Supreme Court New South Wales

• Medium Neutral Citation: Tomasetti v Brailey [2013] NSWSC 1282
• Hearing dates: On the papers
• Decision date: 09 September 2013
• Before: R A Hulme J

Decision

First and fourth defendants to pay damages and costs to the second plaintiff as assessed in accordance with terms of the orders set out at paragraphs 71 and 72 herein

• Catchwords: TRADE AND COMMERCE - consumer protection - misleading or deceptive conduct - recommendation by financial adviser of investments in agricultural managed investment schemes - implicit representations by financial adviser that investments were suitable for the investor's personal circumstances - investments obviously not suitable for particular investor - reliance by investor upon advice - schemes ultimately failed - reliance upon advice causative of loss
• Legislation Cited: Civil Procedure Act 2005 (NSW); Competition and Consumer Act 2010 (Cth); Corporations Act 2001 (Cth); Fair Trading Act 1987 (NSW); Trade Practices Act 1974 (Cth)
• Cases Cited: Awad v Twin Creeks Properties Pty Limited [2012] NSWCA 200; Bullabidgee Pty Ltd v McCleary [2011] NSWCA 259; Hampic Pty Ltd v Adams (2000) ATPR 41-737; I & L Securities v HTW Valuers (2002) 210 CLR 109; Jacfun Pty Limited v Sydney Harbour Foreshore Authority [2012] NSWCA 218; Tomasetti v Brailey [2011] NSWSC 1446; Tomasetti v Brailey [2012] NSWCA 399
• Category: Principal judgment
• Parties: Peter Charles Tomasetti (First plaintiff); Sandra Cordony (Second plaintiff); Tomasetti Investments Pty Limited as trustee for the Tomasetti Superannuation Fund (Third plaintiff); Edmund Francis Brailey (First defendant); John Clifford Fenton (Second defendant); Christopher Campbell Lane (Third defendant); TJC Financial Planning Pty Limited (Fourth defendant)
• Representation: Counsel: Mr A Maroya (Plaintiff); Mr TGR Parker SC with Mr C Carroll (Defendants); Solicitors: Holding Redlich (Plaintiff); Holman Webb Lawyers (Defendants)
• File Number(s): 2009/297599

Judgment

1 HIS HONOUR: Mr Peter Charles Tomasetti, his wife Ms Sandra ("Sassi") Cordony, and Mr Tomasetti's superannuation fund ("TSF") entered various agricultural investment schemes between 2000 and 2005. Entry into these schemes had been facilitated and advised upon by their accountant, Mr Edmund ("Ted") Brailey and, relevantly to this matter, a financial planning business he was associated with, TJC Financial Planning Pry Ltd ("TJC").

2 The schemes went awry. Mr Tomasetti, Ms Cordony, and Mr Tomasetti's superannuation fund initiated proceedings against Mr Brailey and entities associated with him, seeking damages in negligence, breach of contract, breach of s 42 of the Fair Trading Act 1987 (NSW), breach of certain provisions of the Corporations Act 2001 (Cth), and breach of fiduciary duty. On 17 November 2011, I gave judgment dismissing the proceedings: Tomasetti v Brailey [2011] NSWSC 1446. The plaintiffs lodged a Notice of Appeal against my determination.

3 On 11 November 2012, the Court of Appeal found that Ms Cordony was entitled to succeed against Mr Brailey and TJC on her Fair Trading Act and negligence claims: Tomasetti v Brailey [2012] NSWCA 399. The Court of appeal remitted the questions of causation and quantum to me for determination. The first question was described by Macfarlan JA thus, at [90]: "whether Ms Cordony would have proceeded even if Mr Brailey had not recommended the investments to her."

4 The parties have agreed to conduct this remittal by way of written submissions. The last written submission was received on 23 July 2013.

5 Hereafter, and for ease of reading, I will refer to the parties either by name or, in the case of Ms Cordony, as "the plaintiff" and in the case of Mr Brailey and TSF, as "the defendants". However, in the pronouncement of orders I will give them their correct titles of "second plaintiff", "first defendant" and "fourth defendant" respectively.

Facts

6 A history of the matter may be found in my first judgment and the judgment of the Court of Appeal. It does not require a detailed recitation. But I will outline the relevant facts below for the benefit of the present reader.

7 Mr Tomasetti was admitted to the bar in 1979 and was made senior counsel in 2007. Ms Cordony was, since 1993, Mr Tomasetti's partner and, since May 2002, his personal assistant in chambers. They married in 2003.

8 In 1998, Mr Tomasetti secured the services of Mr Brailey as his tax agent, accountant and financial advisor. Between 2000 and 2005, Mr Tomasetti, Ms Cordony, and the TSF invested in a total of eleven managed investment schemes. These schemes could be described as "agribusiness" investments of a kind that were designed to yield substantial tax concessions. They shared, to a greater or lesser extent, illiquidity; a long fixed-term; ongoing maintenance and finance costs; and exposure to a number of exotic risks, including climate, disease, fire, exchange rates and the caprices of international secondary markets.

9 I summarised the various investments at [9]-[21] of my primary judgment:

The plaintiffs' first investments, which were made by Mr Tomasetti in the financial year concluding 2000, related to timber plantations known as 'woodlots' or 'timberlots'. Further investments in timber plantations were made in financial years 2001, 2002 and 2003. Each project was constituted as a managed investment scheme.

Each scheme had a similar structure. The investor ('grower') would be granted a lease (or sublease) by the promoter of a specified parcel of land per timberlot. The grower would also enter into a management agreement with the promoter whereby the promoter would establish, maintain and ultimately harvest and sell the timber. The proceeds of sale would be pooled and distributed to the growers.

There were to be no returns in respect of the timber plantations until the trees were at sufficient maturity to be harvested. For example, the Timbercorp Eucalypts 2000 prospectus suggested a harvest at least 8 years after planting. The Gunns Woodlot 2002 product disclosure statement ('PDS') spoke of 13 years.

Under the management agreement, an initial fee was payable to cover the cost of establishing the plantation and for initial rent of the land. There were ongoing expenses for the grower. Depending upon the project, these comprised rent, maintenance, licence fees, insurance, and pruning services.

Each of the promoters of the schemes in question also offered (on a subject to approval basis) finance for the initial payment and, in some cases, later payments. To obtain finance, the grower would enter into a separate loan agreement with the promoter (or associate) under which the grower would agree to repay the amount financed according to a particular loan schedule, paying interest on the outstanding balance in the meantime. In some schemes, a choice of repayment periods (at different rates of interest) was available.

Under this structure, the grower himself or herself would be carrying on a timber plantation business on his or her timberlots. The grower was entitled to a tax deduction for the amounts of the initial payment and ongoing rent and management expenses, together with interest on any associated borrowings. Each of the schemes had the benefit of product rulings from the Australian Taxation Office ('ATO') which, if they were complied with, confirmed the grower's entitlements to such deductions. Of course, any net income ultimately derived from the harvest and sale of the timber would be treated as assessable income of the grower.

The promoters of each of the schemes published a prospectus or PDS in accordance with the laws governing managed investment schemes. Investment was effected by signing an application (provided as part of the prospectus) in the form of a power of attorney which required the promoter thereafter to execute the sublease and management agreement on the grower's behalf. The application would be accompanied by a cheque or credit card authorisation for the amount of the initial payment which was not being financed; a separate application would also have to be made for the finance requested.

If the application was accepted, the promoter would present the cheque or process the credit card authority, as the case might be, for the initial cash payment, and establish the loan account for the balance.

In financial year 2003, investments were also made in schemes which involved the cultivation of orchard land for the purpose of growing almonds ('almondlots'). The almondlot scheme was structurally similar to the timberlot schemes but there were two significant differences. First, although the lots were identified as specific orchard areas, the grower did not hold a lease over the land in question, but rather a licence and joint venture agreement with a company which owned the land called 'Almond Land Pty Limited'. Secondly, the almonds required more intensive management and the management agreement provided that after the first year (in which the cost was fixed) the grower was required to pay the actual cost of managing the relevant lots, whatever it was. This was unlike the timberlots where, in general, the ongoing costs were either fixed or indexed to inflation. As against this, the almond trees were expected to produce crops, the sale of which could then be used to defray the costs, within 5 or 6 years of plantation rather than the longer periods of time associated with the timberlots.

Further almondlot investments were made in 2004. In 2005, investments similar to the almondlot investments were made by Ms Cordony in the growing of citrus fruit ('citruslots') and grapes ("grapelots").

The Tomasetti Superannuation Fund ('TSF') was involved in investments in timberlots in 2001 and almondlots in 2004 in joint ventures with Mr Tomasetti.

In all, the plaintiffs made the following investments:

Financial Year	Investor	Project	Initial Investment
2000	Tomasetti	Norgard Clohessy Australian Blue Gum 2000	$25,750
2000	Tomasetti	Timbercorp Eucalypts 2000	$196,000
2000	Tomasetti	Great Southern Blue Gum Plantations 2000	$51,000
2001	Tomasetti/TSF	ITC Solidwood 2001	$48,863
2002	Tomasetti	Gunns Woodlot 2002	$108,625
2003	Tomasetti	Timbercorp Early Almond 2003	$218,340
2003	Tomasetti	Gunns Woodlot 2003	$96,800
2004	Tomasetti	Timbercorp Almond - Post June 2003	$97,040
2004	Tomasetti/TSF	Timbercorp Early Almond 2004	$407,500
2005	Cordony	Timbercorp Citrus 2005	$49,000
2005	Cordony	Gunns Winegrape 2005	$34,650

Each of the investments involved borrowings ranging from 75 per cent to 100 per cent of the initial investment, most commonly 90 per cent. In addition to the repayments of these loans there were further costs to be paid. The Timbercorp Early Almond projects and the Timbercorp Citrus project involved payments for subsequent stages which totalled many hundreds of thousands of dollars. In all, the plaintiffs' claim for past loss exceeds $4 million.

10 As adverted to above, the schemes did not result in sufficient tax concessions or agricultural profit to offset their cost. The extent of Mr Brailey's responsibility for those investments was the main contention at trial. That was decided adversely to Mr Tomasetti and TSF, and the decision of the Court of Appeal has not affected that part of the judgment. It is only Ms Cordony's claim that may succeed. Thus, the only investments for consideration (except in so far as evidence relating to others is relevant) are the Timbercorp Citrus 2005 and Gunns Winegrape 2005 schemes.

2005 investments

11 Ms Cordony, through her role as Mr Tomasetti's personal assistant, was familiar with the day-to-day running of his financial affairs and his relationship with Mr Brailey. She was often responsible for liaising with Mr Brailey in relation to the payment demands for one agribusiness investment or another. It is possible to infer that, on account of her relationship with Mr Tomasetti and her management of his affairs, Mr Brailey began to extend to Ms Cordony his professional services in the absence of a formal retainer. Indeed, Ms Cordony participated in a meeting with the two men on 15 May 2005 in which details of her superannuation were discussed and recommendations were made. She gave evidence that:

Mr Brailey was a figure of authority to me - just like my medical specialists. He was one of the people I trusted regarding my future welfare. I did not hesitate, though we were struggling financially, to question his advice.

12 (I take her to have intended to convey in the last sentence of the extract above that she did either not question his advice, or hesitate in accepting it.)

13 It was not until 2005 that she entered into investments of her own, facilitated by Mr Brailey. In May and June of that year she applied for one investment of $49,000 in the Timbercorp Citrus 2005 scheme, $44,350 of which was financed by a loan; and one investment of $34,650 in the Gunns Winegrape 2005 scheme, $27,720 of which was financed. The application forms for each were prepared by Mr Brailey for Ms Cordony to complete.

14 Ms Cordony did not recall the substance of any meetings or conversations between her and Mr Brailey relating to the investments in 2005. She did not recall completing any application forms. These statements are somewhat difficult to reconcile with her later evidence that:

My reason for investing in the two projects was that I trusted Mr Brailey and was guided by his suggestions with respect to financial planning. I assumed that Mr Brailey was advising me to invest in these projects because he believed that they were prudent investments.

15 If the substance of the advice is beyond her recollection, then the above assertion must be a reconstruction. Ms Cordony also gave evidence that she had not been told of specific repayment obligations. This presents the same difficulty. However, it is not necessary to decide these deficiencies. The Court of Appeal has held that it was not the failure of Mr Brailey to advise of specific characteristics of the investment schemes that was crucial: it was his recommending them at all to a person in Ms Cordony's position [77] and [87]. Mr Brailey's more fulsome recollection of his discussions with Ms Cordony in 2005 provides sufficient evidence of the latter act.

16 Mr Brailey recalled a conversation by telephone with Ms Cordony "in or around early 2005":

EB: "Hi Sassi. I am recommending that you go into agribusiness this year. This is how it works: You are an employee of Tomasetti Trust and therefore Tomasetti Trust gets a tax deduction for superannuation contributions for you. The maximum that can be contributed for you this year is $95,980. Normally the fund will pay 15% contributions tax on that amount. However at the moment there is an extra tax of 15% called Superannuation Contributions surcharge which is payable by the fund if your taxable income plus Fringe Benefits plus superannuation contributions exceeds $105,000 odd. So, to largely eliminate your taxable income you need a tax deduction. And investment in agribusiness fulfils this requirement. In addition to that Peter will get a tax deduction for the amounts he pays the trust to provide your services and this will help him with his tax. On top of all that he will also be able to claim a spouse rebate for you with a bit of luck. Don't worry I'll confirm all this in a letter to you and Peter."

SC: "Ok, Ted. That sounds good. I'll read your letter when it comes in."

17 Mr Brailey gave evidence that he "highly recommended" that Ms Cordony make the investments. He recalled a meeting in Mr Tomasetti's chambers on or around 23 May 2005, at which Ms Cordony was present, where the applications in relation to Ms Cordony's Timbercorp Citrus 2005 investment were executed. At a further meeting on or around 25 May 2005, the applications in relation to Ms Cordony's Gunns Winegrape 2005 investment were executed.

18 Mr Brailey issued Statements of Advice in relation to both investments the following month. These advices and their content, issued in the spirit of a cavalier interpretation of the requirements of financial services regulations, may be disregarded. Mr Brailey did recall that product disclosure statements ("PDSs") were provided to Ms Cordony, and that this may have been on 23 May 2005.

19 In her evidence in reply, Ms Cordony denied receiving any PDSs, and was "quite certain" that no meetings took place in relation to the investments.

Ms Cordony's personal circumstances

20 The appeal judgment summarised Ms Cordony's personal circumstances as follows [78]-[80]:

... Ms Cordony began a long-term relationship with Mr Tomasetti in 1993 and married him in 2003. She commenced part-time work with Mr Tomasetti, as his personal assistant, in about May 2002, from which time she became familiar with his financial affairs. Ms Cordony's evidence however was that her husband was "incredibly self-sufficient" in terms of typing and office administration (Judgment [25]).

Ms Cordony's gross income before tax was about $60,000 for the 2003 - 4 financial year and about $68,000 the following year. Ms Cordony was aged 55 in 2005. Until early 2005 she was not a client of Mr Brailey and contact with him occurred only on an administrative basis in relation to Mr Tomasetti's financial affairs. She had no investments until she made those recommended by Mr Brailey.

Ms Cordony gave evidence that since 1980 she has suffered from a chronic upper and lower respiratory disease, requiring hospitalisation on a number of occasions and adversely affecting her quality of life. She said that the side-effects of taking cortisone have been "devastating particularly on my state of mind" (Ms Cordony's affidavit of 17 November 2009, [3]). Mr Brailey was aware that Ms Cordony had serious health problems (Mr Brailey's affidavit 17 June 2010 [491]).

The 2005 investments and Mr Brailey's recommendation

21 Ms Cordony's investments required her to provide a principle sum of $11,580. They also required that she borrow $72,070. The Timbercorp Citrus scheme was for a period of 22 years and Gunns Winegrape ran for 20 years. Interest was payable on the loans. The Winegrape scheme required some upkeep costs, and the Citrus scheme charged $25,000 to $30,000 in annual licence fees and operating costs each year. On whatever basis Mr Brailey, by his concession, "highly recommended" the investments to her, the Court of Appeal held (at [88]) that they were not ones that a prudent financial advisor would have recommended to a person in her circumstances.

22 It may be that Mr Brailey advised on the investments on the basis that Ms Cordony and Mr Tomasetti were one financial unit. There is some evidence that Mr Tomasetti participated in the investments. This he denied. In fact, he denied being even aware of Ms Cordony's investments until years later. This is weighed against the fact that his signature witnessed hers on various of the applications, that ongoing costs were being paid from his bank accounts, and that the initial sum was charged to his credit card. Indeed, the 2005 investments were structured so as to relieve Mr Tomasetti of certain taxes applying to payments into Ms Cordony's superannuation account.

23 In any event, the judgment of the Court of Appeal has made clear that, in the absence of instructions, Mr Brailey was wrong to have proceeded on the basis that Ms Cordony would be indemnified by Mr Tomasetti (at [86]-[87]), if that is indeed what he did. Ms Cordony was entitled to receive advice based on her own circumstances. A greater understanding of the risks would not have made the subject investments any better suited to her.

24 This leads inexorably to the conclusion of the Court of Appeal that Mr Brailey was both negligent and in breach of s 42 of the Fair Trading Act. Despite some suggestion that Ms Cordony, in failing to have regard to the risks of a type of investment she had some familiarity with, was negligent herself to some extent, this is not available as a defence to a Fair Trading Act claim. She is entitled to rely on her most favourable cause of action (Court of Appeal decision, [74] and [91]). As to reliance, the Court of Appeal decided it favourably to Ms Cordony, at [89]:

...it can readily be concluded that Mr Brailey's recommendation of the investments was a factor relevant to Ms Cordony's decision to proceed, and thus, in this sense, she relied upon Mr Brailey's advice.

Causation

a) Ms Cordony's submissions

25 Mr Maroya, of counsel, provided written submissions for Ms Cordony. He phrased the question as "whether Ms Cordony would have proceeded, even if Mr Brailey had not recommended the investments to her" (at [5]).

26 The submissions refer to a number of cases decided on the scope of s 82 Trade Practices Act 1974 (Cth), I infer by analogy to s 68 Fair Trading Act, as it was before the introduction of the Australian Consumer Law. Both sections allowed the recovery of damages for losses that were suffered "by" the act or conduct of another person in breach of the relevant Act.

27 In I & L Securities v HTW Valuers (2002) 210 CLR 109 at 128 [57]-[58], Gaudron, Gummow and Hayne JJ said:

... it is hardly surprising that it is now well established that the question presented by s 82 of the Act is not what was the (sole) cause of the loss or damage which has allegedly been sustained: Henville v Walker (2001) 206 CLR 459 at 496 [115] per McHugh J. It is enough to demonstrate that contravention of a relevant provision of the Act was a cause of the loss or damage sustained.

In the present case, there were two events to which particular attention must be given - the contravention of the Act constituted by giving a misleading valuation of the land, and the lender's failure to act prudently by omitting to make adequate inquiries about the borrower's capacity to pay interest. It can be said of each of those events that, had it not happened, the loan would not have been made and the lender would, therefore, have suffered no loss. That is, it can be said of both events that, but for it happening, there would have been no loss. If the valuation had not been misleading, there would have been no loan. Likewise, if the lender had made adequate inquiries, there would have been no loan. But to show that, if either of two events had not occurred, a loss which has been suffered would not have been suffered, does not demonstrate that one rather than the other event was the cause of the loss, any more than it demonstrates that neither was a cause of that loss. But the fact is that both did happen and both contributed to the decision to make the loan.

[emphasis in original]

28 Mr Maroya further relied on Awad v Twin Creeks Properties Pty Limited [2012] NSWCA 200 where at [43] Allsop P (Macfarlan JA and Sackville AJA agreeing) said:

Relief under the TPA, s 87 [i.e. non-damages relief], should be viewed not by reference to general law analogues but by reference to the rule of responsibility in the statute that is directed against misleading and deceptive conduct: Marks v GIO Australia Holdings Ltd [1998] HCA 69; 196 CLR 494 at 503-504, 510 and 528-529; Henville v Walker [2001] HCA 52; 206 CLR 459; Murphy v Overton Investments Pty Ltd [2004] HCA 3; 216 CLR 388 at 407; and see generally Bullabidgee Pty Ltd v McCleary [2011] NSWCA 259 at [64]-[72] and Akron Securities Ltd v Iliffe (1997) 41 NSWLR 353 at 364-367. ...

An approach that is limited mechanically around a but for causation enquiry will be likely not to involve a full evaluative assessment of the appropriate relief.

29 And at [46]:

The representation was operative; it was intended to be material; and it contributed to the decision to purchase. It was accepted that there was some loss or damage. It would be appropriate, in my view, to give relief conformable to the rule of responsibility and relieve the Awads of the purchase that they were induced to enter into by misleading or deceptive conduct, in particular where ascription of value is so difficult. Any such grant of relief would be subject to counter restitution being able to be made by them.

30 I pause at this point to observe that the quotes from Awad above are as they appeared in Mr Maroya's submissions. The ellipsis appearing in the extraction of [43] substitute for the following text:

Involved in that rule of responsibility is the public policy of protection of people in trade and commerce from being misled, and the width of the powers given by the TPA that are apt to be employed in a manner conformable with the just compensation or protection of the representee. Whether or not to grant a form of rescission under s 87, or to limit a plaintiff to damages under s 82, is a question in the nature of a discretion to be approached by reference to the facts of the particular case, the policy and underpinning of the TPA and the evaluative assessment of what is the appropriate relief to compensate for, or to prevent the likely suffering of, loss or damage "by" the conduct: see Kizbeau Pty Ltd v WG & B Pty Ltd [1995] HCA 4; 184 CLR 281 at 298; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; 210 CLR 109 at 117-120 [19]-[29], 127-128 [52]-[57] and 142 [106]; and Akron Securities v Iliffe.

31 The absence of that statement tends to obscure the fact that the relevant passages in Awad are more directed to the discretionary choice on what form relief shall take, not when causation is established.

32 The submissions then referred to passages in Jacfun Pty Limited v Sydney Harbour Foreshore Authority [2012] NSWCA 218 at [55] and [59]. Here I extract [55]-[59] more completely:

...It is necessary for there to be an available conclusion that in some fashion the impugned conduct affected the group's decision in some way by reference to the loss or damage suffered. That is not to say that it must be proved that the decision would or would not have been made with or without the conduct, on a but-for analysis: cf Awad v Twin Creeks Properties Pty Ltd [2012] NSWCA 200 at [43]-[45]. The relationship between the conduct and the loss or damage is to be understood as a causal link related to the rule of responsibility embodied in the statute: the public policy of protection of those in trade or commerce from being misled. How one approaches the analysis of that causal element in the ascription or not of responsibility is conditioned or framed by the relevant rule of responsibility and attendant statutory policy: Barnes v Hay (1988) 12 NSWLR 337 at 353; Henville v Walker [2001] HCA 52; 206 CLR 459 at 491 [99]; Environmental Agency v Empress Car Co (Abertillery) Ltd [1999] 2 AC 22; Chappel v Hart [1998] HCA 55; 195 CLR 232 at 255 [62]; Marks v GIO Australia Holdings Ltd [1998] HCA 69; 196 CLR 494 at 528-529 [99]-[103]. It may be sufficient for the misleading or deceptive conduct to have deprived the other party of an opportunity to negotiate a business arrangement without the influence of the inaccuracies or misleading element of the conduct. If value can be sensibly ascribed to such a commercial opportunity lost, the court must value it: Sellars v Adelaide Petroleum NL [1994] HCA 4; 179 CLR 332.

...

The analysis of the effect of the misleading or deceptive conduct on the board, through Mr Dyne and his note, takes its place in the analysis of the relationship between that conduct and the loss or damage "by" it. This can be described as a question of causal relationship, involving, in a case such as this, inducement of behaviour or attitude by intended reliance upon what is communicated, in the context in which it takes place. It is plain that such a communication need not be the only inducing factor of the conduct in question: Ricochet Pty Ltd v Equity Trustees Executors and Agency Company Ltd (1993) 41 FCR 229 at 235 (Lockhart, Gummow and French JJ); Milner v Delita Pty Ltd (1985) 61 ALR 557 at 572 (Lockhart J); Tefbao Pty Ltd v Stannic Securities Pty Ltd (1993) 118 ALR 565 at 575 (Hodgson J); I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; 210 CLR 109 at 120 [29] (Gleeson CJ), 127-128 [55]-[58] (Gaudron, Gummow and Hayne JJ). That the contravention of a relevant provision need only be a (as opposed to the) cause can be taken from Gould v Vaggelas [1985] HCA 85; 157 CLR 215; Wardley Australia Ltd v Western Australia [1992] HCA 55; 175 CLR 514; Marks v GIO Australia Holdings Ltd [1998] HCA 69; 196 CLR 494; Henville v Walker [2001] HCA 52; 206 CLR 459; and I & L Securities.

In the assessment of the causal effect or impact of the contravening conduct, the questions of inducement and reliance cannot be separated from the loss or damage suffered, or likely to be suffered. It is the link central to the determination of legal responsibility for the contravention.

33 Mr Maroya submitted that because Mr Bailey "recommended" that Ms Cordony enter the investments it was an available conclusion that, in the words used in Jacfun, his contravening conduct affected her decision to proceed. (So much has been established by the decision of the Court of Appeal, at [89], and I do not see the point as determinative of causation.)

34 The nature of the argument then developed for the second plaintiff's was, essentially, that she would not have entered into the investments but for the advice of Mr Brailey. At [17] of his submissions, Mr Maroya put the case before me as follows:

For the Fair Trading Act, the questions for the Court are these:

1. Would Ms Cordony have entered into the transactions if she had known the truth, i.e.:

a. if she had been told the truth as to the representations of present fact, in particular if she had been told that the investments were not prudent investments suitable for her personal circumstances?; or

b. as to the representations with respect to future matters, if she had been told that Mr Brailey did not have reasonable grounds for making those representations?

35 Mr Maroya submitted that there was "no real issue as to the answer to those questions". At [25] he said, "Absent Mr Brailey's involvement, it cannot reasonably be said that Ms Cordony would have entered into the two investments, regardless".

36 In support of this assertion, the submissions make reference to the many ways in which Mr Brailey's advice was defective. In particular, his evidence that he recommended the investments to her as a means of reducing her tax exposure. In cross examination, Mr Brailey admitted that Ms Cordony was not liable for, as he had put it, "a reasonably large tax bill" and that she was not looking for strategies to minimise her tax. The submissions marshalled further findings that supported the conclusion in the Court of Appeal that the investments were fundamentally inappropriate to her personal financial circumstances and against her expressed investment preferences. I take the point to be that these were not investments Ms Cordony would have been interested in at all had they not been recommended to her by a trusted financial advisor.

b) Mr Brailey's and TJC Financial Planning Ltd's submissions

37 Messrs Parker SC and Carroll for the defendants vigorously contested Mr Maroya's submissions.

38 The submissions argued, at [2]-[3] that:

The issues which arise must be understood in the context of the findings of the Court of Appeal. The Court did not find that Mr Brailey's misleading and deceptive conduct arose out of a failure to advise of the risks associated with the investments, or a failure to advise that they may have been speculative, or a failure to advise that they were long term. Ms Cordony was aware (or at least failed to prove that she was unaware) of these matters. The Court found that Mr Brailey's recommendation contained an implicit representation that the investments were prudent and sensible for her personally (i.e., ignoring any benefit to, or financial support from, Mr Tomasetti).

The plaintiff's submissions rehearse criticisms which have previously been made of Mr Brailey's conduct both at first instance and in the Court of Appeal. These criticisms (which are not necessarily accepted by the defendants) are irrelevant. The Court of Appeal has dealt with the issue of contravention, and the task for the Court is now to determine causation on the basis of the Court of Appeal's finding on that issue. It is not open to the plaintiff to seek to expand her case on contravention beyond that which was accepted by the Court of Appeal.

39 The arguments in Ms Cordony's submissions that the defendants' submissions refer to as "irrelevant" are not necessarily so. I expanded above at [35] on what I took to by the intended use of the matters referred to: they are facts that support the unlikelihood of Ms Cordony entering the investments without Mr Brailey's recommendation. It was not an entirely fair criticism for the defendants to make.

40 The defendants' submissions took the view that Mr Maroya, in his submissions, argued that something less than the "but for" test was the necessary causative benchmark. They cavil with that suggestion, and contend with it at [6.1]-[6.3] by reference to the decisions relied upon:

The decision in I & L Securities v HTW Valuers shows that a defendant may be liable even though his conduct is a (as opposed from the only) cause of a plaintiff's loss. But [in] order to be a cause, the conduct must still be causative, in the sense that if it had not occurred, the loss would have been avoided.

The decision in Awad v Twin Creeks Properties concerned non-damages relief under s 87 of the Trade Practices Act, in a situation where it was accepted by the court that some damage had been caused by the conduct in question. The remarks (which were obiter) of Allsop P have no bearing on the situation here, where damages are sought and the issue is whether the relevant loss was caused by the conduct in question.

The decision in Jacfun v Sydney Harbour Foreshore Authority concerned a claim arising from the surrender of a lease. Allsop P's remarks concerned damages for the loss of an opportunity to negotiate the surrender on more favourable terms. That is why his Honour was at pains to emphasize [sic] that the plaintiff did not need to prove that it would not have surrendered the lease but for the defendant's conduct. But his has nothing to do with the causation questions here.

41 The last point on Jacfun is extended to the argument concerning the second plaintiff's submissions I repeated at [33] above. The defendants argue that Mr Maroya has confused the issues of causation and reliance by reference to [59] of Jacfun. (This does not go anywhere, because Mr Maroya's assertion was redundant in the light of the findings of the Court of Appeal.)

42 Having dispensed these opening criticisms, the defendants put forward at [7]-[8] their own version of the case before this Court:

In addressing the issue framed by the Court of Appeal, it is necessary for the Court to do so by reference to an assumed counter-factual, ie the state of affairs which would have prevailed if Mr Brailey had not contravened s 42 in the manner found by the Court of Appeal. The plaintiff's counterfactual involves the assumption that Mr Brailey would have expressly stated that the proposed investments were not prudent and that there were no reasonable grounds for the recommendation. In the defendants' submission such an approach would be not only simplistic but also unsound in principle. The question is not what Ms Cordony would have done if Mr Brailey had done something which he did not do but rather what she would have done in the absence of the conduct which was found by the Court of Appeal to be misleading and deceptive.

Both orally and in writing Mr Brailey put forward the proposed investments, described the tax advantages which would accrue to Mr Tomasetti and Ms Cordony, and (expressly or impliedly) recommended them. Only the recommendation contravened s 42, and it is that contravention, and that contravention only, which should be excised for the purposes of the counter-factual. In other words, the Court would assess causation on the assumption that the proposal was put forward as a proposal, for Ms Cordony and Mr Tomasetti to consider, without an affirmative recommendation that Ms Cordony go ahead with it. Should it be necessary to assume some sort of further disclosure, that disclosure should address the fault with which the Court of Appeal found with Mr Brailey's advice, namely that Ms Cordony did not herself have the resources required to pay the possible outgoings into the future or the benefit of an indemnity from Mr Tomasetti.

43 Ms Cordony did not provide evidence as to what she would have done had there been a proposal without a recommendation because she did not, at trial, recall her state of mind at the time of entering the investments. Against this, the defendants pointed out that it was established that Mr Cordony was aware, through her work in Mr Tomasetti's office, that agribusiness investments involved ongoing costs.

44 The defendants' submissions listed a number of objective circumstances that, they said, meant Mr Tomasetti would be involved in considering a neutral proposal put to Ms Cordony and thus make it more likely that the proposal would be acted upon:

(1) The fact that Ms Cordony and Mr Tomasetti's financial affairs were intertwined.

(2) That Ms Cordony's salary was designed by Mr Tomasetti as an income splitting method to reduce tax, suggested he would encourage further arrangements to minimise the tax on the portion of his income he paid to her.

(3) There were few other investments available at the time that could yield equivalent tax concessions to the agribusiness schemes.

(4) That Mr Tomasetti was entirely familiar with the nature of the agribusiness schemes and would be willing to finance them on behalf of Ms Cordony.

45 These circumstances were said to yield the conclusion that Ms Cordony would have entered the investments outlined in a neutral proposal because of the perceived financial advantages to her joint position with Mr Tomasetti.

46 The defendants' submissions on causation closed by touching upon remoteness. This was a matter not addressed in the plaintiff's submissions. At [19]-[21] it was argued:

The Court of Appeal's finding gives rise to another issue; that of remoteness. Mr Brailey's advice was deficient, not because he failed to warn Ms Cordony of the risks associated with the investments, but because he failed to consider her position on a stand-alone basis, and therefore left her open to ongoing costs which she could not have met from her own resources. However this did not cause the loss in fact sustained by Ms Cordony. In fact, as it transpired Mr Tomasetti has in fact been responsible for the costs of the 2005 projects on Ms Cordony's behalf.

Ms Cordony's loss arose out of something completely separate, namely adverse market conditions resulting in the collapse of Timbercorp in 2009 and unfavourable horticultural factors in the case of Gunns.

In those circumstances the loss sustained by Ms Cordony was not one that "flowed naturally" [Kenny & Good v MGICA (1999) CLR 413 at [54]-[55]] from the misleading and deceptive conduct of Mr Brailey, nor could that loss be said to be within the contemplation of a reasonable person in his position [Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603 at [24]]. The result is that the contravention was not the "real and effective" cause of her loss, or the loss was too remote to be recoverable.

c) Ms Cordony's submissions in reply

47 Mr Maroya provided submissions in reply to the defendants' submissions on 22 May 2013. In further support for his argument on causation, he cited Hampic Pty Ltd v Adams (2000) ATPR 41-737, for the proposition (at 40,549) that, "the requirement of causation is not a stringent one". He also referred to Bullabidgee Pty Ltd v McCleary [2011] NSWCA 259 for the principles that:

(1) the relevant statutory test should be understood as taking up the common law practical or common sense concept of causation discussed in March v Stramare (E & MH) Pty Ltd [1991] HCA 12; 171 CLR 506 (that is, "a cause" rather than "but for");

(2) the Fair Trading Act provision is remedial legislation and should be construed to give the fullest meaning allowable in the words of the statute; and

(3) to connect the two concepts, "The inquiry is for a sufficient and direct link between the conduct and the consequences: see McCarthy v McIntyre [1999] FCA 784 at [48] (Hill J, Sackville J and Katz J) in order that the purpose and policy of the legislation be vindicated" (at [70] per Allsop P, Basten and Young JJA agreeing).

48 Bullabidgee was cited in the passages Mr Maroya relied upon in Awad in his principal submissions. The reference in his submissions in reply may be intended to respond to the defendants' attempt to distinguish Awad, reproduced at [40] above.

49 Mr Maroya submitted that a sufficient and direct link has been made out.

50 In response to the counter-factual proposed by the defendants (at [42] above), he made the following arguments:

(1) The Court of Appeal put the question as, "whether Ms Cordony would have proceeded even if Mr Brailey had not recommended the investments to her". The defendants' reliance upon the involvement of Mr Tomasetti in their hypothetical scenario (cf [44]-[45] above) was an erroneous approach.

(2) Mr Brailey's evidence was so meagre with regard to his recollection of his recommendation to Ms Cordony that the recommendation could not be cut down any further to leave an imaginary "neutral" proposal. Almost all that he did recall was that he "highly recommended" them.

(3) Because a prudent advisor could not have taken the view that the investments were suitable for Ms Cordony, the defendants' counter-factual involves me assuming that Mr Brailey proposed (in whatever form that proposal took) unsuitable investments to Mr Cordony.

51 Points (2) and (3) were really attacks on the hypothetical concept of a "neutral" proposal. I will say more on this later.

52 The remainder of the submissions in reply on the causation issue were largely devoted to attacks upon the defendants' argument that Mr Cordony would have entered the investments regardless of Mr Brailey's recommendations (see [44]-[45] above). In particular, Mr Maroya sought to rebut the assertion that Mr Tomassetti would have approved of the investments or somehow facilitated them. I have had regard to Mr Maroya's arguments, and it is not necessary to reproduce them here.

53 Finally, the submissions in reply respond to the defendants' remoteness argument. Mr Maroya points out that, despite the fact that it was Mr Tomasetti who incurred the ongoing costs associated with the project, Ms Cordony was ultimately liable for the project. He then referred to Macfarlan JA's observation, at [110] of the Court of Appeal decision:

[I]t is no answer to a claim for damages for inducing entry into a transaction by misrepresentation for the defendant to say that an investment the subject of the transaction failed for reasons unrelated to the matters misrepresented (Toteff v Antonas [1952] HCA 16; 87 CLR 647). In any event, it is by no means clear that for such reasons the investments in the present case failed to achieve their expected value. The appellants claimed that Mr Brailey failed to apprise them of multifarious risks associated with the investment projects, including their speculative nature. Arguably, it was the materialization of risks falling within the ambit of those broadly described risks that prevented the expected value from being realised.

Further submissions

54 The defendants formed the view that the plaintiff's submissions in reply raised new matters, specifically in relation to its criticism of the defendants' counter-factual, and the reference to Toteff in the comments of Macfarlan JA at [110]. I do not see how any of the plaintiff's submissions on these subjects could be seen as new matters. And in any event, I do not see how the granting of leave to file further submissions in reply (and, as requested, order a short oral hearing) could be reconciled with the just, quick and cheap disposal of this remittal.

Consideration of causation

55 The submissions in this matter appeared to seek to make as obtuse as possible what was a relatively simple remittal by the Court of Appeal. I am to consider if Mr Brailey's conduct was causative of Ms Cordony's loss. Much ink was spilt in arguing the correct scope of "causative" in the context of a Fair Trading Act claim. I believe the correct position is that disclosed by Bullabidgee, with the acknowledgement that "a cause" means something more than simply a contributing event (see I & L Securities at 128 [57]-[58]).

56 Some immediate observations may be made regarding the counter-factual proposed by the defendants. The first is that it confuses the conduct that the Court of Appeal found to be a contravention of s 42. The recommendation that Ms Cordony invest in the agribusiness schemes was explicit. The explicit recommendation contained within it the implicit representation that the schemes were suitable to her personal circumstances. It was the implicit representation that constituted misleading and deceptive conduct (Court of Appeal decision at [88]). The second point, which flows from that conclusion, is that the defendants' argument that "[o]nly the recommendation contravened s 42", meaning I must evaluate causation in a scenario involving only a "proposal", cannot be accepted. It is hopelessly speculative to imagine a scenario where a financial advisor could put forward an unqualified investment proposal to his or her clients where there was no implicit suggestion that the investments were suitable. This leads to the third point. A hopelessly speculative counterfactual is entirely opposed to the commonsense approach I am obliged to take.

57 The correct counterfactual must correspond to the question posed by the Court of Appeal, at [58]-[59] in relation to Mr Tomasetti, had it remitted his claim to the Court also:

For the reasons that I have given, Mr Tomasetti's challenge to the primary judge's rejection of his Fair Trading Act claims fails. If it had not, issues of reliance and causation would have required consideration. Whilst these issues overlap, they are not co-extensive (Campbell v Backoffice Investments Pty Ltd at [143]). In the present case it should be concluded that, at least in one sense, reliance is shown by the fact that Mr Brailey, acting as Mr Tomasetti's financial adviser, recommended that he make the investments and Mr Tomasetti did so in response to that advice (see Gould v Vaggelas [1985] HCA 75; 157 CLR 215 at 236).

However a more difficult question is whether Mr Tomasetti would have refrained from making the investments if Mr Brailey's advice had been suitably qualified (Mr Tomasetti said it was not). If he would have proceeded with the investments despite the qualifications, his loss could not be said to have been caused by Mr Brailey's conduct (see generally Awad v Twin Creeks Properties Pty Limited [2012] NSWCA 200 at [43] - [46]; Jacfun Pty Ltd v Sydney Harbour Foreshore Authority [2012] NSWCA 218 at [55])...

[my emphasis]

58 The underlined text is the appropriate counter-factual. That is the counter-factual outlined by the plaintiff to which I have referred to at [34] above.

59 The intertwined financial circumstances of Ms Cordony and Mr Tomasetti were a contributing cause to Ms Cordony's decision to embark upon these investments. The defendants' submissions raise many reasons why that financial connexion was an extremely important factor: for example, the fact that tax credits would accrue to Mr Tomasetti, not to Ms Cordony. But that does not mean that another factor cannot be causative also, in the sense required by the Fair Trading Act.

60 If Mr Brailey recommended the agribusiness investments to Ms Cordony and Mr Tomasetti, but qualified his recommendation by a statement that the schemes were not in certain material aspects suitable for Ms Cordony, I do not think it is reasonable to conclude that she would have nonetheless entered into the investments. It may be that Mr Tomasetti would then wish to structure the investments differently, or that an indemnity would be written in, but those scenarios are, first, very speculative, and second, ones where Ms Cordony is not left with the liability for failed investments.

61 I am satisfied, taking into account the facts and the various authorities cited above, that Mr Brailey's conduct was causative to Ms Cordony's loss.

62 As a bookend, I consider the defendants' remoteness argument to be decisively dealt with by the comments of Macfarlan JA's at [110] of the Court of Appeal decision, cited at [53] above.

Quantum

63 Ms Cordony's past loss was as set out in the joint report of Mr John Williams and Dr Rodney Ferrier, which was tendered at trial. That figure, updated to date, is $204,005.13. Taking into account a Deed of Compromise in relation to the Timbercorp Citrus scheme, the correct figure is $201,787.

64 The plaintiff's submissions included further calculations for interest and "grossing-up" that bring the total loss to $329,175.94 as at 31 March 2013.

65 The defendant's submissions pointed to a number of errors in the calculations of the plaintiff, particularly in relation to interest. The defendant submitted that the appropriate award would be $224,096 as at 31 March 2013.

66 The submissions in reply of the plaintiff on quantum were received rather late, on 23 July 2013. The court was advised that this was due to the need to secure the advice of Ms Cordony's accountant following a failed attempt between the parties to reach agreement on costs. Those submissions state:

In summary, the methodology used in the First and Fourth Defendents'' submissions in reply has been adopted; however, the amounts have been updated to allow for Amended Notices of Assessment for the tax years 2008-2011, and to allow for a Notice of Assessment for 2012, as well [as] interest to 30 June 2013.

67 Ms Cordony received Amended Notices of Assessment because of a trust distribution to her from the estate of her late father. This has some effect on the quantum calculations, but that effect is taken into account using the approach adopted by the defendants. Another feature taken into account is that, due to the drawn-out nature of the written argument, an award is not to be expected until the 2013-14 financial year. The submissions in reply quantify the correct award as $247,366 as at 30 June 2013.

68 I adopt that figure as the correct calculation of damages.

69 The defendants, on 19 June 2013, anticipated that they would apply to be allowed to make oral submissions in reply to the plaintiff's submissions in reply. That communication was made before the defendants had seen the submissions in reply. The Amended Notices of Assessment are new information. However, I am satisfied that they are dealt with using the methodology urged by the defendants. In considering whether to grant leave to follow such a course I am informed by the same case management concerns as I referred to at [54] above.

Orders

70 Judgment and verdict for the second plaintiff against the first and fourth defendants.

71 The first and fourth defendants to pay the second plaintiff the sum of $247,366 as at 30 June 2013 calculated to the date of judgment.

72 The parties should confer on the final calculation of the damages applying the methodology of the second plaintiff's submission in reply dated 23 July 2013 and should file proposed short minutes of the orders to be made within 21 days. The orders should include an order that:

(a) The first and fourth defendants are to pay the second plaintiff's costs of these proceedings.

(b) The first and fourth defendants are to pay the second plaintiffs costs of the proceedings at first instance so far as it relates to them.

(c) The first and fourth defendants are to pay interest on the second plaintiff's costs pursuant to s 101(4) Civil Procedure Act 2005 (NSW).

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Decision last updated: 09 September 2013