Tomasetti v Brailey

[2011] NSWSC 1446

Supreme Court

New South Wales

Medium Neutral Citation:	Tomasetti v Brailey [2011] NSWSC 1446
Hearing dates:	8-12, 15-18, 22-24 November 2010, 31 January 2011, 1-4, 10 February 2011
Decision date:	17 November 2011
Jurisdiction:	Common Law
Before:	R A Hulme J
Decision:	Judgment and verdict for the defendants. Plaintiffs to pay the defendants' costs as agreed or assessed.
Catchwords:	TRADE AND COMMERCE - other regulation of trade or commerce - statutory regulation of particular matters - Fair Trading Act 1987 - misleading or deceptive conduct - representations by financial adviser as to present and future matters - nature and performance of investments - whether reliance by investors upon advice TORTS - negligence - professional advice concerning investments in agricultural managed investment schemes - breach of duty - whether financial adviser failed to carry out adequate assessment of investments - whether investments were "sound, prudent and sensible" having regard to investors' instructions and risk profile - contributory negligence - apportionment of responsibility and damages CONTRACTS - general contractual principles - discharge, breach and defences to action for breach - whether breach of retainer by accountants and financial advisers in relation to investment advice EQUITY - general principles - fiduciary relationships - financial adviser - conflict of interest arising from commission entitlement in respect of finance borrowings for investments - whether breach of fiduciary duty - whether financial adviser failed to eschew conflict of interest CORPORATIONS - financial services and markets - financial services providers - advice to retail clients - whether statements of advice provided - whether statements of advice defective - liability of financial services licensee and authorised representative - whether loss or damage suffered because of failure of provide statement of advice or because statement of advice defective DAMAGES - general principles - valuation of failed agricultural managed investment scheme investments - effect of investments on plaintiffs' post-tax cashflow - application of consumer price index to reflect present value - application of Supreme Court rates to reflect loss of opportunity to earn interest DAMAGES - general principles - incidence of taxation as affecting damages - "grossing up" of damages for taxation - expenditure relating to tax-deductible investments - ordinary income - whether damages to "fill the hole" in assessable income - statutory income - whether assessable recoupment - whether assessable recoupment ascertainable from award of damages LIMITATION OF ACTIONS - contracts, torts and personal actions - when time begins to run on claims - failed investments - question as to when loss occurred PARTNERSHIP - generally - what constitutes partnership - whether directors of a corporate partner were partners themselves - conduct of corporate directors consistent with them being partners as individuals - construction of partnership agreement PARTNERSHIP - actions by and against partners - actions and proceedings against firms and individual partners - whether chartered accountancy firm liable for conduct of related financial planning business
Legislation Cited:	Civil Liability Act 2002 Corporations Act 2001 (Cth) Corporations Law Evidence Act 1995 Fair Trading Act 1987 Income Tax Assessment Act 1936 (Cth) Income Tax Assessment Act 1997 (Cth) Limitation Act 1969 Partnership Act 1892 Trade Practices Act 1974 (Cth)
Cases Cited:	Allsop v Federal Commissioner of Taxation [1965] HCA 48; (1965) 113 CLR 341 Amcus Pty Ltd v Hurst Rentals Pty Ltd [2009] NSWSC 1016 Arthur Robinson (Grafton) Pty Ltd v Carter [1968] HCA 9; (1968) 122 CLR 649 Australian Securities and Investments Commission v Vines [2003] NSWSC 1095; (2003) 48 ACSR 291 Brodie v Singleton Shire Council [2001] HCA 29; (2001) 206 CLR 512 Brooker v Friend & Brooker [2006] NSWCA 385 Burmah Steamship Co v Inland Revenue Commissioners [1931] SC 156; 16 TC 67 Californian Oil Products Ltd (In Liq) v Federal Commissioner of Taxation [1934] HCA 35; (1934) 52 CLR 28 Christie v Purves [2007] NSWCA 182; (2007) Aust Torts Reports 81-899 Commissioner of Taxation v CSR Ltd [2000] FCA 1513; (2000) 104 FCR 44 Commissioners of Taxation (NSW) v Meeks (Public Officer of the Sulphide Corporation Limited) [1915] HCA 34; (1915) 19 CLR 568 Commissioner of Taxes (Vic) v Phillips [1936] HCA 11; (1936) 55 CLR 144 Daly v The Sydney Stock Exchange Limited [1986] HCA 25; (1986) 160 CLR 371 Federal Commissioner of Taxation v Rowe [1997] HCA 16; (1997) 187 CLR 266 Federal Commissioner of Taxation v Wade [1951] HCA 66; (1951) 84 CLR 105 Forster v Outred & Co [1982] 1 WLR 86; [1982] 2 All ER 753 Goldsbrough Mort & Co Ltd v Federal Commissioner of Taxation (1976) 14 SASR 591 GP International Pipecoaters Pty Ltd v Federal Commissioner of Taxation [1990] HCA 25; (1990) 170 CLR 124 Graham Barclay Oysters Pty Ltd v Ryan [2002] HCA 54; (2002) 211 CLR 540 Hawkins v Clayton [1988] HCA 15; (1988) 164 CLR 539 HTW Valuers v Astonland [2004] HCA 54; (2004) 217 CLR 640 Jobbins v Capel Court Corporation Ltd (1989) 25 FCR 226 Karedis Enterprises Pty Ltd v Antoniou (1995) 59 FCR 35 Lloyds Bank v Bundy [1975] QB 326 M Young Legal Associates Ltd v Zahid [2006] EWCA Civ 613; [2006] 1 WLR 2562 Magman International Pty Ltd v Westpac Banking Corporation (1991) 32 FCR 1 Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705 McLaurin v Federal Commissioner of Taxation [1961] HCA 9; (1961) 104 CLR 381 Melbourne Saw Manufacturing Co Pty Ltd v Melbourne and Metropolitan Board of Works [1970] VR 394 Metropolitan Gas Co v Melbourne Corporation [1924] HCA 46; (1924) 35 CLR 186 Murphy v Overton Investments Pty Ltd [2004] HCA 3; (2004) 216 CLR 388 National Commercial Banking Corporation of Australia Ltd v Batty [1986] HCA 21; (1986) 160 CLR 251 Reinhold v New South Wales Lotteries Corporation (No 2) [2008] NSWSC 187 Salib v Gakas [2010] NSWSC 505 Seiwa Australia Pty Ltd v Beard [2009] NSWCA 240; (2009) 75 NSWLR 74 Sweetman v Bradfield Management Services Pty Ltd [1993] FCA 598; (1994) ATPR 41-290 Sydney Refractive Surgery Centre Pty Ltd v Commissioner of Taxation [2007] FCA 1544; (2008) 172 FCR 557 Wardley Australia Limited v State of Western Australia [1992] HCA 55; (1992) 175 CLR 514 Watson v Foxman (1995) 49 NSWLR 315 Whitaker v Commissioner of Taxation (1996) 63 FCR 1 Williamson v Commissioner for Railways [1960] SR (NSW) 252 Wilson v Rigg [2002] NSWCA 246; (2002) 36 MVR 451
Texts Cited:	Keith L Fletcher, The Law of Partnership in Australia, 9th ed (2007) Lawbook Co R C I'Anson Banks, Lindley & Banks on Partnership, 18th ed (2002) Sweet & Maxwell
Category:	Principal judgment
Parties:	Peter Charles Tomasetti (First plaintiff) Sandra Cordony (Second plaintiff) Tomasetti Investments Pty Limited as trustee for the Tomasetti Superannuation Fund (Third plaintiff) Edmund Francis Brailey (First defendant) John Clifford Fenton (Second defendant) Christopher Campbell Lane (Third defendant) TJC Financial Planning Pty Limited (Fourth defendant)
Representation:	Counsel: Mr AH Slater QC, Mr ID Faulkner SC and Mr A Maroya (Plaintiffs) Mr TGR Parker SC, Mr JB Conomy and Mr C Carroll (Defendants) Solicitors: Heckenberg & Koops (Plaintiffs) Holman Webb Lawyers (Defendants)
File Number(s):	2009/297599

Judgment

Contents

Paragraph

Subject

1

Introduction

8

Overview of investments

23

The plaintiffs

27

Relationship between Mr Tomasetti and Mr Brailey

56

Review of evidence concerning investments

57

- 2000 investments

120

- 2001 investments

143

- 2002 investments

158

- 2003 investments

208

- 2004 investments

255

- 2005 investments

316

Fair Trading Act claim

- pleadings

327

- accuracy and reliability of plaintiffs' evidence

379

- conclusions concerning plaintiff's evidence

391

- determination of Fair Trading Act claim

414

Negligence

417

- evidence of Mr Geoffrey Wall

456

- plaintiffs' submissions

498

- defendants' submissions

516

- conclusions on negligence

532

Breach of contract

534

Statutory breaches

543

Fiduciary duty

560

Other issues

561

Partnership

567

- were Messrs Brailey and Fenton partners in Brailey Fenton Lane & Co?

597

- were members of a partnership firm liable for the conduct of Mr Brailey?

695

Limitations

725

Taxation

804

Quantum

813

Contributory negligence and apportionment

824

Costs

Introduction

1. HIS HONOUR: On 15 June 2009, Mr Peter Charles Tomasetti, his wife, Ms Sandra ("Sassi") Cordony, and Mr Tomasetti's superannuation fund commenced proceedings against their accountants, in which damages are sought, in respect of certain investments they made in various agricultural managed investment schemes in 2000 to 2005. Generally speaking, it is claimed that the professional advice they received about entering into the investments was deficient in various respects.

1. The plaintiffs claim that liability arises in negligence; breach of contract; breach of s 42 of the Fair Trading Act 1987; breach of a number of provisions of the Corporations Act 2001 (Cth); and breach of a fiduciary duty.

1. The first three defendants are Mr Edmund (Ted) Brailey, Mr John Fenton and Mr Christopher Lane. They worked together in the accountancy firm, Brailey Fenton Lane & Co. The practice was subsequently acquired by Commercial Associates Accountants & Advisors Pty Limited. The fourth defendant is TJC Financial Planning Pty Limited, formerly known as BFL Financial Planning Pty Limited. It was a financial planning / brokerage business set up by Messrs Brailey, Fenton and Lane.

1. The liability of each of the four defendants is not contended to be on an equal basis. Mr Brailey was the person who advised the plaintiffs about the investments in question. One of the substantial issues in the case is whether the advice the plaintiffs received, or should have received, was the responsibility of the partners of the firm Brailey Fenton Lane and Co, chartered accountants and, if so, whether Mr Brailey and the second defendant, Mr John Fenton, were partners in that firm. The alternative proposition is that such advice was provided by Mr Brailey and a business entity which was operated independently from the accountancy firm.

1. Other issues raised in the proceedings include whether any of the plaintiffs' action is barred by limitation provisions. There are also issues of concurrent liability and contributory negligence.

1. The quantum of damages that should be awarded is in issue, including a claim by the plaintiffs that damages should be "grossed up" to take into account that they will be regarded as assessable income so as to be taxable upon receipt.

1. The hearing of the matter proceeded over two and a half weeks last November, and resumed at the beginning of this year for six days of closing submissions.

The investments

1. A useful overview of the investments made by the plaintiffs was provided in written submissions for the defendants (DWS at [76] ff), largely from which I have drawn the following.

1. The plaintiffs' first investments, which were made by Mr Tomasetti in the financial year concluding 2000, related to timber plantations known as "woodlots" or "timberlots". Further investments in timber plantations were made in financial years 2001, 2002 and 2003. Each project was constituted as a managed investment scheme.

1. Each scheme had a similar structure. The investor ("grower") would be granted a lease (or sublease) by the promoter of a specified parcel of land per timberlot. The grower would also enter into a management agreement with the promoter whereby the promoter would establish, maintain and ultimately harvest and sell the timber. The proceeds of sale would be pooled and distributed to the growers.

1. There were to be no returns in respect of the timber plantations until the trees were at sufficient maturity to be harvested. For example, the Timbercorp Eucalypts 2000 prospectus suggested a harvest at least 8 years after planting. The Gunns Woodlot 2002 product disclosure statement ("PDS") spoke of 13 years.

1. Under the management agreement, an initial fee was payable to cover the cost of establishing the plantation and for initial rent of the land. There were ongoing expenses for the grower. Depending upon the project, these comprised rent, maintenance, licence fees, insurance, and pruning services.

1. Each of the promoters of the schemes in question also offered (on a subject to approval basis) finance for the initial payment and, in some cases, later payments. To obtain finance, the grower would enter into a separate loan agreement with the promoter (or associate) under which the grower would agree to repay the amount financed according to a particular loan schedule, paying interest on the outstanding balance in the meantime. In some schemes, a choice of repayment periods (at different rates of interest) was available.

1. Under this structure, the grower himself or herself would be carrying on a timber plantation business on his or her timberlots. The grower was entitled to a tax deduction for the amounts of the initial payment and ongoing rent and management expenses, together with interest on any associated borrowings. Each of the schemes had the benefit of product rulings from the Australian Taxation Office ("ATO") which, if they were complied with, confirmed the grower's entitlements to such deductions. Of course, any net income ultimately derived from the harvest and sale of the timber would be treated as assessable income of the grower.

1. The promoters of each of the schemes published a prospectus or PDS in accordance with the laws governing managed investment schemes. Investment was effected by signing an application (provided as part of the prospectus) in the form of a power of attorney which required the promoter thereafter to execute the sublease and management agreement on the grower's behalf. The application would be accompanied by a cheque or credit card authorisation for the amount of the initial payment which was not being financed; a separate application would also have to be made for the finance requested.

1. If the application was accepted, the promoter would present the cheque or process the credit card authority, as the case might be, for the initial cash payment, and establish the loan account for the balance.

1. In financial year 2003, investments were also made in schemes which involved the cultivation of orchard land for the purpose of growing almonds ("almondlots"). The almondlot scheme was structurally similar to the timberlot schemes but there were two significant differences. First, although the lots were identified as specific orchard areas, the grower did not hold a lease over the land in question, but rather a licence and joint venture agreement with a company which owned the land called "Almond Land Pty Limited". Secondly, the almonds required more intensive management and the management agreement provided that after the first year (in which the cost was fixed) the grower was required to pay the actual cost of managing the relevant lots, whatever it was. This was unlike the timberlots where, in general, the ongoing costs were either fixed or indexed to inflation. As against this, the almond trees were expected to produce crops, the sale of which could then be used to defray the costs, within 5 or 6 years of plantation rather than the longer periods of time associated with the timberlots.

1. Further almondlot investments were made in 2004. In 2005, investments similar to the almondlot investments were made by Ms Cordony in the growing of citrus fruit ("citruslots") and grapes ("grapelots").

1. The Tomasetti Superannuation Fund ("TSF") was involved in investments in timberlots in 2001 and almondlots in 2004 in joint ventures with Mr Tomasetti.

1. In all, the plaintiffs made the following investments:

Financial Year	Investor	Project	Initial investment
2000	Tomasetti	Norgard Clohessy Australian Blue Gum 2000	$25,750
2000	Tomasetti	Timbercorp Eucalypts 2000	$196,000
2000	Tomasetti	Great Southern Blue Gum Plantations 2000	$51,000
2001	Tomasetti / TSF	ITC Solidwood 2001	$48,863
2002	Tomasetti	Gunns Woodlot 2002	$108,625
2003	Tomasetti	Timbercorp Early Almond 2003	$218,340
2003	Tomasetti	Gunns Woodlot 2003	$96,800
2004	Tomasetti	Timbercorp Almond - Post June 2003	$97,040
2004	Tomasetti / TSF	Timbercorp Early Almond 2004	$407,500
2005	Cordony	Timbercorp Citrus 2005	$49,000
2005	Cordony	Gunns Winegrape 2005	$34,650

1. Each of the investments involved borrowings ranging from 75 per cent to 100 per cent of the initial investment, most commonly 90 per cent. In addition to the repayments of these loans there were further costs to be paid. The Timbercorp Early Almond projects and the Timbercorp Citrus project involved payments for subsequent stages which totalled many hundreds of thousands of dollars. In all, the plaintiffs' claim for past loss exceeds $4 million.

1. A number of affidavits were sworn by each of Mr Tomasetti, Ms Cordony and Mr Brailey. In the following review of the evidence, reference will be to their primary affidavit unless otherwise indicated.

The Plaintiffs

1. Peter Tomasetti was admitted to practice as a barrister in 1979. He was appointed senior counsel in 2007. His principal area of practice has been in the Land and Environment Court. He described himself as a "specialist environmental lawyer and compulsory acquisition lawyer" (T340.11). He also said that he had expertise in property, equity and commercial law (T397.15).

1. Mr Tomasetti derived very substantial income from his work. In the period in which the investments were made (2000 - 2005), he generated an average of $954,000 in professional fees per year. Expenses, and the arrangement of his financial affairs generally, resulted in him paying an average of $91,000 in tax (and Medicare levy) per year. It is unnecessary to delve into the detail of how this was achieved except to note that the payment of substantial costs in relation to the agribusiness investments was a significant part of the explanation for Mr Tomasetti's liability for tax being so relatively low.

1. Ms Cordony has been in a permanent relationship with Mr Tomasetti since 1993. They married in 2003. She commenced working part-time for him as his personal assistant in about May 2002, taking over this role from Ms Janet Sucur. From that time, she became familiar with his financial affairs. Although Mr Tomasetti had a very busy practice, it was Ms Cordony's evidence that he was "incredibly self-sufficient" in terms of typing and office administration. She said that he would prepare his own advices and letters and that when she was absent he would sort through correspondence and take whatever action was required or leave it out for filing (T594).

1. The third plaintiff is Tomasetti Investments Pty Limited as trustee for the Tomasetti Superannuation Fund. This was a self-managed superannuation fund established upon the advice of Mr Brailey in about 2000.

The relationship between Mr Tomasetti and Mr Brailey

1. Mr Tomasetti said that he was always extremely busy and worked long hours. When he had time away from work he was not enthusiastic about attending to his financial affairs. He claimed that he had always been "risk averse" regarding personal financial investments ([9]). His investments were confined to property and shares. He purchased homes with the assistance of bank finance and then paid the mortgage off sufficiently to permit the purchase of better homes. He contributed to superannuation as and when he could. He had established a fund with the AMP Society in the early 1980's. He purchased a small farm in the late 1980's, which he improved over a relatively short time before selling it. However, a property settlement following divorce in 1994 left him with no assets.

1. Mr Tomasetti became dissatisfied with his previous accountants. Edmund Brailey was recommended to him in the latter half of 1998. He said that his first contact with Mr Brailey was by telephone ([16]).

1. Mr Brailey's evidence was that this conversation took place on 4 September 1998 (EB1 at p146). There was a further conversation on 15 September 1998 during which Mr Brailey obtained some basic information which he recorded on an "Initial Interview Form" (EB1 at p147). Mr Tomasetti forwarded copies of documents relating to his financial affairs to Mr Brailey on 16 October 1998 (EB1 tab 36). Mr Brailey obtained possession of records from the former accountants in early 1999 (EB1 tab 39).

1. Mr Tomasetti's evidence (at [16]) was that in the initial telephone conversation he told Mr Brailey that he wanted an accountant who would prepare his taxation returns in ample time for him to make plans for any taxation payments he had to make. He also said, " Any advice that you can give me along the way would be appreciated, tax planning and things of that nature " . He explained how he had been left with only debt after his divorce, but that he hoped to regain his position over time. He told Mr Brailey:

"I just need to make sure that in the future I do things on good advice and that I don't expose myself to too much risk. I have some shares. I have in mind investing in blue-chip shares in the main however I would be open to consider some small level of speculation on advice with a small part of that portfolio. It is very important having got to this position that I do things carefully and properly from this point on."

1. Their first face-to-face meeting was in Mr Tomasetti's chambers in Phillip Street in December 1998 ([18]). It is common ground that Mr Brailey took notes and Mr Tomasetti did not.

1. Mr Tomasetti said that in the course of this meeting he told Mr Brailey of his assets and liabilities, including shares owned, either personally or by his superannuation fund. They discussed his sickness, accident and life insurance policies. Mr Tomasetti said that his income fluctuated from month to month but that he was earning professional fees of around $700,000 per annum.

1. Mr Tomasetti explained that he had four young children, three of whom were in private school. He was paying off a mortgage in respect of a house purchased for his former wife and his children to live in after the separation. He was also committed to paying a significant sum by way of maintenance to his former wife. He explained that he was living with his current partner, Ms Cordony, in a unit he had purchased in Mosman. He told Mr Brailey that Ms Cordony worked full-time as a barristers' clerk but suffered significant ill-health which involved regular hospital admissions.

1. Mr Brailey asked what his goals were and Mr Tomasetti said that he replied:

"Well, I want to continue to work hard. I would like to be able to invest in things that give me modest capital growth and that are tax effective and that are secure. Having gone through my divorce and given up everything, I don't want to risk my capital ." (Emphasis added)

1. Mr Brailey asked if there were any types of investments that he did not want to be in and he replied:

" I don't want anything risky Ted . My farming experience was good fun and the kids enjoyed it but it was very costly. I want nothing speculative . I'd like to increase my share portfolio if I am able to and I want to reinvest the dividends. I want a blue chip portfolio but I might be prepared to consider a small section of that pie for what I think they call 'green chips'." (Emphasis added)

1. Mr Brailey told him that his superannuation fund should have a diversification of assets to minimise the risk. He spoke of investments in property and shares, the latter primarily in blue chip stock but with a small proportion in shares that might offer better capital growth. He also suggested having some cash invested to earn interest.

1. According to Mr Tomasetti, he concluded the conversation by telling Mr Brailey:

"Hopefully, once the kids are off my hands and provided that my health is ok, I am sure that I'll be ok but you can see what my plan is and I will be relying on you to work with me."

1. Mr Brailey made notes on a "Personal Financial Profile" questionnaire booklet (EB1 at pp. 159-170). He recorded cursory details of Mr Tomasetti's assets, liabilities, income and expenditure. A schedule of existing investments indicated a tendency to invest conservatively in blue chip shares.

1. In a section of the booklet headed "Investment Objectives" it was noted that Mr Tomasetti was interested in capital growth at a moderate level, tax minimisation and security of capital. The "time horizon" was noted to be "long term (over 5 years)."

1. In another section of the booklet against a question, "Are there any types of investments you wish to avoid?", Mr Brailey recorded:

"Farm was fun but costly"

CGT loss???

Nothing speculative."

1. Against the next question - "Are there any particular types of investment you wish to have in your portfolio?" - Mr Brailey recorded:

"Increase share portfolio.

100 - 200 K pa.

Reinvest dividends".

1. Mr Brailey's account of the meeting was in accordance with his notes. He confirmed that Mr Tomasetti had said, "I wouldn't want to do anything speculative" ([78]). He added he did not complete certain parts of the booklet because he was only being instructed by Mr Tomasetti "in relation to his accountancy work and not with respect to any potential investment advice ([76] and [79]).

1. Mr Tomasetti said that Mr Brailey thereafter acted as his accountant. He also acted in this capacity for Ms Cordony and for Mr Tomasetti's superannuation fund. The retainer came to an end shortly before the present proceedings were commenced in June 2009 ([20]).

1. Mr Brailey attended Mr Tomasetti's chambers each year and presented him with a set of financial statements and taxation returns ([22]). These were personal accounts as well as accounts for the superannuation fund, Tomasetti Investments Pty Ltd and Tomasetti Holdings Pty Ltd. Mr Tomasetti's evidence was that he did not read these documents closely but "flicked through the bundle" to see what documents were there and asked Mr Brailey to identify the page which would indicate what his net asset position was. Mr Tomasetti signed the documents and returned them to Mr Brailey. A copy was retained which Mr Tomasetti filed away.

1. Mr Brailey said ([86]) that a constant theme in discussions with Mr Tomasetti, up to and including when he attended upon him in about March 1999 for the signing of tax returns, was Mr Tomasetti complaining about paying too much tax. Mr Brailey claimed that he generally responded with a number of suggestions about how his tax liability could be reduced, including by offsetting income with deductions from activities such as primary production. Mr Tomasetti denied that such conversations occurred ([28]).

1. Mr Tomasetti gave evidence about another conversation with Mr Brailey concerning his attitude to investment ([29] - [30]). He said it was in about 1999 or 2000. It was in the context of a discussion about investments to be made in shares by the superannuation fund, which Mr Brailey advised should be a self-managed fund. Mr Brailey arranged for a stockbroking firm (Morgans) to recommend shares to invest in. When Mr Tomasetti received the recommendations, he spoke to Mr Brailey and said:

"I am happy with these investments. I don't want to invest in risky investments. I had this superannuation fund running for years. AMP were hopeless. The fund was experiencing negative returns after payment of their commissions. I don't think the fund has ever returned very well with AMP but I don't want to go and risk whatever's left.

I am happy to invest a little bit in something a bit more speculative but basically I'd like to invest in blue chip shares and not sell them. My understanding in the business of stockbroking is that there are blue chip shares and then shares which are more speculative. I want the majority of my share investments in the blue chip category as I have no intention of selling them. They would be a long-term hold providing a dividend and capital growth."

1. Mr Brailey replied:

"That's fine".

1. Mr Tomasetti made some investments on Mr Brailey's recommendation in about 2000 to 2001 that are unrelated to the present proceedings ([31]ff). The TSF invested $100,000 in Cromwell debentures and $20,000 in Argus Solutions Pty Limited. The latter was lost completely but there is no suggestion that there were any recriminations or that it caused Mr Tomasetti to question Mr Brailey's advice.

1. There was an occasion in about September 2003 when Mr Tomasetti and Ms Cordony attended a meeting with Mr Brailey at his office on a Saturday for the purpose of discussing a financial plan ([35]). They told Mr Brailey of their hopes and aspirations in transitioning towards retirement. Mr Tomasetti wanted to start reducing his workload by his mid-50's. Ms Cordony's health was mentioned as a concern. The purchase of a farm in the Southern Highlands was a goal. Mr Tomasetti hoped to be debt free and have enough income from superannuation to live on with possibly some supplementary investment. He wanted a plan to work to. In this context, he said to Mr Brailey:

"The AMP Society didn't do a good enough job. I had superannuation with them they managed it but after management fees I was often showing no positive return in the superannuation fund. This happened year after year. I changed accountants to get some proactive assistance and in these matters I have to rely totally on your professional skill in accounting wealth management and planning."

1. Mr Brailey made notes on a whiteboard during the course of this meeting. At the end he said that he would need to work on it and that they would then have a further meeting. However, notwithstanding subsequent requests by Mr Tomasetti as to when the further meeting would be held, nothing appears to have happened.

1. Ms Cordony mentioned that she attended this meeting but could not recall what was discussed ([13]).

1. Mr Tomasetti claimed that after "each meeting" he had with Mr Brailey he told him at the conclusion something to this effect ([37]):

"Ted. Thank you so much for your help. You know I have no time to do this and you know how much Sassi and I rely on you and how grateful we are for your help."

1. Mr Tomasetti said that "I came to trust and rely on Mr Brailey completely. He had access to all my personal details and financial affairs" ([39]).

1. Mr Brailey's also gave an account of this meeting ([250] - [253]; T977 - 981). There was a discussion about various aspects of Mr Tomasetti's and Ms Cordony's financial affairs. Mr Brailey was able to say that it occurred on (Saturday) 9 August 2003 as he made notes on the day (EB1 at p.1308 - 1309). Notes he made on a whiteboard were transcribed by a personal assistant on the Monday (EB1 at p.1310). He described what he had recorded as their "wish list" or "dream" in terms of financial planning (T981).

1. Contrary to Mr Tomasetti's evidence, Mr Brailey said that he had agreed to a further meeting but it did not occur because Mr Tomasetti always proved to be unavailable ([513]). He did, in fact, send a facsimile to Mr Tomasetti on 11 August 2003 proposing a further meeting on 14 September 2003 but that did not eventuate (EB1 at p.1970).

The Agribusiness Investments

1. There was substantial dispute as to the terms of the conversations Mr Brailey had with Mr Tomasetti and Ms Cordony on almost every occasion the investments were discussed. Given the time that has elapsed, it cannot be expected that any party would be able to recall the precise terms of the conversations. It is expected that, at best, the evidence would be an account of the substance or effect of what was said. However, there was a significant issue as to the ability of each of them to accurately recall, or to recall at all, the latter. Suggestions were frequently made in the course of cross-examination that an account of a conversation was a reconstruction and not the product of a true memory at all. There are other considerations involved in the assessment of the evidence which will be mentioned later.

2000 investments

1. Three investments were made by Mr Tomasetti in financial year 2000: Norgard Clohessy Australian Blue Gum 2000, Timbercorp Eucalypts 2000 and Great Southern Blue Gum Plantations 2000.

Documents

1. The following are some of the documents relating to these three investments with some relevant matters noted.

Norgard Clohessy Australian Blue Gum 2000

Prospectus (PCT1 at pp. 8 - 98):

Page 1 under the heading "Important Notes & Statements":

"Participation in Australian Blue Gum 2000 and subscription for options in Norgard Clohessy Equity is considered to be speculative".

Page 29 under the heading "Investment Risks - Australian Blue Gum Management":

"The Project is a long-term venture and, as with all long-term commercial agricultural projects, is subject to:"

There follows 14 bullet points which refer to matters such as "physical risks such as drought, fire, other acts of God, insect infestation (grasshoppers, beetles, etc) and disease (for example, fungal disease)"; movements in prices; fluctuations in international currency rates; "the ability of the Responsible Entity and Financier to meet their obligations"; and "any adverse change or collapse in world markets for woodchips".

Page 29 under the heading "Secondary market for Timberlots":

"Growers should be aware that, due to the lack of a formal secondary market, the timberlots are not likely to be liquid. ... Participation in Australian Blue Gum 2000 should be viewed as being made for a fixed term commencing on the date of investment and expiring not later than 31 December 2013".

Application forms (PCT1 at pp. 120 - 127)

Application for 5 timberlots for a total cost of $25,000. Finance of $24,900 sought.

Signing page of application form (PCT1 p.126):

Signed by Mr Tomasetti and witnessed by Ms Janet Sucur.

Dated 27 April 2000.

Bullet point list of acknowledgements by the applicant, including "that neither the Project nor any particular return is guaranteed by any organisation and that a subscription in the Project is considered to be speculative"; and "that the Prospectus has been read and understood in its entirety".

Signing page of finance application form (PCT1 p.122):

Signed by Mr Tomasetti and witnessed by Ms Sucur.

Dated 27 April 2000.

List of declarations by the borrower include that it is understood that it the application was for a full recourse loan that must be repaid in full with accrued interest irrespective of the success or otherwise of the investment for which the loan is utilised.

Great Southern Blue Gum Plantations 2000

Prospectus (PCT1 at pp. 343 - 413)

Introductory page (PCT1 at p.345):

"Participation in the Project is considered speculative and prospective Growers should read the Prospectus in its entirety and seek professional advice that an investment of this type is appropriate for their particular circumstances. The Projects are for a fixed term, likely to be 10 years from the year of planting. GSMAL has no obligation to purchase Growers' interests in the Project."

Page 21 under the heading "Risks" (PCT1 at p.366):

"Participation in the Projects is intended to be of a long term nature in commercial forestry and is therefore subject to attendant risks and should be considered as speculative. These risks include fire, drought, other acts of God, disease, pests, technological advances, failure to achieve expected timber yields, reduced demand for hardwood woodchips, failure to achieve economic prices because of supply and other issues, changes in prices and costs particularly adverse price movements for the costs of harvesting, chipping, transport and ship loading, currency movements, government imposts and regulations and general economic and international issues"

Page 22 under the heading "Buyback and Secondary Market" (PCT1 at p.367):

Reference is made to there being no secondary market currently in existence.

Page 28 under the heading "Projected Returns" (PCT1 at p.373):

"As the Projects are of medium term duration and there are a high number of variables involved in the calculation of returns to Growers, the ability to project returns is extremely limited.

Fluctuations in demand for woodchips, changes in woodchip selling prices, fluctuations in the costs of harvesting, chipping, transport and ship loading and variations in prevailing inflation, exchange and taxation rates as well as fluctuating growth rates will affect returns. Incorporated on pages 21 and 40 are further details on some of the risks inherent in the Projects."

Application form (PCT1 at pp. 446 - 447):

Application for 17 leased areas for a total cost of $51,000. Finance of $45,900 sought.

Signed by Mr Tomasetti and witnessed by Ms Sucur.

Undated (Although the associated Direct Debit Request form (PCT1 at p.544) was signed by Mr Tomasetti and dated 27 April 2000).

On the page where provision is made for the applicant's details to be inserted and for the applicant to sign:

"IMPORTANT

Before signing the Application Form, Applicants should read the Prospectus ..."

Declarations and Signature(s)

By signing this Application form, I/We acknowledge and agree to be bound by the statements on the reverse side of this Application."

On the reverse:

"By signing the Application form on the reverse of this page of this Prospectus, I/We hereby acknowledge and accept:

...

6. The Project is intended to be of a long term nature in commercial forestry and I/we acknowledge the risks of the project, as set out on page 21 of the Prospectus."

Great Southern Blue Gum Plantations - Authority to Proceed (Exhibit 4):

Signed by Mr Tomasetti as applicant and by Mr Tony Snape as "Adviser".

Dated 22 May 2000.

The contents of this document are reviewed later.

Timbercorp Eucalypts 2000

Prospectus (PCT1 at pp. 586 - 647):

Front cover (and repeated inside the front cover) (PCT1 at pp. 586 - 587):

"This is not intended to be a short term venture and will be subject to the risks generally associated with commercial plantation forestry."

Supplementary prospectus (and page 10 of the prospectus itself) (PCT1 at pp. 588 and 598):

Projected net sales proceeds per woodlot are calculated by deducting, inter alia, "Land rental ($3,692)" and "Forest maintenance ($989)", with rent and maintenance payable annually, commencing 31 October 2000. [Mr Tomasetti applied for 56 woodlots, so the projected total of annual payments for rent and maintenance was in the order of $260,000].

Overview on page 4 under heading "How much will it cost?" (PCT1 at p. 592):

Annual maintenance fee of $75 per woodlot and annual rent of $270 per woodlot, both indexed from 30 June 2000, payable on 31 October each year. [56 woodlots x $345 per annum = $19,320].

"Your other ongoing costs will be insurance, if you choose to insure, and interest, if you choose to borrow".

"Project risks and safeguards" on page 25 (PCT1 at p.613):

"General risks of plantation forestry

The risks associated with plantation forestry are similar to those in any farming venture which is subject to seasonal and climatic conditions. Eucalypt plantations are variously susceptible to such risks as drought, pestilence, vermin, disease, fire, flood and wind as well as poor silvicultural management, including preparation, weed control, seedling stocks, planting techniques, fertiliser application, fire control and general management.

...

Financial risks

The financial success of the Project will depend on the growth rates achieved on each Woodlot and the prevailing market conditions at the time of Harvest. ...

The financial success of the Project may also be affected by a downturn in overseas markets or oversupply caused by competition from other woodchip sources around the world or from substitute products.

... The Independent Forester has noted in his report that anticipated returns will depend on the value of woodchips on the international market, the exchange rate of the Australian dollar, the volume of wood which is being placed on the market at the time, and the prevailing costs for timber harvest and delivery at the time of timber harvest."

Application and Power of Attorney Form (Exhibit 3):

Application for 56 Woodlots for a total cost of $196,000. Finance of $145,600 sought.

Signed by Mr Tomasetti and witnessed by Mr Brailey.

Dated 19 April 2000.

Underneath the above heading of the form: "Please read the back of this form before signing it".

On the back of the form (PCT1 at p.642):

"Declarations

By signing the front of this application form you make the following declarations:

that you have read the prospectus dated 8 March 2000 to which this application form relates.

..."

Mr Tomasetti's evidence concern the 2000 investments

1. Mr Tomasetti's affidavit evidence ([45]) was that the first discussion with Mr Brailey about agribusiness investments occurred when he came to chambers "in approximately April 2000" with "the first tax returns that he did for me" which were "for the year ended 30 June 1999". At the commencement of his oral evidence he made corrections to this paragraph so that it read that it was "approximately April 1999" and that the returns were for the year ended "30 June 1998" (T82). Neither the original nor amended form of this paragraph in the affidavit made sense. The first tax returns prepared by Mr Brailey for Mr Tomasetti were for the 1997/98 year and were presented to Mr Tomasetti in about March 1999 (EB1 at p.174), whereas the first agribusiness investment was made in 2000.

1. Mr Tomasetti said in cross-examination that these amendments were made after careful consideration and reviewing of material that had been served (T244). The obvious fact that a conversation about entering into forestry projects in the year ended 30 June 2000 could not have occurred in 1999 was drawn to his attention. He maintained that the conversation to which he had deposed did occur before entering into the first forestry scheme, but that it was not at a time when Mr Brailey had prepared his first tax returns and it was not when Mr Brailey brought financial statements and tax returns for the year ended 30 June 1998. He was not sure if Mr Brailey brought any tax returns for signature - "I may be mistaken" (T245).

1. The conversation that Mr Tomasetti said took place at this meeting included the following (affidavit at [45]):

EB:"I want you to invest in forestry projects. I want you to do it this year before 30 June 2000. These are agricultural investments which will provide you income in a lump sum when the forests mature and an immediate tax deduction in the year of investment. In other words if you invest this year you will be able to get a deduction when I do your next tax returns".

PT:"What do you mean? I am completely unfamiliar with this form of investment".

Mr Brailey then explained some aspects of the proposed investment. Then:

PT:"And what sort of return will there be on the investment?"

EB:"You'll get 10 per cent per annum".

PT:"Is that compounding?"

EB:"Yes".

PT:"And what about fire? A fire could come through and wipe out the forest".

EB:"You can insure against that risk".

PT:"How long will it take before the forest is harvested?"

EB:"About 10 years".

PT:"That's a long-term investment. What if you want to get out of it?"

EB:"The expectation is that there will be a secondary market which will enable you to trade your forestry entitlements. As the timber matures and it begins to have value it is expected that you will be able to sell your entitlements on the secondary market".

Mr Tomasetti asked how much it would cost and Mr Brailey told him that it would be $320,000. He reiterated that it was tax deductible. He also told him that they would share the commission "50/50". Then:

PT:"Well Ted, I know nothing about these products, I've never heard of them before and I can only rely on you. Do you think these are sound, prudent, sensible investments as I know nothing about them?"

EB:"Well I think they are. That's obviously why I'm recommending them to you. I think they are going to be really big in the future. These are the prospectuses and I can leave them with you to read through if you like".

Mr Tomasetti said that Mr Brailey then handed him a compendious bundle of documents. He responded:

PT:"Ted, I have no time to read this documentation and I expect you to be thoroughly familiar with it so that you can make a proper recommendation to me. I am assuming that you have read it all and that having read it all you're content with the investment that you are recommending that we make.

You know my financial position now. You know my cash flows and how my practice works. If you think that it is a sound and sensible investment and that we can afford it, then I am prepared to go with your advice.

He then said something about the way he worked as a barrister and continued:

PT:"If this is your expert advice then I am prepared to accept it".

EB:"Well this is my advice. You'll get an immediate taxation advantage. If you don't pay the money for the investment, you will only have to pay the taxation office. This way you will invest in a project where there will be income down the track. Once you have paid tax the money does not come back to you.

The product is fully supported by a tax ruling by the tax office. I myself am also investing in the projects; that is how good I think that they are. You will get a lump sum at the end of the project and by that time you may not be practising as a barrister but we can worry about that at the time".

PT:"When I receive the lump sum I will have to pay tax won't I? And how will I fund the investment?"

1. Mr Brailey confirmed that he would have to pay tax on the lump sum upon receipt. He reiterated that he would obtain an immediate tax advantage. He advised that he would have to pay a minimum of 10 per cent of the investment but could borrow the rest from the project manager. He advised that the tax deduction would be for 100 per cent of the investment. The loan repayments were not tax-deductible but any interest component was. Mr Tomasetti responded, " Well if that's your recommendation I am prepared to give it a go " .

1. Mr Tomasetti said (at [46]) that Mr Brailey then gave him application forms and finance forms which he signed and that was the end of the meeting. He did not read any of the documentation but simply signed in the places where Mr Brailey indicated. Mr Brailey took the forms away; although it was "probable" that he left Mr Tomasetti with a copy of the prospectus for each project ([48]).

1. The cross-examination of Mr Tomasetti concerning the 2000 investments will be reviewed later but it is worth observing at this point what he said on the topic of when the documents were signed.

1. Forms that Mr Tomasetti signed relating to the Timbercorp Eucalypts 2000 investment are dated 19 April 2000 and they bear a stamp indicating receipt by Timbercorp on 26 April 2000 (Exhibit 3). Forms relating to the Great Southern Blue Gum Plantations 2000 and the Norgard Clohessy Australian Blue Gum 2000 investments are dated 27 April 2000 (PCT1 at p.541ff; EB1 at pp. 721 and 732; DTB 242-245).

1. Mr Tomasetti's attention was invited to the Timbercorp forms dated 19 April 2000. His signature had been witnessed by Mr Brailey. He thought it unlikely that Mr Brailey would have done so if he was not present when Mr Tomasetti had signed. His personal assistant, Ms Sucur, witnessed his signature on the Great Southern Blue Gum Plantations 2000 application where the associated Direct Debit Request form is dated 27 April 2000. It was possible that on occasions the forms would be signed by him whilst Mr Brailey was present but someone else would sign as witness (T279.1). He also allowed for the possibility that there was a discussion with Mr Brailey and the forms were sent later, although that was not his recollection (T278.44; 279.13). In the latter situation, however, he maintained that he would not have read the documents in their entirety. He also maintained that when he swore his affidavit of 17 November 2009, his recollection was that the forms were signed in Mr Brailey's presence and Mr Brailey took them away (T279.40).

1. Mr Tomasetti's attention was taken to the Norgard Clohessy Australian Blue Gum 2000 forms (PCT1 at pp. 121 - 127), which are dated 27 April 2000. He was reminded that his affidavit version of events was that there was a single meeting with Mr Brailey in April 2000 which concluded with him signing the application forms and finance forms. Mr Tomasetti indicated that he needed to make a correction to paragraph 46. He said that he thought the finance forms may have been signed later (T313.22). His attention was drawn to the dates on the forms relating to the Timbercorp investment. Both the application and the finance forms are dated 19 April 2000 (T313 - 314). He was then taken back to the Norgard Clohessy finance form dated 27 April 2000:

"Q. So that was obviously signed on a different occasion, wasn't it?

A. Not necessarily. I can't - I can see the date on the document. I see my signature and Janet's [Ms Sucur] signature. I see Mr Brailey's handwriting dated signing. That's what I can see. And I'm - beyond that, I'm reluctant to say that it was exactly on that day or not.

Q. It obviously wasn't signed on the 19 th ?

A. No, I didn't say that.

Q. It must have been signed on or after the 27 th , correct?

A. It could have been signed a day or two before and the date put on later. I'm not prepared to say. It's a long time ago. My recollection it was, when I swore my affidavit, that these documents were produced to me at the meeting, the substance of them was explained, as I've said, and they were signed. That was my recollection.

Q. There are only two possibilities: one is that for some reason the person who has dated this document has put the wrong date on it; and the other is that your recollection is incorrect?

A. That is entirely possible.

Q. That is the real explanation, isn't it?

A. It's entirely possible." (T314 - 315).

1. However, Mr Tomasetti maintained that he had not reconstructed the conversation with Mr Brailey and said that he had done his best to relate the substance of it (T315). He was prepared to accept, however, that he had been incorrect to state in his affidavit (at [46]) that he had signed all the application and finance forms during the meeting and in the presence of Mr Brailey (T316.3; 320.37).

1. Mr Tomasetti ultimately came to say that he did not maintain that all the documents were signed in a single meeting and allowed for the possibility that there might have been more than one meeting. He remained of the view, however, that there was a single meeting in which the proposed investments were discussed in the way set out in his affidavit. But there "could well have been more than one meeting" (T321.27).

1. Mr Tomasetti said (at [55]) that at the end of his conversation with Mr Brailey, and based upon what he had been told, he understood that he was purchasing a seedling forest which would grow to maturity and when mature in about 10 years would be harvested. The timber would be reduced to woodchip and sold by export. He understood that he would have to pay the purchase price for the investment and insurance premiums for fire. He expected to receive approximately 10 per cent per annum on his initial investment "compounding in effect as the forest grew". He would be able to claim a tax deduction equivalent to the amount of the investment. He also understood that tax would be payable on the proceeds of the harvested forest in the year of receipt of that income; that he would have to borrow money to pay for the investment; and that the interest on the loan would be deductible. He claimed that he was not told that there would be any ongoing costs, including rental or maintenance, apart from the loan liability and the insurance premiums.

1. Mr Tomasetti also said (at [57]) that it was Mr Brailey who made the decisions as to the quantum of the investment; with whom the investment would be placed; and the amount that he should pay personally and the amount that would be borrowed. He assumed that Mr Brailey had done this after a careful consideration of his financial affairs, with particular regard to cashflow, future financial goals and liabilities. He assumed that Mr Brailey had researched the product and had made a considered decision about the amount that Mr Tomasetti should "prudently invest". He also assumed that Mr Brailey was satisfied that the investments were affordable at all stages of their life.

1. Mr Tomasetti said (at [59]) that several months after the initial investment in the Timbercorp Eucalypts 2000 project, his secretary received documentation in the mail in relation to further payments to be made by 31 October 2000. He said that she showed him the mail and he gave it back to her, telling her to speak with Mr Brailey about it. He also said:

"I did not read the documentation at the time but again assumed that the documentation was in accordance with the plan that Mr Brailey had for me in respect of these investments, and I signed them and returned them to Mr Brailey. The further ongoing payments were dealt with upon that understanding including where it was necessary, to borrow further monies to meet the ongoing obligations. I did not telephone Mr Brailey or otherwise question him about the documentation."

Mr Brailey's evidence concerning the 2000 investments

1. By way of background to the making of agribusiness investments, Mr Brailey referred (at [90]ff) to investments made in the two preceding years by Mr Tomasetti in infrastructure bonds. He was able to claim a deduction of $307,127 in 1998 and $308,908 in 1999. The relevant provisions of the Income Tax Assessment Act 1936 (Cth) were repealed such that investment in these bonds was not available in the 2000 financial year and beyond.

1. Mr Brailey said that by April 2000 he had noticed that Mr Tomasetti did not have sufficient deductions in his returns for his tax liability to be reduced and he was concerned to discuss this with him ([117]). He attended upon Mr Tomasetti in his chambers on about 17 April. Mr Brailey's account of the conversation (at [118]ff) was somewhat different to Mr Tomasetti's recollection of it.

1. Mr Brailey commenced by informing Mr Tomasetti that the deductions he had been able to claim for the investments in infrastructure bonds in previous years were no longer available. He told him that he had seen various forestry projects which would provide the same tax deduction as the bonds, but they were different in nature. He told Mr Tomasetti that he had brought prospectuses for four different projects for him to consider. He said:

EB:"They are all supported by a favourable tax ruling from the ATO. If you take them up the saving in income tax will subsidise the investment by about 50%. The 50% that remains is an investment you have made with a loan of 90% which has to be repaid".

1. Mr Brailey said that he then handed the four prospectuses to Mr Tomasetti, together with documents relating to the provision of finance for investment in the schemes. He continued:

EB:"These are all listed public companies which gives me and should give you some confidence in their sustainability. However even listed companies hit turbulence at times. Some survive and some fail. I think investment in these companies is preferable however to entering into projects with start up or private companies. Although there is some risk attached to investments in the agribusiness companies, as there is with any sort of investment, this risk is offset to a large extent by the upfront tax savings."

1. Mr Brailey then explained the workings of the investment, including that they involved paying a deposit of around 10 per cent and borrowing the balance from the promoter. He then said:

EB:"I have been to visit some of these projects and they appear to me to be viable. You will have to pay insurance after the first year and there are ongoing rent and maintenance costs in relation to some of the projects".

1. Mr Brailey claimed that he then directed Mr Tomasetti to the provisions in the prospectuses relating to the ongoing rent and maintenance costs. He told Mr Tomasetti about some other aspects of the scheme which included that at the time the trees are planted, a contract is signed between the project manager and the ultimate buyer of the wood chips, " so that you have a guaranteed sale of your wood chips " . Mr Brailey continued:

EB:"Peter the good part for you of course is that you get a tax deduction for 100% of the cost of the investment. When you get the revenue from the project in say ten years time you pay tax on this revenue. I should also tell you Peter we may receive a commission. However it is our policy to rebate 50% of the upfront commission received to our client. Taking into account the rebate of the commission, the tax deduction of the investments will on one view initially be cash positive before you start having to make loan repayments. You will of course need to fund the repayments for the loans in the future".

1. Mr Brailey said that Mr Tomasetti had the prospectuses while he was explaining the projects to him and appeared to be leafing through them. He continued:

EB:"Peter, the approximate rate of return predicted by the prospectus is around 10% per annum but each investment will have its own return which will depend on many variables. Also, forestry is similar to all types of farming and there are many things which can go wrong including the failure of the plantation. There is the danger of fire for example but you can insure against that risk. Also the exact value of the crop when it's harvested is largely unknown. Because you are selling to a Japanese buyer the value of the Australian dollar is also a risk."

1. Mr Brailey said that at various times during his explanation of the projects, he made direct reference to the relevant prospectus. He also said:

EB:"You should read the whole prospectus before you make any decision. You should especially read the section on risk which expands on the matters I have been speaking about today. If you are to take advantage of the tax deduction for this financial year you will need to put the application in before 30 June. There is also a fair bit of demand for these investments. I have faith in the projects and am investing in them myself."

1. Mr Brailey said that Mr Tomasetti replied, "I will have a think about it " .

1. Mr Brailey claimed (at [127]) that at the end of the meeting, he left the prospectuses and the finance documents with Mr Tomasetti for him to read. He denied that the application forms were signed there and then by Mr Tomasetti.

1. Mr Brailey made notes during the course of the meeting (EB1 at p.716). They are dated 17 April 2000. They indicate that a wide range of matters concerning Mr Tomasetti's financial affairs were discussed.

1. A little later in his affidavit (at [130]), Mr Brailey said that he could not recall the exact circumstances surrounding the execution of the relevant documents. He said, " I think I left these documents at Mr Tomasetti's chambers or that I posted them to him for him to sign " . He then referred to a handwritten note " which I placed with these some of these [sic] documents at the time they were delivered or sent to Mr Tomasetti " . This note (EB1 at p.717) is headed "Great Southern" and is consistent with Mr Brailey having left documents with Mr Tomasetti to sign at a later time. In numbered points, it indicates that two signatures were required; one to be witnessed; and that a cheque was required to be made out to "GSMAL 2000 Applic. Trust A/c" in the amount of $5,100. These points are consistent with the application for finance forms relating to the Great Southern Blue Gum Plantations 2000 investment (EB1 at pp. 718 - 723).

1. Mr Brailey claimed (at [132]) that Mr Tomasetti asked him in around April or May 2000 what he thought was a reasonable amount for an investment. Mr Brailey told him that the idea was to replace the infrastructure bond deductions which were about $300,000 for the previous year. He advised putting more into the Timbercorp project than the others. He asked Mr Tomasetti how much he wished to invest personally and how much he wanted to borrow. Mr Tomasetti replied that he did not have any cash and so he would put in the minimum and borrow the rest.

Mr Tomasetti's evidence in reply

1. In his affidavit of 14 July 2010 (at [73] ff), Mr Tomasetti denied in large part the account given by Mr Brailey in his affidavit. In particular, he denied that Mr Brailey spoke about the risks attached to the investments, rent and maintenance costs, and the difficulty in valuing the investments. He denied that Mr Brailey had said that he should read the prospectuses, particular the sections concerning risk.

Cross-examination of Mr Tomasetti

1. Mr Tomasetti's application in respect of the Timbercorp Eucalypts 2000 investment became Exhibit 3 (T241ff). It was signed by Mr Tomasetti and witnessed by Mr Brailey. It is dated 19 April 2000. He said that he had signed it "as a result of a face-to-face consultation" (T243.13) but that it was possible that the prospectus had been left with him (T243.30).

1. At this point, Mr Tomasetti realised that the correction that he had made to paragraph 45 of his primary affidavit changing the meeting with Mr Brailey concerning the first agribusiness investments from April 2000 to April 1999 was incorrect. He maintained a belief that Mr Brailey had brought tax returns with him, but had become unsure about that (T245).

1. Mr Tomasetti said that his understanding, based on the discussions he had with Mr Brailey, was that for the projects entered into in 2000, he would have to make an "upfront payment" and then not be required to pay anything more until the trees were eventually cut down and he received a return. Although there is nothing in his affidavit account of the conversation with Mr Brailey to this effect, he maintained that this was part of Mr Brailey's explanation (T249). He was not told that there would be ongoing maintenance costs (T250.45). Later, he said that his understanding in April 2000 was that he was required to make an "upfront payment", and pay for insurance "along the way", and that at the end of the project he would receive a lump sum after deduction of expenses and costs (T331.20). The latter included rent in respect of the land for which he was a lessee (T331.30). He derived that understanding from his discussions with Mr Brailey (T331.42). He did not, however, recall Mr Brailey telling him about deferral of rent payments (T332.10).

1. As to risks relating to forestry projects, Mr Tomasetti was aware of fire, and asked Mr Brailey about it (T251). He was aware of drought but did not appreciate that it could be a risk to the trees developing to their full potential. He was not aware of any risk that plantation timbers could get diseases of any kind (T252). He did not turn his mind to there being any risk from drought, disease, pests or changes in pricing (T261).

1. Mr Tomasetti maintained that in relation to some of the forestry projects, Mr Brailey had said that the ultimate sale price of wood chips had been agreed (T254.45), although he was not sure whether that was said in relation to Timbercorp (T255.4). Even if the price was fixed, he did not know that what the ultimate purchaser actually paid would depend upon how much wood was available to sell. He thought that harvesting would not occur until the trees had reached optimum size. He did not know that the time it would take for that to occur would depend upon climatic conditions (T256).

1. Mr Tomasetti had an understanding that Mr Brailey had experience and had carried out research that went beyond a reading of the prospectus. He based this upon the things Mr Brailey said about the projects as well as him saying that he had been investing in them himself (T257). He believed that Mr Brailey claimed to have experience in forestry, as distinct from investing in forestry projects (T260).

1. Whilst he appreciated that Timbercorp were not guaranteeing any particular level of return (T261.48), he thought the level of return Mr Brailey spoke of was "approximate" and that the risk he was taking was that it could be "slightly more, slightly less" (T262.8). He was interested to insure against a catastrophic loss to him in the event of fire (T262.43), but he never turned his mind to other risks (T263). If there had been a "substantial risk" that he would not get his money back he would not have invested (T264.37). He was not interested in investing in these projects unless they fitted with the instructions he had given to Mr Brailey (T264.48) and they had been presented to him as conforming to those instructions (T265.3).

1. Mr Tomasetti accepted that neither Timbercorp nor Mr Brailey warranted the outcome of the projects (T265). Mr Brailey, however, was saying that "they were prudent, sensible investments" (T265.18).

1. Mr Tomasetti understood that the investments involved him borrowing money and being obligated to pay it back at a later time. He understood he would be paying interest and that the interest would be tax deductible. He claimed that he did not turn his mind to the tax deduction being "favourable" (T265.50).

1. A fourth point in the note made by Mr Brailey during the meeting at which the 2000 investments were discussed (EB1 at p. 717) includes "Tony Snape will contact you". It was suggested to Mr Tomasetti that Mr Snape visited him three weeks later, but he said that he had never met a Mr Snape (T272.5).

1. Exhibit 4 is a document headed "Great Southern Blue Gum Plantations Authority to Proceed". Mr Tomasetti agreed that he had signed this document as the "applicant" (T273.15). The signature appears in a box headed "Applicant(s)". Within that box, above the signature, are three paragraphs, the first of which is, "I/We have read and understood the above and confirm I/We wish to proceed with my/our investment in the Great Southern Blue Gum Plantations 2000 Project" . The "above" comprises 10 acknowledgements. The first is:

"I/We understand that Tony Snape is the holder of a Proper Authority with Hampton Securities Pty Limited and that Hampton Securities Pty limited is the holder of Dealers Licence Number 14327 issued on 14 January 1988. I/We understand that the advice that can be provided by the adviser is restricted to the Great Southern Blue Gum Plantations projects".

1. The second acknowledgment is to the effect that "I/We" have read and retained a copy of the prospectus. The third is that the project had been explained to "me/us". The fourth is that participation in the project was considered to be speculative. It lists the "risks" as including fire, drought, acts of God, disease, pests, technological advances, changes in prices and costs, currency movements, Government regulation, and general economic and international issues. The fifth acknowledgment is that participation in the project was a long term investment and that redemption from the project before harvest may not be possible. The sixth is that the ability to project returns was extremely limited; it was not possible to predict with certainty the likely returns; and that there was no guarantee in respect of possible returns.

1. The document also has a box headed "Adviser" where the name "Tony Snape" has been typed in and there appears a signature that looks like "A Snape" and the date "22/5/00". Mr Tomasetti claimed, however, that he had never heard of Hampton Securities; he recalled no meeting with Mr Snape; and he did not recall signing the document (T273.33). He maintained that he had no dealings with anybody else regarding agricultural investments other than Mr Brailey (T276.18). He agreed that he would not have signed the document if it was not true, but suggested that he might have signed it by mistake. To his recollection, the first time he had ever seen the document was when shown it during the course of cross-examination (T273.40).

1. Something that supports the contention that Mr Snape did attend upon Mr Tomasetti on the day that he signed this document is a note dated 19 May 2000 from Mr Brailey to Ms Sucur (PCT1 at p.991; EB1 at p.753) - "Tony Snape will come in Monday for Great Southern". The document bears the date 22 May 2000, a Monday. I bear in mind that it was received as an exhibit upon the basis that there was no evidence as to when the signatures were placed on it (T273.2). The inference that Mr Snape attended upon Mr Tomasetti can be drawn from Mr Brailey's notes; Mr Snape's name appearing on the document; and Mr Tomasetti's acceptance that he signed it and that he would not have done so if it was not true.

1. A number of forms relating to the Norgard Clohessy Australian Blue Gum 2000 project were part of the evidence in the plaintiffs' case (PCT1 at pp. 120 - 127). They are dated 27 April 2000. Mr Tomasetti's signatures were witnessed by Ms Sucur. On the page of the application form that was signed by Mr Tomasetti there are a number of acknowledgements. He agreed that when he signed it he appreciated that it was an application form; that it involved himself making commitments and representations that would be relied upon by those to whom the application was to be submitted. He did not, however, turn his mind to ensuring that the representations were truthful (T322). He agreed that he "would have wished to be satisfied that the statements that [he] was making ... were correct" (T323.18). He did not, however, read it. He simply signed where he was required to sign (T323.22). He explained that he relied upon Mr Brailey having completed the forms accurately (T323.30).

1. Mr Tomasetti agreed, first, that he would have read the form sufficiently to see what it was that he was committing himself to (T323.45).

"Q. And second that any representations that you were making were accurate?

A. Being made on my behalf, yes." (T323.48)

1. One of the acknowledgements was that the prospectus had been read and understood in its entirety:

"Q. So you made that representation, signed it to be true and it was not true, is that what you say?

A. Yes." (T324.5)

1. Mr Tomasetti then said that he "did not read all the application forms". He would have scanned them, but did not read them in detail. However, he would have seen that this particular document contained a series of acknowledgements (T324.20). He did not, however, read and consciously advert to points such as that the project was not guaranteed and that it was speculative (T325.20). The following gives the flavour of Mr Tomasetti's responses:

"Q. You also understood that a subscription in the project was considered speculative?

A. No, I did not.

Q. You in fact acknowledge that very thing in the fourth dot point?

A. No.

Q. The reason why you signed this form and you were happy having scanned this form and read it sufficiently for your purposes to sign that because it was true?

A. No.

Q. You knew very well that this project was speculative?

A. Well, it certainly wasn't guaranteed. There was certainly risk as we've discussed attached to it.

Q. Would you mind dealing with the word "speculative". Did you or did you not know when you entered into this project that it was speculative?

A. I regard it as speculative on the advice that I was given.

Q. Why didn't you when presented with this form to sign which contained an acknowledge[ment] which was speculative say something to Mr Brailey?

A. Because I did not read anywhere in the form that it was speculative." (T326)

1. At an earlier stage in the cross-examination, Mr Tomasetti denied knowing that the investments were speculative. He was asked whether he knew they were "less safe than investing in blue chip shares" and replied that he knew nothing about them. Then:

"Q. Are you saying that you made these investments having no idea of their relative safety compared with blue chip shares? Is that seriously your evidence?

A. That's my answer, yes." (T290.40)

1. He did, however, appreciate that there was risk associated with forestry projects, although not a "substantial risk". He appreciated that they were not "a 100% safe project" and also understood that they were for 10 years or more (T294). Then, contrary to his earlier answer (at T290):

"Q. And in particular even after you had spoken to Mr Brailey you appreciated that the investment that you were considering was one which was less safe than investing in blue chip shares?

A. Yes, that's correct, that's correct. I was clearly aware of the risk of fire." (T295.22)

1. Towards the end of the cross-examination he confirmed an awareness that the investments (generally) carried a degree of speculation and risk:

"Q. In fact you had been well aware at the time you had entered into these particular transactions that the investments were ones which were not as safe as other investments?

A. I've agreed with that.

Q. And I suggest you were well aware at the time you entered into the transaction that the investments were speculative?

A. Speculative, yes. Speculative no. I have difficulty with that. These investments are highly speculative, high risk, high danger investments. I had no knowledge of those matters but of course in the matters that we've discussed with the attendant risks that applied there were of course some degree of speculation, but nothing of the kind that I understood." (T567.34)

1. Mr Tomasetti was asked (at T296) about the advantages he saw in making the investments. He mentioned diversification was one advantage and forced saving was another. A third was that they provided an opportunity for him to receive money in 10 or so years time when he might not be working as intensively. He could not, at that moment, think of any other advantages. Mr Parker prompted him:

"Q. Well, I'm going to suggest there's an elephant in the room and it has three letters?

A. What's that?

Q. Tax?

A. Yes. There was an advantage too.

Q. You do remember that now?

A. Well yes, I do remember that now." (T296.24)

1. His understanding in 2000 was that he would obtain an immediate tax deduction for the full amount of the investment. He was told that this would make a very significant reduction in the tax he would pay for the 2000 financial year; he would get an immediate cash tax benefit (T300). He saw an advantage in this, but said that it was not the primary consideration (T301).

1. In the 2000 tax year, Mr Tomasetti paid tax of some $70,000 against gross professional fees in the order of $850,000. He declared a loss on primary production from his investment in forestry schemes of $328,000. He had paid out a sum significantly less than the tax credit he received because the balance of his obligation had been deferred by substantial borrowings (T307 - 309).

1. It was a general claim made by Mr Tomasetti that he never read any prospectus or PDS in relation to any of the projects in which he invested. In his affidavit of 14 July 2010, Mr Tomasetti replied to various matters included in Mr Brailey's primary affidavit. In that affidavit, Mr Brailey had said (at [124]) that at the meeting in Mr Tomasetti's chambers in April 2000 when agribusiness investments were first discussed, " Mr Tomasetti had the prospectuses while I was giving him this explanation of the project and appeared to be leafing through the pages while I was talking " . In replying to this, Mr Tomasetti deposed (at [81]):

"I deny that I leafed through the pages of the prospectuses referred to whilst Mr Brailey was talking."

1. In cross-examination, he said that he deliberately and consciously made a decision never to read prospectuses (T343.16). He added, while maintaining that he never read them, " I'm not denying that I would have leafed through the documents from time to time " (T343.25). But then, in contrast to his affidavit evidence about the first meeting in April 2000:

"Q. ... But you do accept, don't you, that you did read bits of them?

A. Yes, I accept that. Of course I did. Not all of them. And I can't say - don't ask me now which bits or of what prospectuses, but while Mr Brailey came to see me - for instance, in our first meeting when he had documents like that, I would have flicked through. I had never seen these things before. I was completely unfamiliar with the product. So it's highly likely that I would have picked one of them up and leafed through it while he spoke to me." (T344.1)

1. Mr Tomasetti was taken to his application form in relation to the investment in Great Southern Blue Gum Plantations 2000 (PCT1 at p.446). It has been noted earlier that it included the cautionary note, "Before signing the Application Form, Applicants should read the Prospectus ...". Mr Tomasetti could not say whether he had read that form when he signed it. It was possible that it was signed when Mr Brailey was not present and that he had a quick look to make sure that it was in accordance with what they had previously discussed (T398). Eventually he conceded that he could not say with certainty that he recollected what happened on the day that he signed this form. He could not recall whether he scanned the form, or read the form, or how much time he spent looking at the form (T400.33).

1. Almost immediately after, he said that "in these matters, without exception" he was of the view that Mr Brailey was reading "these documents" for him. He was paying him for that task. Accordingly, he saw no need to read them himself, and made a deliberate decision not to do so (T401.25). However, he then conceded:

"Q. Are you prepared to say you never ever read any part of any of the application forms--

A. No, I'm not prepared to say that.

Q. --that you signed?

A. No, I'm not prepared to say that. I undoubtedly would have. I would have been able to scan quickly something when I was signing it. That would have involved me in reading parts of the documents without doubt." (T402.7)

1. As earlier set out, one of the acknowledgements purportedly made on the application form for the Great Southern Blue Gum Plantations 2000 investment was:

"6. The Project is intended to be of a long term nature in commercial forestry and I/we acknowledge the risks of the project, as set out on page 21 of the Prospectus."

1. When taken to this, Mr Tomasetti gave the following evidence:

"Q. Please go to page 447 in the bundle in front of you and read paragraph 6 to yourself and, having done so, will you acknowledge that, having signed this document, you made an acknowledgment that [you] understood that the project was intended to be of a long-term nature in the nature of commercial forestry and was subject to risks?

A. Yes, I think I've acknowledged these things already.

Q. Now you knew, when you signed this document, that the document was of that character, didn't you?

A. Which document?

Q. That the project was of that character?

A. I knew the project was a long-term project. I knew it was in commercial forestry and I knew there were obvious - there were risks which were attached by the project.

Q. Yes.

A. Yes, that's true.

Q. Investment risks and financial risks?

A. What do you mean by that, specifically? I mean, there were risks inherent in the project such as those that you mentioned, fire and drought and things of that nature. I certainly considered fire. I did not consider drought. And if you're asking me about financial risks - that's the risk of borrowing - I didn't turn my mind to that either. But yes, I knew of those three things." (T404.42)

Cross-examination of Mr Brailey

1. Mr Faulkner took Mr Brailey through a large part of Mr Tomasetti's version in his primary affidavit of the conversation at their meeting when the agribusiness investments were first discussed (T880 ff). He agreed to many aspects where he had a recollection. He did not recall a number of aspects, sometimes allowing for the possibility that they were said.

1. He denied having said "I want you to invest in forestry projects" and "I want you to do it this year before 30 June 2000" (T881.15). He did not say, "You will get 10 per cent per annum" but said "You will get approximately 10 per cent per annum" (T882.5). When Mr Tomasetti asked how long it would take before the forest is harvested, he did not say "About ten years" but thought he said "ten to thirteen years" (T882.23). He denied, doubted or did not recall that Mr Tomasetti had said, "Ted, I have got no time to read this document [prospectus] and I expect you to be thoroughly familiar with it so that you can make a proper recommendation to me" (T883.34). He denied that he said to Mr Tomasetti, "Well, this is my advice. You'll get an immediate tax advantage. If you don't pay the money for the investment, you will only have to pay the taxation office" (T884.26). He did not think that Mr Tomasetti said at the end of the conversation, "Well, if that is your recommendation, I'm prepared to give it a go". He did not think that a decision was made at the meeting, although he did not positively rule it out (T885).

1. There remains a query as to whether all of the revenue losses were, in fact, deductions. It was noted in the reports of both Mr Williams and Dr Ferrier that there were discrepancies between the amounts claimed on the income tax returns and the revenue losses calculated by Mr Williams. However, no issue was raised about this in submissions.

Plaintiffs' submissions

1. The plaintiffs submitted that an award of damages would be assessable as ordinary income within the meaning of s 6-5 Income Tax Assessment Act 1997 (Cth) (ITAA 97). It was contended that "amounts received in the course of or on the conclusion of a business as a recoupment of lost income or deductible business expenditure partake of the same character as that which they replace" (PWS on Tax at [8]). The outgoings incurred by the plaintiffs reduced their taxable income. The award of damages in compensation for their outgoings will fill the hole in their taxable income.

1. It was submitted that the character of the receipt (an award of damages) arises out of a business activity which the plaintiffs were induced to enter into by the defendant's conduct, and which gave rise to outgoings for which compensation is sought (T1168 - 1169).

1. Reference was made to a number of principles and authorities in support of these propositions.

1. A starting point is the observation in the joint judgment of Brennan CJ, Dawson, Toohey and McHugh JJ in Federal Commissioner of Taxation v Rowe [1997] HCA 16; (1997) 187 CLR 266 at 279 that "the character of a receipt is assessed by reference to its character in the hands of the taxpayer, not the character of the expenditure which produces the payment to the taxpayer". This was in the context of the Commissioner contending that it was a general principle of law that an amount paid as compensation for, or reimbursement of, a deductible expense is income within ordinary concepts.

1. FCT v Rowe and GP International Pipecoaters Pty Ltd v Federal Commissioner of Taxation [1990] HCA 25; (1990) 170 CLR 124 were cited by Mr Slater (T1168) as examples to demonstrate the proposition that the character of the receipt is determined by the relationship between it and the business activity of the taxpayer, rather than being determined by the nature of the expenditure.

1. In FCT v Rowe , the taxpayer had claimed as a deduction his legal costs in defending himself before an inquiry concerned with conduct relating to his employment. Four years later, he received a government ex gratia payment of an amount equivalent to the expenses. It was held that the Full Court of the Federal Court had been correct to characterise the payment as reparation, rather than remuneration, and so not part of assessable income.

1. In GP International Pipecoaters v FCT , the taxpayer company incurred expenditure in constructing a plant which it would then use for coating pipes used in mining activities. While the initial amount outlaid was on capital account, the amount received from the counterparty to the contract for its recoupment was not and was therefore assessable.

1. In Commissioners of Taxation (NSW) v Meeks (Public Officer of the Sulphide Corporation Limited ) [1915] HCA 34; (1915) 19 CLR 568, Griffith CJ stated (at 580):

"In my opinion, damages received as compensation for non-performance of a business contract stand on the same footing as the profits for the loss of which the damages are paid."

1. Mr Slater interpolated the comment that "it is a matter of filling the gap in the profits which gives rise to the accessible character" (T1169.30). Griffiths CJ continued (at 580):

"It cannot, therefore, make any difference in principle whether the money is actually earned as profit, ascertained by deducting expenses from receipts, or paid as compensation for the loss of the opportunity of earning that profit, or, in the latter case, whether the amount of compensation is assessed by a jury or by mutual agreement."

1. Similar statements of principle were cited from Californian Oil Products Ltd (In Liq) v Federal Commissioner of Taxation [1934] HCA 35; (1934) 52 CLR 28 at 46 per Gavan Duffy CJ, and Sydney Refractive Surgery Centre Pty Ltd v Commissioner of Taxation [2007] FCA 1544; (2008) 172 FCR 557 at [14] per Ryan, Edmonds and Gordon JJ.

1. In Burmah Steamship Co v Inland Revenue Commissioners [1931] SC 156; 16 TC 67, Clyde LJ considered a situation of "someone who chartered one of the appellants' vessels [who] breached the charter, and exposed himself to a claim of damages at the appellants' instance". He continued:

"[T]here could, I imagine, be no doubt that the damages recovered would properly enter the appellants' profit and loss account for the year. The reason would be that the breach of the charter was an injury inflicted on the appellants' trading, making ... a hole in the appellants' profits."

1. Mr Slater submitted that in the present case, similarly, "the expenditures which the plaintiffs were induced to make caused a hole in the profits of the business which they were persuaded to enter into" (T1169.40).

1. In Commissioner of Taxes (Vic) v Phillips [1936] HCA 11; (1936) 55 CLR 144, there was a question whether a taxpayer was liable to have assessed as income regular monthly payments that were being made to him as, in effect, compensation for the early termination of his position as the manager of a theatre. His remuneration included payment of 12.5 per cent of annual profits. Termination came about four years prior to when the agreement was to have concluded and occurred when the theatre was leased to another concern. An amount of compensation was agreed on the basis of what he was likely to have received as his share of profits based upon past amounts paid. A condition was included in the lease that the lessee would pay this amount to the taxpayer by monthly instalments over the four year period.

1. Dixon and Evatt JJ (at 155-156) characterised the arrangement thus:

"It appears to us that, for future income which he had a right to earn by performing the agreement, he exchanged a right to receive, through the same duration of time and at the same intervals of time, amounts estimated as equivalent to the income otherwise payable to him." (Emphasis added)

1. Their Honours concluded (at 157):

"In the present case ... there are monthly payments estimated to correspond in amount with the monthly payment which otherwise the taxpayer would have received and the payments are to be made over the same period of time. In these circumstances they must, in our opinion, be regarded as of the same nature as the payments they replace. They are of an income nature."

1. In Federal Commissioner of Taxation v Wade [1951] HCA 66; (1951) 84 CLR 105, a dairy farmer was required to destroy 110 cattle because they were diseased. He received compensation of £2,016 and purchased replacement cattle, 110 of which cost £1,886. The appeal was concerned with how the difference of £130 should be treated. Statutory provisions required that variations in stock level be dealt with on income account. It was held (at 112 per Dixon and Fullagar JJ) that these provisions invoked "the operation of the principle which requires that a receipt representing an asset brought into the income account must be treated as income".

1. McLaurin v Federal Commissioner of Taxation [1961] HCA 9; (1961) 104 CLR 381 and Allsop v Federal Commissioner of Taxation [1965] HCA 48; (1965) 113 CLR 341 were cited by Mr Slater (T1170.2) as examples of cases in which the amount for which the taxpayer was compensated was, at least in part, for outgoings and not lost income. The taxpayer escaped liability for reasons which will be mentioned shortly.

1. In the event that the characterisation of damages as being assessable as ordinary income did not succeed, it was submitted in the alternative that it would be assessable as statutory income (ITAA 97, s 6-10).

1. Subdivision 20-A of the ITAA 97 is concerned, inter alia, with the amounts received by way of insurance, indemnity or other recoupment for deductible expenses that are not otherwise assessable income. Section 20-20, relevantly, provides:

" 20-20 Assessable recoupments

Exclusion

(1)An amount is not an assessable recoupment to the extent that it is * ordinary income, or it is * statutory income because of a provision outside this Subdivision.

Insurance or indemnity

(2) An amount you have received as * recoupment of a loss or outgoing is an assessable recoupment if:

(a) you received the amount by way of insurance or indemnity; and

(b) you can deduct an amount for the loss or outgoing for the * current year, or you have deducted or can deduct an amount for it for an earlier income year, under any provision of this Act."

1. A "recoupment of a loss or outgoing" is defined in s 20-25 to include "any kind of recoupment, reimbursement, refund, insurance, indemnity or recovery, however described".

1. The operative provisions of the subdivision of importance are that assessable income includes an assessable recoupment of "a loss or outgoing" if the loss or outgoing can be deducted in the current year, or has been deducted in one or more earlier income years (s 20-35 and s 20-40).

1. It was submitted for the plaintiffs that to the extent that any part of the damages recouping deductible expenditure escaped assessment as ordinary income under s 6-5, they would in any event be included in the plaintiffs' assessable income by these provisions. The submission was that in relation to each loss or outgoing:

(a)the damages received would be a "reimbursement ... indemnity or recovery" and therefore a "recoupment" (s 20-25(1));

(b)they would be for a loss or outgoing for which a deduction could be or was claimed, and would be an "assessable recoupment" (s 20-20); and

(c)the assessable recoupment would be included in assessable income (s 20-35(1)).

1. Mr Slater acknowledged that "there is a well-established line of authority to the effect that an undifferentiated lump sum received in satisfaction partly of claims of a revenue nature and partly of claims of a personal or capital nature is not assessable income" (T1170.46). It is the defendants' contention that any award of damages in this case would constitute such an undifferentiated lump sum (DWS at [229] - [232]). McLaurin v FCT and Allsop v FCT are two of the leading cases in this "line of authority". There is no need to review the facts of the cases; a useful summary is to be found in the judgment of the Full Court of the Federal Court in Commissioner of Taxation v CSR Ltd [2000] FCA 1513; (2000) 104 FCR 44 at [41] ff. In short, they involved a single sum being paid by way of settlement without differentiation as to any constituent components. The original claims included items of both a revenue and a capital character and it was not possible to say that an identifiable part of the payment had been by way of indemnity for a loss or outgoing which was an allowable deduction.

1. It was submitted for the plaintiffs that any award for damages in the present case would be such that, in contrast to the situation with a lump sum award made by a jury, the reasoning exposed in the judgment would make it clear how the final sum was arrived at. Accordingly there would not be the problem, as there was in the cases referred to above, of identifying how much would represent an assessable recoupment of deductible losses and outgoings.

1. Although it was not referred to by Mr Slater, I note that s 20-25(4) appears relevant in this context:

"(4)If you receive an amount that is, to an unspecified extent, * recoupment of a loss or outgoing, the amount is taken to be recoupment of the loss or outgoing to whatever extent is reasonable."

1. Mr Slater concluded his submissions, both written and oral, with a succinct statement to the effect that there is no question of any CGT issues arising.

Defendants submissions

1. It was submitted on behalf of the defendants that the characterisation by the plaintiffs of an award as "filling in a hole in profits" does not apply to the circumstances of this case. This is because there was no ongoing business which pre-dated or surrounded the conduct of the defendants. That is, it is not a case where the plaintiffs were operating a business of primary production and, as a result of Mr Brailey's conduct, did not receive income which otherwise would have been received. Rather, the plaintiffs' claim is that but for Mr Brailey's conduct, they would not have entered into the businesses at all. Any claim seeking to make good expectations on the part of the plaintiffs to receive income from the projects would lead to a contractual measure of damages.

1. The defendants endorsed the approach taken by Lee J in Sweetman v Bradfield . I have earlier referred to the factual matrix in this case which is somewhat analogous to the present case. Mr Parker noted that no grossing up for tax took place in that instance: "No-one seems to have suggested to Lee J that his judgment should be grossed up" (T1379.25).

1. It was submitted that any award of damages would not be an assessable recoupment in respect of either the whole or a proportion of the award. The submissions sought to characterise an award of damages in this case differently, that is as a "multi-head unliquidated claim" (T1380.26). It was put that the final award will be an undifferentiated lump sum reflecting all aspects of the loss or damage from which it will not be ascertainable which portions of the sum will represent recoupment of a particular deduction or deductions.

1. With reliance upon Arthur Robinson (Grafton) Pty Ltd v Carter [1968] HCA 9; (1968) 122 CLR 649, it was submitted that unliquidated damages, by their nature, are not a reflection of true damages. This could be problematic if an unliquidated award was appealed.

1. The defendants submitted that the language of s 20-20 of the ITAA 97 is of a recoupment "of" a loss, which means that there must be a direct and mathematical relationship between the award and the deductions. It was submitted (DWS at [213] - [216]; T1376) that in this case, damages are said to be comprised of the following components:

1. the amount the plaintiffs currently owe as a result of entry into the investments and associated loan agreements;

2. an adjustment to the above to take into account post tax cashflow effects of the investments;

3. deducting an amount for the net present value of the investments; and

4. adding any award for vexation or distress.

1. The first, third and (obviously) the fourth components are said to have no relationship at all to deductions.

1. I note in this "component" characterisation of the plaintiffs claim that, in relation to the first three steps, it does not equate with the approach taken by Mr Williams and there was no dispute as to Mr Williams' methodology.

1. In respect of past deductions (the second component), it is the cash figure and not the full value of the deductions that is said to be relevant. This requires another exercise that factors in such calculations as the tax effect of the deduction and the time value of money. This exercise is not precise and the calculations reached by the experts do not reflect a precise relationship between the deductions and the award.

1. Accordingly, it was submitted that any amount awarded would be neither a recoupment of a particular amount or a fixed and ascertainable proportion of a particular amount or amounts. As a result, it would not be taxable and no "grossing up" is required.

Plaintiff's submissions in reply

1. The plaintiffs pressed the submission that the conduct of the defendants induced them into entering business activities (namely, the agribusiness investments). These activities incurred outgoings in their operation. The outgoings gave rise to the losses sustained by the plaintiffs. They were treated as tax deductible. As such they are assessable. It was submitted that Mr Williams' report, not rebutted on this point by Dr Ferrier, indicated that the outgoings accounted for the primary amount of the losses.

1. Mr Faulkner made the observation that it would be surprising if the Commissioner, having allowed all of the deductions in the past, would not move to assess tax in respect of compensation which might be awarded on a sum which would be, bar $750, all of a revenue nature (T1406.43).

1. Reference was made to the submission by counsel for the defendants that damages might include the last of the four components, an item that would clearly not be treated as ordinary income or an assessable recoupment. Mr Faulkner indicated that this item had the tendency to complicate or cloud consideration of this taxation issue and informed the court that for this reason the vexation claim was abandoned (T1407.1).

1. Mr Faulkner also noted that there were joint expert reports in relation to the calculation of the plaintiffs' losses and that no attempt had been made to challenge their methodology. It was submitted that there was no evidence supporting the methodology proposed by the defendants in closing submissions. The defendants' methodology involved incorporating components both on capital and revenue account which was contrary to correct accounting concepts. On this issue, Mr Faulkner drew attention to the fact that both parties had accepted the final joint expert report and submitted that it should be relied upon "in its full force and effect without qualification" (1407.16).

1. In their written submissions in reply, counsel for the plaintiffs referred to authority for the proposition that an award of damages squarely falls within the ordinary meaning of an "indemnity": FCT v Wade , supra, at 115 per Kitto J; Williamson v Commissioner for Railways [1960] SR (NSW) 252 at 257 per Herron J and 273 per Sugerman J; G oldsbrough Mort & Co Ltd v Federal Commissioner of Taxation (1976) 14 SASR 591 at 598-599 per Walters J; and Melbourne Saw Manufacturing Co Pty Ltd v Melbourne and Metropolitan Board of Works [1970] VR 394 at 399 per Barber J .

1. As to any award of damages being by way of a single sum, it was submitted that the decisions in McLaurin v FCT and Allsop v FCT were based upon situations in which it was not possible to elicit from the terms of the agreement or settlement award whether, and if so how much, it was concerned with amounts that could be determined to be on revenue account. That is not the case when the figure can be ascertained.

1. Counsel for the plaintiffs referred to Whitaker v Commissioner of Taxation (1996) 63 FCR 1. That case was concerned with whether pre-judgment and post-judgment interest included in an award of damages for personal injury was assessable as ordinary income. Hill J held that it was. He distinguished the question from that which was decided in McLaurin v FCT and Allsop v FCT :

"The present is not a case where the basis of apportionment was uncommunicated. It is a case where the basis of calculation of the ultimate award for damage is known. It comprised, relevantly, two amounts. The first was damages for the personal injury suffered by the plaintiff; the second was the interest component under s 94. Rather, the present is a case where the single payment can be apportioned amongst the heads to which it relates and the income or non-income nature attributed accordingly. Further, it is not a case where the payment is in respect of one claim and one claim only. The payment is in respect of two claims, one for damages and the other for interest; one for capital; and one for income." (at 9)

...

"The decisions in McLaurin and Allsop received endorsement in the judgment of Davies J in Northumberland Development, and see per Beaumont J at 116. It is of course binding upon me. But the principle can have no application in a case where apportionment is possible. The ambit of the principle in McLaurin and Allsop, in my view, should not be extended." (at 10-11)

1. Finally, it was submitted for the plaintiffs that if an award is not treated as ordinary income or statutory income, it would attract CGT. Given the ultimate view I have formed on this taxation issue, it is unnecessary to say more about this submission.

Defendants' further submissions

1. Counsel for the defendants submitted that the plaintiffs could not withdraw their claim for vexation. They have a single cause of action, not separate claims for various heads of damage. So long as they maintain their cause of action, the Court is required to award an appropriate sum for all aspects of the damage proved by the evidence, including vexation.

1. It was submitted that there is nothing illogical about an award of damages comprising components both of capital and revenue loss. The example was given of a misleading or deceptive conduct claim, in which there was both a capital loss, say for the purchase of a business at overvalue, and a revenue loss, say for trading losses.

1. Finally, it was stated that the defendants were not departing from the agreed figures arrived at in the joint expert reports.

1. The defendants opposed any consideration, let alone grossing up, in respect of capital gains tax. There were too many issues that would need to be addressed by way of evidence and submissions. It was too late for the plaintiffs to be raising the point when they had previously said that it was not an issue. As I indicated above, there is no need to further consider this point.

Conclusion on taxation

1. I do not accept the submission for the defendants that there is significance in the fact that the plaintiffs were not involved in an ongoing business but claimed to have entered into businesses as a result of Mr Brailey's conduct. It was not made clear why a question as to whether a business was pre-existing, or commenced as a result of the defendant's conduct, should have a bearing upon the operation of the principles to which the plaintiffs referred. There was the characterisation of the plaintiffs' submission as seeking to make good expectations to receive income from the projects. However, the reality is that the plaintiffs are seeking to recover for their losses in terms of expenditure and extant liabilities. No attempt has been made to calculate, let alone claim, income they had an expectation of receiving.

1. To the extent that Sweetman v Bradfield Management provides an analogous factual matrix, the fact that Lee J did not "gross up" for taxation is not determinative, or persuasive. One could speculate about the reasons why that was the case. It may be because no-one averted to the issue. It may also be because the issue was averted to but the parties accepted that it was not appropriate to do so. What the parties in that case considered was appropriate is hardly relevant in the present case. Mr Parker's acceptance that "no-one seems to have suggested to Lee J that his judgment should be grossed up" (T1379.25) is an acceptance of either possibility.

1. The submissions for the defendants concerning an award in this case being in the nature of an undifferentiated lump sum in respect of which no conclusion could be drawn as to how much was attributable to sums that might be regarded as ordinary income or statutory income cannot be sustained. Any award that this Court might make in the plaintiffs' favour would be the subject of a judgment that would expose sufficient reasoning to enable such an assessment to be made. I was not referred to any authority for a proposition that it is necessary for such an assessment to be made with absolute precision. Commissioner of Taxes (Vic) v Phillips includes reference to "amounts estimated as equivalent to the income otherwise payable" (emphasis added). There is also the reference in s 20-25(4) of the ITAA 97 to an "amount [being] taken to be the recoupment of the loss or outgoing to whatever extent is reasonable".

1. Mr Parker referred to appellate consideration of a judgment in which a single sum was awarded and cited Arthur Robinson (Grafton) Pty Ltd v Carter . He submitted that "for the purposes of appeal, one looks at the total figure and compares it with the damage complained of" (T1380.28). That might well be the case with a jury verdict, as it was in the case referred to, but it is difficult to contemplate that in a case where the present tax question is a live issue, an appeal court would do the same.

1. The submission that the plaintiffs could not withdraw their claim for damages for vexation has no merit. They can either withdraw the claim, or ask me to award no damages for it; either way, given the concession, no component of any award should include anything for it.

1. It can be readily accepted that there is nothing illogical in an award including damages for both capital and revenue losses. Any award in this case would be of such a nature. The capital component would be trivial, as indicated in the calculations of the experts. Nothing in the present consideration is affected by this.

1. The submissions for the plaintiffs that any damages awarded (aside for the $750 capital loss) would be assessable as ordinary income are persuasive. However, I prefer the view that they would be assessable as statutory income. Such damages comfortably fit the concept of being an assessable recoupment. Any damages should be grossed up to take this fact into account.

Quantum

1. Dr Ferrier and Mr Williams agreed upon a figure in relation to each of the plaintiffs for the "total of potential components of past loss". The total for all three plaintiffs is $4,483,225.

1. There is an issue about whether there should be an adjustment for the time value of money by CPI indexation. Mr Faulkner submitted on behalf of the plaintiffs that Supreme Court rates should be applied so as to also include adjustment for the plaintiffs being deprived of the use of money (T1213.41). Mr Parker opposed this, stating that a claim for loss of opportunity to invest elsewhere had been abandoned (T1371.6).

1. There was originally a claim that in addition to having lost a principal amount, the plaintiffs had lost "interest and the opportunity to invest in other sound and prudent investments" (statement of claim at [42]). The second amended statement of claim saw the deletion of all of those words except for "interest". This is not an abandonment of a claim that would deny to the plaintiffs the submission made by Mr Faulkner.

1. The plaintiffs' submission is a reasonable one and, particularly given the period of time that has elapsed since the making of the investments, the deprivation of the use of their money has been significant. If their claim had been successful I would have assessed quantum on this basis. Mr Faulkner indicated (T1214.20) that the figures in the joint report were calculated in that way.

1. There is one aspect of the figure in the Ferrier/Williams report that requires adjustment and that is, as the authors indicated, a deduction for the present value of the investments. In the joint report of Dr Ferrier and Mr Hall, that is said to be a total of $166,573.

1. I have previously noted that Dr Ferrier assigned a value to the almond investments whereas Mr Hall did not. It appears that Dr Ferrier was uncertain as to whether Mr Tomasetti and the TSF had exited those investments, but Mr Hall had sighted documents which indicated that they had. Mr Faulkner referred to such documents in the course of his submissions (T1211-1212). I am satisfied that neither Mr Tomasetti nor the TSF have any current interest in the almond investments, so the nil value suggested by Mr Hall should be accepted.

1. The Gunns Winegrape 2005 project has an agreed valuation of zero. Apparently the project is continuing, but there is uncertainty about what income it will produce. For this reason, Dr Ferrier and Mr Hall were not prepared to put a figure on it. Counsel for the defendants in written submissions (DWS at [224]) suggested that this should not prevent the Court from making some allowance for this project, even if by selecting a "broad brush figure".

1. Dr Ferrier and Mr Hall discussed this project (Dr Ferrier's report at p. 14 and Mr Hall's report of 18 October 2010 at p. 7). The assets had been sold to Brown Brothers who had entered into a grape supply agreement to purchase the produce. Mr Hall indicated that further information might be expected when the Brown Brothers 2010 annual report was published in November 2010. Dr Ferrier indicated that "it seems at least possible that the investment will be capable of generating a positive cash flow in the future". Given the time that has elapsed since the reports were written, if an award of damages was to be made, it would be appropriate to defer a final assessment of quantum until more current information was to hand.

Conclusion as to quantum

1. If the plaintiffs had been successful, damages would have been awarded on the basis of the figures in the joint report of Dr Ferrier and Mr Williams, with a deduction of the present value of the investments and subject to more current information concerning whether the Gunns Winegrape 2005 investment had any value.

Contributory negligence and apportionment

1. The parties made submissions on the subject of contributory negligence and apportionment (PWS at [77] - [78]; T1136; 1390-1391; 1405-1406; DWS [254] - [267]; T1357; 1381; 1409-1410).

1. I have sought to express conclusions on other issues raised in the proceedings where possible. However, whilst I have considered the submissions made on the present topic, expressing conclusions about them is problematic. Determining the issue as to whether there has been contributory negligence and, if so, the degree to which it has been established, depends upon the nature of the facts found in finding a plaintiff's claim proved. Views could be expressed upon a basis that the entirety of the plaintiffs' case was accepted. However, in the circumstances of this case, that appears to be an unlikely outcome even if a different and more favourable view was taken of the plaintiffs' evidence than the view I have taken.

1. In relation to proportionate responsibility of concurrent wrongdoers under s 35 Civil Liability Act 2002, the defendants' submission was that the fourth defendant should bear "the lion's share" of responsibility for any other defendants' involvement" (DWS at [267]). The plaintiffs' submission was that the provisions in Part 4 did not apply to the fourth defendant, but if they did, they only apply to the 2005 investments and it was Mr Brailey who was the sole cause of Ms Cordony's loss (T1405-1406). A significant matter in determining these issues would be whether the apportionable claim is one in contract, tort or under the Fair Trading Act . Different views are available depending upon the type of claim involved. Given the range of possibilities, it is not practical to express views in the abstract

1. It is appropriate, however, to state some very broad conclusions. I am satisfied that even if the proceedings were determined in the plaintiffs' favour, there would be a very real question as to the negligence of the plaintiffs, particularly Mr Tomasetti.

1. Mr Tomasetti's negligence was manifest. He is an intelligent man with significant experience in commercial and financial matters; yet he was reckless to an extreme degree. His claim to have made substantial financial commitments by signing documents with a mental blindfold on is astounding. On his own version, his conduct amounted to an almost complete abrogation of any prudent care for his own financial affairs.

1. The conclusion is inescapable that if Mr Tomasetti's version is accepted in its entirety, he was as negligent as Mr Brailey is alleged to have been. If he had exercised anywhere near the level of care that a reasonable person would have exercised in the circumstances, he would not have found himself in the unfortunate position that he has found himself to be in. He has been, to a very large extent, the author of his own misfortune.

1. Ms Cordony's level of negligence was less than that of her husband. She was far less experienced with concepts of investments and gearing. She was not driven by tax minimisation beyond the level of the average person who would prefer not to have to pay tax unnecessarily. She admitted, however, that she was aware from her handling of her husband's investment affairs that the investments were risky. She was aware that these types of schemes involved considerable ongoing costs and that further borrowings were necessary. Despite this, she signed up for the investments without reading anything about them (that she could recall) and without any discussion with her husband (that she could recall).

1. A further observation should be made concerning the submission that in the event that the plaintiffs' case succeeded, the fourth defendant should bear the "lion's share" of responsibility as compared with Mr Brailey. Reference was made to the judgment of Barrett J in Reinhold v New South Wales Lotteries Corporation (No 2) [2008] NSWSC 187 at [60] - [61] and the considerations to which his Honour there referred as being relevant to contributions among tortfeasors. Emphasis was placed on the third consideration; the extent to which they gained from a plaintiff's loss. It was submitted that the fourth defendant received the commissions for the plaintiffs' investments and that this was "a strong indicator that it should bear more liability" (DWS at [264]).

1. The first and second considerations mentioned by Barrett J were not addressed, but they are important as well. The degree of departure from the standard of care of the reasonable man, and the relative importance of the acts of the two wrongdoers, are matters that favour a finding more against Mr Brailey than the company he represented. Mr Brailey was, in effect, BFL Financial Planning Pty Ltd. It, relevantly, did nothing independently of what he did.

1. Reference was also made to Amcus Pty Ltd v Hurst Rentals Pty Ltd [2009] NSWSC 1016 and the considerations discussed by Slattery J at [67] - [71]. Contrary to the defendants' submissions, this extract further confirms that as between Mr Brailey and the fourth defendant, the former should be the one who might have bear "the lion's share" of responsibility.

1. For the reasons given earlier, aside from these broad conclusions I do not believe it is possible to offer anything more specific.

Costs

1. There seems no reason why costs should not follow the event. However I will reserve leave to apply to discharge or vary the order for costs if there is some reason shown for doing so.

Orders

1. Judgment and verdict for the defendants.

2. Plaintiffs to pay the defendants' costs as agreed or assessed.

3. Liberty to apply within 28 days if any alternative order as to costs is sought.

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Decision last updated: 25 November 2011