Stuart Klees v M101 Holdings Pty Ltd

1. [1]

   HIS HONOUR: This is a case of investor regret.

2. [2]

   The plaintiff, Stuart Klees, is a physical education teacher turned property developer. By December 2019 he had accumulated about $1.25 million (which included an amount set aside to pay income tax) from renovating and selling his own apartment and from a property development which he did with members of his family.

3. [3]

   In December 2019, he was looking to invest his money and obtain a return while he looked for a new property development project.

4. [4]

   On the internet, he came across the now (at least partly) failed Mayfair 101 Group (Mayfair), which described itself as providing a selection of investment banking-style services that build value for shareholders and investors. Mayfair is associated with Mr James Peter Mawhinney (Mawhinney).

5. [5]

   He directed an enquiry to Mayfair through its website. He received a response from the fourth defendant (O’Keefe), the Group Client Relationship Manager. There then followed a course of dealings which resulted in the plaintiff investing $1 million in promissory notes issued by the first defendant (Mayfair Holdings).

6. [6]

   Mayfair offered two classes of promissory notes: the M+ Fixed Income (M+) which was unsecured, and the M Core Fixed Income (M Core) which Mayfair’s advertising material described as a secured asset-backed term-based investment.

7. [7]

   On or about 21 January 2020, the plaintiff applied for, and was issued with, 1 million M+ unsecured notes by Mayfair Holdings, with a maturity date of 20 April 2020 (the Notes).

8. [8]

   The Notes are subject to terms contained in an instrument styled Promissory Note Deed Poll dated 22 June 2019 (the Deed Poll). Clause 5.6(a)(i) of the Deed Poll provides that Mayfair Holdings may at any time extend the Payment Date if, in its reasonable opinion, it does not have sufficient liquidity to fund the redemption.

9. [9]

   On 3 April 2020, Mayfair Holdings notified investors (including the plaintiff) that due to the COVID-19 pandemic it had, as a prudency measure, determined to suspend redemption of promissory notes issued by it. On 7 April 2020, Mayfair wrote to the plaintiff informing him of this. Redemption has been suspended indefinitely. Mayfair informed holders of notes that interest would continue to accrue. The Notes have not been redeemed at this time.

10. [10]

    On 13 August 2020, the Federal Court, on the application of the Australian Securities and Investments Commission (ASIC), granted, ex parte, an interim injunction restricting Mayfair and Mawhinney from advertising, marketing or promoting the M+ and the M Core and appointing joint and several provisional liquidators to M101 Nominees Pty Ltd, the issuer of the M Core. Anderson J was persuaded that there was prima facie evidence of a risk of potential for fraudulent dissipation to the detriment of noteholders: see Australian Securities and Investments Commission v M101 Nominees Pty Ltd [2020] 147 ACSR 537 (ASIC v M101).

11. [11]

    The third defendant (Quattro) holds an Australian Financial Services Licence which entitles it to carry on a financial services business pursuant to Part 7.6 of the Corporations Act 2001 (Cth) (Corporations Act). It appointed both Mayfair Holdings and the second defendant (Mayfair Platinum) to be its authorised representatives pursuant to Division 5 of Part 7.6 of the Corporations Act. Section 917E (which is within that Division) provides that:

12. [12]

    The appointment enabled Mayfair Holdings and Mayfair Platinum to market the M+ and the M Core. Mayfair Platinum was advertised to be the “manager” of the M+ and the M Core.

13. [13]

    Section 12DA(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (the Act) provides that a person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.

14. [14]

    References below to sections are, unless otherwise stated, to the Act.

15. [15]

    Section 12GF provides that a person who suffers loss or damage by conduct of another person that contravenes s 12DA(1) may recover the amount of the loss or damage by action against that other person or any person involved in the contravention. A person is involved in a contravention [1] if and only if the person:

16. [16]

    Section 12BB(1) provides:

17. [17]

    The plaintiff claims that, in contravention of s 12DA(1), O’Keefe, acting on behalf of Mayfair Holdings and Mayfair Platinum, intentionally misled and deceived him by representing that the Notes:

18. [18]

    whereas in truth the Notes were unsecured and, because of the terms of the Deed Poll, were not repayable after 3 months and the plaintiff could not have early repayment if he wanted it.

19. [19]

    He says that he understood and believed that the term of the investment was 3 months but the funds could be withdrawn on any date prior to the expiry of the 3 month term, and that the invested funds were secured against a pool of assets, and if necessary, repayment would be made using the pool of assets if Mayfair did not have sufficient funds on hand to make the repayment. He says that he would not have decided to deposit any funds if he had understood or believed that the funds would not be repaid upon the expiry of the 3 month term, or could not be withdrawn on any date prior to the expiry, and that the funds were not secured.

20. [20]

    He says he would not have made the decision to deposit any funds if he had any understanding or belief that payment could be withheld after the expiry of the investment period. He claims that by the conduct complained of he lost the entirety of the $1 million he invested. His is what is commonly referred to as a “no transaction” case, that is, a case where it is claimed that but for the conduct complained of, a transaction would not have been entered into.

21. [21]

    He sues Quattro on the basis that under s 917E of the Corporations Act it is responsible for the loss and damage suffered by him as a result of the conduct of Mayfair Holdings and Mayfair Platinum as its representatives. Quattro does not dispute that if the plaintiff otherwise makes out his case against Mayfair Holdings and Mayfair Platinum, it is responsible for his loss and damage.

22. [22]

    He sues O’Keefe as a person involved in the contravention, alleging that O’Keefe had actual knowledge of the falsity of the representations and intentionally participated in their misleading and deceptive conduct.

23. [23]

    The plaintiff does not make any claim against Mayfair Holdings for breach of contract for failing to redeem the Notes. A claim in contract was pleaded but not pressed. It is not suggested that Mayfair Holdings may not, under the terms of the Notes, delay redemption.

24. [24]

    It is not in dispute that the conduct complained of was in relation to financial services.

25. [25]

    It is also not in dispute that in his dealings with the plaintiff, O’Keefe was acting on behalf of Mayfair Holdings and Mayfair Platinum.

26. [26]

    Neither Mayfair Holdings nor Mayfair Platinum appeared at the hearing.

27. [27]

    For the reasons which follow, the plaintiff fails.

28. [28]

    The plaintiff’s first contact with O’Keefe was on 7 January 2020, when O’Keefe emailed him in response to his enquiry, providing information about the M Core. The email attached a brochure about the M Core which described it as a secured, asset-backed, term-based opportunity exclusively available to wholesale investors.

29. [29]

    O’Keefe did not provide any information about the M+ at that point.

30. [30]

    The brochure offered investments ranging from 6 months to 60 months and indicated the fixed interest rates available as follows:

31. [31]

    The brochure described the key features as including “Early redemption available (subject to liquidity and other applicable terms)”. It also contained a section entitled Frequently Asked Questions. One of the questions was “Can I withdraw my money out early if I need to?” The answer included “Yes, although redemptions are subject to liquidity and other applicable terms. Please note this may be subject to a 1.5% early withdrawal and liquidity fee.” The brochure did not offer a 3 month term investment.

32. [32]

    The covering email made reference to these features and to the fact that promotional rates applied to the 6, 12, and 60 month options. Significantly, it made no reference to a 3 month term.

33. [33]

    The covering email referred to the security backing the M Core as being over a pool of unencumbered assets made up by domestic residential property, domestic commercial property, domestic vacant land and cash, all of which were managed by an independent trustee.

34. [34]

    The brochure included an Application form with boxes to tick for the term applied for. Significantly, there was no 3 months box.

35. [35]

    On 8 January 2020, O’Keefe called the plaintiff. There is a degree of commonality between their respective versions, but they differ in important respects.

36. [36]

    The plaintiff’s version of the conversation is:

37. [37]

    O’Keefe’s version of the conversation is:

38. [38]

    Important respects in which they diverge are whether a distinction was drawn between one, but not the other, form of investment being secured and whether there was a discussion about early withdrawal involving an exit fee which the plaintiff was not “overly interested in paying”.

39. [39]

    Later that day, O’Keefe sent the plaintiff the brochure for the M+ under cover of an email which said:

40. [40]

    The new brochure contained the following options:

41. [41]

    It made no reference to the M+ being secured. It contained a Frequently Asked Questions section with the same question and answer about early withdrawal. It incorporated an Application form in which there was no 6 month box to tick. The Application form included a declaration to be signed by the applicant which contained, amongst others, the following:

42. [42]

    On 9 January 2020, O’Keefe sent the plaintiff a follow up email. Later that day, and then in possession of both brochures, the plaintiff sent O’Keefe a signed Application form for the M+ by email. He had ticked the 3 month option. Upon receipt, O’Keefe emailed the plaintiff asking for a copy of his driver licence or passport and informing him that funds needed to be transferred into the “M101 Holdings account”. The email said, relevantly “once the above have been completed, we will issue your investment ‘certificate’ which outlines your investment and rate of return – 3.95%”.

43. [43]

    The plaintiff emailed O’Keefe a copy of his driver licence.

44. [44]

    On 14 January 2020, the plaintiff and O’Keefe made arrangements to meet the following day at a café at Bondi Beach. They met. Again, their versions differ on the critical subject of the distinction between the two types of notes with respect to security.

45. [45]

    The plaintiff says that the conversation was to the following effect:

46. [46]

    O’Keefe’s version of the conversation is:

47. [47]

    On 16 January, O’Keefe emailed the plaintiff:

48. [48]

    Later that day, the plaintiff emailed O’Keefe:

49. [49]

    Then later that day, O’Keefe emailed the plaintiff:

50. [50]

    O’Keefe attached a document entitled ‘Security Trust Deed regarding Mayfair 101 Nominees Pty Ltd – Secured Promissory Notes’. The document runs to over 50 pages. The following day the plaintiff emailed O’Keefe:

51. [51]

    Later that day, O’Keefe responded:

52. [52]

    On 20 January 2020, O’Keefe sent a text message to the plaintiff asking him how he had gone with regards to the highlighted sections of the Deed Poll (he plainly meant the Security Trust Deed) and asking him how they were tracking with the transfer of funds.

53. [53]

    On 21 January 2020, the plaintiff transferred $1 million from his bank account to a bank account in the name of Mayfair Holdings which was given in the Application form. Later that day, O’Keefe emailed the plaintiff:

54. [54]

    The “Investment Certificate” was a Note certificate. It is appropriate to set out the terms of the Note certificate in full:

55. [55]

    On 13 March 2020, the plaintiff made contact with Mayfair, foreshadowing his intention to withdraw his funds because he had secured a property and would be using them for the purchase. He received a withdrawal form from Mayfair later that day.

56. [56]

    On 27 March 2020, O’Keefe emailed the plaintiff to inform him that Mayfair had activated its Liquidity Prudency Plan which was a short-term measure taken by Mayfair to ensure there was sufficient liquidity based on a change of circumstances outside of Mayfair’s control.

57. [57]

    On 30 March 2020, O’Keefe emailed the plaintiff and stated “At this stage, I cannot provide you a clear date as to which your funds will be specifically returned”.

58. [58]

    The plaintiff thereafter received the emails (referred to earlier) of 3 and 7 April 2020 respectively informing him of the redemption freeze. It was not suggested that the COVID-19 pandemic did not bring about the redemption freeze.

59. [59]

    First, it is incumbent on the plaintiff to establish that the conduct complained of was:

60. [60]

    Second, he must establish that because of it he suffered loss or damage. Whether he suffered loss or damage depends on whether there is a sufficient connection between the conduct complained of (assuming it is made out) and the damage, for the damage to be regarded as by, or because of, the conduct. Whether or not that connection exists is essentially a question of fact to be determined by reference to common sense and experience, and one into which policy considerations and value judgments necessarily enter: March v E. & M.H. Stramare Pty Limited (1991) 171 CLR 506; Travel Compensation Fund v Tambree (t/as R Tambree and Associates) and Others (2005) 224 CLR 627 at 639-640; Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; Wallace v Kam (2013) 250 CLR 375 at 385-6; Swiss Re International SE v Simpson (2018) 354 ALR 607.

61. [61]

    This means that he must establish that the conduct complained of caused him the loss he claims he suffered by investing in the Notes. Thus, what he must show is that despite any other contributing factors, he would have adopted a different course, that is, that he would not have invested in the Notes if the conduct complained of had not occurred: Sidhu v Van Dyke (2014) 251 CLR 505 at 530-532.

62. [62]

    As against O’Keefe, he bears the additional burden of establishing that O’Keefe was a person involved in the contravention in the manner alleged, that is by knowingly and intentionally, participating in a deception.

63. [63]

    It is also incumbent on the plaintiff to establish the quantum of his loss.

64. [64]

    He fails at every hurdle.

Initial Observations

1. [65]

   A number of initial observations are appropriate.

2. [66]

   First, the conduct said to contravene s 12DA(1) is only positive representations. In submissions, the plaintiff limited the representations relied upon to the specific ones set out above, namely that the Notes which he had applied for (which it is agreed were not secured) were secured and would be repayable after 3 months, with an entitlement to have early repayment if he wanted it.

3. [67]

   Second, the representations are not properly particularised in the Commercial List Statement. It merely recites, in paragraphs 7 to 17, a series of facts (including conversations) and then asserts that “in the circumstances pleaded in paragraphs 7 to 17 above” the defendants made representations to the plaintiff. The plaintiff did not identify the occasion or occasions on which the representation as to the security attaching to the investment he was about to make was made expressly. In the Nature of Dispute section of the Commercial List Statement, he identifies only the representation that his investment would be secured pursuant to the Security Trust Deed whereas the investment was unsecured. He does not identify the other representations relied upon.

4. [68]

   Third, the Commercial List Statement does not meet the basic requirement of pleading falsification of the alleged representations: see Stewart v The Australian and New Zealand Banking Group Limited [2020] NSWSC 1787 at [35].

5. [69]

   Fourth, where a plaintiff, in a proceeding such as this, wishes to make significant charges of misleading or deceptive conduct with potentially very significant consequences, it is incumbent on him to articulate his case with precision: see Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited (2010) 241 CLR 357 at 364-5 [5]-[7]. A fortiori this is the case where the plaintiff wishes to make a case of deliberate deception.

6. [70]

   Here, neither the pleading nor the submissions extended to identifying in any precise way how the representations were made. I have assumed that they are said to arise from a combination of the written communications between the plaintiff and O’Keefe and the conversations between them.

7. [71]

   Fifth, the conduct complained of is limited to positive, present misrepresentations. There is no reliance on silence or on any representation as to a future matter made without reasonable grounds within s 12BB(1).

8. [72]

   Sixth, O’Keefe’s involvement in the alleged contravention is asserted to be, and only to be, actual knowledge of the falsity of the representations and an intentional participation in the misleading or deceptive conduct of the other defendants. By an amendment to the Commercial List Statement at the commencement of the hearing the plaintiff raised the bar of his claim against O’Keefe effectively to fraud, leaving no room for a finding of any other (lesser) form of involvement.

The Questions

1. [73]

   The following questions must be answered:

   1. (1)

      did O’Keefe represent to the plaintiff that the investment he was making was secured under the Security Trust Deed? (If he did, the representation would have been misleading because it is common cause that it was not secured.)

   2. (2)

      did O’Keefe represent that the Notes would be repayable after 3 months and that the plaintiff could have early repayment if he wanted it and if so, was this misleading or deceptive or likely to mislead or deceive?

   3. (3)

      on the assumption that the conduct complained of has been made out, did it cause the plaintiff loss or damage? This comprehends whether, despite any other contributing factors, the plaintiff would not have invested in the Notes had the conduct complained of not occurred.

   4. (4)

      what is the quantum of the plaintiff’s loss?

2. [74]

   I will deal with each of the questions in turn.

3. [75]

   At the outset, I record that I prefer O’Keefe’s evidence to that of the plaintiff, where they differ in material respects.

4. [76]

   The plaintiff displayed a reluctance to respond directly to clearly articulated questions. He was less than convincing in his insistence that security of the type attaching to the M Core was critical to him. His driving factors were the 3 month period and the possibility of early redemption (together, no doubt, with the manifestly good interest rate).

5. [77]

   He revealed little, if any, appreciation of what “security” (in the sense of recourse to secured assets) meant or of its operation or ramifications. His evidence was that when he received the Note Certificate, he would not have understood what was meant by the description of the Notes as unsecured.

6. [78]

   His evidence as to what he would and would not have done was plainly coloured by the fact that the catastrophe of the loss of his “life savings” had befallen him: see Cackett v Keswick [1902] 2 Ch 456; Ellis v Wallsend District Hospital (1989) 17 NSWLR 553; Chappel v Hart (1998) 195 CLR 232; Rosenberg v Percival (2001) 205 CLR 434; Swiss Re International SE v Simpson (2018) 354 ALR 607 at [538]-[542].

7. [79]

   On the other hand, O’Keefe, whose integrity was seriously called into question, was unshaken in cross-examination. His evidence better accords with the objective contemporaneous material, not least of all the fact that the day after he was supposed to have pulled off a deliberate deception on the plaintiff to the effect that the unsecured Notes were secured, he sent him the Certificate which, in its introduction, records that the Notes are unsecured. This would have amounted, improbably, to him revealing his perfidy almost immediately after he perpetrated it.

8. [80]

   That is not to say that O’Keefe’s evidence was free from imperfections. I think he downplayed his eagerness to get the plaintiff across the line as an investor, as well as the importance to him of the commission on the deal.

9. [81]

   The allegation, however, that O’Keefe deliberately participated in an outrageous deception did not come close to being established.

10. [82]

    I find that the plaintiff has not established that O’Keefe represented that the investment the plaintiff was making in the Notes was secured.

11. [83]

    The only Application form signed by the plaintiff, and transmitted to Mayfair Holdings, was for the unsecured M+.

12. [84]

    The first brochure, and covering email, sent by O’Keefe to the plaintiff on 7 January 2020 was for the M Core, and only the M Core. The covering email and the brochure said nothing of the M+. Importantly, there was no 3 month option.

13. [85]

    It is not in dispute that the plaintiff was more interested in a 3 month option which was not available with respect to the M Core but available with respect of the M+.

14. [86]

    He was in the process of looking for a new development opportunity. The plaintiff and O’Keefe agree that the plaintiff asked about a 3 month option and that this led O’Keefe to send the plaintiff the “new” brochure on 8 January 2020.

15. [87]

    The “new” brochure was for the M+ only. It said nothing of security. Moreover, the Application form, in the declaration within it, made it clear that the M+ were unsecured. The brochure contained no 6 month option.

16. [88]

    I accept O’Keefe’s evidence that during the 8 January 2020 conversation he conveyed to the plaintiff that one form of investment was secured and that the other was not. This was consistent with the provision of the “new” brochure for a product that was unsecured.

17. [89]

    Additionally, under cross-examination the plaintiff gave the following evidence consistent with a discussion having occurred about there being two forms of investment:

18. [90]

    I accept O’Keefe’s evidence that an early exit fee and a potentially increased interest rate were discussed. Ultimately, the plaintiff did get an increased interest rate.

19. [91]

    I prefer O’Keefe’s evidence of the 15 January 2020 conversation at the Bondi Beach café. I consider it to be inherently unlikely, having regard to the written material which O’Keefe had previously sent the plaintiff, that O’Keefe conveyed that whatever he invested in (even if it was the M+) was secured.

20. [92]

    When, on 16 January 2020, the plaintiff asked for information on the fine print “which secures the funds should Mayfair get sued or go insolvent”. O’Keefe’s response was to provide the Security Trust Deed and to say:

21. [93]

    This email does not make any express representation that the plaintiff’s investment (whatever it was to be) was secured. More importantly, it must be read taking into account the background against, and the context in which, it was sent.

22. [94]

    Under cross-examination O’Keefe gave evidence, which I accept, that he assumed, in light of their previous conversations, that the plaintiff was talking about the M Core and therefore he sent him information relating to the Security Trust Deed for the M Core.

23. [95]

    The email itself does not make it clear that it is talking of the M Core to the exclusion of the M+, and that the former is secured and that the latter is not, but the email does state that the security trust deed relates to “this investment option”. It too must be read in light of the conversations which preceded it and in respect of which I prefer O’Keefe’s version.

24. [96]

    Even if the email looked at in isolation could be construed as representing that any investment was secured (which I do not think it fairly can), when looked at in its context, it cannot fairly be said to have done so and the plaintiff cannot fairly have taken it to have done so.

25. [97]

    The plaintiff’s next step was to ask for specific information about the Security Trust Deed, or for O’Keefe to identify paragraphs on the Application form that highlight a link between reassuring payout in the event of an issue from Mayfair’s end.

26. [98]

    O’Keefe responded with his email referring to specific paragraphs in the Security Trust Deed and including a screenshot which he said they were adding to the brochure.

27. [99]

    There was some cross-examination of O’Keefe about the fact that the brochure already sent to the plaintiff contained the contents of the screenshot. His evidence was that some of Mayfair’s brochures did not. Importantly, and once again, the email does not make the representation which the plaintiff asserts. To the contrary, the screenshot relates only to the M Core. This email too is to be read in light of the conversations which preceded it, in respect of which I have said I prefer O’Keefe.

28. [100]

    The plaintiff has failed to make out this representation.

29. [101]

    Neither Quattro nor O’Keefe seriously put in issue that a representation to this effect was made. After all, the Notes were in fact redeemable after 3 months and O’Keefe wrote on 16 January 2020:

30. [102]

    The first difficulty with this claim is that the Notes, according to their tenor, were redeemable after 3 months and earlier redemption could have been accommodated and was then available (or, at least, the plaintiff has not established otherwise). The plaintiff’s real complaint is that these features were subject to Mayfair Holdings’ overriding entitlement to exercise the right provided by cl 5.6(a)(i) of the Deed Poll and that O’Keefe did not draw this to his attention. This is not how the plaintiff pleaded his case. It is really a complaint that the Notes would be repaid either after 3 months or when the plaintiff called for earlier payment. These are representations as to future matters but the plaintiff expressly eschewed reliance on that form of representation.

31. [103]

    A second and more profound difficulty is that O’Keefe did disclose the existence of the caveat to repayment in the brochures for both the M+ and the M Core.

32. [104]

    Accordingly, it cannot fairly be said that O’Keefe made the representations alleged or that his conduct was misleading or deceptive or likely to mislead or deceive.

33. [105]

    The difficulties caused by the plaintiff’s pleading deficiencies are most acute in relation to this question. Because there is no clear and precise pleading of how the representations were made, the plaintiff has not identified the counter-factual of the conduct complained of. He has not identified what, exactly, of the oral and written dealings between the plaintiff and O’Keefe is to be assumed away, and he has not identified the factors, not being components of the conduct complained of, which he says remain as contributing factors to what he did. The Court must do the best it can, having regard to the manner in which the proceedings were conducted.

34. [106]

    On the question of the Notes being secured representation, given that I have found that the conversations occurred as O’Keefe says, the plaintiff must fail.

35. [107]

    But in any event, I do not believe the plaintiff that he would not have invested absent a belief that the funds were secured against a pool of assets and that, if necessary, repayment would be made by recourse to that pool, not least of all because he lacked real appreciation of what the security entailed or how, in his short timeframe (which was the critical thing) the security would have helped. Also he did not react when he received the Certificate which made it clear that the Notes were unsecured.

36. [108]

    If he lacked appreciation that the Notes were unsecured, which I do not accept, that lack was not caused by the conduct of the defendants.

37. [109]

    I believe the plaintiff when he says that he would not have invested if he had understood or believed that he would not be repaid on the expiry of the 3 month term or when he asked for his money. This is beside the point. Indeed, a critical factor in his motivation was that he would get his money back not later than in 3 months’ time.

38. [110]

    No doubt when he made the investment, he believed that his investment was safe (and in that sense, secure) and that he would be repaid, whether after 3 months or earlier. There is nothing to suggest that O’Keefe thought any differently.

39. [111]

    The COVID-19 pandemic had not hit and there is nothing to suggest that either the plaintiff or O’Keefe had any inkling that there would be any future liquidity difficulty. No case of non-disclosure has been brought.

40. [112]

    I am not persuaded that had cl 5.6(a)(i) been expressly drawn to his attention, it would have made any difference to his decision to invest. He would have had no reason for thinking that there was any possibility that it would be enlivened so as to affect the Notes. I consider that he would have invested anyway.

41. [113]

    As referred to earlier, the plaintiff makes no claim of a future representation or misleading conduct by silence.

42. [114]

    As I have said above, his evidence was plainly coloured by the fact that he has lost his money.

43. [115]

    The plaintiff has failed to establish the necessary causal connection between the conduct complained of and his alleged loss.

44. [116]

    The plaintiff bears the burden of proving the quantum of his loss.

45. [117]

    The plaintiff still holds the Notes. They have a face value of $1 million.

46. [118]

    The ordinary measure of damages is the difference between the real value of what the plaintiff got and what he paid for it: Potts v Miller (1940) 64 CLR 282, 297-298; Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281; HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640.

47. [119]

    Applying ordinary principles, his damages are the difference between what he paid for the Notes and what they were worth when he acquired them. However, the Court is not bound to apply this measure. If the Court considered it appropriate, it would, for example, be open to adopt the date for valuation as the date of trial.

48. [120]

    At the trial, the plaintiff led no evidence as to the value of the Notes, either at the time he got them or at the time of trial. The evidence does not show that the Notes were valueless then or even that they are valueless now. He relied solely on the fact of the redemption freeze and the fact that he has so far not been repaid, to found a submission that the Notes are valueless.

49. [121]

    These facts do not establish that the Notes now have no value let alone that this was the case when he got them.

50. [122]

    Mayfair Holdings is not in liquidation.

51. [123]

    Proof of value, especially a zero value, is not ordinarily an overly difficult task and it was not suggested in this case that it was. Usually, it would be proved by financial statements, evidence from a liquidator or expert opinion. Whilst the Court does not let difficulties of quantification stand in its way, justice does not dictate that a figure, even if it is zero, be plucked out of the air: see Troulis v Vamvoukakis [1998] NSWCA 237.

The Application to Re-Open

1. [124]

   I reserved judgment at the conclusion of argument on 9 February 2021.

2. [125]

   On 11 February 2021, the plaintiff filed a motion seeking leave to reopen to:

3. [126]

   The motion was made returnable by the Registry on 19 February 2021. I heard the application on 25 February 2021. It was opposed by Quattro and O’Keefe.

4. [127]

   I said I would deal with it in my judgment and if it was granted, directions would be made for a further hearing, which it was common cause would be required if I acceded to the application.

5. [128]

   Given that the plaintiff has failed to establish liability, the application to reopen to adduce further evidence and seek alternative relief is otiose and is to be dismissed.

6. [129]

   However, it is nevertheless appropriate to record that I would have refused the leave sought (as against Quattro and O’Keefe) even if the plaintiff had established liability, and to state my reasons. I would have granted leave to amend as against Mayfair Holdings and Mayfair Platinum, however.

7. [130]

   My reasons are in no specific order of precedence.

8. [131]

   Justice does not dictate that Quattro and O’Keefe (who is an individual) should be burdened with a further hearing with the inevitable additional cost, inconvenience and delay which that will involve.

9. [132]

   The only additional evidence which the plaintiff seeks to adduce is the Report, which is dated 24 September 2020. It was produced in accordance with the order of the Federal Court on 13 August 2020: see ASIC v M101 Nominees at 558. There is no intention to tender financial records or to call the Provisional Liquidators or any expert evidence as to the prospects of recovery or value. The plaintiff submitted that the Report was admissible as a business record under s 69 of the Evidence Act 1995 (NSW) to establish the value of the Notes. The difficulty with this is that the Report was plainly prepared in connection with an Australian proceeding and is not admissible under s 69 of that Act, by reason of s 69(3)(a). [3] In any event, the Report does not establish the value of the Notes (nil or otherwise), either when they were issued or now. On its face, it was prepared on incomplete information. Amongst others, it refers to a draft restructure plan from Mawhinney which is still at an early stage in its development and the Provisional Liquidators have not had sufficient time to properly assess it. It states that the suggested plan is embryonic and highly conditional, being linked to a successful refinance of the existing first-ranking mortgagees.

10. [133]

    The application to reopen was initially supported by an affidavit sworn on 11 February 2021 by the plaintiff’s solicitor. The affidavit did not give any explanation as to why the evidence had not previously been led (even though it was available – although when the Report came to the plaintiff’s knowledge was not revealed) or as to whether a deliberate forensic decision to approach the issue of loss as it was approached was taken. The motion was adjourned to later in the day because of other matters in the List. When it resumed the plaintiff sought and was granted leave to reopen his application to reopen and read a further affidavit of his solicitor which deposed to the fact that at no time prior to the Court raising deficiencies in the evidence had he considered this issue with junior counsel, the possibility of adducing evidence of this type, or the need to do so. It does not follow from the absence of any discussion between him and junior counsel that a deliberate forensic decision to rely only on the material in fact relied upon was not taken.

11. [134]

    Added to this, the plaintiff’s written submissions, received in advance of the hearing, did not deal with the value of the Notes. The plaintiff’s list of Real Issues for Determination did not identify quantum as an issue. On the other hand, both Quattro and O’Keefe put loss squarely in issue in their written outlines. Quattro put that the plaintiff has failed to establish that he incurred any loss or damage. O’Keefe put that the plaintiff still has a contractual right to the repayment or recovery of his investment from Mayfair Holdings and therefore has not suffered any loss. He put that the plaintiff has not provided any evidence that he will not be able to recover his investment (in full or in part) from Mayfair Holdings. The plaintiff was put on clear notice that the quantum was in issue.

12. [135]

    I raised the issue of quantum with counsel for the plaintiff during his opening. The position taken was that the Court should infer that the Notes have a nil value because the Liquidity Prudency Plan has been in place since 20 April 2020, and that it has been extended indefinitely. [4] I raised the issue again during final argument. [5]

13. [136]

    An additional position taken by the plaintiff was that the value of the Notes was an irrelevant consideration because the plaintiff’s rights under it would merge in a judgment for damages against Mayfair Holdings. The Notes are a freestanding contractual instrument in respect of which no claim in contract is made. Merger would not occur, and if it did, and the Notes had some value, Mayfair Holdings and Mayfair Platinum would get a benefit which Quattro and O’Keefe would not.

14. [137]

    No application for an adjournment to lead evidence of the value of the Notes was made at the hearing.

15. [138]

    No submission was put that the relief should include any order having the effect of bringing any value to account. The Summons made no claim for such an order.

16. [139]

    Section 12GM(1) provides that the Court may make such an order, or orders, as it thinks appropriate against the person who engaged in conduct in contravention of s 12DA(1) or a person who was involved in the contravention.

17. [140]

    Section 12GM(7)(d) provides that one of the orders which the Court may make is an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to refund money or return property to the person who suffered the loss or damage.

18. [141]

    The type of order the subject of the application is discretionary. An order of that type was considered, and in fact made, by Blaxell J in Adams v Morellini [2010] WASC 61 and upheld by the Court of Appeal (WA): see Morellini v Adams [2011] WASCA 84. There, a share transaction had been induced by misleading or deceptive conduct of Mr Morellini, the founding director and sole shareholder of the Company, Meridian, in which the plaintiffs were induced to invest. An order was made that Mr Morellini pay the plaintiff, Mr Adams, a sum of money and that upon receipt of payment, Mr Adams transfer the shares to Mr Morellini. In upholding the order, McClure P, with whom Pullin and Newnes JJA agreed, said at [71]:

19. [142]

    Senior counsel instructed by the plaintiff on the application to reopen made a number of concessions about Mawhinney’s role with Mayfair, not far off the type of role of Mr Morellini with Meridian.

20. [143]

    Counsel for Quattro put that had a claim for this kind of relief been made earlier, Quattro would have considered, and may have joined and cross-claimed against, Mawhinney on the footing that if Quattro was liable to the plaintiff that would be a loss attributable to Mawhinney’s conduct for which he would be liable. He also put that forensic decisions had been taken on the basis on which the plaintiff pleaded and ran his case. These submissions have force.

21. [144]

    Added to this, it is not suggested that Quattro played any actual part in the conduct complained of and the claim of fraudulent participation by O’Keefe failed by a substantial margin.

22. [145]

    Of course, these considerations have little, or no, force with respect to Mayfair Holdings (and perhaps Mayfair Platinum), against whom such an order may well have been made had the plaintiff established liability.

23. [146]

    The plaintiff’s application to reopen is dismissed.

24. [147]

    The Summons is dismissed.

25. [148]

    Provisionally, I order the plaintiff to pay the costs of the third defendant and the fourth defendant. This order will solidify 7 days after publication of this judgment, unless by then any party seeking some different costs order has notified the other parties and my associate in writing that some other order is sought, identifying such an order and providing a brief statement of the grounds why it is sought. If such notice is received, the provisional order will not take effect and arrangements will be made for the determination of costs.