SUPREME COURT OF VICTORIA

Newman and Others v Financial Wisdom Ltd and Another

[2004] VSC 216

Mandie J

29 June 2004 - Melbourne

Mandie J. [Editors note: This is an edited version of the judgment in Newman v Financial Wisdom Ltd [2004] VSC 216. Only the first plaintiff's matter (Duncan) has been included.]

CONTENTS
	Paragraph
*A. Preliminary*	[1]
*B. Factual introduction*	[10]
*C. The statement of claim in the Financial Wisdom proceeding*	[40]
*D. The Corporations Law*	[83]
*E. The claims of Roger Duncan*	[98]
Introduction	[98]
Mr Duncan: The Lucky Country Film Fund	[103]
Mr Duncan: The Bearfire Film Fund	[117]
Mr Duncan: The Bolshoi Ballet Scheme	[122]
Mr Duncan: The Sentinel Group	[128]
Mr Duncan: The Ostrich Schemes	[130]
Mr Duncan: The Copperfield Investment	[137]
Mr Duncan: The Book Publishing Partnerships	[143]
Mr Duncan: The Video Documentary Partnerships	[151]
Mr Duncan: The aftermath	[157]
Mr Duncan: Conduct of the representatives	[161]
Lucky Country Film Fund	[180]
Bearfire Film Fund	[185]
Bolshoi Ballet Scheme	[189]
Ostrich Schemes	[193]
Copperfield Investment	[196]
Book Publishing Partnerships	[198]
Video Documentary Partnerships	[201]
Mr Duncan: Liability of Financial Wisdom	[205]
Liability of principals for representatives' conduct	[207]
Submissions of Financial Wisdom	[215]
Mr Duncan: Liability of Twenty-First	[231]
Mr Duncan: Liability of Pamacorp Holdings	[232]
Mr Duncan: Liability of Pamacorp Securities	[233]
Mr Duncan: Representative capacity	[234]
Mr Duncan: Damages	[235]
*N. Prescribed interests*	[587]
*O. Damages*	[593]
Evidence of Mr Sincock	[593]
Actual pecuniary losses	[600]
Loss of opportunity damages	[601]
General damages	[618]
Mr Duncan: Damages	[624]
Cash losses	[624]
Loss of opportunity	[626]
General damages	[628]
*P. Conclusion*	[691]

A. Preliminary

There are before the court 2 proceedings in which the plaintiffs claim damages allegedly suffered by them as a result of negligent and misleading investment advice. One proceeding, No 7702 of 2001 (the Pamacorp proceeding) was commenced by writ dated 24 September 2001. The other proceeding, No 2066 of 2000 (the Financial Wisdom proceeding) was commenced by writ dated 26 June 2000.

2 It will be convenient to use the following abbreviations.

PARTIES
Mr Newman	Dale Newman, a selected plaintiff in both proceedings.
Mr Duncan	Roger Lee Duncan, a selected plaintiff in both proceedings.
Mr Collins	Allan Collins, a selected plaintiff in both proceedings.
Mr Balding	Neville Balding, a selected plaintiff in the Financial Wisdom proceeding.
Mrs Balding	Loris Balding, a selected plaintiff in the Financial Wisdom proceeding.
Mr Bullock	Edward Bullock, a selected plaintiff in the Financial Wisdom proceeding.
Mr Noble	Frank Noble, a selected plaintiff in the Financial Wisdom proceeding.
Mrs Noble	Yvonne Noble, a selected plaintiff in the Financial Wisdom proceeding.
Mr Giuffrida	Carmelo Giuffrida, a selected plaintiff in the Financial Wisdom proceeding.
Mr Gray	Thomas Gray, a selected plaintiff in the Financial Wisdom proceeding.
Mrs Gray	Jean Gray, a selected plaintiff in the Financial Wisdom proceeding.
Mrs Smith	Jillian Smith, a selected plaintiff in the Financial Wisdom proceeding, in her capacity as executrix of the will of Eric Smith, deceased (Mr Smith).
Pamacorp Holdings	Hold Pty Ltd (formerly Pamacorp Holdings Pty Ltd), the first defendant in the Pamacorp proceeding.
Pamacorp Securities	Ambridge Securities Ltd (formerly Pamacorp Securities Ltd), the second defendant in the Pamacorp proceeding.
Pamacorp	Pamacorp Holdings and Pamacorp Securities collectively.
Financial Wisdom	Financial Wisdom Ltd, the first defendant in the Financial Wisdom proceeding.
Twenty-First	Twenty-First Australia Inc, the second defendant in the Financial Wisdom proceeding.

OTHER PERSONS AND BODIES
AS Nominees	Australian Superannuation Nominees Ltd.
ASC	Australian Securities Commission.
ATO	Australian Taxation Office.
DCL	Development Corporation Ltd.
Entercorp	Entercorp Finance Pty Ltd.
Guard Finance	Guard Finance Pty Ltd and/or Guard Finance (Vic) Pty Ltd.
Healy	Alan McDonald Healy.
Hemming	Gary Hemming.
Hughes	Jarrod Hughes.
Lye	Byron Lye.
Mr McMaster	Wesley Andrew McMaster, Adjunct Professor (Financial Planning), RMIT University.
Quarrell	Colin Frederick Quarrell.
Schimana	Peter Schimana.
Sentinel	Sentinel Financial Management Pty Ltd.
Sentinel Group	Sentinel and the group of companies associated with it, which included Sentinel Accounting Services Pty Ltd, Kantell Pty Ltd, Development Corporation Ltd, Bond Pty Ltd, First Finance Ltd, Guard Finance Pty Ltd, Guard Finance (Vic) Pty Ltd and Sentinel Management Services Pty Ltd.
The Sentinel promoters OR the Sentinel advisers OR the representatives	One or more of Quarrell, Healy, Schimana, Hughes and Lye.
Wallco Ostrich	Wallco Ostrich Corporation Ltd.

OTHER ABBREVIATIONS
The Sentinel Program	Sentinel Professionals' Management Program.
The Pamacorp brochure	Brochure entitled "Sentinel Professionals Management" and subtitled "A Pamacorp programme".
The Sentinel brochure	Brochure issued by Sentinel.

3 The investments which are the subject of these proceedings may be conveniently listed as follows:

Lucky Country Film Fund;
Bearfire Film Fund;
Grand Hotel Film Fund;
Cabaret Scheme;
Bolshoi Ballet Scheme;
Me and My Girl Scheme;
Copperfield Investment;
Book Publishing Partnerships;
Botanical Script Book Publishing Partnership;
Timber Investment;
Video Documentary Partnerships;
Ostrich Schemes;
Superannuation Schemes;
DCL Shares Investment;
Stanley Street Unit Trust;
Clendon Street Unit Trust;
Guard Finance Investments.

4 The plaintiffs in the Pamacorp proceeding number some 49 individuals, but by an order dated 21 March 2003, 3 of those plaintiffs were selected for the purpose of having their cases heard and determined prior to the hearing and determination of the cases of any of the other plaintiffs. The 3 selected plaintiffs are Mr Newman, Mr Duncan and Mr Collins. The first defendant in the Pamacorp proceeding is Hold Pty Ltd, known as Pamacorp Holdings Pty Ltd between 26 February 1991 and 21 October 1997. The second defendant is Ambridge Securities Ltd, known as Pamacorp Securities Ltd between 2 June 1994 and 23 October 2001 (and as Pamacorp Financial Planning Pty Ltd between 17 November 1993 and 1 June 1994). At all relevant times, Pamacorp Securities held a dealers licence.

5 Hold Pty Ltd (Pamacorp Holdings) was represented and defended the proceeding at all times prior to the commencement of the trial on 5 August 2003, but was unrepresented at the trial. The solicitor for Hold Pty Ltd attended on the first day and informed the court that administrators had been appointed by the company. Those administrators were Simon Wallace-Smith and Salvatore Algeri. The plaintiffs, by summons dated 7 August 2003, sought leave pursuant to s 440D(1) of the Corporations Act 2001 (Cth) for the plaintiffs to proceed against Hold Pty Ltd (Pamacorp Holdings). The application was served on the administrators who advised that they neither consented to nor opposed the application and did not intend to appear. By order made 11 August 2003, leave was granted to the plaintiffs to proceed with this proceeding until further order. There was no representation of Ambridge Securities Ltd (Pamacorp Securities) during the trial. On 14 August 2003, the solicitors for the plaintiffs were informed that Ambridge Securities Ltd (Pamacorp Securities) had gone into a members' voluntary liquidation on 8 August 2003 and that John Adams, a partner at Horwarths, Accountants, had been appointed the liquidator.

6 The plaintiffs in the Financial Wisdom proceeding are numerous, but by an order dated 21 March 2003, 12 of those plaintiffs were selected for the purpose of having their cases determined prior to the hearing and determination of the cases of any of the other plaintiffs. The 12 selected plaintiffs are Mr Newman, Mr Duncan, Mr Collins, Mr and Mrs Balding, Mr Bullock, Mr and Mrs Noble, Mr Giuffrida, Mr and Mrs Gray and Mrs Smith.

7 The defendants in the Financial Wisdom proceeding are Financial Wisdom and Twenty-First Australia.

8 Financial Wisdom conducts a financial planning business. It is the holder of a dealers licence and was, at all relevant times, a licensed securities dealer pursuant to the former Corporations Law. Its ultimate holding company is Commonwealth Bank of Australia Ltd, and its previous ultimate holding company was Colonial Ltd.

9 Twenty-First Australia was represented until shortly before the commencement of the trial, but its solicitors sought leave to file a notice of ceasing to act in circumstances described in an affidavit of Andrew Collis Blogg sworn 27 June 2003 and leave was obtained by order of that date. A notice that the solicitor had ceased to act was filed on 30 June 2003 and Twenty-First Australia was not represented at the trial. As a result, Financial Wisdom was the only defendant left standing, as it were, and it was represented throughout the trial by Mr M Sifris SC and Ms C Mavroudis of counsel.

B. Factual introduction

10 At the commencement of his opening, Dr Pannam QC, who appeared with Mr B Quinn of counsel for the plaintiffs, said that the volume of paper which had been generated by these proceedings was awesome and forbidding. He was referring to the large number of lengthy witness statements and the vast collection of documents filed with them. It is neither necessary nor possible, in what follows, to refer to or even summarise all of the evidence. The substance of the factual material will however be found in this introduction and in the accounts of each of the selected plaintiffs' claims. There is a substantial body of evidence in relation to the structure of the various investment schemes. It is unnecessary to refer to that evidence which was not controverted, although it underlies a number of the legal conclusions reached. There is also a good deal of evidence in relation to the outcomes of the various investment schemes. Again, it is unnecessary to refer to that evidence although it underlies many of the factual findings as to damages.

11 The particular individuals who advised the plaintiffs in relation to their various investments ^[1] are not defendants but the plaintiffs contend that the defendants are in various ways liable for the conduct of those individuals. The individuals are: Quarrell, Healy, Schimana, Hughes and Lye. Healy was called as a witness for the plaintiffs and the following account of the development of investment advice businesses of which the plaintiffs were clients is derived from his affidavit sworn 9 June 2003. Healy had worked in the banking and insurance field for about 10 years until, in about March 1991, he was approached by the principals of Pamacorp, who told him that the group was in the process of hiring consultants and agents to promote and sell investment and accounting services to potential clients.

12 Healy joined Pamacorp as a financial consultant and, when he joined, Quarrell was also working for Pamacorp in the same capacity. Pamacorp had created a special program or package of services for its clients, the Sentinel Program. Each client would pay a fixed monthly subscription fee and Pamacorp would provide comprehensive investment and financial management advice and services, supposedly tailored to the needs of each client. As part of the Sentinel Program, Pamacorp also offered all of the incidental services required to completely manage each client's financial affairs, including insurance packages, superannuation fund management services and the preparation of annual income tax returns.

13 The job of each of Quarrell and Healy was to sell Pamacorp's Sentinel program to "high income individuals" and advise on the management of the investment portfolios and financial affairs of those clients who subscribed. The job involved the following main tasks:

• contacting potential clients or speaking to new clients who approached them;

• interviewing clients to ascertain their current income and assets, their financial commitments and their taxation position;

• creating a profile of each client's investment history, current financial position and short, medium and long term financial goals;

• providing advice to each client about how to achieve identified financial goals including how each client could reduce his or her non-tax-deductible debt;

• promoting the particular types of tax effective and income producing investments which Pamacorp was endorsing and which it could offer to those clients.

14 Quarrell and Healy worked independently of each other, with their own clients, but were regularly in contact with each other and with the principals of Pamacorp.

15 Pamacorp provided each of its consultants with a copy of a brochure, the Pamacorp brochure. That brochure set out the key features of the Sentinel program and the nature and standard of the services which Pamacorp was to provide. Every new client subscribing to the Sentinel program was given a copy of the Pamacorp brochure by their consultant and usually taken through it at an initial meeting.

16 The Pamacorp brochure informed the reader that Pamacorp worked under a concept of total business management and that its professional staff encompassed trained and experienced accountants, tax specialists, merchant and investment bankers, financial analysts, insurance and superannuation advisers and a marketing division, and announced that the interaction between these departments meant that Pamacorp could provide professional advice from a total financial management perspective. The brochure stated that Pamacorp's corporate philosophy was to provide a fully integrated financial services facility to clients, to provide an uncompromised level of technical skill, knowledge and creative application and to respond rapidly and effectively to clients' needs and so on. The brochure pointed out that clients did not have time, inter alia, "to wade through the entire tax code, individually assess the inherent strengths and weaknesses of Australia's blue chip companies or compare the performances of the multitude of fund managers over the last five years". The brochure asked whether the clients' accountant had been "working with you to structure your salary in such a way as to minimise tax" and "assisting you in making informed and timely decisions on investment planning". The brochure said that Pamacorp had developed a comprehensive service tailored to clients' individual needs and that the "Sentinel package" would effectively and efficiently work with the client to "create worth by maximising … disposable income with … tax planning", "build your nett worth within informed investment advice and solid financial planning using the best information and software applications, and our active experience in this field" and "reduce tax with effective planning" and so on.

17 The Pamacorp brochure further said that the Sentinel package would consist of the following basic features and elements, inter alia:

• detailed initial assessment and report on your financial status;

• your annual tax return;

• meeting to review, discuss and advise on your tax position and tax plan;

• investment advice and wealth creation - that is, financial planning.

18 Under the heading "Investment", the brochure stated that Pamacorp's investment philosophy was "focussed on quality and unbiased assessment of all the available opportunities in the market-place at any particular time" and that "Pamacorp advocated a policy of quality income producing investments". The brochure then described the kinds of investments of various classes which Pamacorp would recommend. It is sufficient to say that each class of investment as described was in the nature of a blue chip investment. The single annual fee for the package was specified.^[2]

19 Notwithstanding the conservative tone of its brochure, Pamacorp over a number of years offered clients the opportunity to invest in various "Division 10BA" films. The Pamacorp consultants were required to provide to their clients an information sheet about the film with a cashflow sheet demonstrating the benefits of an investment in the film scheme.

20 During the financial years ending 30 June 1992 and 30 June 1993, Pamacorp was promoting investments in the Lucky Country Film Fund. During the financial year ending 30 June 1994, Pamacorp was promoting investments in the Bearfire and Grand Hotel Film Funds.

21 In early 1994, Pamacorp became interested in the investment opportunities presented by a number of stage show productions proposed by one Peter Boyle, a producer with considerable experience in the film industry. A number of clients of Pamacorp invested in the Cabaret Scheme promoted by Boyle.

22 In or about May and June 1994, the principals of Pamacorp decided that they wanted to focus on its accounting business and to divest the Sentinel program business. According to Healy, most of Pamacorp's Sentinel program clients at that time were dealing either with him or with Quarrell and they had between them about 80-100 clients. The Pamacorp principals suggested that Quarrell and Healy take over that part of Pamacorp's business and run it as a business in their own right. Quarrell and Healy discussed the matter and agreed to set up their own business for this purpose:

We decided to utilise the key concept behind the Sentinel program which we believed in and which had proved so popular with the Pamacorp client base. That was to provide a "total financial management" package. We wanted to offer our clients a "one stop shop" of financial and investment advice. We intended to offer a comprehensive range of investment opportunities and also take care of all of our clients' tax planning and accounting needs.

23 Quarrell and Healy informed the Sentinel clients of their intentions and spoke to them in person or by telephone.

24 Sentinel was incorporated on 28 July 1994, and over time, Quarrell and Healy caused a number of other companies to be incorporated for the purposes of the business. These included: Sentinel Accounting Services Pty Ltd (for the provision of accounting services to clients); Kantell Pty Ltd (for the development of tax effective investments); Development Corporation Ltd (DCL) (to conduct property development and investment activities); First Finance Ltd Guard Finance Pty Ltd and Guard Finance (Vic) Pty Ltd (to provide finance for the purposes of property developments engaged in by DCL and to provide cashflow to Sentinel) and Sentinel Management Services Pty Ltd (to be the administration company for clients' superannuation funds).

25 In June 1994, Quarrell and Healy informed Boyle that they were leaving Pamacorp and starting Sentinel and he introduced them to the Bolshoi Ballet Scheme, which involved an Australian tour of the Bolshoi Ballet. At this time, Sentinel did not have its own office space, and Boyle informed Quarrell and Healy that there were vacant floors in an office building in Hobson Street, South Yarra, in which he was renting premises. As a result, Sentinel rented offices on the floor above Boyle's offices in Hobson Street, South Yarra.

26 By letter dated 19 October 1994 (or thereabouts), Quarrell and Healy also wrote on behalf of their new company, Sentinel, to each of their Sentinel clients about their new business. The letter read as follows:

…

We take this opportunity to welcome you to Sentinel Financial Management. Although our structure has changed, our commitment to you remains as strong as ever. Our aim is to help you optimise your personal financial position in both the long and the short-term.

Enclosed is a brief profile of the key members of our team, who between the 4 of us have had more than 80 years experience in financial services. We would like to stress that one of the major benefits available to you at Sentinel, is continuing access to our wide range of technical and professional resources.

To reinforce our commitment to you, we have listed below the 8 major areas of our service that we believe will continue to set us apart from any other financial services group:
• We specialise in looking after the individual. This means that our service and ideas are tailored to your own needs.

• Our service is independent. We provide you with personal financial and accounting advice which is not based on selling financial products.

• The use of effective tax planning to suit the individual is an integral part of our service.

• We are able to provide you with prompt and efficient access to first class technical and professional resources.

• We can offer you creation and administration of business structures, including discretionary trusts, unit trusts, companies and partnerships.

• Independent structuring is available which will maximise the benefits of superannuation and roll-over funds.

• We will assist you to create wealth and enhance your net-worth, including continuous review of strategies which have been implemented.

• Professional preparation of all your personal, business and investment taxation returns is assured.

…

27 Enclosed with the letter was a description of "THE TEAM" which included a description of the experience and qualifications of Healy, Quarrell and Schimana and, in relation to Quarrell, stated that he was: "… a licensed Proper Holder Authority [sic] and as such is able to advise in securities."

28 The clients who wished to retain Sentinel filled out a subscription form and a direct debit authority for the fixed fee of $70 per month. Sentinel created a file for each client in which was placed a financial profile of the client, compiled during the initial interview held with each client.

29 Schimana had been an accountant employed by Pamacorp to look after clients' tax returns and affairs and he was given a one-third share in Sentinel Accounting Services Pty Ltd and allocated primary responsibility for the management of that company's opportunities. However, Quarrell, Schimana and Healy agreed that they would all have contact with the clients and provide investment advice to them, and that there would not be any rigid demarcation of tasks within Sentinel.

30 After Sentinel commenced business, Quarrell and Healy continued to rely on Boyle to provide investment propositions. The Cabaret Scheme, to which later reference will be made, was an investment promoted to clients of Pamacorp and later promoted to clients of Sentinel. Boyle had told Healy that the Cabaret Scheme involved a partnership and did not require a prospectus. A later scheme promoted by Boyle was the Bolshoi Ballet Scheme. Again, Boyle told Healy and Quarrell that no prospectus was needed. Sentinel received a 5% commission on investments procured by them. The next scheme introduced by Boyle was the Me and My Girl Scheme. Again, Sentinel was to receive 5% commission. Healy began to think that a prospectus was required, but Boyle insisted that it was not. Healy asked Boyle to get independent legal advice on this question but, although no such advice was provided, Sentinel continued to accept investments. Healy was told of rumours that Boyle was using investors' moneys for private expenditure on luxury items. Quarrell, Schimana and Healy agreed not to inform their clients of their concerns, but put the rumours to Boyle, who denied them. They accepted Boyle's assertions that no prospectus was required. The next investment introduced by Boyle was the Copperfield Investment. Again, Sentinel was to receive a 5% commission and again, Boyle said that a prospectus was not required. In about September 1995, Healy told Boyle to provide either a prospectus or independent legal advice that one was not required. Boyle undertook to do so, but provided neither.

31 As the business grew, other members of staff were employed. In about April 1995, Sentinel employed Hughes, an accountant who also provided investment advice and promoted Sentinel investment schemes although his main function was to work as an accountant and complete tax returns.

32 Hemming was a person previously known to Healy. In early 1994, Hemming had told Healy that he had been involved in property development on the Gold Coast but a project had failed and he had lost everything. Healy discussed with Hemming the possibility of working together on small boutique property development projects such as units and houses. Healy and Hemming agreed that he would provide his property market knowledge to identify good potential projects in Queensland and that Healy would raise finance from investors for the projects. They decided to form a company (Bond Pty Ltd) as the vehicle for their property developments. Quarrell and Healy decided to offer property development to Sentinel clients as an investment. They invited Hemming to join Sentinel and to do what he had been doing at Bond Pty Ltd for Sentinel. They set up DCL and Hemming became responsible for planning and managing Sentinel's property development activities through it.

33 In due course, Sentinel also retained Lye. Although Lye was retained initially to undertake Sentinel's real estate sales in Queensland, he also became a general financial adviser to Sentinel clients and promoted all of Sentinel's investments.

34 Sentinel produced a brochure, the form, subjects and text of which was heavily based upon the Pamacorp brochure. It was usual practice that a new client was given a copy of the Sentinel brochure at the initial interview. They would be taken through it, and the main points of it were explained.

35 In about March 1996, Healy became concerned about Boyle's capacity to pay Sentinel its commission when he heard that Boyle was desperately searching for money at moneylender rates from one Davis. In April 1996, Healy learned that Capital Investments Corporation Pty Ltd had purchased the Copperfield Investment loan book from Boyle's company. In early May 1996, Quarrell, Healy and Schimana got oral legal advice from a tax lawyer that the Copperfield Investment documentation was inadequate and that there may not be a basis for a tax deduction.

36 At about this time, Healy met Davis. Davis (who turned out to be no better) told Healy that Boyle was a crook and that Park of Capital Investments was also a crook. Davis said he would save the day with a quality investment scheme and would guarantee that Sentinel's clients received their tax deductions. Davis said that his schemes were different (but it transpired that they were not). Davis said that no prospectus was required because the partnerships were all less than 20 people and therefore there was not a prescribed interest. Healy accepted Davis' sales pitch without any independent advice or analysis of the investments recommended, the first of which was the Book Publishing Partnerships.

37 It is convenient here to mention how Twenty-First became involved. Twenty-First was a United States securities investment company. A representative of Twenty-First (Ben Adler) contacted Healy, hawking tax-effective investments called securities lending arrangements which involved franking credits. The investment involved a form of security and a securities dealers' licence was required. The Twenty-First representative that said Twenty-First would provide each of the Sentinel representatives with a proper authority. Twenty-First provided proper authorities for Quarrell, Schimana, Hughes and Lye in June 1996. Due to an adverse tax ruling from the ATO, the securities lending arrangements were not proceeded with and Sentinel found alternative investments for its clients. Although there was no further involvement with Twenty-First, the proper authorities were not revoked.

38 I will refer further to the particular investment schemes promoted by the advisers in the course of outlining the evidence concerning the investments of the selected plaintiffs in the period from about February 1992 to June 1997. During that period, some of the advisers held proper authorities from some defendants. Quarrell held a proper authority from Financial Wisdom from 31 March 1992 until 18 December 1996. Healy never held a proper authority from Financial Wisdom. Schimana and Hughes each held a proper authority from Financial Wisdom from 19 April 1995 until 18 December 1996. Quarrell, Healy, Schimana, Hughes and Lye all held a proper authority from Twenty-First Australia from 4 June 1996 until 30 June 1997.

39 In or about late June 1997, Sentinel's business "collapsed".^[3] From that time onwards, the "bad news" progressively came in to the plaintiffs and their fellow investors concerning the fate of their investments and the stance of the ATO in relation to their claimed deductions. The plaintiffs and many of their fellow investors co-operated in taking a variety of steps and proceedings, and in obtaining advice and representation where appropriate, and various expenses were incurred in doing so.

C. The statement of claim in the Financial Wisdom proceeding

40 The principal issues to be decided by the court arise in the Financial Wisdom proceeding. The further amended statement of claim dated 18 October 2002 (statement of claim) comprises some 454 pages. There are a series of claims in relation to a number of different investments, but most of the claims take the same form and raise similar issues. Financial Wisdom's defence to the statement of claim is dated 21 November 2002 and Twenty-First Australia's defence is dated 19 November 2002. It is not necessary to refer in detail to the statement of claim in the Pamacorp proceeding, which is concerned with the liability of the Pamacorp companies for the conduct of servants and agents of Pamacorp Holdings in relation to 5 investments.^[4] It will be sufficient to deal with the relevant causes of action, so far as necessary, when coming to the claims of the selected plaintiffs.

41 Paragraph 1 of the statement of claim in the Financial Wisdom proceeding alleges that Financial Wisdom was at all relevant times a company carrying on a securities and investment advice business and holding a dealers licence pursuant to Pt 7.3, Div 1 of the Corporations Law. Paragraph 1 further alleges that, pursuant to Pt 7.3, Div 3 of the Corporations Law, Financial Wisdom provided proper authority to the following persons to act as its representative:

• Quarrell, from 31 March 1992 until 18 December 1996;

• Hughes, from 19 April 1995 until 18 December 1996;

• Schimana, from 19 April 1995 until 18 December 1996.

42 Paragraph 2 of the statement of claim alleges that Twenty-First was at all relevant times a company carrying on a securities and investment advice business and holding a dealers licence pursuant to Pt 7.3, Div 1 of the Corporations Law. Paragraph 2 further alleges that, pursuant to Pt 7.3, Div 3 of the Corporations Law, Twenty-First provided proper authority to the following persons to act as its representative from 4 June 1996 until 30 June 1997: Quarrell, Healy, Hughes, Schimana and Lye.

43 Paragraph 3 of the statement of claim alleges that between about 31 March 1992 and about 9 September 1994, those of the plaintiffs named in Sch A ^[5] (the Pamacorp clients) subscribed to and entered an investment and financial advice program called the "Sentinel Professionals Management Program", by which each retained Pamacorp Holdings to provide, in return for an annual subscription fee, investment, financial and taxation advice and management services (the Pamacorp retainer).

44 Paragraph 4 of the statement of claim alleges that Quarrell represented and warranted (the Pamacorp representations) to each of the Pamacorp clients that:

(a) Pamacorp Holdings provided, intended to provide and would provide a fully integrated financial services facility to its clients;

(b) Pamacorp Holdings provided, intended to provide and would provide an uncompromised level of technical skill, knowledge and creative application;

(c) Pamacorp Holdings responded, intended to respond and would respond rapidly and effectively to its clients' needs;

(d) Pamacorp Holdings presented, intended to present and would present only the highest standard of work at all times;

(e) Pamacorp Holdings provided, intended to provide and would provide professional advice from a total financial management perspective;

(f) Pamacorp Holdings through the Sentinel Professionals' Management Program, created and would create wealth by maximising clients' disposable income with salary packaging and tax planning;

(g) Pamacorp Holdings through the Sentinel Professionals' Management Program, built and would build its clients' nett worth with informed investment advice and solid financial planning using the best information and software applications and its active experience in that field;

(h) Pamacorp Holdings through the Sentinel Professionals Management Program, protected and would protect its clients' assets and lifestyle;

(i) Pamacorp Holdings through the Sentinel Professionals' Management Program, reduced and would reduce its clients' tax with effective planning;

(j) Pamacorp Holdings informed, intended to inform and would inform its clients about legislative and economic changes that could affect the clients' financial position;

(k) Pamacorp Holdings provided, intended to provide and would provide the Sentinel Professionals' Management Program at a fixed subscription fee and guarantee to save each client that fee in tax savings or refund the subscription fee;

(l) Pamacorp Holdings recommended, intended to recommend and would recommend quality income producing investments that would compensate for a slow rate of capital growth;

(m) all real estate investments recommended by Pamacorp Holdings had and would have:
(i) secure, quality cash flow; and

(ii) blue chip tenants or occupants;

(n) all equities investments recommended by Pamacorp Holdings involved and would involve:
(i) companies with strong balance sheets;

(ii) companies in mainstream industries;

(iii) strong nett asset backing; and

(iv) a strong dividend stream;

(o) all institutional investments recommended by Pamacorp Holdings showed and would show:
(i) AAA rating;

(ii) balance of Australian and offshore investments;

(iii) an emphasis on South-East Asian portfolio investments; and

(iv) a strong 5 year performance record;

(p) fixed interest funds recommended by Pamacorp Holdings were and would be:
(i) Commonwealth or semi-Commonwealth paper; or

(ii) bank-backed securities or issues;

(q) Pamacorp Holdings strived and would strive to achieve the greatest possible taxation reductions for its clients in accordance with the spirit and intention of the law;

(r) Pamacorp Holdings provided, intended to provide and would provide an overall approach to investment and financial planning and offer informed advice taking into account all aspects and components of a client's financial affairs;

(s) the investments recommended to clients by Pamacorp Holdings were and would be secure and carry a low financial risk for clients;

(t) the investments recommended to clients by Pamacorp Holdings were and would be guaranteed to produce a sound return for clients;

(u) the investments recommended to clients by Pamacorp Holdings did and would minimise and defer payment of income tax.

45 Paragraph 5 of the statement of claim alleges that each of the Pamacorp clients, in reliance upon and induced by the Pamacorp representations, subscribed to, participated in and paid the annual subscription fee for, the Sentinel program and thenceforth accepted and acted upon investment, financial and taxation advice and recommendations provided by Quarrell (as thereafter pleaded).

46 The statement of claim is then divided into a number of sections in relation to each of the investments.

47 The first investment dealt with by the statement of claim is the Lucky Country Film Fund and this may be usefully regarded as giving rise to a set of claims which is typical of many of the claims contained in the pleading. Paragraphs 6, 7 and 8 of the statement of claim refer to the deeds and agreements setting up the Lucky Country Film Fund. Paragraph 9 of the statement of claim refers to the issuing of a prospectus for each of the financial years ending 30 June 1992 and 30 June 1993 inviting investment in the Lucky Country Film Fund by subscribing for units. Paragraph 10 of the statement of claim alleges that, between about 31 March 1992 and 13 October 1993, those of the plaintiffs named in Sch B ^[6] invested in units in the Lucky Country Film Fund, executed loan and other agreements, borrowed finance for the purpose and paid interest on the loan moneys.

48 Paragraph 11 of the statement of claim alleges that, prior to each of the Lucky Country investors making their investments, Quarrell recommended the investment (the Lucky Country recommendations) and represented and warranted (the Lucky Country representations) to each of the Lucky Country investors as follows:

(i) the Lucky Country Film Fund was, was intended to be and would be a quality income-producing investment;

(ii) the Lucky Country Film Fund was, was intended to be and would be guaranteed to produce a sound return for investors;

(iii) the Lucky Country investors were, were intended to be and would be guaranteed to receive a return of 100% of the moneys which they invested in the Lucky Country Film Fund;

(iv) the Lucky Country Film Fund was, was intended to be and would be a secure investment which carried a low financial risk for clients;

(v) all moneys invested in the Lucky Country Film Fund were, were intended to be and would be 100% tax deductible;

(vi) the interest repayments on all loan moneys invested by the Lucky Country investors in the Lucky Country Film Fund were, were intended to be and would be 100% tax deductible;

(vii) the persons responsible for the promotion and management of the Lucky Country Film Fund and the production and distribution of the Lucky Country film were, were intended to be and would be sufficiently skilled, expert and experienced to carry out their respective tasks to ensure that the Lucky Country would be produced without placing investors' funds at risk. …

The Lucky Country representations are particularised as being made orally by Quarrell in discussions with the various investors and to be implied from his recommendation and from "the fact that each Lucky Country Investor was a Pamacorp client subscribing to the Sentinel … program seeking low-risk, secure, income producing and tax deductible investments in accordance with the Pamacorp Representations".

49 Paragraphs 12 and 12A of the statement of claim allege that, at the time that Quarrell made the Lucky Country recommendations and the Lucky Country representations, Quarrell was a representative of Financial Wisdom within the meaning of s 820(1) of the Corporations Law and, in effect, that Financial Wisdom was therefore liable for Quarrell's conduct pursuant to s 817 of the Corporations Law, in the same manner and to the same extent as if the conduct was that of Financial Wisdom (a claim now abandoned).

50 Of particular importance in this proceeding, para 13 of the statement of claim pleads further, or in the alternative, to the previous paragraph that:

(a) the Lucky Country recommendations and Lucky Country representations were made by Quarrell at a time when he was a representative of Financial Wisdom within the meaning of s 819(1)(a) of the Corporations Law;

(b) each of the Lucky Country investors made the Lucky Country subscriptions and entered the Lucky Country loans because they believed in good faith that Quarrell made the Lucky Country recommendations and Lucky Country representations:
(i) on behalf of Financial Wisdom or some other principal; and

(ii) in connection with a securities business or investment advice business carried on by Financial Wisdom or some other principal;

(c) in the premises, pursuant to s 819 of the Corporations Law, Financial Wisdom is liable in respect of the Lucky Country recommendations and Lucky Country representations in the same manner and to the same extent as if Financial Wisdom had made them.

51 Paragraphs 15-20 of the statement of claim plead, in relation to the Lucky Country recommendations and the Lucky Country representations, and also in relation to the Pamacorp representations, that Quarrell engaged in misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) and s 11 of the Fair Trading Act 1985 (Vic).

52 Paragraph 16 of the statement of claim alleges that the Lucky Country recommendations and Lucky Country representations were false or misleading in that:

(a) the Lucky Country Film Fund was not and was not intended to be a quality income-producing investment;

(b) the Lucky Country Film Fund did not and was not intended to produce a sound return for investors;

(c) the Lucky Country investors did not and were not intended to receive a return of 100% of the moneys which they invested in the Lucky Country Film Fund;

(d) the Lucky Country Film Fund was not and was not intended to be a secure investment that carried a low financial risk for investors;

(e) the moneys invested in the Lucky Country Film Fund were not and were not intended to be tax deductible;

(f) the interest payments on moneys invested by the Lucky Country investors in the Lucky Country Film Fund were not and were not intended to be tax deductible;

(g) the persons responsible for promotion and management of the Lucky Country Film Fund and production and distribution of the Lucky Country were not and were not intended to be sufficiently skilled, expert and experienced to carry out their respective tasks to ensure that the Lucky Country would be produced without placing investors' funds at risk.

PARTICULARS

(a) The film The Lucky Country was never completed and produced no return for the Lucky Country investors whatsoever.

(b) The Lucky Country Film Fund was wound up by order of the Federal Court of Australia of 25 October 1996. Subsequent to the winding up only some of the Lucky Country investors received a distribution of only some of the funds which they had invested in the Lucky Country Film Fund. Further particulars of the proportion of moneys invested retrieved by each Lucky Country investor will be provided at trial.

(c) The Lucky Country Film Fund was not secure and carried a high financial risk for the Lucky Country investors and such risk was realised by the non-completion of the film.

(d) The Australian Taxation Office conducted an investigation into the Lucky Country Film Fund and, in about November 1996, disallowed any tax deductions claimed by Lucky Country investors on the moneys invested in the Lucky Country Film Fund or the interest payments on moneys borrowed for those purposes.

53 Paragraph 17 of the statement of claim alleges that the Pamacorp representations were misleading and deceptive in that, in making the Lucky Country representations and recommendation, Pamacorp Holdings did not and did not intend to:

(a) provide a fully integrated financial services facility to its clients;

(b) provide an uncompromised level of technical skill, knowledge and creative application;

(c) respond rapidly and effectively to its clients' needs;

(d) present only the highest standard of work;

(e) provide professional advice from a total financial management perspective;

(f) create wealth by maximising clients' disposable income with salary packaging and tax planning;

(g) build its clients' nett worth with informed investment advice and solid financial planning using the best information and software applications and active experience in that field;

(h) protect its clients' assets and lifestyle;

(i) reduce its clients' tax with effective planning;

(j) inform its clients about legislative and economic changes that could affect the clients' financial position;

(k) save each client the Pamacorp subscription fee in tax savings;

(l) recommend quality income producing investments that would compensate for a slow rate of capital growth;

(m) strive to achieve the greatest possible taxation reductions for its clients in accordance with the spirit and intention of the law;

(n) pursue an overall approach to investment and financial planning or offer informed advice taking into account all aspects and components of a client's financial affairs;

(o) recommend a secure investment carrying low financial risk;

(p) recommend an investment guaranteed to produce a sound return for clients;

(q) recommend an investment which would minimise and defer payment of income tax.

54 Paragraph 20 alleges that as a consequence of Quarrell's said conduct, each of the Lucky Country investors had suffered loss and damage, which is particularised as follows:

(a) The annual subscription fee for the Sentinel Professionals Management Program.

(b) Each of the Lucky Country investors has lost all or part of the moneys which each invested in the Lucky Country Film Fund.

(c) Each of the Lucky Country investors has suffered loss of the interest paid at commercial rates under the Lucky Country loans.

(d) Each of the Lucky Country investors lost the use of that part of the moneys which they invested not derived from a Lucky Country loan from the time of the investment until such moneys were recovered, if at all.

(e) Each of the Lucky Country investors has paid or is liable to pay statutory interest to the Australian Tax Office on unpaid tax as a result of the disallowance by the Australian Tax Office of tax deductions claimed by each.

(f) Further, each Lucky Country investor has expended significant time and resources in investigating the outcome of, and rectifying the damage caused by, their investment and in assisting various statutory authorities such as the Australian Tax Office and the Australian Securities Commission (now the Australian Securities and Investment Commission) in their investigations of the investment, including:
(i) holiday and other leave taken from usual paid employment;

(ii) professional accounting, legal and taxation advice and assistance.

(g) Further, each Lucky Country investor has suffered severe emotional stress and trauma as a consequence of the financial pressures placed upon them and their families by the financial losses which they have sustained.

55 The particulars of loss and damage claimed in relation to the Lucky Country Film Fund are in substance repeated, with appropriate amendments, in the case of each investment subsequently dealt with in the statement of claim. The damages claimed cover losses of moneys invested, loss of interest and/or loss of use of moneys invested, interest and other payments to the ATO, other expenses in time or money and "severe emotional stress and trauma as a consequence of the financial pressures placed upon them and their families by the financial losses which they have sustained".

56 Paragraphs 21-23 of the statement of claim make alternative claims based upon the alleged negligence of Quarrell in making the Lucky Country recommendations and the Lucky Country representations. Paragraphs 24-28 of the statement of claim make alternative claims based upon alleged contraventions by Quarrell of s 851 of the Corporations Law. Paragraphs 29-32 of the statement of claim make alternative claims based upon alleged contraventions by Quarrell of s 995 of the Corporations Law. Paragraphs 33-37 of the statement of claim make alternative claims based upon alleged contraventions by Quarrell of s 999 of the Corporations Law. Paragraphs 41-44 of the statement of claim make alternative claims based upon an alleged breach of fiduciary duty owed to each of the Lucky Country investors by Quarrell.

57 Paragraphs 46-48 of the statement of claim plead that Financial Wisdom is liable pursuant to s 817 of the Corporations Law, alternatively s 819 of the Corporations Law, for all loss and damage suffered by the Lucky Country investors in the same manner and to the same extent as if Financial Wisdom had engaged in the alleged conduct of Quarrell as pleaded in all of paras 15-44 of the statement of claim.

58 The statement of claim then proceeds to make substantially the same allegations and claims in relation to further investments, namely the Bearfire Film Fund (paras 53-95) and the Grand Hotel Film Fund (paras 100-143).

59 Paragraphs 148-194 of the statement of claim contain somewhat similar allegations in relation to the Cabaret Scheme. In addition, there are claims as to alleged negligence and alleged contraventions of the Corporations Law by Quarrell, based upon an allegation that the Cabaret Scheme was a "prescribed interest" and no prospectus or approved deed had been lodged with ASC.^[7] Substantially similar claims and allegations as are made in relation to the Cabaret Scheme are made in relation to the Bolshoi Ballet Scheme (paras 199-245).

60 Paragraphs 250-259 of the statement of claim deal with the commencement of the Sentinel Group. Paragraph 251 alleges that from about early September 1994, the Sentinel promoters commenced conducting a business of providing financial and investment and securities advice and management through the Sentinel Group. Paragraph 252 alleges that Sentinel was the controlling entity in the Sentinel Group, and that Quarrell and Healy were its directors. Paragraph 254 alleges that, on or about 14 September 1994, each of the Pamacorp clients were informed by Pamacorp Holdings of the formation of the Sentinel Group and that the principals of the Sentinel Group were Healy and Quarrell, who had a combined experience in banking, accounting and financial service totalling more than 50 years and who would continue to provide excellence in advice (the endorsement). Paragraph 255 alleges that, between about September and late October 1994, Sentinel, through Quarrell and Healy, confirmed the endorsement and made further representations to the Pamacorp clients, which are pleaded as follows:

(a) the endorsement was true;

(b) Quarrell and Healy, through the Sentinel Group intended to and would strive to help each Pamacorp client optimise their personal financial position in the long and short-term;

(c) between the members of the Sentinel Group's team, including Quarrell, Healy and Schimana there was over 80 years of experience in financial services;

(d) the Sentinel Group specialised in and would specialise in looking after the individual such that its services and ideas would be tailored to client's needs;

(e) the Sentinel Group's service was and would be independent;

(f) the Sentinel Group would provide and intended to provide clients with personal financial and accounting advice which was not based upon selling financial products;

(g) the use of effective tax planning to suit the individual was and would be an integral part of the Sentinel Group's service;

(h) the Sentinel Group would and intended to provide clients with prompt and efficient access to first class technical and professional resources;

(i) the Sentinel Group would offer creation and administration of business structures, including discretionary trusts, unit trusts, companies and partnerships;

(j) independent structuring was available which would maximise the benefits of superannuation and roll-over funds;

(k) the Sentinel Group would and intended to assist clients to create wealth and enhance nett worth including continuous review of strategies which had been implemented;

(l) professional preparation of all personal, business and investment taxation returns was assured;

(m) the Sentinel promoters were extremely well qualified, experienced, competent and trustworthy professionals.

("The transfer representations".)

PARTICULARS

The transfer representations were made by Quarrell and Healy in a letter in identical terms sent to each of the Pamacorp clients during September or October 1994. A copy of the letter is in the possession of the plaintiff's solicitors and may be inspected by prior appointment.

Further, the transfer representations were repeated by Quarrell and Healy in discussions with each Pamacorp client during September or October 1994.

61 Paragraph 256 of the statement of claim alleges that each of the Pamacorp clients, in reliance upon and induced by the endorsement and the transfer representations, became a client of Sentinel and continued to seek, receive and rely upon financial and investment advice and management services from the Sentinel promoters.

62 Paragraph 257 of the statement of claim alleges that between about September 1994 and July 1997, each of the plaintiffs named in Sch G thereto (including all of the Pamacorp clients) became clients of Sentinel (the Sentinel clients) and retained Sentinel to provide, in return for a subscription fee, investment, financial, taxation and securities advice and management services (the Sentinel package).

63 Paragraph 258 of the statement of claim alleges that prior to or at the time of each Sentinel client subscribing to the Sentinel Package, Sentinel, through the Sentinel promoters, repeated the transfer representations and made further representations to each of the Sentinel clients, which were pleaded as follows:

(a) the transfer representations were true;

(b) Sentinel provided, intended to provide and would provide professional advice from a total financial management perspective;

(c) Sentinel provided, intended to provide and would provide a fully integrated financial services facility to clients;

(d) Sentinel provided, intended to provide and would provide an uncompromised level of technical skill, knowledge and creative application;

(e) Sentinel responded, intended to respond and would respond rapidly and effectively to client's needs;

(f) Sentinel presented, intended to present and would present only the highest standard of work at all times;

(g) Sentinel fostered, intended to foster and would foster an environment where it encouraged and acknowledged the pursuit of further skill, integrity of service, outstanding effort and loyalty;

(h) Sentinel created, intended to create and would create wealth for the clients by maximising their disposable income with salary packaging and tax planning;

(i) Sentinel built, intended to build and would build the nett worth of its clients with informed investment advice and solid financial planning;

(j) Sentinel protected, intended to protect and would protect its client's assets and lifestyle;

(k) Sentinel reduced, intended to reduce and would reduce its client's tax with effective planning to suit the individual;

(l) Sentinel informed, intended to inform and would inform clients about legislative and economic changes that may affect their position;

(m) Sentinel created, intended to create and would create asset growth from unique private structuring of superannuation and roll-over moneys;

(n) Sentinel created, intended to create and would create and administer business structures including discretionary trusts, unit trusts, companies and partnerships;

(o) uppermost, Sentinel provided, intended to provide and would provide clients with totally independent advice which was not based upon the sale of financial products;

(p) Sentinel provided, intended to provide and would provide prompt and efficient access to highly specialised professionals in the fields of law, medicine, tax, investment and economics;

(q) Sentinel's investment philosophy was and would be focussed on unbiased assessment of all available opportunities in the market place at any one time;

(r) Sentinel did, intended to and would advocate quality income producing investments that would compensate for periods of slow capital growth;

(s) all real estate investments recommended by Sentinel were, were intended to be and would be in a first class geographic location; produce secure, quality cash flow; and have quality tenants or occupants;

(t) all equity investments recommended by Sentinel involved, were intended to involve and would involve companies with strong balance sheets; involve companies in mainstream industries; have strong net asset backing; and have a strong dividend stream;

(u) all institutional investments recommended by Sentinel showed, intended to show and would show an appropriate mix of Australian and off-shore investments and have a sound performance record;

(v) Sentinel strived, intended to and would strive to achieve the greatest possible taxation reduction in accordance with the spirit and intention of the law;

(w) the Sentinel package was available to clients at a fixed fee which would be tax deductible.

(x) Each of the Sentinel promoters were holders of and would continue to be holders of proper authorities from one or more licensed securities dealers and were, accordingly, able to lawfully advise Sentinel clients in relation to securities.

("The Sentinel representations".)

PARTICULARS

(a) Each of the Sentinel representations apart from those set out in subparas (a) and (x) above, were contained within a brochure provided by the Sentinel promoters to each Sentinel client at the time of or before subscription to the Sentinel package. A copy of the brochure is in writing and in the possession of the plaintiffs' solicitors where it may be inspected by appointment.

(b) Further, each of the Sentinel representations, including those set out in para (a) and (x) above were made to each Sentinel client during discussions with the Sentinel promoters at the time of or before subscribing to the Sentinel package.

64 Paragraph 259 of the statement of claim alleged that each of the Sentinel clients, in reliance upon and induced by the Sentinel representations, became clients of Sentinel, subscribed to the Sentinel package and henceforth accepted and acted upon investment, financial and taxation advice and recommendations provided by the Sentinel promoters.

65 The first investment dealt with by the pleading, after the date of the formation of the Sentinel Group, is the Me and My Girl Scheme (paras 260-308 of the statement of claim). Paragraphs 260-263 refer to the documentation involved with the Me and My Girl Scheme during the financial year ending 30 June 1995, including "the Me and My Girl Memorandum", which memorandum described an opportunity to invest in a fund for the production, marketing and general exploitation of the stage show "Me and My Girl" in New Zealand, commencing July 1995 and which outlined the structure, arrangements and benefits of the scheme.

66 Paragraph 262 of the statement of claim alleged that the following representations were contained in the Me and My Girl memorandum:

(a) Me and My Girl represented a unique opportunity to be involved in the production of a major international theatrical event;

(b) investors would receive a minimum income return of 100% of participation moneys payable on 15 July 1999 secured by an irrevocable letter of credit, government bonds or similar securities;

(c) investors would receive tax advantages in the year of investment by way of tax deduction for the whole of the theatrical services moneys contributed;

(d) investors would receive fee incomes on 2 levels:
(i) base theatrical services fees being a minimum fee income secured by the security equal to 100% of theatrical services moneys payable on 15 July 1999;

(ii) further theatrical services fees payable as and when earned and accounted from any profits from Me and My Girl.

67 Paragraph 264 of the statement of claim alleges that, prior to each of the Me and My Girl investors making their investment, the Sentinel promoters recommended the investment (the Me and My Girl recommendations), provided the Me and My Girl memorandum to each investor, and made representations and warranties (the Me and My Girl representations) to each investor, which were pleaded as follows:

(i) each of the representations in the Me and My Girl memorandum were true and correct;

(ii) the Me and My Girl Scheme was, was intended to be and would be a quality, income-producing investment;

(iii) the Me and My Girl Scheme was, was intended to be and would be guaranteed to produce a sound return for investors;

(iv) Me and My Girl investors were intended to be and would be guaranteed to receive a return of 100% of the moneys which they invested in the Me and My Girl Scheme;

(v) the Me and My Girl Scheme was, was intended to be and would be a secure investment which carried a low financial risk for clients;

(vi) all moneys invested in the Me and My Girl Scheme were, were intended to be and would be 100% tax deductible;

(vii) the interest repayments on all loan moneys invested by the Me and My Girl investors in the Me and My Girl Scheme were, were intended to be and would be 100% tax deductible;

(viii) Sentinel had obtained or would obtain a private ruling from the Australian Tax Office to the effect that the moneys invested in the Me and My Girl Scheme and interest on the Me and My Girl loans was tax deductible;

(ix) the persons involved in the promotion and management of the Me and My Girl Scheme and the production and marketing of Me and My Girl, namely SKH Management Pty Ltd and Griffin Entertainment Australia Pty Ltd, were intended to be and would be sufficiently skilled, qualified, experienced and reputable with theatrical productions to carry out their respective tasks without putting the Me and My Girl investors' funds at risk;

(x) in promoting the Me and My Girl Scheme, SKH Management Pty Ltd had complied, would comply and intended to comply with all relevant provisions of the Corporations Law such that the Me and My Girl Scheme was approved by the Australian Securities Commission.

…

PARTICULARS

Each of the Me and My Girl recommendations and representations was made by the Sentinel promoters in discussions with each of the Me and My Girl investors prior to each making their respective Me and My Girl subscriptions and executing their respective Me and My Girl loans.

Further, each of the Me and My Girl representations was implied:
(a) from the Me and My Girl recommendations;

(b) from the fact that the Sentinel promoters provided the Me and My Girl memorandum to each Me and My Girl investor without providing any qualifications or warnings about the content thereof thereby adopting and endorsing the representations therein; and

(c) from the fact that each Me and My Girl investor was a Sentinel client subscribing to the Sentinel package seeking low risk, secure, income producing and tax deductible investments in accordance with the Sentinel representations, as was known by the Sentinel promoters.

68 The pleading then follows the already established pattern of alleging a variety of causes of action which attach to Financial Wisdom by virtue of s 817 of the Corporations Law, alternatively (and importantly), s 819 of the Corporations Law.

69 The first cause of action alleged in relation to the Me and My Girl Scheme is misleading and deceptive conduct under s 52 of the Trade Practices Act 1974 (Cth) and/or s 11 of the Fair Trading Act 1985 (Vic). Paragraph 271 of the statement of claim alleges that the Me and My Girl representations were false or misleading, in that:

(a) the representations contained in the Me and My Girl memorandum were false;

(b) the Me and My Girl Scheme was not and was not intended to be a quality income-producing investment;

(c) the Me and My Girl Scheme did not and was not intended to produce a sound return for investors;

(d) the Me and My Girl investors did not and were not intended to receive a return of 100% of the moneys which they invested in the Me and My Girl Scheme;

(e) the Me and My Girl Scheme was not and was not intended to be a secure investment that carried a low financial risk for investors;

(f) the moneys invested in the Me and My Girl Scheme were not tax deductible;

(g) the interest payments on moneys invested by the Me and My Girl investors in the Me and My Girl Scheme were not tax deductible;

(h) Sentinel had obtained no private ruling with respect to the Me and My Girl Scheme from the Australian Tax Office and never intended to obtain one;

(i) the persons responsible for promotion and management of the Me and My Girl Scheme and production and marketing of Me and My Girl were not and were not intended to be sufficiently skilled, expert, experienced and reputable to carry out their respective tasks to ensure that Me and My Girl would be produced without placing investors' funds at risk;

(j) in promoting the Me and My Girl Scheme SKH Management Pty Ltd had not complied, did not comply and did not intend to comply with the relevant provisions of the Corporations Law such that the Me and My Girl Scheme was approved by the Australian Securities Commission.

PARTICULARS

(a) The only involvement which investors had in the Me and My Girl Scheme was the provision of moneys for the purported production fund by entry into the Me and My Girl loans and the payment of interest thereon.

(b) Me and My Girl investors did not receive a minimum income return of 100% of their investment because while they paid interest payments on Me and My Girl loans they received no return above the principal borrowed for the investment.

(c) The Me and My Girl investors received no tax deductions for their investment as deductions claimed by Me and My Girl investors were disallowed by the Australian Tax Office.

(d) Me and My Girl investors received no income by way of theatrical services fees over and above the base theatrical services fee of 100% of principal invested.

(e) Moneys invested by the Me and My Girl investors were not incurred to gain assessable income or to carry on any business and there is no evidence that Me and My Girl was ever produced. As a result, invested funds and interest payments on the Me and My Girl loans were not tax deductible and any deductions claimed on such moneys were disallowed by the Australian Tax Office.

(f) None of the companies involved in the Me and My Girl Scheme had experience or skill in theatrical productions or the human or financial resources to produce Me and My Girl. In particular, SKH Management was a company controlled by Peter Boyle, who also controlled Entercorp Finance Pty Ltd. The business in which Boyle engaged was not the production of Me and My Girl but the sale of the Me and My Girl loans on which the Me and My Girl investors paid him interest. The Sentinel promoters knew this as SKH Management Pty Ltd had also promoted the Bolshoi and Cabaret Schemes both of which were unsuccessful and caused losses to investors.

(g) No written reports or information were provided to Me and My Girl investors about the progress of Me and My Girl or the financial outcome of it.

(h) The Me and My Girl Scheme was not secure and carried a high financial risk for the Me and My Girl investors and such risk was realised by the losses suffered by the Me and My Girl investors.

(i) The Me and My Girl Scheme was a "prescribed interest" within the meaning of the Corporations Law to which Pt 7.12, Div 2 of the Corporations Law applied. Contrary to s 1018(1) of the Corporations Law no prospectus in relation to the Me and My Girl Scheme had been lodged with the Australian Securities Commission. Contrary to s 1065 of the Corporations Law no approved deed in relation to the Me and My Girl Scheme was in force.

70 Paragraph 272 of the statement of claim alleges that the Sentinel representations were misleading and deceptive, in that, in making the Me and My Girl representations and recommendations, Sentinel did not and did not intend to:

(a) provide a fully integrated financial services facility to its clients;

(b) provide an uncompromised level of technical skill, knowledge and creative application;

(c) respond rapidly and effectively to its clients' needs;

(d) present only the highest standard of work;

(e) provide professional advice from a total financial management perspective;

(f) foster an environment which encouraged and acknowledged the pursuit of further skill, integrity of service, outstanding effort and loyalty;

(g) create wealth by maximising clients' disposable income with salary packaging and tax planning;

(h) build its clients' nett worth with informed investment advice and solid financial planning using the best information and software applications and active experience in that field;

(i) protect its clients' assets and lifestyle;

(j) reduce its clients' tax with effective planning;

(k) inform its clients about legislative and economic changes that could affect the clients' financial position;

(l) recommend quality income producing investments that would compensate for a slow rate of capital growth;

(m) strive to achieve the greatest possible taxation reductions for its clients in accordance with the spirit and intention of the law;

(n) provide uppermost, totally independent advice not based upon the sale of financial products;

(o) provide unbiased assessment of all available opportunities in the marketplace;

(p) recommend an investment involving companies with strong balance sheets in mainstream industries with strong nett asset backing and a strong dividend stream;

(q) recommend an investment with a sound performance record.

71 Paragraph 275 of the statement of claim alleges that as a consequence of the said conduct of the Sentinel promoters, each of the Me and My Girl investors had suffered loss and damage, the particulars of which are substantially the same as those provided in relation to the Lucky Country Film Fund ^[8] and numerous of the other investments. The statement of claim goes on, in relation to the Me and My Girl Scheme, to allege causes of action based upon negligence, breach of fiduciary duty and various contraventions of the Corporations Law, much as are pleaded in relation to the Lucky Country Film Fund or the Cabaret Scheme and numerous other investments.

72 The statement of claim goes on to make substantially the same allegations and claims in relation to the Copperfield Scheme (paras 319-366).

73 Next is a section concerned with the Superannuation Schemes (paras 377-402). Paragraph 377 alleges that, during the course of 1995, Sentinel provided advice to clients about the establishment of a personal superannuation plan and the management of superannuation moneys. Paragraph 378 alleges that certain of the clients applied for membership of AS Nominees and engaged it to establish a superannuation plan and act as a trustee of the superannuation fund and transferred existing superannuation moneys to that plan. Paragraph 379 alleges the making of the "Super Recommendations" by the Sentinel advisers and there follows the pleading of a series of causes of action as previously, including under the Corporations Law and in negligence.

74 The next investment dealt with is the Book Publishing Partnerships. Paragraph 309 of the statement of claim alleges that, during the financial year ending 30 June 1996, Sentinel offered to the Sentinel clients the opportunity to invest in partnerships for the production, marketing and distribution of a series of books about minority peoples and cultures of Asia. Paragraphs 410 and 411 deal with the documents entered into by the Sentinel clients (the Publishing Partners) who invested in the Book Publishing Partnerships. Paragraph 412 of the statement of claim makes allegations concerning the making of "the Publishing recommendations" and "the Publishing representations" along similar but not identical lines to the allegations which I have already detailed in relation to earlier. The pleading then goes on to rely upon s 817, alternatively s 819 of the Corporations Law, and then again sets out various causes of action, the nature of which I have mentioned a number of times already.

75 The statement of claim continues in the same vein, dealing with the Video Documentary Partnerships (paras 469-518).

76 The next investments dealt with are the Guard Finance Investments (referred to as the "Finance Entities") (paras 529-554). Paragraph 529 alleges that, between the beginning of 1996 and about July 1997, certain Sentinel clients (the Finance investors) invested moneys into one or more of First Finance Ltd, Guard Finance Pty Ltd and Guard Finance (Vic) Pty Ltd by way of a direct investment of funds. Paragraph 530 makes allegations concerning the making of the "Finance representations", which include an alleged representation that the invested moneys would be on-lent for property transactions and secured by first mortgage, and that the investors could not lose their moneys. Then the same causes of action are pleaded as with previous sections of the pleading (apart from negligence) but, in addition, there are allegations of fraudulent misrepresentation.

77 The next investment dealt with is the DCL Shares Investment (paras 561-607). Paragraph 561 alleges that, between about late 1994 and July 1997, certain of the investors purchased shares in DCL, a company in the Sentinel Group involved in property development. Paragraph 562 alleges the making of the "DCL recommendations" and the "DCL recommendations" and the pleading goes on to allege the same series of causes of action as with earlier investments.

78 The next investments referred to are the property trusts, the Stanley Street Unit Trust (paras 618-688) and the Clendon Street Unit Trust (paras 679-730). The pleading refers to the execution of a trust deed and the setting up of a property trust in each case and the proposal to form or forming of a joint venture with DCL to develop properties in Richmond and Toorak respectively. The pleading alleges misleading and deceptive conduct, fraudulent misrepresentation, negligence and again relies upon various provisions of the Corporations Law.

79 The next investment dealt with is the Timber Investment (paras 741-789). Paragraph 741 alleges that during the financial year ending 30 June 1997, Sentinel clients were offered the opportunity to invest in the business of the production of timber from a pine plantation in South Australia. Save for reference to the particular structure of that investment and the specific representations made about the pleading follows the same general pattern in relation to the series of causes of action alleged.

80 The next section of the statement of claim deals with the Botanical Script Book Publishing Partnership and follows much the same pattern as in relation to the other investments (paras 800-849).

81 Next comes the Ostrich Schemes (paras 860-908). Paragraph 860 alleges during each of the financial years ending 30 June 1996 and 30 June 1997, Sentinel clients were offered the opportunity to invest in enterprises engaged in the business of breeding ostriches and exploiting ostrich products. Again, subject of the particularities of this investment, a similar series of allegations are made and causes of action raised.

82 The statement of claim concludes by claiming damages in respect of each of the investments, including damages under the Trade Practices Act 1974 (Cth) and/or Fair Trading Act 1985 (Vic), damages for negligent misrepresentation and/or negligence, and damages under various provisions of the Corporations Law and damages for breach of fiduciary duty and aggravated damages.

D. The Corporations Law

83 It was common ground that the Corporations Law regime applicable to the events in this proceeding is to be found in the provisions of the Corporations Law of the State of Victoria (the Law) in the form which it took in the period from 1991-1997. Of course that Law has since been repealed, but it is convenient here to refer to the relevant provisions in the present tense.

84 The plaintiffs contended, and I accept, that most of the investments that they made and which are the subject of this proceeding constituted securities within the meaning of the Law. The plaintiffs also primarily relied upon certain provisions of the Law to establish the liability of Financial Wisdom and Twenty-First Australia. It is appropriate at the outset to refer to those provisions as a background to what follows.

85 Chapter 7 of the Law is concerned with securities and Pt 7.3 thereof headed "Participants in Securities Industry" contains a number of relevant provisions. In Div 1, headed "Dealers and Investment Advisers", s 780, so far as relevant, provides that a person must not carry on a securities business without holding a dealers licence. A "securities business" is defined as a business of dealing in securities,^[9] and a "dealer" is defined as a person who carries on a securities business.^[10] "Securities" are defined by the Law to mean, inter alia, shares, debentures and prescribed interests.^[11] I will deal later with the relevance of "prescribed interests". "Deal" in relation to securities is defined to mean, inter alia, making or offering to make, or inducing or attempting to induce a person to make or to offer to make, an agreement with respect to acquiring the securities.^[12]

86 Section 781, so far as relevant, provides that a person must not carry on an investment advice business unless the person is a licensee (that is, the holder of a dealers licence or an investment advisers licence). An "investment advice business" is defined as a business of advising other persons about securities ^[13] and an "investment adviser" is defined as a person who carries on an investment advice business.^[14]

87 Section 782 provides for applications for dealers licences and investment advisers licences. The term "securities licence" is defined to mean a dealers licence or an investment advisers licence.^[15] Sections 783 and 784 deal with the granting of such licences by the Commission (at that time the ASC). Section 786 deals with licence conditions and provides, inter alia, that the ASC may impose:^[16]

(e) conditions about what the holder of the licence is to do, by way of supervision and otherwise, in order to prevent the holder's representatives from contravening:
(i) a securities law; or

(ii) another condition of the licence; and

(f) conditions about what the holder of a licence is to do to ensure that each presentative of the holder has adequate qualifications and experience having regard to what the representative will do on the holder's behalf in connection with a securities business or investment advice business carried on by the holder.

88 Division 3 of Pt 7.3 is concerned with "representatives". Section 809 provides that a body corporate shall not do any act as a representative of a dealer or of an investment adviser. Natural persons are dealt with by ss 806 and 807. Section 806 provides that a natural person shall not do an act as a representative of a dealer unless the dealer holds a dealers licence and the person holds a proper authority from the dealer. Section 807 provides that a natural person shall not do an act as a representative of an investment adviser unless the investment adviser is also a dealer holding a dealers licence, or holds an investment adviser's licence, and the person holds a proper authority from the investment adviser. A licensee must establish a register of holders of proper authorities ^[17] and a licensee must notify the ASC of the contents, commencement and termination of each proper authority granted by it.^[18] Section 816 empowers a licensee to require the holder of a proper authority to return it.

89 A "proper authority", in relation to a securities licensee, is defined to refer to:^[19]

… a copy of the licence on which are endorsed:
(a) a statement:
(i) certifying the copy to be a true copy of the license;

(ii) stating that the representative is employed by, or acts for or by arrangement with, the principal; and

(iii) signed by the principal; and

(b) in relation to each licensee (if any), other than the principal, of whom the representative is a securities representative, a statement that:
(i) sets out the name of the licensee;

(ii) states that the representative is employed by, or acts for or acts for or by arrangement with, the licensee;

(iii) states that the licensee consents to the representative being employed by, or acting for or by arrangement with, the principal; and

(iv) is signed by the licensee.

90 A "securities adviser" is defined to mean "a dealer, an investment adviser or a securities representative of a dealer or of an investment adviser".^[20]

91 Section 94 ^[21] defines a "securities representative" as follows:

(1) Subject to subsection (2), a person is a securities representative of another person if, and only if, the first-mentioned person:
(a) is employed by; or

(b) acts for or by arrangement with;

the other person in connection with a securities business or investment advice business carried on by the other person.

(2) Except for the purposes of paragraph 88(1)(b):
(a) a person who holds a proper authority from a securities licensee is a securities representative of the licensee; and

(b) a person who holds an invalid securities authority from another person is a securities representative of the other person.

(3) Subject to subsection (4), a person does an act, or engages in conduct, as a securities representative of another person if, and only if, the first-mentioned person does the act, or engages in the conduct:
(a) in connection with a securities business or investment advice business carried on by the other person;

(b) while the first-mentioned person is a securities representative of the other person;

(c) as employee or agent of, or otherwise on behalf of, on account of, or for the benefit of, the other person; and

(d) otherwise than in the course of work of a kind ordinarily done by accountants, clerks or cashiers.

(4) Except for the purposes of Division 4 of Part 7.3, a person who holds himself, herself or itself out to be a securities representative of another person does an act as a securities representative of the other person.

92 In relation to securities advisers, s 849 of the Law requires a securities adviser who makes a securities recommendation to a client to disclose to the client any benefit that the securities adviser will or may receive in connection with such recommendation. Section 851 of the Law defines certain contravening conduct by a securities adviser.^[22] Section 852 of the Law provides a remedy in damages for a contravention of s 849 or s 851.

93 Part 7.11 of the Corporations Law is concerned with "Conduct in Relation to Securities". The subject of Div 2 of that part, which contains ss 995 and 999, is "Prohibited Conduct".

94 These provisions are in the following terms:

995. Misleading or Deceptive Conduct

…

(2) A person shall not, in or in connection with:
(a) any dealing in securities; or

(b) without limiting the generality of paragraph (a):
(i) the allotment or issue of securities;

(ii) any prospectus issued, or notice published, in relation to securities;

(iii) the making of takeover offers or a takeover announcement, or the making of an evaluation of, or of a recommendation in relation to, takeover offers or offers constituted by a takeover announcement; or

(iv) the carrying on of any negotiations, the making of any arrangements or the doing of any other act preparatory to or in any other way related to any matter referred to in subparagraph (i), (ii) or (iii);

engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

999. False or misleading statements in relation to securities

A person must not make a statement, or disseminate information, that is false in a material particular or materially misleading and:
(aa) is likely to induce other persons to subscribe for securities; or

(a) is likely to induce the sale or purchase of securities by other persons; or

(b) is likely to have the effect of increasing, reducing, maintaining or stabilising the market price of securities;

if, when the person makes the statement or disseminates the information:
(c) the person does not care whether the statement or information is true or false; or

(d) the person knows or ought reasonably to have known that the statement or information is false in a material particular or materially misleading.

95 A breach of the above provisions gives rise to a claim for any resultant loss and damage under s 1005(1) and/or ss 1324(1) and 1324(10) and/or s 1325(1).

96 Central to the legal argument in this proceeding is the proper construction of s 819 of the Law, which is found in Div 4 of Pt 7.3, a Division headed "Liability of principals for representatives' conduct". The relevant provisions in Div 4 are as follows:

817. Conduct engaged in as a representative

Where a person engages in conduct as a representative of another person (in this section called the "principal"), then, as between the principal and a third person (other than the Commission), the principal is liable in respect of that conduct in the same manner, and to the same extent, as if the principal had engaged in it.

818. Liability where identity of principal unknown

(1) This section applies for the purposes of a proceeding in an Australian court where:
(a) a person (in this section called the "representative") engages in particular eligible securities conduct while the person is a representative of 2 or more persons (in this section called the "indemnifying principals"); and

(b) it is proved for the purposes of the proceeding that the representative engaged in the conduct as a representative of some person (in this section called the "unknown principal") but it is not proved for those purposes who the unknown principal is.

(2) If only one of the indemnifying principals is a party to the proceeding, he, she or it is liable in respect of that conduct as if he, she or it were the unknown principal.

(3) If 2 or more of the indemnifying principals are parties to the proceeding, each of those 2 or more is liable in respect of that conduct as if he, she or it were the unknown principal.

819. Liability of principals where act done in reliance on representative's conduct

(1) This section applies where:
(a) at a time when a person (in this section called the "representative") is a representative of only one person (in this section called the "indemnifying principal") or of 2 or more persons (in this section called the "indemnifying principals"), the representative:
(i) engages in particular eligible securities conduct; or

(ii) proposes, or represents that the representative proposes, to engage in particular eligible securities conduct;

(b) another person (in this section called the "client") does, or omits to do, a particular act because the client believes at a particular time in good faith that the representative engaged in, or proposes to engage in, as the case may be, that conduct:
(i) on behalf of some person (in this section called the "assumed principal") whether or not identified, or identifiable, at that time by the client; and

(ii) in connection with a securities business or investment advice business carried on by the assumed principal; and

(c) it is reasonable to expect that a person in the client's circumstances would so believe and would do, or omit to do, as the case may be, that act because of that belief; whether or not that conduct is or would be within the scope of the representative's employment by, or authority from, any person.

(2) If:
(a) subparagraph (1)(a)(i) applies; or

(b) subparagraph (1)(a)(ii) applies and the representative engages in that conduct; then

(c) as between the indemnifying principal and the client or a person claiming through the client, the indemnifying principal is liable; or

(d) as between any of the indemnifying principals and the client or a person claiming through the client, each of the indemnifying principals is liable; as the case may be, in respect of that conduct in the same manner, and to the same extent, as if he, she or it had engaged in it.

(3) Without limiting the generality of subsection (2), the indemnifying principal, or each of the indemnifying principals, as the case may be, is liable to pay damages to the client in respect of any loss or damage that the client suffers as a result of doing, or omitting to do, as the case may be, the act referred to in paragraph (1)(b).

(4) If:
(a) there are 2 or more indemnifying principals;

(b) 2 or more of them are parties (in this subsection called the "indemnifying parties") to a proceeding in an Australian court;

(c) it is proved for the purposes of the proceeding:
(i) that the representative engaged in that conduct as a representative of some person; and

(ii) who that person is; and

(d) that person is among the indemnifying parties; subsections (2) and (3) do not apply, for the purposes of the proceeding, in relation to the indemnifying parties other than that person.

820. Presumptions about certain matters

(1) Where it is proved, for the purposes of a proceeding in an Australian court, that a person (in this subsection called the "representative") engaged in particular conduct while the person was a representative of;
(a) only one person (in this subsection called the "indemnifying principal"); or

(b) 2 or more persons (in this subsection called the "indemnifying principals"); then, unless the contrary is proved for the purposes of the proceeding, it shall be presumed for those purposes that the representative engaged in the conduct as a representative of:

(c) the indemnifying principal; or

(d) as a representative of some person among the indemnifying principals;

as the case may be.

(2) Where, for the purposes of establishing in a proceeding in an Australian court that section 819 applies, it is proved that a person did, or omitted to do, a particular act because the person believed at a particular time in good faith that certain matters were the case, then, unless the contrary is proved for those purposes, it shall be presumed for those purposes that it is reasonable to expect that a person in the first-mentioned person's circumstances would so believe and would do, or omit to do, as the case may be, that act because of that belief.

821. No contracting out of liability for representative's conduct

(1) For the purposes of this section, a liability of a person:
(a) in respect of conduct engaged in by another person as a representative of the first-mentioned person; or

(b) arising under section 819 because another person has engaged in, proposed to engage in, or represented that the other person proposed to engage in, particular conduct; is a liability of the first-mentioned person in respect of the other person.

(2) Subject to this section, an agreement is void in so far as it purports to exclude, restrict or otherwise affect a liability of a person in respect of another person, or to provide for a person to be indemnified in respect of a liability of the person in respect of another person.

(3) Subsection (2) does not apply in relation to an agreement in so far as it:
(a) is a contract of insurance;

(b) provides for a representative of a person to indemnify the person in respect of a liability of the person in respect of the representative; or

(c) provides for a licensee from whom a person holds a proper authority to indemnify another such licensee in respect of a liability of the other licensee in respect of the person.

(4) A person shall not make, offer to make, or invite another person to offer to make, in relation to a liability of the first-mentioned person in respect of a person, an agreement that is or would be void, in whole or in part, by virtue of subsection (2).

822. Effect of Division

(1) Where 2 or more persons are liable under this Division in respect of the same conduct or the same loss or damage, they are so liable jointly and severally.

(2) Nothing in section 817, 818, or 819:
(a) affects a liability arising otherwise than by virtue of this Division;

(b) notwithstanding paragraph (a) of this subsection, entitles a person to be compensated twice in respect of the same loss or damage; or

(c) makes a person guilty of an offence.

97 I will deal specifically with the last-mentioned sections, especially s 819, in the course of dealing with the claims of Roger Duncan, to which I now turn.

E. The claims of Roger Duncan

Introduction

98 I will deal first with the claims of Mr Duncan because he invested in 7 of the schemes which were recommended to clients and the general conclusions which I have reached about the conduct of Pamacorp, Sentinel and their retained advisers are to a great extent applicable to the claims of each of the other plaintiffs. In the course of dealing with Mr Duncan's claim, I will state a number of conclusions and findings which are applicable to the claims of all plaintiffs.

99 Mr Duncan was initially a client of Pamacorp Holdings and a subscriber to the Sentinel program. He was subsequently a client of the Sentinel Group. I found Mr Duncan to be a truthful witness. Contrary to the submissions of Financial Wisdom, I found Mr Duncan's evidence to be neither generally inconsistent nor unconvincing. In considering the probabilities as to what was said to Mr Duncan (and to each of the other plaintiffs), I have considered and taken into account the detailed written submissions of Financial Wisdom concerning the probabilities and the evidence generally. With only minor exceptions, I have accepted Mr Duncan's evidence as follows.

100 Mr Duncan invested in:

• the Lucky Country Film Fund (June 1993);

• the Bearfire Film Fund (June 1994);

• the Bolshoi Ballet Scheme (July 1994);

• the Ostrich Schemes (June 1995, March 1997);

• the Copperfield Investment (December 1995);

• a Book Publishing Partnership (June 1996);

• a Video Documentary Partnership (November 1996).

101 Mr Duncan was born on 16 December 1941 in the United States of America and is a retired airline pilot. He became an Australian citizen in 1992. He is married with one adult son. During his youth, his family had various small businesses and he worked in them, doing a variety of jobs. While at school, he began taking flying lessons. From 1959 to 1963, he undertook general studies at the University of Minnesota while continuing to work in the family businesses, and he also began to fly charters. In 1966, he joined Braniff Airlines as a pilot, and during the Vietnam War he flew on charters for the United States military, taking personnel and equipment to and from Vietnam. He married in 1969. He and his wife purchased their first home in 1970 ($US35,000) and their second home in 1975 ($US90,000). In 1982, Braniff Airlines collapsed, and Mr Duncan's superannuation was partly rolled over into an annuity and partly paid out to Mr Duncan ($US75,000). Mr Duncan then commenced a office supply and printing business, which began to grow, but which, by 1984, became unprofitable. Braniff Airlines had resumed operation, and Mr Duncan resumed employment with it until, in 1989, it collapsed again. Mr Duncan moved to Australia and obtained employment with Ansett as a captain. In 1994, he purchased a house in Eltham ($390,000) and in the following year sold their house in Texas ($US110,000). He sold the Eltham house in 2001 ($615,000) when administrators were appointed to Ansett and his income was substantially reduced. He ended his flying career when Ansett collapsed in March 2002. Over the years, Mr Duncan had invested small amounts in shares, but did not engage in share trading.

102 When employed by Ansett, Mr Duncan's employer made contributions on his behalf to the AMP superannuation fund. In about 1991, he was introduced to John Bertram (an ex-pilot) of John Bertram Associates, financial advisers. Mr Bertram formed the R L Duncan superannuation fund for him, into which he rolled over his superannuation. Mr Bertram informed Mr Duncan that he was the "Holder of a Proper Authority" and explained to Mr Duncan that in order to give financial and investment advice and to promote and sell securities, he either had to be securities dealer or operate under the authority of one. For various reasons, Mr Duncan became dissatisfied with Mr Bertram's services, and a fellow pilot told him about Pamacorp.

Mr Duncan: The Lucky Country Film Fund

103 The Lucky Country Film Fund was an investment in a fund for the production of a film promoted by Pamacorp Holdings to the Pamacorp clients during the financial year ending 30 June 1993. It is unnecessary, save as hereafter appears, to refer to the details, structure and outcome of the scheme.^[23]

104 On 18 June 1993, Mr Duncan met by appointment with Quarrell and Healy at Pamacorp's offices in Russell Street, Melbourne. While in the waiting room, Mr Duncan thoroughly read the Pamacorp brochure, which was also used by Quarrell and Healy during the course of the meeting which followed. Quarrell told Mr Duncan that his expertise was in accounting and Healy said that his experience was in commercial banking. Quarrell and Healy said in substance to Mr Duncan that:

(a) Pamacorp would provide a fully integrated financial services facility to him;

(b) Pamacorp would provide an uncompromised level of technical skill and knowledge;

(d) Pamacorp would provide a high standard of work at all times;

(e) Pamacorp would provide professional advice from a total financial package perspective;

(f) Pamacorp would create wealth for him by maximising his disposable income with salary packaging and tax planning;

(g) Pamacorp would build his net worth with informed investment advice and solid financial planning;

(h) Pamacorp would reduce his tax with effective planning;

(i) information would be provided to him about legislative and economic changes that could affect his financial position;

(j) Pamacorp provide services at a fixed subscription fee, and would guarantee to save this fee for him in tax deductions. If it was not saved, Pamacorp would refund the subscription fee to him;

(k) Pamacorp would recommend quality income producing investments;

(l) the investments recommended would be secure, and would carry a low financial risk;

(m) the investments recommended would be guaranteed to produce a sound return; and

(n) the investments recommended would minimise a payment of income tax, which could be used for further investments.

105 Quarrell told Mr Duncan that he had a proper authority from Financial Wisdom and was licensed to deal in securities. Mr Duncan said to Quarrell words to the effect "Financial Wisdom? That's good, because that's what I'm looking for!" Quarrell told Mr Duncan that Financial Wisdom was a solid company that was owned by Colonial Bank.

106 In answer to their questions, Mr Duncan told Quarrell and Healy that he would have to retire as a pilot at 60 and that he only had a limited time to acquire enough wealth to retire on, and he was deeply concerned about that. I am satisfied on the evidence of Mr Duncan, and that of Healy, that Mr Duncan was a man of little commercial experience who was conservative and not a risk taker, and who trusted his advisers.

107 Mr Duncan was asked various questions from a personal questionnaire sheet. On a risk scale from 1 to 5, Mr Duncan told Quarrell and Healy that he was about a 2 or a 3. Mr Duncan told them that he needed to stay on the conservative side because he could not afford any losses between then and retirement. Quarrell and Healy said that that was not a problem, and one of them told him that they had an opportunity for him to invest in a film called "The Lucky Country" which would enable him to take advantage of Div 10BA of Pt III of the Income Tax Assessment Act 1936 (Cth), which they said allowed a dollar for dollar tax deduction for investment in Australian films. They told Mr Duncan that he could get 100% of any investments back in tax refunds, but that it was a "tax deferment program" and that eventually he would have to pay income tax on the income that he earned on the investment. They showed him a prospectus and pointed to several parts of it. They talked about the storyline for the film (about an outlaw during the Ballarat gold rush) and said that the film would be very profitable and that it was an exciting opportunity for him. They said that all of the investors could go to the premiere and that they could all earn income from the film.

108 Quarrell and Healy told Mr Duncan that there was no financial risk associated with the investment in Lucky Country because it was 100% guaranteed. They pointed to the distribution guarantee in the prospectus, which said that the distributor had agreed to provide a distribution guarantee equal to 100% of the moneys subscribed by investors. They took Mr Duncan through the prospectus. When they came to page 25, where the prospectus refers to the possible risks and speculative nature of the investment, Mr Duncan queried this. Healy and Quarrell said to him that that was included because the promoters had to put in a disclaimer by law for ASC to approve of the prospectus.

109 Quarrell made some calculations which he informed Mr Duncan he was making to ascertain how much Mr Duncan should invest in Lucky Country to maximise his tax deduction. Quarrell told Mr Duncan that he should obtain a loan of $145,000 to make the investment. Healy said that, through his connections, he could get Mr Duncan a loan. Healy told Mr Duncan that the loan would be interest only and that the principal would be paid off from the profits on the film. They said that he did not need to worry about the principal but would have to make the interest payments, which were also tax deductible. Mr Duncan signed the form retaining Pamacorp to provide him with investment and taxation advice, and to prepare his taxation return. At that first meeting, Mr Duncan told Quarrell and Healy that he would have to think about what they had suggested. After discussing the matter with his wife, Mr Duncan decided to make the investment, on the basis of "each of the things that … Quarrell and … Healy had told me about". I am satisfied that Mr Duncan decided to make the investment on the basis of the recommendations and representations made to him by Quarrell (and Healy). He was influenced by the "tax deferment" benefits of the investment as explained to him, which facilitated the making of the investment (as was also the case in respect of the subsequent investments which he made). He was also influenced by the predictions of profit and by the assessment of the level of risk which was conveyed to him. This was also the case with the subsequent investments which he made.

110 On 21 June 1993, Mr Duncan met again with Healy and Quarrell and told them that he had decided to go ahead with the investment, paid a number of fees and applied for 145 units at $1000 per unit in the Lucky Country Film Fund. He also applied for a loan from Barclays Bank in the sum of $145,000.

111 On 28 June 1993, Mr Duncan, having been informed that a loan of $130,000 was available from Barclays Bank, applied for a loan of $15,000 from another company in the course of a further meeting with Healy and Quarrell. Quarrell told Mr Duncan that he would arrange for a "section 221D" notice to be filed which would reduce the amount of tax that Ansett was taking out of his pay (which in fact occurred). Soon thereafter, Mr Duncan commenced making regular payments of interest on the 2 loans. In relation to his income tax for the year ended 30 June 1993, Mr Duncan subsequently received a tax refund for over $62,000.

112 Subsequently, Mr Duncan made a number of further investments (see below). In December 1994, he made some inquiries with Quarrell about what was happening with the "Lucky Country" film and by letter dated 21 December 1994 from Sentinel, signed by Quarrell and Healy, he was informed a "Master Tape" of the film had been completed, and that "the most important aspects for compliance" had been adhered to (that is, to satisfy the ATO requirements). Later, Quarrell told Mr Duncan that the master tape was in a locked box in the Adelaide and that the person who had the key to the box was in hospital and was incoherent, but that they were trying to find a key.

113 On 20 September 1996, Mr Duncan received the minutes of a meeting of investors (of which he was unaware) in the Lucky Country Film Fund, the gist of which was that the fund would be wound up and the securities (that is, for the repayment of loans) be cashed in. In November 1996, Mr Duncan was advised by a financier that after the security had been applied against his loan, there was a balance of some $25,000 owing by him. In 1997, Mr Duncan arranged finance for repayment of this outstanding balance.

114 On or about 12 November 1996, Mr Duncan received a letter from the ATO that income tax deductions in relation to the Lucky Country Film Fund would be disallowed. He spoke to Schimana about the letter, who told him that because the film had not been produced, he could not get a tax deduction, but that he was not to worry about the letter because Sentinel had retained a lawyer to work on it. Mr Duncan considered that his interests were being looked after.

115 In or about May 1997, Mr Duncan received a letter of advice from the lawyer retained by Sentinel on his behalf to the effect that the ATO was correct in disallowing the deductions and that the ATO had indicated that it would be imposing penalties, including late payment penalties. Schimana told Mr Duncan that he agreed with him that he should not have to pay any penalties, but that he should not get concerned about the letter and let the lawyer sort it out.

116 In late September 1997, Mr Duncan's lawyer advised him that the ATO had ascertained that the Lucky Country film had in fact not been made at all. The lawyer outlined the state of negotiations with the ATO, and informed Mr Duncan that, whatever was the amount of the settlement arrived at with the ATO, he would suffer a substantial loss. In February 1998, a settlement was reached with the ATO by a number of investors in the Lucky Country Film Fund involving, in essence, the loss of all tax deductions for both capital contribution and interest payments and the remission of some additional tax and tax penalties. In the end, Mr Duncan had to pay substantial income tax and some additional tax and penalties.

Mr Duncan: The Bearfire Film Fund

117 The Bearfire Film Fund was an investment in a fund for the production of a film promoted by Pamacorp Holdings to the Pamacorp clients during the financial year ending 30 June 1994. It is unnecessary, save as hereafter appears, to refer to the details, structure and outcome of the scheme.^[24]

118 In early June 1994, someone from Pamacorp telephoned Mr Duncan and said that Quarrell wanted to meet with him to discuss what he was going to do for that financial year. On 22 June 1994 and again on 28 June 1994, Mr Duncan met Quarrell and Healy at Pamacorp's offices. At the second meeting, they took him through a prospectus in relation to the Bearfire Film Fund. Quarrell and Healy said to Mr Duncan in substance that:

(a) the film had the potential to produce considerable extra assessable income in the future if successful;

(b) he was guaranteed to receive a return of 100% of the money that he invested;

(d) the profits from the film would be assigned to the lender, to repay the principal amount of the loan;

(e) his interest in the Bearfire Film Fund would be assigned to the lender as security for the loan;

(f) all money he invested would be 100% tax deductible if everybody complied with their obligations under the relevant agreements;

(g) all interest repayments on the loan money would be 100% tax deductible;

(h) if the film was successful, a 50% share of the net profit would be received after the distributor was paid its fees and expenses; and

(i) all persons involved in the production of the film were skilled, qualified and experienced to carry out the production without putting the investment at risk.

119 Healy told Mr Duncan that he would organise funding for the investment so that Mr Duncan would not have to put any money upfront. Mr Duncan accepted what he was told by Quarrell (and Healy), and decided to make the investment. Quarrell, after making some calculations, told Mr Duncan that he would need to invest $130,000 and this would reduce the tax withheld by Ansett to zero. Mr Duncan signed the necessary forms and paid the requested fees. In September 1994, Mr Duncan discussed with Quarrell some tax advice which Mr Duncan had obtained from a United States attorney concerning the interaction of United States and Australian taxation law in relation to his investment in the Lucky Country Film Fund. Quarrell in effect generally assured Mr Duncan that he had no problem under Australian taxation law in relation to Div 10BA films.

120 Subsequently, on a number of occasions, including in July 1996 and July 1998, Mr Duncan received letters advising that distributions had been made in relation to the Bearfire film and applied in reduction of his outstanding loan balance.

121 The relevant film was completed, but no profit was generated. The tax deductions claimed by Mr Duncan and other investors were partially disallowed, and penalty tax and interest was imposed. In January 1999, Mr Duncan was advised that the ATO had determined that only 14.6% of his contribution to the Bearfire Film Fund was tax deductible. In February 1999, Mr Duncan received a demand for arrears of interest payments on his loan which he had ceased paying due to his financial position.

Mr Duncan: The Bolshoi Ballet Scheme

122 The Bolshoi Ballet Scheme was an investment in a fund for the production of the 1994 Australian tour of the Bolshoi Ballet. It was formulated by Boyle and promoted to clients of Pamacorp Holdings who were subscribers to the Sentinel program in the weeks immediately before Quarrell and Healy left Pamacorp Holdings to set up Sentinel. It is unnecessary, save as hereafter appears, to refer to the details, structure and outcome of the scheme.^[25]

123 During the same meeting on 22 June 1994, Quarrell and Healy mentioned a possible investment in the Bolshoi Ballet's tour of Australia, which they would be promoting. They said they could arrange financing if Mr Duncan was interested. They told Mr Duncan that there would be a huge profit from the tour as it had been very successful when it had last come to Australia. They said there would be an additional tax benefit because an overseas investor had not been able to get tax deductions for its investment and that, as a result, all of the domestic investors would be able to get the benefit of a $3 tax deduction for every $1 invested.

124 In late June or early July 1994, Mr Duncan met again with Quarrell and Healy, at their suggestion. They provided him with an information memorandum relating to the Bolshoi Ballet Australian Tour. Quarrell and Healy took him through the information memorandum and said to him in substance:

(a) the Bolshoi Ballet Scheme would be a quality, income producing investment;

(b) the Bolshoi Ballet Scheme was guaranteed to produce a sound return due to the massive profits they had generated from their previous tour;

(d) all money invested would be 100% tax deductible;

(e) all interest payments on loans which were obtained to make the investment would be 100% tax deductible;

(f) approval for the tax deductibility of the investment and interest payments had already been obtained from the ATO;

(g) the Bolshoi Ballet Scheme was a secure investment and carried a low financial risk;

(h) persons involved in the promotion and management of the Bolshoi Ballet Scheme were sufficiently skilled, qualified, experienced and reputable to carry out the promotion and management without putting Mr Duncan's funds at risk; and

(i) the investment had been approved by the ASC.

125 Apparently based on a tax deduction of 3 times the amount invested, Quarrell and Healy worked out how much Mr Duncan would need to invest to get his assessable income down to zero. Accepting what he was told by Quarrell (and Healy), Mr Duncan signed the necessary agreements and forms and invested the sum of $50,000. Quarrell and Healy told Mr Duncan that, unlike the previous investment, the loan would not be a non-recourse loan. He would be required to repay the principal. They told him that there would be no difficulty in paying both principal and interest because the tour was guaranteed to make enormous profits. Mr Duncan made the required interest payments over time, and eventually repaid the loan.

126 In about September or October 1994, Mr Duncan attended the premiere of the Bolshoi Ballet. He saw Quarrell and Healy there, and after the performance, went backstage to meet the cast. In December 1994, Mr Duncan received a letter from Sentinel signed by Quarrell and Healy informing him that they had been advised by the manager for the Australian tour of the Bolshoi Ballet that there had been a delay in forwarding reports and dividend cheques.

127 On or about 31 December 1994, Mr Duncan received a letter from the manager of the Bolshoi tour informing him that the box office returns were extremely disappointing. "Additional losses" were sustained totalling approximately 23.5% of the original contribution. The losses would be distributed to the partners and provide an additional tax deduction. In January 1995, Mr Duncan saw Quarrell, Healy and Schimana, and told them that he was very disappointed with the outcome of the investment as he "had gone into the scheme not just for the tax benefits, but was anticipating a very good return … due to the previous success of the show".

Mr Duncan: The Sentinel Group

128 At about the time when Mr Duncan made the Bolshoi Ballet Scheme investments, Quarrell and Healy told him that they were setting up their own company, Sentinel. They told him that he would be receiving the same standard of financial, taxation and investment advice as he had been receiving from Pamacorp. He signed the necessary form and agreed to pay the necessary fees.

129 In about September 1994, Mr Duncan visited Sentinel's new offices in South Yarra just after Quarrell and Healy had moved in. He was shown around the new offices and had coffee with Quarrell, Healy and Schimana. Schimana said to Mr Duncan that he looked forward to the day when Mr Duncan would be paying a million dollars in tax. Quarrell and Healy said to him that they had some exciting new investments on the horizon. Schimana subsequently prepared Mr Duncan's taxation return for the year ended 30 June 1994 and a s 221D notice for him.

Mr Duncan: The Ostrich Schemes

130 The Ostrich Schemes were ostrich breeding schemes involving 2 separate enterprises (Wallco Ostrich and Ostco). The structure of the investments was much the same.^[26]

131 By about mid-1995, Mr Duncan had funds from the sale of his and his wife's home in the United States of America, part of which was used to pay off the loan for the Bolshoi Ballet Scheme. He had a number of meetings with Quarrell, Healy and Schimana to discuss possible further investments. They dissuaded Mr Duncan from investing in a Queensland real estate project about which he had made some inquiries, but instead mentioned an investment opportunity in a tour by a magician, David Copperfield (see further below), and gave him a brochure.

132 On 19 June 1995, Mr Duncan met with Quarrell, Healy and Schimana. Quarrell and Healy told him that they had an opportunity for him to use some of the sale proceeds of his home to invest in ostriches. They gave him a Sentinel promotional brochure and they looked through it together. They told him that the investment opportunity was a "great deal" because ostriches were being sold in New South Wales for considerably more than the price that was available to him. They said that they were all buying ostriches themselves. They said to Mr Duncan, in substance:

(a) ostrich breeding was one of the fastest growing investment opportunities in the 20th and 21st centuries;

(b) there was a huge world wide demand for ostrich products and only 10% of world demand was currently being satisfied;

(c) ostrich farming compared favourably to the cattle and sheep industry in terms of the likely return on money invested;

(d) if 2 pairs of ostriches were purchased at a total investment of $46,000, he would get a tax deduction of $10,000. He could keep one pair as breeders and retain the progeny, and sell the progeny from the other pair for a projected return of $90,000 on the basis that he would get about 5 chicks at a sale price of $18,000 each between 2-3 years;

(e) ostriches were a quality income producing investment;

(f) he would be guaranteed a sound return from the investment;

(g) he would be guaranteed to receive a return of all of the money that he had invested;

(h) ostriches were a secure investment which carried a low financial risk;

(i) the investment would be tax deductible;

(j) interest repayments on all loan money would be tax deductible;

(k) the companies responsible for the promotion and management of the investment were skilled, expert and experienced to carry out their respective tasks to ensure that the ostriches would be produced and managed without placing his funds at risk;

(l) the investment was approved by the ASC; and

(m) Sentinel and the promoters of the investment had complied with the relevant provisions of the Corporations Law.

133 Quarrell and Healy told Mr Duncan that ostriches would be an excellent way for him to diversify his investment profile with a component of primary production. Schimana and Quarrell told him that he should buy the ostriches with his money, but transfer ownership of the ostriches into a trust, which in effect would be a personal loan from himself to the trust. Schimana and Quarrell told him that this would enable him to obtain further tax benefits when the ostriches began producing income, because he could distribute the income to a number of different beneficiaries.

134 Accepting what he was told by Quarrell, Healy and Schimana, Mr Duncan signed an agreement to purchase ostriches and an ostrich agistment agreement through his family trust. He subsequently paid some $43,000 to purchase ostriches and for agistment fees and insurance.

135 In March 1997, Mr Duncan received a letter from Wallco Ostrich offering some additional ostriches to existing investors. Mr Duncan telephoned Schimana about the offer, who told him that he should invest in it through his superannuation fund. Accepting Schimana's recommendation, Mr Duncan took $20,000 from his superannuation fund, borrowed another $10,000 (subsequently repaid by him) and purchased another 2 ostriches through his superannuation fund. Based on what he had originally been told by Quarrell, Healy and Schimana, Mr Duncan believed that ostriches were a suitable form of investment for him in that they were low risk and would generate a substantial return.

136 In April 1998, Mr Duncan was advised that a provisional liquidator had been appointed to Wallco Ostrich and that, unless a replacement manager was found, the project would have to be terminated. Wallco Ostrich was placed in liquidation on 13 May 1998. In June 1998, Mr Duncan was informed that another company was taking over the management of the ostrich project but, after a couple of months of paying further management fees, Mr Duncan transferred his ownership in the ostriches for no consideration.

Mr Duncan: The Copperfield Investment

137 The Copperfield Investment was an investment in a fund for the production and marketing of the 1996 Australian and South-East Asian tour by the stage show magician, David Copperfield.^[27] The tour was to be called "The Magic of David Copperfield". The investment structure was similar to other schemes relating to theatrical productions in which the plaintiffs invested, for example, the Bolshoi Ballet Scheme, the Me and My Girl Scheme and the Cabaret Scheme.

138 At his request, Mr Duncan had been receiving from time-to-time bulletins concerning the Copperfield Investment. On 4 December 1995, he met with Schimana at Sentinel's offices. Schimana told him, in substance, that:

(a) investors would be entitled to 50% of the amounts by which the gross proceeds from the David Copperfield tour exceeded the budget, and that such income would be paid on a pro-rata basis;

(b) the Copperfield Investment was a quality, income producing investment;

(c) he was guaranteed to receive a return of 100% of the money that he invested by way of an irrevocable letter of credit;

(d) the Copperfield Investment was a secure investment and carried a low financial risk;

(e) all money invested in the David Copperfield tour would be 100% tax deductible;

(f) the interest repayments on the money that he borrowed would be 100% tax deductible;

(g) the persons involved in the David Copperfield tour were sufficiently skilled, qualified, experienced and reputable to carry out their tasks without putting his investment money at risk; and

(h) the Copperfield Investment was approved by the ASC.

139 Schimana told Mr Duncan that he should invest $135,000 and borrow that sum from Entercorp. Accepting what he was told by Schimana, Mr Duncan signed the necessary documents and paid various fees.

140 In June 1996, Mr Duncan was asked to come to Sentinel's offices for a meeting. He there met with Quarrell, Healy and Schimana. They told him that there were irregularities with the Copperfield Investment, and that the investment had not turned out to be what the promoters had represented that it would be. They said that investors had put in money on the basis that their investment would cover the entire Australasian tour, but it turned out that it was only going to be for the Australian portion of the tour. They said, that as a consequence, the prospects of profit from the investment would be significantly diminished.

141 Mr Duncan subsequently received a letter confirming that his investment in the Copperfield Investment had been transferred to a Book Publishing Partnership (see below). The letter was accompanied by a "deed of assignment" which he signed and returned.

142 On or about 30 September 1996, Mr Duncan received a letter from Quarrell and Healy stating that arrangements with respect to the Copperfield Investment had been determined to their satisfaction, but on or about 1 October 1996 he received a letter from the Capital Group of companies (loan manager for Entercorp) demanding payment in respect of substantial arrears of his loan account in respect of the Copperfield Investment. On or about 7 November 1996, Mr Duncan received a solicitor's letter threatening legal proceedings to recover the arrears. Subsequently, Sentinel organised a proceeding to be commenced in order to protect the position of the investors in the Copperfield Investment. Mr Duncan was advised by Sentinel that he would be indemnified against all costs and expenses relating to this matter. The legal proceeding against the Capital Group of companies was ultimately settled at or after trial.

Mr Duncan: The Book Publishing Partnerships

143 The Book Publishing Partnerships ^[28] involved an investment in partnerships formed for the production and marketing of a series of "coffee table" reference textbooks regarding peoples and cultures of Asia. The scheme was promoted by Sentinel under circumstances of urgency and as a replacement for the Copperfield Investment in the weeks prior to June 1996.

144 At the meeting in June 1996 Quarrell, Healy and Schimana told Mr Duncan that he should enter into a Book Publishing Partnership which they had arranged as a substitute for the Copperfield Investment. They said that there was a world wide demand for documentary books on ethnic minority groups, and the partnership that he had the opportunity to be involved in would be for the production of documentary books on ethnic minority groups in the Asia/Pacific region. They gave him a brochure, a memorandum and some other documents and said to him, in substance, that:

(a) if he entered into the investment, he would have a share in the profits of the partnership and would be guaranteed an income stream;

(b) there would be 10 books produced, with approximately 19 to 20 partners in each partnership, each partnership producing one book;

(d) the Book Publishing Partnership would be guaranteed to produce a sound return;

(e) there would be a guaranteed return of 100% of the money he invested;

(f) the investment would be a secure investment, which carried a low financial risk;

(g) the sale of the books would pay off the principal of the loan, and all profits above the repayments would be paid to him;

(h) tax would have to be paid from the profits received from the partnership;

(i) all money invested by him would be 100% tax deductible;

(j) all interest repayments on the money that he borrowed to invest in the Book Publishing Partnership would be 100% tax deductible;

(k) Sentinel would obtain a private ruling from the ATO that all money invested would be tax deductible;

(l) the persons responsible for the production of the books would be sufficiently skilled, expert and experienced to carry out their tasks to ensure that the books would be produced without placing his funds at risk;

(m) the Book Publishing Partnership was approved by the ASC.

145 Accepting what he was told, and trusting their recommendations, Mr Duncan signed the necessary documents and his investment of $135,000 in the Copperfield Investment was "transferred" to a Book Publishing Partnership.

146 In September 1997, Mr Duncan was informed that the promoter and manager of his Book Publishing Partnership was in liquidation, but a new manager was appointed.

147 In August 1998, Mr Duncan was informed that the ATO had advised that the deductions claimed by the investors in the Book Publishing Partnerships for partnership losses and interest on loan were being disallowed, and that penalties and interest on unpaid tax would be imposed. The investors in the Book Publishing Partnerships were obliged to obtain advice and representation for the purposes of challenging the ATO's decision.

148 In November 1998, Mr Duncan received a proposal with a number of alternatives, including the one which he accepted, namely, to refinance his investment in the Book Publishing Partnership. Mr Duncan still believed that the books were being produced and thought that a successful investment might get him out of his financial difficulties. Indeed, in December 1998, Mr Duncan received legal advice that he should make himself bankrupt, but he declined to do so.

149 In late December 1998, Mr Duncan attended a meeting of the Book Publishing partners at which a legal proceeding against the ATO was discussed, but he decided not to participate because he could not afford it.

150 By March 1999, Mr Duncan was in arrears with his interest payments in relation to the Book Publishing Partnership due to his financial position.

Mr Duncan: The Video Documentary Partnerships

151 The Video Documentary Partnerships were investments in a number of partnerships for the production and marketing of a series of video documentaries about minority groups and peoples of Asia. The structure of the investment ^[29] was similar to that of the Book Publishing Partnerships, save that each investor provided a cash contribution of 20% of the value of their investment. This investment was promoted by Davis and recommended by Sentinel from about October 1996 onwards, when it had become apparent to Sentinel that there were tax problems with an investment promoted by Twenty-First.

152 In late November 1996, Mr Duncan was asked to come to a meeting at Sentinel's offices, which he did. Quarrell, Healy and Schimana told him that they had an opportunity for him to invest in a Video Documentary Partnership. They gave him a brochure and said that the people behind the investment were the same people involved in the Book Publishing Partnership that he had already entered into. They said that there was a huge inventory of films from which the videos could be produced, and that the videos could be seen on Foxtel (they referred to the videos during the course of the meeting as "Foxtel Documentaries"). They made statements, in substance, that:

(a) the videos would involve the production of quality television documentary programs about ethnic minorities in South-East Asia;

(b) the proprietary rights to the documentaries were to be held under licence by Asia Film House Pty Ltd. Asia Film House would enter into a production services agreement with him, under which he would undertake to produce a film. Asean Film Distributors Ltd would then be sub-contracted by the partnership, for a fee, to manage the production of the film on his behalf;

(c) finance for the investment would be obtained through a loan with Hemisphere Finance, with the security being the rights and interests in the film and documentaries under the partnership and production services agreement;

(d) there would have to be a 20% cash contribution towards his total contribution of the partnership, which he would have to arrange himself;

(e) the end product, being the documentaries, would be produced and marketed internationally, initially in English, Chinese and Thai, and later in other languages;

(f) the demand for the end product over time would be such that Asean would provide a performance guarantee with a supporting letter of credit;

(g) the documentaries would be marketed to stations such as the ABC, Special Broadcasting Service, Discovery Channel, and pay television;

(h) the Video Documentary Partnership would be a quality, income producing investment;

(i) the Video Documentary Partnership would be guaranteed to produce a sound return;

(j) he would be guaranteed to receive a return of 100% of the money he invested in the partnership;

(k) because of the guarantee, and supporting letter of credit, the partnership would be a secure investment which carried a low financial risk;

(l) all money invested by him would be 100% tax deductible;

(m) interest repayments on any loan that he took out to invest in the partnership would be 100% tax deductible;

(n) the person responsible for the production of the video documentaries was sufficiently skilled, expert and experienced to carry out their tasks without placing his funds at risk; and

(o) the Video Documentary Partnership was approved by the ASC.

153 Accepting what he was told (in particular by Quarrell), and continuing to trust their recommendations, Mr Duncan signed the necessary documents, organised a substantial cash contribution, and a loan for the balance of his investment of about $83,000. This investment produced no return for the investors, and it subsequently transpired that significant amounts of money provided by investors for both this investment and the Book Publishing Partnerships had been misappropriated and used for other purposes.

154 In September 1999, Mr Duncan was advised that the ATO had disallowed the deductions which he had claimed in respect of the Video Documentary Partnership.

155 In November 1999, Mr Duncan received letters of demand for principal and interest in relation to the Video Documentary Partnership.

156 In January 2000, Mr Duncan was informed that the ATO had disallowed certain objections he had lodged against the disallowance of his deductions claimed in relation to the Video Documentary Partnership.

Mr Duncan: The aftermath

157 In about April 1999, Schimana (who had left Sentinel, but who continued to advise Mr Duncan on taxation matters) introduced Mr Duncan to some individuals (Henke and Joose) connected with an organisation called the "Institute of Taxation Research", who Schimana said could help him negotiate with the ATO. Henke told Mr Duncan that the Institute of Taxation Research could prove that all taxation legislation in Australia was unconstitutional and unenforceable. Mr Duncan retained this body to make submissions to the ATO on his behalf, and wasted further funds in doing so. With all due respect to Mr Duncan, his willingness to engage an organisation which was prepared to put forward these preposterous propositions is indicative of Mr Duncan's gullibility and naïveté (in addition to his desperation) and demonstrates the need which he must have had at all times for professional financial and investment advice - something he never received from the Sentinel promoters.

158 The saga continued with the ATO but it is unnecessary to recount all the details. On 22 September 2000, Mr Duncan signed a proposal for a composition under Pt X of the Bankruptcy Act 1966 (Cth), and this proposal was accepted by his creditors at a meeting held on 12 October 2000. In May 2002, Mr Duncan executed settlement agreements with the ATO in relation to his investments in the Lucky Country Film Fund, the Bearfire Film Fund, the Book Publishing Partnership and the Video Documentary Partnership.

159 Mr Duncan did not earn any profit from any of the investments that he made on the recommendation of Pamacorp or Sentinel. Mr Duncan has, needless to say, endured considerable stress and spent a good deal of time and money in dealing with the consequences of the failed investments and his related taxation liability.

160 From 1993 onwards, Mr Duncan had informed Quarrell and Healy that he was interested in investing in real estate, including residential units in Melbourne, but at first they advised him that this was not an appropriate investment for him. Subsequently, Sentinel provided him material concerning real estate investments, both in Melbourne and in Queensland, but at the time when this information was received, he was too heavily committed in relation to the other investments which they had recommended.

Mr Duncan: Conduct of the representatives

161 It is necessary to make some general findings on the evidence as a whole (including, in particular, the evidence of Mr McMaster and Healy) before turning to the specifics of the conduct of the representatives in relation to each of Mr Duncan's investments.

162 In general, no independent evaluations or assessments were made of the various recommended investments. Nor was any attention paid to the giving of advice to individual clients tailored to their particular circumstances and requirements or taking account of their level of knowledge and expertise (which was generally rudimentary). The investment advisers generally accepted what they were told by the various scheme promoters at its face value and without question. To the extent that they did raise questions with the promoters, they did not follow them up and proceeded in any event to recommend the investments. The plaintiffs were not advised of the financial and taxation consequences and risks of their investments, either taken singly or in combination.

163 To the extent that, in some cases, individual plaintiffs were referred to warnings concerning risks and concerning the speculative nature an investment contained in a prospectus or other document, I am satisfied that in each case these warnings were either played down by the advisers or had little impact in the circumstances. The circumstances to which I refer are those created by the contents of the Pamacorp brochure and the Sentinel brochure (and the contemporaneous oral representations along the same lines), which induced investors to place their continuing trust in the advisers and in their skill and expertise, and the investors' consequent reliance upon recommendations made to them by those advisers in the succeeding months and years. The plaintiffs were induced to pay, and did pay, a monthly fee for independent and considered financial advice which met their needs and requirements. This they did not receive.

164 The foregoing findings are of particular significance having regard to the evidence of Mr McMaster, a witness called on behalf of the plaintiffs. It is convenient at this point to refer to his evidence.

165 Wesley Andrew McMaster is an Adjunct Professor (Financial Planning) at RMIT University, a certified financial planner, a fellow of the Financial Planning Association of Australia Ltd, a fellow of the Australian Institute of Company Directors and a director of McMaster Securities Pty Ltd, which conducts a consulting business. Mr McMaster, who is 55 years of age, has conducted this consulting business since July 2000, but has experience in financial planning and in other areas of business over many years. Mr McMaster had experience in advising clients on "tax-effective" investments dating back to the mid-1980s.

166 Mr McMaster provided a written opinion dated 8 July 2003. In addition to the plaintiffs' witness statements, Mr McMaster was supplied with relevant documentation, as listed in his opinion, relating to each of the investments which he referred to in his opinion.

167 Mr McMaster expressed his opinions in the light of the standards adumbrated by s 851 of the Corporations Law, which provides as follows:

(1) A securities adviser who:
(a) makes a securities recommendation to a person who may reasonably be expected to rely on it; and

(b) does not have a reasonable basis for making the recommendation to the person;

contravenes this section.

(2) For the purposes of subsection (1), a securities adviser does not have a reasonable basis for making a securities recommendation to a person unless:
(a) in order to ascertain that the recommendation is appropriate having regard to the information the securities adviser has about the person's investment objectives, financial situation and particular needs, the securities adviser has given such consideration to, and conducted such investigation of, the subject matter of the recommendation as is reasonable in all the circumstances; and

(b) the recommendation is based on that consideration and investigation. …

168 Mr McMaster said that investment advisers could either carry out research and analyse investment products themselves or use research and analysis generated from external sources. The extent of the research and the analysis which it would be reasonable to expect the adviser to do depended on the nature of the product which formed the basis of the particular recommendation and the needs of the client being advised. He said that advisers often relied on information being supplied by external research organisations, in which case, the adviser should evaluate the overall quality and effectiveness of the analyses so provided so as to ensure that reliance placed on any such information was reasonable in all the circumstances. For the purpose of advising a client, the adviser should take into account general economic and other information in relation to markets, industries and securities so as to be in a position to make judgments about future income and growth expectations and risk factors associated with particular securities. An adviser should provide written reports to the client about recommended securities so that the client can understand the basis on which those securities are recommended. The reports should cover such matters as risks associated with the issuer of the security, risks associated with the product, market and economic risks, capital and income prospects and so on.

169 Mr McMaster said that a financial adviser should have conducted a detailed interview in which data was collected on the client's present financial position and their objectives were identified and agreed. The financial adviser should have prepared a written financial plan so as to position the client to achieve an efficient use of their resources. The plan would also advise on immediate and future strategies to achieve the client's objectives. The document would record the advice given and the reasons for the advice. The document would disclose any interest of the adviser and would also refer to the research undertaken on any recommended investment. Before recommending an investment, the adviser should either carry out research and analyse the investment or use research and analysis generated from external sources. The extent of the research and analysis would depend on the nature of the investment product and the needs of the client. The adviser should be able to provide and should normally provide to the client sufficient written information about the investments recommended so that the basis on which they were considered appropriate for the client could be understood. Both risk factors and return expectations should be addressed, including risks associated with the issuer, risks associated with the product, market and economic risks and capital and income prospects.

170 On the assumption that the plaintiffs were conservative investors, Mr McMaster said that a prudent financial planner would have advised a mix of investments to provide some capital growth, low volatility, low risk and some income - varied according to the needs of the particular client. He provided what he said was a typical conservative investment portfolio with appropriate asset allocations for investors such as the plaintiffs.

171 In cross-examination, it was put to Mr McMaster that if a promoter assured a financial planner that a prospectus was not needed and told the financial planner that the promoter had legal advice to that effect, that would be sufficient for the purposes of a reasonable financial adviser. Mr McMaster disagreed and added that financial advisers who operated as authorised representatives of licensees were generally restricted to giving advice on investments which did require a prospectus.

172 It was put to Mr McMaster in cross-examination that whether a reasonable financial adviser conducted or obtained a detailed market and commercial viability analysis of the proposed investment depended on the client's instructions, the amount of money the client was investing and the client's risk profile. Mr McMaster said that a reasonable and prudent financial adviser would nevertheless obtain such analysis from the licensee. It would not make any difference that the client was prepared to enter into a "tax-effective high risk investment" or that the amount that the client wished to invest was small. He added that if the licensee did not have the internal capacity to undertake such analysis, it was very common for the licensee to outsource the analysis to appropriately skilled people. Further, in the case of the investments where he had expressed the view that independent legal advice concerning the contractual arrangements should have been obtained, Mr McMaster said that that view did not depend on the amount of the proposed investment.

173 It was put to Mr McMaster that in the case of those investments where there was a prospectus, the reasonable and prudent financial adviser was entitled to rely on the contents of the prospectus. Mr McMaster said that generally speaking, an adviser could rely on the contents of a prospectus, but, in effect, if questions were raised or matters were omitted, a "due diligence" might still be required, irrespective of the amount which a client proposed to invest.

174 Mr McMaster said that a reasonable and prudent financial adviser would advise a client of the degree of risk involved in a particular investment, irrespective of the client's risk profile or the client's wish to obtain an immediate tax deduction and if, because of the nature of the investment, the financial adviser was not prepared to recommend it but the client insisted on going ahead, the adviser would have the client sign a written indemnity.

175 In further cross-examination, Mr McMaster said that there was room for a prudent investment adviser to recommend speculative investments if the client so requested, provided that the circumstances of the client were such that any loss of capital involved would have no material effect on their achieving their goals and objectives.

176 In re-examination, Mr McMaster testified that the normal position was that the licensee whom the investment adviser represented would make the initial choice of investment products after conducting a due diligence examination of those potential products, and the licensee would then restrict its representatives to giving advice on those products. Mr McMaster said that it was highly unusual in the case of high-risk speculative investments (where capital might well be lost) for the return of capital to be guaranteed. Therefore, a reasonably prudent investment adviser would want to know the source of the funding for, and the basis of, the guarantee for return of capital. He added that "commonsense causes you to ask, how can they possibly guarantee it? Who is going to take that risk?"

177 I accept Mr McMaster's evidence. I found it to be sensible and inherently credible. Indeed there would be little point in a client who required financial advice, having recourse to a financial adviser, if the kind of precautions that Mr McMaster said were appropriate were not undertaken before giving such advice. No witness was called to contradict his evidence. No expert evidence relating to these matters was called on behalf of Financial Wisdom. It follows from an acceptance of Mr McMaster's evidence, when applied to the facts of this case, that, generally speaking, the Sentinel promoters, when acting in their capacity as investment advisers to the plaintiffs and in recommending the various investments, acted in breach of their duty to the plaintiffs to act with reasonable professional care and skill. Generally speaking, they should not have recommended any of the investments. That is my general conclusion subject to what needs to be decided concerning any specific submissions made on behalf of Financial Wisdom in relation to particular investments by particular plaintiffs.

178 Mr McMaster was asked to provide a specific opinion in relation to each of the investments on the basis of the witness statements and documentation provided. Mr McMaster said that the advisers had failed to act in accordance with the standards which he enunciated in relation to each of the investments. I will refer to his views about each investment at the appropriate point, but it should be said that he concluded that, assuming the appropriate assessments were not carried out in relation to any of the investments (and they were not), then none of the investments was one which a reasonable and prudent investment adviser should have recommended to a client such as any one of the plaintiffs. It was submitted on behalf of the plaintiffs that, if accepted and factually based, this evidence of Mr McMaster made it entirely unnecessary for the court to investigate the details of each scheme and its failure. The investments simply should not have been recommended as appropriate for these plaintiffs. I agree.

179 I return to Mr Duncan and his investments.

Lucky Country Film Fund

180 Mr McMaster noted that the Lucky Country Film Fund prospectus contained statements, inter alia, that investment in the film was subject to a high degree of risk and the investment was considered speculative and that there was a possibility that tax deductions would not be available or that the film would not be completed. Mr McMaster also pointed to a number of matters in the prospectus which should have raised concern with a prudent reader, including the question of funding the 100% guarantee as to return of capital.

181 Mr McMaster considered that, having read the prospectus, a reasonable and prudent financial adviser ^[30] would either "discard the investment as unsuitable for their clients or undertake an investigation and due diligence process to gain a more informed view of the risks associated with the investment".^[31] Mr McMaster said that film investments were generally regarded as "tax-driven" investments where tax deductions were a primary attraction and it was therefore routine to obtain independent advice on the tax effect of the investment. Mr McMaster said that a number of matters required further investigation or information, including the type of film and the market for it, the roles and relationships of the various companies involved and their common directors, the absence of an auditor and any information on financial controls and reporting, the absence of a projected cashflow and forecast profit and loss calling for an analysis of commercial viability of the project.

182 Mr McMaster considered that the Lucky Country Film Fund did not fall within the class of "low risk, secure income-producing and tax deductible investments" referred to in the Pamacorp documentation. Mr McMaster said that this was a high risk speculative investment with no known income and the opposite of the investments which the clients were said to be seeking. On a scale of investment risk upon which Australian Government fixed interest securities might be regarded as the lowest risk, this investment sat close to the highest risk end of the scale. A reasonable and prudent financial adviser would not have recommended this investment to clients wanting low risk, secure income-producing investments.

183 I accept Mr McMaster's evidence concerning the Lucky Country Film Fund. I am further satisfied that a reasonable and prudent financial adviser would not have recommended this investment to Mr Duncan, or at least would not have done so without conducting the investigations and assessments referred to by Mr McMaster (which I am satisfied did not take place).

184 I am therefore satisfied that Quarrell and Healy, by recommending the investment, each acted in breach of a duty of care which they owed to Mr Duncan in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment, in the failure to make any proper inquiries or investigations concerning the investment and the persons involved in it and in the failure to explain the risks involved and to ensure that they were within the risks which Mr Duncan was prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the statement of claim. However, I am satisfied that Quarrell and Healy each engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when they represented to Mr Duncan that there was no financial risk associated with the investment in the Lucky Country Film Fund.

Bearfire Film Fund

185 Mr McMaster considered the Bearfire Film Fund prospectus which contained statements as to the speculative nature of the investment and the possibility that the film would not be eligible for Div 10BA deductions. Mr McMaster noted the concern which a reasonable and prudent financial adviser should hold in relation to the lack of a detailed budget, the commercial risk in the offer of a guaranteed capital return on fixed dates before the film was funded or made and a number of other matters.

186 Mr McMaster also expressed the adverse opinion concerning this investment, and made substantially the same comments in relation to it as he made in relation to the Lucky Country Film Fund. I accept Mr McMaster's evidence concerning the Bearfire Film Fund.

187 I am further satisfied that a reasonable and prudent financial adviser would not have recommended this investment to Mr Duncan. Indeed, the investment should not have been recommended to anyone without conducting the investigations and assessments referred to by Mr McMaster (which I am satisfied did not take place).

188 I am therefore satisfied that Quarrell and Healy, by recommending the investment, each acted in breach of a duty of care which they owed to Mr Duncan in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment, in the failure to make any proper inquiries or investigations concerning the investment and the persons involved in it and in the failure to explain the risks involved and to ensure that they were within the risks which Mr Duncan was prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the statement of claim. However, I am satisfied that Quarrell and Healy each engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when they represented to Mr Duncan that the Bearfire Film Fund carried a relatively low financial risk.

Bolshoi Ballet Scheme

189 Mr McMaster's evidence was that a reasonable and prudent financial adviser would have questioned the status of the memorandum dealing with the Bolshoi Ballet Scheme. A reasonable and prudent financial adviser would have determined whether a prospectus was required for the investment. A reasonable and prudent financial adviser would also have obtained an independent tax opinion and would have questioned other aspects of the financial arrangements. Mr McMaster expressed the adverse opinion concerning the Bolshoi Ballet Scheme. In addition, he said that a reasonable and prudent financial adviser would have wanted advice about the legal relationships between the various parties involved, independent advice about the financial controls, reporting and how the funds would be managed and the process of applying investors' funds to achieve tax deductibility. He said that there should have been some analysis of the commercial viability of the project either made available or conducted by a financial adviser. He emphasised the high risk involved with theatrical productions. I accept Mr McMaster's evidence.

190 I am satisfied that a reasonable and prudent financial adviser would not have recommended this investment to Mr Duncan.

191 Furthermore, for reasons which I will express elsewhere,^[32] I am satisfied that the memorandum in relation to the Bolshoi Ballet Scheme was an offer to subscribe for a "prescribed interest" within the meaning of the Corporations Law for which a prospectus was required. Pamacorp Holdings should have known this and, in the absence of a prospectus, should not have recommended the investment. I note that, in the end, counsel for Financial Wisdom did not seek to contend that a "prescribed interest" was not involved.

192 I am therefore satisfied that Quarrell and Healy, by recommending the investment, each acted in breach of a duty of care which they owed to Mr Duncan in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment, in the failure to make any proper inquiries or investigations concerning the investment and the persons involved in it and in the failure to explain the risks involved and to ensure that they were within the risks which Mr Duncan was prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the statement of claim. However, I am satisfied that Quarrell engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when he represented to Mr Duncan that the Bolshoi Ballet Scheme was guaranteed to produce a sound return, was a secure investment and carried a low financial risk, that approval for the tax deductibility of the investment and interest payments had already been obtained from the ATO and that the investment had been approved by the ASC.

Ostrich Schemes

193 Mr McMaster said that the memoranda supplied to investors in relation to the Ostrich Schemes should have raised with a reasonable and prudent investment adviser the question of whether a prospectus was required, and further that the memoranda did not provide sufficient information to enable an assessment of the investment offered. Mr McMaster expressed the adverse opinion in relation to the Ostrich Schemes. In addition, he noted that breeding and managing ostriches was a specialised business requiring professional skills and that no expert reports were provided or mentioned. He said that the market and value for the product was not proven and that the sustainability of the capital value of the birds was questionable, because commonsense would indicate that the value would clearly diminish as more birds were bred.

194 I accept Mr McMaster's evidence concerning the Ostrich Schemes. I also note Healy's evidence that he told Schimana and Quarrell of his view that the Ostrich Schemes were a poor investment and a bit "Mickey Mouse". That view was not conveyed to Mr Duncan. Further, I accept the evidence of Jeffrey Morris ^[33] that the Ostrich Schemes were inherently risky and attracted additional risks having regard to their character as investments in livestock, none of which risks were disclosed or explained to Mr Duncan. I am satisfied in any event that a reasonable and prudent investment adviser would not have recommended this investment to Mr Duncan, or at least would not have done so without conducting the investigations and assessments referred to by Mr McMaster (which I am satisfied did not take place). I am further satisfied that the Ostrich Scheme was an offer to subscribe for a "prescribed interest" for which a prospectus was required.

195 I am therefore satisfied that Quarrell, Healy and Schimana, by recommending the investment, each acted in breach of a duty of care which they owed to Mr Duncan in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment, in the failure to make any proper inquiries or investigations concerning the investment and the persons involved in it and in the failure to explain the risks involved and to ensure that they were within the risks which Mr Duncan was prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the statement of claim. However, I am satisfied that Quarrell, Healy and Schimana each engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when they represented to Mr Duncan that he would be guaranteed a sound return from the investment, that it was a secure investment and carried a low financial risk, that the investment was approved by the ASC and that Sentinel and the promoters of the investment had complied with the relevant provisions of the Corporations Law.

Copperfield Investment

196 Mr McMaster testified that a reasonable and prudent financial adviser should have considered that the memorandum concerning the Copperfield Investment appeared to be in breach of the Corporations Law and should have inquired as to whether a prospectus was required. Further, Mr McMaster expressed the adverse opinion concerning the Copperfield Investment, and other views similar to those which he expressed in relation the Bolshoi Ballet Scheme and other theatrical production schemes. I accept his evidence. I am satisfied that a reasonable and prudent financial adviser would not have recommended investment in the Copperfield Investment to Mr Duncan.

197 I am therefore satisfied that Quarrell and Healy, by recommending the investment, each acted in breach of a duty of care which they owed to Mr Duncan in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment, in the failure to make any proper inquiries or investigations concerning the investment and the persons involved in it and in the failure to explain the risks involved and to ensure that they were within the risks which Mr Duncan was prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the statement of claim. However, I am satisfied that Quarrell and Healy each engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when they represented to Mr Duncan that it was a secure investment and carried a low financial risk and that the investment was approved by the ASC.

Book Publishing Partnerships

198 Mr McMaster gave evidence that the memorandum concerning the Book Publishing Partnerships should have raised with a reasonable and prudent financial adviser the question whether a prospectus was required because the document appeared to be in breach of the Corporations Law. He added that the memorandum did not provide sufficient information to enable an assessment of the investment offered. Mr McMaster expressed the adverse opinion concerning the Book Publishing Partnerships. He said that the investment was offered as a tax driven investment, and it was routine to obtain independent advice on the tax effect of the investment. He said that publishing the type of books that were promoted was high risk and speculative. He said that a reasonable and prudent financial adviser would want advice about the complex contractual relationships involved and independent advice as to the financial controls, reporting and how the funds would be managed, in addition to tax advice. He said there was need for an analysis of the commercial viability of the investment. He said that the investment risk was at the highest risk end of the scale and that a prudent publisher would have undertaken market research with distributors before publishing a book and that there was no evidence of any such research. I accept Mr McMaster's evidence.

199 I am satisfied that a reasonable and prudent financial adviser would not have recommended this investment to Mr Duncan, or at least would not have done so without obtaining the information and advice and conducting the analyses referred to by Mr McMaster (none of which, I am satisfied, occurred). I am further satisfied that the Book Publishing Partnership was an offer to subscribe for a "prescribed interest" for which a prospectus was required.

200 I am therefore satisfied that Quarrell, Healy and Schimana, by recommending the investment, each acted in breach of a duty of care which they owed to Mr Duncan in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment, in the failure to make any proper inquiries or investigations concerning the investment and the persons involved in it and in the failure to explain the risks involved and to ensure that they were within the risks which Mr Duncan was prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the statement of claim. However, I am satisfied that Quarrell, Healy and Schimana each engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when they represented to Mr Duncan that the investment would be guaranteed to produce a sound return, that it was a secure investment and carried a low financial risk, that Sentinel would obtain a private ruling from the ATO, that all money invested would be tax deductible and that the Book Publishing Partnership was approved by the ASC.

Video Documentary Partnerships

201 Mr McMaster expressed the adverse opinion concerning this investment and made virtually identical comments in relation to it as I have noted above were made by him in relation to the Book Publishing Partnerships.

202 I am satisfied that a reasonable and prudent financial adviser would not have recommended this investment to Mr Duncan, or at least would not have done so without obtaining the information and advice and conducting the analyses referred to by Mr McMaster (none of which, I am satisfied, occurred). I note the evidence that Schimana sought advice from a specialist taxation lawyer in relation to the tax consequences of the Video Documentary Partnerships and that advice was received in early February 1997. The advice was based on numerous assumptions, and there were so many caveats in it that it could not be regarded as advice about this particular scheme, but simply about tax law as generally applicable to such schemes. Further, the advice says that the ATO would take a "robust interest" in any such scheme. It should be inferred from the advice that "due diligence" in respect of numerous of the matters mentioned in it would have had to be undertaken before the prospects of tax deductibility could be properly assessed. Such due diligence did not occur. Indeed, this investment was recommended to Mr Duncan (and a number of other investors) prior to the receipt of the advice.

203 I am further satisfied that the Video Documentary Partnership was an offer to subscribe for a "prescribed interest" for which a prospectus was required.

204 I am therefore satisfied that Quarrell, Healy and Schimana, by recommending the investment, each acted in breach of a duty of care which they owed to Mr Duncan in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment, in the failure to make any proper inquiries or investigations concerning the investment and the persons involved in it and in the failure to explain the risks involved and to ensure that they were within the risks which Mr Duncan was prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the statement of claim. However, I am satisfied that Quarrell, Healy and Schimana each engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when they represented to Mr Duncan that the investment would be guaranteed to produce a sound return, that it was a secure investment and carried a low financial risk, that all money invested would be tax deductible and that the Video Documentary Partnership was approved by the ASC.

Mr Duncan: Liability of Financial Wisdom

205 The uncontradicted evidence is that Financial Wisdom authorised its representatives to sell on its behalf only financial and investment products approved by Financial Wisdom. None of the investments made by Mr Duncan, or any of the other plaintiffs, were products which were approved by Financial Wisdom and Financial Wisdom had no knowledge of them. Financial Wisdom permitted individual representatives to carry on other businesses which were not associated in any way with Financial Wisdom but Financial Wisdom was not in any way related to or connected with Pamacorp or any of the Sentinel companies or with any of the principals or promoters involved in the various investment schemes recommended by Pamacorp and/or Sentinel. The only case sought to be made against Financial Wisdom is vicarious or derivative and is based on the conduct and notional liability of each of the persons who held its proper authority. The conduct of those persons was not carried out in any way on behalf of Financial Wisdom and was not connected with the securities business or investment advice business carried on by Financial Wisdom.

206 The plaintiffs' case against Financial Wisdom therefore, in essence, depends upon the proper interpretation of s 819 of the Corporations Law. It is necessary at this stage to go again to the relevant provisions, which I set out earlier above.^[34]

Liability of principals for representatives' conduct

207 Part 7.3 of Chapter 7 of the Corporations Law is concerned with participants in the securities industry. Division 1 deals with dealers and investment advisers. Division 2 deals with agreements with unlicensed persons. Division 3 deals with the representatives. Division 4 is concerned with the liability of principals for representatives' conduct.

208 Section 817 ^[35] appears to do no more than broadly state a basic principle of the law of agency, namely, that where a person engages in conduct "as a" representative of another person (the principal), then the principal is liable to a third person in respect of that conduct in the same manner and to the same extent as if the principal had engaged in it. However, s 817 appears to be strengthened by s 820(1)(a), which provides that, if it is proved that the representative engaged in the conduct at the time when ("while") the person was a representative of an indemnifying principal, then, unless the contrary is proved, it is presumed that the representative acted "as a" representative of the indemnifying principal. Section 820(1)(b) deals with a situation where the representative engages in conduct at a time when he was a representative of 2 or more indemnifying principals, and provides that, unless the contrary is proved, it is presumed that the representative acted "as a" representative "of some person among the indemnifying principals". The intent and effect of s 820(1)(b) is hard to ascertain.

209 Section 818 extends the liability of the principal in a situation where a person (the representative) engages in conduct at a time when the person is a representative of 2 or more persons (the indemnifying principals) and the representative engaged in that conduct "as a" representative of "some person" (the unknown principal) but it is not proved who the unknown principal is. In those circumstances s 818 makes each indemnifying principal who is a party to the proceeding liable in respect of the conduct as if such indemnifying principal were the unknown principal. The section appears to be based on a policy that if the representative is acting "as a" representative of some principal, then it is not incumbent on the plaintiff to prove that the particular defendant indemnifying principal (or defendants indemnifying principals) was or were the actual principal for whom the representative was acting.

210 Section 819 is concerned to create liability of a principal for the conduct of a representative "whether or not that conduct is … within the scope of the representative's employment by, or authority from, a person" (emphasis added). So s 819 overlaps with s 817. Section 819 operates where the "client" acts in a particular way in reliance upon conduct of the representative. Section 819(1) says that the section applies where the representative is, at the time of the particular conduct,^[36] in fact the representative of a person (the indemnifying principal) or persons (the indemnifying principals) and, at that time, the client does (or omits to do) a particular act because the client believes that the representative engaged in the conduct:

(i) on behalf of some person (… the "assumed principal") whether or not identified, or identifiable at that time by the client; and

(ii) in connection with a securities business or investment advice business carried on by the assumed principal. …^[37]

211 There is a further condition for the application of s 819 which is contained in s 819(1)(c): in effect (without setting out the full verbiage), that the client's belief is reasonable. However, proof of this aspect is assisted by the presumption contained in s 820(2) which, again without setting out the full verbiage, provides that the reasonableness of the belief is presumed unless the contrary is proved.

212 If s 819 applies in accordance with the conditions mentioned above, then s 819(2)(a) renders the indemnifying principal, or each of the indemnifying principals, liable to the client in respect of the representative's said conduct in the same manner, and to the same extent, as if the indemnifying principal (or principals) had engaged in it. Further, s 819(3) makes the indemnifying principal, or each of the indemnifying principals, liable to pay damages to the client in respect of any loss or damage that the client suffers as a result of acting on the basis of the relevant belief (that is, in this case, accepting an investment recommendation).

213 The key requirement of s 819, for present purposes, is the requirement of s 819(1)(b) that a particular plaintiff did or omitted to do a particular relevant act because the plaintiff believed that the representative engaged in his conduct on behalf of "some person" in connection with a securities or investment advice business carried on by that person. In other words, for the purposes of the case against Financial Wisdom, each plaintiff has to prove that he or she made the investment because the plaintiff believed that Quarrell (or another representative of Financial Wisdom) made his recommendation or other representation (or otherwise relevantly conducted himself) on behalf of some person, whether or not identified, in connection with a securities or investment advice business.

214 The purpose of s 819 is to render liable any person who was an indemnifying principal, at the time of the representative's conduct which is complained of, provided that the client had a belief that the representative was so acting (whether or not he was in fact so acting) on behalf of someone conducting a securities or investment advice business and the client relevantly acted because of that belief. Any contemporaneous indemnifying principal is liable for a representative's offending conduct, whether or not the conduct was in fact engaged in on behalf of such principal, where the client acts in reliance on the conduct as being engaged in by the representative on behalf of some principal.

Submissions of Financial Wisdom

215 In relation to s 817, Mr Sifris said that it was uncontested that Quarrell and the other "representatives" did not at any relevant time act "as a" representative of Financial Wisdom. The section was capable of applying to Pamacorp during the period that the representatives were employed by Pamacorp. Mr Sifris submitted, however, that s 817 was not capable of applying to Sentinel because the indemnifying principal had to be licensed.

216 Whereas s 817 applied to conduct as a representative of a known principal, s 818 applied to conduct as a representative of an unknown principal. Again, it was submitted that each principal who is liable under s 818 must be a licensed principal "because conduct can only be engaged in as a representative if the principal is licensed".

217 In relation to s 819, Mr Sifris said that the critical difference with ss 817 and 818 was that the representative was "on a frolic of his own" - there was no conduct engaged in "as a representative". This submission seems to be incorrect because s 819 applies "whether or not" the conduct was within the scope of the representative's employment or authority.

218 Mr Sifris submitted that, because the conduct of the representative was not as a representative, there had to be a belief that a principal was involved, although the principal was not. This argument stems from a false premise. The section turns on the belief of the client, whether or not a principal is involved. In any event, Mr Sifris accepted that if the representative was on a frolic of his own and the client believed that the representative was engaging in conduct on behalf of Financial Wisdom, then Financial Wisdom was liable to the client. If there was more than one indemnifying principal (whether identified or not), for example, Financial Wisdom and Pamacorp, then both were liable under s 819(2). Sentinel would not be liable because it was unlicensed, it was submitted. However, Mr Sifris submitted that to render all of the indemnifying principals liable, there must be a belief that the conduct was engaged in on behalf of one of them. This submission is in my view incorrect because s 819(1) refers to the client's belief that the representative engaged in the conduct on behalf of some person "whether or not identified, or identifiable at that time by the client". The submission that there must be a belief that the conduct was engaged in on behalf of one of the indemnifying principals (if more than one) is therefore incorrect, in my opinion.

219 Mr Sifris finally made 2 submissions. The first was that, to the extent that the conduct of the representative was engaged in "as a" representative of Pamacorp and Pamacorp was liable under s 817, there could be no liability of Financial Wisdom under s 819. In my opinion, this is fallacious. The second submission was that, to the extent that the conduct of the representative was engaged in as a representative of Sentinel, a known principal (in fact unlicensed), s 819 had no application because it was "concerned with ostensible authority and unknown principals". In my opinion, this is also fallacious. I do not think that the fact that the conduct of the representatives was engaged in by them as representatives of Sentinel or that the plaintiffs so believed (as they did) means that there can be no liability of Financial Wisdom under s 819.

220 The above submissions by Financial Wisdom were contained in a sheet handed up during the course of oral argument. Written submissions from Financial Wisdom had already been supplied along the same lines. However, in those written submissions, it was accepted that, under s 819, by way of example, Financial Wisdom would be liable for the conduct of Quarrell if the client reasonably believed that Quarrell engaged in the conduct on behalf of Financial Wisdom and in connection with Financial Wisdom's securities or investment advice business OR if the client reasonably believed that Quarrell engaged in the conduct on behalf of an unidentified principal and in connection with the unidentified principal's securities or investment advice business. Financial Wisdom therefore submitted that, because the plaintiffs had pleaded that they each believed that Quarrell was acting for Financial Wisdom and they were unable to give evidence to that effect, they had not made out their case. I note that that last point did not deal with the "second branch" of the plaintiffs' construction of s 819, namely, where the client believed that the representative was engaging in conduct on behalf of "some person" (whether or not identified or identifiable) and in connection with that person's securities or investment advice business. The way that Mr Sifris ultimately dealt with this "second branch" was to say that the belief that the representative engaged in the conduct on behalf of "some person" could only refer to some licensed person. The reason he gave for advancing that construction was that the legislation was concerned with the liability of licensed persons, but was not intended to make licensed principals liable where the client believed that the representative was acting on behalf of an unlicensed principal. In my opinion, this flies in the face of the natural meaning of the provisions without any justification.^[38]

221 That the submission on behalf of Financial Wisdom is misconceived further appears from the definitions of "securities business" and "investment advice business" in s 93 and s 77 of the Corporations Law respectively. The definitions refer to particular types of businesses. It is true that the Law requires that licences be held in respect of conducting those businesses, but the existence of those licences is not part of the definition of the business. The reference in s 819(1)(ii) is simply to "a securities business or investment advice business carried on by the assumed principal". Moreover, if it was required that the client's belief related to the existence of a licensed principal, it would be virtually impossible for the section to have any practical operation.

222 In my opinion, a plaintiff in this proceeding can make out his or her case under s 819 if it is proved that:

1. At the time of the representative's conduct, the representative was in fact a representative of Financial Wisdom and it is sufficient for this purpose that the representative held a proper authority from Financial Wisdom at that time.

2. At that time, the plaintiff acted (or omitted to act) because the plaintiff reasonably believed that the representative engaged in that conduct on behalf of some person in connection with a securities or investment advice business carried on by that person.

3. To prove that the plaintiff acted because of the said belief it is sufficient to show that the belief was the reason or one of the reasons which induced the plaintiff to so act (that is, it was the cause or one of the causes of the plaintiff's act or omission).

4. If the plaintiff so acted because of a belief that the representative was engaging in the conduct on behalf of Pamacorp in connection with a securities or investment advice business carried on by Pamacorp, or on behalf of Sentinel in connection with a securities or investment advice business carried on by Sentinel, that belief falls within the requirements of s 819(1).

5. The belief must be reasonable in the way set out in s 819(1)(c) subject to s 820(2) at to the onus of proof.

223 In essence therefore, s 819 renders any licensed principal liable for the conduct of a person holding that principal's proper authority if the client reasonably believes,^[39] at the time of the representative's conduct, that the representative is acting on behalf of some person (that is, any person whether identified or not and whether licensed or not) carrying on a securities or investment advice business.^[40]

224 The interpretation of s 819 advanced on behalf of the plaintiffs, which I accept, is, I think, supported by the policy of the legislation as disclosed by the provisions of the Law and Regulations which were then applicable and which imposed a high level of responsibility on securities dealers for the conduct of their representatives.^[41]

225 Mr Sifris advanced an alternative argument on behalf of Financial Wisdom which he said would apply in a narrow category of cases. This argument was based on s 819(4) of the Corporations Law and applied where, first, a relevant representative, at the time of his offending conduct, held a proper authority from both Financial Wisdom and Pamacorp Securities ^[42] and, secondly, Pamacorp Securities was also a party "to a proceeding in a court"^[43] and, thirdly, it was proved for the purposes of the proceeding that the representative engaged in that conduct as a representative of Pamacorp Securities.^[44] If those matters were made out, then s 819 did not apply to any indemnifying party other than Pamacorp Securities and Financial Wisdom would not be liable in those instances.

226 A difficulty facing this alternative argument is that Pamacorp Securities is not a party in the Financial Wisdom proceeding unless the word "party" includes a third party. Pamacorp Securities is not a defendant in the Financial Wisdom proceeding, but there is a third party proceeding by Financial Wisdom against Pamacorp Securities (commenced by third party notice dated 5 March 2003). The plaintiffs submitted that the words "a proceeding" were confined in the context of the Corporations Law to claims which were directly made by one party against another.^[45] It was further submitted that the primary meaning of the term was the invocation of the court's jurisdiction by some person against another.^[46] The plaintiffs submitted that the third party proceeding was a separate proceeding ^[47] - the plaintiffs were not "proceeding" against Pamacorp Securities nor was it "proceeding" against the plaintiffs. Financial Wisdom had not sought to have Pamacorp Securities added as a defendant. It was submitted on behalf of Financial Wisdom in answer that it was sufficient for the purposes of s 819(4) if all relevant parties were before the court in a proceeding, but that, in any event, "you can always join a third party as a defendant if required". However, I note that no such application was made. I prefer the submissions of the plaintiffs. For the reasons advanced by them, which I adopt, Pamacorp Securities is not a party to the relevant proceeding.

227 It was also submitted on behalf of the plaintiffs that Financial Wisdom had failed to prove that any of the relevant representatives were acting "as a" representative of Pamacorp Securities. On the contrary, the plaintiffs submitted, such evidence as there was indicated that the relevant representatives were acting as representatives of Pamacorp Holdings and not Pamacorp Securities. Although they held proper authorities from Pamacorp Securities, the business in which they were employed was conducted by Pamacorp Holdings. There is considerable evidence supporting this submission. On the other hand, there is some evidence which Financial Wisdom adduced from Healy that Pamacorp Securities was "marketing" the relevant investments. I am not satisfied on the evidence as a whole that any of the relevant representatives were acting as representatives of Pamacorp Securities. The failure to add Pamacorp Securities as a defendant highlights the point that this issue was not properly raised for determination and, perhaps, shows why it is appropriate to interpret the words "parties … to a proceeding" in the strict sense.

228 It is convenient here to note that I cannot locate any submission, written or oral, on behalf of Financial Wisdom in relation to the relief sought in the third party proceeding. This matter may require some attention.

229 I now return to an application of the foregoing conclusions to Mr Duncan's particular claims.

230 I consider that all of the necessary prerequisites for the liability of Financial Wisdom to Mr Duncan under s 819 of the Law have been established. At the times relevant to all but one part of the claims of Mr Duncan, Quarrell and Schimana held a proper authority from Financial Wisdom and it is clear that Mr Duncan believed that they were engaged in their relevant conduct on behalf of Pamacorp or Sentinel (as the case may be) in connection with a securities and investment advice business carried on by Pamacorp or Sentinel (as the case may be). I am satisfied that Mr Duncan acted (that is, accepted the various investment recommendations) because of his said belief, in the sense that one of the reasons for him accepting the recommendations was his belief that Quarrell and Schimana were acting on behalf of Pamacorp or Sentinel in connection with a securities or investment advice business of Pamacorp or Sentinel. Mr Duncan's said belief was reasonable. Apart from the second investment in the Ostrich Schemes, Financial Wisdom is therefore liable for the conduct of Quarrell and Schimana pursuant to s 819 of the Corporations Law.

Mr Duncan: Liability of Twenty-First

231 Twenty-First is liable to Mr Duncan on the same basis as Financial Wisdom in respect of the conduct of Quarrell, Healy and Schimana during the period in which they held proper authorities from Twenty-First. Twenty-First is therefore liable to Mr Duncan in respect of the Book Publishing Partnership, the Video Documentary Partnership and the second investment in the Ostrich Schemes (March 1997).

Mr Duncan: Liability of Pamacorp Holdings

232 Pamacorp Holdings is liable to Mr Duncan in respect of the conduct of Quarrell and Healy in relation to the Lucky Country Film Fund, the Bearfire Film Fund and the Bolshoi Ballet Scheme. It is clear that Pamacorp Holdings is liable upon an "agency" basis, in that Quarrell and Healy were each employees and/or agents of Pamacorp Holdings or were held out as by Pamacorp as such.

Mr Duncan: Liability of Pamacorp Securities

233 Healy and Quarrell were holders of proper authorities from Pamacorp Securities from 28 April 1994 to 9 September 1994. Pamacorp Securities is liable to Mr Duncan in respect of the conduct of Quarrell and Healy pursuant to s 819 of the Corporations Law (on the same general factual and legal basis as Financial Wisdom is liable) in relation to Mr Duncan's investments in the Bearfire Film Fund and the Bolshoi Ballet Scheme.

Mr Duncan: Representative capacity

234 I note that there is evidence that some moneys invested by Mr Duncan were derived from his trust funds. An application was made, which was not opposed by Financial Wisdom, for leave to amend the schedules to the writs and to amend the statements of claim to permit Mr Duncan to additionally sue in his capacity as trustee of such trust funds. I am satisfied that leave should be granted as sought so as to permit him to additionally sue in his capacity as trustee of the ATF Duncan Family Trust and the Roger Lee Duncan Superannuation Fund.

Mr Duncan: Damages

235 In relation to all of the plaintiffs, I do not accept the general submissions of Financial Wisdom that the plaintiffs have failed to prove causation of their losses by the negligence (and also the misleading and deceptive conduct) alleged by them, to the extent that I have found those allegations to have been proven. Obviously none of their losses would have occurred had the investments not been made in reliance upon the advisers' recommendations (as they were). The negligent recommendations (and also the misleading and deceptive conduct) therefore caused the losses in that sense, unless any subsequent events can be identified as the "real" cause of such losses. However, the losses incurred all flowed from the realisation of risks which were inherent in the investments from the beginning, the very risks identified by Mr McMaster as the reasons why the investments should not have been recommended. In addition, the matters which Mr McMaster said should have been investigated in relation to the each of the investments may be fruitfully compared with the matters which led to the failures of such investments and the disallowance of the tax deductions, in whole or in part.

236 I am satisfied that Mr Duncan has suffered loss and damage as a result of the conduct of the representatives to which I have referred. Mr Duncan would not have made any of these investments without the recommendation of the relevant representatives and he was further induced to do so by their misleading and deceptive conduct, which I have specifically identified. Each of the defendants is liable to the extent that such defendant is liable for the conduct of the relevant representative. I will deal more specifically with the nature and quantum of the damages suffered in the section below dealing with the damages of the plaintiffs.

[Paragraphs [237]-[586] have been omitted.]

N. Prescribed interests

587 In the course of considering a number of the investments ^[48] made by the plaintiffs, I expressed the conclusion that the investment constituted a "prescribed interest" and that a prospectus should have been provided. In the way that I have approached the matter, that conclusion is not the foundation for a separate cause of action, but simply supports the conclusion in the case of each of the relevant investments that it should not have been recommended to an investor. In the end, Financial Wisdom did not seek to contend that a prospectus was not required in the case of these investments. I will briefly state my reasons for the conclusion reached.

588 Part 7.12 of the Corporations Law regulates "Offering Securities for Subscription or Purchase". Division 2 includes s 1018 and is concerned with "Prospectuses" while Div 5 includes ss 1064 and 1065 and is concerned with "Prescribed Interests".

589 These provisions ^[49] are in the following terms:

1018. Prospectus in relation to securities
(1) A person shall not offer for subscription, or issue invitations to subscribe for, securities of a corporation unless:
(a) a prospectus in relation to the securities has been lodged;

(b) the prospectus complies with the requirements of this Division;

(c) if the prospectus is a registrable prospectus - the prospectus has been registered by the Commission under section 1020A.

1064. Issue of prescribed interests restricted
(1) A person, other than a public corporation, must not make available, offer for subscription or purchase, or issue an invitation to subscribe for or buy, any prescribed interest.

1065. No issue without approved deed
(1) A person shall not issue, offer for subscription or purchase, or issue invitations to subscribe for or buy, any prescribed interest unless, at the time of the issue, offer or invitation, there is in force, in relation to the interest, a deed that is an approved deed for the purposes of this Division or a corresponding law.

(2) Where a deed would, but for this subsection, have ceased to be an approved deed for the purposes of this Division because there is no trustee or representative for the purposes of the deed or the approval of the trustee or representative has been revoked or because of any other circumstance relating to the trustee or representative, the Commission may, despite section 1066, direct that the deed is to continue to be an approved deed for such period and for such purposes as the Commission directs and, upon the giving of such a direction, the deed continues to be an approved deed accordingly.

(3) A person shall not, in any deed, prospectus, statement, advertisement or other document relating to a prescribed interest, make any reference to an approval of a deed, or an approval of a trustee or representative, granted under this Division, a corresponding law or a corresponding previous law.

590 "Prescribed interest", which as I have said, is included in the definition of "securities", is defined to include a participation interest,^[50] which in turn is defined as follows:^[51]

"participation interest" means any right to participate, or any interest:
(a) in any profits, assets or realisation of any financial or business undertaking or scheme, whether in Australia or elsewhere;

(b) in any common enterprise, whether in Australia or elsewhere, in relation to which the holder of the right or interest is led to expect profits, rent or interest from the efforts of the promoter of the enterprise or a third party; or

(c) in any investment contract;

whether or not the right or interest is enforceable, whether the right or interest is actual, prospective or contingent, whether or not the right or interest is evidenced by a formal document and whether or not the right or interest relates to a physical asset, but does not include:
…

(e) any share in, unit of a share in, or debenture of, a body corporate;

…

(g) an interest in a partnership agreement, unless the agreement or proposed agreement:
(i) relates to an undertaking, scheme, enterprise or investment contract promoted by or on behalf of a person whose ordinary business is or includes the promotion of similar undertakings, schemes, enterprises or investment contracts, whether or not that person is, or is to become, a party to the agreement or proposed agreement. …

591 "Investment contract" is defined ^[52] by the Law to mean:

… any contract, scheme or arrangement that, in substance and irrespective of its form, involves the investment of money in or under such circumstances that the investor acquires or may acquire an interest in, or right in respect of, property, whether in this jurisdiction or elsewhere, that, under, or in accordance with, the terms of investment will, or may at the option of the investor, be used or employed in common with any other interest in, or right in respect of, property, whether in this jurisdiction or elsewhere, acquired in or under like circumstances.

592 I am satisfied that each of the investments mentioned ^[53] was covered by the wide definition of a "participation interest" and was therefore a prescribed interest for which, inter alia, a prospectus was required. None of the investments which were in the nature of partnerships ^[54] fell within the exception contained in para (g)(i) of the definition of "participation interest" relating to "an interest in a partnership agreement" because, as the evidence shows, the schemes related to "an undertaking, scheme, enterprise or investment contract promoted by or on behalf of a person ^[55] whose ordinary business is or includes the promotion of similar undertakings, schemes, enterprises or investment contracts".^[56]

O. Damages

Evidence of Mr Sincock

593 I note at the outset that, apart from the plaintiffs' own evidence, the principal evidence in relation to damages was provided by Geoffrey Ronald Sincock, an experienced chartered accountant with BDO Chartered Accountants & Advisers, who was retained by the plaintiffs to calculate their pecuniary loss and damage and their loss of opportunity damages. Mr Sincock looked at the witness statements of the plaintiffs and the annexures thereto and he investigated the plaintiffs' records. Mr Sincock prepared a report in relation to each plaintiff, in which he listed the total actual expenses which they had incurred with each of the investments. He also considered the income tax returns and assessment notices of each witness, and any payment arrangements that they had made with the ATO.

594 Mr Sincock's reports set out the cash losses suffered by each plaintiff which comprised losses of principal (but only where the investment was made from their own funds or any loan was repayable), interest payments (which, in some cases, comprise the main losses) and other fees, costs and expenses directly associated with the investment. Mr Sincock also deducted amounts recovered by way of distributions from liquidators and the like.

595 I have the impression, which may or may not be correct, that some of the costs, fees and expenses referred to in various of the plaintiffs' witness statements have not been included in Mr Sincock's calculations and hence are not included in the total damages claimed in the plaintiffs' final submissions. I have assumed that the plaintiffs have elected to confine their claims for damages to those items comprised in Mr Sincock's reports or which are otherwise expressly mentioned in the plaintiffs' final submissions. In that regard, I further note that although the court was asked to make findings in relation to the Copperfield Investment, and I have done so, it does not appear that any claims for damages have been made in relation to that investment. Of course, the moneys invested in the Copperfield Investment were "transferred" to the Book Publishing Partnership, but to the extent that there were any other losses suffered, I do note that I think that they have been claimed.

596 Mr Sincock took into account the income tax consequences of each plaintiff's investments. These were both positive and negative. On the positive side, the plaintiffs enjoyed tax savings as the result of various tax deductions which they claimed from investments and also received refunds after settlements, and on the negative side, the plaintiffs were obliged to make various payments to the ATO as a result of relevant amended assessments.

597 In cases where a particular defendant is not liable for all of the losses incurred by an investor, it will be necessary to calculate the losses (offset by any tax benefits) flowing from specific investments. In some cases, therefore, it will be necessary to apportion the total nett tax benefit (or loss) between the particular investment losses so as to accurately reflect the separate tax consequences of each investment. The parties recognised ^[57] that, if the court reached the stage of assessing damages, it would still be necessary for the parties to work out or, in default, for the court to assess after a further hearing, this apportionment of the tax benefit (or loss) between the investment losses. For that reason, and to enable any other submissions as to damages to be made in the light of the findings hereunder, it is not possible to find a final damages figure in relation to each investment or against each defendant.

598 I will refer further to Mr Sincock's evidence in the course of summarising the submissions made concerning damages.

599 The claim for damages made on behalf of the plaintiffs fell into 3 categories.

Actual pecuniary losses

600 The first category was a claim for the losses actually suffered as a result of entering into each of the recommended investment schemes. In respect of this category, Financial Wisdom accepted that a successful plaintiff was entitled to recover all direct out-of-pocket expenses relating to any particular investment scheme. Those expenses might include interest payments, stamp duty and set up costs. Financial Wisdom submitted that other costs, such as the establishment of trusts and companies and engaging advisers and other incidental costs were too remote and not recoverable. However, Financial Wisdom did not point to any item or items falling into the latter class of costs, and it does not appear to me that the plaintiffs have claimed items other than those which they have described as "losses actually suffered as a result of entering into each of the investment schemes".

Loss of opportunity damages

601 The second category of the plaintiffs' claim for damages was a loss of opportunity claim based upon evidence by each plaintiff that, but for entering into the recommended investment schemes, they each would have invested in other investments which would have been profitable.

602 The plaintiffs submitted that the cases ^[58] established the following principles in relation to loss of opportunity damages, which principles applied both to the plaintiffs' claims in the tort of negligence and their misleading and deceptive conduct claims (whether under the Fair Trading Act 1985 (Vic) or the Corporations Law). The plaintiffs said that the principles were as follows. First, the existence of the opportunity must be proved on the balance of probabilities. Secondly, if the realisation of the opportunity depended upon a plaintiff's own decision to exploit it, as was the case here, it must be proved on the balance of probabilities that the opportunity would have been so exploited. Thirdly, the plaintiff must establish on the balance of probabilities that as a result of not exploiting the opportunity, some loss or damage had been suffered.^[59] Fourthly, if the first 3 matters are satisfied, the court then assesses the prospects of the opportunity being successfully exploited by the plaintiff. The value of the lost opportunity is then to be "ascertained by reference to the degree of probabilities or possibilities".^[60] At this stage the court is not concerned with proof on the basis of the balance of probabilities. Instead the court is concerned to assess the likelihood of the plaintiff's realisation of the opportunity and to award damages reflecting that likelihood even if realisation was unlikely. A 1% chance of realisation is just as compensable as a 99% chance of realisation.^[61]

603 The plaintiffs submitted that the evidence showed in respect of each plaintiff that:

(a) Each of them required and was offered conservative investment advice. This was made clear by the individual risk assessment undertaken by the investment advisers during initial interviews.

(b) Each of them was looking for investment advice in relation to increasing the funds available to them to provide for their retirement.

(c) Each of them wanted to make much better use of the funds then available to them for relatively conservative investment purposes.

(d) The overwhelming probability was that, if they had not made the recommended investments, they each would have invested in alternative investments which they identified in their evidence and which would have been successful.

604 The plaintiffs therefore submitted that, in addition to the individual specific and direct losses suffered, the plaintiffs also suffered a loss of the opportunity to invest their moneys in the relatively conservative investments which they were seeking. The plaintiffs submitted that they were entitled to be compensated to the full for the loss of the opportunity to invest in investments which should have been recommended to them by reasonable and prudent investment advisers.

605 On the other hand, Financial Wisdom contended that each plaintiff had to prove on the balance of probabilities that a commercial opportunity of some value had as a matter of reality existed, which, but for the conduct of the advisers, they could have and would have acted upon. Financial Wisdom submitted that the evidence of the plaintiffs was insufficient and that there was no evidence that any of the plaintiffs either had the ability to take up the opportunity they claimed they had lost or that they would have exploited such opportunity. Financial Wisdom further submitted that the expert evidence did not take into account the substantial cash benefits received by some of the plaintiffs, as a result of reduced taxation obligations, which were used by them, in particular, in relation to property investments or to reduce or discharge mortgages. Financial Wisdom then submitted that the claim for loss of opportunity damages was predicated on the assumption that each of the plaintiffs would have had funds available to make the kinds of investments which they said they had lost the opportunity to make because, if the plaintiffs had not entered into the relevant schemes, they would not have had the disposable income available. Financial Wisdom further submitted that the evidence as to loss of opportunity related to the total losses of each plaintiff and was not split up scheme by scheme, which rendered it difficult to assess the liability of a particular defendant for such loss of opportunity where the defendant was liable to a plaintiff in respect of some only of the schemes entered into by that plaintiff.

606 In response to Financial Wisdom's said submissions, the plaintiffs recognised that one further matter did arise in relation to the calculation of the plaintiffs' actual losses, namely, how those losses were to be adjusted to take into account any benefit that a plaintiff might have enjoyed by reason of having the cash benefit available for a period of time by reason of claimed income tax deductions.

607 The plaintiffs continued by saying, in relation to loss of opportunity damages, that Mr Sincock identified some parameters which he said should be taken into account in the calculation of damages for each plaintiff in respect of a loss of opportunity to use the moneys actually expended, in relation to the recommended investments, in other investments of the type that they preferred or which should have been recommended to them by a reasonable and prudent financial adviser.

608 The plaintiffs submitted that the question of the cash benefit from claimed tax deductions and the question of loss of opportunity were inextricably linked because each of the plaintiffs was seeking investment advice and intended to make investments of some kind. In other words, it was inappropriate to take into account the immediate benefits of the investments which they actually made without also taking into account the notional benefits of alternative investments which they would have made if these investments had not been recommended. It was unrealistic to think that any of the plaintiffs would have done nothing by way of investments. I agree generally with this reasoning. Of course, one of the answers advanced by Financial Wisdom to this reasoning was that, without the tax benefits of the schemes into which they entered, it was not shown that the plaintiffs would have had disposable income sufficient to make alternative investments. This contention will need to be taken into account in relation to each plaintiff. However, I should say at once that it is clear from the evidence that some of the plaintiffs would have had considerable resources to make alternative investments. These are the plaintiffs who invested superannuation and other moneys of their own in such investments as the Guard Finance Investments, the DCL Shares Investment, the Stanley Street and Clendon Street Unit Trusts and the Superannuation Scheme.

609 The plaintiffs referred to cross-examination of Mr Sincock, in which it was put to him that it would be possible to make calculations in relation to each plaintiff to show how they in fact used the moneys not paid in income tax and to assess any benefit derived from that use. Mr Sincock conceded the possibility of doing this, but stressed the complexity and difficulty of, and the multitude of variables involved in, any such exercise.

610 The plaintiffs submitted that the fact that there may have been other possible approaches to assessing each plaintiff's loss went nowhere because:

(a) That was not the way the case has been conducted on the part of the plaintiffs.

(b) Financial Wisdom had not called any evidence in relation to rival methodologies or calculations.

(c) There was no detailed cross-examination of individual plaintiffs directed to eliciting the detailed state of the finances of such plaintiff at any particular time or times and no discovery was sought in relation to such matters and no leave to interrogate in relation to such matters was sought.

(d) Financial Wisdom applied at a late stage to separate questions of liability from questions of loss and damage but that application was refused.

(e) The evidence was closed and, apart from the possible need for recalculations based on the present evidence and any findings of the court, each of the plaintiff's damages are to be assessed on the basis of that evidence.

611 The plaintiffs submitted that in these circumstances, unless it could be demonstrated that Mr Sincock's methodology was in some way fundamentally flawed, the court should accept it as providing a general indicative guide to the assessment of the lost opportunity damages claimed by each of the plaintiffs.

612 The plaintiffs said that the only controversial methodological aspect of Mr Sincock's evidence related to whether or not he had made appropriate adjustments to reflect the value of the temporary benefits enjoyed by each of the plaintiffs, in that for some period of time they enjoyed substantial reductions in their liability to pay income tax and may have used those tax benefits for other purposes which generated additional profits.

613 I note that Mr Sincock's methodology was as follows. Mr Sincock made 2 calculations by reference to one or other or all of 3 indices: the bond rate, the share price index, and the residential property index. The first calculation made by Mr Sincock was to take each of the expenditures made by each plaintiff in relation to the recommended investments and to assume that each such expenditure was made, on a roughly comparable date, in bonds, real property or shares instead, depending upon each plaintiff's evidence. Mr Sincock then calculated the notional yield on each assumed investment. The other calculation made by Mr Sincock was to carry out the same exercise in relation to a similar notional investment of the amount derived from the tax benefits enjoyed by the plaintiffs over the period of time during which they were so enjoyed. This calculation was a substitution for the more difficult exercise which would have been involved in ascertaining the precise way in which each plaintiff utilised his or her tax benefits.

614 Mr Sincock said that, in then setting off the 2 calculations, he had attempted to calculate the tax benefit enjoyed by each plaintiff upon the same basis as he had calculated the economic disadvantage suffered by each plaintiff in relation to the expenditures which they had made upon the recommended investments. Mr Sincock said that: "… the purpose of this exercise was to determine the … value of each particular category, so that the opportunity range can be determined … the purpose of the report was to set the parameters".

615 The plaintiffs submitted that the methodology adopted by Mr Sincock provided a useful starting point for the assessment of the loss of opportunity damages claimed by each plaintiff. They said that the methodology took into account the benefits enjoyed by each of the plaintiffs in relation to income tax savings on the same basis that it took into account the detriment suffered by them in relation to their expenditures upon the recommended investments. The plaintiffs contended that it was not to the point for Financial Wisdom to suggest that there may have been other possible approaches which focused on the precise facts as to what the plaintiffs did and did not do, when Financial Wisdom had not advanced to the court what those approaches and their results were. The plaintiffs said, by way of example: if the landscaping expenses of Mr Collins were defrayed from tax savings, how would it be possible to assess what value, if any, the landscaping added to the property?

616 The plaintiff submitted that there was sufficient evidence to generally make an assessment of the financial capacity of the plaintiffs to enter into the alternative investment to have entered into the alternative investments which they contended should have been recommended to them by the investment advisers.

617 I bear in mind and will deal with the above competing contentions of the plaintiffs and Financial Wisdom (to the extent necessary) when I consider the damages of each plaintiff.

General damages

618 The third category of damages claimed by the plaintiffs was general damages for mental anguish, personal insecurity and distress.

619 The plaintiffs submitted that the evidence in one way or another demonstrated the deep mental anguish, distress and personal insecurity suffered by each of the plaintiffs, and its effect upon their personal relationships, caused by the conduct of the advisers which resulted in the loss of almost their entire capital and, in some cases, insolvency. Most of them were making plans for their retirement and were looking for conservative investment advice which would have enabled them to increase the relatively modest capital which they had available to them for that purpose, mainly in superannuation funds.

620 The plaintiffs submitted that it was of critical importance to identify what each plaintiff was seeking ^[62] - in most cases, the sense of personal security and happiness which they could look forward to in their retirement.

621 The plaintiffs submitted that the pleaded causes of action gave rise, on the evidence, to a liability to compensate the plaintiffs for the mental anguish and distress which they had suffered as a result of the advisers' conduct. This applied to the tortious causes of action ^[63] and the misleading and deceptive conduct statutory claims.^[64]

622 The plaintiffs submitted that the damages in this category for each plaintiff should be more than token. They submitted that there was a cruel intrusion by rogues into their lives. The plaintiffs were each ordinary people with limited assets and conservative attitudes towards the exploitation of those assets and had no knowledge as to how they might usefully be invested. They turned to Pamacorp and Sentinel for advice and each had made to them the reassuring representations and promises of the total Sentinel advice package. They were each vulnerable. Their lives had been shattered by what happened. The evidence demonstrated that from 1997, with the collapse of Sentinel, until the present day they had had to grapple with the problems created by the loss of the assets that they looked forward to enjoying in retirement.

623 Financial Wisdom did not advance submissions in opposition to the plaintiffs' submissions upon the third category of damages.

Mr Duncan: Damages

Cash losses

624 Most of Mr Duncan's investments were by way of loans which were not repayable and not repaid and, therefore, the bulk of his cash losses related to interest payments. However, he lost money from his own resources to the extent of about $18,000 in the Video Documentary Partnership and his investment in the Ostrich Schemes was also made from his own resources. Mr Duncan's total cash losses from his investments were as follows:

Investment	Amount	Liable Defendant
Lucky Country Film Fund	$78,998.49	Financial Wisdom, Pamacorp Holdings
Bearfire Film Fund	$67,625.39	Financial Wisdom, Pamacorp Holdings, Pamacorp Securities
Bolshoi Ballet Scheme	$56,315.10	Financial Wisdom, Pamacorp Holdings, Pamacorp Securities
Copperfield Investment	$20,185.25	Financial Wisdom
Book Publishing Partnership	$82,501.23	Financial Wisdom, Twenty-First
Video Documentary Partnership	$57,998.82	Financial Wisdom, Twenty-First
Ostrich Schemes	$89,747.72	Financial Wisdom (1st investment only), Twenty-First (2nd investment only)
Total	$453,372.00

625 Mr Duncan's total nett income tax cash benefit from the investments was $58,738.69, but this will need to be apportioned between the various investment losses because, to some extent, different defendants are liable for different losses.

Loss of opportunity

626 Mr Duncan testified that, had he not made the recommended investments, he would have invested in residential real estate, and Mr Sincock calculated that if he had made alternative investments on comparable dates in residential real estate, his gains would have been considerable. Mr Sincock concluded:

The after tax cash loss Mr Duncan suffered can be calculated as follows:

$

Cash loss 453,372.00

Less nett cash income

Tax benefit

( 58,738.69 )

Nett cash loss
394,633.31

However, when Mr Duncan's loss of opportunity by investing in residential real estate is factored in, his loss can be summarised as follows:

Residential real estate

$

Cash loss and opportunity loss

1,103,813.90

Less income tax benefit

( 617,142.85 )

Nett loss/(benefit)

486,671.05

	$
Cash loss	453,372.00
Less nett cash income Tax benefit	( *58,738.69* )
Nett cash loss	394,633.31

Residential real estate
	$
Cash loss and opportunity loss	1,103,813.90
Less income tax benefit	( *617,142.85* )
Nett loss/(benefit)	486,671.05

627 I am not satisfied that Mr Duncan would have invested in residential real estate because it is not demonstrated that, without the tax benefits which he temporarily obtained, he would have had sufficient resources to do so in a meaningful way, and further because I am not satisfied on the balance of probabilities that real estate investment would have been Mr Duncan's preferred course of conduct. Accordingly, I do not award loss of opportunity damages to Mr Duncan. On the other hand, I am satisfied that Mr Duncan had sufficient resources to make reasonable investments of some kind and was deprived of the opportunity of doing so. Doing the best I can, I consider that the benefits from such investments would have been at least as good as the value of the time benefit which he gained from his tax deductions, together with any pecuniary benefits which he derived from the use of the additional cash flow provided by his reduced payments to the ATO. Accordingly, I see no need to reduce his damages for cash losses for that reason.

General damages

628 As to stress and anxiety, Mr Duncan said in his witness statement:

208. The stress that my involvement with Sentinel and Pamacorp has created has been enormous. At the time that I first went to meet with Mr Healy and Mr Quarrell, I had a good job, earning a high wage, an excellent credit rating and I was well on the way to setting myself up financially for retirement. Now at the age of 61, I am under a Pt X arrangement pursuant to the Bankruptcy Act 1966 (Cth). …

218. Since that time, I have spent every bit of my spare time seeking to prove my innocence to the ATO and to seek compensation for my losses through Corrs Chambers Westgarth. This included every day that I was not flying my trips at Ansett, holidays from Ansett, and all public holiday periods.

629 Mr Duncan has been subjected to enormous stress and anxiety. The plaintiffs submitted that Mr Duncan should be awarded from $10,000 to $15,000 as general damages. In my view, Mr Duncan is entitled to an award in the circumstances of $15,000 as against Financial Wisdom which I have held to be liable for virtually all of his investment losses. The other defendants should also be liable in general damages for a part of that sum proportionate to the amount of the investment losses for which they are respectively liable.

[Paragraphs [630]-[690] have been omitted.]

P. Conclusion

691 Each of the defendants is liable to the plaintiffs in damages for the reasons which I have endeavoured to state. It will be necessary to adjourn the further hearing of the proceedings in order to hear final submissions concerning damages to the extent indicated in these reasons and to deal with statutory interest (if any) and costs.