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Federal Court of Australia |
Last Updated: 11 November 1998
TRADE PRACTICES - misleading or deceptive conduct - representations - pine plantation investment scheme - tax deductible investment - representations made in "roadshow" seminar, promotional material, prospectus and financial advice - first, second and third respondents interrelated companies - whether knowingly made relevant representations - whether financial adviser acted as agent of first, second and third respondents - representations as to future - whether reasonable grounds for making of representations - whether fourth respondent directly involved in relevant representations or whether "knowingly concerned" pursuant to s 75B of the Trade Practices Act 1974 (Cth) - whether respondents jointly and severally liable for damages and loss to applicant - whether contracts void ab initio.
REAL PROPERTY - validity of leases - whether necessary under Local Government Act 1919 (NSW) to seek council approval for subdivision of land - whether three leases for consecutive four year terms constitute one dealing - whether leases void or voidable - whether rent paid under mistake.
PRACTICE AND PROCEDURE - application to discontinue Cross-Claim by fourth respondent - whether basis for Cross-Claim - whether to grant leave to discontinue.
Trade Practices Act 1974 (Cth) - ss 51A, 52, 73(1), 75B, 75B(1)(c), 82, 87
Corporations Law - s 1005
Local Government Act 1919 (NSW) - ss 4, 327, 331
Fair Trading Act 1987 (NSW) - ss 68, 72
Contracts Review Act 1980 (NSW)
Misiaris v AFC Holdings Pty Limited (1988) 15 NSWLR 231 - referred to
ANN HOPKINS -v- SEYMOUR SOFTWOODS LIMITED & Ors
NG 3039 of 1996
|
FOSTER J | |
| 19 June 1998 | |
| SYDNEY | |
| IN THE FEDERAL COURT OF AUSTRALIA | |
| NEW SOUTH WALES DISTRICT REGISTRY | NG 3039 of 1996 |
|
BETWEEN: | ANN HOPKINS
Applicant |
|
AND: | SEYMOUR SOFTWOODS LIMITED
(Controller Appointed) (ACN 007 055 889) FIRST RESPONDENT
SINTOFF PTY LIMITED (Receiver Appointed) (ACN 006 621 487) SECOND RESPONDENT
BERREMA FINANCE PTY LIMITED (Receiver Appointed) (ACN 005 982 605) THIRD RESPONDENT
EQUUSCORP PTY LIMITED (formerly called EQUUS FINANCIAL SERVICES LIMITED) (ACN 006 102 344) FOURTH RESPONDENT
EQUUSCORP PTY LIMITED (formerly called EQUUS FINANCIAL SERVICES LIMITED) (ACN 006 012 344) CROSS-CLAIMANT
ANN HOPKINS CROSS-RESPONDENT |
|
JUDGE: | FOSTER J |
| DATE OF ORDER: | 19 June 1998 |
| WHERE MADE: | SYDNEY |
THE COURT DECLARES THAT:
1. The applicant is not liable to pay principal or interest pursuant to the loan agreement as defined in the statement of claim.
2. The applicant is not liable to pay any rent pursuant to any of the leases as defined in the statement of claim.
3. The applicant is entitled to restitution of moneys paid by her to the second respondent under the leases and to the third respondent under the loan agreement.
4. The leases as defined in the statement of claim are invalid and unenforceable.
5. The first, second third and fourth respondents are jointly and severally liable in respect of damages and losses caused to the applicant by contraventions of the Trade Practices Act 1974 (Cth).
6. The works and services contract, the management contract, the leases and the loan agreement as defined in the statement of claim are void ab initio.
THE COURT ORDERS THAT:
1. The respondents jointly and severally pay to the applicant the sum of $118,211.63.
2. The respondents pay the applicant's costs of and incidental to the proceedings.
3. The cross-claim of the fourth respondent be dismissed with costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
|
IN THE FEDERAL COURT OF AUSTRALIA | |
| NEW SOUTH WALES DISTRICT REGISTRY | NG 3039 of 1996 |
|
BETWEEN: | ANN HOPKINS
Applicant |
|
AND: | SEYMOUR SOFTWOODS LIMITED
(Controller Appointed) (ACN 007 055 889) FIRST RESPONDENT
SINTOFF PTY LIMITED (Receiver Appointed) (ACN 006 621 487) SECOND RESPONDENT
BERREMA FINANCE PTY LIMITED (Receiver Appointed) (ACN 005 982 605) THIRD RESPONDENT
EQUUSCORP PTY LIMITED (formerly called EQUUS FINANCIAL SERVICES LIMITED) (ACN 006 102 344) FOURTH RESPONDENT
EQUUSCORP PTY LIMITED (formerly called EQUUS FINANCIAL SERVICES LIMITED) (ACN 006 012 344) CROSS-CLAIMANT
ANN HOPKINS CROSS-RESPONDENT |
|
JUDGE: | FOSTER J |
| DATE: | 19 June 1998 |
| PLACE: | SYDNEY |
In these proceedings the applicant ("Dr Hopkins") sues the respondents claiming damages and other relief arising from her involvement, at the end of the 1991 financial year, in a pine plantation scheme promoted by the first respondent ("Seymour") with participation from the other respondents. The scheme was known as the "Seymour Softwoods No 3 Trust" ("the No 3 Trust"). It was constituted by a Deed of Trust dated 17 May 1991 between Seymour and National Mutual Trustee Limited ("NMT"). Under the terms of the Trust Deed Seymour was appointed as contractor and was to promote the investment in a particular pine plantation known as "Black Andrew". It was to offer interests in the plantation to the public and was to operate as the manager of the plantation. It had the specific roles of establishing the plantation and thereafter maintaining it. Each individual member of the public who participated in the plantation scheme entered into a separate works and services contract with Seymour, pursuant to which the particular areas of plantation allotted to him or her was established through clearing and planting operations which were to be undertaken and completed within a period of thirteen months from 30 June 1991; the same person would also enter into a maintenance contract with Seymour under which the plantation portion so established was to be maintained into the future whilst the pine trees grew to the stage at which they could be commercially harvested. The members of the public who entered into these contracts were referred to in terms of the scheme as "Growers".
The second respondent ("Sintoff") was the company which, in terms of the overall project, was to own the whole of the Black Andrew plantation. Individual growers acquired their plantation portions by way of obtaining a lease of particular areas from Sintoff. These leases were for a period of four years at an annual rental. The areas leased to individual growers were not part of a council approved subdivision, a matter which will be referred to hereafter.
The third and fourth respondents ("Berrema") and ("Equus") were finance companies. Equus had provided finance to growers in respect of earlier Trusts promoted by Seymour in respect of other plantation areas. As will appear, it was intended to provide finance to growers such as Dr Hopkins at the close of the 1991 financial year. In the circumstances to be referred to later, it did not do so. Its place was taken by Berrema, a company closely associated with both Seymour and Sintoff. Under the terms of the Trust Deed, the moneys provided by the financier were to be paid to NMT to be held by it as Trustee and disbursed, in accordance with the Trust Deed, at appropriate times relating to the completion of aspects of the work in relation to the plantation. In the case of Dr Hopkins and, no doubt, other growers in a like situation who entered the scheme at the close of the 1991 financial year, no payments were made to NMT.
As a result of the interrelation between the first three respondents through shareholdings in those companies and other associated companies, the details of which are not in dispute and which need not be set out here, each of Seymour, Sintoff and Berrema had common directors and shareholders and were jointly owned and controlled by persons Allen Lawry, Carl Smith and Colleen Gilmour. The scheme was intended to be tax-effective, in that growers entering the scheme before the end of the 1991 financial year could expect to receive tax benefits in that year by way of allowable deductions in respect of payments made by them or on their behalf by the scheme's financier, for rent in respect of the leases from Sintoff, and for amounts paid to Seymour on their behalf under the works and services contract.
Dr Hopkins entered the scheme as a grower on 28 June 1991 in circumstances which will be referred to below. However, things did not proceed as intended with the result that she seeks in these proceedings to be relieved, by appropriate declaratory orders, from her liability under a loan agreement with Berrema and from rental obligations under leases with Sintoff. She also claims the restitution of amounts paid by her to Berrema and Sintoff since entering into the scheme, with appropriate awards of interest. She also claims, as damages, an amount of money which she asserts she will have to pay to the Commissioner of Taxation as a result of failure on the part of the promoters of the scheme to ensure that a deduction claimed by her for the 1991 income year was properly available. The claims are made under the general law, the Trade Practices Act 1974 (Cth) ("the TP Act"), the Fair Trading Act 1987 (NSW) ("the Fair Trading Act") and the Corporations Law. I shall refer to the nature and detail of these claims later in these reasons.
The applicant's case has been presented by way of affidavit evidence with some supplementary oral testimony. In addition a large number of documents have been tendered, the majority of which are discovered documents of the respondents. I have been asked to draw inferences from these documents to which I shall make reference later. Also, reliance is placed upon admissions arising from the pleadings and from answers to notices to admit facts.
Expert evidence was also provided in the areas of forestry and accountancy relating to, in general terms, the viability of the plantation project from the forestry perspective and also the accounting and financial perspective. This will be referred to later but its thrust was to the effect that the scheme, as promoted in the circumstances existing in June 1991, had no reasonable prospects of success. No countervailing evidence was called on behalf of the respondents. Expert accountancy evidence was also called as to the size of the potential refund and penalty payable to the Commissioner of Taxation by the applicant. This evidence was not contested.
I do not propose, in these reasons, to refer in any detail to the documentary evidence. The various documents relied upon have been referred to at length in written submissions to which reference may always be made. Except on one short and relatively minor point, no evidence was called on behalf of the respondents, a matter which, of course, was relied upon by counsel for the applicant in the usual way. I shall now turn to a consideration of the evidence and to findings of fact.
EVIDENCE AND FINDINGS
Dr Hopkins was a palpably honest witness whose evidence, affidavit and oral, I accept. I am satisfied that towards the end of 1991, as a result of her domestic and economic circumstances, her finances were in some disarray. She was in need of some professional assistance as her outgoings were exceeding her income. I am satisfied that, although she was in practise as a medical pathologist, she was fairly naive in financial and business matters. She lived in the suburb of Stirling, Adelaide, in a home which was under mortgage to the National Australia Bank in a substantial amount. She owed that Bank approximately $40,000 on overdraft and was indebted in approximately $10,000 on credit cards. She had no investments in shares or other securities and had no experience in such investments.
About three or four days before 25 June 1991 she observed an advertisement in the Saturday edition of the "Adelaide Advertiser". The advertisement referred to a Mr David Koo of "Greater Western Financial Services Company Pty Limited" and to a seminar that was to be held at their offices on that date. The advertisement referred to the provision of assistance in relation to financial worries. I am satisfied that the advertisement also referred to the provision of tax advantages. The respondents have tendered what would appear to be copies of the advertisements. The applicant had no copies of her own. However, I consider that little or nothing turns upon the content of the advertisement. The applicant decided to attend the seminar which was held at approximately 7.00pm at the office of Mr Koo's firm. She attended with a friend, Mr Whitford. She gives an account of the seminar which I accept. It was held in a large room and was attended by 20 or 30 people, lasting over an hour. At the front of the presentation room there was a video screen. At the back of the room was a table containing folders marked "Seymour Softwoods". These folders contained documents which Dr Hopkins took with her from the presentation and which form part of the exhibits in this case. In the presentation area near the video screen there were three or four people together with Mr David Koo. Mr Koo introduced himself and introduced the other persons mentioning their name and position. She remembers persons from Seymour being introduced and being described as having had extensive experience and background in forestry and "a proven track record in pine forest management". They were "experts in this area". She remembers a Mr Gilmour being introduced as a former South Australian politician together with his wife Colleen. They were described as having been engaged in pine forest management for a number of years. She remembers that there was discussion at the seminar about Equus but she has no specific recollection of anyone being introduced to the meeting as a member of that organisation. Having regard to the passage of time, I do not regard this fact as indicating that there was no representative of Equus present, although, of course, she cannot, by her evidence alone, establish that there was. There was a video presentation with an accompanying narrative dealing with the need for people to provide for their own future. The video showed "pictures of hills covered with fully grown pine trees". The value of investing in hectares of pine trees was emphasised.
The applicant recollects that after the video presentation each of the persons in the presentation area spoke about aspects of pine forest management and Seymour. She cannot recall exactly what each person said but statements were made to the effect that Seymour had a contract with a Government processing mill at Mt Gambier "giving us a guaranteed outlet for the harvesting of trees" that pine trees of a specially genetically cloned variety would be planted and ready for harvesting in eight to ten years, with the planting of up to 2,000 trees per hectare; that the plantation would be managed with a view to maximising growth and returns with windbreaks, weeding and regular use of fertilisers, and that planting would be occurring within a relatively short period.
There was also discussion about finance. Statements relating to Equus were made to the meeting. It was said by one of the speakers that Equus supported the investment and that all costs could be financed by that organisation through the provision of immediate finance on an unsecured basis with no up-front costs.
David Koo discussed the tax implications of the investment, illustrating this aspect of the presentation by use of charts and overhead projections. He referred to the investment being "100% tax deductible" he also said "immediate finance is available to take advantage of these tax deductions in this year". He also stressed that investors could expect good returns in eight to ten years and would be able to take immediate advantage of the tax benefits. It is clear that some stress was laid upon the fact that Equus was able to provide financial assistance to investors by way of loans. The applicant took with her, among the documents in the folder of documents marked "Seymour Softwoods", one which was headed "Equus Financial Services Limited". It was clearly a promotional document for that organisation. It contained similar information to that which had been provided orally. It also stressed the experience of Equus in financing forestry projects and its knowledge of and interests in such projects. I am satisfied that the immediate availability of finance from Equus and its support of the plantation scheme was a definite theme at the seminar.
At the conclusion of the seminar Dr Hopkins approached Mr Koo, told him that she needed help in the sorting out of her financial affairs and agreed that she would telephone and make an appointment to see him in his office before the end of the financial year.
Dr Hopkins saw Mr Koo at his office, by appointment, on 28 June 1991. They discussed her current financial difficulties. Mr Koo asked her how much tax she had paid in her employment that year. She told him that it was about $40,000. Mr Koo then handed her the prospectus relating to the No 3 Trust, which had been the subject of discussion at the seminar. He then said words to the following effect:-
"I can get you out of trouble. What we have to do however is to get you into these pine trees. As we discussed the other night, this will give you a tax refund. You should be able to get back immediately most of your tax which you can use to pay off your debts and we can do other things later to help.'
He then produced the form of application for the Trust which included the works and services contract, the management contract and leases. He said that "We will need to get these in today because its [sic] the last working day before the financial year. You will need to sign these now to get the tax deduction".
She decided to make the investment. She signed the documents. Mr Koo advised her that finance would be organised for the investment and that she would not have to pay the application moneys or the first lease payments up-front, that this would be covered by the finance. She understood that the financier would be Equus. This was the financier that had been mentioned at the seminar and Mr Koo did not mention any other at his office. The documents are exhibits in the case. There is no need to refer to the detail of them. It is evident that she left it to Mr Koo to fill in the relevant parts for her on the understanding that he would complete the business for her and thus entitle her to the tax deduction. I am satisfied that she had been made aware in general terms that NMT had a trustee role in the investment. In her affidavit she states that as a result of what she was told at the seminar and by Mr Koo on 28 June 1991 that she had certain understandings and beliefs. She was not cross-examined as to these matters and I accept that they constitute a reasonable portrayal of her state of mind and expectations at the time that she completed her application to join the No 3 Trust. They are as follows:-
"a) by completing the Application Form I was committing to make an investment in a pine plantation and would be allocated certain defined allotments in a pine plantation at Black Andrew which were the subject of leases and would be my allotments of land for my pine plantation (`my pine plantation');
b) my pine plantation would be managed by Seymour in accordance with the statements made at the Seminar and as was set out in the documents. This would involve Seymour using its expertise to ensure that my pine plantation made returns in 8 - 10 years;
c) planting would start almost immediately on my pine plantation on receipt of the Application;
d) the investment would be for a period of 8 to 10 years with returns being made during and after that time;
e) immediately upon making the application I would be entitled to claim a tax deduction which would result in a substantial refund of the $40,000 tax I had paid to date in the 1991 financial year;
f) finance would be organised by Seymour with Equus to meet the costs of the investment. There would be no upfront cost to me;
g) the monies to be paid for the investment would be met by a loan to be advanced to me and the monies paid directly to National Mutual Trustees to be invested in it;
h) the investment in my pine plantation would be a secure investment supervised by National Mutual with high returns able to be obtained after approximately 8 - 10 years time;
i) the investment was one approved and endorsed by the Federal Government which authorised the tax deductions;
j) the tax refund would be immediately available to me from this investment for the financial year ended 30 June 1991;
k) Seymour would be conducting high level agricultural programs on my pine plantation and would plant pine trees grown from genetically cloned seeds to ensure maximum growth and high return in a 8 to 10 year period;
l) Seymour had a contract with a Government processing plant and saw mill to process timber which would be grown on my pine plantation;
m) Seymour was experienced in forest and pine plantation management and was committed to undertake the management of the pine plantation to maximise returns over 8 to 10 years as per the statements made at the Seminar."
I should add that in cross-examination it was suggested to her that her major motivation in joining the scheme was to obtain the tax deduction. She accepted that this was a significant matter but that it was by no means the whole inducement. The eight to ten year period was also of significance to her as, having regard to her age, a substantial return on her investment, of the size referred to in the promotional literature, occurring at eight to ten years into the future, would provide her with significant financial assistance in her retirement. This aspect had been stressed at the seminar. I am also satisfied that, although there was some discussion in the material in the folder and also in the prospectus, which she did not read before making the application, to the effect that there were risks which could militate against the achievement of substantial returns in eight to ten years. These risks were not mentioned in the presentation at the seminar nor by Mr Koo at the office. On the contrary, Dr Hopkins and the other potential "Growers" were encouraged to believe that the returns would be achieved because of the use of the genetically cloned seeds and the availability of a contract with a government processing plant and sawmill. The promotional material referred to a potential market for pine logs from young trees and also the possibility of timber from such trees being used in the manufacture of a particular product called "Scrimber", a new and significant building material. I am satisfied that no mention was made of these potentials for gain being nothing more than entirely speculative.
It is appropriate, also, to indicate, at this point, that I am satisfied that Mr Koo, both in the seminar presentation and in his subsequent dealings with Dr Hopkins, was acting as an agent for at least Seymour, Sintoff and Berrema. These companies had, as previously indicated, a common directorship. It is clear that the Gilmours were present at the seminar. Accordingly, the companies of which they were directors may be taken to have approved and authorised what Mr Koo was saying on their behalf at that time. Moreover, documentary evidence in the case, which it is unnecessary to refer to in detail, clearly establishes that Mr Koo was acting as a commission agent in respect of the No 3 Trust and, indeed, in respect of earlier Trusts. This fact was never disclosed to Dr Hopkins who has, in fact, taken other and independent proceedings against Mr Koo. I am quite satisfied that the first, second and third respondents, as part of their marketing strategy, used accountants such as Mr Koo to promote the plantation Trusts and to obtain "Growers" to participate in them. In so doing, they must be held responsible, on ordinary agency principles, for what such agents did within the scope of their authority. Indeed, the contrary has not been submitted.
It is obvious that Dr Hopkins was in a position of having to act swiftly in order to obtain the immediate tax advantage before the end of the financial year. Indeed, it is to be noted that the Trust itself was set up in May 1991 and the seminar was held within five days of the close of the financial year. In such circumstances, the promotion was taking place in a timeframe which would operate to prevent the making of careful inquiries by potential investors. In such circumstances, in my view, Mr Koo and the directors of the first, second and third respondent companies would have been well aware that references to risks in relation to the investment to be found in the promotional material and in the prospectus would tend to be overlooked by growers in the general atmosphere of enthusiastic optimism created by the verbal representations made at the seminar and afterwards.
Dr Hopkins is not able to recall now whether she signed the application for a loan when she met with Mr Koo on 28 June 1991. I am satisfied that she understood and, indeed, expected that all payments which would be necessary to set her application in motion and to obtain the relevant tax deduction would be made by a finance company. I am also satisfied that she expected that the fourth respondent, Equus, would be this finance company. However, she signed a document headed "Berrema Finance Pty Limited Finance Application" in the office of Mr Koo. The document is undated but it refers to an asset and liability statement, part of an application for finance, which is dated 28 June 1991. She does not now recall signing such a document but the probabilities are that it was signed as one of the number of documents that she signed on that day in Mr Koo's office at his direction. I am satisfied, however, that there was no discussion about her obtaining finance from the third respondent, nor that that company was associated with Seymour and Sintoff. Indeed, it had been a feature of the representations made to her previously about the obtaining of finance that it would not be provided by any organisation associated with Seymour. She did not become aware of her application having been made to Berrema until so advised by her solicitor in 1995.
The situation in regard to the loan is curious. It is quite clear that, having regard to Dr Hopkins' financial situation, the provision of 100 per cent up-front finance was a critical inducing factor. The initial payments for rent of the lease areas upon which her seedling pines were to be planted and the establishment costs to be paid to Seymour under the works and services contract necessarily had to be made from borrowed funds. The amounts so paid were to be the basis of the claim for refund of tax paid in the 1991 financial year. I am also satisfied that the representation that the loan would be "unsecured" was also most significant to her; her home was encumbered with a first mortgage and she would not have been interested in providing it as further security. Her financial position was such that no other security could have been offered. If it had been required she would not have entered into the proposed loan or, indeed, the entire scheme.
The subsequent history of loan applications does not make the situation any clearer. It appears that Dr Hopkins, after the meeting of 28 June 1991, engaged Mr Koo as her accountant, in particular for the preparation of her 1991 tax return. She attended at his office in early August 1991 for the purpose of signing that document. She was told on that occasion by Mr Koo that Equus was not now able to finance the loan and that finance would be organised through the National Australia Bank. She believes that she signed an application form for finance from that Bank on that occasion but has not been able to obtain a copy of it. Later that year she received a telephone call from Mr Koo's secretary, it was some time prior to December 1991. She was informed that the National Australia Bank was not going to provide the loan but that it would be obtained from Equus. She was to be sent an Equus form for signature and return. In the discovered documents such a form appears. It is signed by her. However, it is clear that no loan was ever obtained from Equus. It appears, however, from discovered documents that Dr Hopkins in fact entered into a loan agreement with Berrema and signed an authority for the deducting of moneys from her bank account for the periodical payment of interest to that company.
Such interest was, in fact, regularly paid by deduction. A total amount of $37,355.51 was paid by Dr Hopkins over the years. A portion of this sum, $18,202, was received, as is admitted, by Equus. The balance was received by Berrema. In addition, as is admitted, no loan was made by Berrema to Dr Hopkins. Indeed, no moneys were provided to the Trustee for expenditure on any pine plantation on the areas the subject of her leases from Sintoff within the period of thirteen months necessary for qualification for the expected tax deduction. It appears that some work was later done on those areas of a substandard kind to which reference will be made later.
Dr Hopkins has no recollection of having any discussions with representatives from Berrema or Seymour in relation to any loan agreement with Berrema. That agreement provided for Berrema taking a charge over her home and also for the repayment of the capital sum in five years. She would not have countenanced the former and had no ability to comply with the latter. She says, and I accept it, that had she known she was entering into a loan agreement with these terms she would not have gone ahead. Nor would she have proceeded had she been made aware that, contrary to representations made at the seminar, any moneys to be advanced to her would not be paid to the Trustee.
Mr Koo gave no evidence in the proceedings. I shall refer later to circumstances which show that, shortly before June 1991, Equus had indicated to Seymour that it would not be able to provide loans on the previous unsecured interest only basis. It is reasonable to assume that Mr Koo, as a commission agent and promoter in relation to the Seymour Trust Scheme, would have been advised of this. In the circumstances, I consider that the most likely situation was that Mr Koo obtained Dr Hopkins' signature to the Berrema application form on 28 June 1991 at the same time as he obtained her signed statement of assets and liabilities and that he did so on the basis that it might prove necessary to have recourse to Berrema as the relevant finance company, in circumstances where Equus finance would not be available. He did not disclose this to her in the same way that he did not disclose to her he was a commission agent for Seymour rather than a financial adviser to her.
I accept that Dr Hopkins believed, between June 1991 and 1995, that trees had been planted on the areas leased to her in the Black Andrew plantation. She continued to pay rent in respect of those leases to Sintoff and interest was regularly deducted from her bank account in respect of the "loan" from Berrema despite the fact that this loan had not been made to her. She believed that the areas had been planted and managed as represented to her at the seminar and as appeared from the prospectus which she had been given in August 1991. It is clear that she found to her surprise, some time in late 1992 or early 1993, that Berrema was in receivership. She was, apparently, advised by an officer of the receiver that Equus had taken over the loan. She could not obtain any information as to this. However, she had discussions with Mr Koo or his partner and was advised not to worry about the matter, that everything was "okay" with the plantation and that the investment was proceeding as planned. In 1995, after receiving some correspondence from NMT, she sought advice from her solicitor and was informed that the No 3 Trust had in fact been wound up by order of the Supreme Court of Victoria on 20 October 1995. It is clear that she had received no benefit from the investment. She had claimed a tax deduction in 1991 to which, in the circumstances, she was not entitled. She had paid out money by way of interest and rental. She is a party to a loan agreement with Berrema which had been assigned to Equus and in respect of which, until the hearing of these proceedings, Equus was making claims against her.
Expert evidence was called on behalf of the applicant. The evidence of Christopher John Borough, a forestry industry consultant, although voluminous and adverse to the respondents, was not the subject of any countervailing evidence, nor even of cross-examination. In these circumstances, I have no difficulty in accepting Mr Borough's conclusions, and find no need in these reasons to refer to the material upon which they were based. Mr Borough visited the Black Andrew plantation in January 1995 and also in July 1997. He was asked to provide opinions as to: (a) whether the forecast of returns from the forestry investment in a period of eight to twelve years could reasonably have been made in May or June 1991; (b) whether Seymour had performed the work it contracted to perform under the works and services contract and the management contract with Dr Hopkins in the areas allocated to her and identified on maps provided to him; and (c) generally, as to the nature of the forestry investment.
As to (a), Mr Borough had regard to the promotional material which had been provided to Dr Hopkins and also portions of the prospectus relating to the same matters. The documents indicated to him that the investment was promoted as "short term with projected returns between 8-12 years" with a main feature being "Quick grow pine poles with income from 8-12 years" and "3-5 times your investment in 12 years". He also considered the assertion made in a document entitled "Overview" which had been provided with the material in the folder at the seminar which stated "The investor could reasonably expect a minimum 200% return on investment over an 8 year period (taking into account that Seymour Softwoods plant 2000 stems per hectare...)". His opinion, which was unchallenged, was that this "statement of returns had no basis in fact and could not have been reasonably made having regard to what was known in the industry at that time". Nor was it supported by the material set out in the document itself. In fact, on calculations made by Mr Borough, to which it is unnecessary to refer as they were totally unchallenged, Mr Borough expressed the view that "it can be shown that the most likely outcome from the investment is in fact a negative return". I accept that this was so and I also accept that those promoting the scheme should also have been of this view.
Insofar as a more optimistic forecast was included in the prospectus and in the promotional documents provided in the folder at the seminar, Mr Borough commented adversely upon the assumptions upon which the forecast was based. He noticed that the marketing strategy necessary to achieve the projected returns from the harvesting of the eight to ten year old pine poles, which was fundamental to the commercial outcome of the No 3 Trust, required the establishment of a treatment plant which was to be wholly or partially owned by a subsidiary of Seymour together with a special contract for the purchasing of poles at $40 per tonne. This purchase price would be approximately $25 per tonne higher than the current market royalties relating to poles and posts. In his view such an assumption could not be justified. The treatment plant, even if purchased, could not operate commercially on such a basis. Moreover, the report was silent as to the anticipated acquisition of the treatment plant and its intended location. Having regard to the likely location of such a treatment plant, which would have to service other plantations of Seymour, the transport costs would be significant. On the basis of these costs and other factors which are referred to in his report, he came to the conclusion that the assumptions upon which the optimistic forecast was based were not valid. He stated his opinion that "on the information available as at 1991 the prospects of obtaining any positive return from the pine plantation investment in a period of 8 to 12 years were nothing more than negligible". He further expressed the view that, insofar as the statements in the promotional material forecast positive returns, they were, in his opinion, "grossly exaggerated and therefore misleading".
Mr Borough made comments on other matters which had appeared in the promotion material, matters which, I am satisfied, played a part in creating in Dr Hopkins' mind a favourable impression of the investment. He referred to the suggested use of young pine poles in the production of the product known as "Scrimber". This was mentioned orally at the seminar and was also discussed in a document included in the folder, being a report from a financial newspaper, and also in a document headed "Overview", mentioned previously, in which some encouraging remarks were made as to the use of trees as young as eight years in the production of that product. Mr Borough dealt with this aspect of the promotion as follows:-
"I note from the documents there is a reference to the processing of timber by Scrimber International (`Scrimber'), being a joint venture with the CSIRO and South Australian Government which utilises pine trees as young as 8 years to reconstitute them into beams of strength competitive to oregon, steel or concrete. It is suggested therefore, at least by implication, that this process will increase the price for young trees. In my opinion it would not have been justified to make this conclusion. In 1991 there was only one `Scrimber' plant in Australia being at Mt Gambier which was still in an evaluation phase. To my knowledge in 1991 there was no intention or expectation that there be further plants constructed in Australia within the short term. Even if a `Scrimber' plant at Mt Gambier was to move into full production and there were to be other plants constructed there could, in my opinion, have been no reason to suggest that the plantation at Black Andrew would have been able to take advantage of those plants and there was, to my knowledge, nothing to suggest that the Scrimber process would have led to an increased price for 8 - 10 year old trees."
Mr Borough also observed that "under no circumstances could it have been economically feasible for the operators of the Black Andrew plantation to have been able to haul timber to the Scrimber plant at Mt Gambier".
Under the heading "Viability of the Project", Mr Borough made the following comments:-
"I note that under the Management Contract the work that was required to be done after the first 13 months of the establishment of the plantation included cultivating, tending, culling, pruning, fertilising, spraying, maintaining, thinning and clearfelling and general caring for the pine plantation. This work was to be funded by a payment of a management fee equivalent to 10% of the net proceeds from the sale of thinnings and clearfelling. It is my opinion, even if one is to assume the returns as forecast by Mr Sedger, that there would have not been sufficient income from the thinnings and clearfellings from the trees over a 10 - 12 year period to provide a sufficient management fee to cover the costs of the work required. In my experience having regard to the regime Seymour proposed for the care and maintenance of the plantation to obtain a maximum return in 8 - 12 years, this would have involved costs per hectare of $700 to $1,000. There is, in my opinion, no possible way those costs could have been met from the returns obtained from the commission on the sale of thinnings of what I presume were to be Christmas trees and from clearfall. In my opinion the whole scheme as promoted to growers in the Prospectus was flawed from the outset and was not commercially viable."
Mr Borough also reported the results of the inspection that he made in July 1997 of the areas which had been allocated to Dr Hopkins. It appears that, for reasons not explained, there had been an original allocation of allotments under leases to Dr Hopkins and also of other allotments "reallocated" to her. The first allotments leased from Sintoff in the Black Andrew plantation were Nos 625, 626, 627, 628, 657, 658 and half of 659 ("Site 1"). The re-allocated allotments were Nos 380, 381, 382, 408, 409, 410 and half of 411 ("Site 2"). His inspection, and reference to aerial photographs, indicated that no planting had occurred in Site 1 prior to the winter of 1993 and in Site 2 prior to the winter of 1992. The plantings in Site 1 appeared to be around 1,430 stems per hectare, whilst in Site 2 it was around 600 stems per hectare, there being no evidence of the planting of 2,000 trees per hectare as represented in the promotional material. There had been no ongoing area maintenance on the sites after the planting. On Site 1 none of the work under the works and services contract had been undertaken in the thirteen month period from 28 June 1991. On Site 2 at best only a part of that work had been performed within the required thirteen month period. Mr Borough expressed the view that "the services which were required to be performed under the Management Contract do not appear to have been performed at all".
As I have indicated, no challenge was made to this evidence which I, accordingly, accept.
Evidence was also given by Mr Robin Geoffrey Humphreys, a chartered accountant, who made a detailed analysis of the financial structure of the first, second and third respondents and various associated companies. His analysis indicated that there was not available to the respondents, either from their own resources or from the resources of the associated organisations, any sufficient amount of money to enable the setting up of a wholly owned treatment plant which could process the young pine trees, the harvesting of which was contemplated as providing commercial viability to the No 3 Trust. This aspect of Mr Humphreys' evidence was not challenged and I accept it. Other expert evidence called on behalf of the applicant related to the issue of damages. I shall refer to that evidence later.
I turn, now, to the cases which are sought to be made in these proceedings against the respondents. It is convenient to consider the case against the first three respondents separately from the case brought against Equus.
THE CASE AGAINST THE FIRST, SECOND AND THIRD RESPONDENTS
These companies, as I have already indicated, were interrelated, with common directorships. I am satisfied that each company relevantly shared in knowledge related to the commercial viability of the Black Andrew plantation scheme. Also, I am satisfied that each company, through the presence of at least Colleen Gilmour at the seminar, must be taken to have joined in the representations made by Mr Koo on that occasion. Also, as each company was a participant in the plantation scheme, Mr Koo, in promoting the scheme on the basis of the payment to him of commission, was acting as agent for each of them.
The first four claims made in the applicant's further amended application are as follows:-
"1. A declaration that, in the circumstances as they have occurred, the Applicant is not liable to pay principal or interest pursuant to the Loan Agreement (as defined in the Statement of Claim).
2. A declaration that, in the circumstances as they have occurred, the Applicant is not liable to pay rent pursuant to any of the Leases (as defined in the Statement of Claim).
3. A declaration that the Applicant is entitled to restitution of moneys paid by her to the Third Respondent (`Berrema') and the Second Respondent (`Sintoff') under the Loan Agreement and the Leases.
4. A declaration that the leases (as defined in the Statement of Claim) are invalid and unenforceable."
So far as the loan agreement with Berrema is concerned, it was conceded in correspondence between the parties and by way of responses to a notice to admit facts, that the amounts intended to be lent to Dr Hopkins to enable her to participate in the scheme, and make the relevant payment under the works and services contract with Seymour and the initial lease payment to Sintoff, were never in fact advanced by Berrema. Accordingly, it is not contested that the applicant is entitled to the first declaration sought. Nor is it contested that the applicant is entitled to so much of the third declaration sought as relates to the restitution of moneys paid by her to Berrema, that is the regular amounts of interest that were paid by bank order.
So far as the leases are concerned, I am satisfied that the submissions made by counsel for the applicant to the effect that they are invalid and unenforceable must be upheld. I have already referred to the allotments allegedly leased to the applicant by Sintoff. In fact, it would appear that at the time these purported leases were granted Sintoff was not, in fact, the owner of the land. It is established by documentary evidence, to which it is not necessary to refer, that Sintoff was unable to complete the purchase before the end of June 1991 and could do so only after it had obtained from the vendor an extended settlement period. However, the ground of invalidity of the leases which I find to be established arises from a failure on the part of Sintoff to comply with s 327 of the Local Government Act 1919 (NSW). That sections provides, so far as relevant, as follows:-
"(2) In a case where a subdivision does not provide for the opening of a public road, land shall not be subdivided until -
(a) an application in respect thereof, accompanied by plans, has been approved under this Act; and ...
(c) a plan of the subdivision ... has been registered in the office of the Registrar-General.
(3) Nothing in this section shall be deemed to render any agreement to sell, let, or otherwise dispose of any land illegal or void by reason merely that it is entered into before an application in respect of the subdivision has been approved by the council, but the agreement shall be deemed to be made subject to such approval being obtained."
The obligation to submit an application for subdivision is imposed by s 331 on the owner of the land. It is conceded that there has been no approval by the relevant local council for the subdivision of the area of the Black Andrew plantation; in fact, no subdivision application has been lodged, a fact referred to in the prospectus.
"Subdivision" is defined in s 4 of the Local Government Act as follows:-
"dividing land into parts, whether the dividing is -
(a) by sale conveyance transfer or partition; or
(b) by any agreement dealing or instrument inter vivos (other than a lease for a period that, including any period for which the lease could be renewed by the exercise of an option, does not exceed 5 years) rendering different parts thereof immediately available for separate occupation or disposition, ..."
There was, in the present case, a leasing to the applicant of a section of the Black Andrew plantation consisting of thirteen hectares. This leasing amounted, in my view, to a subdivision within the meaning of the section. The leasing was, however, accomplished by the immediate granting of three consecutive four year terms, the second to take effect at the expiration of the first term and the third to take effect at the expiration of the second. It was the hope of the promoters that the utilisation of three consecutive leases of four years each would overcome the need to apply for council approval of the subdivision, as each lease was for less than five years.
I am satisfied, however, that counsel for the applicant has submitted correctly that the need for council approval could not thus be circumvented. It was not possible for an applicant "Grower" such as Dr Hopkins to apply to Sintoff for less than the three consecutive leases. Sintoff did not offer to enter into one lease without the other two, nor could the purpose of the transaction have been accomplished without entry into the three leases. Furthermore, there was a contractual provision to the effect that the termination by the lessor of one of the leases would automatically terminate the subsequent leases. I am satisfied that the granting of the three consecutive leases must, relevantly, be regarded as one dealing. It was, in effect, a lease for twelve years and, consequently, required an application to the council for subdivision approval. (See Misiaris v AFC Holdings Pty Limited (1988) 15 NSWLR 231). It was necessary that approval be sought and obtained and the lease was deemed to have been made subject to such approval being obtained.
As no approval was obtained, I am satisfied that, at the least, Dr Hopkins came under no obligation to make payments of rent unless and until such approval was granted. It is not clear, in my opinion, whether the lease should be regarded as void ab initio or merely voidable. In any event, I am satisfied that Dr Hopkins, by the bringing of these proceedings, has avoided the lease and has therefore become entitled to a return of the rental payments made by her to Sintoff. Alternatively, the payments can be seen as having been made pursuant to a relevant mistake as to her obligations in circumstances where it would be unjust for Sintoff to retain them.
In the circumstances I am prepared to make the second declaration and that portion of the third declaration which relates to the leases. I would make the fourth declaration with the exception of the words "invalid and" but, as will appear later, I am ultimately prepared to make it as sought.
In addition to these declarations, the applicant seeks other relief under the general law, the TP Act, the Fair Trading Act and the Corporations Law. It is convenient to consider at this stage the claims for damages and for orders pursuant to s 87 of the TP Act (or s 72 of the Fair Trading Act). The claims are stated as follows:-
"5. Damages for breach of contract and/or pursuant to s82 of the Trade Practices Act, or alternatively s68 of the Fair Trading Act (NSW), or alternatively s1005 of the Corporations Law.
6. In the alternative to 1, 2, 3 and 4 orders pursuant to s87 of the Trade Practices Act, or alternatively s72 of the Fair Trading Act (NSW):
(a) Relieving the Applicant of any obligation to make further payments of principal or interest pursuant to the Loan Agreement (as defined in the Statement of Claim).
(b) Relieving the Applicant of any obligation to make further payments pursuant to any of the Leases (as defined in the Statement of Claim).
(c) Declaring each of the Works and Services Contract, the Management Contract, the Leases and the Loan Agreement (as defined in the Statement of Claim) void ab initio.
(d) Directing the Respondents jointly and severally to pay to the Applicant the amount of the Applicant's loss arising by reason of the Applicant's investment in the Prospectus.
(e) Directing the repayment to the Applicant of moneys paid by her to Berrema and Sintoff under the Loan Agreement and the Leases."
What the applicant seeks to recover under these claims and under other claims, to which I shall make reference later, are the following amounts of money:-
(a) interest paid, including $18,202 paid to Equus: $37,355.51;
(b) rent on leases: $7,321.70;
(c) insurance: $467.48;
(d) interest on these amounts;
(e) an amount payable to the Commissioner for Taxation (approximated as between $44,000 and $56,000).
In addition the applicant seeks to be relieved under these claims of the amount of the "loan" from Berrema together with interest thereon. This has already been achieved by virtue of the first declaration. However, relief is sought also under s 87 of the TP Act and s 72 of the Fair Trading Act. In the circumstances, I propose to consider this aspect of the applicant's claim only in relation to the TP Act.
In my view, of these amounts claimed, the only amount properly to be regarded as "damages" is the applicant's liability for income tax. The other amounts can properly be regarded as covered by claims for restitution. The income tax claim is based upon breach of contract or relevant misleading conduct under the TP Act. Put simply, the claim is based on an assertion that the first three respondents (I shall deal with Equus later), through statements made by Mr Koo and in the documents provided in the folder at the seminar and later by the prospectus, represented that Dr Hopkins, by entering into the various agreements, would achieve a tax deduction, by virtue of the payment to Seymour (or the incurring of the obligation to pay) in the 1991 year of income, of the amount payable under the works and services contract and of the rental payment to Sintoff. It is accepted that so far as the deductibility of the amount referable to the works and services contract is concerned there was an additional requirement that the works be completed within the thirteen month period from Dr Hopkins' entry into the agreement.
So far as any contractual claims are concerned, this would probably relate only to the first respondent. However, I do not need to consider this question as I am perfectly satisfied that all three respondents relevantly engaged in misleading conduct pursuant to s 52 of the TP Act. The representation was clearly made to the applicant that upon her entering into the No 3 Trust scheme by filling in the application in Mr Koo's office, she would qualify for the deduction. This was a representation as to the future with the consequence that Dr Hopkins can rely upon s 51A of the TP Act.
It thus devolves upon the respondents to establish that there were reasonable grounds for the making of the representation. They have offered no evidence in this regard. Moreover, the evidence from the applicant, to which I have already made reference, indicates quite clearly that no such reasonable grounds existed. There was, for instance, no reasonable basis for assuming that the relevant work would be performed within the thirteen month period nor, indeed, that Dr Hopkins would qualify for and receive a loan to enable her to incur the deductible expense. The result is that she has incurred a liability to the Commissioner of Taxation through the claiming of a deduction to which she was not, in the event, entitled.
Her present accountant and tax agent, David Robert Gordon, has dealt with and quantified this liability in his affidavit. He has taken into account interest at the rate of 10 per cent and allowed a range of additional tax depending upon the view the Commissioner might take of the culpability component. It is left to the Court to arrive at a figure based upon Mr Gordon's affidavit. Mr Gordon was not cross-examined and no submission has been put to me that, in the event that I find the applicant entitled to damages, those damages should not include the amount payable to the Commissioner pursuant to Mr Gordon's reasoning and calculations, being an amount between $44,000 and $56,000. Having regard to his evidence I find that figure to be $48,000, which includes interest to date.
It was argued but faintly on behalf of the respondents that Dr Hopkins should not be able to mount this claim for damages insofar as she had, by her own act, made it impossible for the deductions to be claimed in the 1991 income year. This was because she had made the application only on 28 June 1991 in circumstances where, it was submitted, there was not time for the consummation of all procedures necessary for the claiming of the deduction. This argument must be rejected. No evidence was called on behalf of the respondents to support it. Mr Koo clearly represented to her that her making the application on that day would be sufficient. Moreover, documentary evidence from NMT indicated that her application was accepted as at 30 June 1991. Accordingly, I am satisfied that if she is otherwise entitled in respect of her claim under the TP Act then this amount should be included in it.
I am so satisfied. I have already set out the representations which I found were made to the applicant and which were relevantly inducing causes for her entering into the various agreements. I am satisfied that the making of these representations amounted to misleading conduct within the meaning of the TP Act. They were representations as to future matters. No evidence has been called to indicate that there were reasonable grounds for their making. On the contrary, the evidence called on behalf of the claimant, to which I have already made reference, clearly establishes the absence of such reasonable grounds. I am satisfied that her claims under the TP Act are made out with the result that she is entitled to an award of damages pursuant to s 82 and to the other relief sought pursuant to s 87.
Accordingly, I make an award of damages in the sum of $48,000 pursuant to s 82 of the TP Act. I am also satisfied that it is appropriate to declare that the works and services contract, the management contract, the leases and the loan agreement are all void ab initio, the applicant having been induced to enter them as a result of the misleading conduct of the first, second and third respondents. I am also satisfied that those respondents should be ordered jointly and severally to pay the applicant the amount of her loss arising from her investment, including the amount of damages I have awarded. I should add that, as a result of this declaration in relation to the leases, it is appropriate that I make the fourth declaration sought as asked including the words "invalid and" which were not appropriate until the making of this order under the TP Act.
The applicant has sought orders under the Corporations Law and the Contracts Review Act 1980 (NSW) ("the Contracts Review Act"). To a large extent those sought under the Corporations Law traverse the same ground as those I have made under the TP Act. In the circumstances there is no need for me to make them and I refrain from doing so. The claims under the Contracts Review Act were not pressed. A claim under s 73(1) of the TP Act was referred to but, as I apprehend the matter, was not pressed if the circumstances were such that relief was granted, as I have done, under the other sections.
The remaining questions relate to the liability or otherwise of Equus. I turn to that question now.
IS EQUUS ALSO LIABLE TO THE APPLICANT?
Two preliminary matters may be dealt with briefly. Equus took an assignment from Berrema of the debts owing to Berrema. Pursuant to that assignment it brought a cross-claim against the applicant for amounts allegedly owing in respect of the loan agreement with Berrema. As I have found that no amounts were owing and, additionally, that the loan agreement should be declared void ab initio, there is no basis for Equus' cross-claim. Leave has been sought to discontinue it. However, in the circumstances, I can see no purpose in granting such leave. I dismiss the cross-claim with costs. Also there is an admission by Equus that it received a portion, namely $18,202, of the interest payments made by the applicant. These payments were made under a loan agreement which I have declared void ab initio. The applicant is entitled to have that amount refunded. Equus has given no evidence to suggest any entitlement to retain it. Accordingly, an appropriate order must be made that involves that this amount be refunded to the applicant by Equus.
The applicant has proceeded against Equus on the basis that it too has been guilty of misleading conduct towards her, entitling her to relief against it, jointly and severally with the other respondents. Equus has given no evidence. In those circumstances, the applicant relies upon inferences from documents in the case, mostly discovered by Equus, such inferences being, in accordance with principle, strengthened by Equus' failure to give evidence.
The applicant asserts that Equus either itself engaged directly in the relevant misleading or deceptive conduct, or pursuant to s 75B(1)(c) of the TP Act was "directly or indirectly, knowingly concerned in, or party to," the misleading conduct engaged in by the first three respondents. For ease of discussion, it is convenient to consider whether or not Equus had a role in the two main areas of misleading conduct complained of by the applicant. These are misrepresentations to the effect that (a) investment in the plantation scheme would produce significant financial returns in eight to ten years through viable commercial harvesting for sale of young pine trees and (b) Equus would lend her the full amount required to enter into the works and services contract and the first year's rental, such moneys to be a legitimate income tax deduction in the 1991 year of income and to be unsecured.
In determining whether or not Equus engaged in these contraventions, it is necessary to consider aspects of the relationship between Equus and the other respondents, as appears from documents which are exhibits in the case. These documents also give an indication of the position occupied by Equus in the pine plantation industry in the years 1989 onwards.
On 3 May 1989 Equus made a proposal in writing to Seymour in a document headed "Financing Proposal - Seymour Softwoods Pty Ltd". The latter was addressed to the attention of Mr Carl Smith who was the managing director of Seymour. It was signed by Mr Nick Russo, managing director of Equus, and also by Mr Frank D'Alessandro, its business manager. It advised that "the consumer financing for your Pine Plantation has been approved subject to the terms and conditions contained herein ...". The details of the loan facility to be offered to Seymour's clients were set out. It was stated that a formal agreement would be entered into "between the Manager and the guarantor companies and Equus Financial Services Limited that will formalise our trading, resale, and hold back arrangements. The agreement will cover all loans and other finance facilities (past, present and future) introduced to Equus Financial Services Limited for finance in your Pine Plantation irrespective of the organisation or person submitting the proposal". Under the heading of "Exclusivity" the following paragraphs appeared:-
"Seymour Softwoods Pty Ltd and its related companies shall at all times use its best endeavours to promote Equus, and will not assist in facilitating competitor finance packages. The individual client and his advisor [sic] is free to choose any lender in the market, however he shall not receive assistance in any way from you.
This requirement is necessary to ensure that Equus is able to quantify its risk by ensuring that it receives 100% (or as close thereto) of the available client population."
The contemplated "Finance Provisions Agreement" was dated 30 June 1989 and was expressed to terminate on 6 June 1990. It contained a number of provisions relating to the supply by Equus to Seymour's investors of loans to assist them to acquire a Lease and Management Agreement on a principal and interest or an interest only basis. Equus undertook the obligation of providing "all relevant stationery in relation to the provision of finance to Prospective Investors including promotional material ...". Seymour was obliged to inform any prospective investor "of the availability of finance offered by [Equus], but only by communication to the Prospective Investor of information contained in publications provided by [Equus] for this purpose". Also, Seymour was to ensure that no investor was advised "of the availability of finance from any person other than [Equus], without [Equus'] prior written consent".
On 21 February 1990, it appears from a copy of a newspaper advertisement published in "The Age" in Melbourne on 16 February 1990 that Mr D'Alessandro appeared as a principal speaker at a promotional seminar for Seymour, described as "THE PERFECT TAX SHELTER SEMINAR", held at a Melbourne address. Clearly enough, this seminar, although probably relating to an earlier plantation trust, was similar in purpose and content to the one attended by Dr Hopkins in Adelaide. In the absence of any evidence to the contrary, it is reasonable to assume that Mr D'Alessandro attended in order to be part of the team that was promoting the relevant plantation scheme and, of course, Equus' role in it.
It appears from a further discovered document that in approximately March 1990 Equus had in its possession a form of questionnaire. This document is similar in all important respects to a questionnaire that formed part of the material provided in the folder to Dr Hopkins at the Adelaide seminar. It has the appearance of being a draft of the document provided to members of the public at seminars. It is undated but contains in handwriting a note "Circa 3/90?". It was submitted on behalf of Equus that this note was not necessarily placed upon the document by anyone on behalf of Equus nor should it be inferred that the document was produced by Equus. The document was in this form when produced on discovery. No evidence has been given by Equus as to its provenance. In these circumstances I draw the inference that it was produced by Equus and that Equus had it in its possession in March 1990. I also draw the inference that the document provided to Dr Hopkins in the folder was produced by Equus and supplied to Mr Koo to be used as part of the promotional material to be given to prospective investors at the seminar. Such differences as appear between the 1990 document and the later one are, in my opinion, attributable to the refinement of the document as it was used for promotional purposes from time to time. It is convenient to consider the contents of the document at this point.
The document posed and answered certain questions in relation to Equus, including questions on the loans that it could make available to investors in Seymour Softwoods Limited, the terms of such loans and information about Equus. It offered principal and interest loans for periods of 12 months to 120 months and interest only loans for 12 months to 60 months with an optional rollover for a further term. The costs of obtaining a loan could be included in the amount of the loan advanced. There were no hidden charges or fees. Security was to be a mortgage/charge over the Forestry Investment being purchased. No suggestion was made as to the provision of any other security. A loan of 100 per cent of the purchase price was available.
In relation to Equus it was said that "Equus has attained membership in the Australian Forestry Development Institute (AFDI), a lobby group established to promote the interests of forestry within Australia". It was also stated that Equus was "a Joint Venture Financial Institution established by some of Australia's leading public companies. The major shareholder being Beneficial Finance Corporation Limited". It was also indicated that Equus had begun operations in July 1987.
On 1 April 1990, Equus again offered financial assistance to Seymour in similar terms, again insisting upon being the exclusive lender or financier to the growers. In this regard, it may be noted that in the 1989 and 1990 plantation prospectuses issued by Seymour, and also in the draft 1991 prospectus, a copy of which was produced on discovery by Equus, only Equus is referred to as the financier for the investors. This is consistent, of course, with Equus' stated requirements and, I am satisfied, would have been known to Equus. Indeed, in the circumstances, it is not unreasonable to assume that Equus required that only its name as financier should appear in these public documents.
A further document obtained on discovery from Equus is dated "circa 11/90". I am satisfied that it was so dated before discovery and indicates that it was in Equus' hands at and before that date. It is a copy of a document forming part of the promotional material provided to potential investors at the Seymour seminars. It deals with company tax, capital gains and the reduction of home loans. It seeks to explain how an investment with Seymour could produce benefits in these areas. The document has had a handwritten message superimposed on it which has been signed "Nick". I am satisfied that the handwriting is that of Mr Russo, the managing director of Equus. It is obviously directed to three persons who were to play a role in relation to the promotion of Equus' role in the Seymour investments. They were asked to read and understand the material as they would "need to be able to talk to introducers & clients regarding the [material]". They were enjoined to see him to ask any questions and also were advised that, in the new year, Mr Russo would like them to stay back one night so that some examples could be shown on a white board. Again, in the absence of evidence to the contrary, I am prepared to infer that the reference to talking to "introducers & clients" contemplated the presence at public seminars, as representatives of Equus, of the persons to whom this memorandum was addressed.
On 6 March 1991, a letter was sent from Equus to Mr Carl Smith which referred to discussions taking place on 4 March "regarding modification of our terms and conditions for the approaching peak sale period". There followed a discussion in relation to what had obviously been a previous request for a reduction in interest rates and other matters in respect of which Seymour had, apparently, been seeking some beneficial variation. In refusing to vary the conditions, the comment was made on behalf of Equus that they were "imposed for the benefit of Seymour Softwood just as much as they are for Equus, bearing in mind the speculative nature of your project". The letter concluded by saying :-
"In our experience, banks and other finance companies have entered the `tax sheltered agricultural market' as financiers on a short term basis only. Equus, on the other hand, has entered this market for the long run. Seymour Softwoods must be able to rely on a financier with dedicated and long term commitment to the industry. Equus is the only financial institution in Australia which can guarantee such a commitment, evidenced by our involvement with every successful project in the industry in Australia."
On 15 March 1991, in a letter directed to Seymour, Equus requested copies of any promotional material, independent forestry reports, projected budgets, cash flows and the new prospectus. It also sought up-to-date financial details of Seymour Softwoods and associated companies, their directors and major shareholders. This material was to be provided "prior to approving funding of the new prospectus", an obvious reference to the No 3 Trust prospectus. This request was partly answered by letter from Mr Smith on 19 March 1991. In relation to the request for promotional material, the letter enclosed "our current investers [sic] package". It is clear, from other discovered documents, that this material was identical, for all practical purposes, with the documents provided to the applicant in the folder at the seminar. It is to be noted that this material, together with the draft prospectus, indicated that, in contradistinction to the twenty-five year period referred to in earlier promotions and prospectuses, the commercial returns from the Black Andrew plantation were to eventuate within a period of eight to ten years. Such returns were, of course, predicated upon the use of specially cloned pine trees, the availability of an owned treatment plant and the willingness of the plant operator to purchase young pine logs at three to four times the current going rate - all matters the subject of highly adverse comment in Mr Borough's evidence.
On 28 May 1991, Mr Smith was sent a letter from Equus. This letter referred to the fact that the funding for Equus was solely provided by Beneficial Finance Corporation, a wholly owned subsidiary of the State Bank of South Australia, which had experienced "highly publicised problems". In the result, Beneficial Finance had substantially reduced its funding to Equus, which in turn had resulted in Equus having to review its lending criteria. In particular, there was to be a requirement that the principal of the loan should be repaid within seventy-two months and the borrower was to have a "net tangible asset backing ... not less than five times the amount being borrowed".
It may be noted that these conditions could not be complied with by Dr Hopkins. Although I am satisfied that they were never brought to her attention at the time she was making her investment, they, clearly enough, provide the reason why ultimate borrowing was from Berrema and not Equus. It was, of course, less than a month after this letter was written that Dr Hopkins attended the seminar.
Do these facts, together with available inferences from them, point to a finding that Equus participated in the misleading or deceptive conduct relied upon, either directly as a principal or within the terms of s 75B? In this regard I make the following findings.
I am satisfied that Equus had a significant role in the financing of investors into forestry plantations. It appears from one of the documents discovered that it had regarded the first and second Seymour trusts as being successful. In the context, however, I consider that Equus regarded them as "successful" in that they had been successfully sold to investors with the result that Equus, in its privileged position with Seymour, had achieved good business results in the provision of loans. There is nothing to indicate whether the plantation themselves had been successful or lived up to the expectations of investors. However, it is of signal importance, in my view, that the earlier schemes had involved a twenty-five year period before commercial returns were envisaged. The No 3 Trust was novel in that the projected returns were to occur within an eight to ten year period. I am satisfied that Equus had sufficient material supplied to it by Seymour to form a view as to the risks confronting investors in this scheme. It had described the project as "speculative". This assessment could only have been based upon the information provided to it. The very fact that it sought and obtained information as to the scheme and the manner in which it was being promoted indicates that it would wish to check the material and form a view about it. Again, no evidence has been given as to what steps it took or what view it formed. The forestry reports supplied with the material were clearly based upon assumptions, the validity of which were basic to the fairly guarded opinions expressed as to the viability of the scheme. That these assumptions were ill-founded was clearly exposed by the evidence of Mr Borough. Even without such evidence, in my opinion, the relevant officers of Equus would have had considerable doubts as to the ultimate viability of this eight to ten year scheme. Indeed, I am satisfied that the use of the term "speculative" in the letter referred to amply demonstrates this.
Furthermore, the promotion of the Seymour Trusts involved the promotion of Equus as their financier. I am satisfied that not only was this clear to the officers of Equus, it was actively encouraged, as much by the requirements that they imposed, referred to above, as by the fact that Equus provided promotional material to be used when selling the scheme to potential investors. As I have already indicated, I am satisfied that Equus provided the questionnaire for this purpose and would have been aware, and would have approved, of the use of its name and the description of the services which it provided, in other documentary material and in oral presentations at the seminars. Indeed, it is clear, that the seminar method was an established selling tool of Seymour's, and one in which Equus participated. The documents establish, as I have already indicated, that on one occasion the business manager of Equus was present at, and an active participant in, such a seminar. Another document, which I have considered above, contemplated, in my view, that members of the Equus selling staff would participate in such seminars.
Despite the statements made in the letter of 28 May 1991 as to the change in lending policy, no discovered document suggests that there was any withdrawal after that date of the questionnaire document, which I find was previously provided by Equus, for use at seminars after that date. Nor was any document issued having the effect of altering the information supplied in the questionnaire.
Accordingly, I am satisfied that, as at 25 June 1991, Equus would have been aware that representations made by Seymour in its documentary material as to the commercial viability within the eight to ten year period of the projected Black Andrew plantation were misleading. It would also have been aware that the use of its questionnaire document was also misleading. Such a document should not have been available to Dr Hopkins; nor should oral representations to the same effect as those contained in the document have been made to her. No evidence has been given by Equus to explain how it could come about that these misleading representations were made without its concurrence. Nor, indeed, is there any evidence from Equus asserting that, despite the presence of its representatives on other occasions at seminars, there was no representative at the seminar attended by Dr Hopkins. In these circumstances, I am prepared to draw the inference, based upon the evidence to which I have referred, that, more probably than not, there was an Equus representative present at the seminar. This being so, I find that Equus was a party to the misleading representations made at the seminar. Those representations resulted in Dr Hopkins incurring the damage in respect of which she sues. Equus, accordingly, is jointly liable with the other respondents for that damage and Dr Hopkins is entitled to judgment against it for the total amount of her losses.
I should add that, should I be wrong in finding that a representative of Equus was personally present at the seminar, I should nevertheless hold that Equus was relevantly a party to the misleading conduct within the meaning of s 75B of the TP Act. It is clear that Equus would have been aware that the plantation project would be promoted as commercially viable, notwithstanding the obvious risks that it would fail. It would also have been aware that, in the usual way, its name would have been used to assist in the promotion. It proclaimed itself to be, in effect, an expert financier in forestry matters. It asserted as much to Seymour in the correspondence referred to. In my view, it would have known that, irrespective of whether it had a representative present, its alleged expertise would be used to bolster the promotion. The fact that it would be put forward as being prepared to finance investors would, to its knowledge, have been an inducement to them to invest. Moreover, in my view, it would have been relevantly aware that the questionnaire document in its current form would in all probability be distributed. The letter of 28 May 1991 did not constitute a direction to withdraw the document from use or indicate a belief on the part of Equus that it would no longer be used at seminars. The letter in fact states that the terms and conditions of the Finance Provisions Agreement "will continue to remain in force". Under that Agreement Seymour was obliged (clause 4.1(a)) "to ensure that any Prospective Investor ... is informed of the availability of finance offered by [Equus] but only by communication to the ... Investor of information contained in publications provided by [Equus] for this purpose". The questionnaire had not been withdrawn by Equus. Consequently, it must have realised that Seymour would continue to distribute it. It was, of course, grossly misleading as to the conditions upon which Equus would make finance available.
I do not find it necessary to consider the other grounds upon which the applicant asserts that Equus is liable to her.
In the result, I am satisfied that the declarations sought should be made. I am also satisfied that all respondents are jointly and severally liable to the applicant in respect of the contraventions of the TP Act which I have found the respondents to have committed. In the orders which I make, I have made what I consider to be an appropriate allowance for interest up to and including today's date. Accordingly, I order that the respondents jointly and severally pay to the applicant damages in the sum of $48,000, together with the sum of $70,211.63 for losses incurred by the applicant. The respondents must pay the applicant's costs.
|
I certify that this and the preceding thirty-one (31) pages are a true copy of the Reasons for Judgment herein of the Honourable
Justice Foster. |
Associate:
Dated: 19 June 1998
|
Counsel for the Applicant: | Mr D.J. Higgs S.C.
with Mr D. Robertson |
| Solicitor for the Applicant: | Thompson Eslick Solicitors |
| Counsel for the First, Second, Third and Fourth Respondents: | Mr S. Kalfas |
| Solicitor for the First, Second and Third Respondents: | M.D. Nikolaidis & Co |
| Solicitor for the Fourth Respondent: | Michell Sillar Solicitors |
| Dates of Hearing: | 24, 25, 27 February 1998 |
| Date of Judgment: | 19 June 1998 |
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