Eric Preston Pty Ltd v Euroz Securities Limited [2010] FCA 97 (19 February 2010)

Last Updated: 19 February 2010

FEDERAL COURT OF AUSTRALIA

Eric Preston Pty Ltd v Euroz Securities Limited [2010] FCA 97

Citation:		Eric Preston Pty Ltd v Euroz Securities Limited [2010] FCA 97
Parties:		ERIC PRESTON PTY LTD (ACN 008 753 348) v EUROZ SECURITIES LIMITED (ACN 089 314 983); EUROZ SECURITIES LIMITED (ACN 089 314 983) v ERIC PRESTON PTY LTD (ACN 008 753 348)
File number:		VID 356 of 2008
Judge:		SIOPIS J
Date of judgment:		19 February 2010
Catchwords:		CONTRACT - whether a term was incorporated into the retainer by reason of a prior course of dealings - whether a term could be inferred by reference to post-contractual conduct - whether loss caused by the breach of the retainer. MISLEADING OR DECEPTIVE CONDUCT - whether representation was passed on by respondent - whether representation was adopted - whether loss was caused by impugned conduct.
Legislation:		Corporations Act 2001 (Cth) ss 942B, 942B(2), 1041H, 1041H(1), 1041I(1), 1041I(1B) Australian Securities and Investments Commission Act 2001 (Cth) ss 12BAA, 12BAB, 12BAB(5), 12BB, 12BB(1), 12DA, 12GF(1B)(b) Civil Liability Act 2002 (WA) s 5AI(1)(a) Federal Court Rules O11 r 8

Cases cited:		Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 DJ Hill & Co Pty Ltd v Walter H Wright Pty Ltd [1971] VR 749 Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 Vroon BV v Foster’s Brewing Group Ltd [1994] 2 VR 32 Browne v Dunn (1893) 6 R 67 Suvaal v Cessnock City Council (2003) 200 ALR 1 Clambake Pty Ltd v Tipperary Projects Pty Ltd (No 3) [2009] WASC 52 Butcher v Lachlan Elder Realty Pty Limited [2004] HCA 60; (2004) 218 CLR 592 Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2008] NSWCA 206; (2009) 252 ALR 659 Orix Australia Corporation Ltd v Moody Kiddle and Partners Pty Ltd [2006] NSWCA 257 Daly v Sydney Stock Exchange Ltd [1986] HCA 25; (1986) 160 CLR 371 Hospital Products Limited v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 Breen v Williams [1996] HCA 57; (1996) 186 CLR 71 Pilmer v Duke Group Ltd (in liq) [2001] HCA 31; (2001) 207 CLR 165 Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) [2007] FCA 963; [2007] 160 FCR 35 Aequitas v Sparad No 100 Ltd (formerly Australian European Finance Corp Ltd) [2000] NSWCA 374; (2001) 19 ACLC 1,006
Date of hearing:	16-20, 23-27, 31 March, 25 September 2009
Date of last order:	11 November 2009
Date of last submissions:	16 November 2009
Place:	Perth
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	500
Counsel for the Applicant:	Mr P Bick QC with Mr D Farrands
Solicitor for the Applicant:	Slater & Gordon
Counsel for the Respondent:	Mr G Donaldson SC with Ms W Buckley
Solicitor for the Respondent:	Fairweather & Lemonis
Counsel for the Cross-Claimant:	Mr G Donaldson SC with Ms W Buckley
Solicitor for the Cross-Claimant:	Fairweather & Lemonis
Counsel for the Cross-Respondent:	Mr P Bick QC with Mr D Farrands
Solicitor for the Cross-Respondent:	Slater & Gordon

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION	VID 356 of 2008

BETWEEN:

ERIC PRESTON PTY LTD (ACN 008 753 348) Applicant EUROZ SECURITIES LIMITED (ACN 089 314 983) Cross-Claimant

AND:	EUROZ SECURITIES LIMITED (ACN 089 314 983) Respondent ERIC PRESTON PTY LTD (ACN 008 753 348) Cross-Respondent

JUDGE:	SIOPIS J
DATE OF ORDER:	19 FEBRUARY 2010
WHERE MADE:	PERTH

THE COURT ORDERS THAT:

1. The applicant’s application filed on 20 May 2008 is dismissed.
   

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION	VID 356 of 2008

BETWEEN:

ERIC PRESTON PTY LTD (ACN 008 753 348) Applicant EUROZ SECURITIES LIMITED (ACN 089 314 983) Cross-Claimant

AND:	EUROZ SECURITIES LIMITED (ACN 089 314 983) Respondent ERIC PRESTON PTY LTD (ACN 008 753 348) Cross-Respondent

JUDGE:	SIOPIS J
DATE:	19 FEBRUARY 2010
PLACE:	PERTH

TABLE OF CONTENTS

BACKGROUND	[9]
ERIC PRESTON’S CLAIM AGAINST EUROZ SECURITIES	[119]
THE WITNESSES	[122]
Eric Preston’s witnesses	[122]
Mr Bruce Scott Drummond	[123]
Mrs Judith Maree Drummond	[133]
Mr Graham Douglas Anderson	[134]
Mr Gregory Errol Blashki	[141]
Mr Russell Allan McKimm	[142]
Euroz Securities’ witnesses	[157]
Mr Richard Armstrong Caldow	[158]
Mr Anthony Mark Brittain	[167]
Mr Kenneth David Pendergast	[170]
THE CLAIM BASED ON THE BREACH OF CONTRACT	[172]
Eric Preston’s pleaded claim in contract	[173]
Euroz Securities’ defence	[186]
Did Euroz Securities agree to act as financial advisor to Eric Preston as part of its retainer?	[194]
The advice in relation to Eric Preston entering into the Leveraged Equities facility	[226]
Did Mr Caldow advise in May 2007 that the Opes Prime facility was the same as the Leveraged Equities facility?	[254]
Can Eric Preston rely on a case founded on the allegation that Euroz Securities failed to advise as to the characteristics of the Opes Prime facility?	[291]
Would Eric Preston have entered into the Opes Prime facility even if it had been advised as to its characteristics and attendant risks?	[300]
The pleaded breaches relating to events of February 2008	[314]
The 1 February 2008 advice came too late	[320]
Failure to advise Eric Preston to terminate the Opes Prime facility	[327]
Failure to advise that Euroz Securities could not comment on the financial position of Opes Prime	[330]
Advice that the share portfolio was safe	[333]
THE CLAIM IN TORT	[336]
THE CLAIM THAT EUROZ SECURITIES ENGAGED IN MISLEADING OR DECEPTIVE CONDUCT	[347]
The first representation	[355]
The second representation	[367]
Did Euroz Securities engage in misleading or deceptive conduct in relation to the second representation?	[405]
BREACH OF FIDUCIARY DUTY	[420]
The trading commission and the trailing commission	[433]
CAUSATION	[444]
THE CLAIM THAT ERIC PRESTON CONTRIBUTED TO ITS LOSS	[464]
THE CLAIM THAT MR ANDERSON IS PROPORTIONATELY LIABLE FOR ERIC PRESTON’S LOSS	[467]
Advice in relation to Eric Preston entering into the Opes Prime facility	[469]
Substantial Shareholder Advice	[480]
Advice in relation to 1 February 2008 email	[485]
THE CLAIM THAT OPES PRIME IS PROPORTIONATELY LIABLE FOR ERIC PRESTON’S LOSS	[486]
DAMAGES	[493]

REASONS FOR JUDGMENT

1 Eric Preston Pty Ltd, the applicant, is a private company. Mr Bruce Drummond and his wife, Mrs Judith Drummond, are its directors. The respondent, Euroz Securities Limited, is a subsidiary of Euroz Limited, a publicly listed company. Euroz Securities provides stockbroking services. Mr Richard Caldow is a stockbroker and is one of the directors of Euroz Securities. Mr Drummond first dealt with Mr Caldow as a stockbroker in about 1995, when Mr Caldow was employed by Paterson Ord Minnett Ltd, and Mr Drummond was, in his personal capacity, a stockbroking client of that company. Over the ensuing years they established a close business relationship. When Mr Caldow moved from Paterson Ord Minnett to Euroz Securities in 2000, Mr Drummond opened a share trading account with Euroz Securities.

2 In 2003, Mr Drummond received advice that there would be taxation advantages if a corporate entity under his control, carried on the share trading activity which until then, Mr Drummond had carried on on his own account. Mr Drummond acted on that advice and decided that Eric Preston should be the company to conduct that share trading activity. Since 2004, Eric Preston has been engaged in the business of share trading. Mr Drummond has been solely responsible for carrying on this business and for making the investment decisions on behalf of Eric Preston. He has carried on this business on a full-time basis since April 2007. During the period January 2004 to May 2007, Eric Preston was a party to a margin loan facility with Leveraged Equities Limited and used that facility in relation to its share trading activities. Eric Preston traded in shares at the riskier end of the market and Leveraged Equities did not offer a margin on many of the shares in Eric Preston’s portfolio. At all material times, Eric Preston, through Mr Drummond, used Euroz Securities as its stockbroker.

3 In May 2007, Eric Preston terminated its margin loan facility with Leveraged Equities and entered into a securities lending and borrowing agreement with Opes Prime Stockbroking Ltd as a means of obtaining funds to use in purchasing shares for its portfolio. The Opes Prime facility offered margins on shares which Leveraged Equities did not.

4 In very general terms, under this agreement, Opes Prime agreed to advance funds to Eric Preston for share trading purposes and Eric Preston agreed to “lend” its shareholding to Opes Prime by transferring its legal and beneficial ownership in its shareholding to Opes Prime. Eric Preston had a contractual right to call on Opes Prime to deliver shares it had “lent” to Opes Prime, by repaying Opes Prime, and was a creditor of Opes Prime for the difference between the value of the shares in its portfolio and the amount of the advance.

5 On entering into the Opes Prime facility, Eric Preston transferred the legal and beneficial ownership in its share portfolio to Opes Prime or its nominee. After May 2007, Eric Preston used the Opes Prime facility extensively to finance the purchase of shares for its portfolio. On 1 February 2008, Euroz Securities sent Mr Drummond an email pointing out that the securities lending facility with Opes Prime was different to, and risker than, a conventional margin loan. The email stated, in effect, that one of the risks associated with the Opes Prime facility was that if Opes Prime was to become insolvent, Eric Preston would rank as an unsecured creditor for the difference between the value of its share portfolio and the amount outstanding to Opes Prime under the facility. Eric Preston did not terminate the Opes Prime facility and continued to trade shares and use the Opes Prime facility.

6 On 27 March 2008, administrators were appointed to Opes Prime. At that time Eric Preston’s portfolio of shares was worth $7,822,957.15 and it owed Opes Prime $3,075,142.91 under the facility. On 15 October 2008, liquidators were appointed to Opes Prime. Eric Preston has filed a proof of debt in the liquidation of Opes Prime in the sum of $5,389,251.09.

7 On 4 August 2009, Opes Prime entered into a scheme of arrangement with its creditors.

8 In this proceeding, Eric Preston alleges that Euroz Securities acted in breach of its contractual, tortious and fiduciary duties that it owed to Eric Preston in relation to the Opes Prime facility. It also claims that Euroz Securities breached statutory duties. Eric Preston claims that but for the breaches of duty it would not have entered into the Opes Prime facility but would have stayed with Leveraged Equities and, therefore, would not have lost the value of the shares it held in its portfolio at the date of the appointment of the administrators. It claims damages from Euroz Securities.

BACKGROUND

9 Until 2007, Mr Drummond was, through various private companies, actively involved in the management and operation of major motor vehicle dealerships in the Perth metropolitan area.

10 In 1979, at the age of 28 years, Mr Drummond acquired a 30% interest in a motor vehicle dealership, Midland Nissan, operated by Midland Datsun Pty Ltd. Eric Preston owned the site on which the Midland Nissan dealership was located. In 1982, Mr Drummond acquired all the shares in Eric Preston, and bought out his partner’s interest in Midland Datsun. Mr Drummond borrowed the sum of $500,000 to do so from Australian Guarantee Corporation.

11 In 1998, Mr Drummond was the controlling shareholder and director of Goldeast Corporation Pty Ltd (Goldeast). In that year, Goldeast purchased the business of Metro Motors, a major Holden and Subaru dealership in Perth.

12 In 1998, at the time when Goldeast purchased the Metro Motors business, Midland Nissan employed approximately 50 persons and Metro Motors employed over 100 persons. Mr Drummond, through Midland Datsun, continued to own the Midland Nissan dealership until 2001.

13 Metro Motors was the third largest dealership in Western Australia and in the top 20 dealerships in Australia for Holden motor vehicles. At one point, its annual turnover was in excess of $70 million.

14 Eric Preston owned the site of the Midland Nissan dealership and in the period up to 1998 purchased two adjoining properties. It also acquired the Metro Motors property holding. Eric Preston borrowed $5 million in order to complete the purchase.

15 As well as his interest in carrying on the business of his motor dealerships, Mr Drummond had an interest in share trading.

16 In around 1995, Mr Drummond first made contact with Mr Richard Caldow, who was then employed as a stockbroker by Paterson Ord Minnett. Mr Caldow had commenced employment with Paterson Ord Minnett as an assistant sharebroker in July 1992. Mr Caldow first had dealings with Mr Drummond when Mr Drummond telephoned Paterson Ord Minnett looking to speak to another broker who had, unbeknown to Mr Drummond, left that firm. Mr Drummond was put through to Mr Caldow. Mr Drummond placed an order to buy one million Golden Valley shares at 2.5 cents. Thereafter, Mr Drummond continued to deal with Mr Caldow as his stockbroker at Paterson Ord Minnett.

17 In about June 1997, Mr Caldow moved to Busselton to establish an office of Paterson Ord Minnett with Mr Simon Yeo, who was then also employed by Paterson Ord Minnett. During the period that Mr Caldow worked in the Paterson Ord Minnett office in Busselton, Mr Drummond continued to use him as his stockbroker. By then Mr Drummond had become one of Mr Caldow’s major clients.

18 In July 2000, Mr Drummond entered into a margin loan agreement with Leveraged Equities Limited – a company associated with Adelaide Bank Limited. This occurred after he had been sent an application form to apply for a Leveraged Equities margin loan by Mr Caldow. Thereafter, Mr Drummond used the Leveraged Equities margin loan in his share trading activities.

19 In November 2000, Mr Jay Hughes, Mr Peter Diamond and Mr Andrew McKenzie, all directors of Paterson Ord Minnett, resigned and established Euroz Limited and Euroz Securities Limited, as a wholly owned subsidiary company, to conduct a stockbroking business. Mr Diamond offered Mr Caldow a position as Executive Director of Euroz Securities and a shareholding in Euroz Limited. Mr Yeo was also offered a position at Euroz Securities. Each of them accepted the offer and resigned from Paterson Ord Minnett.

20 Euroz Securities has an Australian Financial Services Licence which entitles it to carry on a stockbroking business and to use the description of stockbroker or sharebroker whilst it complies with the conditions of the licence. Euroz Securities is not licensed to provide general financial advice. In accordance with its licence, it was entitled to make recommendations in relation to the buying and selling of shares. Euroz Securities had a research department which specialised in researching low capitalisation emerging mining and exploration stocks. Euroz Securities regularly published materials that made buy and sell recommendations in respect of these stocks. Further, Euroz Securities is, and was at the material times, a party to a wholesale securities lending agreement with ACS Broker Services Limited. It made use of the facilities under this agreement in the conduct of its business.

21 As well as being an executive director of Euroz Securities, Mr Caldow is and, was at the material times, a member of the private client team which is headed by Mr Yeo. Mr Caldow’s desk at work at Euroz Securities was, at all material times, located in close proximity to that of Mr Yeo. Mr Anthony Brittain was, at the material times the chief operating officer and financial officer of Euroz Securities. Mr Anthony Hewett was, at the material times, the head of Risk and Compliance.

22 Shortly after Mr Caldow moved to Euroz Securities in 2000, Mr Drummond became a client of Euroz Securities. At that time, the total value of Mr Drummond’s share portfolio was around $100,000. Mr Drummond “followed” Mr Caldow to Euroz Securities.

23 In 2003, Mr Graham Anderson and Ms Lena Hilton advised Mr Drummond that the share trading activities he was then carrying on should be carried on by a corporation so as to attract lower corporate tax rates on profits. Mr Anderson is an accountant who advised Mr Drummond and his associated companies on his business affairs. Ms Hilton provided tax advice to Mr Drummond and his business entities.

24 Mr Anderson completed “sophisticated investor” certificates in respect of Eric Preston for the financial years 2003, 2004, 2005 and 2006. These certificates certified that Eric Preston had net assets of at least $2.5 million and a gross income for each of the preceding two years of at least $250,000.

25 Mr Anderson was also an officer of a number of publicly listed companies. These companies were mainly, but not exclusively, mining exploration companies. These companies included: Gallery Gold Limited, Falcon Minerals Limited, Echo Resources Limited and Apex Minerals NL. Mr Drummond bought shares in these companies from time to time.

26 Mr Drummond and Mr Anderson had a close working relationship. They communicated by email on almost a daily basis and on many occasions they exchanged several emails during the course of the day. The emails were directed mainly to the various business interests of Mr Drummond and his associated companies, but also included comment on sporting events, and evidenced a personal, as well as business, relationship.

27 Mr Anderson gave evidence in this case and I will say more about him, and the claims made affecting him, later in these reasons.

28 In late 2003, Mr Drummond told Mr Caldow that Mr Anderson had advised him that Eric Preston would be the new vehicle for future share trading activities.

29 On 6 January 2004, Eric Preston opened a share trading account with Euroz Securities. On that date, Mr Drummond and Mrs Drummond, as directors of Eric Preston, signed a form supplied to them by Euroz Securities for the purposes of opening the account for Eric Preston. The form included the following question:

6. Corporations Law Requirement
   

Euroz Securities Limited has an obligation to ask you for particulars of your investment objectives, financial situation and specific needs in order to make recommendations appropriate to you. Please be advised that if you do not want to provide this information it may inhibit your advisors ability to recommend appropriate investments in relation to your financial situation.

Do you wish to disclose this information to Euroz Securities Limited?
YES                         NO

30 The word “NO” was circled and signatures of Mr and Mrs Drummond were affixed.

31 After Eric Preston opened the share trading account with Euroz Securities, Mr Drummond inquired of Mr Caldow whether a private company could have a margin loan. Mr Caldow told Mr Drummond that a private company could have a margin loan and sent Mr Drummond Leveraged Equities’ application form for Eric Preston to complete.

32 There is controversy in the evidence as to the circumstances surrounding the entry by Eric Preston into the Leveraged Equities margin loan agreement. I will deal with that controversy later in these reasons. However, Mr and Mrs Drummond signed and submitted the completed application form to Leveraged Equities and a Leveraged Equities margin loan account was opened by Eric Preston.

33 Mr Drummond transferred the shares that were then held in his name into Eric Preston’s Leveraged Equities account. At that time the total value of the shares was “several hundred thousand dollars”.

34 Until January 2004, when Eric Preston commenced its share trading activities, Mr Drummond carried on his share trading activities from his office at the Metro Motors premises. From January 2004 until April 2007, Mr Drummond continued to carry on the share trading activities on behalf of Eric Preston, from the same premises.

35 Mr Drummond took the share trading activities that he conducted on behalf of Eric Preston seriously. Mr Drummond subscribed to the online sharebroker, CommSec, and by that means was able daily to follow the movements in the stock market on his computer through CommSec’s website. Mr Drummond used his CommSec account to maintain a watch list of shares. He also used his computer to follow on a daily basis the share price movements and announcements made to the Australian Stock Exchange (ASX). The watch list included shares which were in companies not researched by Euroz Securities. Further, Mr Drummond systematically maintained research files which he compiled from information obtained from the financial press and also research materials sent to him by Euroz Securities. Mr Drummond also read the Australian Financial Review every day and from about mid-2007 he subscribed to Personal Investor magazine and Business Spectator magazine. The research material that was sent to Mr Drummond included Euroz Securities’ weekly newsletter which was often up to 40 pages in length.

36 On Friday, 21 January 2005, Mr Drummond instructed Mr Caldow to purchase a large number of shares in Falcon Minerals. Mr Drummond purchased 640,000 shares for $531,327. On the following Monday, the next trading day, an announcement was made to the ASX in relation to the acquisition by Jubilee Mines NL of a strategic interest in Falcon Minerals and the share price of Falcon Minerals went up. On that Monday morning, Mr Drummond telephoned Mr Caldow and directed him to sell the 640,000 shares in Falcon Minerals which were sold for $589,198, for a profit of $57,871.

37 This was the largest trade that Eric Preston had done up to that time. This trade was done without the recommendation of Mr Caldow.

38 In April 2005, Euroz Securities was the broker to the initial public offering on the ASX of shares in a company, Sundance Energy Australia Limited. The ASX code for this company’s shares is SEA. Eric Preston took up a parcel of shares on the initial public offering. Eric Preston also entered into sub-underwriting arrangements with Euroz Securities in relation to a placement of Sundance Energy shares. Eric Preston over time acquired a very large holding in Sundance Energy shares. Each of Mr Caldow and Mr Drummond held and continued to hold, a positive view about Sundance Energy shares.

39 On 10 November 2005, Mr Drummond telephoned Mr Caldow and asked Mr Caldow to purchase two million shares in Gallery Gold Limited for Eric Preston. Approximately four weeks later, a takeover bid was made for Gallery Gold. Eric Preston sold its shares after the bid at a price of 43 cents per share and made a profit of $247,955.

40 In late 2005, Eric Preston participated as a sub-underwriter of a placement of shares in Babcock & Brown Environmental Investments Limited, which was underwritten by Euroz Securities. There was a disagreement between Mr Drummond and Mr Caldow as to the timing of the payment of the fee due to Eric Preston in respect of that sub-underwriting undertaken by Eric Preston. Mr Drummond telephoned Mr Caldow and complained to him that Eric Preston had not been paid the fee due to Eric Preston. I will say more about this telephone conversation later in these reasons.

41 In 2006, there was a considerable increase in Eric Preston’s trading activities. From 2006, Mr Drummond spoke to Mr Caldow by telephone four or five times a day. Euroz Securities continued to send Mr Drummond research material and “buy” and “sell” recommendations. Euroz Securities offered Eric Preston positions in more than a dozen initial public offering placements.

42 Before December 2006, Mr Anderson had given Mr Drummond advice as to the operation of the escrow provisions of the ASX Listing Rules in respect of an investment in an unlisted company, National Fuel Ltd. On 9 December 2006, before the proposed public listing of Natural Fuel, Mr Drummond received an agreement from a firm of solicitors to sign on behalf of Eric Preston in relation to the operation of the escrow provisions on those shares. On 11 December 2006, Mr Drummond then forwarded the draft agreement to Mr Anderson by email. The email read as follows:

Graham welcome home
Please have a close look at this and ring me a s a p as I have to have this back today. Why don’t I get at least a 50% reprieve seeing I did pay $5.00 a share and the multiple equals $9.00 a share.

43 Mr Anderson replied as follows:

Yes, the full 1,200,000 will be escrowed. We have discussed this previously.

Eric Preston is classed as a type 10 investor in the attached appendix 9B to the extent of the shares purchased from Distinctive.

Given the amount of shares he holds, he is probably deemed a vendor holding greater than 20% of the issued capital.

44 Mr Drummond examined for himself the ASX Listing Rules after receiving this email response from Mr Anderson. Mr Drummond responded later that day to Mr Anderson by an email which expressed, in particularly colourful and abusive language, his dissatisfaction with previous advice he had received from Mr Anderson.

45 In March 2007, Goldeast sold its motor dealership business to Melville Motors (2006) Pty Ltd. At the same time, Eric Preston sold the property on which the dealership operated and the adjoining property.

46 On 27 March 2007, the contract for the sale of that motor vehicle business was settled.

47 In April 2007, Mr Drummond commenced to conduct the share trading business on behalf of Eric Preston, on a full-time basis. To that end Mr Drummond took an office in the same building as Mr Anderson. The office was one floor up from that of Mr Anderson. This meant that Mr Drummond was less than a minute or two away from Mr Anderson.

48 In late April or early May 2007, Mr Mark Rice of Opes Prime Stockbroking Ltd (Opes Prime) made a presentation to representatives of Euroz Securities, including Mr Yeo, regarding the Opes Prime securities lending and borrowing facility. Mr Mark Rice was, at the time, Head of Sales and Marketing at Opes Prime.

49 Shortly after the presentation on 10 May 2007, Mr Yeo of Euroz Securities sent an email to Mr Rice which stated:

Compliance having a look at how we go about recommending a different margin lender.

Some of the boys have asked about the security of OPES and what the balance sheet is like in terms of the lending you do against smaller cap stocks – what level of security do we have in the event of a major downturn??

50 On 10 May 2007, Mr Rice responded to Mr Yeo’s email. He stated:

In answer to your second question about Opes and what happens in a market downturn. The first part of the answer is that we mark to market securities on a daily basis and where the client’s security value declines and they go into a margin call, they have to come up with more cash or securities to cover their loan or they can be potentially sold down to cover the position. So you have exactly the same risk as with any other margin lender.

However, we do operate under a securities lending and borrowing arrangement such that to get the funds to lend to the end client we “on lend” the securities to our funders, primarily ANZ. We maintain ample buffers with our funders so that we don’t get into a position such that both we and the end clients are in margin call at the same time. In the extreme market meltdown situation when this could happen, we also have alternative means of raising cash to meet our obligations with our funders while our clients are meeting their margin calls.

In the absolute highly unlikely worst case scenario, if Opes was to become insolvent, clients would end up as creditors to our funders, which is primarily ANZ, and they would have to repay their loan in exchange for the securities.

There are a number of mitigating factors to ensure this doesn’t happen, which are:

• We have a significantly diversified portfolio of shares with our funders
• We can be naturally hedged with the securities lending side
• We maintain ample buffers with our funders
• We employ a strict margin call process with clients
• Alternative funding facilities are in place for the extreme situation
• Our LVRs for the small cap stocks are low, so the stock has to “overnight” fall very significantly for the client to be in an uncovered position
• General ASX risk management in extreme market downturns
  

These procedures have been tried and tested, for example in March this year, and proven that our risk management procedures are robust.

Hopefully this gives you some comfort but I am more than happy to provide you with further information about the business.

51 As at May 2007, Eric Preston’s Leveraged Equities account contained shares in Beach Petroleum Limited to which a margin was attached, and about $1.6 million worth of shares in other companies, to which no margin was attached. One share with no margin attached was Sundance Energy. At that time Eric Preston held about four and a half million Sundance Energy shares. Further, the Leveraged Equities statements for Eric Preston’s margin loan account, for each of the preceding months of January 2007 to April 2007, show that Eric Preston was at the commencement of each of those months in a shortfall position, that is, it had exceeded its credit limit.

52 On 14 May 2007, Mr Drummond had a telephone conversation with Mr Caldow. The contents of this telephone conversation are a crucial issue in this case. This is because Eric Preston has pleaded that Mr Drummond relied upon what Mr Caldow told him in the course of that conversation to terminate the Leveraged Equities facility, and to enter into the Opes Prime facility. Euroz Securities strongly contests the version of the conversation contended for by Eric Preston. I deal with that factual dispute at some length below. However, it is common cause that during the course of that conversation Mr Yeo, whose desk was located close to that of Mr Caldow in the Euroz Securities office, said words to the effect that Mr Caldow should tell Mr Drummond about Opes Prime. After the conversation, Mr Caldow sent Mr Drummond an email attaching the Opes Prime Financial Services Guide.

53 On 15 May 2007, Mr Drummond sent an email to Ms Danielle Jones at Leveraged Equities. The email stated:

As you can see I have a large holding in Sundance Energy without any leveraged attached. It is my intention to buy more of this stock and I am enquiring as to whether you are able to help me by allowing a percentage of say 35%.

Please confirm whether you are able to assist.

54 Ms Jones replied by email to Mr Drummond later that day, advising that Leveraged Equities would not provide a margin against the Sundance Energy shares.

55 On 17 May 2007, Mr Drummond telephoned Mr Rice of Opes Prime and discussed with him entry into an Opes Prime facility. Mr Drummond also discussed with Mr Rice the prospect of Eric Preston being able to use shares Mr Drummond held in his own name in Natural Fuel as collateral.

56 On 17 May 2007, Mr Caldow communicated by email with Mr Rice following a query from Mr Drummond. Later that day, Mr Caldow forwarded those emails to Mr Drummond. The emails between Mr Caldow and Mr Rice related mainly to loan to value ratios offered by Opes Prime, interest rates and trailing commissions proposed to be paid by Opes Prime to Euroz Securities.

57 Mr Drummond printed the computer file sent by Mr Caldow, containing the Financial Services Guide and application form on his printer.

58 The front page of the Opes Prime Financial Services Guide has located beneath the Opes Prime logo the following statement:

Securities Lending and Borrowing Financial Services Guide
Monday, 15 May 2006.

59 The financial services guide contained the following statement:

First, and most importantly, you should note that we do not provide you with “personal advice” as defined by the Act and ASIC. Accordingly, we will not take into account your “objectives, financial situation and needs” (“Objectives”) (as defined by the Act and ASIC) and therefore this FSG has been prepared without taking into account those Objectives. You will not be provided with a Statement of Advice. Accordingly you should carefully consider the appropriateness of our services with regard to your particular circumstances.

60 Under the heading on the next page “About Opes” the following statements appear:

Opes provides these highly specialised services to sophisticated market players. This includes wealthy individuals, boutique fund managers and corporations. Because of the nature of our client base, Opes is not in the business of providing general or personal investment advice. Instead, working very closely with our clients and their advisors, we focus attention to the clients’ requirements in our specialised field.

This can include our equity participation, joint ventures and sharing risk, and with all of our clients, a long term mutual commitment and relationship.

61 The Opes Prime Financial Services Guide also contained a blank application form and the terms of the securities lending and borrowing agreement offered by Opes Prime.

62 On 22 May 2007, Mr and Mrs Drummond, as directors of Eric Preston, signed the completed application form for a securities lending and borrowing agreement with Opes Prime. The application form contained the following wording:

I/We hereby declare that:

1. I/We acknowledge and accept that for corporate applicants it is a condition precedent for all the directors to have executed the Deed of Guarantee and Indemnity accompanying this Application Form prior to initiating any trading instructions to Opes Prime;
   

I/We acknowledge and accept that the confirmations despatched electronically are subject to the correction of errors and omissions;

3. I/We agree that Opes Prime will not be giving any general or personal advice to me/us in relation to the Facility or any dealing under it and so Opes Prime does not need to give me/us a Statement of Advice;
   
4. I/We have read and understood the FSG and accept the risks of securities lending under this Facility;
   
5. A person who signs an Application Form from an electronic copy of this FSG acknowledges that the person either downloaded and read the entire contents of the FSG or received personally and read the paper copy of the FSG; and
   
6. By signing this Application Form, a Facility with an account for me/us will be established on the terms set out in this FSG.
   

63 Mr and Mrs Drummond, as directors of Eric Preston, also executed a document entitled “Collateral lodgement from sponsored holding (HIN)” which authorised the transfer of Eric Preston’s share portfolio to “ANZ Nominees PID 2005”.

64 The application form for the securities lending and borrowing agreement with Opes Prime also provided that the directors of Eric Preston provide a guarantee and indemnity of Eric Preston’s liability under the agreement. Mr Graham Anderson witnessed the signatures of Mr and Mrs Drummond attesting to their agreement to the guarantee and indemnity provisions.

65 On 22 May 2007, Mr Drummond faxed a completed application form to Mr Rice at Opes Prime and asked what further information needed to be supplied. Mr Drummond then telephoned Mr Rice and discussed the application. Also, later that day, Mr Rice sent a fax to Mr Drummond advising Mr Drummond that he would have to complete a further application form in his own name and that he and Mrs Drummond would both need to sign the further forms, one such form was the “Refinancing Instruction Form”. Mr Rice forwarded the forms to Mr Drummond.

66 Mr and Mrs Drummond, on behalf of Eric Preston, executed the “Refinancing Instruction Form” to authorise the pay out of the loan owed by Eric Preston to Leveraged Equities and the transfer of the shares held by Leveraged Equities pursuant to its margin loan. Mr Drummond completed and signed the other forms.

67 On 23 May 2007, Mr Drummond faxed the completed application forms to Mr Rice.

68 On 24 May 2007, Mr Caldow, after having spoken to Mr Drummond, spoke to Mr Rice about getting a better interest rate from Opes Prime for Eric Preston.

69 On 24 May 2007, Mr Drummond sent Mr Anderson two emails attaching the Opes Prime Financial Services Guide and a string of emails between Mr Rice and Mr Caldow relating to the loan to value ratio, interest rates and trailing commissions in respect of the Opes Prime facility. There was an issue as to the extent to which Mr Anderson gave Mr Drummond advice about the entry of Eric Preston into the Opes Prime facility agreement. I will deal with this issue later in these reasons.

70 The Securities Lending and Borrowing Agreement (SLBA) between Eric Preston and Opes Prime contained among other clauses, the following clauses. Clause 1.1 of the SLBA provided as follows:

1.1 The Lender will lend Securities to the Borrower, and the Borrower will borrow Securities from the Lender, in accordance with the terms of this Agreement, regardless of which party is the Lender. In all cases Opes Prime must have received from the Client and accepted (by whatever means) a Borrowing Request, regardless of which party is the Lender.

Unless otherwise stated in a Confirmation or other correspondence, if Opes Prime is the Borrower of Securities, the Fee initially will be interest on the Cash Collateral at the rata and with such other components as otherwise advised to the Client.

71 Clause 2 of the SLBA provided as follows:

2.1 The Lender will procure the delivery of Securities to the Borrower or deliver such Securities in accordance with the relevant Borrowing Request together with appropriate instructions for or instruments of transfer (if necessary) duly stamped (if necessary) and such other instruments (if any) as required to vest title absolutely in the Borrower.

2.2 Such Securities will be deemed to have been delivered by the Lender to the Borrower on delivery to the Borrower or as it directs of the relevant instruments of transfer and certificates or other documents of title (if any), or in the case of Securities title to which is registered in a computer based system which provides for the recording and transfer of title to the same by way of electronic entries (such as CHESS), on the transfer of title in accordance with the rules and procedures of such system as in force from time to time, or by such other means as may be agreed.

72 Clause 3.1 of the SLBA provided as follows:

3.1 The Parties must execute and deliver all necessary documents and give all necessary instructions to procure that all right, title and interest in:

1.1.1.1 any Securities borrowed pursuant to clause 1;

1.1.1.2 any Equivalent Securities redelivered pursuant to clause 6;

1.1.1.3 any Collateral delivered pursuant to clause 5;

1.1.1.4 any Equivalent Collateral redelivered pursuant to clauses 5 or 6;

will pass absolutely from one Party to the other, free from all liens, charges, equities and encumbrances, on delivery or redelivery of the same in accordance with this Agreement. In the case of Securities, Collateral, Equivalent Securities or Equivalent Collateral title to which is registered in a computer based system which provides for the recording and transfer of title to the same by way of electronic entries, delivery and transfer of title will take place in accordance with the rules and procedures of such system as in force from time to time.

73 Clause 6.1 and cl 6.2 of the SLBA provided as follows:

6.1 The Borrower undertakes to redeliver Equivalent Securities in accordance with this Agreement and the terms of the relevant Borrowing Request.

6.2 Subject to clause 7 and the terms of the relevant Borrowing Request, the Lender may call for the redelivery of all or any Equivalent Securities at any time by giving notice on any Business Day of not less than the Standard Settlement Time for such Equivalent Securities or the equivalent time on the exchange or in the clearing organisation through which the relevant borrowed Securities were originally delivered. The Borrower must redeliver such Equivalent Securities not later than the expiry of such notice in accordance with the Lender’s Instructions.

74 Clause 7.1 of the SLBA provided as follows:

7.1 On the date and time that Equivalent Securities are required to be redelivered by the Borrower in accordance with the provisions of this Agreement, the Collateral Taker will simultaneously redeliver the Equivalent Collateral and pay any Cash Collateral (in respect of the Equivalent Securities to be redelivered) to the Collateral Provider. Neither Party is obliged to make delivery (or to make a payment as the case may be) to the other unless it is satisfied that the other Party will make such delivery (or make an appropriate payment as the case may be) to it simultaneously. If it is not so satisfied (whether because an Event of Default has occurred in respect of the other Party or otherwise), it will notify the other Party and, unless that other Party has made arrangements which are sufficient to assure full delivery (or the appropriate payment as the case may be) to the notifying Party, the notifying Party will (provided it is itself in a position, and willing, to perform its own obligations) may withhold delivery (or payment, as the case may be) to the other Party.

75 At 1 June 2007, Eric Preston had a share portfolio of a market value of $5,552,375.60. It had a balance outstanding on the margin loan with Leveraged Equities of $1,812,076.27. However, because Leveraged Equities would only lend against some of the stocks in Eric Preston’s share portfolio, the portfolio had a margin value of $1,593,582.61. There was a shortfall in respect of the margin loan in an amount of $218,493.66.

76 On 1 June 2007, Opes Prime paid the balance outstanding on Eric Preston’s Leveraged Equities account to Leveraged Equities.

77 During the period 1 June 2007 to 4 June 2007, the securities held on behalf of Eric Preston by Leveraged Equities were transferred. The Portfolio Statement issued by Opes Prime to Eric Preston for the period 1 June 2007 to 29 June 2007 records that the following shares were transferred by Leveraged Equities:

1,000,000	BPT
100,000	IPM
3,000, 000	ITC
250,000	MDL
200,000	OXR
17,950	PBD
2,000,000	SDL
5,236,763	SEA
571,429	SEAO
500,000	TFE
6500	VMG

78 On 30 May 2007, Mr Caldow, on the instructions of Mr Drummond, on behalf of Eric Preston, completed a Euroz Securities’ document opening an account for Eric Preston to trade using the Opes Prime facility, which contained the following question from Euroz Securities as to risk profile:

Euroz Securities Limited has an obligation to ask you for particulars of your investment objectives, financial situation and specific needs in order to make recommendations appropriate to you. Please be advised that if you do not want to provide this information it may inhibit your advisor’s ability to recommend appropriate investments in relation to your financial position.

79 Mr Drummond instructed Mr Caldow to answer that question by stating that he did not wish to disclose the details of Eric Preston’s investment objectives, financial situation and specific needs.

80 Eric Preston commenced trading using the Opes Prime facility on 31 May 2007 with the purchase of a further 239,000 shares in Sundance Energy. Thereafter, until 27 March 2008, Mr Drummond used the Opes Prime facility extensively as a means of financing of the share trading activities of Eric Preston. During that period Eric Preston transacted more than 340 trades.

81 In June 2007, Mr Rice of Opes Prime prepared a brochure in consultation with Mr Yeo of Euroz Securities, setting out the loan to value ratios which Opes Prime would offer in relation to stocks which were on the Euroz Securities research list. The Opes Prime brochure is headed “Equity Financing” and described “equity financing” as “the lodging of securities with Opes Prime to borrow money to invest in other securities”.

82 On 14 August 2007, Mr Caldow attended a meeting of the board of directors of Euroz Securities. Also present was, among others, Mr Yeo. The minutes of that meeting record the following:

Mr Yeo tabled and read to his report on the retail desk...He highlighted:

...

• Clients switching to Opes from LE based on new interest charges for loans under 50k.
  

83 From August 2007, Mr Drummond started meeting regularly with Mr Caldow and, from September 2007, with Mr Peter Diamond of Euroz Securities for a beer and a chat at the Captain Stirling Hotel in Nedlands at the end of the trading day. These meetings continued until March 2008.

84 As previously mentioned, Mr Drummond was very favourably disposed to Sundance Energy shares. In early 2007, Mr Caldow said words to the following effect to Mr Drummond in relation to Eric Preston’s holding in Sundance Energy shares:

I don’t think you should go to 5% and you realise that if you do you need to put in a substantial shareholder notice.

85 Whilst Mr Caldow was away on holiday during the period 15 September 2007 to 15 October 2007, Mr Drummond purchased another one million shares in Sundance Energy which increased Eric Preston’s holding in Sundance Energy to in excess of five per cent. After Mr Caldow returned from his holiday, Mr Caldow during a telephone conversation advised Mr Drummond that Eric Preston would need to file a “substantial shareholder notice” because it had exceeded a five per cent holding. Mr Drummond said that he had better speak to Mr Anderson about it.

86 Mr Drummond then spoke to Mr Anderson. Thereafter, Mr Drummond telephoned Mr Caldow and reported that he had spoken to Mr Anderson who had said that it was not necessary to lodge a substantial shareholder notice as the shares were held by ANZ and that ANZ held 27 million of these shares.

87 By an email dated 4 October 2007, from Mr Rice to Mr Yeo, Mr Rice advised Mr Yeo that Opes Prime sponsored a V8 Supercar and invited Mr Yeo to nominate some Euroz Securities’ employees to attend the Indy Car Race at the Gold Coast on 19 October 2007, as the guests of Opes Prime. Mr Yeo duly nominated four advisors to attend the Indy Car Race in response to Opes Prime’s invitation.

88 On 19 December 2007, Mr Rice sent Mr Yeo an email inviting four of the Euroz Securities advisors to join Opes Prime at the semi-final of the Australian Open tennis tournament. The invitation was to have dinner and drinks followed by the tennis. Mr Yeo responded by an email saying that there was plenty of interest in the invitation and asking Mr Rice to send him a list of Euroz Securities advisors and “their total loan balances”. Opes Prime then sent Mr Yeo the list he requested. This list named each of the Euroz Securities advisors (who was described as a “referrer”), the clients of Euroz Securities whom each had referred to Opes Prime, and the balance outstanding to Opes Prime on each client’s loan. The list showed that the total number of persons referred by Euroz Securities “referrers” was 53. This included Eric Preston. The balance outstanding on Eric Preston’s loan was $2,990,045.98. The list of persons with Opes Prime facilities also included a number of employees of Euroz Securities, and relatives of employees of Euroz Securities. Among those persons was Mr Caldow’s brother-in-law and sister-in-law.

89 In late January 2008, Ms Nicola Thiel of Leveraged Equities attended a meeting of Euroz Securities brokers at their premises. As mentioned, by that time there were over 50 stockbroking clients of Euroz Securities who had entered into securities lending and borrowing agreements with Opes Prime as a means of financing their respective share trading activities.

90 After that meeting Ms Thiel and Mr Caldow had a conversation. In the course of that conversation, Ms Thiel told Mr Caldow that a client who has an Opes Prime facility transfers ownership in the shares to Opes Prime and Opes Prime on-transfers ownership in the shares to obtain its funding from banks. This meant that the stocks were not held in the client’s name, but were held by ANZ.

91 After that conversation with Ms Thiel, Mr Caldow raised this issue with Mr Yeo who said that he would check with Opes Prime.

92 On 31 January 2008, Mr Brittain of Euroz Securities read an article in The Australian newspaper which was written by Ms Adele Ferguson entitled “Banks put squeeze on Tricom”. The article included the following statements:

ANZ has given Tricom managing director Lance Rosenberg only days to reduce the broker’s margin loan book.

Tricom yesterday belatedly settled its trades with the Australian Securities Exchange following a crisis that began just over a week ago when the share market lost 5 per cent in one day, triggering margin calls.

Tricom’s main creditors, ANZ, Merrill Lynch and Credit Suisse, then effectively froze Tricom’s accounts.

Tricom, which holds about 29,000 accounts, was forced to sell shares it financed on behalf of clients...

...

The Tricom model is such that clients who take out a securities lending agreement (similar to a margin loan) sign away their beneficial ownership of the shares to Tricom.

This can leave clients as unsecured creditors behind the banks.

The calibre of Tricom’s clients is unknown because they are not required to provide financial details to get a securities lending agreement. They just have to tick a box and agree to collateral of cash or shares.

“When you provide shares as collateral, you transfer them to us absolutely,” the Tricom securities lending agreement booklet says.

So, when a client takes out a securities lending agreement, the shares the client buys are transferred to Tricom, which takes on the beneficial ownership of the shares. This means the client takes on Tricom’s credit risk.

The most likely reason a client goes to Tricom is because Tricom does not require the documentation of other margin lenders, such as ability to prove financial worth or ability to pay.

“Some people who take out loans with Tricom don’t have all the financials required to get a traditional loan,” one broker said.

Tricom’s bankers, ANZ, Merrill Lynch and Credit Suisse, have contracts with Tricom, not with Tricom’s clients. That is how they have the power to freeze Tricom’s accounts and force Tricom to sell shares when there is a margin call.

The common perception among many of Tricom’s clients is that the shares belong to them, but when they take out a securities lending agreement with Tricom they sign the beneficial ownership of those shares to Tricom. It is this that makes Tricom different to most other margin lenders. They don’t own shares on trust for the client.

In most cases margin lenders hold shares in a separate account in the client’s name. In Tricom’s case, the shares get mixed in with Tricom’s and everyone else’s shares, providing securities to the banks that provide margin loans to Tricom.

The exact wording in Tricom’s securities lending explanatory booklet is: “The margin lending facility operates through a securities lending agreement for your competitive advantage. This differs from many of the traditional margin lending facilities. Although we refer to ‘lending’ and ‘borrowing’ securities, the securities are actually transferred absolutely to the other party.”

It continues: “When you lodged securities as margin cover or against the loan we make to you, you are transferring those shares absolutely to Tricom. You do not retain any beneficial ownership in the shares you lend to Tricom. Ordinarily Tricom will on-lend the securities it receives on a loan from you, participating in the extensive securities lending market in Australia. That securities lending market is not specifically regulated and you have no rights relating to the securities loan under any exchange market rules.”

93 Mr Brittain also discussed the article with Mr Yeo and Mr Hewett. Mr Yeo and Mr Hewett spoke to Mr Rice at Opes Prime about the nature of the Opes Prime facility. Mr Rice sent an email in response to the matters raised by Mr Yeo and Mr Hewett. The email stated:

Further to our discussions, please find following an explanation of our structure and current position.

Opes Prime operates under a securities lending and borrowing structure, such that the legal ownership of stocks passes to Opes Prime and the client retains full economic and beneficial ownership of the shares. The stock will most commonly be registered in the name of ANZ Nominees who are our nominee/custodian.

We source the funding for the book through securities lending and borrowing arrangements with a number of counterparties, including ANZ, Merrill Lynch and Dresdner.

The risk associated with this structure is if Opes Prime was to become insolvent then the clients would become unsecured creditors of Opes Prime for the difference between the market value of their securities and the amount they have borrowed from us.

Please note the following about the structure of Opes Prime Stockbroking:

• We are a full market participant of the ASX and are subject to the ASX Operational and ACH Clearing Rules;
• We have an AFSL and are subject to ASIC rules and regulations;
• These regulations require Opes Prime to maintain various Risk Management and Compliance processes and procedures;
• As an ASX participant we must calculate and report our capital adequacy requirements on a daily basis;
• We are regularly audited by ASX as all participants are;
• We are audited by Ernst & Young;
• A reasonable portion of our total assets under management are held in short positions, which provides a degree of protection in market downturns;
• We receive value from our funders on all stocks which we provide a LVR against and to lower the risk, provide a lower LVR to our client than that we receive from our funders. We are not using excess collateral on large stocks to provide a LVR against lower market cap stocks;
• Our long book is geared conservatively and we have significant buffers available. During the recent market volatility, we have conducted stress testing on our book and are comfortable where we are placed. Our analysis indicated that the market would have to fall by a further 20% or more and none of our clients meet any of their margin calls for us to have an issue. Needless to say, the risk of every single client failing to meet their margin calls is so unlikely as to be negligible;
• In the event of a significant rapid market correction, we have the capacity to raise cash through sources, other than our securities lending and borrowing arrangements with our funders, to meet margin calls with our funders while our clients are meeting their margin calls; and
• Our funders completed significant due diligence before and on an ongoing basis on our operations. For example, both ANZ and Merrill Lynch have been in contact with us in the past few days to expressly state their continued support and their desire that we should continue our business with them. Both expressed that they felt this way based on our past performance, our experience, procedures and prudence, and our evident IT capabilities.
  

The risk management procedures that we have in place include the following:

• Processes for setting up clients that include credit checking and other verification processes to give us surety around client’s capacity to meet margin calls;
• Use of standard legal agreements;
• We have an Operational Risk team to monitor client positions;
• We monitor and margin client positions on a daily basis; and
• A clear methodology for determining our lending criteria for securities that is based on a number of factors including market capitalisation, liquidity, concentration and diversification of portfolio.
  

In respect of clients not meeting margin calls in agreed timelines, then we will sell down their portfolio to bring the portfolio back into position, in line with margin lending industry practice.

With these policies and procedures in place, we are confident that the firm is in a strong position and more than capable of managing market volatility.

Our overall value proposition of product, credit, service and price are extremely competitive if not market leading and we will continue to work with all our partners to provide innovative financial solutions to help everyone grow their businesses.

I am more than happy to provide you further information and speak to anyone about concerns they may have.

94 On 31 January 2008, Mr Brittain arranged for an email to be sent from Mr Hewett to all brokers attaching a statement regarding Opes Prime and also Tricom. Mr Yeo then instructed all the retail brokers including Mr Caldow to send out the email to their clients. Mr Caldow did so.

95 On 1 February 2008, Mr Drummond received an email from Mr Caldow. The email stated:

General Margin Lending Comments from Euroz Securities

We refer to recent media articles about the ASX settlement difficulties being experienced by Tricom Equities Limited and the potential exposures of their clients. The problems being experienced by Tricom are largely as a result of the margin lending business that they operate which has been exposed to the significant decline in value of some of their substantial stock positions.

Euroz Securities would like to highlight that we do not operate any margin lending business and have no direct exposure to Tricom or any of their operations.

However, some of our clients have entered into securities lending arrangement and it is worth highlighting the fundamental differences in the borrowing arrangements between a securities lender (eg Tricom, Opes Prime) versus traditional margin lenders (like St George, Leveraged Equities, BT, etc).

Typically securities lenders provide more attractive interest rates than margin lenders, lend on a greater number of stocks than margin lenders and provide a higher loan to value ratio (LVR) for the stocks on which the lend. Importantly the client is not required to provide detailed financial information to get a securities lending agreement. One significant point is that the securities lending model requires legal ownership to pass from the client to the securities lender and often the stock is held in a pooled account rather than segregated by individual client HIN. This means that all the shares for all the clients get mixed in together with the securities lenders and this pool is used as security by the banks that provide the loans to securities lender.

The risk associated with this structure is that if the securities lender was to become insolvent then the clients would become unsecured creditors of the lender for the difference between the market value of their securities and the amount they have borrowed. Please note that the securities lending market is not specifically regulated and there are no rights relating to the securities loan under any stock exchange market rules.

There are obviously some benefits in the securities lending arrangements, however, equally you need to consider the additional risks. In the light of the recent issues, these risks may warrant reassessment.

96 In early February 2008, Mr Brittain prepared a document described as the “Operations Monthly Report for January 2008”. It was distributed by email to Mr Diamond for review on 8 February 2008, and was then included in the board papers for the meeting of directors of Euroz Securities on 19 February 2008. The report contained the following entry under the heading “Risk Management and Compliance”:

• Issue at ASX on 29 January 2008 resulting in delay to the cash settlement process and caused by Tricom being unable to meet their settlement obligation. This has resulted in a review of our securities lending operations with Opes given the higher risk associated with these products.
  
• Evaluating a further issue the above highlighted with respect to our authority to advise clients regarding their securities lending arrangements and whether this requires a change to our AFSL.
  

97 Mr Rice of Opes Prime came to Perth and met with representatives of Euroz Securities on 5 February or 6 February 2008. During the course of the meeting, Mr Rice made a number of statements. These statements were to the following effect:

Opes was a participant in the ASX and therefore calculated and reported its capital and equity requirements to the ASX on a daily basis;

Opes was regularly audited by the ASX and ASIC;

Opes had the full support of the ANZ and their other banks;

Opes was audited by Ernst & Young;

For Opes to have an issue the Australian Stock Market would need to fall by 20% in a day; and none of its client’s paid their margin calls.

98 At the meeting, in response to a query from Mr Brittain, Mr Rice confirmed that if Opes Prime went down, the client would be an unsecured creditor of Opes Prime.

99 After the meeting Mr Caldow telephoned Mr Drummond and reported on what Mr Rice had said at the meeting. The content of this telephone conversation is an important issue in this case. I discuss this issue in detail below. However, it is accepted that during that telephone conversation Mr Caldow said that he was passing on information which he had heard from Mr Rice, and that if Mr Drummond wished to discuss the information further that Mr Drummond should telephone Mr Rice.

100 Subsequently, Mr Drummond did telephone Mr Rice and discuss the financial position of Opes Prime with Mr Rice.

101 On 6 February 2008, after he had spoken to Mr Rice, Mr Drummond consulted with Mr Anderson. Mr Anderson advised Mr Drummond that he had worked too hard and too long to take any risk in relation to the Opes Prime facility. Mr Drummond then told Mr Caldow of the conversation that he had had with Mr Anderson. Mr Caldow said to Mr Drummond that he could not agree more with Mr Anderson’s advice. A few days later, Mr Caldow and Mr Drummond had a telephone conversation. Mr Drummond asked how he could get out of Opes Prime. Mr Caldow said he could sell down some stock and pay out the loan, or he could refinance.

102 Shortly thereafter, Mr Caldow emailed Leveraged Equities inquiring as to whether it would refinance the Opes Prime facility by providing a margin loan to Eric Preston. He sent details of Eric Preston’s existing share portfolio.

103 Mr Drummond, on behalf of Eric Preston, continued to use the Opes Prime facility to trade in shares, after receiving the email of 1 February 2008 and the advice from Mr Anderson and Mr Caldow.

104 On 11 February 2008, Mr Caldow received an email from Leveraged Equities saying that it would not refinance the Opes Prime facility of Eric Preston because of the nature of the stocks in Eric Preston’s portfolio. Mr Caldow forwarded this email to Mr Drummond.

105 On 11 February 2008, Mr Drummond also emailed CommSec stating that he was looking at opening a margin loan account and inquiring as to the loan to value ratios CommSec would allow in respect of Cooper Energy, OM Holdings, Sundance Energy and Territory Resources. CommSec replied later that day, in effect, stating that it would not provide a margin loan on the basis of the security comprising shares in those companies.

106 On Monday, 11 February 2008, an article appeared in the Australian Financial Review headed “Opes Prime ‘doing fine’ in volatile market”. The paragraphs of the article read:

Broker Opes Prime last week distanced itself from troubled rival Tricom Equities, which has been forced to reduce the size of its loan book after failing to settle trades on time two weeks ago.

Melbourne-based Opes Prime said there had not been a significant increase in margin calls to its clients in January and early February when the benchmark S&P/ASX 200 Index plunged nearly 11 per cent.

Banks such as Commonwealth Bank of Australia, Macquarie Bank and Westpac Banking Corporation experienced a big rise in margin calls and removed some companies from the margin lists.

Opes Prime executive director Julian Smith attributed the strength of recent trading to the diverse nature of clients’ portfolios. It tends to lend against a portfolio of shares so if the price of one share falls sharply, Opes Prime can often increase the loan against other shares to compensate.

Mr Smith said Opes Prime had margin calls on less than 2 per cent of its book and that figure was decreasing rapidly.

Even at the height of volatility in the market, our total client margin calls did not go beyond 7 per cent...At that sort of amount, we do not have any cause for concern.

Mr Smith said the firm had held extra discussions with its bankers, which include Australia & New Zealand Banking Group and Merrill Lynch, during the past few weeks, and the lenders had expressed their full confidence in the company.

“They all said to us they were very happy and that we should continue to do what we are doing,” he said, and January had been a “very good month” as business inflows picked up.

Plans to float on the ASX via a backdoor listing through quoted shell company Reco were on track, Mr Smith said, but he declined further comment.

The broker has a loan book of $1 billion against $2 billion of assets.

The firm’s large investment in information technology systems was another reason behind its ability to cope with the recent volatile equity markets, and its business model as a stock lender rather than a margin lender gave it more flexibility...

107 On Tuesday, 12 February 2008, there was a board meeting of Euroz Securities. Among those present at the board meeting were Mr Caldow and Mr Yeo. The minutes of that board meeting record the following:

Mr McKenzie tabled and read to Mr Diamonds report on financials...He highlighted:

...

• OPES positions – reduction in positions held with OPES
• A discussion on EZL held in OPES was held
• It was RESOLVED that no staff were to hold their EZL on an OPES account
• A discussion about the market conditions (current and expected) was held.
  

108 Later in February 2008, Mr Drummond, on behalf of Eric Preston, also applied to the National Australia Bank Limited (NAB) for a margin loan secured against the Eric Preston share portfolio in order to refinance the Opes Prime facility. The NAB advised that it would not refinance the Opes Prime facility on the basis only of the Eric Preston’s portfolio. It would, however, provide a loan secured against Mr and Mrs Drummond’s house. Mr Drummond would not agree to that.

109 On 18 March 2008, there was a meeting of the board of directors of Euroz Securities. Among those present were Mr Yeo and Mr Caldow. The minutes of the meeting record as follows:

Mr McKenzie tabled and read to Mr Diamonds Report on financials...He highlighted:

• OPES positions – reduction in EZL positions held with OPES

Comment: S Yeo commented that he had discussed EZL positions with NAB and OPES and that they had a positive view on how those positions would be managed.

• Brokerage about 4-5 best month this year. However March could see reductions in brokerage due to market conditions.
  

110 During the period 1 February 2008 to 27 March 2008, Mr Drummond made 68 trades using the Opes Prime facility. There was no diminution in the amount of trading engaged in by Eric Preston during that period compared to the level of trading engaged in by Eric Preston during the period after the Opes Prime facility was entered into and 1 February 2008.

111 On 27 March 2008, administrators were appointed to Opes Prime.

112 On 28 March 2008, Mr Yeo rang Mr Caldow at approximately 7 am and said words to the effect that Opes Prime had gone into administration.

113 As at 27 March 2008, Eric Preston held a portfolio worth $7,822,957.15. The portfolio was comprised of the following shares:

6,000	APP
30,000	BHP
850,000	COE
743,685	OMH
11,400,000	SEA

114 On 27 March 2008, the amount outstanding on Eric Preston’s Opes Prime facility was $3,075,143.

115 On 28 March 2008, Mr Russell Kane, a director of Euroz Securities, sent Mr Jay Hughes, the executive director of Euroz Limited, and also a director of Euroz Securities, an email in the following terms:

How the f#$#$K can we have a client with $5-6m exposure to OPES prime.

I am sorry but that is dumb.

116 On 15 October 2008, liquidators were appointed to Opes Prime. Eric Preston has filed a proof of debt in the sum of $5,389,251.09.

117 On 4 August 2009, a scheme of arrangement was entered into between Opes Prime and its creditors. The parties have proceeded on the basis that the indications are that Eric Preston will recover around 37 cents in the dollar from the scheme of arrangement.

118 I make findings in terms of the description of the events and circumstances described in [9]-[117] above.

ERIC PRESTON’S CLAIM AGAINST EUROZ SECURITIES

119 On 20 May 2008, Eric Preston commenced this proceeding. The pleadings were amended during the course of the trial. Eric Preston amended its statement of claim and Euroz Securities amended its defence and counterclaim.

120 Further, on 25 September 2009, each of Eric Preston and Euroz Securities was given leave to reopen their respective cases, to permit Eric Preston to introduce further evidence comprising the Operations Monthly Report for January 2008 prepared by Mr Brittain and to permit the parties to make further submissions in relation to issues arising from that report. Also, by orders made on 11 November 2009, leave was given to Eric Preston to reopen its case to permit it to tender documents relating to the filing of Eric Preston’s proof of debt and the scheme of arrangement, entered into on 4 August 2009. I also sought submissions from the parties as to how I was to treat the fact that there was a prospect that Eric Preston would receive a dividend from the scheme of arrangement in the disposition of this proceeding. I received fulsome submissions on this issue. However, in light of the conclusions to which I have come, it is unnecessary to address those submissions.

121 Eric Preston relies upon the following causes of action:

(a) breach of contract,

(b) breach of a duty of care allegedly owed by Euroz Securities to Eric Preston,

(c) damages arising from misleading or deceptive conduct in contravention of the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth), and

(d) breach of fiduciary duty.

THE WITNESSES

Eric Preston’s witnesses

122 The following persons gave evidence as part of Eric Preston’s case: Mr Drummond, Mrs Drummond, Mr Anderson, Mr Blashki and Mr McKimm.

Mr Bruce Scott Drummond

123 Mr Drummond swore five affidavits. The first affidavit was sworn on 9 September 2008. This is Mr Drummond’s primary affidavit. The second affidavit was sworn on 19 November 2008. Mr Drummond annexed to his second affidavit a copy of statements issued by Euroz Securities setting out Eric Preston’s share trading activity between January 2004 and April 2008. There are also statements from each of Leveraged Equities and Opes Prime, relating to Eric Preston’s share trading using the respective facilities.

124 Mr Drummond’s third affidavit was sworn on 25 February 2009. This affidavit was sworn after Mr Drummond had seen the affidavit of Mr Caldow sworn on 30 December 2008 and the affidavit of Mr Brittain sworn on 5 January 2009. This affidavit responds to statements made in the affidavits of Mr Caldow and Mr Brittain.

125 Mr Drummond’s fourth affidavit was sworn on 15 March 2009, the day before the commencement of the trial. In this affidavit, Mr Drummond refers to, and seeks to supplement or explain statements made in his previous affidavits. Mr Drummond’s fifth affidavit was sworn during the trial on 24 March 2009, and related to the giving of further discovery.

126 Mr Drummond’s evidence was unsatisfactory and must be approached with caution. This is particularly so in relation to the evidence which is contained in his affidavits and which relates to his dealings with Mr Caldow. In my view, significant aspects of Mr Drummond’s evidence, particularly his affidavit evidence, was tailored so as to accommodate the case which he and his lawyers sought to advance.

127 In his first affidavit, in particular, Mr Drummond omitted to refer to a number of matters which would have formed part of an accurate account of the events which occurred, but which had the propensity to undermine the case which he sought to make. As I mention in my reasons below, a significant example of Mr Drummond creating a misleading impression through omission, occurred in relation to his evidence about his existing relationship with Leveraged Equities at the time that he entered into the Opus Prime facility. In his first affidavit, Mr Drummond sought to create the impression that he enjoyed a good relationship with Leveraged Equities and that it was only through the intervention of Mr Caldow that that good relationship was severed. It was only after he learned that Mr Caldow had deposed in his affidavit to the complaints that Mr Drummond had made to him about Leveraged Equities, that Mr Drummond acknowledged in his third affidavit that he had not been content with the facilities which were available to him under the Leveraged Equities facility.

128 A further example of Mr Drummond failing to be frank as to circumstances and events in his first affidavit which had a propensity to undermine the case he sought to advance, was the failure to mention the extent to which he dealt with Mr Rice of Opes Prime, directly, before entering into the Opes Prime facility. Mr Drummond makes no mention of the fact that he telephoned Mr Rice on 17 May 2007, about the Opes Prime facility, nor the fact that he had sought Mr Rice’s assistance with the completion of the application forms.

129 Yet a further example of the tailoring of Mr Drummond’s evidence in his first affidavit, relates to his evidence about the conversation in February 2008 with Mr Caldow when Mr Caldow reported on Mr Rice’s meeting with Euroz Securities advisors. Mr Drummond fails to refer to the fact that Mr Caldow had said that he should telephone Mr Rice directly, if he wanted to find out more about Opes Prime’s financial position, and that he had subsequently done so. I deal with this matter in more detail below.

130 I also refer in my reasons below, to another significant attempt by Mr Drummond to tailor his affidavit evidence for the purposes of advancing the case sought to be made. This relates to para 3 of the fourth affidavit made by Mr Drummond, which sought to tailor evidence to diminish the significance of the fact that Mr Drummond had deposed that he had sought advice from Mr Anderson (and not Mr Caldow) as to whether it was prudent for Eric Preston to enter into the Leveraged Equities facility. It was also an attempt to reconcile Mr Drummond’s evidence with the contrary evidence of Mr Anderson.

131 Further, during cross-examination, Mr Drummond departed from the evidence which he had given in his affidavits in respect to matters of significance to the disposition of this case. I have set out in my reasons below a number of instances when this occurred. Another instance, which has some significance, relates to the nature of the language used by Mr Drummond when expressing dissatisfaction with services or institutions. In his affidavit, Mr Caldow deposed that Mr Drummond had in late 2005 or early 2006, whilst using particularly colourful language, threatened to sue him in relation to what Mr Drummond saw as Euroz Securities’ failure to pay Eric Preston a sub-underwriting fee. Mr Caldow also referred in his affidavit to other conversations in which Mr Drummond had sworn and used colourful language in relation to his criticism of Leveraged Equities and his description of banks. In his third affidavit, Mr Drummond denied that he had threatened Mr Caldow, or swore at him during the discussion about the sub-underwriting fee. He also denied using the colourful language Mr Caldow described when recounting Mr Drummond’s criticisms of the service provided by Leveraged Equities and banks. In his cross-examination, Mr Drummond initially denied that he had ever used abusive language or swore at Mr Caldow, he finally conceded, however, that there had been occasions when he became frustrated and swore at Mr Caldow. Further, it is apparent from the tenor of the emails between Mr Drummond and Mr Anderson, particularly the email of 11 December 2006, and the concessions finally made by Mr Drummond, that Mr Drummond is not averse to using colourful language in his communications with those persons with whom he has a close relationship. In my view, this also bears upon the weight to be accorded to the evidence of the conversations between Mr Caldow and Mr Drummond, as deposed to by Mr Drummond and Mr Caldow in their respective affidavits. Mr Caldow’s version of the conversations is couched in colloquial language, including colourful language, which has the ring of truth, bearing in mind what I have just said as to the propensity of Mr Drummond to use language of that nature on some occasions. On the other hand, the conversations deposed to by Mr Drummond are couched in the stilted and artificial language used by lawyers seeking to advance a case on behalf of their client.

132 I prefer the evidence of Mr Caldow to that of Mr Drummond where their evidence conflicts.

Mrs Judith Maree Drummond

133 Mrs Judith Maree Drummond, who is the wife of Mr Drummond and a director of Eric Preston, swore two affidavits. The first affidavit was sworn on 9 September 2008. The second affidavit was sworn on 15 March 2009. There was no challenge to the credibility of Mrs Drummond.

Mr Graham Douglas Anderson

134 Mr Graham Douglas Anderson swore two affidavits dated 9 September 2008 and 25 February 2009 respectively. Mr Anderson swore his second affidavit after he had seen the affidavits of Mr Caldow and Mr Brittain sworn on 30 December 2008 and 5 January 2009 respectively.

135 Mr Anderson is the managing director of a corporate advisory firm, GDA Corporate, which is the trading name for Graham Anderson Pty Ltd. Mr Anderson has operated that business since 1 July 1999. Mr Anderson also operates a financial planning business, Portico Financial Management Pty Ltd. That business has operated since January 2006. Further, during the period 1999 to 2006, Mr Anderson was the principal of Graham D Anderson & Co, chartered accountants and management consultants.

136 Mr Anderson’s evidence must also be approached with caution, particularly insofar as he gave evidence as to the scope of his retainer with Mr Drummond and his associated entities and the extent to which he gave Mr Drummond advice. I say that for the following reasons.

137 Mr Anderson was acutely conscious of the fact that Euroz Securities claimed that he ought to have advised Eric Preston as to the risks associated with entry into the Opes Prime facility. Mr Anderson sought to minimise the extent of his retainer and the scope of professional services which he provided to Mr Drummond and his associated companies, including Eric Preston. In his affidavits, Mr Anderson deposed that there were three discrete areas in respect of which he provided financial services to Mr Drummond and his associated companies. These were advice in relation to the conduct of the car dealership, auditing services of the car dealership companies, and taxation advice as a secondary advisor to Ms Lena Hilton. He repeated this in his answers early in his cross-examination.

138 During the course of cross-examination, Mr Anderson was taken to and asked about a number of emails evidencing his dealings with Mr Drummond in relation to the investment in shares in Natural Fuel. At first, Mr Anderson, unconvincingly, said that the dealings were directed only to keeping him informed of the number of shares and the cost base of those shares for the purpose of preparing accounts. Mr Anderson later conceded that the scope of the dealings extended beyond that limited purpose, and that he had given advice to Mr Drummond in relation to the escrow provisions relating to the Natural Fuel shares. Mr Anderson was taken in cross-examination to a wide range of tasks which he carried out on the instructions of Mr Drummond, which went beyond the scope of the three discrete areas postulated by Mr Anderson. These tasks included, but were certainly not confined to, completing off-market transfer forms, dealing with solicitors in relation to a dispute involving a firm, London Partners, negotiating an off-market sale of shares in Echo Resources, assisting in the application for finance for the purchase of a property in Dunsborough, Western Australia and advice as to whether Eric Preston was required to file a substantial shareholder notice in respect of the number of shares in Sundance Energy which Mr Drummond had acquired on behalf of Eric Preston.

139 Mr Anderson ultimately accepted that he provided business advice to Mr Drummond and his associated companies in respect of all of their commercial activities, other than legal advice and superannuation advice and Eric Preston’s share trading activities.

140 Secondly, Mr Anderson’s evidence as to the limited extent of his retainer was also inconsistent with Mr Drummond’s description of Mr Anderson as his “confidante”. The closeness of the relationship between Mr Drummond and Mr Anderson is demonstrated by the large volume of emails that passed between them and the wide range of matters dealt with in the emails. It is also evident by the fact that in response to a subpoena, Mr Anderson claimed privilege in relation to letters containing legal advice in relation to this proceeding which Mr Drummond had forwarded to him.

Mr Gregory Errol Blashki

141 Mr Gregory Errol Blashki swore an affidavit dated 15 December 2008, which attached an expert report on the assessment of damages. Mr Blashki also prepared a second report. Mr Blashki obtained a Bachelor of Commerce degree from the University of Melbourne in 1974 and is a partner of the accountancy firm, Pitcher Partners. He has been a partner of Pitcher Partners, KPMG and its predecessor firms since 1982. Mr Blashki’s evidence does not raise credibility issues. However, there are aspects of his expert reports with which Mr Pendergast disagreed.

Mr Russell Allan McKimm

142 Mr McKimm is a stockbroker. At the date of the trial, Mr McKimm was a client advisor at Tolhurst Ltd.

143 During the period 2005 to 2007, Mr McKimm was a director of Shaw Stockbroking Ltd. During the period 2001 to 2005, he was a director of Tolhurst Ltd and during the period 1999 to 2001, a director of D & D Tolhurst Ltd. Before that, Mr McKimm was a manager of D & D Tolhurst Ltd, NSW, in the years 1995 to 1999. During the period 1991 to 1995, Mr McKimm was business development manager and head of financial planning at Dicksons Ltd. During the period 1988 to 1991, Mr McKimm was the managing director of Ord Minnett Ltd. Prior to that, during the period 1985 to 1998, Mr McKimm was a director of BZW Australia. Between 1977 and 1985, Mr McKimm was an advisor and then partner of Randall & Company.

144 For the purposes of this proceeding, Mr McKimm prepared a report dated 16 December 2008. Mr McKimm then prepared a supplementary report dated 27 February 2009 and during the course of the trial, he prepared a further supplementary report, dated 24 March 2009.

145 In those reports Mr McKimm answered a number of questions which had been put to him by Eric Preston’s instructing solicitors. In the first report, those questions included questions relating to the advice which a “reasonable and prudent securities advisor” would give a client contemplating entry into a conventional margin loan or a “securities lending margin loan”. He was also asked about the advice which a reasonable and prudent securities advisor would give a client with a securities lending margin loan should the advisor first become aware during the course of the loan of the difference between a conventional margin loan and a securities lending margin loan in circumstances where the securities advisor believes the client may not be aware of the difference between such products.

146 In the supplementary report of 27 February 2009, Mr McKimm opined upon the question of whether Mr Caldow had acted in accordance with the standards of a reasonable and prudent advisor in advising Mr Drummond in relation to the entry into Leveraged Equities margin loans in around 2000 and again in 2003. He relied upon the accuracy of the evidence in Mr Drummond’s affidavits.

147 Mr McKimm also opined on the advice given to Mr Drummond on securities lending and said that Mr Caldow or someone else in Euroz Securities, should have explained to Mr Drummond in clear and plain terms how the Opes Prime facility would operate. Mr McKimm also expressed opinions on the question of the trailing commission and said that it should have been disclosed. Mr McKimm was also asked what Euroz Securities should have done on becoming aware that the Opes Prime facility was a securities lending facility. He opined that not all available options were explored with Mr Drummond so as to avoid the risk. He did not identify those options. Further, he opined that a reasonable and prudent stockbroking firm would have had a process for understanding a sophisticated product like the Opes Prime facility before recommending it to clients.

148 In his further supplementary report, Mr McKimm was asked what a reasonable and prudent stockbroker in Euroz Securities’ position would do, when promoting the Opes Prime product. He also opined that the difference between that product and a conventional margin loan should have been pointed out to the client. He was also asked what a reasonable and prudent stockbroker in the position of Euroz Securities would do when, knowing that a number of its clients and staff were parties to an Opes Prime facility, it discovered that the Opes Prime facilities were share lending facilities. Mr McKimm opined that a reasonable and prudent stockbroker should have investigated with diligence the credit worthiness of Opes Prime. If the investigation did not provide an assurance, clients should be advised that the broker could not make an assessment of the position and clients should be advised to make their own assessment or immediately exit the facility, if they were unable to make the assessment. He also opined that a reasonable and prudent advisor would take legal advice and carry out an analysis of the stocks which clients had lodged with Opes Prime and determine the clients’ exposure.

149 Mr McKimm was also asked if Opes Prime had told Euroz Securities that for it to be in trouble financially the share market would have to fall 20% in one day and no client meet a margin call on Opes Prime facilities, what a reasonable and prudent stockbroker would have done in response to this. He said that the response was superficial and that a prudent stockbroker in the position of Euroz Securities should have tried to reliably ascertain what Opes Prime’s exposure to the market was referrable to the stocks it lent on. He said that it was not a question of whether all clients would fail to meet margin calls but rather the relative exposure of major clients of Opes Prime to margin calls. If this could not be assessed then it would cause the reasonable and prudent broker to regard the issue as urgent and to advise the client that the risks were significant. He was also asked questions as to the role of a compliance manager and responsible executive for compliance of a stockbroking firm.

150 In his first report Mr McKimm stated:

Assumptions:

2. I have been instructed to assume the facts and circumstances set out in the statement of claim dated 20 May 2008, the reply and defence [sic] dated 21 July 2008 and the witness statements of Bruce Scott Drummond, Judith Maree Drummond and Graham Douglas Anderson.
   
3. I have also been instructed to assume that the chronology of events, as provided by Slater & Gordon is [sic] Appendix A, is materially correct.
   
4. I have based my opinions on these facts as assumed.
   

151 The statement of claim on which Mr McKimm relied to express his opinions contains the allegation that the retainer between Eric Preston and Euroz Securities was to act as a stockbroker and financial advisor. This is expressly pleaded in para 3 of the statement of claim. Further, para 2(c) of the statement of claim pleaded that Euroz Securities was at all material times, a “stockbroker and financial products and services advisor”. Also, the particulars to the plea in para 3, that Euroz Securities agreed to act as Eric Preston’s financial advisor, state that Mr Caldow had said to Mr Drummond in 2000, that Euroz Securities would be happy to act as “stockbroker and financial advisor to Eric Preston”.

152 It follows, that in giving his opinions, Mr McKimm assumed that the retainer between Eric Preston extended to giving financial advice in relation to third party financial products. I have found in the reasons which follow, that Eric Preston has failed to establish that the scope of the retainer extended to an undertaking by Euroz Securities to act as a financial advisor to Eric Preston. It follows that Eric Preston has failed to establish a fundamental assumption on which it asked Mr McKimm to assume in relation to the provision of his opinion.

153 It follows that the opinions expressed by Mr McKimm as to the standard to be adopted by a reasonable and prudent stockbroker, or (as Mr McKimm uses the terms interchangeably in his opinions), a reasonable and prudent securities advisor, have no application to the resolution of the core issues in this case. They, accordingly, are irrelevant and, alternatively, are to be accorded no weight.

154 I note that in Mr McKimm’s supplementary report, he refers to the fact that he had been provided with a copy of the defence. However, in cross-examination Mr McKimm showed little consciousness of the content, or import, of the defence. During the cross-examination of Mr McKimm in relation to the statement in his supplementary report, that since his first report, he had seen the defence, the following exchange occurred (transcript at 576):

And you were given, for the first time, the defence?---I might have to check on that but – is that - - -

Well, don’t you remember?---No, the report was done some time ago.

Well, you familiarised yourself with it for the purpose of giving evidence, no doubt?---Yes. Your Honour, I haven’t got the papers in front of me. I can’t honestly say.

155 The report to which Mr McKimm referred had in fact been prepared less than a month before Mr McKimm was cross-examined.

156 In my view, Mr McKimm was not conscious of the content, or import of, the defence and the attendant controversy as to the limited scope of the retainer. I find that he did not take this into account in preparing his reports and that he acted on the basis of the assumptions referred to in his first report.

Euroz Securities’ witnesses

157 Mr Caldow, Mr Brittain and Mr Kenneth Pendergast gave evidence as part of Euroz Securities’ case.

Mr Richard Armstrong Caldow

158 Mr Caldow obtained a Bachelor of Commerce degree from the University of Western Australia in 1998. In 1989, he was employed by the then firm Arthur Anderson in its Taxation Division. Mr Caldow spent approximately one and a half years at Arthur Anderson. He then moved to the firm of Ernst & Young. At Ernst & Young Mr Caldow completed his professional year and then advanced to the position of a senior taxation consultant with that firm.

159 In July 1992, Mr Caldow commenced employment with Paterson Ord Minnett as an assistant sharebroker.

160 Mr Caldow’s affidavit was sworn on 30 December 2008.

161 Mr Caldow gave evidence and was cross-examined at length. During the cross-examination, there were times when Mr Caldow exhibited some frustration. He was also cautious and was not prepared to speculate in respect of questions affecting the conduct of other persons. On numerous occasions he replied that senior counsel for Eric Preston would have to address that question to the person who had the relevant involvement in the activities referred to in the question.

162 However, in respect of the questions which related to matters upon which he could depose, in my view, Mr Caldow answered the questions as best he could. Further, the evidence which he gave in his affidavit was couched in language which had the ring of truth. Further, his evidence in cross-examination had the same quality. I cite as one example of the convincing evidence which Mr Caldow gave of his response to the threats which Mr Drummond made to sue Euroz Securities in respect of the sub-underwriting fee.

163 Eric Preston sought to attack the credibility of Mr Caldow’s evidence by referring to the fact that Euroz Securities had given inadequate discovery during the interlocutory process, and also to the fact that Euroz Securities had not called to give evidence, Mr Yeo, Mr McKenzie, Mr Kane, Mr Hewett and Mr Rice.

164 In my view, neither of these attacks is appropriately directed to the question of the credibility of Mr Caldow’s evidence. Mr Caldow was not responsible for the giving of discovery, nor was there any evidence that Mr Caldow had any involvement in the decision not to call the persons referred to.

165 In any event, I observe in passing, that as the case has unfolded, only the evidence of Mr Rice would have added significantly to the resolution of the issues before the Court. However, no inference under the principle in Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298, arising from the failure to call Mr Rice, would arise, because it cannot be said that Mr Rice is in the “camp” of Euroz Securities.

166 As mentioned, I prefer the evidence of Mr Caldow to that of Mr Drummond in relation to the aspects of the case where their evidence conflicts.

Mr Anthony Mark Brittain

167 Mr Anthony Mark Brittain completed a Bachelor of Commerce degree from the University of Western Australia in 1987. He qualified as a Chartered Accountant in 1991. Thereafter he spent time working for KPMG, Newton Investment Management Limited and Hartley Poynton Limited, before joining Euroz Securities. Mr Brittain was appointed to the position of chief operating officer and financial officer in December 2007.

168 Mr Brittain was an impressive witness. He was prepared to make concessions and gave his evidence to the best of his ability. I accept his evidence. However, as the resolution of the issues in this case have emerged, Mr Brittain’s evidence was not of major significance in the resolution of those issues.

169 I also reject the attack made by Eric Preston on Mr Brittain’s credibility arising from the late discovery of the Euroz Securities Operations Monthly Report for January 2008. I accept that Mr Brittain was not responsible for the omission to discover that document. Further, Euroz Securities offered to make Mr Brittain available for cross-examination in relation to that document, but Eric Preston did not accept the offer.

Mr Kenneth David Pendergast

170 Mr Pendergast is a partner of Ernst & Young in the transaction advisory services division. Mr Pendergast prepared two reports on the question of loss and damage. As mentioned, there were some issues on which the experts disagreed but, as in the case of Mr Blashki, no credibility issues arose from the evidence of Mr Pendergast.

171 I have set out above the four causes of action on which Eric Preston relies.

THE CLAIM BASED ON THE BREACH OF CONTRACT

172 I now turn to deal with Eric Preston’s claim that Euroz Securities breached the retainer.

Eric Preston’s pleaded claim in contract

173 Eric Preston has pleaded that in 2000, it retained Euroz Securities to be “its stockbroker and financial advisor”.

174 Further, Eric Preston pleaded that the following were the implied terms of the retainer:

(a) Euroz Securities would exercise all reasonable care, skill and diligence in acting for and advising Eric Preston pursuant to the retainer,

(b) Euroz Securities would at all times act in the best interests of Eric Preston,

(c) Euroz Securities would advise Eric Preston of the true nature of the financial products Eric Preston would acquire or use on the advice of, or through, Euroz Securities,

(d) Euroz Securities would advise Eric Preston of the risks associated with the financial products Eric Preston would acquire and/or use on the advice of, or through, Euroz Securities,

(e) Euroz Securities would advise Eric Preston how to minimise risks associated with the acquisition of, or use of, financial products acquired on the advice of, or through, Euroz Securities,

(f) Euroz Securities would not recommend, or facilitate the use of, a financial product by Eric Preston which would operate to transfer the beneficial interest in Eric Preston’s share portfolio to any third party, including any financial product provider, without advising Eric Preston that such a transfer would occur and advising Eric Preston of the risks associated with such a transfer.

175 Eric Preston pleaded that each of these terms was to be implied to give commercial efficacy to “the intentions of the parties”. Further, it was contended that terms (a), (b) and (f) were implied by operation of the law.

176 Eric Preston then pleaded (para 6 of the statement of claim) that in December 2003, Euroz Securities advised Eric Preston to use a margin lending facility with Leveraged Equities to partly fund its share trading activities. It is alleged that that advice was oral and given by Mr Caldow. It is also pleaded (para 7 of the statement of claim) that Mr Caldow said during that conversation, in relation to the Leveraged Equities facility, that the share portfolio of Eric Preston would be owned and held in the name of Eric Preston and would constitute security for the Leveraged Equities facility; that Eric Preston could buy and sell shares provided as security for the Leveraged Equities facility as it saw fit; and that provided Eric Preston paid all margin calls in respect of the Leveraged Equities facility it could not lose the shares in its portfolio.

177 Eric Preston went on to plead (para 8 of the statement of claim) that it acted on Mr Caldow’s advice and entered into the Leveraged Equities facility on or about 19 December 2003.

178 Importantly, Eric Preston then pleaded (para 9 of the statement of claim) the following. In or about May 2007, Euroz Securities, by Mr Caldow, advised Eric Preston to terminate the Leveraged Equities margin lending facility and to open a margin lending account with Opes Prime in its place, because the Opes Prime facility allowed Eric Preston to acquire a greater range of shares than was available under the Leveraged Equities facility; the Opes Prime facility offered a higher loan to value ratio than the Leveraged Equities facility; the Opes Prime facility had a lower rate of interest than the Leveraged Equities facility, namely, eight per cent per annum; and the Opes Prime facility was otherwise in nature, substance and in risk the same as the Leveraged Equities facility. The advice allegedly given by Mr Caldow is referred to in the pleading as the “OP advice”.

179 It is stated in the particulars, that this advice was oral and given by Mr Caldow to Mr Drummond of Eric Preston in or about May 2007.

180 Eric Preston then pleaded that in reliance on that advice, Eric Preston terminated the Leveraged Equities facility, entered into the Opes Prime facility and made available its share portfolio, which then had a value of $5,615,648.68, for the Opes Prime facility.

181 It was then pleaded that Euroz Securities breached each of the implied terms referred to in [174] above. There are 26 particulars which were given in support of the plea of the breach of the implied terms of the retainer. I will refer to the substance of those particulars below.

182 Eric Preston then went on to plead (para 12 of the statement of claim) that “by reason of the matters aforesaid”, it had suffered, and would suffer, loss and damage. In the particulars to this plea, Eric Preston stated that but for the breaches of the implied terms of the retainer it would have continued with the Leveraged Equities facility, and that Eric Preston’s share portfolio has been lost in its entirety.

183 It was also said that had Eric Preston not entered the Opes Prime facility it would have retained the shares in its portfolio as a medium to long term investment and all of the shares had risen in value so that as at the commencement of the date of this proceeding, Eric Preston had lost or would lose not less than a further $2 million. Eric Preston also stated in its particulars that Euroz Securities conduct had prevented Eric Preston from having a reasonable opportunity to avoid the loss of its share portfolio.

184 The particulars of the breaches of the implied terms of the retainer relied on by Eric Preston are stated in a confusing manner. There was no attempt made in the statement of claim to identify which of the particulars were relied upon to support each breach of each of the six implied terms relied upon by Eric Preston. In other words, no attempt was made to link any of the particulars to any of the breaches. This is not helpful.

185 However, I discern Eric Preston’s case on the breach of the implied terms of the retainer as particularised, to be as follows:

(a) Euroz Securities, by Mr Yeo, knew before May 2007 that the borrowing facility offered by Opes Prime was not a conventional margin loan facility but was a share lending facility. This is because Mr Rice told Mr Yeo that this was the case. Also, Mr Rice made a presentation to Euroz Securities advisors about the Opes Prime facility. Further, Mr Rice and Mr Yeo cooperated in compiling a brochure and promoting the Opes Prime facility among clients of Euroz Securities. Opes Prime promoted the relationship with Euroz Securities by providing incentives to Euroz Securities advisors, such as trips to the Australian Open tennis tournament and Indy Car races. Further, it was to be inferred that Euroz Securities knew about the risk inherent in share lending and was familiar with the concept because Euroz Securities used share lending facilities on a wholesale basis as part of its usual stockbroking business when it settled trades. It also referred to margin lending in its annual reports. Further, a number of clients, staff members of Euroz Securities and their relatives, had entered into Opes Prime facilities.

(b) The advice which Eric Preston alleges Mr Caldow gave Mr Drummond (referred to in [178] above) was wrong and unsound. This was because the Opes Prime facility was not the same as the Leveraged Equities facility. It was in fact very different and far riskier than the Leveraged Equities facility. Under the Opes Prime facility Eric Preston would, and did, transfer all of its shares in its portfolio (whether funded by margin lending or owned outright) to Opes Prime so that Opes Prime could deal with the shares as it saw fit. Eric Preston would, and did, become an unsecured creditor of Opes Prime. Further, the shares which were transferred were used as security for Opes Prime’s debts and were at risk of being lost by reason of other margin lending clients of Opes Prime failing to pay their margin calls. Euroz Securities failed to make an assessment of the risks and failed to make known or warn of these risks to Mr Drummond.

(c) In any event, even if Euroz Securities did not know about the risks associated with the Opes Prime facility, it ought to have known about the risks and taken steps to advise Mr Drummond about the risks arising from the fact that Eric Preston would lose legal and beneficial ownership of its share portfolio and not acquire a beneficial interest in respect of the shares it purchased using the Opes Prime facility.

(d) Euroz Securities did not inform Eric Preston of the risks inherent in the Opes Prime facility until 1 February 2008.

(e) The advice given in February 2008 was inadequate because:

(i) it was too late for Eric Preston to have a reasonable opportunity to avoid the loss because by then Opes Prime was in danger of becoming insolvent and in breach of its own lending arrangements;

(ii) Euroz Securities did not tell Mr Drummond positively to terminate the Opes Prime facility; alternatively, did not say that it could not advise about Opes Prime, and thereby deprived Eric Preston of the opportunity to save the value of its share portfolio less the value of the loan it owed to Opes Prime;

(iii) Mr Caldow made statements, for which he had no reasonable basis, that falsely assured Mr Drummond that Eric Preston’s share portfolio was safe, after February 2008, when it was not.

(f) Further, in its dealings with Eric Preston, Euroz Securities preferred its own interest in receiving a trailing commission from Opes Prime and facilitating trading in the shares which Euroz Securities was promoting, to the interest of Eric Preston in having a margin loan which was secure provided that Eric Preston paid any margin calls made under the facility.

Euroz Securities’ defence

186 Euroz Securities admitted that it entered a retainer as a stockbroker, and denied that the retainer included retaining Euroz Securities to act as financial advisor to Eric Preston.

187 Euroz Securities denied that the retainer contained the implied terms as pleaded by Eric Preston. It contended that there was an implied term to exercise reasonable care, skill and diligence in performing the duty undertaken pursuant to the retainer agreement. The scope of that duty, contended Euroz Securities, was confined to carrying out its function as a stockbroker, and did not extend to acting as Eric Preston’s financial advisor. It followed that Euroz Securities denied that there were implied into the retainer agreement the implied terms pleaded by Eric Preston.

188 Further, Euroz Securities denied that Mr Caldow gave Mr Drummond the advice in May 2007, alleged by Eric Preston, as to the characteristics of the Opes Prime facility, which Mr Drummond said he relied upon to terminate the Leveraged Equities margin loan and enter into the Opes Prime facility.

189 It followed, said Euroz Securities, that Mr Drummond could not have relied upon, and did not rely upon, that advice in deciding to enter into the Opes Prime facility.

190 Further, said Euroz Securities, in light of the plea that Mr Drummond relied upon Mr Caldow’s positive advice that the Opes Prime facility was the same as the Leveraged Equities facility, it was not open to Eric Preston to advance a case that Mr Drummond’s belief as to the characteristics of the Opes Prime facility had been induced by some other factual scenario. Thus, for example, said Euroz Securities, it was not open to Eric Preston to advance a case that Euroz Securities did not give the positive advice alleged, and that Mr Drummond acted on an assumption (rather than a positive belief) that the Opes Prime facility was the same as the Leveraged Equities facility, by reason of a failure by Euroz Securities to give warnings as to the differences between the two facilities. Such an inconsistent case could not be honestly advanced, said Euroz Securities.

191 Euroz Securities also alleged that, in any event, the advice that Mr Caldow gave Mr Drummond by the email of 1 February 2008, as to the character of the Opes Prime facility and attendant risk, broke any causal link between any previous breach of contract (which was denied) and any loss or damage Eric Preston may have suffered. Euroz Securities also denied that Mr Caldow’s advice of 1 February 2008, or the circumstances surrounding the giving of that advice, breached any contractual duties owed by Euroz Securities to Eric Preston.

192 Euroz Securities then pleaded that even if it breached the contract and the causal chain was not broken by the advice of 1 February 2008, Eric Preston had by its own negligence contributed to its loss. Further, Euroz Securities pleaded that each of Mr Anderson, Opes Prime, ANZ, Merrill Lynch and Dresdner Kleinwort were concurrent wrongdoers in respect of any loss suffered by Eric Preston. At trial Euroz Securities did not press this claim against the banks.

193 I now deal with the first issue arising on the claim for breach of contract, namely, the scope of the retainer.

Did Euroz Securities agree to act as financial advisor to Eric Preston as part of its retainer?

194 It is an essential part of Eric Preston’s case that Euroz Securities agreed to act as its financial advisor, as well as its stockbroker. This is because it relied on breaches of the pleaded implied terms of the retainer. The content of the implied terms are premised on Euroz Securities having agreed to act as its financial advisor as well as its stockbroker. In its final written submissions, Eric Preston, correctly, recognised that the question of the scope of the retainer was a “critical issue”.

195 The making of the crucial retainer agreement is pleaded in para 3 of the statement of claim. There it is pleaded that in or about 2000, Eric Preston retained Euroz Securities to be its stockbroker and financial advisor. Eric Preston has not in its pleading sought to limit the scope of the financial matters in respect of which it is alleged Euroz Securities agreed to advise Eric Preston. Accordingly, I will treat the plea as a plea that Euroz Securities agreed to give general financial advice to Eric Preston, which would include giving advice in relation to financial credit products offered by third parties which may be used to provide financial assistance in respect to the purchase of shares.

196 In the particulars to its plea as to the making of the retainer agreement, Eric Preston stated:

The retainer was partly oral and partly to be implied. Insofar as it was oral it was comprised in conversations between Richard Caldow of Euroz and Bruce Drummond of EP taking place in or about 2000 pursuant to which Caldow advised Drummond that he had transferred his employment as a stockbroker and financial advisor from Paterson Ord Minnett to Euroz. Caldow had acted as stockbroker and financial advisor to EP at Paterson Ord Minnett since in or about 1995. Caldow advised Drummond that he and four other senior staff of Paterson Ord Minnett had set up Euroz and that Euroz would be happy to act as stockbroker and financial advisor to EP. Drummond informed Caldow that he would transfer EP’s business from Paterson Ord Minnett to EP. Insofar as the same was to be implied, it was to be implied to give commercial efficacy to the retainer and by operation of law.

197 Euroz Securities contended that the retainer is limited to the provision of stockbroking services and advice in respect of stocks and shares, and did not include within its scope the provision of general financial advice, and in particular, did not extend the giving advice in respect of third party financial products.

198 Euroz Securities contended that Eric Preston’s plea that it agreed to act as Eric Preston’s financial advisor has not been made out.

199 In my view, Eric Preston has failed to prove its pleaded case that Euroz Securities agreed to act as Eric Preston’s financial advisor as well as its stockbroker.

200 There was no evidence from Mr Drummond of a conversation between himself and Mr Caldow in the terms alleged by Eric Preston in the particulars, namely, that there was an oral statement made by Mr Caldow that he would be “happy to act as stockbroker and financial advisor to Eric Preston”, which Mr Drummond accepted by telling Mr Caldow that he would transfer Eric Preston’s business from Paterson Ord Minnett to Euroz Securities. As Eric Preston only commenced share trading in 2003, Mr Caldow could not have offered in 2000, to act as stockbroker and financial advisor to Eric Preston. However, I have treated the reference to “Eric Preston” in the particulars, as a reference to “Mr Drummond”.

201 In any event, the evidence of Mr Drummond in his third affidavit was that he regarded Mr Caldow, during the time that he worked at Paterson Ord Minnett, as his “share adviser”. At  para 9 to para 10 of that affidavit he said:

I refer to paragraph 11 and 12 of Mr Caldow’s affidavit. At around the time Mr Caldow rang me in late 2000, as referred to at paragraph 36 of my first affidavit, I held approximately $100,000 in shares. I agreed to follow Mr Caldow to Euroz and it was therefore necessary to put those shares under the administrative control of Euroz as my broker. The $100,000 share portfolio comprised essentially mining stocks.

By the end of 2000, Mr Caldow had been my share adviser for some time, having initially only executed trades at my request. I did not have any other broker at that time and have not had any other since.

202 Further, I do not accept that there was an implied agreement founded on commercial efficacy between the parties that Euroz Securities would act as a financial advisor as well as a stockbroker to Eric Preston – which is another ground relied upon in the particulars. It is quite possible for an agreement which is confined to acting as a stockbroker to be a commercially efficacious agreement.

203 I also do not accept that by operation of law, an agreement to act as a stockbroker also gave rise to an agreement to act as a financial advisor, particularly in the circumstances where the right to act as a financial advisor is regulated by statute, and it is common cause that Euroz Securities did not have a licence to give financial advice generally, or in relation to financial products such as securities lending and borrowing agreements, in particular.

204 Accordingly, I find that Eric Preston has not proved its claim, as pleaded and particularised, that the retainer between Eric Preston and Euroz Securities included an undertaking by Euroz Securities to act as a stockbroker and financial advisor to Eric Preston.

205 It follows that the retainer did not contain the implied terms of the scope, and in the terms, relied upon by Eric Preston.

206 In its closing oral submissions, Eric Preston also sought to rely upon, alternatively, to characterise the pleading as incorporating a plea of, a prior course of dealing, as a basis to establish that it was a term of the retainer agreement between Euroz Securities and Eric Preston, that Euroz Securities agreed to act as Eric Preston’s financial advisor.

207 In support of this contention, Eric Preston relied upon Mr Drummond’s evidence that, during the the period when he was trading shares in his own name, there had been occasions when Mr Caldow had sent him Leveraged Equities brochures which contained an application form for a margin loan and had informed him as to the characteristics of a margin loan. Mr Drummond said that these conversations had occurred whilst Mr Caldow was employed by Paterson Ord Minnett.

208 Mr Drummond also deposed that Mr Caldow had given advice in relation to Eric Preston entering into a margin loan with Leveraged Equities.

209 I deal with the evidence on these issues below. However, in my view, for the reasons expressed below, these conversations, would not, even if proved, support a finding that a term that Euroz Securities would act as Eric Preston’s financial advisor, was to be incorporated into the retainer, on the basis of a prior course of dealings.

210 For Eric Preston to establish that it had, by reason of a prior course of dealings, entered into a contract with Euroz Securities, whereby Euroz Securities undertook to act as its financial advisor, Eric Preston would have to show that there were previous occasions on which it had contracted with Euroz Securities upon those terms. In the case of DJ Hill & Co Pty Ltd v Walter H Wright Pty Ltd [1971] VR 749, the Full Court of the Supreme Court of Victoria considered whether certain terms had been incorporated into a contract of carriage by way of a prior course of dealings between the parties. At 754, Winneke CJ (with whom Starke and Anderson JJ concurred) observed:

In our view, [counsel’s] argument, based upon a course of prior dealing between the parties, fails, for the simple reason that there was no evidence of a prior series of contracts between the parties containing terms or conditions of the kind he now seeks to import into the subject contract.

211 These observations are apposite to the evidence of Mr Drummond referred to in [207]-[208] above.

212 In this case, Eric Preston must be taken to have entered into its retainer agreement with Euroz Securities when in 2003, Mr Drummond on behalf of Eric Preston, opened a trading account with Euroz Securities for Eric Preston. There was no evidence of any previous occasion on which Eric Preston had contracted with Euroz Securities. In those circumstances, there was no prior course of dealings pursuant to which the term contended for, could be incorporated into a contract between Eric Preston and Euroz Securities.

213 In any event, even if it was possible to have regard to the retainers previously made between Mr Drummond, in his personal capacity, on the one hand, and Euroz Securities and Paterson Ord Minnett, on the other, for the purpose of establishing the terms of a retainer between Eric Preston and Euroz Secuirities, there was, as previously stated, no evidence that when Mr Drummond, in 2000, entered into the retainer with Euroz Securities it was on the terms that Euroz Securities would agree to act as Mr Drummond’s financial advisor as well as his stockbroker. Indeed, the evidence referred to above, shows that Mr Drummond regarded Mr Caldow as his “share advisor”.

214 Nor was there any evidence that when Mr Drummond engaged Paterson Ord Minnett (which occurred even before Mr Drummond first had dealings with Mr Caldow), Paterson Ord Minnett had agreed to act as Mr Drummond’s financial advisor as well as his stockbroker.

215 Even if Mr Caldow had, prior to Eric Preston operating its trading account with Euroz Securities, sent Leveraged Equities’ application brochures to Mr Drummond, and given him information about a margin loan, this evidence is not capable of establishing the incorporation of a term into a contract by way of a prior course of dealings. That evidence is evidence of post-contractual conduct which occurred during the course of a stockbroker relationship established by the respective retainers with Paterson Ord Minnett and Euroz Securities which had previously been entered into. As mentioned, there was no evidence that any of the retainers contained a term to the effect that either Paterson Ord Minnett or Euroz Securities would act as a financial advisor to Mr Drummond.

216 I also understood Eric Preston during closing submissions, to rely upon facts that occurred after the entry into the retainer with Euroz Securities as evidence of the fact that the terms of the retainer between Eric Preston and Euroz Securities included a term that Euroz Securities had agreed to act as a financial advisor to Eric Preston. Eric Preston referred to the fact that Mr Caldow had given Eric Preston advice in relation to Eric Preston’s entry into a margin loan with Leveraged Equities, and that Mr Caldow advised Mr Drummond in relation to Eric Preston’s entry into the Opes Prime facility.

217 The basis on which Eric Preston sought to rely upon these facts is not entirely clear, because, as previously stated, the pleaded particulars as to the making of the retainer did not refer to these matters in support of the plea in para 3 of the statement of claim that Euroz Securities agreed to act as the financial advisor to Eric Preston. It is the case, however, that post-contractual conduct may be relied upon in certain circumstances to infer the existence and terms of an agreement. (See Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 (Integrated Computer Services); Vroon BV v Foster’s Brewing Group Ltd [1994] 2 VR 32.)

218 However, in any event, even if Eric Preston is permitted to rely upon this unpleaded case, Mr Caldow’s conduct, would not establish the existence of a term in the retainer that Euroz Securities agreed to act as Eric Preston’s financial advisor. For that conduct to give rise to an inference that Euroz Securities agreed to act as Eric Preston’s financial advisor, the conduct must, in the words of McHugh JA (as he then was) in Integrated Computer Services at 11,118, be explicable only on the basis of such an agreement in such terms, having been made.

219 As will become apparent, I have found that Mr Caldow did not make the statements pleaded in para 7 of the statement of claim to Mr Drummond, acting on behalf of Eric Preston, as to the characteristics of the Leveraged Equities margin loan, before Eric Preston entered into the Leveraged Equities margin loan. I have also found that Mr Caldow did not give the so-called “OP advice” prior to Eric Preston entering into the Opes Prime facility. I have found that Mr Caldow did forward to Mr Drummond a brochure and application form for a Leveraged Equities margin loan, and also sent Mr Drummond the Financial Services Guide for the Opes Prime facility and sent emails to Mr Rice seeking information about the Opes Prime facility.

220 In my view, Mr Caldow’s conduct is not conduct which is only explicable on the basis of the existence of an obligation to act as Eric Preston’s financial advisor. The conduct of Mr Caldow in referring Eric Preston to the Leveraged Equities and Opes Prime financial product is equally consistent with it being non-contractual conduct engaged in by Euroz Securities outside the terms of its retainer with Eric Preston. In other words, as conduct engaged in by Euroz Securities for the purpose of earning a reward from the third party financial product provider. That is not to say that such conduct could not, in certain circumstances, be capable of giving rise to obligations to the client otherwise than in contract.

221 As I have previously said, each of Eric Preston’s claims for breach of contract depends upon it proving that it was a term of the retainer between Euroz Securities and Eric Preston that Euroz Securities agreed to act as its financial advisor. As I have also said, in my view, Eric Preston has failed to prove that Euroz Securities agreed as part of its retainer with Eric Preston to act as Eric Preston’s financial advisor, as well as its stockbroker.

222 It follows that Eric Preston’s claims founded on breach of contract are dismissed.

223 I observe, in passing, that a great deal of time was taken up in the trial by an examination of the facts and circumstances concerning the relationship between Opes Prime and Euroz Securities. These facts and circumstances included the following:

(a) Mr Rice had made a presentation to Euroz Securities’ private client advisors;

(b) Mr Yeo had a prior work relationship with Mr Rice of Opes Prime, and Mr Yeo cooperated with Mr Rice in relation to the preparation of a brochure for distribution to Euroz Securities’ clients that set out the loan to value ratio that Opes Prime would be prepared to offer on the stocks which were researched by Euroz Securities;

(c) there was an arrangement between Opes Prime and Euroz Securities whereby Opes Prime would pay a trailing commission to Euroz Securities consequent upon a client of Euroz Securities entering into an Opes Prime facility agreement; and effect was given to this arrangement;

(d) the board of directors of Euroz Securities were informed of the fact that clients of Euroz Securities were switching from the Leveraged Equities facility to the Opes Prime facility;

(e) Opes Prime offered incentive rewards, such as a trip to the Australian Open tennis tournament and the Indy Car races, to Euroz Securities’ client advisors;

(f) a significant number of Euroz Securities’ employees and clients, including relatives of Euroz Securities’ client advisors, had entered into Opes Prime facility agreements during the period May 2007 to February 2008;

(g) Euroz Securities took steps to warn its clients who had entered into facilities with Opes Prime in February 2008 as to the true nature of the Opes Prime facility; and

(h) there was discussion of the Opes Prime position at meetings of the board of directors of Euroz Securities in February 2008 and March 2008 and Mr Kane expressed alarm at the exposure of Eric Preston to Opes Prime.

224 In my view, these facts and circumstances also do not establish that the retainer entered into between Eric Preston and Euroz Securities was a retainer which included an agreement to act as a financial advisor. It is possible to infer from the aforementioned facts and circumstances, that Euroz Securities was concerned about the exposure of their clients to Opes Prime. It is also possible to infer, as I do, the existence of a contract between Euroz Securities and Opes Prime, whereby Opes Prime agreed to pay a commission to Euroz Securities in respect of each client of Euroz Securities that Euroz Securities introduced to Opes Prime and who subsequently entered into a facility with Opes Prime, and that there was cooperation between Opes Prime and Euroz Securities in performing this agreement.

225 However, it does not follow from the existence of such an agreement between Opes Prime and Euroz Securities, that Euroz Securities agreed to act as a financial advisor to Eric Preston.

The advice in relation to Eric Preston entering into the Leveraged Equities facility

226 As mentioned previously, it was a constituent element of Eric Preston’s pleaded case that Mr Caldow advised Mr Drummond, on behalf of Eric Preston, in December 2003, to use a margin lending facility with Leveraged Equities, to partly fund its share trading activities. In para 6 and para 7 of the further amended statement of claim, Eric Preston pleaded:

In or about December 2003 Euroz advised EP to use a margin lending facility with Leveraged Equities Ltd (“LE”), a subsidiary of Adelaide Bank (“the LE facility”) to partly fund its share trading activities.

PARTICULARS

The advice was oral given by Caldow of Euroz to Drummond of EP in or about December 2003, the material substance of which was to the effect alleged.

Euroz advised EP in relation to the LE facility that:

(a) The share portfolio of EP would be owned and held in the name of EP and would constitute security for the LE facility.

(b) EP could buy and sell shares provided as security for the LE facility as it saw fit.

(c) Provided EP paid all margin calls in respect of the LE facility, it could not lose the shares in its portfolio.

PARTICULARS

Such advice was oral given by Caldow of Euroz to Drummond of EP, the material substance of which was to the effect alleged.

227 Eric Preston then pleaded that in reliance on the advice in para 6 and para 7 of the statement of claim, Eric Preston entered into the Leveraged Equities facility on or about 19 December 2003.

228 There was during the trial a factual dispute as to the circumstances of Eric Preston entering into the Leveraged Equities facility in December 2003.

229 I deal first with the evidence of events that occurred whilst Mr Caldow was at Paterson Ord Minnett. Mr Drummond deposed in his first affidavit (para 63) that in 1996 whilst he was at Paterson Ord Minnett, Mr Caldow said that he should open a margin lending account with Leveraged Equities on two occasions. On the first occasion, Mr Caldow sent Mr Drummond an application form. Mr Drummond said that he put it in the bin. On the second occasion, Mr Caldow again sent an application form to Mr Drummond but he did not make any application. He said that on each of those occasions that Mr Caldow sent him an application form, Mr Caldow told him that Leveraged Equities would lend money against the value of his share portfolio or other security that he could put up and that he could use that money to purchase more shares. Mr Drummond went on to say that Mr Caldow said that if the value of the shares fell below the margin set by Leveraged Equities he would receive a margin call which he was required to meet. Mr Caldow said that if he, Mr Drummond, failed to meet the margin call, Leveraged Equities could sell the shares in the portfolio. Mr Drummond said that Mr Caldow had said that this was a standard margin lending arrangement, and he, Mr Drummond, could pay a margin call by selling the shares down or putting money into “Eric Preston’s [sic] Leveraged Equities account”. Mr Drummond said that he did not proceed to open a margin lending account.

230 Mr Drummond then deposed at para 65 of his first affidavit that in 2000, Mr Caldow, whilst he was still at Paterson Ord Minnett, again suggested that Mr Drummond should open a Leveraged Equities account. Mr Drummond then deposed:

He explained to me again, in terms similar to that set out above, how a LE margin lending account would work. He said that I would retain full ownership of the shares, and they would remain in my name at all times. He said that they would only be sold if I failed to meet a margin call. He said that if I received a margin call, because the shares had fallen in value below the limit set by LE, I could sell the shares down and/or put money into the LE account to meet the margin call. He said that as long as I met all margin calls, I could never lose the shares in my portfolio. I signed the application form on 17 July 2000 nominating Caldow as my Broker/Adviser and commenced to use the LE facility. I continued to use it when I transferred my business to Euroz.

231 Mr Drummond also referred to this conversation with Mr Caldow, at para 44 and para 45 of his third affidavit, but in those paragraphs he does not say that Mr Caldow said anything about retaining full ownership of the shares held in a margin loan account, nor about never losing the shares, provided he met the margin calls.

232 Mr Caldow said in his affidavit, that he did not recall having conversations with Mr Drummond in the terms alleged by Mr Drummond whilst he was at Paterson Ord Minnett.

233 During cross-examination, Mr Drummond was asked about the content of the conversation Mr Caldow had with with him in 2000 (which is deposed to in para 65 of Mr Drummond’s first affidavit). The following exchange occurred:

Yes, and the issue of a margin lending facility didn’t arise again until around 2000?---It was around the time when Euroz Securities was starting up, I believe.

Yes. You had another discussion, did you?---We had another discussion.

How did that discussion come about?---He – Mr Caldow sent me out the application form again.

Did you ask him for it?---We – I just say, I can’t remember whether I asked him for it but we had a discussion about margin lending. He was telling me, you know, what margin lending was about and I asked him to send me out a book.

All right and do you remember the terms of the discussion that you had with Mr Caldow then about margin lending?---Much the same as the first one, that just to refresh my memory on exactly what in fact a Leveraged Equity loan meant. I wasn’t inquiring about anything else at that stage.

All right. So do you have a recollection now of what it was that Mr Caldow conveyed to you in that conversation in 2000?---I believe I asked the similar questions: what the Leveraged Equity – leveraged meant and once again I was taken to the position that you could put a block of security of shares to Leveraged Equities and if they were a quality stock which they were able to lend against, they would give you a proportion of that money back to buy more shares.

Yes, and that’s your best recollection of that conversation?---That’s my best recollection. Yes.

Of course it’s what, nine years ago or so, now?---Yes.

234 I now deal with the evidence of the events leading to the entry of Eric Preston into the Leveraged Equities facility - which occurred after Mr Caldow joined Euroz Securities. This evidence includes evidence in relation to the question of whether Mr Anderson advised Mr Drummond in relation to Eric Preston’s entry into the Leveraged Equities margin loan. The sequence of this evidence is somewhat revealing.

235 Mr Drummond said in his first affidavit, that when he transferred his share trading activities to Eric Preston in 2003, Mr Drummond asked Mr Caldow about Eric Preston opening a Leveraged Equities margin lending account. Mr Drummond said that Mr Caldow arranged for the forms to be sent to him and he filled out the application form and took the documents to Mr Anderson and asked him if it was “in order” for Eric Preston to enter into the Leveraged Equities account and Mr Anderson said that he thought it would be in order. Mr Drummond said at para 68 of his first affidavit as follows:

I personally did not read the LE booklet. I read the application form. I was content to rely on what Caldow had told me as to how a LE margin lending facility would work, its risks and the circumstances in which EP could lose the shares in its portfolio; that is, by not meeting a margin call. It was important to me that EP retained ownership of the shares in its portfolio, so that EP could buy and sell shares as and when it wished to.

236 In para 98 of his first affidavit, Mr Drummond repeated that he asked Mr Anderson for advice as to whether Eric Preston should enter into the margin loan facility with Leveraged Equities.

237 Mr Anderson at para 35 of his first affidavit of 9 September 2008, said that he did not provide any advice to Mr Drummond or Eric Preston on margin lending either through Leveraged Equities or any other institutions.

238 In his affidavit of 30 December 2008, Mr Caldow deposed that Mr Drummond asked him whether a company could enter into a margin loan and that Mr Drummond asked him to send him a Leveraged Equities’ margin loan application form. Mr Caldow said that he sent the form to Mr Drummond. Mr Caldow said that that was all he did and that he did not give any advice to Mr Drummond about the Leveraged Equities margin loan facility.

239 At para 44 of Mr Drummond’s third affidavit, Mr Drummond does not disagree with Mr Caldow’s evidence. However, Mr Drummond goes on to say that when Mr Caldow was at Paterson Ord Minnett, Mr Caldow had advised him as to the nature of a Leveraged Equities’ margin loan agreement in 2000 and on a previous occasion. I note that the evidence that Mr Drummond gives in para 44 of his third affidavit as to the content of the conversation which he had with Mr Caldow in 2000, is different to the evidence which he gave in his first affidavit.

240 Further, Mr Drummond said at para 46 of his third affidavit that Mr Caldow did give him advice about Eric Preston entering into a Leveraged Equities margin loan facility. However, Mr Drummond did not depose to the words said to have been spoken by Mr Caldow as comprising the advice to which he referred. It appears that Mr Drummond is there referring to the advice, he said, Mr Caldow gave him in his personal capacity in 1996 and 2000, whilst Mr Caldow was at Paterson Ord Minnett.

241 Neither in his first nor third affidavit, does Mr Drummond depose to Mr Caldow speaking any words of advice in relation to Eric Preston entering into the Leveraged Equities facility in 2003.

242 As previously mentioned, Mr Drummond made a fourth affidavit on 15 March 2009, the day before the commencement of the trial. In para 4 of the fourth affidavit, Mr Drummond deposed:

In paragraph 27 of my first affidavit I stated that I was told by Mr Anderson in 2003 that Mr Anderson did not have a problem with EP entering into the LE facility, and at paragraph 66 I stated that Mr Anderson told me that it was in order for EP to enter into the margin lending facility with LE. That advice was given by Mr Anderson in the context of advice from him and Ms Lena Hilton in 2003 that share trading should be done through EP, and that if margin lending was to be used to fund share trading, the margin lending facility should be with EP.

243 During cross-examination, however, Mr Drummond admitted that the meeting with Ms Hilton and Mr Anderson, where there had been a discussion as to the use of Eric Preston as the vehicle to conduct share trading, was quite separate from the meeting which he had had with Mr Anderson at which he had asked Mr Anderson whether it was in order for Eric Preston to enter into the Leveraged Equities margin loan.

244 The following exchanges occurred during Mr Drummond’s cross-examination on his fourth affidavit:

Now, just pause there, Mr Drummond. This is the affidavit that you prepared on Sunday, the day before this trial commenced and what had happened, I put it to you, is you had been reading through your evidence and realised that there was material in the evidence that had been filed in this case that was unhelpful to your case. Isn’t that what happened?---Which paragraph are we talking about?

Just general. Why did you come to be preparing an affidavit on the day before trial commenced?---There was changes that had to be made.

Why?---I had discussion with my legal team and they had prepared another affidavit for me to sign.

Why?---I had discussion with my legal team and they’d prepared another affidavit for me to sign.

So it wasn’t as a result of late discovery or anything like that; there were changes you had to make to your earlier evidence, was it?---Yes.

All right. So, what, there are matters that are false or are wrong in your earlier affidavits, is that right?---I don’t believe so.

Well, then, why did you have to come up with a new affidavit to deal with it?---I don’t know what you’re actually referring to about what I’ve actually changed.

Okay. Have a look at paragraph 4. What you set out in paragraph 4 is a lie. That’s not true at all. When Mr Anderson said to you that it was in order for Eric Preston to enter into the Leverage facility, this is, it was a good idea for Eric Preston to enter into the Leverage facility. It had nothing to do with or in the context of the margin lending should occur through a corporate vehicle as opposed to you personally, was it?---We had a discussion at Ms Hilton’s office with Mr Anderson and it was established that it had to be done through Eric Preston.

Yes. Then later, you had a conversation with Mr Anderson when you’ve had the forms – so after you’d made the decision to trade through Eric Preston, you rang Mr Caldow; he sent you the forms – yes?---Yes.

So you had a meeting with Ms Hilton and with Mr Anderson and you, [sic] good idea to trade through Eric Preston?---Yes.

You then got the forms. You then had another meeting, just you and Mr Anderson, is that right?---Yes.

In that meeting, that’s what you were referring to in paragraph 27 and 66 of your first affidavit that I took you to. I’ve just taken you to those. Yes?---Yes.

245 In my view, there were two separate meetings and two separate sets of advice. I find that there was no advice given by Mr Anderson at the first meeting with Ms Hilton that Eric Preston should use a margin loan from Leveraged Equities. Paragraph 4 of Mr Drummond’s fourth affidavit was, in my view, an attempt to overcome the apparent incongruity in Mr Drummond’s evidence. In his earlier affidavits, Mr Drummond had said that he had sought the advice of Mr Anderson as to whether it was in order for Eric Preston to enter into the Leveraged Equities facility. This was incongruous with Mr Drummond’s contention that it was Mr Caldow and not Mr Anderson on whom he, on behalf of Eric Preston, had relied on for financial advice generally, and, in particular, in relation to Eric Preston’s entry into the Leveraged Equities facility and then the Opes Prime facility.

246 The evidence in para 4 of Mr Drummond’s fourth affidavit, in seeking to associate Mr Anderson’s advice with the meeting with Ms Hilton and Mr Anderson, is at odds with the evidence that Mr Drummond gave in cross-examination, that there were two separate meetings. I reject the evidence in the fourth affidavit.

247 This episode contributes to undermining the credibility of Mr Drummond’s evidence. As I have said earlier, Mr Drummond’s evidence, particularly, insofar as it is set out in his affidavits, must be approached with caution.

248 In cross-examination, Mr Anderson, denied that he had given any advice in relation to the entry by Eric Preston into the Leveraged Equities facility. Mr Anderson said that he did not have any recollection of having a discussion with Mr Drummond prior to Eric Preston entering into the margin lending facility with Leveraged Equities. Mr Anderson said that he was not qualified to advise him in relation to such a facility and, therefore, he did not believe that he would have had that discussion.

249 As I have said above, Mr Anderson’s evidence, particularly on the extent to which he provided advice to Mr Drummond and his associated companies, is unsatisfactory and must be approached with caution.

250 I find that Mr Drummond sought advice from Mr Anderson as to whether Eric Preston should enter into the facility. I also find that Mr Drummond provided to Mr Anderson the Leveraged Equities’ brochure, which Mr Caldow had sent Mr Drummond. It contained the terms and conditions. I find that Mr Drummond provided the Leveraged Equities’ brochure to Mr Anderson specifically for the purpose of seeking advice from Mr Anderson as to whether Eric Preston should enter into the agreement. Mr Anderson advised that he could see no problem in Eric Preston doing so.

251 I also find that prior to the entry into the Leveraged Equities facility in late 2003, Mr Caldow did not give Mr Drummond advice as to the Leveraged Equities margin loan as alleged by Eric Preston in para 6 and para 7 of its statement of claim. I accept Mr Caldow’s evidence on this issue. Further, the effect of Mr Drummond’s evidence is also that Mr Caldow did not provide any advice about the Leveraged Equities facility in 2003 and did no more than forward the Leveraged Equities’ brochure. It follows that I find that Mr Drummond did not rely on any advice from Euroz Securities before Eric Preston entered into the Leveraged Equities facility, as alleged in paras 6, 7 and 8 of the statement of claim.

252 I also reject the evidence of Mr Drummond that in 2000, when Mr Caldow sent Mr Drummond the brochure and application form for a Leveraged Equities margin loan, he told Mr Drummond that he would retain ownership in his share portfolio and would not lose his ownership of the shares in his portfolio provided he paid the margin calls. When he was cross-examined on the relevant conversation, Mr Drummond made no reference to this aspect of the conversation.

253 In any event, insofar as Eric Preston sought to advance a case against Euroz Securities, that Mr Drummond relied on advice given to him in his private capacity, by Mr Caldow whilst acting as agent for a different principal, namely, Paterson Ord Minnett, that case was misconceived.

Did Mr Caldow advise in May 2007 that the Opes Prime facility was the same as the Leveraged Equities facility?

254 Even though, in light of my finding as to limited scope of the retainer, it is unnecessary in relation to Eric Preston’s claim for breach of contract, to resolve this question, this allegation is central to Eric Preston’s case. It underlies each of the four causes of action. It is also fundamental to Eric Preston’s claim for damages which is based on the allegation that it would not have terminated the Leveraged Equities facility, had Mr Drummond not been induced by Mr Caldow’s advice to believe that the Opes Prime facility was no different in character and risk to the Leveraged Equities facility.

255 I now deal with the evidence.

256 In his first affidavit, which was sworn on 9 September 2008, Mr Drummond deposed (para 75 and para 76) as follows:

I had not heard of OP until May 2007. I had had a good relationship with LE in relation to my own account and that of EP. By May 2007 the EP LE account had both stocks with a margin loan against them, and about $2.5m worth of stocks with no margin loan against them.

In May 2007 Caldow told me that Mark Rice of OP had made a presentation to Euroz in respect of OP’s margin lending product. A short time later in May 2007, during the course of a telephone conversation I was having with Caldow, I heard Simon Yeo saying to Caldow “Why don’t you talk to BD about talking to Opes Prime, get him to call Mark Rice”. I asked Caldow what that was about. Caldow told me it was a margin lending business which operated in exactly the same way as LE but had some advantages over LE. He said OP offered the same product as LE, but with a lower rate of interest, a better loan to value ratio and the ability to borrow against a wider range of stocks. He said Mark Rice was an ex-Adelaide Bank mate of Simon Yeo’s and that he was the OP National Sales Manager. He said he would get some information about the OP product sent to me. I asked him if the product was exactly the same as the LE product other than the three advantages he mentioned. I said to him that I had a good history with LE and did not want to change to the OP product unless there was a good reason to do so. He said it was the same.

257 In his affidavit of 30 December 2008, Mr Caldow deposed (at para 45) that from late 2006, Mr Drummond began expressing his frustrations to Mr Caldow about Leveraged Equities. One of the matters which Mr Drummond complained about was that Leveraged Equities delayed updating his account. He also complained to Mr Caldow about the turnover of accounts managers at Leveraged Equities. Mr Caldow also said that Mr Drummond had said to him in relation to this issue: “If I ran my fucking business this way I would be broke”. Mr Caldow also deposed that Mr Drummond complained that Leveraged Equities did not give margins on the stocks that Mr Drummond was interested in. This, he said to Mr Caldow, limited his ability to trade.

258 Mr Caldow went on to depose that Mr Drummond would regularly call him just after 4 pm, which was when Leveraged Equities updated its computer system on a daily basis, because the Leveraged Equities’ system had not been updated with his recent trades. Mr Caldow said that Eric Preston was often at or around maximum possible gearing at any point in time and was, therefore, restricted from trading using the Leveraged Equities facility.

259 Mr Caldow said that he inferred from these conversations that Mr Drummond, from the time that he entered into the Leveraged Equities facility, monitored his margin lending position on a daily basis.

260 Mr Caldow then deposed (at para 48 of his affidavit) that he had a conversation with Mr Drummond in May 2007 in the following terms:

In or about May 2007 Mr Drummond and I had a conversation regarding Leveraged Equities in words to the following effect:

Mr Drummond - “Leveraged Equities doesn’t give a margin against stocks that I want to buy. Is there anywhere else I can go to get a margin on these stocks.”

Me - “Why don’t you try NAB, which is where I have my margin lending.”

Mr Drummond - “I fucking hate banks, they want too much information. They always screw you.”

Me - “I don’t know of anyone else who will lend against your stocks.”

Mr Yeo sits immediately across from me at Euroz. At times, Mr Yeo can overhear my conversations. At this point in the conversation, Mr Yeo said to me words to the effect “Tell BD about Opes.”

Mr Drummond - “What did Yeoy say?”

Me - “Yeoy has heard about this new product Opes.”

Mr Drummond - “What is it?”

Me - “A contact of his has gone from Leveraged Equities to Opes and evidently they can give you a better margin on stock but I haven’t looked at it.”

Mr Drummond - “You had better send me some info on it.”

Me to Mr Yeo - “Do we have the brochure on it?”

Mr Yeo - “No, it’s all on their website.”

261 After that conversation, Mr Caldow sent on 14 May 2007 to Mr Drummond an email which annexed, without comment from Mr Caldow, a PDF file containing the Opes Prime Financial Services Guide.

262 Mr Caldow went on to depose that on the following day, 15 May 2007, Mr Drummond rang Mr Caldow and said words to the following effect:

I’ve asked Leveraged Equities whether they will lend against Sundance Energy, they said no. That’s the end of that then.

263 Mr Caldow said that he did not tell Mr Drummond to terminate the facility with Leveraged Equities, nor did he tell him to open a facility with Opes Prime.

264 Mr Caldow deposed that on 17 May 2007, Mr Drummond had a telephone conversation with him in the course of which Mr Drummond said to him words to the following effect:

I have spoken to Opes and I can cross-margin Eric Preston’s shares and the Natural Fuels shares that are in my name.

265 Mr Caldow also said that in another telephone conversation, on or about 17 May 2007, Mr Drummond said words to the following effect:

I have spoken to Rice and I don’t need to provide any financial information to Opes.

266 Mr Caldow deposed that it was evident to him from this statement and from Mr Drummond’s tone during this conversation that Mr Drummond was pleased with that fact.

267 Mr Caldow said that also on 17 May 2007, Mr Drummond rang him and said words to the following effect:

Mr Drummond – “What stocks do Opes lend against and what do I need to do to open an account?”

Me – “I don’t know, I will find out for you.”

268 Mr Caldow said that he then telephoned or emailed Mr Rice and inquired as to the stocks against which Opes Prime would lend. Mr Rice responded and also sent Mr Caldow an email setting out the interest rates charged by Opes Prime. The email also contained the following information:

Adviser Loan Book	Trail Commission (excluding GST)
$0-$2,000,000	0.50%
$2,000,000-$5,000,000	0.60%
$5,000,000 plus	0.75%

I am happy to go outside of the structure above if normally he has a larger loan than the $580,000 currently. If you can tell me what rate and commission you are looking for, we can go from there.

269 Mr Caldow responded to Mr Rice’s email by sending an email asking what his client had to do to set up an account. Mr Rice responded in an email in the following terms:

The client needs to complete the attached application form and send this along with photo ID back to us. To refinance from LE they will also need to complete the attached Refinancing Instruction Form which we will then forward to LE.

If he is going to put the NFL in, the best way to do this is to set up an account in his own name and then we can cross margin the two accounts by all parties signing the attached cross margin letter.

I have also reattached the spreadsheet given the pricing error we had.

270 By an email dated Thursday, 17 May 2007 and recorded as having been sent at 12 pm, Mr Caldow forwarded the emails between himself and Mr Rice to Mr Drummond along with the attachments which included the Opes Prime Financial Services Guide, an Excel spreadsheet outlining loan to value ratios, the Refinancing Instruction Form and the cross-margin letter.

271 Mr Caldow then deposed that about a week after that email exchange he had a telephone conversation with Mr Drummond in the following terms:

Me - “What interest rate did you end up getting with Opes?”

Mr Drummond - “8.2 percent.”

Me - “I will see if I can do better for you, let me give them a call and I’ll try to get it lower.”

Mr Drummond - “Why would you be able to get it any lower.”

Me - “Well it’s worth a try. They’re not going to put it up.”

272 Mr Caldow then called Mr Rice of Opes Prime and had a conversation with him to the following effect:

Me - “Any chance of getting a better rate for Bruce Drummond?”

Mr Rice - “You get a trail commission on his loan. If you forego trail commission we can do 8%.”

Me - “I didn’t even realise there was a trail commission; I am not interested in one.”

Mr Rice - “OK, we will make it 8%.”

Me - “Great.”

273 Mr Caldow said that after he had had that telephone conversation with Mr Rice, he telephoned Mr Drummond and said that he had been able to get an interest rate of eight per cent for him. Mr Caldow went on to say that he did not, at that time, make any mention to Mr Drummond about not taking a trail commission because he did not think that that was important.

274 Mr Caldow said that his only involvement in the establishment of the account by Eric Preston with Opes Prime was as deposed to above.

275 In his third affidavit sworn on 25 February 2009 (at para 49) (which was sworn in response to the affidavit of Mr Caldow), Mr Drummond deposed that he did not complain to Mr Caldow about Leveraged Equities; nor had he used the language Mr Caldow attributed to him in criticising the service provided by Leveraged Equities (see [257] above). Mr Drummond went on to say, however, that he had discussed with Mr Caldow “that there were limits on the facility provided by Leveraged Equities in relation to the stocks recommended by Euroz and that this was constraining [his] ability to further purchase stocks recommended by Euroz”.

276 However, during his cross-examination, Mr Drummond finally conceded that he had, in fact, complained to Mr Caldow about Leveraged Equities:

Right. So what’s in – so in relation to this, we’re now to understand that your evidence – you now actually agree with Mr Caldow that you did complain to him about Leverage Equity, yes?---Yes.

277 In respect of the conversation with Mr Caldow referred to at [260] above, Mr Drummond said that he had asked Mr Caldow during that conversation whether he knew of other available margin lenders Eric Preston could use. Mr Caldow had said that the National Australia Bank provided margin lending facilities. Mr Drummond denied that he had used the crude language about banks attributed to him by Mr Caldow.

278 During the cross-examination of Mr Drummond as to the content of the crucial conversation with Mr Caldow on 14 May 2007, the following exchange occurred:

Now, can you tell me now, as best you can recollect it now, how it was that you first became aware of Opes?---I was having a telephone conversation with Ritchie and I overhead Simon Yeo who has a – sits right next door to Mr Caldow, after some discussion, saying – he said to Ritchie, “Have you told BD about Opes Prime?”

Can I pause there; sorry, I didn’t want to cut you off, but you were having a conversation with Mr Caldow?---Yes.

During which – again, you were having – if not complaining, you were commenting to him that “On my Leveraged account I just can’t get margin on shares that I want to trade in”?---No, I don’t believe that was case. We were having a conversation...buying stock.

And then what do you remember, Mr Yeo saying something?---Mr Yeo, who sits right next door to Mr Caldow, saying, “Have you told BD about Opes Prime?” To which I answered, because Mr Yeo has quite a loud voice. I said to Ritchie, “What’s all that about?” and Ritchie said to me, “Look, Mark Rice, who is a mate of Yeoy’s works for a company called Opes Prime as a sales manager for market – for Opes Prime and why don’t you get him to talk to him about Opes Prime.”

All right. So that’s what Yeoy is saying in the background?---Yes.

And Mr Caldow then said to you that he hadn’t had a look at it, but he’d send you some info on it?---I spoke to Mark Rice and---

No, just in this first conversation?---Oh sorry. No, he said he didn’t know anything about it, yes.

Yes, he didn’t know anything about it, “I’ll send you some info”?---Yes.

And then he said the information is on their website?---That’s what he said, yes.

Is that the start and finish of that conversation? Yeo is in the background saying “Tell BD about Opes”?---Mm.

Mr Caldow says, “Oh well, there’s this crowd Opes,” I think he told you that you could get a better margin at Opes, but he hadn’t looked at it. It’s obvious he didn’t know anything about it from the conversation?---He said that, yes.

And he said, “I’ll send some information to you”?---Yes.

End of conversation?---Yes.

And then he sent you the information?---He emailed me some information, yes.

279 Mr Caldow was also cross-examined. Mr Caldow consistently denied that he had given any advice to Mr Drummond during the course of the crucial conversation.

280 I reject the evidence of Mr Drummond as to the content of the conversation deposed to by Mr Drummond in his first affidavit. I prefer the evidence of Mr Caldow as to the content of that conversation and find that the terms of the conversation were as deposed to by Mr Caldow. I make this finding for the following reasons.

281 First, in his cross-examination, Mr Drummond accepted the version of the conversation to which Mr Caldow had deposed. Of particular significance, is that Mr Drummond deposed that Mr Caldow had said that he did not know anything about the Opes Prime facility. This is inconsistent with Mr Drummond’s affidavit evidence that Mr Caldow had said that the facility was the same as the Leveraged Equities margin loan.

282 Secondly, the evidence which Mr Drummond gave in his first affidavit was misleading as to his attitude to the Leveraged Equities facility in May 2007, at the time of his conversation with Mr Caldow. In his first affidavit, Mr Drummond did not reveal that at the time of the crucial conversation he was dissatisfied with Leveraged Equities and that he had expressed this dissatisfaction to Mr Caldow. To the contrary, Mr Drummond sought to create the impression in his first affidavit that he was content with his relationship with Leveraged Equities and that Mr Caldow induced him to terminate this good relationship to enter into a relationship with Opes Prime. This is also reflected in Eric Preston’s pleading in its statement of claim. It was only in his third affidavit, and after he had seen Mr Caldow’s affidavit, that Mr Drummond acknowledged that he had previously spoken to Mr Caldow about the limitations of the Leveraged Equities facility, although, even then, Mr Drummond sought to colour his evidence, by seeking to characterise these complaints as “discussions”. It was only in his cross-examination that he ultimately accepted that he had, as Mr Caldow had deposed, complained to him about Leveraged Equities.

283 Thirdly, in his third affidavit, Mr Drummond also denied the description of the language which he used in relation to the deficiencies in the service provided by Leveraged Equities and his attitude to banks. Evidence emerged during the trial which showed that Mr Drummond can on occasions use very frank and blunt language. An example of Mr Drummond’s propensity to use coarse and blunt language at times is to be seen in the email, critical of Mr Anderson’s advice, which he sent to Mr Anderson of 11 December 2006. Mr Drummond’s attempt to couch the language that he used in anodyne terms in his affidavit evidence is unconvincing.

284 Fourthly, another factor which undermines the reliability of the evidence of the crucial conversation given by Mr Drummond in his first affidavit, is that Mr Drummond did not refer to having dealt directly with, and made inquiries of, Mr Rice prior to making an application for the Opes Prime facility in his first affidavit. The failure to refer to his dealing with Mr Rice prior to entering into the Opes Prime facility in his first affidavit, is a further instance of Mr Drummond seeking to create the false impression that it was solely at Mr Caldow’s initiative that Eric Preston moved from a good working relationship with Leveraged Equities to Opes Prime for Mr Caldow’s selfish reasons.

285 I reject the criticisms made by Eric Preston during closing submissions, that I should not place weight on the cross-examination because of the alleged “rolled-up” nature of the questions put to Mr Drummond. First, it was open to senior counsel for Eric Preston to have taken that objection during the course of the cross-examination as he did in relation to a number of questions. Secondly, in my view, Mr Drummond understood the questions and was not prejudiced by their form.

286 Senior counsel for Eric Preston contended that senior counsel for Euroz Securities did not comply with the rule in Browne v Dunn (1893) 6 R 67, because he did not challenge Mr Drummond directly by asking him whether he stood by his version of the conversation deposed to in his first affidavit. In my view, it was unnecessary to put to Mr Drummond his own version. It was sufficient compliance with the rule in Browne v Dunn that senior counsel for Euroz Securities gave the witness an opportunity to comment upon Mr Caldow’s version of the crucial conversation. In my view, senior counsel for Euroz Securities gave Mr Drummond a fair opportunity to deal with the opposing evidence. In any event, Eric Preston was plainly on notice through the pleadings that it was a fundamental contention of Euroz Securities that no advice of the nature alleged by Eric Preston had been given by Mr Caldow to Mr Drummond.

287 Senior counsel for Eric Preston also drew my attention to the fact that later on during his cross-examination, Mr Drummond had sought to commence answering a question by stating that the crucial conversation had been in accordance with his evidence in his first affidavit, and that this answer had been cut off by an intervention by senior counsel for Euroz Securities.

288 Further, during re-examination, Mr Drummond sought to reassert his affidavit evidence as to the content of the crucial conversation. I place no weight on Mr Drummond’s attempt to reassert his position in the first affidavit after the evidence he had given in cross-examination referred to above. The cross-examination answers Mr Drummond gave set out at [278] above, were spontaneous and had the ring of truth. The subsequent attempts by Mr Drummond to reassert the version of the conversation described in his first affidavit were artificial and, in my view, given after Mr Drummond had realised the adverse import of his spontaneous answers given during his earlier cross-examination for Eric Preston’s case.

289 It follows that I find that Mr Caldow did not state that the Opes Prime facility was the same as the Leveraged Equities facility other than it had a lower rate of interest and a better loan to value ratio, and that he did not advise Mr Drummond on behalf of Eric Preston, to terminate the Leveraged Equities facility.

290 I find that Mr Caldow made no representation as to the characteristics of the Opes Prime facility. I find that Mr Caldow told Mr Drummond that he did know about the Opes Prime facility. I find that following the conversation with Mr Caldow, Mr Drummond then approached and dealt directly with Mr Rice of Opes Prime about entry into the Opes Prime facility, save for the respects deposed to by Mr Caldow.

Can Eric Preston rely on a case founded on the allegation that Euroz Securities failed to advise as to the characteristics of the Opes Prime facility?

291 Eric Preston’s case is based on the central contention that Mr Caldow made a positive statement as to the characteristics of the Opes Prime facility, and that Mr Drummond relied upon it to terminate the Leveraged Equities facility and to enter into the Opes Prime facility.

292 Mr Drummond said specifically in his first affidavit (para 93) that he did not read the content of the Opes Prime Financial Services Guide because he relied on the positive advice of Mr Caldow that the Opes Prime facility was no different in character than the Leveraged Equities facility.

293 I have found that Mr Caldow did not make the positive statement alleged by Eric Preston. Euroz Securities contended that if I found that Eric Preston failed to make out its claim that Mr Caldow made the statement which Mr Drummond said he relied upon to enter into the Opes Prime facility, it was not open to Eric Preston to advance an alternative case based on a failure by Euroz Securites to reveal the differences in the two facilities. It was not possible, said Euroz Securities, for Eric Preston honestly to run a case which is founded on an alternative scenario that Mr Caldow did not give positive advice. This is because it is not possible to plead a factually inconsistent case.

294 In my view, the contention of Euroz Securities should be upheld.

295 As mentioned, Mr Drummond specifically deposed that it was the positive advice of Mr Caldow which caused him not to read the Opes Prime Financial Services Guide and induced in him, the belief that the Opes Prime facility was of the same character as the Leveraged Equities facility such that Eric Preston would retain beneficial ownership in the shares in its portfolio.

296 Order 11 r 8 of the Federal Court Rules provides that a party may not plead inconsistent statements of fact. In this case, Eric Preston’s claim was based squarely on an allegation that Mr Drummond relied on a positive statement made by Mr Caldow, and as a consequence, did not read the terms of the Opes Prime Financial Services Guide, before entering into the Opes Prime facility.

297 It would not have been open to Eric Preston to plead that Mr Drummond’s belief was induced by any other factual circumstance.

298 In Suvaal v Cessnock City Council (2003) 200 ALR 1, Callinan J observed at 35-36, at [139] and [144]:

The Court of Appeal (Powell JA, Giles JA and Rolfe AJA) was of the opinion that the appeal could be disposed of in the respondent’s favour on the ground that the master had no proper basis for a finding in favour of the appellant following her rejection of his pleaded, and repeated, assertion that it was contact with him by, or the proximity of an unidentified motor vehicle to him that caused the marked and sudden deviation of his bicycle into the potholes beside the road, the facture in the steering mechanism and the fall.

...

In my opinion the Court of Appeal had no option but to allow the appeal. The approach of the master was an incorrect one. She seemed to think that, rather than decide whether the appellant had proved the case that he sought repeatedly to make at the trial and which she concluded she was bound to reject, she was obliged to find some other explanation for the accident. This was to misunderstand the nature of the task she had to perform.

299 These observations are apposite to this case. Accordingly, Eric Preston having failed to prove occurrence of the event which it was said actually induced the crucial belief that the Opes Prime facility was the same as the Leveraged Equities facility, it is not open to Eric Preston to contend, nor for the Court to find, that that the crucial belief was induced by a different factual scenario.

Would Eric Preston have entered into the Opes Prime facility even if it had been advised as to its characteristics and attendant risks?

300 It was a central element of Eric Preston’s case that if Mr Drummond had been advised that Eric Preston would be no more than an unsecured creditor of Opes Prime, and would be at risk of losing its portfolio in the event of Opes Prime’s insolvency, Eric Preston would have stayed with Leveraged Equities. In his second affidavit, Mr Drummond said at para 13:

In the event that I had been made aware around the end of May 2007 when EP switched from an LE Facility to an OP Facility that the OP Facility was a share lending arrangement pursuant to which EP’s portfolio would be transferred absolutely to OP, leaving EP as an unsecured creditor of OP, EP would have remained with LE.

301 Euroz Securities contended that, even if Mr Drummond had been advised prior to Eric Preston’s entry into the Opes Prime facility, that Eric Preston would lose the beneficial ownership in its share portfolio and would stand as an unsecured creditor in the event of the insolvency of Opes Prime, Mr Drummond would still have terminated the Leveraged Equities facility and entered into the Opes Prime facility.

302 A court needs to be cautious when scrutinising evidence that, had a person been warned of a particular risk, he or she would have acted differently, when that evidence is given after some major loss or damage has occurred (Clambake Pty Ltd v Tipperary Projects Pty Ltd (No 3) [2009] WASC 52).

303 The risk of loss to Eric Preston which has eventuated in this case, is that Opes Prime has become insolvent and Eric Preston is now in the position of an unsecured creditor for the difference between the value of its portfolio and the amount owing to Opes Prime under the facility.

304 I reject Mr Drummond’s evidence set out at [300] above. I am of the view, that even if Mr Drummond had been advised of the risk which subsequently led to Eric Preston’s loss, Mr Drummond, on behalf of Eric Preston, would still have terminated the Leveraged Equities facility and entered into the Opes Prime facility.

305 I base that view on the following facts.

306 First, before entering into the Opes Prime facility in May 2007, Mr Drummond was discontented with Leveraged Equities. In the months leading up to May 2007, Eric Preston was operating at the limit of the credit available to it under the Leveraged Equities facility, and Mr Drummond was frustrated by the failure of Leveraged Equities to offer any further margin, in respect of Sundance Energy shares, and any margin in respect of shares in other companies in which Eric Preston held shares.

307 Mr Drummond was, at all material times, particularly attracted to Sundance Energy shares and was desirous of building up a large portfolio of shares in that company. Before terminating the Leveraged Equities facility, Mr Drummond sent an email to Ms Jones asking whether Leveraged Equities would offer a margin against Sundance Energy shares. Within a week of Leveraged Equities’ reply saying that it would not, Mr Drummond made the application for the Opes Prime facility, which did offer a margin on Sundance Energy shares. Further, Mr Drummond, for Eric Preston, immediately purchased more shares in Sundance Energy once the Opes Prime facility became operative. Thereafter, Mr Drummond, used the Opes Prime facility to increase, substantially, Eric Preston’s stake in Sundance Energy shares.

308 Further, the Opes Prime facility offered margins on a number of other stocks in that part of the market which attracted Mr Drummond, on which Leveraged Equities did not.

309 Secondly, eight weeks before administrators were appointed to Opes Prime, Mr Drummond was informed by Euroz Securities by the 1 February 2008 email that in the event of the insolvency of Opes Prime, Eric Preston would rank as an unsecured creditor. Further, at around the same time, Mr Drummond also received advice from Mr Anderson, endorsed by Mr Caldow, that he should not risk the loss of the share portfolio, and that he should terminate the Opes Prime facility.

310 However, notwithstanding the receipt of the email of 1 February 2008, and the advice from Mr Anderson, Mr Drummond continued to use the Opes Prime facility to engage in share trading. Thus, fully aware that, in the event that Opes Prime became insolvent, Eric Preston would stand only as an unsecured creditor for the difference between the value of its share portfolio and the balance of the loan, Mr Drummond, nevertheless, continued to use the Opes Prime facility to purchase shares which were not eligible for a margin under the Leveraged Equities facility. In particular, Mr Drummond continued to increase Eric Preston’s holding of Sundance Energy shares. During the period 1 February to 28 March 2008, Eric Preston bought a total of 1,165,000 Sundance Energy shares in a series of 22 separate trades on 18 separate days during that period.

311 In February 2008, the question as to the stability of Opes Prime’s financial position had been raised by the publicity about Tricom. I infer from the fact that Mr Drummond was prepared to take the risk of Opes Prime becoming insolvent in the post 1 February 2008 circumsances, that, in order to gain the trading advantages of the Opes Prime facility, he would, therefore, in May 2007, have been prepared to take the risk of Opes Prime becoming insolvent, when he was not conscious of any publicity giving rise to the issue of the stability of Opes Prime’s financial position.

312 Thirdly, in February 2008, Mr Drummond, aware of the risk associated with the Opes Prime facility, had the opportunity to adopt the course of action he said he would have adopted in May 2007, had he then been made aware of that risk. That is, Mr Drummond, fully aware of the attendant risk of staying with Opes Prime, had the opportunity to refinance with Leveraged Equities but did not take the steps necessary to do so. In early February 2007, Mr Caldow inquired whether Leveraged Equities would refinance Eric Preston’s Opes Prime facility. Leveraged Equities was not prepared to refinance on the basis of the shares then comprising Eric Preston’s share portfolio. However, Mr Drummond did not pursue the option of making adjustments to Eric Preston’s share portfolio so as to satisfy Leveraged Equities’ requirements. Instead, as mentioned above, Mr Drummond continued to purchase during the period 1 February 2008 to 27 March 2008, shares in companies which were unacceptable to Leveraged Equities.

313 In my view, these facts fatally undermine Mr Drummond’s evidence set out at [300] above, that he would have stayed with Leveraged Equities had he been advised of the matters therein described.

The pleaded breaches relating to events of February 2008

314 Eric Preston contended that there were other breaches of the implied terms of the retainer which related to the events which occurred in or about February 2008. As previously mentioned, it is unnecessary to deal with those allegations in light of my finding that Eric Preston has failed to establish that the retainer contained the implied terms said to have been breached. However, I will make some observations in relation to those allegations.

315 It was said that, for the following reasons, the forwarding of the email to Mr Drummond on 1 February 2008, was not sufficient to comply with the implied terms of the retainer.

316 First, it was said that the advice in the email was given at a time when Opes Prime was in danger of becoming insolvent and Eric Preston did not have a reasonable opportunity of avoiding the loss of its share portfolio.

317 Secondly, the email did not recommend to Eric Preston that it immediately terminate the Opes Prime facility.

318 Further, Eric Preston pleaded that Euroz Securities was in breach of its duty by not immediately, after 31 January 2008, advising Eric Preston that it could not advise Eric Preston about Opes Prime, thereby depriving Eric Preston of the opportunity to save the value of its share portfolio, less the value of the loan it owed to Opes Prime.

319 Eric Preston also alleged that Euroz Securities breached the implied terms of the retainer by advising Eric Preston after 1 February 2008, that its portfolio was safe, when there were no reasonable grounds for giving that advice.

The 1 February 2008 advice came too late

320 I deal first, with the contention that the advice as to the difference in characteristics between the Opes Prime facility and the Leveraged Equities facility came too late to give Eric Preston a reasonable opportunity to avoid the loss of its share portfolio.

321 Eric Preston’s claim that the advice as to the difference between the two facilities came too late for it to have a reasonable opportunity to save its portfolio, is rejected. This is because, in my view, Mr Drummond, on behalf of Eric Preston did have a reasonable opportunity after he received the advice to avoid the loss but did not take that opportunity.

322 At para 21 of his second affidavit, Mr Drummond said:

As at 31 January 2008 EP owed OP approximately $2.4m. Had I been advised EP should terminate its OP Facility as a matter of urgency, I would have sold sufficient shares to realise sufficient funds to pay out the OP loan and I would have requested the remaining shares, being shares in SEA, to be transferred back to EP together with a cheque for the balance owed. EP would have sold the following shares and achieved the following returns:

Action	Stock Code	Amount	Unit Price	Sale Proceeds
Sell	APP	500,000	$0.450	$225,000
Sell	ALE	1,000,000	$0.170	$17,000
Sell	COE	600,000	$0.655	$393,000
Sell	EAR	400,000	$0.175	$70,000
Sell	OMH	743,685	$2.390	$1,350,000
Sell	TTY	400,000	$1.105	$442,000
				$2,497,000

323 Mr Caldow deposed that the following conversation occurred in early February 2008, after Mr Drummond had received the email of 1 February 2008, and the advice of Mr Anderson and Mr Caldow, that he should terminate that Opes Prime facility:

Mr Drummond - “How do I get out of Opes?”

Me - “Your options are, you can sell stock and/or you can pay out the loan”.

Mr Drummond - “I don’t want to pay it out. It is the money for the new house and Judith wouldn’t want me to touch it”.

324 I accept this evidence.

325 In my view, it was open to Mr Drummond to sell down some of the shares in Eric Preston’s share portfolio but he chose not to do so. That was a personal choice that Mr Drummond made. Mr Drummond was aware that there were risks involved in the course that he adopted, but he chose to accept the risk. It cannot, therefore, be said that Mr Drummond did not have a “reasonable opportunity” to avoid the loss of Eric Preston’s share portfolio. Mr Drummond said that he did not believe that it was urgent to take steps to get out of the Opes Prime facility, but it does not follow, therefrom, that he did not have a reasonable opportunity to avoid the loss by selling down sufficient shares in Eric Preston’s portfolio to pay out the facility. The reason he did not sell down the shares is because he did not want to.

326 Further, Eric Preston pleaded in relation to this allegation that by 1 February 2008, Opes Prime was “in danger of becoming insolvent and in breach of its own lending agreements”. However, I was not taken to any evidence, nor asked to make any findings, as to, the financial position of Opes Prime on 1 February 2008, or indeed at any time. The financial position of Opes Prime leading up to the appointment of the administrators was not explored in this case. I, accordingly, make no finding as to the financial position of Opes Prime at 1 February 2008.

Failure to advise Eric Preston to terminate the Opes Prime facility

327 It was also contended that Euroz Securities breached its retainer because it did not in terms advise Eric Preston in the 1 February 2008 email to terminate the Opes Prime facility. Underlying this contention, is a further contention that the financial position of Opes Prime was so parlous at that time that it would have justified the advice for which Eric Preston contends.

328 This contention would have failed for the following reasons. First, as mentioned, Eric Preston did not seek to establish the financial position of Opes Prime as at 1 February 2008. Secondly, Eric Preston did not adduce any evidence to show that if Euroz Securities had made inquiries from Opes Prime as to its financial position, that it would have been informed as to the true financial position, so as to be in a position to give the advice which it said should have been given.

329 Further, in any event, Mr Drummond did receive advice to terminate the Opes Prime facility from Mr Anderson, endorsed by Mr Caldow, but declined to do so, notwithstanding that he had a reasonable opportunity to do so.

Failure to advise that Euroz Securities could not comment on the financial position of Opes Prime

330 It was also contended that Euroz Securities breached the implied terms of the retainer by failing to advise Mr Drummond on behalf of Eric Preston, that it could not comment on the solvency or financial stability of Opes Prime.

331 This contention would also have failed because there was no evidence from Mr Drummond that had he been advised by Euroz Securities that it could not advise as to the financial position of Opes Prime, that he would have taken steps which would have meant that Eric Preston would have avoided the loss to its share portfolio.

332 Further, Mr Caldow, in effect, did advise Mr Drummond that he could not advise on the financial position of Opes Prime during their conversation in early February 2008, when he passed on the information he had learned from Mr Rice.

Advice that the share portfolio was safe

333 Eric Preston also contended that there was a breach of duty by Euroz Securities in that Mr Caldow made statements to Mr Drummond which amounted to a representation that Eric Preston’s portfolio was safe, when there were no reasonable grounds for that statement.

334 Mr Drummond said that he relied on this statement not to take steps to protect his position. Mr Drummond said that as a consequence he regarded the need to take steps to liquidate his position in Opes Prime was not urgent.

335 There was a factual dispute between the parties as to whether Mr Caldow gave such advice. For the reasons which I set out in [405]-[417] below, I find that Mr Caldow did not give such advice.

THE CLAIM IN TORT

336 Eric Preston pleaded that, in May 2007, when Mr Caldow gave Mr Drummond the advice to terminate the Leveraged Equities facility and to enter into the Opes Prime facility (as previously mentioned, this advice is referred to in the pleading as the “OP advice”):

(a) Euroz Securities knew that Eric Preston relied on Euroz Securities for advice as to the buying and selling of shares and the acquisition and use of other financial products by Eric Preston;

(b) Eruoz Securities knew that it was very likely that Eric Preston would enter into the Opes Prime facility;

(c) Euroz Securities knew that if Eric Preston relied on the advice given by Mr Caldow and entered into the Opes Prime facility and such advice was wrong or unsound, Eric Preston would risk incurring significant economic loss;

(d) Euroz Securities knew, or ought to have known, that Eric Preston was vulnerable to the loss of all or part of its share portfolio, or the value thereof, should the advice be wrong.

337 It is then alleged that those facts gave rise to the following duties owed by Euroz Securities to Eric Preston:

(a) a duty to exercise reasonable care, skill and diligence in acting as stockbroker and financial advisor to Eric Preston;

(b) a duty to take reasonable care to avoid foreseeable economic loss, and risk of economic loss, to Eric Preston;

(c) a duty to take reasonable care to ensure that Eric Preston was aware of the true nature and substance of the Opes Prime facility and the risk associated therewith.

338 It is then pleaded that, in breach of the duty of care, Euroz Securities recommended and facilitated the use of the Opes Prime facility without advising Eric Preston that the beneficial interest in its share portfolio had been transferred to a third party, and the risk associated with such a transfer.

339 It is also alleged that Euroz Securities breached its duty by failing to advise Eric Preston of the true nature, substance and risk of the Opes Prime facility and by failing to take reasonable steps to avoid foreseeable harm to Eric Preston.

340 There is appended to the pleading of those allegations of breach of duty, particulars substantially to the same effect as the particulars which were relied upon for the claim for breach of contact. As was the case in relation to the plea for breach of the implied terms of the retainer, no attempt was made by Eric Preston to link any one or more of the specific paragraphs containing the particulars to any one or more of the pleaded breaches of duty.

341 Eric Preston then pleaded that by reason of the said breaches of duty, it has suffered and will suffer loss and damage. In the particulars, Eric Preston repeats the particulars relied on in support of the claim for breach of contract, namely, that but for the breaches of duty, Eric Preston would have continued with the Leveraged Equities facility and would not have lost its share portfolio.

342 Whilst it is possible to construe the statement of claim as pleading a “reliance based” claim for negligent misrepresentation in relation to the giving of the alleged so-called “OP advice” by Mr Caldow in May 2007, the parties did not conduct the trial on that basis.

343 The parties treated the claim in tort as being founded on a duty of care which was coextensive with the duty of care owed under the retainer (see Eric Preston’s written opening statement, and Eric Preston’s senior counsel’s closing submissions (transcript at 969)). Further, in its written closing submissions Eric Preston did not treat the allegations of breach of duty in contract and tort, as being other than coextensive.

344 I have already found that Eric Preston has failed to prove that the retainer entered into with Euroz Securities extended to an undertaking by Euroz Securities to act as Eric Preston’s financial advisor, and that the implied duty to act with reasonable care and skill did not extend to acting both as a stockbroker and financial advisor. On the basis on which the parties conducted the trial, Eric Preston’s duty of care in tort would be coextensive and similarly circumscribed. The alleged breaches of the duty of care did not relate to any acts or omissions by Euroz Securities in carrying out its function purely as a stockbroker. The allegations were premised on Euroz Securities having duties of care arising from its agreement in the retainer, to act as a financial advisor to Eric Preston.

345 Accordingly, Eric Preston’s claim in tort also fails.

346 I am not to be taken as saying that, had Eric Preston pursued a reliance based claim on the basis of the pleadings, that the result would have been different. The fact that I have found that in the crucial conversation in May 2007, Mr Caldow told Mr Drummond that he did not know anything about the Opes Prime facility, would have constituted a considerable obstacle to the success of any such claim. Further, there was no plea of any circumstances occurring in February 2008, upon which to found a reliance based duty of care in relation to advice as to the financial position of Opes Prime at that time.

THE CLAIM THAT EUROZ SECURITIES ENGAGED IN MISLEADING OR DECEPTIVE CONDUCT

347 Eric Preston claimed that Euroz Securities engaged in misleading or deceptive conduct in contravention of s 1041H of the Corporations Act 2001 (Cth) and s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) by making two representations which were misleading or deceptive.

348 Section 1041H(1) of the Corporations Act provides that:

A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or financial service, that is misleading or deceptive or is likely to mislead or deceive.

349 Section 1041I(1) of the Corporations Act provides that:

A person who suffers loss or damage by conduct of another person that was engaged in in contravention of section...1041H may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention, whether or not that other person or any person involved in the contravention has been convicted of an offence in respect of the contravention.

350 Section 12DA of the ASIC Act provides:

A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.

351 Eric Preston alleged that the Opes Prime credit facility was a “financial product” within the meaning of s 12BAA of the ASIC Act.

352 It is further pleaded that the advice given and representations allegedly made by Euroz Securities in relation to the Opes Prime facility constituted “financial product advice” within the meaning of the Corporations Act and s 12BAB(5) of the ASIC Act.

353 Eric Preston pleaded that in making representations and giving advice in relation to the Opes Prime credit facility, Euroz Securities provided a “financial service” within the meaning of the Corporations Act and s 12BAB of the ASIC Act.

354 I note that Euroz Securities disputed these contentions, but in light of my conclusions, it is not necessary to rule on Euroz Securities’ arguments.

The first representation

355 I deal with the first of the representations alleged by Eric Preston.

356 As mentioned, Eric Preston has pleaded that Euroz Securities engaged in contravening conduct by making two representations which caused Eric Preston to suffer loss and damage.

357 Eric Preston pleaded that prior to the entry into the Opes Prime facility, Euroz Securities represented that save for the differences previously referred to, the Opes Prime facility was as to its nature and substance, and in risk, the same as the Leveraged Equities facility, so that, provided Eric Preston paid all margin calls in respect of the Opes Prime facility, it could not lose its share portfolio.

358 In its particulars of this plea, Eric Preston relied upon the conversation between Mr Caldow to Mr Drummond referred to at [178] above and Euroz Securities’ silence in failing to advise Eric Preston of the following matters:

(a) It had failed to make any or any adequate assessment of the nature, substance and risks of the Opes Prime facility.

(b) The Opes Prime facility was a “very different facility” to the Leveraged Equities facility in that under the Opes Prime facility Eric Preston would transfer all of the shares in its portfolio, whether funded by margin lending or owned outright, to Opes Prime under a share lending arrangement, so that Opes Prime could deal with the shares in such manner as it saw fit, including transferring the shares to third parties as collateral for the loans to Eric Preston.

(c) The shares in Eric Preston’s portfolio, whether the subject of margin lending or not, constituted the security for Opes Prime’s debts and were at risk “for failure by other margin lending clients of Opes Prime to pay their margin calls”.

(d) The Opes Prime facility involved a high level of risk to Eric Preston not present in the Leveraged Equities facility.

(e) Eric Preston would under the Opes Prime facility transfer its shareholding to Opes Prime so that Eric Preston lost ownership and control of the shares in its share portfolio and would become an unsecured creditor of Opes Prime.

359 Eric Preston pleaded that the first representation was false, misleading or deceptive, or likely to mislead or deceive (para 25 of statement of claim). Somewhat unhelpfully the particulars of this allegation refer back to a number of particulars relied upon in support of the claim for breach of the retainer. However, I have treated the particulars as an allegation that the advice given by Mr Caldow was wrong because the Opes Prime facility did not have the characteristics described by Mr Caldow, but rather had the characteristics and risks referred to in subparas (b), (c), (d) and (e) above. Eric Preston also pleaded (para 26 of the statement of claim) that insofar as the first representation pertained to future matters, Eric Preston relied upon s 12BB(1) of the ASIC Act.

360 Eric Preston pleaded that in reliance on the first representation, Eric Preston terminated the Leveraged Equities facility and entered into the Opes Prime facility and began using the Opes Prime facility. It also pleaded that had the first representation not been made Eric Preston would have continued with the Leveraged Equities facility and not entered into the Opes Prime facility and not lost its share portfolio. Eric Preston, accordingly, claimed loss and damage.

361 The evidence of Mr Drummond as to his reliance on the statement made by Mr Caldow is at para 76 and para 93 of his first affidavit. Mr Drummond’s evidence is that it was the statement that induced in him the belief that the Opes Prime facility was the same as the Leveraged Equities facility, and it was this statement which caused him not to read the terms and conditions of the Opes Prime Financial Services Guide before entering into the Opes Prime facility.

362 By reason of my findings made at [289]-[290] above, I have found that Mr Caldow did not make the statements as to the characteristics of the Opes Prime facility during the conversation relied upon by Eric Preston in its particulars, Eric Preston has failed to establish that the first representation was made.

363 Eric Preston’s claim is not enhanced by seeking to include Mr Caldow’s silence as part of the impugned representation. In this case, it was alleged that Mr Caldow gave positive advice which was wrong. It was not a case where it is necessary to view the conduct as a whole to discern the misleading impression, which it is said, was relied upon by Mr Drummond. In this case, the alleged words themselves created the misleading impression because they conveyed wrong information. Silence adds nothing.

364 It follows that once Eric Preston failed to prove that the impugned statement was made, then Eric Preston’s contention, that it suffered loss by reason of Mr Caldow’s making of the statement, also fails.

365 In any event, by reason of my findings at [304] above, Eric Preston has also failed to establish its allegation at para 27 of its statement of claim that, but for the making of the first representation, Eric Preston would not have entered into the Opes Prime facility, and would not have suffered the loss it claimed.

366 I, accordingly, dismiss Eric Preston’s claim for damages founded on the allegation that Euroz Securities engaged in misleading or deceptive conduct by making the first representation.

The second representation

367 Eric Preston pleaded that around or shortly prior to 1 February 2008, Euroz Securities represented to Eric Preston that:

(a) Opes Prime was not like Tricom;

(b) it would be necessary for the stock market to fall 20% in one day and for no client of Opes Prime to pay their margin calls for Opes Prime to be in trouble; and

(c) the Eric Preston share portfolio was and would be safe under the Opes Prime facility.

368 In the particulars to this plea, Eric Preston stated that each of the statements pleaded at subparas (a) and (b) was made orally by Mr Caldow to Mr Drummond. Eric Preston then stated that the third part of the representation, namely, that in subpara (c) above, was to be implied from the statements made in subparas (a) and (b) and the fact that Mr Caldow made those statements with the intention of leading Eric Preston to believe that its share portfolio was safe under the Opes Prime facility and the fact that Mr Caldow did not advise Eric Preston to terminate the Opes Prime facility.

369 Eric Preston then pleaded that in reliance on the second representation, it formed the view that its share portfolio was not at risk, and that Eric Preston did not terminate the Opes Prime facility and require payment or transfer to it in cash or shares of the net value of its share portfolio after repayment of the Opes Prime loan.

370 It is then pleaded that in contravention of the statutory provisions referred to at [348] and [350] above, the second representation was false, misleading or deceptive, or likely to mislead or deceive. In the particulars provided in support of that allegation, Eric Preston stated that the second representation was false in fact and that Mr Caldow had no reasonable basis for making it. It was also said that the second representation was made for the sole purpose of assuring Eric Preston that its share portfolio was safe when, in fact, it had been transferred to a third party and was at serious risk of being lost.

371 Eric Preston also pleaded that the statements in subparas (b) and (c) of the second representation were “as to future matters” and it relied on s 12BB of the ASIC Act.

372 It is also pleaded that had the second representation not been made, Eric Preston would have formed the view that its share portfolio was at risk under the Opes Prime facility, would have terminated the Opes Prime facility and required payment or transfer to it in cash and/or shares of the net value of the share portfolio.

373 Euroz Securities denied that it engaged in conduct which contravened the statutory provisions relied upon by Eric Preston. Euroz Securities contended that it did not take any responsibility for advising in relation to the solvency or otherwise of Opes Prime. It is contended specifically that Mr Caldow did no more than pass on information as to the position of Opes Prime which Mr Rice had told him. Further it is contended that Mr Drummond appreciated that Mr Caldow was passing on information from Mr Rice. Further, Euroz Securities denied that Mr Caldow had ever advised Mr Drummond that the Eric Preston share portfolio was safe.

374 Further, Euroz Securities pleaded that, insofar as the second representation amounted to a representation as to a future matter, if, which it was denied, the second representation was made, Euroz Securities had reasonable grounds for making it.

375 I now deal with the allegation that Euroz Securities engaged in contravening conduct by Mr Caldow by making the second representation. As I have mentioned above, Euroz Securities contended specifically that Mr Caldow did no more than pass on information as to the position of Opes Prime which Mr Rice had told him, and did not, therefore, engage in contravening conduct.

376 The legal principles relating to engaging in misleading or deceptive conduct in circumstances where there is a contention that the alleged misleading information has been passed on, have been reviewed recently by the High Court and the New South Wales Court of Appeal.

377 In the case of Butcher v Lachlan Elder Realty Pty Limited [2004] HCA 60; (2004) 218 CLR 592 (Butcher), the appellants were the purchasers of a waterfront property on which there was located a swimming pool. They were property investors. Prior to purchasing the property, they received from the respondent, a suburban real estate agent, a brochure which contained a survey diagram which showed the location of the pool being entirely within the freehold land. The pool was not, in fact, entirely within the freehold land. The real estate agent’s brochure contained disclaimers, which stated that it was not a surveyor and it did not engage a surveyor to do the survey, and that the diagram recorded what a particular surveyor had found. One of the disclaimers stated:

We believe the vendor and the surveyor are reliable, but we cannot guarantee the accuracy of the information they have provided. Whatever you rely on, you must rely on your own inquiries.

378 In Butcher at 604-605, at [37], Gleeson CJ, Hayne and Heydon JJ identified the approach to be taken in assessing whether there was liability in cases where monetary relief was claimed by a plaintiff who alleged that a particular representation was made to identified persons of whom the plaintiff was one. Gleeson CJ, Hayne and Heydon JJ observed:

The plaintiff must establish a causal link between the impugned conduct and the loss that is claimed. That depends on analysing the conduct of the defendant in relation to that plaintiff alone. So here, it is necessary to consider the character of the particular conduct of the particular agent in relation to the particular purchasers, bearing in mind what matters of fact each knew about the other as a result of the nature of their dealings and the conversations between them, or which each may be taken to have known. Indeed, counsel for the purchasers conceded that the mere fact that a person had engaged in the conduct of supplying a document containing misleading information did not mean that that person had engaged in misleading conduct: it was crucial to examine the role of the person in question.

379 The majority, at 605, at [38], also adopted the following observations from Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661 at 666:

That does not, however, mean that a corporation which purports to do no more than pass on information supplied by another must nevertheless be engaging in misleading or deceptive conduct if the information turns out to be false. If the circumstances are such as to make it apparent that the corporation is not the source of the information and that it expressly or impliedly disclaims any belief in the truth or falsity, merely passing it on for what it is worth, we very much doubt that the corporation can properly be said to be itself engaging in conduct that is misleading or deceptive.

380 Gleeson CJ, Hayne and Heydon JJ then went on to observe at 605, at [39]:

In applying those principles, it is important that the agent’s conduct be viewed as a whole. It is not right to characterise the problem as one of analysing the effect of its “conduct” divorced from “disclaimers” about that “conduct” and divorced from other circumstances which might qualify its character.

381 At 605, at [40], Gleeson CJ, Hayne and Heydon JJ observed:

For the following reasons, the agent did not engage in conduct towards the purchasers which was misleading. Whatever representation the vendor made to the purchasers by authorising the agent to issue the brochure, it was not made by the agent to the purchasers. The agent did no more than communicate what the vendor was representing, without adopting it or endorsing it. That conclusion flows from the nature of the parties, the character of the transaction contemplated, and the contents of the brochure itself. (Emphasis added.)

382 The majority then engaged in a detailed analysis of each of the three matters referred to in the italicised sentence in the observations set out above. At 609, at [51], the majority observed:

Hence it would have been plain to a reasonable purchaser that the agent was not the source of the information which was said to be misleading. The agent did not purport to do anything more than pass on information supplied by another or others. It both expressly and implicitly disclaimed any belief in the truth or falsity of that information. It did no more than state a belief in the reliability of the sources.

383 In the case of Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2008] NSWCA 206; (2009) 252 ALR 659 (Ingot), the Court of Appeal of New South Wales relevantly considered whether the respondent, Macquarie, had engaged in misleading or deceptive conduct in the course of distributing a draft prospectus which contained information from a third party. Ipp JA observed (at 707, at [275]) that the majority in Butcher pointed out that:

[I]n analysing whether conduct was misleading, a particular approach was to be adopted where the objects of the conduct are “identified individuals to whom a particular misrepresentation has been made or from whom a relevant fact, circumstance or proposal was withheld”.

384 Ipp JA went on to say that that approach had been followed in the case of Orix Australia Corporation Ltd v Moody Kiddle and Partners Pty Ltd [2006] NSWCA 257 (Orix). Ipp JA then observed at 707, at [276]:

In that case the appellant claimed that it had suffered loss as a result of the misleading conduct of the respondent. Only one witness testified on behalf of the appellant, namely, its senior key accounts executive. The knowledge and understanding of this witness were the knowledge and understanding of the appellant. At [59], with the concurrence of Spigelman CJ and Basten JA, I said:

In a case where the alleged victim of misleading conduct is a single entity, and the knowledge and understanding of the entity is that of a particular individual, the actual knowledge and understanding of the individual is of fundamental importance. If the individual recipient of information believes a disclaimer to mean that the agent is not the source of the information said to be misleading, and that the agent is merely passing on information supplied by others, that must be decisive. It is not then necessary to construe the disclaimer.

385 In Ingot, Ipp JA went on to say at 707, at [287]-[288]:

In my view, the fact that Macquarie may have contributed significantly to the drafting of substantial parts of the prospectus (contrary to the statements to different effect made in the draft prospectus) is not material. There is considerable evidence to the effect that the information in the prospectus, which Mr Saville regarded as influencing his decision to cause the appellants to invest in the sub-underwriting contracts...was not information that Macquarie provided.

Importantly, Mr Saville understood that Macquarie was not the source of the representations, or the information that formed the basis for them; Mr Saville believed, rather, that Macquarie was merely passing on the information (derived from others) conveyed by the representations.

386 The essence of Eric Preston’s allegation that Euroz Securities engaged in misleading or deceptive conduct by, “around or shortly prior to 1 February 2008”, making the second representation, is that Mr Caldow represented to Mr Drummond that Eric Preston’s share portfolio was safe and would be safe under the Opes Prime facility, without having reasonable grounds for that representation.

387 I now deal with the evidence in relation to this claim.

388 Mr Drummond deposed at para 109 of his first affidavit that at 1:13 pm on 1 February 2008, he received the email from Mr Caldow. Mr Drummond deposed that in the following week he had a telephone conversation with Mr Caldow. Mr Drummond’s evidence is, at para 110 of his first affidavit:

The following week I had a telephone conversation with Caldow. I asked him to explain what the email meant in relation to EP. He said a meeting had taken place between Euroz and Mark Rice of OP. He said Mark Rice had briefed him, Simon Yeo and other Euroz dealers about OP’s position. He said Mark Rice told them OP was not like Tricom, which I was aware from press reports at the time and believed had recently suffered financial difficulties. He said Mark Rice had told them the market would have to fall by 20% in one day and no OP client meet a margin call for OP to be in any difficulty. He said they were told by Mark Rice that “fundamentally ANZ owned most of the shares”. He said everything I had with OP was with ANZ.

389 At para 112 of his first affidavit, Mr Drummond deposed:

I considered that it was unlikely the market would fall by 20% in one day, and I considered it even less likely that all of the OP’s clients would fail to meet their margin calls. The market had dropped since I received the email on 1 February 2008. In the course of my conversation with Caldow I told him I was concerned by that drop in the market. He told me EP’s portfolio was safe.

390 Mr Caldow deposed at para 78 and para 79 of his affidavit that after the meeting that Mr Rice had with representatives of Euroz Securities on 5 or 6 February 2008, he telephoned Mr Drummond. He told Mr Drummond that at the meeting Mr Rice made statements to the effect set out at [397] above, about Opes Prime. Mr Caldow then deposed that during the conversation, he and Mr Drummond discussed what Mr Rice said “many times”. Mr Caldow then deposed:

Finally, I said to Mr Drummond words to the effect “I’m just passing on information that Rice has told me. Why don’t you call Rice direct”, to which Mr Drummond said words to the effect “ok”. On or about the following day Mr Drummond telephoned me and said to me words to the effect “I have spoken to Rice. He said pretty much what you passed on.”

391 Mr Caldow went on to depose at para 81 of his affidavit, that later Mr Rice had telephoned him and advised him that he would be in Perth in the following week and asked whether he should see Mr Drummond whilst he was in Perth. Mr Caldow said that he then telephoned Mr Drummond and had a conversation in the following terms:

Me - “Mark Rice has rung me. He is going to be in Perth in the next 14 days. He wants to know whether you want to meet with him.”

Mr Drummond - “What is he going to tell me?”

Me - “I suppose to reiterate what he told you on the phone.”

Mr Drummond - “There is no point in me seeing him then.”

392 In his third affidavit, Mr Drummond did not take issue with the matters deposed to at para 78 and para 79 of Mr Caldow’s affidavit. In para 62 of that affidavit, Mr Drummond does not dispute what Mr Caldow said at para 81 of his affidavit. However, he said that Mr Caldow had said on an earlier occasion that he thought Opes Prime “would not fall over”.

393 In para 3 of his fourth affidavit, Mr Drummond referred to paras 110-112 of his first affidavit which referred to the conversation he had with Mr Caldow after Mr Rice’s visit. Mr Drummond repeated that during that conversation, he was told that Opes Prime was not like Tricom, that it would be necessary for the stock market to fall 20% and for no clients to pay their margin calls for Opes Prime to be in trouble and that “Euroz” had said Eric Preston’s portfolio was safe. Mr Drummond went on to depose in that paragraph that had he not been told this, he would have been of the view that Eric Preston’s share portfolio was at risk and he would have terminated the facility and required payment or transfer to Eric Preston in cash and/or shares of a net value of the share portfolio.

394 Mr Drummond also said that he relied on the statement not to take steps to protect his position. Mr Drummond said that as a consequence he regarded the need to take steps to liquidate his position in Opes Prime was not urgent.

395 Mr Drummond was cross-examined about the content of the material telephone conversation with Mr Caldow. The following exchange occurred:

MR DONALDSON: All right. Can I put it to you that Mr Caldow said in that conversation that he was just passing on to you information that he’d received from Mr Rice?---I believe that to be the fact, yes.

Yes. He said that to you ?---Yes.

And he also said to you that why don’t you call Mr Rice directly?---Yes.

Then you spoke to Mr Rice?---Yes, I rang Mr Rice.

So you didn’t rely on what you were told in the 1 February email, or even what Mr Caldow had said to you. You went and spoke to Mr Rice yourself?---Mr Caldow asked me to call Mr Rice.

He asked you?---Yes. He said to me to call Mr Rice. “Why don’t you call Mark Rice?”

So they’re the words, “Why don’t you call Mark Rice”?---I believe that’s to be the case, yes.

And you decided to call Mr Rice?---Yes.

To hear whatever you were going to hear directly from him?---I did, and I spoke to Mr Rice.

In that conversation with Mr Rice, what did he say to you?---Well, I asked him what it was all about. He had the meeting with Euroz. We had a discussion about what Opes Prime was about, and we had a discussion about what was discussed about the meeting. Fundamentally, I heard exactly the same from Mr Rice that I heard from Mr Caldow. He was really confirming the conversation that went on at the offices of Euroz to Mr Caldow who passed it onto me. I rang Mr Rice to confirm that confirmation, and that was what happened.

So you were quite content with the explanation that Mr Rice gave you?---Yes.

396 The following exchange also occurred during Mr Drummond’s cross-examination:

So just pause there. So, from what I understand your evidence to be now, that information was conveyed to you, by Mr Caldow, straight from Mr Rice and you understood that?---Yes.

That Mr Caldow was simply passing on to you what Mr Rice had said, and that you then spoke to Mr Rice yourself and were told the same thing?---Yes.

397 During cross-examination, Mr Drummond was also taken to para 3 of his fourth affidavit in which he said that Mr Caldow had stated during the crucial conversation in early February 2008, that his share portfolio was safe:

MR DONALDSON: ...Mr Caldow never said to you, at any time, that Eric Preston’s portfolio was safe, did he?---No, I believe he did tell me it was safe.

When?---During conversations I had with him and we had numerous conversations.

When? At what time period are you talking about here?---We’re still talking about the time period of February, I was still trading with Euroz, having conversations, still having three, four, five phone calls a day to Mr Caldow. I can’t remember what day, but a discussion – for me to say that, that would have happened.

So after the 1 February email, the sequence we’ve just gone through, Mr Caldow passes onto you what Opes has said to him, you then speak to Mr Rice, you then get advice from Mr Anderson, you’ve worked too hard to lose everything, you can’t tolerate any risk, Mr Caldow says, “I couldn’t agree more.” You then resolve you’re going to refinance?---Yes.

Then your evidence is that at some – what, later time, Mr Caldow said to you that your portfolio was safe?---Yes.

Do you recall when that conversation was?---Well, it would have been on the basis – or I believe it to be on the basis that there was discussion around the stock market having to fall 20 per cent, and Opes clients not making any margin calls, that was a – at that time, it was pretty safe, I haven’t – didn’t know the market was going to fall 20 per cent, Mr Caldow had reassured me that he hadn’t been around when the market had fallen 20 per cent in a day, so that was advice.

So have you then concluded that your portfolio was safe from Mr Caldow saying to you, “Look, the two matters that have been raised, the market falling 20 per cent and no Opes clients making a margin call, they’re unlikely to happen.” That’s what Mr Caldow told you, in that right?---Yes, words to that effect.

Words to that effect?---Yes.

You inferred from that, therefore my portfolio is safe?---My portfolio was safe, yes.

But Mr Caldow never said to you that your portfolio was safe, did he?---Well, I said that he did tell me that after discussions with him on many occasions.

Many occasions, he said to you- - - ?---No, we had lots of telephone conversations, a lot of things were discussed on those telephone conversations. I was trading, still trading with Euroz Securities in exactly the same fashion I had been leading up to that, and so during conversation, I believe that’s what was said.

398 I do not, for the following reasons, accept Mr Drummond’s evidence that Mr Caldow expressly stated that Eric Preston’s portfolio was safe.

399 First, that evidence is contrary to the claim pleaded in the statement of claim. The statement of claim does not allege that Mr Caldow expressly stated that Eric Preston’s portfolio was safe. Mr Caldow’s representation is referred to in two places in its statement of claim. First, it is referred to in particular (xii) of para 15(d) of the statement of claim, and then it is referred to in para 22 of the statement of claim. Eric Preston does not in either of those references, allege that Mr Caldow made an express statement that Eric Preston’s portfolio was safe. Specifically, the particulars to para 22 of the statement of claim distinguish between the express statements allegedly made by Mr Caldow (namely, that Opes Prime was not like Tricom and that it would be necessary for the market to fall 20% and for no client of Opes Prime to pay their margin calls for Opes Prime to be in trouble) and the statement that the portfolio was safe. The former statements are said to be oral, whereas the latter statement is said to be implied from the former statements.

400 Secondly, Mr Drummond’s evidence on the question was unsatisfactory. In cross-examination his evidence ranged from the answer that he inferred that the portfolio was safe from other statements that Mr Caldow had made, to answers that Mr Caldow had said on “many occasions” that Eric Preston’s portfolio was safe. He did not identify any specific occasion, and, in particular, did not state in unequivocal terms that Mr Caldow made the statement during the course of the conversation in early February 2008, which is relied upon in Eric Preston’s statement of claim, and in his first affidavit. I observe, in passing that, Eric Preston’s pleaded case makes no mention of any express representations made by Mr Caldow on “many occasions” that Eric Preston’s portfolio was safe under the Opes Prime facility.

401 In my view, the evidence that Mr Drummond gave was motivated by the fact that he knew that his affidavit evidence contained a statement that Mr Caldow had said that his portfolio was safe but that Mr Drummond had no recollection in the witness box of any such statement having been made by Mr Caldow and that Mr Drummond sought to defend the fact that his affidavit had been drafted in a manner which stated that Mr Caldow had said that the portfolio was safe.

402 Thirdly, that Mr Caldow would make a statement that Eric Preston’s portfolio was safe is entirely inconsistent with the undisputed evidence that after Mr Drummond had spoken to Mr Rice on 5 February or 6 February 2008, Mr Caldow told Mr Drummond that he could not agree more with Mr Anderson’s advice that Mr Drummond should not tolerate any risk in relation to Eric Preston’s portfolio.

403 It follows that I find that Eric Preston did not establish that Mr Caldow said that Eric Preston’s portfolio was safe or would be safe, under the Opes Prime facility.

404 There does not appear to be a pleaded claim founded on the statement in Mr Drummond’s third affidavit that Mr Caldow had said that he thought Opes Prime would not fall over. However, particularly, for the reasons set out in [402] above, I also reject Mr Drummond’s evidence that this statement was made by Mr Caldow.

Did Euroz Securities engage in misleading or deceptive conduct in relation to the second representation?

405 Mr Caldow deposed that he told Mr Drummond during the course of their telephone conversation on 5 or 6 February 2008, that Mr Rice had said that for Opes Prime to have an issue the stock market would have to fall by 20% in a day and none of its clients paid their margin calls, and that he was simply passing on information which Mr Rice had provided during the course of the meeting earlier that day. This evidence is accepted. I also find that during that conversation, Mr Caldow advised Mr Drummond to telephone Mr Rice directly if he wanted further clarification from Mr Rice in respect of the information about Opes Prime which he was passing on.

406 During cross-examination, Mr Drummond did not cavil with Mr Caldow’s evidence to this effect.

407 Mr Drummond also accepted that after having spoken to Mr Caldow, he did telephone Mr Rice as Mr Caldow had suggested, and that Mr Rice had confirmed the statements which Mr Caldow had passed on to Mr Drummond as to the financial position of Opes Prime. Mr Drummond also accepted that he understood that Mr Caldow was passing on the information which he had received from Mr Rice.

408 Further, it was Mr Anderson’s evidence that when Mr Drummond telephoned Mr Anderson to discuss what steps he, Mr Drummond, should take in relation to the Opes Prime facility, Mr Drummond advised Mr Anderson as to what Mr Rice had told him as to the financial position of Opes Prime.

409 I find that Mr Drummond understood at the end of the conversation with Mr Caldow that Mr Caldow was not the source of the information as to the financial position of Opes Prime. Mr Drummond knew and understood that Mr Caldow was passing on information from Mr Rice, and that Mr Rice was the source of that information. I also find that Mr Caldow did not adopt the information either expressly or impliedly because in advising Mr Drummond to speak to Mr Rice, he disavowed any ability or capacity to express an opinion on the accuracy of the information.

410 On the application of the test referred to by Ipp JA in Orix, and confirmed in Ingot (see [384] above), the finding in the preceding paragraph is “decisive” of the issue.

411 It is unnecessary, therefore, to apply the objective test of the “reasonable person” in the position of the representee referred to in Butcher. However, on the application of that test I would have come to the same view.

412 In the context of this case, the test in Butcher requires the Court to have regard to the character of Mr Caldow’s conduct in relation to Mr Drummond, bearing in mind what each knew about the other as a result of the nature of their dealings and conversations, or what each may be taken to have known.

413 In this case, Mr Drummond was the person, on behalf of Eric Preston, to whom Mr Caldow made the impugned statement. Mr Drummond was a very experienced businessman who had achieved success in the competitive motor vehicle dealership industry. Further, Mr Drummond was carrying on business on behalf of Eric Preston as a professional share trader. I also find, notwithstanding Mr Anderson’s views to the contrary, that Mr Drummond was a sophisticated investor with a very good understanding of the operation of share trading – having made investments in unlisted as well as listed companies, and having participated in initial public offerings and in the sub-underwriting of share issues, and having a familiarity with the ASX Listing Rules.

414 Further, Mr Drummond was a confident person who had on previous occasions, dealt directly with Mr Rice in relation to Opes Prime. He would not have felt constrained in contacting Mr Rice directly.

415 Mr Caldow had a close business relationship with Mr Drummond as Eric Preston’s stockbroker. The impugned statement related to the financial position of Opes Prime. Mr Caldow did not, in his conversation with Mr Drummond purport to have any personal or professional knowledge of the financial position of Opes Prime in February 2008. Mr Drummond knew that Mr Caldow had no personal knowledge as to the financial position of Opes Prime at that time. Mr Caldow made that state of affairs known to Mr Drummond and, further, made it clear that if Mr Drummond wished to obtain further information as to Opes Prime’s financial position, he would have to speak to Mr Rice, the person who was the source of the information.

416 I find that a reasonable person in Mr Drummond’s position would have understood that Mr Caldow was not the source of the information and was merely passing on the information he had received from Mr Rice. That reasonable person would also have understood Mr Caldow was not in a position to verify or adopt Mr Rice’s statements about Opes Prime’s financial position. It would have been evident to a reasonable person that in suggesting that Mr Drummond telephone Mr Rice to learn more about Opes Prime’s financial position, Mr Caldow was disavowing any ability or capacity to express an opinion on the accuracy or otherwise of the information provided by Mr Rice.

417 It follows that, Eric Preston has not established that Euroz Securities made the second representation alleged by Eric Preston.

418 It, also, follows that Eric Preston’s claim based on the alleged contraventions of the Corporations Act and the ASIC Act is dismissed.

419 As previously mentioned, there was also evidence that after the initial conversation in early February 2008, relied upon by Eric Preston as comprising the second representation, there were other conversations between Mr Drummond and Mr Caldow when the question of the likelihood of the stock market falling 20% in one day was discussed by Mr Caldow and Mr Drummond. During cross-examination, Mr Caldow said that Mr Drummond often discussed with him the prospect of the share market falling 20% in one day, and that Mr Caldow said that it was unlikely based on past history. Mr Caldow said Mr Drummond expessed similar views. These conversations were not pleaded as comprising the second, or any other, representation. Accordingly, they cannot be relied upon to found any claim. However, in any event, throughout this period, each of Mr Caldow and Mr Drummond was aware that this standard as a measure of Opes Prime’s financial stability, had been passed on by Mr Rice. In my view, the opinions expressed by Mr Caldow as to the likelihood of the stock market falling 20% in one day, did not amount to an endorsement by Mr Caldow of that standard as being an accurate or appropriate measure of Opes Prime’s financial stability. Mr Caldow stated in cross-examination, that during those conversations, he made this position clear to Mr Drummond (see transcript at 815). I accept that evidence.

BREACH OF FIDUCIARY DUTY

420 The next claim is one based on an allegation that Euroz Securities breached its fiduciary duty owed to Eric Preston.

421 Eric Preston pleaded that the relationship between Euroz Securities and Eric Preston as “stockbroker and financial advisor” on the one hand, and Eric Preston, as a client, on the other, was a relationship of trust and confidence and a fiduciary relationship. In its statement of claim, Eric Preston alleged that, in breach of its fiduciary duty, Euroz Securities failed to act in the best interests of Eric Preston, Euroz Securities allowed its interests to conflict with the interests of Eric Preston, and Euroz Securities improperly used its position to gain an advantage for itself and/or to cause prejudice or detriment to Eric Preston.

422 It is claimed that by reason of the breaches of fiduciary duty, Eric Preston suffered loss and damage. The relief claimed by Eric Preston in respect of the alleged breaches of fiduciary duty is the same as the relief claimed in relation to the claim for breach of contract.

423 The particulars which are provided in support of the bald allegations of breaches of fiduciary duty are effectively the same particulars which were appended to the claim for breach of contract, tort and misleading or deceptive conduct. There was no attempt made to associate any one or more of the particulars with any one or more of the pleaded breaches. However, in its written closing submissions (para 158), Eric Preston contended that the fiduciary relationship imported a duty to act diligently in the client’s interests, to fully disclose all relevant matters and to exercise a reasonable degree of care, skill and diligence. It is then contended (para 159), that Euroz Securities breached its fiduciary duty to Eric Preston by:

• Failing to act diligently in determining the nature and risks of the OP facility, and to advise EP accordingly.
  
• Having done so, in failing to advise EP not to move from its LE facility.
  
• Failing to diligently investigate and assess the risks of the OP facility on or after 1 February 2008 and to advise EP to exit the facility.
  
• Passing on untested and untestable assurances by Rice of OP.
  
• Failing to advise EP to exit the OP facility, or alternatively that Euroz could not assess the risks associated with the OP facility and therefore EP should exit it.
  

424 In support of its claim that Euroz Securities breached its fiduciary duty to Eric Preston, Eric Preston relied upon the following observations by Brennan J (as he then was) in Daly v Sydney Stock Exchange Ltd [1986] HCA 25; (1986) 160 CLR 371 at 385 (Daly):

Whenever a stockbroker or other person who holds himself out as having expertise in advising on investments is approached for advice on investments and undertakes to give it, in giving that advice the advisor stands in a fiduciary relationship to the person whom he advises.

...

The duty of an investment advisor who is approached by a client for advice and undertakes to give it, and who proposes to offer the client an investment in which the advisor has a financial interest, is a heavy one. His duty is to furnish the client with all the relevant knowledge which the advisor possesses, concealing nothing that might reasonably be regarded as relevant to the making of the investment decision including the identity of the buyer or seller of the investment when that identity is relevant, to give the best advice which the advisor could give if he did not have but a third party did have financial interest in the investment to be offered, to reveal fully the advisor’s financial interest, and to obtain for the client the best terms which the client would obtain from a third party if the advisor were to exercise due diligence on behalf of his client in such a transaction.

425 In Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 at 97 (Hospital Products), Mason J (as he then was) observed:

That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction.

426 The observations of Mason J have, in my view, application to the claim which is made by Eric Preston. Eric Preston’s claim is that the fiduciary obligations arise by reason of the relationship arising from the undertaking in the retainer that Euroz Securities act as stockbroker and financial advisor to Eric Preston. The breaches of the duty referred to in [423] above, all relate to matters going to advising in relation to the Opes Prime facility and the financial position of Opes Prime. The breaches of fiduciary duty are premised on the existence of a contractual obligation to act as a financial advisor in respect to third party financial products. I have already found that Eric Preston has failed to prove that the retainer between Eric Preston and Euroz Securities contained a term whereby Euroz Securities undertook to act as a financial advisor to Eric Preston. As Mason J observed above, the fiduciary relationship must accommodate itself to the terms of the contract between the parties, and cannot be superimposed upon the contract in such a way as to alter the operation of the contract.

427 Accordingly, I find that there were no fiduciary obligations upon Euroz Securities which could give rise to the breaches relied upon by Eric Preston. The observations of Brennan J in Daly can be reconciled with those of Mason J in Hospital Products on the basis that the “fiduciary duties” referred to by Brennan J were consistent with the scope of the contract under consideration in that case.

428 In any event, even if it had been the case that Eric Preston had proved that there was a retainer whereby Euroz Securities undertook to act as Eric Preston’s financial advisor, and fiduciary obligations had arisen pursuant to the obligation to act in that capacity, the fiduciary obligations would not have given rise to the positive duties of investigation and advice as to the nature of the Opes Prime facility, the risks associated with using that facility and the financial state of Opes Prime. This is because the state of the authorities in Australia appears to be that the scope of the fiduciary obligation founded on the obligation to act in another’s interest, is proscriptive and not prescriptive.

429 In Breen v Williams [1996] HCA 57; (1996) 186 CLR 71 (Breen), Gaudron and McHugh JJ observed at 113:

In this country, fiduciary obligations arise because a person has come under an obligation to act in another's interests. As a result, equity imposes on the fiduciary proscriptive obligations - not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict. If these obligations are breached, the fiduciary must account for any profits and make good any losses arising from the breach. But the law of this country does not otherwise impose positive legal duties on the fiduciary to act in the interests of the person to whom the duty is owed. (Footnote omitted.)

430 These observations were cited with approval by McHugh, Gummow, Hayne and Callinan JJ in Pilmer v Duke Group Ltd (in liq) [2001] HCA 31; (2001) 207 CLR 165 at 197-198, at [74]. (See also, Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) [2007] FCA 963; (2007) 160 FCR 35 at 78, at [290] per Jacobson J.)

431 The question which then arises is how does one reconcile the observations of Brennan J in Daly (see [424] above), with these observations.

432 This task was undertaken by Austin J in the case of Aequitas v Sparad No 100 Ltd (formerly Australian European Finance Corp Ltd) [2000] NSWCA 374; (2001) 19 ACLC 1,006. Austin J referred to the “discordant” nature of the observations of Brennan J in Daly (see [424] above), and the observations of Gummow and McHugh JJ in Breen. At 1,059, at [286]-[287], Austin J observed:

The reasoning in Breen v Williams is quite a distance away from Brennan J’s dictum in Daly v The Sydney Stock Exchange, and yet Daly v The Sydney Stock Exchange was cited by Gummow J (at 134) without any hint of disapproval. It would be possible to reconcile the cases by orienting each case to its facts, on the basis that the doctor-patient relationship is less comprehensively fiduciary than the financial advisor-client relationship. But that distinction would not give effect to the conceptual analysis which found favour with five of the six judges who decided Breen v Williams. The logic of their analysis is that most of the observations of Brennan J do not relate to the fiduciary character of the advisor’s position.

In my opinion, in light of the reasoning in Breen v Williams, Brennan J’s dictum should be taken to refer, for the most part, to the contractual aspects of the advisor-client relationship. The duty to provide “best advice” and to disclose knowledge and information arise out of the advisor’s “undertaking”, and are therefore implied terms of the contractual retainer. And disclosure may also relieve the advisor from the fundamental fiduciary duty not to “assume a position where his self-interest might conflict with the honest and impartial giving of advice”.

The trading commission and the trailing commission

433 Eric Preston also included as one of the particulars of its pleaded allegation that Euroz Securities breached its fiduciary duties, that Eric Preston’s entry into the Opes Prime facility permitted Euroz Securities to obtain for itself payment of a trailing commission offered by Opes Prime at a rate of 0.6% of the loan made by Opes Prime to Eric Preston.

434 Further, it was pleaded that Euroz Securities benefited financially by Eric Preston’s entry into the Opes Prime facility because that facility permitted Eric Preston to engage in a greater level of share trading activity than did the Leveraged Equities facility, particularly in relation to stocks researched by Euroz Securities. This, said Eric Preston, meant that Euroz Securities was able to benefit by earning a greater level of commission on Eric Preston’s share trading activities.

435 It is perhaps arguable that a fiduciary obligation not to obtain any unauthorised benefit from the stockbroker-client relationship will have arisen from the appreciation by Mr Caldow in May 2007, that Mr Drummond was contemplating entering into the Opes Prime facility. These circumstances could arguably have given rise to the need by Euroz Securities to disclose to Eric Preston that it would receive a financial benefit in the form of a trailing commission payable by Opes Prime to Euroz Securities, as part of receiving the informed consent of Eric Preston to Euroz Securities obtaining this financial benefit.

436 The evidence showed that Opes Prime paid Euroz Securities a trailing commission in relation to Eric Preston’s Opes Prime facility on a monthly basis.

437 Senior counsel for Eric Preston referred in his opening to the fact that Euroz Securities obtained a trailing commission in respect of the entry by Eric Preston into the Opes Prime facility. Further, Mr Caldow was cross-examined in relation to that matter. Mr Caldow admitted that he had not expressly told Mr Drummond before or after Eric Preston entered into the Opes Prime facility that he or Euroz Securities would earn a trailing commission. However, Eric Preston did not in its statement of claim seek to identify any specific loss which was said to have been caused to it by reason of the failure to disclose the trailing commission; nor was any specific relief claimed in the statement of claim founded upon an allegation that there had been a failure to disclose the trailing commission. Nor was there any allegation that the failure to disclose the trailing commission led to the loss of Eric Preston’s share portfolio – which was the loss which Eric Preston pleaded as having been caused by the breach of Euroz Securities’ fiduciary duty.

438 Also, in its written closing submissions, Eric Preston did not contend for any relief founded on a breach of Euroz Securities’ fiduciary duty arising from its alleged failure to disclose the trailing commission.

439 Further, had Eric Preston properly formulated and pursued a claim that Euroz Securities obtained an unauthorised financial benefit in the form of the trailing commission, the question would have arisen as to whether there was an informed consent by Eric Preston to the financial interest of Euroz Securities in the entry into the Opes Prime facility by Eric Preston. In this regard, it is to be observed that among the string of emails between Mr Caldow and Mr Rice which Mr Caldow forwarded to Mr Drummond prior to Eric Preston’s entry into the Opes Prime facility, was an email that stated Opes Prime would be paying Euroz Securities a trail commission. Mr Drummond, in cross-examination, accepted that he had been made aware that Euroz Securities would be earning a trailing commission (transcript at 306) prior to entry into the Opes Prime facility.

440 As to the trading commissions, earned by Euroz Securities, no claim was made for any specific relief in relation to the commissions earned by Euroz Securities in respect of the increased number of trades made by Eric Preston using the Opes Prime facility. Nor was it said that the failure by Mr Caldow to state that the use of the Opes Prime facility by Eric Preston would give rise to a higher level of share trading and the attendant payment of a greater amount of money by way of trading commissions, caused the loss of the share portfolio.

441 Had any claim been mde by Eric Preston that there was the receipt of an unauthorised financial benefit by Euroz Securities by way of the increased trading commission, it is likely, that it would have been met by the defence that Eric Preston knew of this financial interest of Euroz Securities and consented to Euroz Securities being paid the increased trading commissions consequent upon the increased trading opportunity offered by the Opes Prime facility. During cross-examination (transcript at 274), Mr Drummond accepted that he understood that Euroz Securities would earn increased commissions on the increased trading which would result from the use of the Opes Prime facility, and he was happy for that to happen.

442 I note that the plea in relation to the undisclosed receipt of the trading and trailing commissions is also referred to in the particulars of breach of the retainer. My comments in the preceding paragraphs on this question of the trading and trailing commissions apply mutatis mutandis to those particulars.

443 Accordingly, to the extent that Eric Preston may have sought to do so (which, in my view, it did not), Eric Preston has not succeeded in establishing any right to relief founded on allegations relating to the receipt by Euroz Securities of trading and trailing commissions.

CAUSATION

444 It was a major contention of Euroz Securities that even if it had breached any of the duties alleged by Eric Preston, any loss which Eric Preston claimed that it had suffered, was not caused by any such breach of duty. This was, said Euroz Securities, because the chain of causation between any breach of duty and Eric Preston’s claimed loss was broken by the disclosure that was made in Euroz Securities’ 1 February 2008 email and subsequent conversations with Mr Caldow about the email. The relevant disclosure being that the Opes Prime facility was a securities lending and borrowing agreement and not a margin loan and that Eric Preston would in the event of the insolvency of Opes Prime, rank as an unsecured creditor for the difference between the value of its portfolio and the amount outstanding to Opes Prime under the facility, and that ANZ owned the shares in Eric Preston’s portfolio.

445 In its reply, Eric Preston contended that the email sent by Euroz Securities on 1 February 2008, was confusing, misleading and inadequate. It was pleaded that a “reader” of the email may believe that the email referred only to the legal ownership passing from the client to the security lender so that a reader of such email who believed that the beneficial ownership of the shares remained with the client, would or might, be misled into a false sense of security.

446 Further, Eric Preston pleaded in its reply, that the email did not disclose that the shares were transferred by the security lender to banks in consideration of loans made to the securities lender. It was also said that the email did not fully disclose all of the risks including risks associated with on-lending of shares by the banks for short-selling or other purposes, insolvency of the banks, and consequences of a significant downturn in the share market and the failure of other clients of the security lender to meet their obligations. Also, pleaded Eric Preston, the email did not disclose that even if the security lender did not become insolvent, the clients were no more than unsecured creditors of the security lender - having no more than a contractual right to call for the replacement of their shares on the repayment of their loans.

447 Further, it was said that Euroz Securities’ email did not advise that the clients had neither legal nor beneficial ownership in their shares and the share portfolio was being held on their behalf by Opes Prime or ANZ. It was also said that the email did not advise that having regard to the fate of Tricom, the only way clients of Euroz Securities who had an Opes Prime facility could ensure they preserve the equity in their share portfolio was to forthwith terminate their Opes Prime facility.

448 I find that pleaded criticisms made in the reply as to the content of the 1 February 2008 email are misconceived. They comprise an instance of the distance between the case the lawyers for Eric Preston sought to make, and Mr Drummond’s evidence. Many of the criticisms in the reply are expressed in objective terms as to how a “reader” might construe the email, as opposed to how Mr Drummond actually did construe the email. Much time was taken up at the trial, including by evidence from Mr McKimm, in addressing these criticisms of the wording of the email. However, in my view, the essential issue was whether the email and the consequential conversations were effective in dispelling the wrong impression that Mr Drummond had as to the material characteristics and attendant risks of the Opes Prime facility, so that he appreciated that Eric Preston would lose its share portfolio if Opes Prime became insolvent.

449 I find that by 6 February 2008, at the latest, Mr Drummond knew and understood that the Opes Prime facility was not the same as a margin lending facility and that Eric Preston did not own the shares in its portfolio which had become “pooled” with other shares and were owned by ANZ. Further, Mr Drummond knew and understood that under the Opes Prime facility, Eric Preston would, in the event of the insolvency of Opes Prime, rank as an unsecured creditor for the difference between the value of its portfolio and the amount outstanding to Opes Prime. I find that, by 6 February 2008, Mr Drummond was fully apprised of the risk under the Opes Prime facility, that in the worse case scenario, Eric Preston would lose all of its portfolio.

450 I base that finding on the following considerations.

451 By the email of 1 February 2008, Euroz Securities informed Mr Drummond that the the Opes Prime facility was different from a margin lending facility, that under a securities lending and borrowing facility there was a pooling of the shares of all clients and that those “pooled” shares were used as security by the banks which advanced funds to the securities lender. The email stated that a client was, in the event of Opes Prime becoming insolvent, at risk of ranking as an unsecured creditor of Opes Prime for the difference between the market value of the portfolio and the amount outstanding to Opes Prime.

452 In para 107 of his first affidavit, Mr Drummond acknowledged that the 1 February 2008 email advised that the Opes Prime facility was a share lending arrangement, which was fundamentally different to the traditional margin lending arrangement.

453 Further, during the cross-examination of Mr Drummond on para 3 of his fourth affidavit, Mr Drummond accepted that he appreciated from the information contained in the email, that Eric Preston’s portfolio was at risk of being lost and that he should terminate the Opes Prime facility. The following exchange occurred:

“Had I not been told this” – so, had you not been told that the share market had to fall 20 per cent, no client to make a margin call, and that your portfolio was safe, is that what you’re trying to say, if you hadn’t been told all those three things, it would have been your view that Eric Preston’s share portfolio was at risk under the OP facility and you would have terminated it straight away, is that what you’re trying to say?---Yes.

So if – you’ve just told us that the information about the 20 per cent and the information about the – no Opes client making a margin call, that was conveyed straight on from Mr Rice, by Mr Caldow and you spoke to Mr Rice yourself about that?---Yes.

So if you hadn’t been told that by Mr Rice, you would have got out straight away, is that your evidence?---I would have looked very closely at getting out straight away, yes.

The reason you would have looked very closely at getting out straight away before you were told that is because of the email you received on 1 February, isn’t it?---Yes.

454 Further, Mr Drummond acknowledged in cross-examination (transcript at  325) that Mr Caldow told him in relation to the February 2008 email, that in the worse case scenario Eric Preston would lose all of its stock.

455 It is also apparent from the evidence of Mr Anderson that by 6 February 2008, Mr Drummond understood that the shares in Eric Preston’s portfolio were not owned by Eric Preston but had been pooled together and were owned by ANZ. It follows that I reject Mr Drummond’s evidence in para 5 of his fourth affidavit, insofar as he is deposing therein, that he did not by February 2008, appreciate that the shares in the portfolio were not beneficially owned by Eric Preston. If he did not appreciate that fact, it could only have been because he did not understand the concept of “beneficial ownership” as applied to shares.

456 In its defence, Euroz Securities contended that Eric Preston could have avoided the loss because at all material times after 1 February 2008, Eric Preston had the financial capacity to terminate the Opes Prime facility by selling sufficient shares to pay the balance outstanding on the facility.

457 I have already found that it was from early February 2008, that Mr Drummond had a reasonable opportunity to avoid the loss of the value of the Eric Preston share portfolio by selling sufficient shares in Eric Preston’s portfolio to discharge the debt due to Opes Prime under the facility.

458 Further, during cross-examination, Mr Drummond admitted (transcript at 335) that it would have been open to him, on behalf of Eric Preston, to have terminated the Opes Prime facility by selling a sufficient number of shares to pay the Opes Prime debt. Also, at [323] above, I referred to the conversation between Mr Caldow and Mr Drummond in the course of which Mr Drummond told Mr Caldow that he did not want to sell down the shares, because he intended to use the proceeds of the shares to build a new house. I have accepted the evidence of Mr Caldow as to the content of this conversation.

459 That Mr Drummond did not want to pursue the option of selling down sufficient stock to pay out the Opes Prime facility, is further evidenced by the evidence of Mr Caldow that on 5 February 2008, shares in the company OM Holdings Ltd, a company in which Eric Preston held shares, increased in price. Mr Caldow said to Mr Drummond that he should take a profit on some of the OM Holdings shares to reduce his loan balance but Mr Drummond said that he did not want to do this.

460 Mr Drummond did investigate refinancing with another financial institution on the basis of Eric Preston’s existing share portfolio, as an alternative to selling down some stock. However, even after Mr Drummond had been advised on 10 March 2008, that NAB would not refinance Eric Preston’s Opes Prime loan on the basis only of its existing portfolio, Mr Drummond still did not implement a strategy to sell down sufficient shares in the portfolio, so as to pay out the loan. As mentioned above, after 10 March 2008, Mr Drummond continued to purchase more Sundance Energy shares.

461 Mr Drummond may have made the assessment that it was not urgent for him to terminate the Opes Prime facility, but that does not mean that selling down a sufficient number of shares to pay out the facility was not a course of action which was open to him as a means of terminating the Opes Prime facility and avoiding the loss. I find that Mr Drummond was aware from early February 2008, that there were risks arising from the characteristics of the Opes Prime facility including that Eric Preston’s whole portfolio could be lost, but he was prepared to take those risks. As I have mentioned above, the reason Mr Drummond did not sell down sufficient shares to pay out the Opes Prime facility is because he did not want to do so.

462 I also observe that there was no evidence of Mr Drummond making any complaint blaming Euroz Securities for the loss of Eric Preston’s portfolio, at the time that he was advised of the appointment of the administrator to Opes Prime on 28 March 2008, or shortly thereafter. This is of some significance, in light of the fact that the evidence disclosed that Mr Drummond had certainly not hesitated to express his dissatisfaction with the professional performance of, Mr Anderson, in a situation of substantially less consequence to Mr Drummond in December 2006. The email which Mr Drummond sent to Mr Anderson dated 11 December 2006, was an immediate and vehement expression of Mr Drummond’s dissatisfaction.

463 It follows that, in my view, the chain of causation between any breach of duty complained of, and loss claimed by Eric Preston was broken by the advice that Euroz Securities gave Eric Preston by the email of 1 February 2008, and the subsequent conversation between Mr Drummond and Mr Caldow referred to above.

THE CLAIM THAT ERIC PRESTON CONTRIBUTED TO ITS LOSS

464 Euroz Securities pleaded, as an alternative, that if it was liable for the loss claimed by Eric Preston for misleading or deceptive conduct, that pursuant to s 1041I(1B) of the Corporations Act and s 12GF(1B)(b) of the ASIC Act, Eric Preston was responsible in whole or in part, for its loss and damage. This was because of Eric Preston’s failure to take reasonable care. Euroz Securities alleged that Eric Preston failed to read the terms of the Opes Prime Financial Services Guide, did not take legal advice in relation to the Opes Prime facility, and did not make inquiries as to why, in contrast to the position with the Leveraged Equities facility, it was not necessary to provide security to Opes Prime in respect of the facility. It was also alleged that after 1 February 2008, Eric Preston did not take immediate steps to terminate the Opes Prime facility.

465 In response to the claims in contract and tort, Euroz Securities also alleged that Eric Preston had by its own negligence contributed to any loss it suffered.

466 In light of my previous findings, it is unnecessary for me to make any further findings in relation to this plea.

THE CLAIM THAT MR ANDERSON IS PROPORTIONATELY LIABLE FOR ERIC PRESTON’S LOSS

467 Euroz Securities pleaded that if it was liable for loss suffered by Eric Preston, Mr Anderson was also liable for such loss as a concurrent wrongdoer in respect of the loss allegedly suffered by Eric Preston within the meaning of s 5AI(1)(a) of the Civil Liability Act 2002 (WA). In light of my finding that Euroz Securities is not liable for the loss claimed by Eric Preston, it is unnecessary to deal with this claim by Euroz Securities. However, I set out below in brief, the factual findings that I would have made on this claim.

468 It was alleged that Mr Anderson acted in breach of his duty of care in relation to the advice that he gave to Eric Preston on three occasions. These occasions were: first, in May 2007, in relation to Eric Preston’s entry into the Opes Prime facility, secondly, in relation to the advice sought by Mr Drummond in October 2007, as to the need for Eric Preston to file a substantial shareholder notice in respect of Eric Preston’s holding of Sundance Energy shares, and thirdly, in relation to the advice sought by Mr Drummond in February 2008, in relation to the 1 February 2008 email that Mr Drummond received from Euroz Securities.

Advice in relation to Eric Preston entering into the Opes Prime facility

469 I deal with the first alleged breach of duty.

470 Euroz Securities pleaded that Mr Anderson since 1995, provided to Mr Drummond and his related entities general financial advice and was the “primary source of such advice”.

471 Euroz Securities then pleaded that Mr Anderson had previously provided advice to Mr Drummond that he should conduct his share trading activities through Eric Preston and had provided advice to Eric Preston, in relation to its entry into a margin lending facility with Leveraged Equities, which facility was entered into on the terms that Eric Preston provided a registered charge over its assets in favour of Leveraged Equities.

472 Euroz Securities went on to plead that on 24 May 2007, that Mr Drummond had sent Mr Anderson by email the Opes Prime Financial Services Guide and other documents required to establish an account with Opes Prime. Those documents, it was pleaded, did not include any document which comprised the giving of security by Eric Preston to Opes Prime in respect of any amounts outstanding under the Opes Prime facility.

473 Euroz Securities pleaded that by reason of those facts, Eric Preston reasonably expected Mr Anderson to advise it of any material risks associated with the termination of its facility with Leveraged Equities and the establishment of a new facility with Opes Prime, and that Mr Anderson owed to Eric Preston a duty to provide such advice.

474 It is alleged that in breach of that duty of care, Mr Anderson did not provide advice as to the risks associated with the termination of the facility with Leveraged Equities and the establishment of the new facility with Opes Prime.

475 In his evidence, Mr Anderson deposed that on 24 May 2007, Mr Drummond sent him two emails which contained information relating to the Opes Prime facility. The documents attached to the email comprised the Opes Prime Financial Services Guide, a document containing loan to value ratios and a copy of the refinancing instruction form together with a cross-margin letter. There were also among the documents transmitted a document containing details of interest rates to be charged by Opes Prime and trailing commissions to be paid by Opes Prime. Mr Anderson gave evidence that, although Mr Drummond sent him the documents, Mr Drummond did not specifically ask him to advise on the documents. Accordingly, said Mr Anderson, he did not give Mr Drummond any advice as to Eric Preston’s entry into the Opes Prime facility.

476 Further, said Mr Anderson, he was not asked to advise on the nature and characteristics of the Opes Prime facility at the time that he witnessed the signatures of Mr and Mrs Drummond on the application form for the Opes Prime facility on 22 May 2007.

477 In cross-examination, Mr Drummond deposed that the reason he sent Mr Anderson the email containing the Opes Prime Financial Services Guide and the other documents relating to the entry into the Opes Prime facility, was so that Mr Anderson would be informed as to the details of the transaction and that he expected Mr Anderson to advise him in relation to the transaction.

478 However, the email sent to Mr Anderson does not call upon Mr Anderson to advise Mr Drummond in relation to the Opes Prime facility. Further, there was no other evidence that Mr Drummond expressly asked Mr Anderson for this advice. Mr Drummond’s expectation that Mr Anderson would advise him, was an unexpressed expectation.

479 I find that Mr Anderson was the primary source of general financial advice to Mr Drummond and his associated entities. However, I find that Mr Anderson was never expressly asked by Mr Drummond to provide advice as to the entry of Eric Preston into the Opes Prime facility, and that Mr Anderson did not give any advice on this matter.

Substantial Shareholder Advice

480 I now deal with the second alleged breach of duty of care.

481 In this regard, Euroz Securities alleged that in October 2007, Eric Preston sought advice from Mr Anderson as to whether Eric Preston was required to lodge a substantial shareholder notice in respect of its shareholding in Sundance Energy.

482 Euroz Securities went on to allege that the advice which Mr Anderson gave in October 2007, that ANZ had lodged a substantial shareholder notice for all the shares in Sundance Energy, was advice given in breach of Mr Anderson’s duty of care to Eric Preston, because he should have advised that by lodging the substantial shareholder notice ANZ was contending that it held the legal and beneficial ownership in Sundance Energy.

483 I find that Mr Drummond did not ask for any advice from Mr Anderson, other than to advise whether it was necessary for Eric Preston to file a substantial shareholder notice. However, I recognise that this factual finding may not be determinative of the question of the scope of Mr Anderson’s duty to advise in that circumstance. However, as I have said by reason of the findings I have made, it is unnecessary to determine that question.

484 Further, Euroz Securities did not refer to any evidence as to what Mr Drummond would have done had the advice which Euroz Securities said should have been given, been given.

Advice in relation to 1 February 2008 email

485 This claim does not call for the making of any factual findings.

THE CLAIM THAT OPES PRIME IS PROPORTIONATELY LIABLE FOR ERIC PRESTON’S LOSS

486 Euroz Securities also pleaded that if, which it denied, it was liable for the loss and damage suffered by Eric Preston, Opes Prime was a concurrent wrongdoer in respect of such loss within the meaning of s 5AI(1)(a) of the Civil Liability Act 2002 (WA). In support of that claim, Euroz Securities alleged that:

(a) Opes Prime had contravened s 942B of the Corporations Act in that it had not provided the information to Eric Preston required by s 942B(2) of the Corporations Act; and

(b) Opes Prime had breached its duty of care which it owed to Eric Preston.

487 Euroz Securities contended that Opes Prime breached its obligations under s 942B of the Corporations Act because the Opes Prime Financial Services Guide did not contain information of the kinds of financial services that Opes Prime was authorised to provide and the kinds of financial products to which those services related.

488 More specifically, Euroz Securities pleaded that Opes Prime knew that Eric Preston was seeking to refinance with it, from a margin lender. In those circumstances, the Opes Prime Financial Services Guide was required to state that the product being offered was not a margin lending facility. Further, it was said that the Financial Services Guide was required to state that ANZ did not hold the share portfolio to be transferred, pursuant to the Opes Prime facility, as custodian.

489 Euroz Securities then pleaded that, if the Opes Prime Financial Services Guide complied with s 942B of the Corporations Act in the manner pleaded, Eric Preston would not have suffered the loss claimed.

490 In support of the claim that Opes Prime breached its duty of care to Eric Preston, Euroz Securities repeated its claim that by reason of the fact that Opes Prime knew that Eric Preston was contemplating refinancing from a margin lending facility with Leveraged Equities, Opes Prime had a duty to exercise reasonable care to advise Eric Preston as to the nature of the Opes Prime facility and as to its differentiation from a margin lending facility.

491 It is contended that in breach of that duty, Opes Prime did not state that the financial product being offered in the Opes Prime Financial Services Guide was not a margin lending facility. Further, it did not state that ANZ would not hold the shares transferred by Eric Preston pursuant to the Opes Prime facility on behalf of Eric Preston, and did not say that the shares transferred would not be beneficially held for Eric Preston.

492 In view of the fact that it is not necessary, in light of my earlier findngs, to deal with these claims, and because it is conceivable that these issues may become the subject of litigation in other cases, I am of the view that no utility would be served in making further comment in respect of these claims.

DAMAGES

493 In light of my previous findings, the question of damages does not arise.

494 However, Eric Preston’s claim for damages gave rise to a disputed question of fact and it is necessary to resolve that question of fact. Eric Preston’s claim for damages is for the difference between the position Eric Preston would have been in had it remained with Leveraged Equities and the position that it was in on 27 March 2008, immediately before the appointment of the Opes Prime administrators. Eric Preston relied upon two alternative measures of damages – one which Eric Preston characterised as the tortious measure and the other which it characterised as the contractual measure of damage. The factual dispute arose in the context of assessing damages by reference to Eric Preston’s contractual measure.

495 Eric Preston’s contention was that it is appropriate to assess loss and damage for breach of contract by reference to the value of the Eric Preston share portfolio as at the end of May 2007, plus the expected gain which Eric Preston would have realised over the period that it would have been expected to retain the portfolio whilst utilising the Leveraged Equities facility, less the actual value of the portfolio on 27 March 2008 - which was treated as nil. In determining the period during which Eric Preston would have been expected to have retained its portfolio for the purposes of assessing the notional gain that the portfolio would have made, Mr Blashki made the assumption that Mr Drummond would have caused Eric Preston to “utilise nearly all of the equity in the portfolio in the short term” in order to pay for a house which Mr and Mrs Drummond intended to build on Wattle Avenue, Dalkeith. In short, Mr Blashki assumed that Mr Drummond would have caused Eric Preston to have liquidated its share portfolio before 27 March 2008. Euroz Securities contended that there was no basis in the evidence to support that assumption. It went on to contend that had Eric Preston been with Leveraged Equities on 27 March 2008, Mr Drummond would on behalf of Eric Preston, continued to trade in shares into the future. The consequence would have been that Eric Preston’s portfolio would have been affected by the very substantial decline in the value of the shares that occurred between March 2008 and the date of the trial.

496 In his second affidavit, Mr Drummond deposed that in the latter half of 2007, he decided to engage architects to design a new house to replace their existing home in Wattle Avenue, Dalkeith. Mr Drummond then deposed that:

The total cost of the house was to be approximately $4m. After Hoffman & Brown produced a satisfactory design, I resolved to fund construction of the new house wholly or substantially out of the equity in EP’s share portfolio, while still trying to retain a significant interest in SEA for medium to long term investment.

497 During his cross-examination, Mr Drummond deposed that, before March 2008, he had received an estimate for the cost of the proposed house of $4 million. The following exchange then occurred:

But you were working on a basis of having some $4 million available?---I was working around the architect’s estimates of about $4 million.

And you had that at 4 March?---I had it 4 March, yes.

And you didn’t, having had it, pull it out and put it over in a cheque account or somewhere else, did you?---No, I didn’t.

And it was your intention, whether you were in Opes or Leveraged Equity, to keep trading on that account for as long as you could?---I was happy to continue to trade.

498 I find that Mr Drummond would not by 27 March 2008, have caused Eric Preston to sell shares in order to generate the sum of $4 million which would have been withdrawn and set aside for the payment of the house which Mr Drummond planned to build in Wattle Avenue. I find that, even if Mr Drummond had continued with Leveraged Equities, Mr Drummond would have caused Eric Preston to have continued to trade beyond 27 March 2008, until such time as the actual costs of the building of the house were ascertained. There is no evidence as to when that was likely to have occurred. It follows, that Eric Preston has failed to establish a crucial assumption which Mr Blashki relied upon in preparing his report in support of Eric Preston’s claim for damages founded upon breach of contract.

499 There was also a cross-claim by Euroz Securities. The disposition of the cross-claim did not receive close attention during the trial. I will hear the parties on the means of dealing with the cross-claim.

500 I dismiss the application by Eric Preston.

I certify that the preceding five hundred (500) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis.

Associate:

Dated: 19 February 2010