions with Mr Pennicott, Ms Li and Urban’s solicitor, Brian Shech, it was agreed that Mr Gosling would provide his services to Urban through his company Wired Capital Pty Ltd. Under the arrangements, Mr Gosling was to receive a guaranteed income of $104,000 per annum and commission payments. Relevantly, Mr Gosling was to receive a commission of 0.5 per cent of the capital raised by IBP for the Domain on Chapel project. As the intended capital raising was $10 million, Mr Gosling stood to earn a $50,000 commission for his work on this project.
Further, Mr Gosling agreed to become the sole director and secretary of IBP, replacing Mr Shech in these roles. He occupied these positions between 30 April and 14 August 2002. Mr Gosling became the sole director and secretary of IBP for the purpose of disguising the fact that IBP was controlled by Mr Pennicott. In this regard, Mr Gosling said that he was told by Mr Pennicott that Mr Pennicott’s previous employer was alleging that Mr Pennicott was utilising some of its intellectual property in the conduct of Urban’s business. Mr Gosling said that Mr Pennicott assured him that there was in fact no misuse of any intellectual property of his former employer. In this context, Urban’s lawyer, Mr Shech, suggested that it would be best if Mr Pennicott ‘didn’t wave a flag at his former employer’ by being a director of IBP. In these circumstances, Mr Gosling said that he agreed to be a director and secretary of IBP, notwithstanding that it was under the control of Mr Pennicott and he was ‘a mere puppet’ who followed the instructions of Mr Pennicott and Ms Li as the owners of IBP. Mr Gosling took no steps to inform proposed investors in IBP that, although he was its only director, he was acting under the instructions of Mr Pennicott and Ms Li at all times. Mr Gosling said that he did not feel uncomfortable about his position as the sole director and secretary of a company over which he had no control, and said that he saw ‘no harm’ in performing that role in circumstances where he believed Mr Pennicott’s explanation that he was not misusing the intellectual property of his former employer and that the allegations that he was doing so were groundless.
This conduct by Mr Gosling reflects poorly upon his commercial morality and upon his credibility as a witness. In his evidence in chief, he accepted that he understood the purpose of appointing him as a director, and not Mr Pennicott or Ms Li, was to conceal Mr Pennicott’s involvement in IBP from Mr Pennicott’s previous employer. In cross‑examination, he endeavoured to withdraw that evidence. It was directly put to him that he became a director of IBP ‘in order to assist Mr Pennicott in hiding the fact that he [Mr Pennicott] was truly in control of the company?’ Mr Gosling’s denial of that position was false and obviously so.
During April 2002, Mr Gosling familiarised himself with the Domain on Chapel project. In addition to discussions with Mr Pennicott and Ms Li, he met with the architect, the builder and the valuer. He sighted 28 off‑the‑plan contracts of sale.
During the course of April 2002, the 1 May seminar was arranged. In preparation for that seminar, Mr Gosling assisted Mr Pennicott, Ms Li and Mr Shech in the preparation of a product disclosure statement concerning the Domain on Chapel project. Mr Gosling said that it was intended to register this product disclosure statement with the Australian Securities and Investments Commission (‘ASIC’) prior to the 1 May seminar, and to distribute the product disclosure statement at the seminar.
On 20 April 2002, the Taylors received the letter from Mr and Mrs Everett inviting them to attend the 1 May investment seminar. By this time, the Everetts were registered clients, or ‘members’, of Urban. In that capacity, they had received the text of a letter to be sent by them to other persons who may be interested in becoming Urban ‘members’. Both Mr and Mrs Taylor said that they did not appreciate that the Everetts’ letter had been substantially prepared by Urban or IBP.
The Everetts’ letter is in the following terms:
Hi Adele & Neil
Greeting from the Everetts at our new address in Croydon. We’ve settled in well since our move from Taruna Rise on 15 March.
Our main purpose in writing at this stage is to tell you of our latest investment activity and to invite you to share in it with us.
June & I belong to an Investment Group which is currently providing access to a Managed Investment Fund. The fund is a Property Trust and returns a guaranteed 14%.
Significant points to note include:
a.The fund is Capital Secure. This means the money is safe and guaranteed by a third party.
b.The 14% Interest is paid every month – guaranteed.
c.The Property concerned is in the Trust and the Trust is fundng it as a first mortgage.
We are putting together a syndicate of people to participate in the fund as a Sophisticated Investor and we would love you to be part of that team. Essentially this means raising $500,000 so that we can share in the Property Trust together. $500,000 is the minimum amount necessary for an investor or entity to qualify as a Sophisticated or Accredited Investor.
Possible sources of funds for you might be your existing assets such as your Super Fund (which, we guess, is currently returning you less than 14%!!), dead equity on your home, non-performing shares, etc. Your level of commitment would be entirely up to you. Even $10,000 or $20,000 earning a guaranteed 14%, with interest paid monthly, with virtually no risk might be appealing to you. We will be investing significantly more than $20,000 ourselves.
This opportunity has a duration of 24 months but there will undoubtedly be further opportunities, perhaps even this year, to invest in future property developments.
You may have no interest in this opportunity or feel that you are in no position financially to participate at the moment. That’s fine!! – we understand. If this is the case, don’t worry about responding at all right now. We simply wanted to give you the opportunity of sharing in something which June & I are finding extremely exciting.
How do you know your money is secure?
If you would like to find out more and be able to ask the Promoter further about the security of the investment, a
Briefing Session
will be held on
Wednesday 1 May at 6.30pm for a 7.00pm start
at
a venue to be announced
You are cordially invited to attend and to bring your accountant, financial advisor or anyone else with you.
If you would like to talk further with us about the opportunity and/or you would like to attend the Session on Wednesday week, please ring us on 9733 1228 by this Friday, 26 April. We must stress the need to act fairly quickly because we need to notify our Investment Group of attendees so that a suitable venue can be booked.
Some investments promising high returns are attracting media attention at the moment, particularly those involving mezzanine funding. This opportunity is NOT about mezzanine funding and is open to full scrutiny.
We look forward to hearing from you, even it if is just to say ‘Hi’. If you are interested at all, please act swiftly!!
Cheers for now
Geoff & June
Mr or Mrs Everett has added a handwritten personal note at the end of the letter:
Hope all is well. What’s the latest count on investment properties?
The Everetts’ letter provides an insight into the way in which Urban went about gathering ‘members’ to which they would market investments. ‘Members’ such as the Everetts were encouraged to write to friends and acquaintances and invite them to attend seminars conducted by Urban. There is a thinly disguised attempt to personalise the letter. The purpose of the letter is obviously to attract unsophisticated investors, such as Mr and Mrs Taylor, with promises of a limited opportunity to participate in an investment opportunity where both capital and interest would be guaranteed. The passing reference to the guaranteed interest being accompanied by ‘virtually no risk’ does not dispel this message. As appears below, the oral presentation at the 1 May investment seminar, and the 30 July meeting, adopted a similar format. Any reference to risk was downplayed by repeated references to guarantees of both capital and income.
Mr Gosling said that, on 1 May 2002, he attended at the ASIC offices with Mr Pennicott with the intention of lodging the product disclosure statement for registration. He said that he and Mr Pennicott attempted to lodge the product disclosure statement with a cashier at the counter. He said that the cashier said words to the effect: ‘this document is for sophisticated investors and is not to be lodged with us.’ They then spoke with an ASIC lawyer, who confirmed that the document would not be accepted for lodgement. This version of events appears improbable. However, as it was not put to Mr Gosling that his evidence was false, I accept it.
When Mr and Mrs Taylor arrived at the 1 May seminar, they were asked to sign a ‘Disclaimer Confidentiality and Release Form’. They had some reservations, but nevertheless signed it. The form is drafted to protect Urban and its employees, consultants, contractors and related bodies corporate. For example, the form states that the information to be provided at the seminar is not intended as investment advice or recommendations to ‘the client’, that Urban does not warrant the accuracy of the information,[1] states that clients should obtain independent financial, accounting and legal advice before investing and provides that the client shall indemnify Urban and any presenter at the seminar as a result of any loss arising from the client using the information provided at the seminar.
[1]The form mistakenly refers to ‘the client’ not warranting the accuracy of the information provided.
After the Taylors signed the disclaimer form, they were handed a copy of the product disclosure statement and a letter drafted by Mr Pennicott or Mr Shech concerning the refusal of ASIC to accept the product disclosure statement to be lodged for registration. The product disclosure statement was not in evidence. The accompanying letter was on IBP letterhead and contains Mr Gosling’s facsimile signature. It is addressed ‘Dear Sophisticated Investor’ and states that an endeavour to lodge the product disclosure statement was refused by ASIC because it ‘constituted an exempt offer’ under applicable legislation ‘and as such lodgement was not required’. The letter was obviously designed to give the impression that the product disclosure statement was capable of registration if that was required.
There is no doubt as to what was said by Mr Pennicott and Mr Gosling during their formal presentations at the 1 May investment seminar. Their presentations were filmed and a DVD copy of the film was placed in evidence. I have viewed that DVD in its entirety. A transcript was also prepared by a licensed shorthand writer. Mr Gosling accepted that the transcript is materially accurate.
The DVD of the presentations at the 1 May investment seminar depicts two salesmen, Mr Pennicott and Mr Gosling, endeavouring to sell a product. The product is an investment in the Domain on Chapel project. That project is described in positive terms throughout, with the emphasis on the lack of any, or any material, risk to investors.
Mr Pennicott spoke first. Amongst his salesman’s spiel, one thing was clear. Listening to his presentation as a whole, he told the proposed investors that an investment in the Domain on Chapel Property Trust would carry no risk. He said that repayment of capital was guaranteed by a reputable third party. He said that a return of 14 per cent per annum on the capital invested was guaranteed by a reputable third party. Mr Pennicott described the term ‘sophisticated investor’ to the audience. He acknowledged that the term arose from the Corporations Law. He said that a sophisticated investor was an individual with $500,000 cash and earnings of more than $250,000 per year for the last two years. Another way in which a person could become a sophisticated investor was to have net assets of over $2,500,000.
Then, Mr Pennicott turned his attention to persons in the audience who did not meet these sophisticated investor criteria. He said:
There is another way you can participate and that is if you are a company. By being a company you can just have $500,000 worth of cash to invest and as a legal entity you can be a sophisticated investor too.
So those are the two ways that you become a sophisticated investor ‑ ‑ no education, just money talks.
These statements by Mr Pennicott echo the statement in the letter from Mr and Mrs Everett to the Taylors:
We are putting together a syndicate of people to participate in the fund as a Sophisticated Investor and we would love you to be part of that team.
These statements by Mr Pennicott demonstrate that persons such as the Taylors were not, on any view, ‘sophisticated investors’ within the meaning of the Corporations Act. A person who holds an interest in a company which qualifies as a sophisticated investor does not thereby become a sophisticated investor in his or her own right. Yet that was the fiction created by Mr Pennicott, and adopted by Mr Gosling, for the purpose of dealing with proposed investors. The letter distributed at the 1 May seminar, addressed ‘Dear Sophisticated Investor’, is an example of this.
Mr Pennicott introduced Mr Gosling, who he said would explain the proposed investment in more detail.
Mr Gosling introduced himself as a director of IBP Capital. He said that he had only been involved with Urban for about a month, but that he had known Mr Pennicott for four or five years and that his business ventures with Mr Pennicott had been successful. He said that his business was raising money for companies ‘through sophisticated investor groups’. He explained how the cost of raising funds from sophisticated investors was substantially less than raising funds from ordinary investors, where there were high overhead costs associated with product disclosure statements and other regulatory matters. He implied that the audience were ‘a new group of sophisticated investors’. Reading the transcript as a whole, I do not accept that Mr Gosling believed that he was addressing a group of sophisticated investors. His presentation was obviously directed at persons with little or no investment experience. Further, Mr Gosling recognised this early in his presentation when he said:
It is a very exciting opportunity. If I took it to the normal sophisticated investors that I work with, they would say it is too good to be true because normally, what we don’t do is we don’t guarantee the interest or the result.
Mr Gosling referred to Mr Pennicott’s statements that the Domain on Chapel project contained ‘no risk’. He said:
This is not only a great opportunity with very little risk involved ‑ ‑ and I say very little risk. I thought I heard Gabrial say no risk. There is no such thing as no risk. But my analogy about this is that all the trees in the forest have to fall over together for you to lose because not only does the development have to go wrong, whoever the promissory note is underwritten by has to go broke.
Later, Mr Gosling returned to the subject of risk. He said:
For most of the people that are members and affiliates here, who have just started to qualify themselves and their businesses as sophisticated investors, there is a leap of faith that this is a good return. Not a spectacular return but no risk. The banks can offer 20 per cent. I can offer 14 per cent.
At the 1 May seminar, Urban representatives distributed invitations to attend an ‘information session’ to be held at the Caulfield Town Hall Theatrette on 9 May 2002. The invitation was directed to ‘affiliates of [Urban’s] Private Clients’ and described the information session as an opportunity ‘to find out more about the services that Urban offers its Private Clients’. The invitation contains a section to be completed by any person wishing to attend the information session. In order to accept the invitation, it was necessary to complete the name and contact details of the person wishing to attend and to send the completed invitation by facsimile, to ensure a place at the information session. The particulars to be completed by a person wishing to attend, included the name of the existing Urban client who invited them to attend the 1 May seminar. Mrs Taylor completed the invitation and specified Mr Everett as the referring client.
Mr and Mrs Taylor were obviously impressed with what they heard at the 1 May seminar. At 11:30 pm that night, they sent a facsimile to Mr and Mrs Everett. The facsimile was written by Mrs Taylor. Mrs Taylor commenced the letter in the following terms:
Dear Geoff & June
Sorry we had to rush off after the ‘briefing’. They certainly waffle on, especially the Garry Gosling guy. But the Gabriel Pennicott managed to convey his point about the Urban investments in a quiet but sometimes annoying way. Maybe he prompted me into action.
The penny just dropped, I think I’ve got it!!!!
We are considering investing $100,000 in your Sophisticated Investor syndicate. Are we too late?? Is it overbooked already? We have yet to organise this finance, but we are starting to work on it.
This letter was written immediately after Mr and Mrs Taylor returned home after the 1 May seminar. As a contemporaneous record, it should be accepted as recording Mrs Taylor’s view at the time. Although she thought that there was ‘waffle’ in the presentations by both Mr Pennicott and Mr Gosling, she accepted the truth of what she was told, thought she understood it and was sufficiently interested to commence raising finance on the security of the Taylors’ home to enable them to proceed with an investment in the Domain on Chapel project. In particular, Mrs Taylor obviously understood that both capital and interest would be guaranteed:
When your Syndicate gets its Promissory Note, my understanding is that it will physically have written in it words that guarantee the payment of the investment money and the 14% interest. Is that correct? Are there any other legal documents that IBP signs and gives to the Syndicate?
Further, Mrs Taylor’s intentions were revealed by statements in the facsimile that she was ‘very keen to go to the Thursday night’s Information Session (9/5).’
Mrs Taylor attended the 9 May information session. Mr Pennicott spoke. There is a transcript of his address to those present. The coversheet of the transcript, prepared by Urban, describes the event as a ‘New Member Information Session’. Mr Pennicott spoke at length. His purpose was to convince those present to pay $3,300 and become private clients of Urban. He encouraged those present to utilise the equity in their homes to invest in deals sourced by Urban. He said that there was no risk in investment deals put forward by Urban.
At the 9 May information session, Urban representatives distributed a number of documents. In particular, Mrs Taylor received a ‘Private Client Application’ form and a form of ‘Property Registration Agreement’. These forms were explained by Mr Pennicott during the course of the 9 May information session.
Mr Taylor was unable to attend the 9 May information session. When Mrs Taylor arrived home, Mr Taylor said that she was ‘very excited and shared that excitement with me’.
Before she left the 9 May investment seminar, Mrs Taylor completed the private client application form.
In the private client application form, Mrs Taylor stated that her gross annual income was $36,000, the combined net worth of her and Mr Taylor was $492,000 (including their home and superannuation) and that she and her husband had a desired net worth of $1 million or more. Against the item ‘Time‑frame for Net Worth Transformation’, Mrs Taylor wrote: ‘soon – 5 yrs max’.
Mr Gosling gave evidence of a series of meetings which he conducted in late May and early June with representatives of syndicates who had expressed an interest in investing in the Domain on Chapel project. He said that the format of the meetings was consistent. He gave those present an overview of the project and ‘went through a risk analysis with them’ over a period of an hour or an hour and a half. He said that he gave those present a coloured copy of the risk analysis document.
Mr Gosling said that he had a specific recollection of conducting such a meeting with Mr Everett and representatives of his syndicate. However, he frankly acknowledged that he cannot recall Mr and Mrs Taylor being present at the meeting.
There is an entry in Mrs Taylor’s diary for 20 May 2002, noting a meeting at 7 pm that night at Urban’s offices in Kew concerning Mr Everett’s syndicate. However, the entry has been crossed out, indicating that the meeting did not take place. The deleted entry does not indicate who the meeting was with. A few days later, Mrs Taylor’s diary records a meeting on 23 May at Urban’s Kew offices with Michael Versteden and George Verginis. That meeting did take place.
Mr and Mrs Taylor each denied that they meet Mr Gosling at Urban’s Kew offices, in the presence of Geoff Everett, in late May or early June. They denied that Mr Gosling gave them a copy of the risk analysis document at any time. In the absence of any positive evidence from Mr Gosling that Mr and Mrs Taylor were present at his meeting with Geoff Everett’s syndicate, I accept the evidence of Mr and Mrs Taylor.
In late May, Mr and Mrs Taylor paid $3,300 and became clients, or ‘members’, of Urban.
In early June 2002, Mr and Mrs Taylor applied for finance to be secured over their matrimonial home, for the purpose of raising funds to invest in the Domain on Chapel project or other Urban opportunities. The loan application was made through a finance broker associated with Urban. The Taylors sought the maximum amount of finance obtainable on the security of their home. Following a valuation of their home, finance for 80 per cent of its value was approved.
Prior to approval of finance, the Taylors invited their accountant, Peter Watson, to their home for dinner. This was an unusual event. Although she could not recall it, Mrs Taylor said that there could have been some discussion during dinner concerning financial matters. I have no hesitation in inferring that this was so. However, there is no evidence as to the extent of that discussion.
The decision to mortgage their home was a very significant decision for the Taylors, involving them lending $248,000 against the security of their otherwise unencumbered matrimonial home.
On 17 July 2002, Mr and Mrs Taylor each received a letter from Urban congratulating them on becoming a ‘Silver Member of Australia’s most exclusive investor club – Urban Investment Services’. Each letter stated:
As a privileged member of our Exclusive Investor Club, you automatically benefit from the extensive array of services that we provide. It is our aim to provide you with the most thorough and comprehensive investment opportunities that passively accelerate your wealth. More often than not, we will present with Property Investment Opportunities, however, we also present Share and Business Opportunities from time to time, and as you know, we always offer our 100% MONEY BACK GUARANTEE on registration of all opportunities, so there is NO RISK to you.
On 20 July 2002, Mrs Taylor attended another Urban seminar at the Caulfield Town Hall, presented by Mr Pennicott. By this time, Mrs Taylor had reservations about signing disclaimer forms, and tried to avoid doing so.
Next, a meeting of prospective investors in the Domain on Chapel project was arranged for 30 July 2002 at Urban’s offices in Richmond. Mr Gosling said that this meeting was not arranged by him, and was arranged by Mr Pennicott or his staff. Mr Gosling gave the following evidence in chief as to the purpose of the meeting and as to the circumstances in which he came to be the sole presenter at the meeting.
By this time, Mr Gosling had experienced difficulty in finalising the securities intended to protect investors in the Domain on Chapel project. IBP’s option over the Domain on Chapel property was due to be settled on 23 August 2002. In these circumstances, Mr Pennicott and Ms Li had been fielding enquiries from potential investors, who were endeavouring to determine the status of the Domain on Chapel project. Mr Pennicott and Ms Li said that they wanted to hold a meeting of proposed investors to bring them up to date.
There was discussion between Mr Gosling, Mr Pennicott and Ms Li as to the form of the presentation to be given to investors. Mr Pennicott was going to speak, update the investors on the status of the project and offer them an opportunity to provide short-term loans to IBP to enable IBP to complete three property transactions. First, the purchase of the land for the purposes of the Domain on Chapel project. Second, the purchase of a property in Burnley Street, Richmond. Third, the refinancing of a property at 19 William Street, Richmond (collectively ‘the three properties’).
Mr Pennicott told Mr Gosling that the term of the short-term loans would be somewhere between three and six months with interest at 10 per cent being paid to lenders. This compared favourably with deposit rates at the time, in the vicinity of 5 per cent.
According to Mr Gosling, Mr Pennicott told him that the short-term loans would be repaid in the following manner. First, upon refinancing of the William Street property, about $1 million would be available to repay the loans. Second, it was intended to on‑sell the Burnley Street property to raise funds. Third, the funds raised from investors in the Domain on Chapel project would be made available to repay the short-term loans.
For the purposes of the meeting, Mr Pennicott prepared a series of notes and discussed them with Mr Gosling and Ms Li. These notes formed the basis of slides which were prepared for presentation in a PowerPoint form (‘the slides’).
In his evidence in chief, Mr Gosling said that he ‘looked at some slides’ with Mr Pennicott in discussions leading up to the 30 July presentation however, to his recollection, the slides which he discussed with Mr Pennicott were in a different format, with the content of the proposed PowerPoint presentation on the left hand side and the right hand side of the page containing blank lines on which notes could be written. This is to be compared with the form of the slides in evidence, which contain the proposed PowerPoint content across the whole of the page in a landscape format. As appears below, I find that it is likely that the slides in evidence were the final version. The different format discussed between Mr Pennicott and Mr Gosling was either an earlier draft or a different display option of the same presentation.
It is common ground that the slides did not form the basis of a PowerPoint presentation by Mr Gosling on 30 July. Mr Gosling used the slides as notes for his presentation, and made some entries on a whiteboard.
When he was first cross‑examined, Mr Gosling acknowledged that the slides in evidence contain ‘certain elements’ that he recalls forming part of his presentation on 30 July 2002, but that he was not sure whether the slides were a draft or the final form of the presentation agreed between him and Mr Pennicott. However, he acknowledged that the slides in evidence are ‘a good approximation’ of what he recalls and that they look ‘exceedingly like the document in a different format’. By this evidence, I understood Mr Gosling to be referring to the final form of the slides, to which he spoke during the 30 July presentation.
On the next day that he was cross‑examined, Mr Gosling sought to cast doubt as to whether he used the slides as his speaking notes at the 30 July meeting. He acknowledged that he had read the notes prior to the previous day’s cross‑examination.
When Mr Gosling was taken back to the slides on the second day of his cross-examination, he said that the slides ‘look a little more definitive than the notes I recall’, and speculated that the slides may have been presented by Mr Pennicott to proposed investors at a later meeting on 3 August 2002, at which Mr Gosling was not present. In the end, after some evasion and argumentative evidence, Mr Gosling acknowledged in cross‑examination that the slides in evidence contain ‘an approximation as best [he] can recall of what was said on 30 July’.
The Taylors gave evidence that the slides reflect what Mr Gosling said at the 30 July meeting.
Further, the slides are consistent with the handwritten notes made by each of Mr and Mrs Taylor of Mr Gosling’s presentation at the 30 July meeting.
In all the circumstances, I am satisfied that the slides in evidence are the final version, and that Mr Gosling used them as his speaking notes at the 30 July meeting. The slides, together with the handwritten notes made by Mr and Mrs Taylor, form the best evidence as to what was said by Mr Gosling during the course of that presentation.
Mr Gosling’s presentation on 30 July comprised three parts. First, he described difficulties which he had encountered in obtaining full security for the proposed capital investments in the Domain on Chapel project and said that, as a result, that project could not then proceed. Second, he provided details of an opportunity for those present to invest in short‑term loans to IBP, with the option to ‘roll’ the amount lent into the Domain on Chapel project when it was ready to proceed. In this context, Mr Gosling gave details of the three properties and stated the values of those properties. Third, he gave a brief outline of a possible ‘High Tech’ investment in Queensland, which, according to Mrs Taylor’s notes, he described as a ‘Plan B’ if the Domain on Chapel project did not proceed. It is unnecessary to consider this third aspect further.
According to the handwritten notes made by each of Mr and Mrs Taylor, Mr Gosling commenced his presentation by describing his role as being ‘to protect the investor’ (Mrs Taylor) or ‘protection of investors’ (Mr Taylor). Given the similarity of the notes made by Mr and Mrs Taylor on this issue, I am satisfied that a statement to this effect was made by Mr Gosling.
Mr Gosling then informed those present that the Domain on Chapel project had been delayed because, although he had arranged security from one of the world’s largest banks for the 14 per cent interest to be paid on capital which was to be invested, he had been unable to obtain full security for that capital. In that regard, Mrs Taylor’s notes record Mr Gosling as stating that he ‘wants to be able to cover it [the capital] 100%’ and that such cover was ‘NOT AVAILABLE’. Mr Taylor’s notes record that Mr Gosling told those present that he had managed to obtain security for the capital of ‘70% only so far’ and that this was ‘not good enough’. Mr Taylor gave evidence that Mr Gosling said that he felt responsible to the investors, because he realised that many of them had ‘done a lot of hard work to get our money together, and it was ready to be put somewhere but we had nowhere to put it’. In this context, Mr Taylor said that Mr Gosling introduced the short‑term loan proposal ‘as a reward’. This is consistent with the slides, which record in this respect:
Effort by Members will be rewarded by a new, short-term, deal.
Further, Mr Gosling acknowledged in his evidence that he commenced his presentation in apologetic terms, describing himself as ‘the bringer of bad news’ because the Domain on Chapel project ‘had not come to fruition yet’ and, in that context, introduced the short-term loans as providing proposed investors with ‘some place for them to get a return on that capital that they had freed up’.
Mr Taylor described Mr Gosling’s statements concerning the short‑term loans in the following terms:
The details I remember were that it was to be for three to six months. It would be a direct loan to IBP Capital. There was to be absolutely no risk. There was to be a three per cent brokerage paid upfront. He said that the money, $2.85m had to be raised by IBP, and that's we were lending the money for, and it's for three particular ventures, the details which I cannot remember without referring to notes, and as I said the money could be there from - for three to six months. If you wanted to you could roll the money over into Domain on Chapel and immediately obtain 14 per cent instead of the three per cent, or if you chose not to do that the money would be returned to you at the end of the six months. I also remember him saying that although the original Domain on Chapel investment was for sophisticated investors only, which meant syndicates that could raise $500,000, this was available to individuals, you didn't have to be a member of a syndicate. I remember him saying that. The other thing I do recall is that in terms of security IBP had 4.3 million worth of assets in security [a reference to the three properties], and that's just going from memory.[2]
[2]Emphasis added.
In her evidence in chief, Mrs Taylor described Mr Gosling’s statements concerning the short‑term loan proposal in the following terms:
he would make available an interim loan, he called it, which was of no risk to the investor because he was the person who was to bear all the risk at IBP Capital. It was to be for three to six months, it would be at 10 per cent interest in the interim loan and - yes, 10 per cent interest for the interim loan for the three to six months. He explained about how many assets IBP Capital had and how many assets that were to secure the loan and which properties were involved [a reference to the three properties].[3]
[3]Emphasis added.
In his evidence in chief, Mr Gosling described his statements concerning the short‑term loan proposal in the following terms:
Did you make any comment to those present or any statement as to the desirability of the interim loan opportunity as an investment? --- What I had said, Your Honour, was that Mr Pennicott was seeking registrations of interest from investors, that once those people who were interested had registered, that he would be back in touch with them. I made comment to the value of the land that I believed was going to be secured from the funds that were being raised on that process. I described the brokerage offer that was put to me, which was for people who introduced - people who weren't at that meeting who introduced others to that meeting Mr Pennicott would be providing - he told me that Urban Investment Services would underwrite, if you like, a brokerage of 3 per cent to investors, that they didn't need to put any money up-front or put in any money at all to get that 3 per cent return, simply that they provide an introduction and that's about it, I think.
Did you make any recommendations as to whether or not it was a good investment? --- I didn't have sufficient detail at the time, including the loan agreement, to make much comment other than it was an opportunity that I thought people should consider and register their interest in.
Did you refer to the safety of the proposed investment? --- I referred to the fact that there would be - the capital value of the property was significantly greater than the value of funds that were being raised and I described it was being a low risk investment.
Thank you.
What did you understand the registration of interest process would involve? --- Those people who thought that the interim loan might be something for them would complete their details, would provide those details and then Mr Pennicott would follow up with them at a later date once the details of the interim loan were established.[4]
[4]Emphasis added.
As appears from the evidence of Mr and Mrs Taylor quoted above, each of them recalls Mr Gosling stating that the short-term loans would be secured by the three properties and would carry ‘no risk’ to the lender. Mr Gosling disputes that he made any statement to the effect that there would be ‘no risk’ to lenders who made the short‑term loans to IBP. He acknowledged that he told those present that the short‑term loans would be ‘low risk’. He acknowledged that it would have been false for him to inform those present that the short‑term loans would carry no risk, because that was not the fact and was not his belief at the time. He said that he could not recall whether he told those present that the short‑term loans would be secured, in the sense of formal security such as a mortgage over the three properties, or whether he said the loans would be informally secured by the fact that the ability of IBP to repay the short-term loans would be supported by the value of the three properties.
I will deal first with the evidence given by Mr and Mrs Taylor that Mr Gosling told them that the short-term loans would be secured. Mr and Mrs Taylor each said that they were told that the short-term loans would be secured by the three properties. Mr Taylor recalled Mr Gosling saying that ‘IBP had 4.3 million worth of assets in security’. Mrs Taylor recalled Mr Gosling explaining ‘how many assets IBP Capital had and how many assets that were to secure the loan and which properties were involved’. Mr Gosling recalled referring to ‘the value of the land that I believe was going to be secured from the funds that were being raised’ (emphasis added).
Taking the evidence as a whole, I accept the Taylors’ evidence on this issue. I find that Mr Gosling said words to the effect that the three properties would stand as security for the short-term loans. I reject Mr Gosling’s evidence that he said only that the three properties would be ‘secured from’ the loan proceeds. My reasons follow.
First, Mr and Mrs Taylor’s evidence is supported by their handwritten notes. Each of them has recorded that there would be $4.3 million of assets as security for the short-term loans: ‘Security $4.3m of Assets’ (Mrs Taylor’s notes); ‘Security $4.3 mill assets’ (Mr Taylor’s notes). It is clear that the $4.3 million in assets refers to the value of the three properties, as represented by Mr Gosling. Further, Mrs Taylor’s notes record: ‘Loan agreement with IBP. We have mortgage over IBP.’
In cross‑examination, Mrs Taylor tried to interpret her note ‘We have mortgage over IBP’. However, it became apparent that she was trying to reconstruct, and could only recall in general terms that Mr Gosling said that the short-term loans ‘had some security’. Similarly, Mr Taylor recalled simply that the security was to be over the $4.3 million assets. It is clear that neither Mr Taylor nor Mrs Taylor understood what form the security was to take.
Accordingly, although I am satisfied that Mr Gosling said that the short-term loans would be secured by the three properties, the evidence does not enable a firm conclusion to be drawn as to what, if anything, Mr Gosling said as to the form the security would take. Taking the evidence as a whole, I infer that Mr Gosling did not commit to a particular form of security, because he did not know what form it would take. This matter is referred to further below.
Second, the slides record that the short-term loans would be the subject of ‘Absolute Security’ and would be secured by ‘three distinct deals giving a “Total LVR 65%” ‘. Taking the evidence as a whole, including the handwritten notes, the slides and the oral evidence, I find that it is likely that Mr Gosling spoke of the security in positive terms, and probably described it as ‘absolute’ in connection with a statement that the short-term loans would carry no risk. He certainly described the security in terms indicating that it would be adequate to protect investors.
Third, the slides and the handwritten notes made by Mr and Mrs Taylor each record that the proposed total of the short‑term loans was $2.85 million. Mr and Mrs Taylor’s notes each record that Mr Gosling explained that the short‑term loans would be secured by $4.3 million of assets owned by IBP, comprising three properties. The ratio of value to loans on these figures is 66 per cent, and is consistent with the 65 per cent figure appearing in the slides (‘Total LVR 65%’). Mrs Taylor’s notes also record Mr Gosling giving considerable detail about each of the three properties, in an obvious endeavour to convince those present as to their value, and thus their adequacy as security for the loans.
Fourth, Mr Gosling acknowledged that he believed, on 30 July 2002 when he delivered the presentation, that the short-term loans would be secured by the three properties. However, he did not say what form he believed that security would take. Indeed, he acknowledged that he did not know what form the security would take.
I turn to consider the critical question. Did Mr Gosling inform those present at the 30 July meeting that the short‑term loans would carry no risk to lenders? For the reasons appearing below, I find that Mr Gosling made a statement to this effect.
First, each of Mr and Mrs Taylor recalled Mr Gosling stating words to the effect that the short-term loans would carry no risk, and made a note to this effect. Mrs Taylor’s notes in this regard are in the following terms:
Interim Offer – Short Term Loans – 0 Risk – 3% brokerage Paid in adv [advance]
Mr Taylor’s notes are in the following form:
DEAL 2 Interim offer
- 10% pa return (3% brokerage up front)
- no risk
It was put to Mr and Mrs Taylor that any reference by Mr Gosling to there being no risk, or ‘zero’ risk, related to the 3% brokerage to be paid ‘in advance’ (Mrs Taylor’s notes) or ‘up front’ (Mr Taylor’s notes). Each of them denied that this was so. The structure of their notes supports their denials. It would be odd, indeed it is a nonsense, to quantify the risk attaching to a brokerage payment to be made in advance. The payment is either made or it is not. Notwithstanding this, there is a curious document prepared by IBP titled ‘Sophisticated Investor Interim Opportunities’ which ascribes risk to each of three ‘Interim Opportunities’ in the following terms:
OPPORTUNITY
RETURN
RISK
Three (3) Month Property Placement
10%
Low
Private Placement Introducer
3%
Zero
Hi-Tech Six (6) Month Placement
12%
Med/High
Mrs Taylor thought that this form, which she referred to in correspondence with Mr and Mrs Everett as ‘the tricky form’, was provided to her at another Urban information session which she attended on 3 August 2002. That is unlikely. The form is most likely to have been distributed at the 30 July presentation, which concerned the opportunities described in the document, and I so find. Further, the slides refer to interested investors applying to make a short-term loan on a ‘Registration Form attached’. Although those opportunities may have been briefly referred to at the 3 August seminar conducted by Mr Pennicott, concerning ‘business opportunities’ generally, it is unlikely that this was the occasion for this document to be distributed. Mr and Mrs Taylor did not sign the document.
Second, the slides support the making of such a statement. In respect of the Domain on Chapel project, the slides record under the heading ‘Update’ – ‘I will not proceed without ABSOLUTE security for investors’. Under the heading ‘Interim Offer’, the short‑term loans are described as providing ‘Absolute security and returns’ and state that short‑term loan funds ‘can rollover to [the Domain on Chapel Property Trust]’. These entries in the slides demonstrate a clear connection between the short‑term loans and the Domain on Chapel project. In respect of each of them, the security was to be ‘absolute’. Such a statement is consistent with, if not another way of saying, that the relevant loans or investments will carry no risks.
Third, Mrs Taylor’s note of the introductory statements made by Mr Gosling at the meeting, at a time when he was explaining why the Domain on Chapel project could not then proceed, support the making of such a statement:
His role is to protect the investors.
All risks taken away from Investors & Affiliates.
In my view, this note is likely to record Mr Gosling saying words to the effect that he could not allow the Domain on Chapel project to proceed, because his role was to ensure that an investment in that project carried no risk to investors. If that was his stated role in respect of an investment in the Domain on Chapel project, it would be consistent for him to make a similar confirmatory statement about a short‑term investment opportunity which was to be capable of being ‘rolled in’ to an investment in the Domain on Chapel project.
Fourth, although no DVD or transcript is available of the presentation given by Mr Gosling at the 30 July presentation, I infer that he presented the short-term loan opportunity in a positive light, and that he acted as a salesman endeavouring to persuade those present to make the short‑term loans and thus preserve their opportunity to invest in the Domain on Chapel project. Such conduct would be consistent with the presentation given by Mr Gosling at the 1 May seminar. At that seminar, Mr Gosling initially said there was no such thing as an investment carrying no risk, but later said, in the course of his sales spiel, that there was no risk.
Fifth, Mr and Mrs Taylor have a clear recollection that Mr Gosling told them that there would be no risk if they invested in a short‑term loan. They presented to the Court as cautious people who are unlikely to have lent $200,000 to IBP if they thought that there was any risk involved. This amount comprised approximately two‑thirds of the value of their otherwise unencumbered matrimonial home, and more than 40 per cent of their overall net wealth including superannuation entitlements.
Sixth, I do not accept Mr Gosling’s evidence to the effect that, at the 30 July presentation, he did no more than introduce the short-term loan opportunity to potential investors; and seek registrations of interest in making short-term loans on terms which, apart from the interest rate, were yet to be formulated. Mr Gosling said in this regard that the principal purpose of the 30 July presentation was to give investors an update on the Domain on Chapel project and:
In addition to that, there was a potential loan coming up in the near term which Mr Pennicott was seeking registrations of interest from people at that meeting and then he was to finalise what the interim loan would be at a later point, make the offers to people and they would either invest or they would not.
Taking the evidence as a whole, Mr Gosling did not present the short-term loan opportunity to investors in that light. He presented it as an opportunity which was available and sought to sell it by misleading statements that there was adequate security for the loans and thus no risk.
Before leaving the critical question, I note that it was submitted on behalf of Mr Gosling that Mr Everett was a relevant witness who could have given evidence about what was said by Mr Gosling at the 30 July presentation; that Mr Everett was clearly in the camp of Mr and Mrs Taylor; that Mr Everett’s absence as a witness was unexplained; and that the Court should therefore infer that Mr Everett’s evidence would not have assisted Mr and Mrs Taylor’s case. I do not accept that submission. Although Mr Everett is clearly a friend of Mr and Mrs Taylor, he was available to give evidence for Mr Gosling if he chose to call him. Further, there is no reason to suppose that Mr Everett would recall what was said by Mr Gosling after so long a time. The evidence indicated that Mr and Mrs Everett recovered their short-term loan after they obtained injunctive relief. None of the Court documents in that proceeding, which may have evidenced Mr Everett’s recollection at that time of Mr Gosling’s statements, were placed in evidence. Further, there is no evidence that Mr Everett had any contemporaneous notes or other documents to assist his recollection.
Mr and Mrs Taylor attended the Urban ‘Business Information Session’ on 3 August 2002 at the Caulfield Town Hall (‘the 3 August information session’). This was a five hour presentation concerning business opportunities generally. However, there was some brief discussion by Mr Pennicott of the short-term loan proposal. In an affidavit sworn in support of the summary judgment application against Mr Pennicott and Ms Li, Mrs Taylor swore that Mr Pennicott ‘spoke in relation to the [short-term loans] investment’. No further detail was given in her affidavit. This is to be compared with the full detail given in by her in her affidavit as to the substance of the statements made by Mr Gosling at the 30 July presentation concerning the short-term loans.
In their oral evidence, Mr and Mrs Taylor both said that they could not recall Mr Pennicott mentioning the short-term loans during the 3 August information session. Mrs Taylor speculated about Mr Pennicott’s reference to the short-term loans, which she obviously recalled in August 2006 when she swore her summary judgment affidavit: ‘Maybe it was a fleeting sentence’. I find that Mr Pennicott made a brief reference to the short-term loan proposal at the 3 August information session. It is likely that this reference was consistent with Mr Gosling’s statements at the 30 July presentation.
At the end of this information session, Mrs Taylor sought out Mr Pennicott and asked him for advice as to how Mr and Mrs Taylor could invest the balance of the loan funds arranged by them, which they did not intend investing in the short-term loan proposal. Mrs Taylor said it was a very quick conversation, taking approximately 30 seconds to one minute. Mr Taylor did not hear the conversation. The best evidence of it is that contained in Mrs Taylor’s summary judgment affidavit. In that affidavit, Mrs Taylor swore:
At the conclusion of the [3 August information session] I spoke to [Mr Pennicott]. In that conversation I asked [Mr Pennicott] for his advice regarding the investment of our investment funds while awaiting property investment opportunities and [Mr Pennicott] said words to the effect that:
(a)we should place these funds into a fund operated by [Urban] which he described as a ‘Private Placement Account’.
(b)funds placed into the Private Placement Account would earn an interest rate of 7.5% per annum and would be at call.
As a result of this short conversation with Mr Pennicott, Mrs Taylor understood that she and her husband could ‘park’ the balance of any funds which they had available to invest, and which they did not wish to invest in short-term loans to IBP, in a ‘private placement’ account maintained by IBP. Any funds paid into the private placement account would attract interest at 7.5 per cent.
At this stage, Mr and Mrs Taylor had two investment opportunities before them. First, the short-term loan proposal for three to six months earning interest at 10 per cent. Second, the private placement account proposal, which they initially understood was to be ‘at call’ but was later confirmed to be on 14 days notice of redemption.
Next, Mrs Taylor made enquiries of the finance broker introduced by Urban, David Starkey. From an email from Mr Starkey sent on Sunday 4 August, it would appear that Mrs Taylor was seeking to drawdown $100,000 on the loan facility and to withhold further drawdowns as further investment deals presented themselves. However, following a telephone conversation with Mr Starkey on Monday 5 August 2002, Mrs Taylor understood that this was not possible. She was told by him, and later by a solicitor acting for the financier, that the loan facility needed to be drawndown in full in order to avoid further fees. Mr and Mrs Taylor wished to avoid this. Accordingly, they commenced consideration of how they would invest the whole of the finance which had been arranged.
In this context, Mrs Taylor spoke with Mr Pennicott on the afternoon of Monday 5 August. As a result, she sent him an email later that evening, confirming his advice that Mr and Mrs Taylor could ‘park the balance of our loan in your Private Placement Investments Account … where it remains for your benefit, but providing us with a flat interest rate of around 7.5 to 8.0%’. At this time, it appears that Mr and Mrs Taylor were still considering investing only $100,000 as an interim loan to IBP, through Mr Everett’s syndicate Deepcroft Pty Ltd.
On 6 or 7 August 2002, Mr Everett provided Mr and Mrs Taylor with a form of loan agreement for use in connection with short-term loans to IBP. The evidence did not disclose how Mr Everett obtained a copy of the loan agreement. I infer that Mr Everett gave a copy of the loan agreement to Mr and Mrs Taylor at this time, because they had decided to invest in their own right, rather than through Mr Everett’s syndicate. In that regard, Mr Gosling had said at the 30 July presentation that it was unnecessary for investors to qualify as ‘sophisticated investors’ in order for them to take up the short-term loan opportunity.
On 7 August 2002, Mr Gosling sent an e-mail on behalf of IBP to ‘Urban Members’. Mr Gosling said that Mr Pennicott prepared the email to be sent under his name, but that he did not object to the email being sent. In the email, Mr Gosling referred to ‘confusion amongst Urban Members about the brokerage’ and sought to clarify that confusion, by stating that 3 per cent brokerage was only payable to Urban Members who introduced third parties who made short-term loans to IBP.
Mr and Mrs Taylor made their decision to invest late in the evening on Wednesday 7 August 2002. At 11:45 pm that night, Mrs Taylor sent an email to IBP, marked for the urgent attention of Mr Gosling. Although the email was sent before midnight, Mrs Taylor wrote it on the assumption that it would be received the next day, 8 August 2002. The email states:
We are settling our investment loan with Gadens today (8/8) and wish to pay $200,000 into the Interim Development Account. Previously we had intended investing $100k with Geoff Everett’s Syndicate in Domain on Chapel.
If we can raise our commitment in the Interim Development deal to $200,000, we learnt from Gabrial that the balance of $40,000 can remain ‘parked’ … with the hopes of short-term investment being found, but in the meantime earning around 7.5 to 8%.
We intend depositing $240,000 cheque from Perpetual Trustees into your account this afternoon, after 2:00 pm. Geoff [Everett] has provided us with a Loan Agreement, Interim Development Account which we have signed and I can fax to you.
On the next day, Mr and Mrs Taylor drewdown $245,873.47 on the security of their home. They directed that all of this amount be paid to IBP. They then sent a facsimile to Mr Gosling, informing him of their payment to IBP, and instructing him to deal with the money in the following manner. First, the sum of $200,000 was directed to be applied by IBP as the proceeds of a short-term loan. To this end, Mr and Mrs Taylor attached an executed copy of a loan agreement signed by them on that day. That loan agreement records a loan by Mr and Mrs Taylor to IBP of $200,000 for a maximum term of six months, with interest at the rate of 10 per cent per annum payable monthly. The loan agreement also provides that IBP:
hereby charges in favour of [Mr and Mrs Taylor] an unregistered caveat over the sale of the properties secured under the loan subject to a prior charge and mortgage in favour of a third party.
This clause is pure gobbledegook. I infer that it was intended to confuse unsophisticated investors.
Second, Mr and Mrs Taylor directed Mr Gosling to apply the remaining $45,873.47 to an account which would earn them ‘7.5-8% interest’. This was clearly a reference to the private placement loan opportunity, discussed between Mrs Taylor and Mr Pennicott after the 3 August information session.
Mr and Mrs Taylor concluded their facsimile to Mr Gosling with the following statement:
Thank you, in anticipation of a profitable relationship in the investment world.
As appears below, their thanks and expectations were misplaced. With the exception of some interest payments, and a payment of $10,000 principal, their loans to IBP have been lost. There is no prospect of IBP paying any further money.
Almost immediately after the moneys were lent, Mrs Taylor became concerned. Although she had asked for a receipt by email for the funds advanced, none had been forthcoming. Following an email from her to IBP requesting urgent confirmation of the receipt of their moneys, Mr Pennicott eventually replied on 13 August 2002 and confirmed that IBP had received the Taylors’ loans on the terms specified in their facsimile to Mr Gosling; $200,000 earning 10 per cent and $45,873.47 earning 7.5 per cent ‘until placed’. Later that day, Mr Gosling sent a similar confirmatory email to Mrs Taylor.
Following the advance of their money to IBP, Mr and Mrs Taylor met with their accountant, Peter Watson, and a financial advisor, Phillip Jones. Mr and Mrs Taylor could recall little of these meetings. It is unnecessary to consider them further. The meetings were not until the moneys had already been advanced. For similar reasons, it is not necessary to consider the contact which Mr and Mrs Taylor had with other IBP representatives, before their money was advanced to IBP. They could not recall much of these conversations. No direct evidence was led about what was said.
Mr Gosling resigned as a director of IBP on 14 August 2002. On the same day, it appears that Mr Pennicott and Ms Li were appointed directors. IBP company minutes of 14 August 2002 record their presence at a meeting of directors, with Mr Pennicott being elected chairman of the meeting of directors. The minutes record that IBP resolved to establish the Domain on Chapel property trust and to settle the purchase of the land on which the Domain on Chapel project was to be constructed. The minutes do not record Mr Gosling’s resignation that day.
Mr Gosling resigned as a director of IBP at the request of Mr Pennicott and Ms Li. If he had not been asked to resign, he said that he would have been content to continue as the sole director, on the terms previously agreed with Mr Pennicott and Ms Li.
Mr and Mrs Taylor were not informed of Mr Gosling’s resignation. He continued to deal with them for a while in connection with interest payments. At no time did Mr Gosling inform Mr and Mrs Taylor, or any of the investors in IBP, that Mr Pennicott and Ms Li were in fact in control of IBP and he was a ‘mere puppet’ director.
On the day following his resignation as a director, 15 August 2002, Mr Gosling signed a letter on IBP letterhead addressed to Mr and Mrs Taylor. The letter concerned the first interest payment due to the Taylors. Mr Gosling explained that he signed this letter as a director because it had been previously prepared as a ‘pro-forma letter’. Mr Gosling continued to work for Urban as a consultant until approximately mid‑November 2002. During this period, his principal role was to provide consulting services to IBP. During this period, he remained the principal contact between IBP and Mr and Mrs Taylor. At no stage were they informed that he was no longer a director of IBP.
There are other instances of Mr Gosling acting as a director of IBP after the date of his resignation on 14 August 2002. The Taylors placed particular importance on his signature on the Transfer of Land evidencing the acquisition by IBP of the land on which the Domain on Chapel project was to be constructed. The transfer is dated 23 August 2002. However, I accept Mr Gosling’s explanation that he signed the document before his resignation, in anticipation of that settlement, and the date was added later.
Commencing on 24 December 2002, Mr and Mrs Taylor sought the return of the moneys lent by them to IBP. They dealt with Mr Pennicott and Ms Li, who engaged in extreme delaying tactics and obfuscation. I have no doubt that they lied to the Taylors repeatedly. In this process, a second loan agreement was substituted for the first, and a single payment of $10,000 was made to Mr and Mrs Taylor.
There is no evidence upon which the Court can make a determination as to how IBP in fact applied the moneys lent to it by Mr and Mrs Taylor. Nor does the evidence enable any finding to be made as to whether the short-term loan proposal was fully subscribed, and the full $2.85 million was raised.
As appears above, there is no prospect of any return to creditors of IBP or Ms Li, and it was accepted that it is probable that Mr Pennicott has insufficient funds to satisfy the claims of any creditors.
Did Mr Gosling mislead Mr and Mrs Taylor?
Although there is some overlap, there is a distinction between the Court’s task in characterizing conduct as misleading or deceptive, and the Court’s task in determining whether the claimed loss resulted from such conduct.[5] The first question, as to whether impugned conduct may be characterised as misleading or deceptive, is a question of fact to be determined objectively after examination of the relevant course of conduct as a whole.[6]
[5]Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, [24] per French CJ.
[6]Ibid, [102] (plurality judgment), [25] (French CJ).
In Campbell v Backoffice Investments Pty Ltd, French CJ referred to the:
[26]…practical distinction between the approach to characterisation of conduct as misleading or deceptive when the public is involved, on the one hand, and where the conduct occurs in dealings between individuals on the other. In the former case, the sufficiency of the connection between the conduct and the misleading or deception of prospective purchasers:
… is to be approached at a level of abstraction not present where the case is one involving an express untrue representation allegedly made only to identified individuals.
Where the conduct is directed to members of a class in a general sense, then the characterisation inquiry is to be made with respect to a hypothetical individual ‘isolate[d] by some criterion’ as a ‘representative member of that class’. In the case of an individual it is not necessary that he or she be reconstructed into a hypothetical, ‘ordinary’ person. Characterisation may proceed by reference to the circumstances and context of the questioned conduct. The state of knowledge of the person to whom the conduct is directed may be relevant at least insofar as it relates to the content and circumstances of the conduct.
[27]In Butcher v Lachlan Elder Realty Pty Ltd the approach to characterisation of conduct directed to identified individuals was set out in the joint judgment of the majority as follows:
… That depends on analysing the conduct of the defendant in relation to the plaintiff alone. So here, it is necessary to consider the character of the particular conduct of the particular agent in relation to the particular purchasers, bearing in mind what matters of fact each knew about the other as a result of the nature of their dealings and the conversations between them, or which each may be taken to have known.[7]
[7]Ibid, [26]-[27], (citations omitted); referring to Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45, [101], and Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592, [37].
In applying these principles to the present case, it is relevant to appreciate that Mr Gosling knew nothing of Mr and Mrs Taylor as individuals. He did know their individual circumstances and did not meet them or give them any advice tailored to their needs. They were simply interested persons who attended the 1 May seminar, the 9 May seminar, and the 30 July presentation. In these circumstances, the characterisation of the impugned conduct should be approached as conduct directed to members of a class in a general sense, having regard to the mix of persons in the audience on those occasions. It is not possible to define one representative member of all classes of persons addressed by Mr Gosling. There were a number of hypothetical individuals present, ranging from experienced sophisticated investors to novices such as Mr and Mrs Taylor, whose only possibility of investing in the Domain on Chapel project was through membership of a syndicate qualified as a ‘sophisticated investor’ for the purposes of the Corporations Act. Accordingly, in considering Mr Gosling’s conduct towards Mr and Mrs Taylor, the characterisation enquiry is to be made with respect to a hypothetical novice investor such as Mr and Mrs Taylor. As appears above, I find that Mr Gosling knew that his audience included persons in that class. Further, this finding is supported by the final page of the slides, which states:
| Next Steps |
| · Apply on Registration form attached (no cost) · IBP will supply loan agreement (no need to be a Sophisticated Investor) and will take amounts from as low as $5,000 · Offer open until August 18th · START NOW![8] |
[8]Emphasis added.
The statements made by Mr Gosling at the 30 July presentation must be viewed in the context of the introductory letter from Mr and Mrs Everett to Mr and Mrs Taylor in April 2002, the statements made by Mr Gosling at the 1 May seminar and the statements made by Mr Pennicott at the seminars on 1 and 9 May. Viewed in that context, the statements made by Mr Gosling at the 30 July presentation were objectively misleading or deceptive. This is so whether or not Mr Gosling said at the 30 July presentation, as I have found, that the short-term loans carried ‘no risk’; or whether he said only that the short-term loans carried a ‘low risk’ as he gave evidence.
In circumstances where the form of the proposed security was uncertain, the short-term loans clearly carried a measure of risk. Mr Gosling correctly acknowledged that this was so. The loans were the subject of the ordinary risks that IBP would default in its obligations. Mr Gosling acknowledged that there were no reasonable grounds for him to have said that the short-term loans would be without risk. Accordingly, his statement that the loans would carry no risk was misleading or deceptive.
If Mr Gosling said only that the short-term loans would carry a low risk, that statement was also misleading. Viewed objectively, the short-term loans proposed by Mr Gosling at the 30 July presentation would not be low risk loans. A statement that they would be low risk loans is capable of characterisation as a statement of a present fact known to Mr Gosling, as a statement of his opinion or as a statement of a future matter. For the purposes of this case, having regard to the statements made by Mr Gosling at the 30 July presentation, that it was his role to protect investors, a statement by him to this effect should be viewed as a statement of opinion by Mr Gosling with respect to a future matter. This carried with it an implied representation that he actually held such an opinion and that it was based on reasonable grounds after applying his expertise, skill or experience. Such an approach is consistent with the statement of French CJ in Campbell v Backoffice Investments.[9]
[9]Ibid, [33].
If Mr Gosling said only that an investment in the short-term loans would carry a low risk, I find that he had no reasonable grounds for making such a statement. The statement was accordingly misleading or deceptive. My conclusion that Mr Gosling had no reasonable grounds for making a statement that the short-term loans would carry a low risk is based upon the following matters.
First, and of most importance, Mr Gosling was making a statement as to the risk of default by a company over which he had no control. He acknowledges that he was a ‘mere puppet’ director, and that IBP was at all relevant times under the control of Mr Pennicott and Ms Li.
Second, Mr Gosling had only learned of the short-term loan proposal a few days before he gave the 30 July presentation. His presentation on 30 July was based upon flimsy information: his knowledge of the Domain on Chapel project; his discussions with Mr Pennicott and Ms Li in the few days prior to the presentation; and the slides, a document prepared principally by Mr Pennicott.
Third, the circumstances in which Mr Pennicott and Ms Li left Mr Gosling to make the whole of the presentation on 30 July were unusual. This is especially so in circumstances where the short-term loans were the idea of Mr Pennicott and Ms Li, and it was intended that Mr Pennicott would present the short-term loan opportunity to investors on that day. In my view, Mr Pennicott’s extraordinary conduct in leaving Mr Gosling to make the presentation on 30 July in his absence, by reference to slides prepared by Mr Pennicott, should have caused Mr Gosling to use cautious language at the 30 July presentation, and do no more than present an opportunity. There were no reasonable grounds for him to act like a salesman, as I find he did, seeking to extol the virtues of the short-term loans as low risk. This is especially so where he well knew that his audience included, or may include, novice investors such as Mr and Mrs Taylor.
Fourth, I reject Mr Gosling’s evidence that he believed, on reasonable grounds, that the short-term loans would be adequately secured against the three properties. He did not know what form the security would take.
Did Mr and Mrs Taylor rely on Mr Gosling’s misleading conduct in deciding to invest?
The determination of whether misleading or deceptive conduct has caused loss or damage involves both objective and subjective matters. For example, an objectively misleading statement may not be relied upon because the recipient does not believe it.[10]
[10]Ibid, [28].
The existence of a contemporaneous disclaimer by the person engaging in the impugned conduct may be relevant as to both characterisation of the conduct and the issue of causation.[11] The role of the disclaimer raises a factual question, not one of law. In this case, I am satisfied that Mr and Mrs Taylor placed no weight on the disclaimers. Although Mrs Taylor referred to the conduct of Mr Gosling and Mr Pennicott at the 1 May seminar as ‘waffle’, I have no hesitation in concluding that Mr and Mrs Taylor each believed what they were told by Mr Gosling and Mr Pennicott and relied upon it in deciding to invest. The existence of the disclaimer forms was seen by Mrs Taylor as a nuisance, which she endeavoured to avoid, but the forms did not cause her to doubt what was said by Mr Gosling and Mr Pennicott.
[11]Ibid, [29], [31].
In making their decision to invest $200,000 in the short-term loan to IBP, Mr and Mrs Taylor said that they took the following factors into account:
(1) The statements made by Mr Gosling on 30 July 2002 that there was no risk associated with short-term loans to IBP, as IBP would use the loan funds to acquire the three properties and the short-term loans would be secured against those properties.
(2) The fact that the finance which they had arranged could not be delayed, unless significant valuation and other fees were incurred.
(3) Mr Taylor acknowledged that the decision by the Everetts to also make a short-term loan to IBP may have been a minor factor, giving him comfort, in deciding to invest. Mrs Taylor did not concede that this was a factor in her mind.
(4) Mr Taylor acknowledged that he read and understood the loan agreement, and that this was another factor relevant to his decision to invest. By this evidence, I understood him to mean that he took comfort from the fact that the loan agreement accorded with the statements made by Mr Gosling at the 30 July presentation: that the loan was for a maximum period of six months at an interest rate of 10 per cent, and that there was a charging clause as set out above. It is clear that he did not understand the charging clause, which is wholly understandable.
(5) Mr and Mrs Taylor also relied upon statements made by Mr Pennicott. First, his general statement at the 9 May seminar, to the effect that there was no risk in investments presented by Urban. Second, on the brief reference by Mr Pennicott to the short-term loans in the 3 August information session.
Taking the evidence of both Mr and Mrs Taylor as a whole, they clearly stated that the most significant reason for them investing money in IBP was the statements made by Mr Gosling at the 30 July presentation. I accept this evidence. I find that the principal reason for their investment in the short-term loans was the misleading statement made by Mr Gosling at the 30 July presentation, that the short-term loans would carry no risk. I accept also that they were influenced by Mr Pennicott’s general statement at the 1 and 9 May seminars that there was no risk in investments presented by Urban or its affiliates. Although novice investors, Mr and Mrs Taylor are unlikely to have invested 80 per cent of the value of their matrimonial home unless they felt safe in doing so. Their decision to invest was based upon statements by Mr Gosling that there was no risk associated with the Domain on Chapel project or the short-term loans and, to a lesser extent, on Mr Pennicott’s general statements about the lack of risk in investments promoted by Urban or its affiliates such as IBP.
In these circumstances, causation between the misleading statements made by Mr Gosling and the loss suffered by Mr and Mrs Taylor has been established in connection with the short-term loans.
However, I do not accept that anything Mr Gosling did was the cause of Mr and Mrs Taylor’s decision to invest in the private placement loan. Nor do I accept that the subsequent conduct of Mr Gosling, in which he confirmed that the moneys invested in this loan were held in a particular account, caused loss to Mr and Mrs Taylor. It was submitted on their behalf that Mr Gosling’s conduct caused them to lose the opportunity to make a call for this money at an earlier time, and that an earlier call for the money may have yielded repayment. I am not satisfied that this is so. The Taylors called for the amount representing the private placement loan in December 2002, only four months after the money was lent. The call yielded no results. I am not satisfied that the evidence enables any conclusion to be drawn as to the degree of likelihood that some or all of the money would have been repaid if any earlier demand had been made.
As to Ms Li, I am not satisfied that any conduct by her caused assessable loss to Mr and Mrs Taylor. There is no evidence that she made any particular representation to Mr and Mrs Taylor which induced them to enter into the short-term loan or the private placement loan. The case against her appears to be that she later engaged in misleading conduct which deprived Mr and Mrs Taylor of the opportunity to make an earlier call for repayment of their moneys. For similar reasons to those given above in respect of the lack of any causal link between Mr Gosling’s conduct and the loss by Mr and Mrs Taylor of the private placement loan amount, I am not satisfied that the evidence enables any conclusion to be drawn as to the degree of likelihood that money would have been recovered if an earlier demand had been made.
In my view, Mr Pennicott was solely responsible for the loss suffered by the Taylors as a result of them making the private placement loan. Prior to the loan being advanced on 8 August 2002, he had all of the relevant dealings with Mr and Mrs Taylor. He recommended that they invest in that loan, in circumstances where he had previously represented to them that there was no risk in investment deals put forward by Urban or its affiliates such as IBP.
It was submitted on behalf of Mr Gosling that there were many factors which, when taken together, negative a conclusion that Mr and Mrs Taylor relied upon the statements made by Mr Gosling at the 30 July presentation when they made their decision to invest in the short-term loan on the evening of 7 August 2002. Reliance was placed principally upon the following matters:
(1) Mrs Taylor’s initial impressions of Mr Gosling, as expressed in her email to the Everetts on the evening of the 1 May seminar, to the effect that Mr Gosling waffled on.
(2) The statements made by Mr Pennicott at the 9 May seminar that there was no risk in investments presented by Urban or its affiliates.
(3) Discussions between the Taylors and other employees of Urban in May and July 2002.
(4) Mr Everett’s involvement and his decision to invest.
(5) The desire of Mr and Mrs Taylor to avoid incurring further finance fees if they deferred settling the mortgage finance which had been arranged.
I do not accept the submissions made on behalf of Mr Gosling in this regard. The submissions amount to no more than a list of other factors which may have influenced the decision of Mr and Mrs Taylor to invest in the short-term loan. However, taking the evidence as a whole, I am not satisfied that any of these matters severed the causal link between the misleading statements made by Mr Gosling at the 30 July presentation and the decision of the Taylors to invest. The misleading statements by Mr Gosling remained the principal reason for Mr and Mrs Taylor making the short-term loan.
It was also submitted on behalf of Mr Gosling that the causal link between Mr Gosling’s statements and the decision to invest was severed because Mr and Mrs Taylor each acknowledged that they read and understood the loan agreement, and thus knew that they were not obtaining first ranking security. I am not satisfied that this evidence severed the causal link between Mr Gosling’s misleading statements and the decision by Mr and Mrs Taylor to invest. They were no doubt confused by the charging clause contained in the loan agreement. The only rational explanation for them signing a loan agreement containing such a term is that they did not understand it, and simply placed their trust in Mr Gosling’s statement that the short-term loan would carry no risk.
Can Mr Gosling escape liability on the basis he acted as a mere ‘corporate organ’ of IBP?
It was submitted on behalf of Mr Gosling that he was in any event not liable as a principal, because he made the statements at the 30 July presentation as a mere ‘corporate organ’ of IBP. Reliance was placed upon Australian Securities and Investments Commission v Narain.[12] In that case, Mr Narain, who was the chief executive officer of the relevant company, participated in the preparation and drafting of an announcement to the Australian Stock Exchange which was misleading. He approved the contents of the announcement. He directed the company secretary, Mr Hanlon, to send the announcement to the ASX for publication. The Full Court of the Federal Court held that Mr Narain had engaged in misleading or deceptive conduct and was personally liable (as principal) for that conduct, as he had personally authorised Mr Hanlon to send the misleading announcement to the ASX. However, the Full Court found that Mr Hanlon’s actions were ministerial, as an organ of the company or as an agent of Mr Narain, and that he was accordingly not liable.[13]
[12](2008) 169 FCR 211.
[13]Ibid, [98].
It was submitted that Mr Gosling was in the position of Mr Hanlon in that case. Reliance was placed upon the fact that Mr Pennicott and Ms Li controlled IBP, not Mr Gosling; that it was Mr Pennicott and Ms Li who devised the interim loan proposal; that Mr Pennicott prepared the slides and was to make the presentation on 30 July 2002; that Mr Gosling did not have further direct contact with Mr and Mrs Taylor after the 30 July presentation; and that Mr Pennicott had further direct contact with Mrs Taylor on 3 and 5 August 2005.
I do not accept the submissions made on behalf of Mr Gosling. In no sense can Mr Gosling’s conduct at the 30 July presentation be described as ‘ministerial’, as a mere organ of IBP. Mr Gosling was the sole director of IBP at the time. He was involved in the preparation of the slides. He had a choice as to whether to continue with the 30 July presentation in the unusual circumstance that Mr Pennicott left him to do so at the last minute. Mr Gosling was fully involved, on his own account, in making misleading statements at the 30 July presentation. For that, he is principally liable under s 9 of the Fair Trading Act.
Is Mr Gosling liable as a person involved in misleading conduct by IBP?
For the reasons given above, I find that Mr Gosling engaged in misleading or deceptive conduct in contravention of s 9 of the Fair Trading Act 1999 (Vic). In these circumstances, it is unnecessary to consider whether he is also liable as a person involved in misleading or deceptive conduct by IBP, Mr Pennicott or Ms Li. He is liable as a principal.
Does the proportionate liability regime apply to the claims against Mr Gosling?
Part IVAA of the Wrongs Act 1958 (Vic) introduced a proportionate liability regime. Where that regime applies, the liability of a defendant who is a ‘concurrent wrongdoer’ in relation to an ‘apportionable claim’ is limited to an amount reflecting the proportion of the plaintiff’s loss or damage which the Court considers just, having regard to the extent of the defendant’s responsibility for the loss and damage.[14] Further, where the regime applies and a defendant is adjudged liable as a concurrent wrongdoer in relation to an apportionable claim, that defendant cannot be required to contribute to the damages recovered or recoverable from another concurrent wrongdoer, or to indemnify that wrongdoer, under Part IV of the Wrongs Act. Accordingly, the regime effected fundamental changes to the existing law. Where it applies, a plaintiff has been deprived of the right to seek full recovery from any defendant who is jointly liable for the same damage.
[14]Wrongs Act1958, s 24AI.
Section 24AS of the Wrongs Act provides that Part IVAA ‘applies to proceedings that are commenced in a court’ on or after 1 January 2004. This proceeding was commenced in 2003, before that date. However, Mr Gosling was not one of the original parties. Mr and Mrs Taylor sued only Urban, Mr Pennicott and Ms Li. Mr Gosling was not joined as a party until 20 September 2005, when amended originating process was filed in the Court following an order granting Mr and Mrs Taylor leave to join him as a defendant.
In the circumstances, it was submitted on behalf of Mr Gosling that Part IVAA applies to this proceeding, insofar as it relates to Mr Gosling. Reliance was placed upon r 9.11(3)(a) of the Supreme Court (General Civil Procedure) Rules 2005; which relevantly provides that where an order is made adding a defendant to a proceeding ‘the proceeding against the new defendant commences upon the amendment of the filed original process’. Further, reliance was placed upon the decision of Byrne J in Premier Building and Consulting Pty Ltd v Spotless Group Ltd.[15] In that case, Byrne J made ‘brief mention of particular complications’ arising in the claims for contribution and apportionment as they affected the trial before him. His Honour was concerned with the interaction of four separate and different statutory regimes. In the course of describing the particular complications before him, Byrne J stated that:
Premier brings its claims in negligence against the Spotless Parties, Kilpatrick and Collie Planning. The transitional provisions of the Part IVAA apportionment legislation provide that the regime applies only to claims brought after the commencement date. (Section 24AS of the Wrongs Act) This proceeding was commenced on 16 October 2003, before the commencement date, but against Spotless and North Suburban and Ensign Aust only. All of the other parties were joined after 1 January 2004 so that the claims against them were commenced after the commencement date. (Rule 9.11(3)(a). A proceeding against an added party commences on the date of the amendment of the originating process.) This means that apportionment is available with respect to Premier’s negligence claims against all defendants other than Spotless, North Suburban and Ensign Aust.
Since contribution is not available where apportionment is available (Section 24AJ of the Wrongs Act) the defendants other than Spotless, North Suburban and Ensign Aust may not seek contribution against those defendants.[16]
[15](2007) 64 ACSR 114.
[16]Ibid, [34](b).
With respect, I do not accept that this statement by Byrne J reflects a correct interpretation of Part IVAA. Accordingly, I reject the submission made on behalf of Mr Gosling based on that decision and the operation of r 9.11(3)(a).
In my view, s 24AS means what it says. Part IVAA applies only to proceedings which are commenced on or after 1 January 2004. This proceeding was commenced in 2003, and accordingly Part IVAA does not apply. There are not two proceedings, one against the original defendants and one against Mr Gosling. That is not what r 9.11(3)(a) states. It states only that the date of commencement of the proceeding against Mr Gosling, as an added defendant, is the date that the amended originating process was filed. However, r 9.11(3)(c) provides that:
(c)unless otherwise ordered, where the new defendant is an added defendant, the proceeding shall be continued as if the new defendant were an original defendant …
Accordingly, r 9.11(3)(c) maintains the reality that there is only one proceeding before the Court, not two separate proceedings. Rule 9.11(3)(a) may have real significance in a limitation of actions context, in determining questions of interest and costs, or for other reasons; but it does not mean that there are two separate proceedings. Part IVAA does not apply to this proceeding.
The result which I prefer is in accordance with commonsense and justice. If Part IVAA applies to the claims against Mr Gosling only, and not to those against Mr Pennicott and Ms Li, an absurd and unjust result would follow. Assume a case where a plaintiff sues A before the operation of the proportionate liability regime, and later joins B after the commencement of the regime. If the proportionate liability regime applies to the claims against B, and both A and B are held jointly liable for the same damage, the plaintiff would recover a judgment for the full amount of the loss against A, but only a proportion of the loss against B. A would be prevented by s 24AJ from recovering contribution or indemnity from B. In these circumstances, the plaintiff could execute for the whole of the loss against A, and A would have no rights to recover any contribution from B. This would be so even if the Court adjudged B to be the person primarily responsible for the loss. Such a result cannot have been intended by Parliament, as it would deprive A of rights of contribution which would otherwise have been available. In the absence of Parliament expressing such a result with irresistible clarity, s 23AS should be interpreted to avoid that result.[17]
[17]Potter v Minahan (1908) 7 CLR 277, 304.
It was also submitted on behalf of Mr and Mrs Taylor that the apportionment regime had no application in this case because Part IVAA applies only to claims for damage arising from a failure to take reasonable care, and it was no part of their case against Mr Pennicott and Ms Li that they failed to take reasonable care in any respect. That submission was based upon s 24AF(1)(a) of the Wrongs Act.[18] The submission ignores s 24AF(1)(b), which provides that Part IVAA applies to a claim for damages for contravention of s 9 of the Fair Trading Act 1999 (Vic). The claims made by Mr and Mrs Taylor against Mr Gosling, Mr Pennicott and Ms Li are all based upon s 9 of the Fair Trading Act. Accordingly, if Part IVAA applied, those claims would be apportionable claims within the meaning of that part.
[18]Reference was made to Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd (2007) 244 ALR 552, [29]-[31].
Is Mr Gosling entitled to seek contribution or indemnity from Mr Pennicott?
As Part IVAA does not apply to this proceeding, Mr Gosling may proceed to recover contribution or indemnity from Mr Pennicott under Part IV of the Wrongs Act. Mr Gosling acknowledges that he cannot seek contribution or indemnity from Ms Li, as she is an undischarged bankrupt and he has not obtained the necessary leave to take a fresh step in his contribution proceedings against her.
In determining the extent of the respective responsibilities of Mr Gosling and Mr Pennicott for the loss suffered by Mr and Mrs Taylor, the Court compares their respective roles in terms of both culpability and of the relative importance of their acts in causing the plaintiff’s loss.[19] The task has been seen as one primarily involving, as best can be done on the available facts, determination of the ‘causal potency’ of the various factors which bring about the plaintiff’s loss.[20]
[19]Podrebersek v Australian Iron & Steel Pty Ltd (1985) 59 ALR 529, 530-4; Alcoa Portland Aluminium Pty Ltd v Husson (2007) 18 VR 112, [86].
[20]Solak v Bank of Western Australia Limited [2009] VSC 82, [38]
Both Mr Gosling and Mr Pennicott were culpable in relation to the surrounding circumstances in which Mr Gosling made the 30 July presentation. Each of them said at the 1 May seminar that there was no risk associated with the Domain on Chapel project. Mr Pennicott also stated at the 9 May seminar that there was no risk associated with deals presented by Urban. I infer that Mr Pennicott was involved in drafting the letter sent by Mr and Mrs Everett to the Taylors in April 2002.
Mr Pennicott was culpable in devising the short-term loan scheme; in preparing the slides; in leaving Mr Gosling to make the 30 July presentation on the basis of those misleading slides; and in putting forward a loan agreement which contained a wholly inadequate charging clause. Further, Mr Pennicott arranged for IBP to mortgage one of the three properties, the land on which the Domain on Chapel project was to be undertaken, for the sum of $500,000 to a third party. Mr Pennicott signed that mortgage. There is no evidence that Mr Gosling was involved in that mortgage.
Mr Gosling was culpable in agreeing to present the slides during the course of the 30 July presentation; in adopting the slides as his speaking notes; and in making misleading statements during the 30 July presentation.
As to causation, it was Mr Gosling’s misleading statements at the 30 July presentation which were the principal cause of Mr and Mrs Taylor’s decision to invest in the short-term loan. Mr and Mrs Taylor’s evidence, which I accept, was that they were also influenced by general statements made by Mr Pennicott that there was no risk in investment deals presented by Urban and its affiliates such as IBP. However, this was a subsidiary reason in their decision to invest.
Doing the best I can on the available evidence, and in the absence of Mr Pennicott giving evidence or being represented, I find that Mr Pennicott and Mr Gosling were equally responsible for Mr and Mrs Taylor’s damage. Although Mr Pennicott’s culpability is greater ‘behind the scenes’, it was Mr Gosling who made the misleading statements which formed the principal reason for Mr and Mrs Taylor investing $200,000 in a short-term loan to IBP.
I will make contribution orders accordingly.
What is the quantum of the loss suffered by Mr and Mrs Taylor?
The parties agreed that, if Mr and Mrs Taylor were successful in their claims, they should recover damages under two heads. First, in respective of their short-term loan of $200,000 to IBP, the amount outstanding on that loan, interest on that loan until the commencement of this proceeding and penalty interest from that date until the date of judgment. Second, in respect of the private placement loan of $45,873.47, the whole of the principal on that loan, interest until the commencement of the proceeding and penalty interest thereafter.
As appears above, Mr and Mrs Taylor are entitled to judgment against Mr Gosling on the first, but not the second head of damage. In respect of their judgment against Mr Pennicott, I assess their damages as including both the first and second heads. As to Ms Li, I am not satisfied that the pleaded case against her, which is the foundation for the summary judgment already given, has resulted in any recoverable loss. Accordingly, I assess the damages under the judgment against her at nil.
I will hear the parties as to the amounts for which judgment is to be entered on this basis, and as to costs.
SCHEDULE OF PARTIES
| No. 8804 of 2003 | |
| BETWEEN: | |
| NEIL TAYLOR | Firstnamed Plaintiff |
| ADELE TAYLOR | Secondnamed Plaintiff |
| - and - | |
| URBAN INVESTMENT SERVICES PTY LTD | Firstnamed Defendant |
| GABRIEL NEIL PENNICOTT | Secondnamed Defendant |
| JAN LI (also known as JANE LEE) | Thirdnamed Defendant |
| GARRY LLOYD GOSLING | Fourthnamed Defendant |
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10
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