FEDERAL COURT OF AUSTRALIA Paton v National Mutual Life Association of Australasia Ltd [2000] FCA 684 TRADE AND COMMERCE - representation - misleading and deceptive conduct. PRACTICE AND PROCEDURE - onus of proof - balance of probabilities. Rhesa Shipping SA v Edmunds [1985] 1 WLR 949 Appl STUART ALFRED PATON v THE NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LIMITED (ACN 004 020 437), NATIONAL MUTUAL ASSETS MANAGEMENT LIMITED (ACN 006 207 398), EDWARD WILLIAM JAGO, MORGAN TEMPLETONS PTY LTD (ACN 010 584 657) PREVIOUSLY CALLED JARDEN MORGAN SERVICES PTY LIMITED, VINCENT JOHN CREAGH, ROBERT IAN TEMPLETON, FITZROY FINANCIAL SERVICES PTY LTD (ACN 010 848 503), THE NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LIMITED (ACN 004 020 437) AND STUART ALFRED PATON COOPER J BRISBANE 24 MAY 2000 IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QG 67 OF 1992 BETWEEN: STUART ALFRED PATON APPLICANT AND: THE NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LIMITED (ACN 004 020 437) FIRST RESPONDENT NATIONAL MUTUAL ASSETS MANAGEMENT LIMITED (ACN 006 207 398) SECOND RESPONDENT EDWARD WILLIAM JAGO THIRD RESPONDENT MORGAN TEMPLETONS PTY LTD (ACN 010 584 657) PREVIOUSLY CALLED JARDEN MORGAN SERVICES PTY LIMITED FOURTH RESPONDENT VINCENT JOHN CREAGH FIFTH RESPONDENT ROBERT IAN TEMPLETON SIXTH RESPONDENT FITZROY FINANCIAL SERVICES PTY LTD (ACN 010 848 503) SEVENTH RESPONDENT THE NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LIMITED (ACN 004 020 437) CROSS-CLAIMANT STUART ALFRED PATON CROSS-RESPONDENT JUDGE: COOPER J DATE OF ORDER: 24 MAY 2000 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The application as against the first, second, fourth, fifth and sixth respondents is dismissed. 2. Judgment be entered for the first, second, fourth, fifth and sixth respondents. 3. The applicant pay the costs of the first, second, fourth, fifth and sixth respondents on the application, including reserved costs, if any, to be taxed if not agreed. 4. The District Registrar, under Order 39 of the Federal Court Rules, take an account of the monies due and unpaid by the cross-respondent to the cross-claimant under a loan agreement and an instrument of mortgage, both made on 29 June 1989. 5. Judgment be entered on the cross-claim for the cross-claimant in the sum certified by the District Registrar as due and unpaid upon the taking of the account. 6. Liberty to each party to the cross-claim to apply for directions as to the taking of the account or in respect of the entry of judgment. 7. The cross-respondent pay the cross-claimant's costs of the cross-claim, including reserved costs, if any, to be taxed if not agreed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QG 67 OF 1992 BETWEEN: STUART ALFRED PATON APPLICANT AND: THE NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LIMITED (ACN 004 020 437) FIRST RESPONDENT NATIONAL MUTUAL ASSETS MANAGEMENT LIMITED (ACN 006 207 398) SECOND RESPONDENT EDWARD WILLIAM JAGO THIRD RESPONDENT MORGAN TEMPLETONS PTY LTD (ACN 010 584 657) PREVIOUSLY CALLED JARDEN MORGAN SERVICES PTY LIMITED FOURTH RESPONDENT VINCENT JOHN CREAGH FIFTH RESPONDENT ROBERT IAN TEMPLETON SIXTH RESPONDENT FITZROY FINANCIAL SERVICES PTY LTD (ACN 010 848 503) SEVENTH RESPONDENT THE NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LIMITED (ACN 004 020 437) CROSS-CLAIMANT STUART ALFRED PATON CROSS-RESPONDENT JUDGE: COOPER J DATE: 24 MAY 2000 PLACE: BRISBANE REASONS FOR JUDGMENT 1 In June 1989 the applicant ("Paton") purchased units in the National Mutual Australian Property Trust No 1. In order to do so, he borrowed $800,000 from the first respondent ("NM Life"). At the same time he invested $200,000 in an insurance bond issued by NM Life. Paton alleges that he was induced by representations made by various of the respondents to purchase the units, to borrow the monies, and to invest in the insurance bond. Paton alleges these representations were misleading and deceptive or were made negligently. As a consequence of such conduct, Paton alleges he suffered loss and damage. 2 The third respondent ("Jago") was at all material times the accountant for Paton. Jago was also a director of, and shareholder in, the seventh respondent ("FFS"). Jago was made bankrupt in 1995. FFS was deregistered as a defunct company on 7 July 1995. At the commencement of the trial of the proceedings, the action against Jago and FFS was adjourned to a date to be fixed, and the cross-claims of the other respondents against Jago were also adjourned to a date to be fixed. The trial proceeded against the first, second, fourth, fifth and sixth respondents only. 3 The second respondent ("NMAM") was at all material times a subsidiary of NM Life and was the manager of the National Mutual Australian Property Trust No 1. The trustee of the unit trust was Permanent Trustee Australia Limited. 4 The fourth respondent ("JMS") was at all material times a subsidiary of Jarden Morgan Australia Limited and carried on business as an accredited agent of NM Life. 5 The fifth respondent ("Creagh") was at all material times a director and an employee of JMS, as was the sixth respondent ("Templeton"). 6 On 24 April 1989, Jago wrote a letter to Paton including a copy of his 1988 income tax return for signature and lodgment. The letter contained the following :- "I am writing to you in the hope that you will be able to make some contact with me next week in Brisbane. It is my intention, not only to visit Rainbow Beach in the next week or so, but if possible to meet with you to discuss your present Investment programme and future taxation situations. As you will note from the return, by carrying forward $229,000.00 in forced sales, we have now got to the stage where your total carry forward of sales is $412,208.00. All of this has occurred in 1987 and 88 so even though the problem is not immediate, it is one which will have to be addressed. Sensible investment of your capital in a way that may give you additional taxation deductions to write off against this income in future years is something that you should consider. If you are able to phone me in Brisbane, the number is (07) 8461764 and I would appreciate a call from you. If we are able to make contact you may perhaps wish to leave the return with me, but I do stress the urgency for the requirement of early lodgment." 7 At that time FFS had an agreement with Jarden Morgan Australia Ltd, JMS and Jago, which was recorded in minutes of a meeting held in the Rockhampton Branch of Jarden Morgan Australia Limited on 29 November 1988. The minutes, so far as presently relevant, said : "The following terms and conditions were agreed by all the above parties for the co-ordination and operation of financial planning and life insurance activities involving Jarden Morgan Services, Jarden Morgan Australia - Rockhampton, Fitzroy Financial Services and Jago & Co. (1): It was agreed that all financial planning product referrals from Jago & Co would be lodged via Barry Schmidt at the Jarden Morgan Rockhampton office. It is expected that this information will be gathered by Ron Price, and initially vetted and approved by Jarden Morgan Australia. (2): It was agreed that the basis of commission sharing between Jarden Morgan Australia - Rockhampton and Jago & Co would be initially 60/40 to Jarden Morgan, and once procedures were in place and depending on the amount of work completed by either Ron Price or Barry Schmidt could be 40/60 to Jarden Morgan/Jago & Co. (3): It was agreed that all life insurance referrals from Fitzroy Financial Services would be to Jarden Morgan Services in Brisbane where National Mutual products were concerned. (4): It was agreed that for all life insurance referrals from Jarden Morgan Rockhampton to Fitzroy Financial Services or any other agencies operated by Ron Price, commissions would be shared 30/70 Jarden Morgan Rockhampton/Fitzroy Financial Services or Jago & Price." 8 In June 1989 Jago contacted Creagh by telephone. He advised Creagh that he had a client with a major tax problem "and needed to set matters to rights". He asked Creagh what he "had in the way of gearing packages". Jago told Creagh that the client had a need to inject an amount of approximately $400,000 to $500,000 into insurance bonds. Creagh sought computer generated projections for such an investment from a Mr Robert Blurton ("Blurton") who was the Marketing Manager Queensland for NMAM. 9 Jago telephoned Paton and asked for a meeting with him in Brisbane. The meeting occurred between Jago and Paton at a residential unit at Fairfield on 15 June 1989. 10 Jago had prepared a written document which he discussed with Paton. The document recorded a deferred liability under s 36AAA of the Income Tax Assessment Act (1936) (Cth) for cattle sales totalling $412,208 made in 1987 and 1988. It also recorded estimated net income for 1988/1989 at $600,000. 11 The document recorded a strategy to address the estimated tax liability. The strategy involved five elements: an insurance bond of $300,000, a borrowing of $1.2 million to purchase units in a property trust, incorporation, employment at a salary of $30,000 - $40,000, and superannuation contributions of $20,000. 12 The document also recorded that the cash required before 30 June was $300,000 for the bond, $220,000 for interest, $20,000 for superannuation and $2,000 for group tax. The tax savings were estimated on the basis of a deduction of $250,000 as $125,000 in tax and $145,000 in provisional tax. 13 Paton rejected the proposal set out in the document. He sought a cheaper proposal which did not involve borrowings of the magnitude proposed. 14 Jago then formulated an alternative proposal which he wrote down in note form. The proposal was based on a capital guaranteed insurance bond of $200,000 and the acquisition of units in a trust which would cost $800,000. The proposal involved borrowing the $800,000 at 18 per cent interest. The interest of $144,000 was to be paid in advance. Jago estimated Paton's income in the next twelve months at $70,000 and the need for about $70,000 in losses against cattle sales income deferred under s 36AAA. Jago told Paton that after two years the value of the units would grow to $1,000,000 and that he could, if he wished, redeem units to the value of $100,000 leaving $900,000 in the units. Jago also did some workings on paper in respect of the insurance bond which it was proposed would be paid for out of Paton's own funds. 15 Jago gave Paton the three pages of writings. Nothing was agreed and Paton departed. 16 The meeting between Jago and Paton on 15 June 1989 was not to discuss any stand alone investment. The object of the meeting was to attempt to devise a stratagem to relieve or reduce the taxation liability which was, in the view of Jago, confronting Paton. The investment aspects of the proposal were to ensure that the transaction had a business and commercial purpose in order that the interest paid became deductable as an outlay incurred in earning assessable income. It was an essential feature of the proposal that the interest paid exceeded the income earned from the investment in order to set off the interest against Paton's other income. 17 That this was the purpose of the meeting is evident from Paton's cross examination : "But even if you did remain a primary producer you were facing a situation where your accountant was estimating you had an assessable income of $600,000?---Mm. That's right, isn't it?---That's correct. That's what this says, yes." And he was telling you this on 15 June 1989?---Yes. That's what you've told us?---Yes. And he was suggesting you do enter into some form of strategy to ameliorate that taxation position?---That's correct. And you've [sic] us already about the strategy he proposes. You were anxious to take up some strategy to ameliorate your taxation position before 30 June, weren't you?---I was prepared to take advice from my accountant. Yes, I was anxious to minimise my taxation liability. Would it be fair to say you were more than anxious?---No, it's not." 18 Jago contacted Creagh on 15 June 1989 after rejection of the original proposal. He told Creagh that Paton was only prepared to purchase $200,000 of insurance bonds. The proposal discussed between Jago and Creagh was that Paton would borrow from NM Life four times the sum invested in the bonds and use the borrowed funds to purchase units in the National Mutual Australian Property Trust No 1. It was proposed that the interest payments on the loan would be offset against Paton's income. Jago arranged a meeting with Creagh for the following day and asked that Creagh obtain "new figures" for the proposal. By this, Jago meant to have produced the computer generated figures which would give effect to the proposal discussed. 19 Jago, on 15 June 1989, told Paton that Paton was to meet Creagh the next day at the Riverside Centre in Brisbane. Paton recorded the appointment in his diary. 20 On 16 June 1989 Jago and Paton attended at the office of JMS at the Riverside Centre in Brisbane. There they met Creagh and Templeton. A meeting was held in an office which Creagh and Templeton shared. 21 There is a dispute on the evidence as to who attended the meeting and what was said at it. Paton's evidence is that Blurton was called to the meeting by Creagh making a telephone call to him. Blurton, Creagh and Templeton deny Blurton was at, or participated in, the meeting. All of them gave evidence and were cross-examined by counsel for Paton. Jago did not give evidence. 22 The causes of action alleged against NM Life, NMAM, JMS, Creagh and Templeton all arise out of what Paton alleges was said by the representatives of NM Life and NMAM in this meeting. 23 By paragraph 8(b) of the further amended statement of claim dated 21 June 1999 ("the statement of claim"), Paton alleges that Creagh, Blurton and Templeton were representatives of NM Life and NMAM, and by paragraph 8(bb) that Creagh and Templeton were also representatives of JMS. 24 Paton alleges that there was discussed at the meeting on 16 June 1989 the proposal that NM Life would loan to Paton $800,000 to purchase units in the National Mutual Australian Property Trust No 1 and the investment of $200,000 of Paton's own funds in insurance bonds with NM Life: paragraph 8(c)(i). He alleges that the handwritten documents given to him by Jago the day before were produced for perusal by Creagh, Blurton and Templeton: paragraph 8(c)(ii). 25 Paton, in the statement of claim, pleads that Creagh made the following statements at the meeting on 16 June 1989 : (a) that Paton could effect the proposal and shortly afterwards obtain a repayment of his investment in full and still retain the tax benefit of the prepayment of interest: paragraph 8(c)(v); (b) that it was a privilege to be asked to invest with National Mutual and that the proposal involved investment which was very prestigious, reputable and profitable: paragraph 8(c)(x); (c) that many successful businessmen used the investment expertise of National Mutual: paragraph 8(c)(xi); (d) that if "the property fund did not perform, then the whole of Australia would collapse": paragraph 8(c)(xii). 26 Paton pleads in the statement of claim that Blurton made the following statements at the meeting on 16 June 1989 : (a) that if Paton effected the proposal, he could if he so wished, at any time cash in the units with no cost to him: paragraph 8(c)(iii); (b) that Paton could effect the proposal and shortly afterwards obtain a repayment of his investment in full and still retain the tax benefit: paragraph 8(c)(v); (c) that the proposal was absolutely safe and that Paton was entitled to sell back the units at any time with the benefit of a capital gain: paragraph 8(c)(viii); (d) that the minimum capital gain from investment in the property trust would exceed 10 per cent per annum because of "National Mutual's professionalism" and the expertise of National Mutual Fund Managers: paragraph 8(c)(ix). 27 Paton pleads that Jago, at the meeting of 16 June 1989, as a representative of NM Life and NMAM, told Paton that by the end of the second year of his investment in the unit trust, the proposal would be "self funding" and that there would be substantial capital growth so that Paton could, say, withdraw $100,000 from an anticipated $200,000 capital growth in that two year period: paragraph 8(c)(iv). 28 It is not alleged that Templeton said anything relevant to Paton's pleaded case. 29 Paton pleads that he was given by Blurton a one page sheet which was headed "National Mutual Australian Property Trust No 1" which set out certain calculations and projections for income and capital growth from the proposal: paragraph 8(c)(vi). 30 Paton pleads that he told the other persons at the meeting that he did not wish to take any risks in making such an investment as the one proposed, given his age: paragraph 8(c)(vii). 31 Finally, Paton pleads that nothing was said to him to the effect that there was a risk that he would suffer a capital loss on the units purchased in the trust: paragraph 8(c)(xiii). 32 Despite his assertions to the contrary, Paton is, I find, a man who will not willingly pay income tax if he can arrange his affairs in such a way to minimise or exclude a liability to tax. I am satisfied that the value attributed to cattle on the sale of his grazing property "Spottswood Park", was artificially low in order to avoid a tax liability on the sale of his trading stock. After he dispensed with the services of Jago in late January or early February 1990, Paton engaged Coopers & Lybrand, chartered accountants. He sought income tax planning advice, again in respect of the forced disposal of cattle where an election to defer was made under s 36AAA, and where the income had to be brought to account in 1992 and 1993. When subsequently he engaged Mr Downing of Bentley Sharpnel & Stephens, accountants, he paid substantial sums into a superannuation fund set up in 1991 - 1992 to overcome his exposure to income tax. 33 Simon Gaylard ("Gaylard") of Coopers & Lybrand gave evidence of meeting Paton as a new client in 1990. I accept the evidence of Gaylard. He gave evidence that Paton, at their first meeting in late January or early February 1990, expressed dissatisfaction with his investment. He told Gaylard that he intended to sue National Mutual. He also told Gaylard that he had made the investment because he had a tax problem which the prepayment of interest would help alleviate. He also stated that he had been told that it would be a good investment. The dissatisfaction of Paton was associated with his having a debt of $800,000 to NM Life and the capital value of the units not increasing as Paton thought they should. 34 Paton did not go to the meeting at the Riverside Centre on 16 June 1989 to obtain general investment advice from Creagh. He went with Jago to have explained the details of the proposal involving the acquisition of a $200,000 insurance bond, borrowing $800,000 against the security of the bond to acquire units in a property trust, and prepaying the interest to offset against estimated income, both current and deferred, of about $140,000 in that income year. The purpose of the meeting was to obtain the figures from the computer projections and to allow Paton to ask any questions he had about the proposal. 35 As to the main concern of the meeting on 16 June 1989, Paton said : "Isn't it right that your whole involvement in the National Mutual products was tax driven?---Yes. But for the taxation deductions which the National Mutual products offered you would not otherwise have made those investments?---I can't hear you with that paper going. I'm sorry. But for the taxation deductions which the National Mutual products offered you would not otherwise have made those investments?---No. That's right, isn't it?---That's correct. And the particular taxation deductions which they offered was substantial borrowings, both before 30 June you would have a substantial borrowing given your deduction, some $154,000?---That's correct. And then ongoing deductions in the future years through those borrowings which would assist against your deferred income from the section 36EEE [sic] sales?---Well, that's not quite right. My understanding was if I went into the arrangement that I did that my taxation liability would be gone, I would have no further difficult taxation liabilities. And is that because of the size of the borrowings and the long term nature of the borrowings were such that the deductions in each year from the interest paid could be set off against the income from the cattle sales as they had to be brought to account over the five year period?---I didn't do the sums. Isn't that the reality, Mr Paton?---Well, not necessarily. I was told if I went into this the - by $165,000 - that's the only taxation liability I've been advised of, that that would disappear if I went ahead with this proposition. Now, I hadn't considered the AAA sales. They - they were a few years down the track. I hadn't - I hadn't considered them. ... Wasn't the advantage to you of the National Mutual products that they gave you deductions, on-going deductions, not only against your current years of taxable income, but also against the future years of carried forward sales?---That wasn't part of the negotiations in this deal with National Mutual. Well, I'm asking you about your motivation?---My motivation? Part of your motivation?---My motivation was to reduce my taxation liabilities in - as advised by my accountant. ... During the meeting it was discussed that the linking of the property trust investment with the negative gearing package would provide taxation relief?---Correct. Which was what you were saying you wanted?---Correct. ... You went into this investment, didn't you, looking for deductions, including deductions for future years, against the carried forward cattle sales?---I was advised to look at a tax effective package related to my financial position. ... His advice was to look for an investment which would give you taxation deductions to carry forward for future years?---That is correct, yes. Because you wanted them to set off against your sections 36AAA, cattle sales?---That is correct. Which had to be brought forward over a 5 year period?---That is correct." 36 Creagh, at the request of Jago, was asked to explain to Paton the details of a National Mutual product, being a geared property trust investment in National Mutual Australian Property Trust No 1 combined with an investment in a guaranteed bond. Neither Creagh, Templeton nor JMS was asked or retained to give Paton any advice with respect to investments generally, or the suitability of this investment to the particular circumstances of Paton. Creagh's role was to provide information and to answer any questions which Paton may have as to the "product". Templeton, I find, was present at the meeting more by circumstance than planning. The meeting occurred in an office shared by Templeton and Creagh. Templeton stayed to listen to the presentation and to meet Paton, who he had heard came from the country, from an area where Templeton had some contact with local personalities. 37 Templeton had no real recollection of what occurred in the meeting of 16 June 1989 and much of his statement was predicated on how the presentation ought to have gone, having regard to the training NM Life gave to its agents and the documentation which was ordinarily generated for such presentations. For these reasons, I have substantially discounted much of the evidence contained in his statements tendered into evidence. 38 Creagh has a better recollection of events, although with the passage of time between the meeting in 1989 and the trial, a period of ten years, his recollection is not precise. However, he was actively involved in the detail of the meeting and I am satisfied that the earlier of his statements, given in 1996, more accurately records what occurred at the meeting. 39 Creagh, in his statement, said : "The meeting was simply an explanation of the presentation and we responded to questions which Paton posed". 40 I accept this evidence. The "presentation" referred to was the documentation generated by NMAM which was delivered by Blurton on 16 June 1989 to the office of Creagh and Templeton for presentation to Paton and Jago. 41 The earlier proposal, based on a $300,000 bond, was not discussed at the meeting on 16 June 1989. The discussion was focused on three documents; a document headed "National Mutual Australian Property Trust No 1" ("the projections document"), a document headed "Property Trust Gearing and Insurance Bonds" ("the product document") and a document headed "National Mutual Personal Investment Bond ("the bond document"). The document which was primarily addressed, was the projections document. 42 There is a dispute as to what other documents were present at or discussed in the meeting. However, it is common ground that there was a highlighted copy of details of unlisted property trusts, taken from the March 1989 issue of "Personal Investment" and a flyer concerning a property held by the unit trust at Parramatta. 43 The fundamentals of the proposal were put to Paton and he was taken through particular aspects of it as appeared in the documents. Notwithstanding his assertions in evidence that he was not taken through the documents or did not understand them, the following cross-examination serves to confirm what occurred at the meeting : "It was discussed that this was a properly researched and promoted package, using a recognised and accepted structure to achieve taxation production in utilising of products supplied by the number one, or number two company in this field in the country?---Yes. And it was mentioned it had assets of some 35 - 40 billion, and it's strength of position in terms of Australian corporations, something to that effect was said?---That's right. All right. It was pointed out to you that the figures in the illustrations were based upon a 10-year period?---Yes. Because what was being - the products that were being spoken about achieved their greatest return if held as a long-term investment?---No, that wasn't particularly pointed out to me. I can see by this document that it becomes more valuable as it gets older. It's not only that, but also the life bonds become tax free after 10 years, don't they?---Yes. Which was an attraction?---No, they didn't occur to me at the time. The return on the life bonds were tax free after - - -?---That did not occur to me at the time that there was a tax advantage there. I don't believe it was pointed out to me. And it certainly wasn't by Ted Jago. Are you sure, Mr Paton? Unless I'm wrong, I thought you agreed with me before that it was pointed out to you that - on this document in exhibit D the document about the property trust gearing - the proceeds tax free after 10 years was pointed out to you?---I said that was unimportant to me. I thought you agreed it was pointed out to you at a meeting, but I may be wrong about that. It's right, isn't it, that when you look at these illustrations the real benefit of the return comes if held for a 10-year period?---That may be so; I don't know really. Well, all the figures are based on 10 years?---Yes, the figures seem to - - - And if you just look at this document about the - in exhibit 8, property trust gearing and insurance bonds?---Yes. The cash value after 10 years is markedly better than the cash value at five years, isn't it?---On what portion of it? The top left hand corner and top right hand corner?---Oh, yes. And it says in the middle box, in the very middle of the page, 'Net return after 10 years'. It estimates that based upon the various assumptions we've spoken about the return will be something like a million dollars after repaying your loan after 10 years?---Yes, that's correct. And a large part of that is that the life bonds will be tax free when realised after 10 years?---Yes. I can see that now. And that was pointed out to you at the time?---It most probably was. I can't actually remember exactly, but it most probably was. I can't see why it wouldn't be. All right. It was pointed out to you, or it was discussed in the meeting that the aim of the package was to hold the investment bond for the 10 year period in the expectation it would satisfy most of the debt owing on the property trust units?---No, that wasn't pointed out to me. During the meeting you raised the subject of early redemption - - -?---Yes. - - - by asking a question along the lines of, 'What would happen if I wanted to get out of the investment early'?---Yes. The response given was along the lines that both the insurance bond and the property trust units could be realised at any time the investor wanted?---That's not correct. Well, pausing there, are you sure about that, Mr Paton?---Yes. Wasn't it said to you that both the life bond and the property trust units could be realised at any time the investor wanted?---No, that's not the words that were used. Isn't that the effect of what was said?---I was told that I could exit at any time, without cost, take any profits with me if any, and the thing would be steadily rising in value all the time. Well, you've gone beyond the question of getting out of the funds, but we're agreed, aren't we, at least this far, that it was pointed out to you that both the property trust units and the life bonds could be redeemed at any time the investor wanted?---It was pointed out, yes. Yes. That is what I just put to you. I suggest it was also pointed out that if the investor did seek to redeem them early there would be some other consequences though?---No, that wasn't pointed out to me. For a start, there would be the loan that would have to be repaid?---That wasn't pointed out to me, but obviously there is a loan to be repaid, yes. The second thing is that there would be a cost involved because of the initial entry fees?---Yes. That that would be a consequence if the investor sought early redemption?---That's right. Because the extent of the initial entry fees made the investment a negative one, at least in the early years?---I can see that now; I didn't particularly realise that at the time. But you did, didn't you, because you wrote it in in your own hand?---Yes, but that was contradicted later, in the meeting. Well, the document clearly tells you, in typewritten form, that the initial investment, because of the entry fees, would be about $750,000. And you recorded that by writing it on the document?---I mistakenly went to the top of the first column, where I noted that 172,000. 752 - - -?---752,000, yes. And that's telling you, isn't it, that there are substantial entry fees?---That's correct. And you would know that that would have a consequence if you sought to redeem at a very early stage?---Yes. And I'm suggesting that was pointed out to you as being one of the things you would have to bear in mind - - -?---No, it wasn't pointed out to me. - - - if you sought to redeem at an early stage?---No, that wasn't pointed out to me at any stage. And I suggest that it was also pointed out, on the subject of early redemption, that the benefit of the tax advantages in this package would be less?---No, to the contrary. If it was sought to redeem?---No, to the contrary. I was told I could retain the tax advantages. You see, you wouldn't be getting, for example, the tax advantage of the life bond?---Correct, yes. I'd understand that would go. That was obvious, wasn't it?---That - to me that was insignificant." 44 Creagh in his statement said : "I do remember Paton raising the issue of a risk. It was at that stage that someone at the meeting said that National Mutual was a strong Australian financial institution". In cross-examination he could not elaborate further on this recollection in his statement. Creagh did tell Paton that he thought the trust was "a sound trust" and "a sound investment" in the context of Paton seeking assurance as to the soundness of the proposal. That appears from the following exchange during cross-examination of Creagh : "Well, let us turn over the page on page 7. Just to make sure that this was a statement that wasn't standing alone, in the last sentence in paragraph 9 which is the last three lines: He wanted to obtain conformation that it was a good product, that it could be geared that National Mutual was well regarded and that the projections looked good. Do you see that?---Yes. That was his concern, wasn't it, at the meeting in June 1989?---Well, certainly he was wanting to know those things, I would say, yes. He was worried about the risk, wasn't he?---Well, he was wanting to know those things. Okay, I will ask you again. He was worried about the risk, wasn't he?---Risk wasn't the word I recall mentioned, but he wanted to check the bona fides of National Mutual, what the properties were like, whether the figures were accurate. I suppose you could say it amounted to checking risk, yes. Because, you see, he was gearing to the maximum, wasn't he?---That was up to him. I know it was up to him, but he was seeking advice from you in relation to whether it was a produce reliable enough to gear to the maximum, wasn't it?---It was a standard package that National Mutual was making available to members of the public through a prospectus. It was up to him to gear to whatever level he wished to. I understand that. We all understand that the man himself had to make his own decisions. But he is sitting in your office asking you questions and we are trying to get to the bottom of what the questions were directed at. Do you understand, Mr Creagh, why I am asking you - - -?---I understand why you are asking them and I thought I have answered them in that I have explained the figures, I have showed the prospectus. This is by way of explaining in general terms, and as I said, probably I haven't done this all that well and when I am making the statement with the solicitor, I am explaining to him at the same time how the thing works. But you signed it in the end, you see?---I signed it in the end, certainly. But one important thing too is those two statements that I've just referred you to, they're taken out in the second statement?---Okay. Well, it must have - it must have - I must have thought they were too general at the time. I don't know; I can't recall. Well, they're not general, they're very precise, Mr Creagh; in fact what they do is they explain, I suggest to you, the tenor of what Paton's questioning was of you. Could this product be geared to the maximum?--Well, of course it could. Well, you say of course it could, but I'm talking about whether that was the thrust of the meeting, you see?---Well, no, that wasn't the thrust of the meeting. I'll suggest to you, Mr Creagh, that Mr Paton made plain to you that his concern was to get a tax break or to enter into a tax effective investment, but he was concerned to ensure that the risk of falling behind with a 100 per cent negative geared, or 80 per cent negative geared investment was not high, wasn't he?---Say that again, please. Paton's concern was he was happy to enter into this tax effective investment but he was looking for assurances that he wasn't entering into an investment that had high risk?---I'm not sure that he was happy to enter into it or not. At that stage we provided information which he was assessing. He took away the information we gave him, and he took away our prospectus. So he must have eventually decided to proceed. I think the point I'm making finally and I won't make it again after this question: the thrust of all the questioning or the thrust of his questions or substantially all his questions was, was it not, whether this product was sufficiently without risk, such that he was safe in gearing it to the maximum?---No, I don't agree with that. Have you got your original statement there before you, the one dated 13 August 1996, please?---That's the one I just had? Yes. I'm looking at page 8, please?---Yes. Okay. In paragraph 13 at the foot of that page 8?---Yes. Reading: We talked about National Mutual and its size and strength in general terms compared with the more speculative investment. Now, that's true, isn't it?---Yes. And can you recall now what you said about National Mutual and its strength and size?---Well, as I said in the statement, it was a 120-year-old company with a good record and a conservative approach. I don't - I don't change that. Okay. And in that respect you were referring to the trust, were you?---No, I was referring to National Mutual. Okay. But its relevance to the trust, its relationship to the trust?---The trust was part of the National Mutual total entity. But he wasn't down there inquiring about National Mutual; he was inquiring about this proposed investment, of course, wasn't it?---But it was a National Mutual trust; it wasn't somebody else's trust. Okay. So you told him about National Mutual, because you were advising him that it is National Mutual reputation that he ought to take into account when assessing the trust?---Yes. The things you said to him were to indicate that your view was that National Mutual trust, this trust, was very secure?---Yes, I thought it was a sound trust. But it was very secure. That is what you were saying to him?---I said National Mutual was a very strong company with big assets, and had been there a long time, and was a conservatively operated company; that is what I said. And Mr Creagh, that was in response to some inquiry of his about the risk of gearing to the max, wasn't it?---I don't recall that. Do you recall saying words to the effect to him that this trust was a trust that would suit his purposes, or words to that effect?---No." 45 The recollection of Creagh in respect of this matter is not necessarily inconsistent with the recollection of Paton as to the question of risk : "Let's go back to the meeting. I suggest that there was some discussion in general terms about the company National Mutual, its size and strength?---Yes. You were told by Mr Creagh it was a 120 year old company, with a good record and a conservative approach?---That's correct. He explained that a property based investment was generally less affected by risk in the medium to long term?---Than medium to long term? Would you repeat that? Mr Creagh explained that a property based investment was generally less affected by risk in the medium to long term?---Yes, he could well have said that. And that it was more stable and less volatile than purchasing shares or other types of investments?---I don't recall him mentioning shares. That wasn't mentioned. Well, the thrust of it is that an investment in a property based investment was more stable and less volatile than other - some other types of investments?---Yes. I'll - that's okay with me. Might it be that you, having heard that, said - you interpreted that to say that there was no risk in a property based investment of this kind?---I was convinced that there was no risk for what reasons - for the - for all the things that were said there. Might it be that you came away convinced that there was no risk, but that was your own interpretation?---That's my own interpretation. Based on what you'd seen and heard?---That's correct. But those words weren't used by Mr Creagh or Mr Templeton during the meeting, or anyone else during the meeting?---I was told there was - there would be no risk whatsoever of capital gain - of capital. Think about it for a moment, Mr Paton. Might that not have come away as your impression, your overall impression, or interpretation of what was said?---That's correct." 46 One of the principal concerns of Paton was the level of up-front fees payable out of the loan of $800,000. He said in his statement : "45. At one stage, I accused Blurton of deliberately misleading me in relation to up-front costs. I wanted to know what was in it for them, and could not get a straight answer from anyone. 46. When I asked questions about the cost, I was told by Blurton that the only extra cost was a small insignificant charge to do with a share of payment of stamp duty applicable to most similar transactions. 47. The up-front costs were important to me, given that I had been told that I could cash in the investment on the next day. In my opinion, if the up-front costs had been high, I would have had to have held the investment for a longer period to justify payment of them." 47 He next deposes of being told of an up-front fee of $58,000 by Blurton on 29 June 1989 when he attended at the office of NM Life in Brisbane to sign the mortgage documentation and to deliver the signed loan acceptance form. 48 In the context of his statement, the clear impression is that Paton was not aware of the sizeable up-front fees associated with the scheme until 29 June 1989. That was the position he maintained at trial until forced to concede that he was told on 16 June 1989 that the up-front fees were in the order of $48,000 : "See your evidence in your statement is you couldn't get a straight answer from anyone as to what were the upfront costs at the meeting?---That's true. In Jarden Morgan's offices?---That's true. And the first time you heard it was 50,000-odd was when you went to see Mr Radcliffe on 29 June, and you say you were surprised?---Yes. Surprised to here [sic] it was 50,000-odd dollars, that's at transcript 135?---Correct. Now, I'm suggesting to you, Mr Paton, that the evidence was untrue?---You can suggest what you like. It is true. If you look on exhibit 8 you were plainly told that the upfront costs were of the order of $48,000, weren't you - - -?---I wasn't clearly told. - - - at the meeting with Mr Creagh?---I wasn't clearly told. I was told - - - And it was obvious?---I was told that the upfront costs were a small, insignificant charge to do with stamp duty and costs associated with similar transactions. That's the answer I got when I tried to pin that down. But you were also told it was an ingoing management fee of 6 per cent?---I didn't realise that. Which would result in the property trust units at the outset being worth only 752 thousand rather than $800,000?---That's partly correct, yes. Well, doesn't that mean you were told that there were to be 50,000-odd dollars worth of upfront costs?---It was contradicted later, twice. So you say you were told initially there were upfront costs in order of $48,000, but that was later contradicted?---That's correct. So you're clear about that now, are you?---Yes. Well, why don't we see that in your statement, Mr Paton? Why don't we see that in paragraphs 45 through to 47?---Why isn't it in there? Why isn't it in there?---I can't imagine. ... There's not a word about that in your statement?---Well, it's here. Your statement gives a completely different effect that they wouldn't disclose to you what the upfront costs were. They kept it from you?---They did disclose to me what they were. Yes?---In plain English. Your affidavit goes on even to say that you went back for a second meeting with Creagh and Templeton to try and force it out of them. That's in paragraph 70?---Yes. But they wouldn't give you any more information, particularly about the upfront costs?---That's right. The truth is you had already been told that they were $48,000?---There was a conflict there. Yes, I knew that. I'm suggesting that you knew that the up-front costs to the extent of $48,000 would have an impact upon whether you could redeem the investments and get all your money back in the short term?---Yes. You're agreeing with that?---Early on, yes." 49 This evidence of Paton weighed significantly against his credit. 50 Up-front fees were a matter of particular concern to Paton because of their impact on his ability to exit the investment quickly if he chose to do so. He said : "Okay. Well, I will withdraw that then and put it this way. One of the things you asked about was up front costs?---That's correct. And you say in your statement that you were mainly interested in up-front costs. Do you recall saying that?---Yes. Why was that?---Because I didn't want to start off way behind the eight-ball. Right. Well, you say in your statement, if I can remind you, this in paragraph 47 : The up-front costs were important to me given that I had been told that I could cash in the investment on the next day. In my opinion, if the up-front costs had been high I would have had to held [sic] the investment for a longer period to justify payment of them. Do you recall saying that?---Repeat that, please? No. You go to your statement, thanks. Page 9 paragraph 47?---Yes, I understand the statement. Right. Well, that's what ....?---Depends a little bit what 'next day' means to me. Well, don't worry about that. You said in your statement that the fees were important because you realised if they were big you'd have to hang on to the investment for longer?---That's correct. Okay. Is that what you mean by not starting behind the eight-ball?---Yes. Okay. Is that something that occurred to you back then, or are you just saying it now?---I'm not sure when that occurred to me, but at all stages I didn't want to be in a position where I couldn't get out of it when it suited me. All right. Well, you say in your statement that you were mainly concerned about up-front costs?---Yes. Is that because of not wanting to start behind the eight-ball?---No, it was because so I could get at it whenever I elected to get out of it. I didn't want it to be in such a mess that I couldn't get out of it. Right. Well, they're really different things, aren't they? Whether or not you can get out depends upon the terms of the agreement you strike with National Mutual?---The legal terms? Yes?---Well, no, it depends on what I was told at the meeting. I don't know what was in the legal part of it, the legal documents. All right. Well, I'll start again?---That's [sic] hadn't been mentioned by then. Okay. Is it true to say that [sic] the meeting you were mainly concerned with up-front costs?---No, not mainly. I was concerned about them, but no [sic] mainly, there was other issues. I don't want to be unfair to you, Mr Paton, go back to page 6, paragraph 38?---On page 6? Well, on the copy I've got, I'm not sure - paragraph 38. Have you read it, sorry?---Yes. Might I see the copy of the statement that you've got, Mr Paton. Thank you. Now, you'll see there that you say : I was asking for information about the costs and about the results. ?---Yes. Continuing: I was mainly interested in the up-front costs. ?---That's correct. Okay. Well, that's what I want to ask you about, you see. Why was that?---Well, why? Because on this thing here it said the first year it started off at $819,000, and I wanted that explained to me. Then it was explained to me, well, that was at the end of the year and not at the beginning. So therefore the thing would be in front by the end of year one. Yes. You say in your statement : The up-front costs were important to me given that I'd been told that I could cash in the investment on the next day. In my opinion if the up-front costs had been high I would have had to have held the investment for a longer period to justify payment of them. Now, do you remember saying that in your statement?---Whatever's in the statement is true. Okay. Now, is it the case that it occurred to you back in June 1989 that if the up-front costs were high you'd have to hold on to the investment longer to justify paying them, or is that something you're just saying now?---I was warned by Mr Calabro before I went there to watch out for high costs, and this what I was wary about. Okay. So it's something, in fact, that was in your mind back then?---Yes." 51 Paton knew about the up-front fees in the meeting of 16 June 1989, as he ultimately conceded in cross-examination : "Okay. All right. Now you knew, didn't you, that the up-front costs here was 6 per cent?---The only thing I knew that the up-front costs were around about $6000. Mr Paton, you have written in the margin of that document C the figure 752,000, and you've written it again under the heading, Investment Value. They are in your writing?---Yes. You wrote that on the 16th?---Yes. You knew, I'm suggesting to you, that the fees which would be charged would be the difference between 752,000 and 800,000?---Well, what am I to think when I'm told - when I read that and I'm told by somebody that the up-front fees are only a small amount of money which is applicable to duties in transactions similar to this? Mr Paton, you were told that if you borrowed the money you would have to execute some documents to record the borrowing, weren't you?---Mortgage, yes. And you were told there would be stamp duty on the mortgage?---No I wasn't. You know that there would have to be stamp duty on the mortgage?---I knew that there would be; yes. All right. You knew when you left that meeting that the initial investment of $800,000 would have deducted from it $48,000 as ingoing management fees?---I did not. And that is the explanation for why you wrote 752,000 twice on that document: you knew that is the value of the units that you would be purchasing?---I dragged that figure out of Creagh and Blurton. ... Okay. Back to the figures that you wrote on the document C, right?---Yes. You wrote 752,000?---Yes. Why?---I've answered that question. Would you mind humouring me and answering it again please?---Yes, it's no trouble. I inquired why in the first year there was that figure of $819,000 there, and - in the first year. Yes?---And then I was told, obviously, that the top figure should start off at 712 - $752,000. Right. Well, can I - have you finished?---Yes. Right. Why did you inquire why the first figure is 819?---Because it was different to the document D. Okay?---It gave me a different impression. Okay. And of whom did you inquire?---I can only answer that by saying it was either Vince Creagh or Bob Blurton. And the explanation was that the starting investment figure is 752,000?---Yes. They told you that?---Yes. Okay. And this calculation - that figure would increase to $819,000 after a year; is that what you were told?---That's what it appeared. So, at the end of the year rather than the start of the year?---Yes. That's what they told - whomever told you, that's what you were told?---Yes." 52 The projections document which forms part of exhibit 8, states that the Ingoing Management Fee is "6% (ie: Initial investment is $752,000)". 53 Paton has written in his own hand at the top of the investment value column the figures "752,000". He has also written that figure on the left side of the document with an arrow drawn pointing to the head of the column. In the top right corner of the document he has written the figure "$6640" which approximates the fees payable to Permanent Trustees which accompanied the application for units in the unit trust. 54 Paton wrote the word "rent" above the income column of the document. He also underlined the words "net cash flow to date" in the notes to the document. At the bottom of the document he wrote the figure for monthly rental in advance. 55 The projection document set out the assumptions underlying the projections as follows : "Borrowed Funds $800,000 Total Investment $800,000 Ingoing Management Fee: 6.0% (ie: Initial Investment is $752,000) Projected Income: 8.0% per annum of Initial Investment Tax Free: 5.25% of annual income Tax Deferred: 22% of annual income Projected Growth: 9.0% per annum of Initial Investment Interest Rate on Loan: 19.25% per annum Capital Gains Indexation (CPI): 7.0% Client's Tax Rate: 49% (Plus the Medicare Levy)" 56 It also included net return tables at year end with notes as follows : "Year End Net Return Year Net Return --------------------------------------------------------------------------------------------- 1 (18,100) 6 202,874 2 18,251 7 273,710 3 50,964 8 356,273 4 92,280 9 451,512 5 142,889 10 560,450 ---------------------------------------------------------------------------------------------- NOTES: 1. The Net Return represents the wind-up position at the end of each year (ie: Investment Value plus Net Cash Flow to date less Outstanding Principal less Capital Gains Tax). 2. In this example income from the trust is taken as a cash payment each year. 3. Loan repayments are interest only for 10 years." 57 The product document was based on an interest rate assumption of 18 per cent. The cash values after 5 and 10 years shown in this document are different and higher than those shown in the projections document. The typed figure for interest in the cash flow column in the product document is altered by hand writing to $154,000. I am satisfied from the evidence of Ms Jago, and a comparison with other examples of her father's writing, that the alteration was made by Jago, and not Blurton or Creagh, as Paton claimed. The product document speaks of "Illustrative Returns" and "Illustration" assumptions. It concludes with the following note : "Note: The figures shown are illustrations only. While every reasonable effort has been made to ensure that the figures are correct, National Mutual does not accept liability for any errors, misprints or omissions including those caused by negligence. Investments to National Mutual Australian Property Trust No 1 may only be made through the application for attached." The bond document is headed "Illustrations (Guaranteed Portfolio)". The document ends with the following statement : "The illustrations of tax liability are based on the understanding of the present tax law and are subject to government policy changes. The earning rates are illustrations only and are not guaranteed." 58 On any fair reading of the three documents, they are illustrative only of what will occur if the assumptions are borne out. Paton, I find, knew that the documents were only assumptions. The existence of large up-front fees meant that the investment had to increase in value in order to cover the cost of these fees deducted from the loan. He knew from the assumptions shown on the document that he could not exit the investment without loss, if the assumptions held good until the end of the second year. At that time he could exit the investment without loss because his outlay and debt would be covered by the wind-up return of the investment. In my view, it is more probable than not, that the statement as to self-funding was made in the context of exiting the property trust investment at the end of two years on the basis that the assumptions were borne out over time. This accords with part of the allegation made against Jago in paragraph 8(c)(iv) of the statement of claim. 59 The provisional nature of the documents is addressed by Paton in two ways. Firstly, he says that Jago said in the meeting that there would be anticipated capital growth of $200,000 by the end of the second year from which Paton could withdraw $100,000. Secondly, he alleges that Blurton was at the meeting and said that the investment was absolutely safe, and that Paton was entitled to sell back his units at any time with the benefit of capital gain which, at a minimum, would exceed 10 per cent per annum. That is, he alleges that Jago and Blurton guaranteed capital growth beyond the projections and guaranteed that the projections would be bettered, to the extent that Paton could, at any time, notwithstanding the up-front fees, exit the investment without loss of capital. 60 I am satisfied that Blurton took the new projections to the office of Creagh and Templeton on the morning of 16 June 1989. The whole sense of Blurton's evidence is that he received a telephone call requesting further quotes and asking that they be brought down to the office for use in a presentation to a client. He conceded that he could have been told that the client was about to arrive, or had arrived, and they needed or wanted up-to-date figures. 61 Creagh could not recall whether the request of Blurton for up-to-date projections was made on the afternoon of 15 June or the morning of 16 June 1989. He inclined to think it was made on the afternoon of 16 June 1989. Whether he rang also on the previous afternoon or was mistaken in his recollection, I am satisfied he spoke to Blurton on the morning of 16 June 1989 and requested that the projections be dropped down for a presentation to a client. 62 Creagh gave as the reason "... why he dropped them down quickly to us", was that the projections were required for a client presentation. I am satisfied that there was a short period between the request and the delivery of the documents to Creagh on 16 June 1989. 63 The probability is that when Jago and Paton arrived for the meeting, Creagh did not have the up-dated information which he needed for the presentation and he told them that he would make a telephone call to have the documentation delivered to the office. It is also possible that Paton saw Creagh make the call. Blurton arrived shortly after the call was made with the documentation. 64 Paton is emphatic that Blurton attended the meeting pleaded in paragraph 8(c) of the statement of claim and made the statements alleged in paragraphs 8(c)(iii), (v), (viii) and (ix). Blurton, Creagh and Templeton are equally as certain that these events did not occur. Their evidence is that Blurton delivered the documents and went through the details in a meeting with Creagh and Templeton, which did not include Jago and Paton, and then departed before the meeting with Jago and Paton commenced. 65 I accept the evidence of Blurton, Creagh and Templeton that they had a meeting which did not include Jago and Paton at which Blurton went through the documentation. It is not necessarily inconsistent with the evidence of Paton that there was a meeting which did not include him, which was of a short duration, and which occurred before the meeting which involved Jago and Paton. 66 To choose one version of the facts as opposed to another, on the balance of probabilities, requires that the decision be made on a rational basis and accord with common sense. The correct approach to deciding the question is stated by Lord Brandon of Oakbridge in Rhesa Shipping SA v Edmunds [1985] 1 WLR 949 in a speech agreed in by the other members of the House of Lords. His Lordship said (at 955 - 956) : "My Lords, the late Sir Arthur Conan Doyle in his book The Sign of Four, describes his hero, Mr Sherlock Holmes, as saying to the latter's friend, Dr Watson: 'How often have I said to you that, when you have eliminated the impossible, whatever remains, however improbable, must be the truth?' It is, no doubt, on the basis of this well-known but unjudicial dictum that Bingham J decided to accept the shipowners' submarine theory, even though he regarded it, for seven cogent reasons, as extremely improbable. In my view there are three reasons why it is inappropriate to apply the dictum of Mr Sherlock Holmes, to which I have just referred, to the process of fact-finding which a judge of first instance has to perform at the conclusion of a case of the kind here concerned. The first reason is one which I have already sought to emphasise as being of great importance, namely, that the judge is not bound always to make a finding one way or the other with regard to the facts averred by the parties. He has open to him the third alternative of saying that the party on whom the burden of proof lies in relation to any averment made by him has failed to discharge that burden. No judge likes to decide cases on burden of proof if he can legitimately avoid having to do so. There are cases, however, in which, owing to the unsatisfactory state of the evidence or otherwise, deciding on the burden of proof is the only just course for him to take. The second reason is that the dictum can only apply when all relevant facts are known, so that all possible explanations, except a single extremely improbable one, can properly be eliminated. ... The third reason is that the legal concept of proof of a case on a balance of probabilities must be applied with common sense. It requires a judge of first instance, before he finds that a particular event occurred, to be satisfied on the evidence that it is more likely to have occurred than not. If such a judge concludes, on a whole series of cogent grounds, that the occurrence of an event is extremely improbable, a finding by him that it is nevertheless more likely to have occurred than not, does not accord with common sense. This is especially so when it is open to the judge to say simply that the evidence leaves him in doubt whether the event occurred or not, and that the party on whom the burden of proving that the event occurred lies has therefore failed to discharge such a burden." 67 Paton gave evidence that Blurton arrived 10 - 12 minutes after the telephone call and produced documents out of a soft leather satchel. Blurton acknowledged that he had, in 1989 and at other times, a satchel of that description. 68 Paton stated that Blurton had colour brochures in the satchel, one of which he retrieved and which is exhibit 11 in the proceedings. 69 Paton produced into evidence a business card of Blurton. He said it was given to him when he was introduced to Blurton at the Riverside Centre on 16 June 1989. The card, it is contended, supports the veracity of his version of events on that day. 70 The business card has two holes in it. From the size and relationship of the holes it is more probable than not that they were caused by a staple. Paton did not staple the card and the effect of his evidence is that the card is in the condition in which he received it. There was no suggestion in Paton's evidence that Blurton removed the card from any document or folder to which it was stapled to give to Paton. In my view, the more natural inference to be drawn is that the card was attached to the material or folder delivered by Blurton and it was attached to the material when the material was taken away by Paton. 71 There are aspects of the evidence which weigh against the probability that Blurton was a participant in the meeting pleaded in paragraph 8(c) of the statement of claim, or made the statements alleged in paragraphs 8(c)(iii), (v), (viii) and (ix). 72 The evidence of Paton was that the written notes of Jago were considered by Blurton and the others at the meeting on 16 June 1989: paragraph 8(c)(ii). The written notes of Jago lacked the detail necessary to reveal the specifics of the proposal. That was why Jago had arranged the meeting on 16 June 1989 and sought up-dated computer generated projections. With the arrival of Blurton with the up-dated documents, there is no rational basis why the meeting would commence with a consideration of Jago's notes, if the presentation documents were available and Blurton was present to speak to them. 73 The existence of the up-front fees were not disclosed in Jago's written notes and workings. The existence of the up-front fees made the statements alleged in paragraphs 8(c)(iii), (v) and (viii), without further qualification to accommodate the existence of the fees, wrong; a circumstance which was immediately apparent from a perusal of the projections document. The evidence is that Paton was alive to the true situation of the up-front fees because he was taken to the detail of it by Creagh. He knew that because of these fees, he could not immediately, or at an early time, exit the investment without loss of capital. He knew that he was committed to the investment until growth in the unit value recovered the up-front fees. Subject to that qualification, he knew that he could quit the investment at any time of his choosing without additional cost. Faced with the contents of the projections document, and what Creagh was telling Paton about the up-front fees, it is unlikely that Blurton would make, or persist in, these statements which were palpably incorrect without further qualification. 74 The guarantees alleged to have been given by Blurton in paragraph 8(c)(viii) and (ix) are inconsistent with the terms of the documentation Paton admits he received and contrary to the training given by NM Life to its staff and agents. Having heard and observed Templeton give his evidence, I am satisfied that he would not guarantee anything where future earnings or capital growth was concerned. He would not have acquiesced in such statements if they were made in his presence because they were against everything he had been taught. 75 There is some evidence that if Blurton was present at the JMS office on 16 June 1989, he said nothing to Jago or Paton and was not an active participant in any meeting with them. The evidence is letters prior to action written on 28 June 1991 by Paton's solicitors. Three letters were written - one to the Manager of Jarden Morgan Australia Ltd, one to Jago and one to Blurton as the Marketing Manager Financial Services of NM Life. 76 The letter to Jarden Morgan Australia Ltd included the following paragraph : "9. Prior to our Client's decision to undertake the investments and borrowing referred to, certain representations were made by our Client's then Accountant, Edward William Jago, a representative of National Mutual and a representative of Jarden Morgan." 77 The letter to Jago included in paragraph 9 : "9. Prior to our Client's decision to undertake the investments and borrowing referred to, certain representations were made by you, a representative of National Mutual and a representative of Jarden Morgan." 78 The letter to Blurton included as paragraph 9 : "9. Prior to our Client's decision to undertake the investments and borrowing referred to, certain representations were made by our Client's then Accountant, Edward William Jago, a representative of National Mutual and a representative of Jarden Morgan." 79 Each letter contained the statement : "Our client entered into the arrangements referred to above as a result of the representations made to him." 80 Having regard to the form of the letter to Jago when contrasted to the two other letters, the sense is that "a representative of Jarden Morgan" and "a representative of National Mutual" was someone other than the addressee of the letter. Having regard to the direct assertion to Jago that he made representations which induced Paton to act, the failure to make such an assertion to Blurton is inexplicable having regard to the pleaded representations relied upon. 81 The letters are consistent with Blurton having come to the office of JMS with the documents which were discussed at the meeting referred to in the letters. They are also consistent with Blurton being present for part or all of that meeting, but as a matter of construction they point to another person other than Blurton having made the statements that were the subject of complaint. 82 In the final analysis, there is a body of conflicting evidence as to whether Blurton was at, or said anything in, a meeting with Paton, Jago, Creagh and Templeton as alleged by Paton. Aside from the oral evidence of Paton, the inferences available from the proven facts go no further than proving that Blurton was at the JMS office on 16 June 1989, a fact which is not denied, and that he brought with him the projections requested by Creagh, which is also not denied. The facts also support the probability that Jago and Paton were at the office of JMS at the Riverside Centre when Blurton arrived and saw him meet with Creagh and Templeton. 83 The existence of the material which weighs against the rejection of the evidence of Blurton, Creagh and Templeton increases the requirement that there be a rational basis which accords with common sense for disregarding the opposing material and for choosing the evidence of Paton over the evidence of the others on this issue. Additionally, I am not satisfied that Paton is an entirely credible witness. His attempt to make out that he first learned of significant up-front fees on 29 June 1989 leaves me with no confidence that his version of the meeting on 16 June 1989 and the statements alleged to have been made on that occasion, is entirely true or correct. Due to the passage of time I allow that recollections may be incomplete, and that incidents which did not form part of the substance of the meeting and the discussion of the documents, have been lost from memory. The evidence of Paton on the issue of the up-front fees does not fall into that category. Therefore, on this central issue in the case, I do not accept Paton's evidence without some substantial support from the proven facts. The probability that Jago and Paton were at the office of JMS when Blurton arrived and saw him meet with Creagh and Templeton, does not of itself, or with the other matters pointed to by Paton, provide such a basis. The consequence is that I am not persuaded on the balance of probabilities that Blurton participated in the meeting of 16 June 1989, pleaded in paragraph 8(c) of the statement of claim, or made the statements alleged against him in that paragraph. 84 I am satisfied that Paton, when he came to the meeting on 16 June 1989, was strongly influenced by what Jago had said to him on the previous day as to the earnings and capital growth of the package, and of his ability to withdraw growth and exit the investment after two years, if he wanted to. I am satisfied there was some discussion in general wherein Jago again spoke of drawing down against growth. Creagh gives evidence of some recollection of Jago talking about the matter. However, I do not accept that Jago stated again, when the projections were available, that there would be $200,000 of capital growth which Paton could draw against. In the face of the projections, which included the up-front fees not included by Jago in his handwritten illustration, such a statement would be wholly inconsistent. I am satisfied that Creagh did not depart from the detail of the three documents provided by Blurton, at Creagh's request. Templeton, I am satisfied, would not have let such a statement by Jago, if made in Templeton's hearing, stand uncontradicted. 85 Notwithstanding what was said at the meeting on 16 June 1989, Paton was not satisfied with what he had been told and was not confident with the proposal. After leaving the meeting he went to the office of Mr Norbert Calabro ("Calabro"), an accountant, to see him and seek advice. Calabro had given accounting advice in relation to Paton's divorce and property settlement and had earlier put some general proposals as to investments after Paton sold his grazing interests. Calabro was unavailable. He spoke instead to Mr Onus Maynes ("Maynes") of Calabro's practice, and gave to him some, if not all, of the documentation he had received in the meeting with Jago and Creagh. He asked Maynes if he could get an opinion from him about the proposed "deal". 86 Paton returned to see Maynes a few days later and gave the following evidence of their meeting : "What happened?---He just handed me the documents and told me, standing up, that - all he could say was that National Mutual was a large firm and unlikely to go, unlikely to suffer financial problems. Okay. What had you asked him to do?---I beg your pardon? What had you asked Mr Maynes to do when you saw him?---To give me an opinion. On what?---On the proposal. Right. As expressed in those documents?---Yes. Okay. And the opinion he gave you, you say, is that it was a large company and unlikely to suffer financial detriment or something like that?---That's correct. Anything else?---No. Were you happy with that?---No, I wasn't. Did you ask him for more?---No, I didn't. It is the case that he didn't advise you not to go into the transaction?---He did not. He didn't offer you advice to enter into some different transaction?---He did not. He made no suggestion to you that there was any risk with unlisted property trusts?---He did not. No negative suggestion at all really?---None whatsoever. No suggestion that you should put your money into superannuation or something like that?---No." 87 Paton gave evidence that he also sought a second meeting with Creagh and Templeton without Jago. As to that approach, he said : "Well, what I want to understand, Mr Paton, if they were clear to you after the 16th meeting, why did you ask Creagh and Templeton about them on the 19th? What is it that you wanted clarified?---The same reason I went to Calabro. I wanted - I - I was - wasn't confident of the - of the whole thing. Right. That might be so. But you'd been told what they were?---Yes. What did you want to be told again about the - what is that you wanted clarified about the up-front fees?---I wanted to know if there was more to it than I knew." 88 Paton travelled to Miriam Vale on 21 June 1989 to sign the application form for units in the unit trust and to sign cheques. One cheque for $200,000 was for investment in an insurance bond and was payable to "NMLA Ltd". One cheque was for $6,400 and was payable to Permanent Trustee Aust Ltd, and it was to accompany the application for units in the property trust. The final cheque was for $154,000 made payable to NMLA, and was the prepayment of interest. 89 On 29 June 1989 Paton attended at the offices of NM Life in Brisbane to deliver documentation relating to the loan and the security to support the loan of $800,000. There is a dispute on the evidence between Blurton and Paton as to what occurred on that date. Paton, in his statement, said : "79. I was met by Blurton as I walked in the door. We talked about the transaction. I told him that I told him [sic] that the transaction had better be exactly as we had discussed, otherwise he'd regret the day. He then told me that there was an up-front fee of fifty eight thousand dollars ($58,000.00). I said that I would not be in it if that was the basis of it." 90 He then said that he was taken to meet a Mr Paul Radcliffe ("Radcliffe"), whom Blurton said was a lawyer with National Mutual. Paton says that Radcliffe said to him his only option to alter the $58,000 fee was to put pressure on Jarden Morgan and re-negotiate the commission. 91 Blurton gave evidence that he did not know Paton before the meeting and was summoned to the reception where he met Paton. 92 Blurton gave evidence that Radcliffe was an accountant and was at the time responsible for security documents. When Paton raised questions about the 6 per cent entry fee, Blurton says it was he who responded to the questions because it related to his area of responsibility. 93 Blurton's evidence was that Paton asked what the 6 per cent entry fee related to and what Jago was getting out of the deal. He responded that Jarden Morgan would receive 5 per cent of the 6 per cent entry fee, and that anything Jago received from that fee was between Jarden Morgan and Jago. Blurton says he told Paton to ring Jago. He can recall Paton spoke to Creagh, as a result of which Paton negotiated a reduction of one-half in the commission paid to Jarden Morgan. In consequence, Blurton noted the application form "rebate 2˝% brokerage in extra units". Paton then signed the documentation and the transaction was completed. 94 Radcliffe gave evidence that he may have told Paton to take up the commission question with Creagh. In his statement he confirms the presence of Blurton at the time of the discussion concerning commission. However, under cross-examination he swore that he had no recollection of whether Blurton was present or not. 95 I find the evidence of Blurton the more credible of the two versions. Paton knew of the existence of the up-front fee of 6 per cent at the meeting on 16 June 1989. What he did not know was the commission to be earned by JMS on the transaction and any arrangements to share commission existing between Jago and JMS. 96 On 29 June 1989, when he signed the documentation and determined to proceed with the transaction, Paton knew the details of the transaction, and he knew that the documentation which he had received were projections based on the assumptions stated in the documents. He knew that the projections were only illustrations and that they were not guaranteed. He also knew that part of the loan of $800,000 would be used to pay up-front fees, and that he could not redeem the units and repay the loan of $800,000 without loss until the value of the units grew to a point where the value of the units equalled or exceeded $800,000. On the projections which he had been given, he could not exit the investment and make a positive net return on it until the end of the second year of the investment. Similarly, the projected value of the units was not expected to exceed $800,000 until the end of the first year of investment. However, those projections were based on an up-front payment out of the loan of 6 per cent or $48,000. By negotiating the rebate of commission, Paton had reduced the up-front fee to 3.5 per cent and increased the number of units held. 97 Paton elected to proceed with the transaction on 29 June 1989 primarily because he wanted the income tax deduction in order to avoid a substantial tax liability which would become certain and unavoidable on 1 July 1989. That was the reason, he told Gaylard, why he went into the investment and it is clearly correct. I am satisfied that Paton made his own assessment of the risk involved in entering the investment, and that part of the evaluation of the risk was the extent of his liability for income tax and the reduction in up-front fees which he had achieved by threatening not to proceed with the transaction. Jago was also advising him to proceed with the proposal as it was necessary to deal with his impending tax problem. He also took into account that Maynes had not advised him not to proceed with the proposal and had confirmed that NM Life was "a large firm and unlikely to go, unlikely to suffer financial problems". I do not accept the evidence of Paton given in re-examination, that on 29 June 1989 he was relying on the safety net of what was said to him on 16 June 1989. There was no "safety net" on 29 June 1989. If Paton took comfort from anything said in the meeting of 16 June 1989, it was from statements made which are not pleaded as giving rise to any actionable representation. Paton knew that there was some element of risk, and that the payment of up-front fees tied him to the investment until growth in value of the units exceeded the amount of those fees if he wished to avoid a loss equal to so much of the fees as was not covered by growth. Paton adjudged the risk acceptable and proceeded with the transaction. 98 What was said by Creagh on 16 June 1989 did not induce Paton to proceed with the transaction on 29 June 1989. Paton did not accept what was being put to him as a full disclosure of the proposal. Nor did he accept that the proposal was a sound one. He determined to make his own inquiries and to satisfy himself before he proceeded with the investment, which he did. I find that Creagh did not make the statements pleaded in paragraph 8(c)(v) of the statement of claim. I am not persuaded that Creagh made the statements pleaded in paragraphs 8(c)(x), (xi) and (xii) of the statement of claim in the terms alleged. Rather, I am satisfied that what is alleged is Paton's interpretation of what Creagh said to him about the history, financial strength and conservative investment policies of National Mutual. Paton admitted in cross-examination that his assessment as to the risk of the proposal was based on his interpretation of what he was told rather than any specific statement made by Creagh as to risk. Much of the evidence of Paton, I am satisfied, was his interpretation of what he was told by Creagh, and, by what Jago had said to him on 15 June 1989. 99 In the result, Paton has failed to make out, on the balance of probabilities, that Creagh himself or by acquiescence, and Templeton by acquiescence, made the statements pleaded in paragraph 8(c) of the statement of claim and thereby made the representations pleaded in paragraphs 12 or 12A of the statement of claim. Further, he has failed to make out reliance on those representations. 100 Absent a finding that the representations pleaded in paragraphs 12 and 12A of the statement of claim were made as alleged, there is no actionable conduct proved to sustain the allegations of negligence and misleading and deceptive conduct in paragraphs 14 and 14A of the statement of claim. The case alleged against NM Life, NMAM, Creagh, Templeton and JMS fails for want of proof of the facts alleged. 101 Even if Paton had made out an actionable wrong, there are substantial problems confronting him on the question of the relief claimed under the Trade Practices Act 1974 (Cth) or upon an assessment of damages. 102 Paton sought advice from Coopers & Lybrand whether to maintain the investment in the unit trust and insurance bond, or whether he ought to quit the investment. He received their advice to hold onto the investment and to prepay the next instalment of interest. The advice is contained in two letters dated 26 February 1990 and 8 May 1990 to Paton, and in oral advice given to Paton on 21 June 1990 by Gaylard. The oral advice is recorded in a file note. The note says : "We then spent some time talking about the National Mutual arrangement which in summary involves a $200,000 insurance bond investment, a loan by National Mutual of $800,000, the total amount of which was invested in the National Mutual Australia Property Trust No 1. In 1989 Paton prepaid interest of $140,000 odd and he is proposing to do the same in the 1990 year. In fact he sought my views on whether he should make the prepayment which is this year fixed at an interest rate of 17.75% well above market rates for a 12 month advanced prepayment. When Paton took out the investment, he paid up front fees of $28,000 so his initial investment in the property fund was $772,000. Its redemption value yesterday would have netted Paton approximately $808,750 so he is now just in front. In [sic] indicated to him that although property trust investments were probably not going to be all that satisfactory an investment in the short term, nevertheless because of the high upfront entry fee and because of the fact that investments such as this are medium rather than short term and in any event his money was quite liquid in this investment he should consider leaving it there and making the prepayment in 1990. During the course of our meeting I spoke with Gary Tupicoff of Tupicoff Musgrave to see whether there was any hope of reducing the rate of interest to a more reasonable level. Gary told me that it would not be possible to do this without incurring additional expenses and I suggested to Paton that perhaps that was not wise in the circumstances. So when Stuart left here he was going to arrange the interest prepayment with National Mutual. However, I propose to phone him on Monday to ensure that he is addressing this matter." 103 The effect of any actionable wrong was spent on 21 June 1990 when Paton accepted the advice, retained the investment and paid the interest. 104 Paton took further advice in 1991 from other accountants and again determined to retain the investment. 105 Paton has retained the investment. He has not paid interest on the loan since 1991. He has claimed, and had the benefit of, the interest charged against him by NM Life as a tax deduction, by accounting on an accrual basis, without paying the same. The income earned by the units he holds has been applied by NM Life under the terms of the security to reduce the interest outstanding. 106 NM Life, by the cross-claim, seeks a judgment for the sum of $800,000 for the debt together with outstanding interest. 107 The loan of $800,000 has now matured and is due and payable. Each of the matters pleaded in the amended cross-claim is made out. However, since the trial there has been additional income earned and interest incurred. 108 I find that NM Life is entitled to judgment for so much of the debt and interest as remains outstanding at the date of entry of judgment. The amount outstanding will have to be established to the satisfaction of the District Registrar upon the taking of an account as to what sum remains due and payable under the loan agreement and mortgage made and given on 29 June 1989. 109 Costs will follow the event on the claim and cross claim. I certify that the preceding one hundred and nine (109) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Cooper. Associate: Dated: 24 May 2000 Counsel for the Applicant: Mr J Bell QC with Mr R P S Jackson Solicitors for the Applicant: Barker Gosling Counsel for the First and Second Respondents: Mr S Doyle SC with Mr A Crowe Solicitors for the First and Second Respondents: Clayton Utz Counsel for the Fourth, Fifth & Sixth Respondents: Mr B O'Donnell QC Solicitors for the Fourth, Fifth & Sixth Respondents: Quinlan Miller & Treston Dates of Hearing: 21, 22, 23, 24, 25, 28, 29 and 30 June 1999, 1 and 2 July 1999 Date of Judgment: 24 May 2000