NMSM Property Pty Ltd v Citibank Ltd (No 10) [2000] FCA 1558

FEDERAL COURT OF AUSTRALIA

NMFM PROPERTY PTY LTD v CITIBANK LTD (No 10) [2000] FCA 1558 NG 765 OF 1994

SUMMARY In accordance with the practice of the Federal Court in certain cases of public interest, I have prepared this brief summary to accompany the Reasons for Judgment that are being delivered today. But the only authoritative pronouncement of my reasons is that contained in the full Reasons for Judgment. This summary is necessarily incomplete. The applicants ("National Mutual") sue the respondent ("Citibank") to recover contribution towards compensation of $10,240,440 that National Mutual claims to have paid to 132 individuals or couples ("the Investors") who invested in National Mutual investment products, in particular, units in a National Mutual property trust. The investment took place in the period from early 1989 to late 1992/early 1993. In order to succeed, National Mutual had to prove in the case of each of the 132 Investors that both National Mutual and Citibank were liable to the Investor in respect of the same damage. Accordingly, the case can be viewed as 132 cases in one. But pursuant to an order, the claim has been heard to date in respect of only 23 of the 132 Investors. The hope of the parties is that upon reading the Reasons for Judgment, they will understand how I would have decided in relation to the remaining 109 Investors. The Investors were not experienced in financial or investment matters and were not in receipt of high levels of income. They were persuaded to invest by National Mutual agents in accordance with a "Negative Gearing Package". They borrowed 20 per cent of the cost of the investment from Citibank by means of its Mortgage Power product, and the remaining 80 per cent from National Mutual itself. National Mutual's case is that its agents were also the agents of Citibank for the purpose, so that, for example, when they made statements extolling the virtues of the property trust, they did so on behalf of Citibank, as well as on behalf of National Mutual. There is no doubt that one of the agents, Lance Kelly, who was a central figure in the marketing of the Package, was an agent of Citibank: he was formally appointed as an agent of Citibank by a written agreement. Whether the other agents of National Mutual were agents of Citibank has been a matter of controversy. And Citibank's case has been that even in the case of Mr Kelly, representations about the National Mutual property trust and about the Negative Gearing Package were made on behalf of National Mutual, but not on behalf of Citibank. None of the Investors complained that any of the agents misrepresented Mortgage Power itself. The investments took place at a time of high interest rates. It was hoped that the value of the units would increase to such an extent and so rapidly that, taking into account the income returns from the investment and the taxation benefit of the negative gearing aspect, wealth would be created for the Investors, provided they retained their investment for a certain period. The Investors claimed that their modest levels of income, the returns from the investment in the units and the taxation benefits from the Package did not enable them to sustain their investment. Complaints began to be made to National Mutual and elsewhere. The Australian Securities Commission commenced an investigation. As well, there was adverse publicity. National Mutual settled with the Investors. Originally National Mutual was suing the agents as well as Citibank but it also settled with the insurer of the agents. In return for a payment by that insurer, National Mutual released the agents and undertook to indemnify them against any liability they might be found to have to Citibank. National Mutual's case that Citibank is liable to the Investors is twofold. First, it says that Citibank owed them a personal non-delegable duty of care to take certain steps directed to protecting them, for example, by ensuring that they received certain warnings of the risks involved. Secondly, it says that Citibank is liable to the Investors because it actually authorised the statements made to them by the agents about which complaint is made. If so, Citibank would be liable to the Investors directly, not merely vicariously with the possibility of a right of indemnity against the agents. National Mutual says that Citibank incurred liability to the Investors under general law principles relating to negligence, the Trade Practices Act 1974 (Cth) and the Securities Industry Code (later the Corporations Law). I have concluded that National Mutual's claim that Citibank is liable to the Investors is not made out. If I had held Citibank vicariously liable, I would have decided that National Mutual is entitled to recover from it 5 per cent of the amount of compensation that National Mutual provided to the Investors and that Citibank is entitled to be fully indemnified by the agents. The Reasons for Judgment are divided into Chapters and there is a Table of Contents. Generally, I have addressed the issues of law involved in Chapter 3. They relate chiefly to the law of agency. The Court orders that the proceeding be stood over to 5 December 2000 at 9.15 am for the making of orders, including orders as to costs, by consent, and if the parties have not by then agreed on the orders that should be made, for the giving of directions for the making of submissions as to those orders. I publish my reasons. LINDGREN J