IN THE COUNTY COURT OF VICTORIA Revised AT … · (Cth); Evidence Act 2008 (Vic); Corporations Act 2001 (Cth); ... Hewitt met Pollock at his office in Glen Waverley. There is a significant

VCC:AO/SP/LP 1 JUDGMENT

IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION

RevisedNot Restricted

Suitable for Publication

EXPEDITED LIST Case No.CI-14-02444

DARREN HEWITT v COUNT FINANCIAL LIMITED

--- JUDGE: Cosgrave

WHERE HELD: Melbourne

DATE OF HEARING: 20, 21, 22, 23, 24, 27, 28 February 2017 and 1 March 2017

DATE OF JUDGMENT: 17 March 2017

CASE MAY BE CITED AS: Darren Hewitt v Count Financial Limited

MEDIUM NEUTRAL CITATION: [2017] VCC 236

REASONS FOR JUDGMENT

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Subject: CONTRACT; NEGLIGENCE; BREACH OF STATUORY DUTY

Catchwords: Breach of contract and duty of care – negligent misstatement – pure economic loss – whether financial adviser owed duty of care to prospective client to avoid pure economic loss – whether breach of statutory duties imposed on financial advisors - accrual of cause of action and when time begins to run

Legislation Cited: Australian Securities and Investments Commission Act 2001 (Cth); Evidence Act 2008 (Vic); Corporations Act 2001 (Cth); County Court Civil Procedure Rules 2008 (Vic); Limitations of Actions Act 1958 (Vic); Trade Practices Act 1974 (Cth)

Cases Cited: BHP Billiton Olympic Dam Corporation Pty Ltd v Steuler Industriewerke GmbH [2014] VSCA 338; Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588; Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd [2012] VSC 99; Esanda Finance Corp Ltd v Peat Marwick Hungerfords (Reg) (1997) 188 CLR 241; Hawkins v Clayton (1988) 164 CLR 539; Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465; L Shaddock & Associates Pty Ltd v Parramatta City Council (1981) 150 CLR 225; Olga Investments Pty Ltd v Citipower Ltd [1998] 3 VR 485; San Sebastian Pty Ltd & Anor v Minister Administering the Environmental Planning and Assessment Act 1979 & Anor (1986) 162 CLR 340; Smith v Bush [1990] 1 AC 831; Wardley Australia Ltd v Western Australia (1992) 175 CLR 514; Watson v Foxman (1995) 49 NSWLR 315


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APPEARANCES:

Counsel Solicitors

For the Plaintiff Mr M Seelig (20-21 February 2017). Thereafter the plaintiff was self-represented.

National Compensation Lawyers

For the Defendant Mr J Nixon Moray and Agnew


HIS HONOUR:

1 The issue in this case is whether the plaintiff, Darren Hewitt (“Hewitt”) is

entitled to damages resulting from advice he allegedly received from the

defendant, Count Financial Limited (“Count”) which was said to be negligent

and given in breach of the defendant’s retainer and statutory obligations.

Background

2 Darren Hewitt (“Hewitt”) is a courier who alleged that he sought advice from

Count in relation to his ongoing investment in the Mariner Pipeline Income

Trust (“MIT”’).1

3 In late June 2007, Hewitt made a telephone call to arrange a meeting with

John Pollock (“Pollock”), a financial adviser who is now retired. At that time,

Pollock was the principal at Pollock Accountants Pty Ltd, an accounting firm in

High Street Road, Glen Waverley. Pollock held a sub-licence of an Australian

Financial Services Licence (“AFSL”) that was issued to Count.

4 On 28 June 2007, Hewitt met Pollock at his office in Glen Waverley. There is

a significant dispute between the parties as to the substance of this meeting.

Hewitt claims he was given advice to obtain a margin loan to purchase more

MIT units. Pollock maintains that he gave Hewitt no such advice.

5 There is also a dispute as to whether a second meeting took place between

the parties. Pollock alleges that Hewitt visited his office on 6 July 2007, at

which time he returned the signed Terms of Engagement and Pollock dated

them. Hewitt denies attending the office a second time, instead claiming that

he signed the document on the first meeting but left the document undated

and in Pollock’s possession.

6 Hewitt and Pollock then had intermittent contact by email from 6 July until 9 1 The name of the unit trust changed from the Mariner Pipeline to the Ethane Pipeline during the course

of the parties’ interactions . For this reason, the units owned by Hewitt have been referred to in written evidence, witness evidence and in submissions as EPI units, EPX units and MIT units. The terms are interchangeable. For the purposes of this judgment, I will refer to the units as MIT units.


November 2007.

7 On 11 September 2007, Hewitt applied to CommSec for a margin loan with a

credit limit of $52,000. CommSec approved a loan of $60,000.

8 On or about 21 September 2007 Hewitt successfully applied to increase his

margin loan to $100,000.

9 On 22 October 2007, Hewitt applied again to CommSec to increase the credit

limit of his margin loan. CommSec agreed to increase the margin loan to

$150,000.

10 Between 16 September 2007 and 10 October 2007, Hewitt made a number of

purchases of MIT units ranging from 3,109 to 25,860. In that time, his holding

of MIT units increased from 43,100 to 91,359.

11 From 17 January 2008 onwards, Hewitt engaged in various buying and selling

transactions in MIT units to meet margin calls.

12 By 7 July 2009, Hewitt had sold all of his units in MIT.

Credit

13 Given the relative paucity of relevant documents, an important factor in the

case is the credit of the main protagonists, Hewitt and Pollock.

14 While I do not doubt his sincerity, I consider that Hewitt’s recollection of the

events of June 2007 is defective and is largely a reconstruction after the

event. I have grave reservations about the credit of Hewitt.

15 First, it appears the first time that Hewitt made any complaint about the

allegedly bad advice he received from Pollock was around June/July 2013.

This was six years after the initial meeting between the two men. If Hewitt

genuinely believed (as he asserted) that Pollock, by reason of his negligent

advice, was responsible for the loss of Hewitt’s life savings and was the

person to blame for the destruction of his ambition to purchase his own home,


I would have expected Hewitt to make a complaint far sooner. There was no

convincing explanation offered by Hewitt for the lengthy delay.

16 Secondly, by letter dated 20 July 2013, Hewitt wrote to Pollock complaining

about the financial advice he received from Pollock “in September 2007”.

Apart from being wrong about the month of their initial phone call and

meeting, Hewitt said:

“I clearly and distinctly recall you advising me to proceed with using my other available cash savings to purchase more EPX units and to then proceed with using a Commonwealth Bank margin loan because my sole purpose in having my personal meeting with you was to seek your professional advice about doing this and to discuss with you the EPX securities” (emphasis added).

17 Subsequently in his evidence, Hewitt agreed that it was incorrect to assert that

Pollock advised him to:

(a) use his available cash savings to buy more EPX units; and

(b) obtain a Commonwealth Bank margin loan.

Thus, two significant matters which Hewitt asserted in 2013 that he “clearly

and distinctly” recalled, were later acknowledged at trial to be false.

18 Thirdly, initially Hewitt claimed that when he approached Pollock in mid-2007,

he owned only 5,100 MIT units. Hewitt later agreed that the figure was

incorrect and he owned about 37,000 units at the time of their meeting.

Plainly, there was a substantial disparity between the two holdings.

19 Fourthly, Hewitt agreed that, to an extent, his evidence was reconstructed by

reference to documents, the details of which he had forgotten. In early August

2013, Brad Nelson, Customer Experience Manager, Advice Planning and

Investments at CBA Group Customer Relations, sent Hewitt copies of the

emails which passed between Hewitt and Pollock in 2007. Hewitt admitted

that he changed his claim after reading them because it was apparent that

there were errors in his original allegations. Also, Hewitt agreed that he had


no independent recollection of the meeting with Pollock taking place on a

Thursday – the day of the week on which the meeting with Pollock occurred

was stated in an email. Without the emails, he could not have identified the

particular day of the week. Further, Hewitt’s evidence that Pollock told him to

fix the margin loan for 2-3 years derived from the emails. Hewitt said he was

told to get a margin loan but could not recall without the emails the period for

which to fix the interest.

20 Hewitt’s statement that the evidence was revised or reconstructed on the

basis of the 2007 emails did not instil confidence in the accuracy and reliability

of Hewitt’s evidence generally. On more than one occasion, Hewitt

commented that due to the lengthy passage of time between 2007 and the

later correspondence passing between himself, Pollock and the

Commonwealth Bank of Australia in 2013, he was unable to recall all the

details of the events of 2007. To an extent, that comment is no more than a

statement of an obvious point, namely, a person’s memory often fades over

time.

21 Fifthly, the letter dated 20 July 2013 which Hewitt sent to Pollock makes no

reference to Hewitt’s wish to put together enough money for a deposit to buy

his own home. The letter says that the “specific purpose of meeting with you

in September 2007 was to obtain your professional advice about the suitability

for myself to purchase additional EPX units using my own money to the ones I

already owned at that point in time and to obtain your advice to take out a

margin loan in order to purchase more EPX units.” The absence of any

reference to buying property sat uncomfortably with Hewitt’s damages claim

where a major element in the claim related to the alternative transaction he

claimed that he would have undertaken in 2007 if he had not accepted and

relied upon Pollock’s evidence. Hewitt said he would have purchased a four

bedroom property in September 2007 and rented out three of the bedrooms to

boarders.


22 The issue of real estate is the more significant in the context where, until

recently, the claim was founded upon allegations of seeking advice on

whether to use existing savings to buy more units in MIT and whether to use a

margin loan to purchase additional units. In the letter of instruction dated 20

January 2017 to the expert, Peter Bolitho, Hewitt’s solicitors asked what

advice Pollock should have given him at the meeting on 28 June 2007,

“Taking into account the plaintiff’s circumstances when he met with Mr

Pollock” which included:

“His investment goal was to purchase a house in about one to two years; and

He wanted advice on how to increase his savings for a deposit for a property.”

23 This was the first occasion upon which these factual matters were raised. The

changing nature of the assumptions upon which Hewitt’s case was based is

reflected in the fact that Peter Bolitho filed no less than six reports and

another of Hewitt’s experts, Ronald Stepnell, filed four reports.

24 Next, Hewitt was too flexible in changing his claim from time to time when it

became apparent that a particular version of his claim (or part thereof) was

not sustainable. This was apparent from the framing of his damages claim

and the calculation of his losses on the loss of opportunity claim. The initial

version of the claim was that if Hewitt had received appropriate advice,

instead of obtaining a margin loan, he would have sold his units and applied

the proceeds towards the purchase of a four bedroom freestanding house in

Balwyn for $425,000. He would then have rented out three bedrooms to

boarders. Count filed an expert report in which the expert opined that such a

house was not available in Balwyn in September 2007 because the cheapest

house in that suburb at the time was $780,000. The next version of the claim

Hewitt produced was to purchase the particular house in which he was

already living at 30 Gresford Road, Wantirna. This house sold at auction on 7

September 2007 for $315,150. In the most recent version of the particulars of


loss, which was relied on at trial, Hewitt said that, but for receiving the

negligent advice from Pollock, he would have purchased a four bedroom

house in Wantirna for about $300,000.

25 Finally, Hewitt’s evidence was inconsistent in notable respects. One example

was when he was asked to explain the changes in the plaintiff’s outline of his

loss, seen with his Amended Further Particulars of Loss and Damage dated

16 February 2017 (“Amended Particulars”). The Amended Particulars

removed the claim for loss of opportunity to make a capital growth on the

plaintiff’s capital, and changed the loss of opportunity claim from buying a

Wantirna property for $315,150 to buying a Wantirna property for $300,000.

26 During cross-examination, the plaintiff explained that the change from

$315,150 to $300,000 was made by his lawyers, without his authority. Hewitt

explained that: 2

“I didn't have a discussion about what was going to be the contents of the document because I wasn't aware that my counsel was preparing this document. I was aware that he wanted to make submissions to the court to remove the lost opportunity (indistinct) so that's something we discussed, so I was aware that he wanted to make those amendments to remove that. But the document itself and how he told me he may word this document, that wasn't discussed. He didn't talk to me about that, no, so I hadn't sighted this document prior to it being filed…

I agreed with one of the changes, that being removal of the lost opportunity to make capital growth. I didn’t like it, but you know, I agreed to it, I accepted that that’s what he wanted to do. I did not agree or did not discuss the decrease of purchasing the house for $315,150 down to approximately 300,000. That was not discussed with me at all and I hadn’t sighted that document, I wasn’t aware that that was going to happen because it wasn’t raised with me by my counsel but that’s what he was wanting to do.”

27 When I informed Hewitt that he was making a serious allegation – in

explaining the difference by accusing his lawyers of acting without instructions

– Hewitt stated: 3

“I was definitely not aware of the intention of my lawyers to decrease the purchase price from 315 down to 300. I’m not making a serious allegation - - -“

2 T168/28 – T169/23. 3 T169/28-31.


28 Hewitt said that the first time he heard of a reduction from $315,000 to

$300,000 was during his counsel’s opening submissions.4 He stated: 5

“I couldn’t understand that because I had the property valued at 315 and I’ve identified and found a property that I could have purchased at that price and we got an expert property valuation report on that specific property. So I was surprised, I couldn’t understand why he was reducing it down to 300 and you heard me interject saying, ‘No, it’s 315.’”

29 On the morning of the next day of trial, Hewitt’s lawyers sought leave to cease

acting for him. I granted leave to the extent necessary for both the solicitor

and counsel to no longer act for Hewitt. Subsequently, after he resumed

acting for himself, Hewitt made an unprompted admission from the Bar table

as follows:6

“Yes, I wanted to say, it's really disappointing and upset that I wasn't able to recall that change of the sale price of the house from 315 down to 300. It was discussed, but at the time when I was up in the witness box I just didn't recall it and it's…”

30 Hewitt described his legal representatives’ recusal as a “knee jerk” reaction,

and continued: 7

“I had a discussion about it and it's clarified that we talked about that change of date, but I just didn't recall it, I didn't remember it.”

31 Another example concerned inaccuracies in Hewitt’s income tax returns for

the financial years ending 30 June 2007, 30 June 2008 and 30 June 2009.

32 Hewitt accepted that he had indicated on his margin loan application form that

his annual income was $40,000.8 He also accepted that, in fact his taxable

income for the financial year ending 30 June 2008 was $32,326.9 He

explained that this discrepancy came about as a result of him estimating his

earnings for that year, on the basis that, at the time he filed in the application

form, his weekly earnings were approximately $900 per week, which would be

4 T170/12-15. 5 T170/15-21. 6 T208/10-14. 7 T208/28-30. 8 T217/4 9 T217/1-2


$40,000 per annum.10

33 It also appeared that Hewitt had not recorded his dividend earnings received

from the MIT units in his taxable income in his tax returns for the financial

years ending 30 June 2008 and 30 June 2009.

34 Hewitt’s 2008 return showed that his income included, amongst other things,

gross interest of $2315, and deductions including interest and dividend

deductions of $8113. Hewitt’s 2009 return showed that his income included,

amongst other things, gross interest of $2114, and interest and dividend

deductions of $6174.

35 Hewitt’s first explanation was to accept that the dividend amounts had not

been included. He said that this was because at the time, he thought that the

dividends had been taxed or franked, and thus did not have to be included in

his annual income. During cross-examination, Hewitt agreed that the MIT

units were not franked, but said that he thought they were, which is why he

thought they were not taxable and thus, should not be included in the tax

returns. 11

36 Hewitt then explained that he had incorporated the dividends from the MIT

units into the tax returns. He pointed to the gross interest earnings figures for

the two years of $2315 and $2114 respectively, and said that those figures

represented the difference between the dividends received from the shares

and the interest incurred on the margin loan used to purchase the shares. He

said that he included this net amount in the gross interest section of the

taxation return.

37 It was then pointed out to Hewitt that in his 2008 tax return, he had claimed a

deduction for interest of $8113. Also, he had claimed a deduction for interest

in the 2009 tax return of $6174. Hewitt agreed that those amounts

10 T217/22-27. 11 T228/1-17.


represented the interest payments incurred on his margin loan together with

some expenses associated with the margin loan. When it was put to Hewitt

that he had not included his dividends in his taxable income, he denied this

but accepted that he had inadvertently claimed twice for the interest deduction

in relation to the margin loan.

38 It was then put to Hewitt that the first three dividends applicable to the 2008

returns were for a sum in excess of $13,000. Thus, the figure of $2315 which

Hewitt had incorrectly recorded as gross interest in the 2008 return, could not

be the difference between dividends in excess of $13,000 and the interest

deduction claimed of $8113. Hewitt responded by saying that there was a

discrepancy, admitted the numbers were incorrect, but was unsure of what

had happened.

39 He then said that his earlier evidence was incorrect, and that what he had

done was as follows: he had subtracted from the total earnings derived from

his distributions the interest on the margin loan; he then placed the product of

this calculation in the section of the tax form for deductions instead of the

section for gross income. Even accepting Hewitt’s explanation (which I do

not), the position is still unsatisfactory because the figures produced are,

according to Hewitt, nett after deductions and not gross figures.

40 Hewitt’s explanations were not credible. Whether he was fabricating his

responses as Count submitted, or simply making errors, the result of these

inconsistencies is that Hewitt’s testimony cannot be safely accepted as

reliable or accurate.

41 Plainly, Hewitt feels aggrieved by the consequences which he says flowed

from the advice Pollock gave. Hewitt lost his savings and the chance to

possibly buy his own home. Hewitt is looking to blame someone and admitted

he was keen in 2013 to reach a quick settlement with Count so that he could

access the moneys provided by the professional indemnity insurer. As a


sweetener, Hewitt even offered to pay Pollock at least part of the deductible

he would be obliged to contribute towards the insurance claim.

42 Overall, I have major concerns about the reliability of Hewitt’s evidence. Due

to:

the concern he expressed about remembering events which took place

more than nine years ago at the meeting with Pollock;

the misplaced certainty Hewitt expressed previously in his recollection of

events;

the obvious fluidity in Hewitt’s recollections;

the admitted reconstruction of his evidence based not on his memory of

actual events but on documents which he viewed subsequently;

Hewitt’s demeanour in the witness box over an extended period in which

he was frequently longwinded and evasive and failed to grapple directly

with the propositions put to him; and

the inconsistencies in Hewitt’s evidence,

I would not be comfortable accepting Hewitt’s evidence without corroboration.

By reasons of the matters referred to I do not regard Hewitt as a credible and

reliable witness.

43 Pollock was quite self-assured and confident when giving evidence. He was

an experienced accountant and financial planner and seemed reasonably

clear in his recollection of events. He had some specific memory of his

meeting with Hewitt. Due to Hewitt’s nature or personality, as manifested in

court, I can well imagine why Pollock might recall a meeting with him.

44 However, in part at least, Pollock’s evidence was influenced by his “normal

practice” rather than a specific recollection of the details. This is both


permissible12 and understandable in a context where a planner would confer

with many clients or potential clients over a working lifetime.

45 But not all aspects of Pollock’s evidence were entirely convincing. For

example, if Hewitt were not a client, why did Pollock bother exchanging emails

with him to the extent that he did in 2007 after the initial meeting? Why did

Pollock refer in the email to Hewitt dated 10 July 2007 to providing “further

advice or information” when he denied having provided any advice to Hewitt?

In each case Pollock offered an explanation. Having seen Pollock in court and

having regard to the whole of his evidence, on balance, I accept his

explanations.

46 Overall, I found Pollock a consistent and credible witness and, in a clash

between Hewitt and Pollock, would prefer Pollock’s evidence to that of Hewitt.

Issues

47 The parties were asked to submit a statement of the issues to be decided by

the court in this case. The issues to be decided are as follows:

(a) Did Hewitt retain Count to give him advice?

(b) Did Count owe Hewitt a duty of care to avoid pure economic loss?

(c) At a face-to-face meeting in late June 2007, did Pollock advise Hewitt

to use a margin loan to purchase more MIT units?

(d) If yes to issue (c), did Count breach:

(i) a term of any retainer;

(ii) any duty of care owed to Hewitt to avoid pure economic loss;

(iii) any statutory duty owed to Hewitt under the Corporations Act

2001 (Cth) (“Corporations Act”) or the Australian Securities and

Investments Commission Act 2001 (Cth) (“ASIC Act”)?

12 See for example Olga Investments Pty Ltd v Citipower Ltd [1998] 3 VR 485, 486-8, 496-8.


(e) Did the contents of any of Pollock’s email communications with Hewitt

between July and November 2007 constitute a breach of:

(i) a term of any retainer;

(ii) any duty of care owed to Hewitt to avoid pure economic loss;

(iii) any statutory duty owed to Hewitt under the Corporations Act or

the ASIC Act?

(f) If yes to issue (d) or (e) did Hewitt rely upon:

(i) Pollock advising him at a face-to-face meeting in late June 2007

to use a margin loan to purchase more MIT units; or

(ii) the contents of the email communications between Pollock and

Hewitt between July and November 2007 in deciding to:

(A) apply for a CommSec margin loan in September 2007 to

buy MIT units;

(B) apply to increase the margin loan later in September

2007 to buy more MIT units;

(C) apply to again increase the margin loan in October 2007

to buy more MIT units?

(g) If yes to issue (f), what loss if any did Hewitt suffer which was caused

by:

(i) Pollock advising Hewitt to use a margin loan to purchase more

MIT units; or

(ii) Anything Pollock said in email communications with Hewitt

between July and November 2007 constituting a breach of:

(A) a term of any retainer;


(B) any duty of care owed to Hewitt to avoid pure economic

loss; or

(C) any statutory duty owed to Hewitt under the Corporations

Act or ASIC Act?

(h) What, if any claims made by Hewitt are statute barred?

Issue 1 – Did Hewitt retain Count to give him advice?

48 In my opinion, Hewitt did not enter into any formal retainer with Count to give

him advice. There was no dispute between the parties as to some basic facts

about their meeting. It was agreed that Hewitt rang and made an appointment

to see Pollock; that he had a meeting with Pollock at his office in late June

2007; that the meeting was free and Count charged Hewitt nothing for the

meeting either at the time or subsequently; that Pollock produced during the

meeting the defendant’s Financial Services Guide, Supplementary Financial

Services Guide and Terms of Engagement; that Hewitt brought to the meeting

at least one quarterly statement.

49 On the evidence before me,13 I find that Hewitt did not ask Pollock to provide

any of the services set out in the Terms of Engagement and Pollock did not

agree to provide any such services. For this reason and because of my

findings about what took place at the meeting between Hewitt and Pollock on

28 June 2007, I consider that Hewitt did not retain Pollock or Count to give

him advice.

Issue 2 – Did Count owe Hewitt a duty of care to avoid pure economic loss?

50 In addition to claiming there was a retainer between himself and Pollock,

Hewitt claimed that Pollock owed him a duty of care to prevent pure economic

loss which might result from giving negligent advice.

13 See also the material at paragraph 64 hereof.


51 By his Amended Statement of Claim dated 15 December 2016, Hewitt

claimed that Count owed him a duty of care, by reason of the fact that: 14

(a) Count through Pollock advised Hewitt that he should use a margin loan

to purchase more EPI units;

(b) in reliance on the advice, Hewitt took out the CommSec Margin loan

and purchased the EPI units and retained his existing EPI units; and

(c) the advice was given and made without any sufficient determination by

Count of Hewitt’s relevant personal circumstances or his risk profile;

(d) the advice was inappropriate for Hewitt, in that:

(i) he was at risk of losing capital from the investments effected;

(ii) the investments effected were not appropriate for Hewitt and

were only appropriate to a high risk investor;

(iii) the advice and the investments effected were likely to cause

harm to, or had the risk of harming Hewitt’s financial interests;

(e) pursuant to section 945B of the Corporations Act, Count had an

obligation to warn Hewitt that the advice was based on incomplete or

inaccurate information;

(f) Hewitt was vulnerable, in that he was unable to protect himself form

harm to his financial interests caused by Count’s negligence;

(g) Count knew or should have known that there was a real and

foreseeable risk of economic loss being sustained by Hewitt if Hewitt

followed the advice.

52 In its closing submissions, Count submitted that this claim by Hewitt

presupposed that Count gave the advice alleged to Hewitt. Thus, as Count

14 Paragraph 15, Plaintiff’s Amended Statement of Claim filed 15 December 2016.


contended, if there were no provision of advice, no duty could be

established.15

53 Neither of the parties made any legal submissions on this point. Accordingly, I

shall briefly outline the law relating to the duty of care in respect of negligent

misstatements causing pure economic loss.

54 Count’s submission accords with the well-established principles regarding

such a duty in Hedley Byrne & Co Ltd v Heller & Partners Ltd.16

55 Hedley Byrne established that if, in the ordinary course of business or

professional affairs, a person seeks information or advice from another (who

is not under a contractual or fiduciary obligation to give the information or

advice), in circumstances in which a reasonable man would know that he was

being trusted, or that his skill or judgment was being relied on, and the person

asked chooses to give the information or advice without indicating that he

does not accept responsibility for it, then the person replying accepts a legal

duty to exercise such care as the circumstances require in making his reply. A

failure to exercise that care can give rise to an action for negligence if damage

results.17

56 Since Hedley Byrne, later decisions have established that:

(a) in cases of negligent misstatement causing pure economic loss, a duty

may arise even if no request for advice or information is made. 18

When considering the law of negligent misstatement, the idea of

implied acceptance by a defendant of liability is, in effect ,a liability

imposed by law and is not voluntary. 19

15 Paragraph 27, Defendant’s outline of submissions. 16 [1964] AC 465. 17 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, 486-7, 493-4, 495-7, 502-3, 508-9,

514, 522-3, 528-9, 538-40. 18 San Sebastian Proprietary Limited & Anor v Minister Administering the Environmental Planning and

Assessment Act 1979 & Anor (1986) 162 CLR 340, 356-7, Gibbs CJ, Mason, Wilson and Dawson JJ. 19 Smith v Bush [1990] 1 AC 831, 864-5.


(b) because such a claim requires that there be reliance by the

representee on the negligent advice or misstatement, unlike with other

torts, reasonable foreseeability of harm, whilst relevant to determining if

a duty is owed, will not be of itself, sufficient to establish a duty of care.

20

(c) the less formal or serious the occasion in which information or advice is

sought, the less likely it is for a duty of care to be found. 21 For

instance, courts have held that the duty of care is less likely to arise

where advice is given in an informal context, as people speaking on

social or informal occasions may express opinions with less care than if

they were giving the advice in a professional context. 22

57 Although, in the circumstances of this case, the interactions between Hewitt

and Pollock took place in a professional setting, Hewitt has not proved the

alleged negligent advice (or misstatement) was given or made. Thus, in

applying the reasoning in Hedley Byrne, without the allegedly negligent

conduct, the duty cannot arise.

58 Accordingly Hewitt must fail on this point.

Issue – 3 At a face to face meeting in late June 2007 did Hewitt advise

Pollock to use a margin loan to purchase more MIT units?

59 A critical aspect of this case is deciding which account of the 28 June 2007

meeting should be accepted.

60 On the one hand, Hewitt says he came to the meeting bringing with him a

newspaper article and two quarterly statements regarding his MIT units.

Hewitt says that he and Pollock talked about the shares and the good yield

they produced. Hewitt said he asked about whether he should take out a

20 Hawkins v Clayton (1988) 164 CLR 539, 553; Esanda Finance Corp Ltd v Peat Marwick Hungerfords

(Reg) (1997) 188 CLR 241, 249, 252. 21 L Shaddock & Associates Pty Ltd v Parramatta City Council (1981) 150 CLR 225, 231 per Gibbs CJ. 22 Ibid.


margin loan to buy more shares. Hewitt alleges that Pollock said he should,

that he should fix the interest rate for 2-3 years on the margin loan and that he

should keep the lending ratio within the limits set out by the margin loan

provider.

61 At the time of the 28 June 2007 meeting, Pollock was an authorised

representative of Count. Pollock said in his initial phone call with Hewitt that

Hewitt told him that he owned shares in a trust listed on the stock exchange

and he wanted advice about those investments. Pollock explained that, as set

out on Count’s website, he could not give advice at the first meeting with a

prospective client. That was a 1.5 hour free meeting where the aim was for

the planner and the person to meet and assess each other and decide if they

were happy to work together – that is, the planner was happy to have the

person as a client and the client was happy to engage Pollock as the financial

planner.

62 Pollock said the meeting took place 2-3 days after the phone call. He said

that Hewitt brought a trust distribution statement showing how many units he

owned and what the distributions were. Pollock said Hewitt was unusual in

that he talked a lot, telling Pollock how good the investment was, its yield and

how he thought he would buy more units. He told Pollock that he was going

to get a margin loan to buy more units. Pollock said he explained to Hewitt

how margin loans work: it was a loan granted on the security of the units.

The lender assessed the value of the units and lent a percentage of the value.

Pollock said he also explained that there could be a call on the margin loan if

the value of the units fell and the risks associated with such a loan. Margin

loans could move up and down with the value of the underlying security.

63 Pollock said he spoke about the benefits of diversification, spreading

investments across several categories. Pollock said there was a danger in

Hewitt having most of his investments in one asset. Pollock stated that, in

giving this explanation, he made reference to a chart on a wall in his office


setting out growth details for shares, property, cash and bonds over a period

of about 25 years. Pollock said that during the meeting he raised with Hewitt

the issue of fees. Pollock told Hewitt that his fee was $150 per hour and that,

to provide advice in the form of a written statement of advice, would cost

between $2000 -$3,000. Hewitt said that he could not afford to pay such a

sum.

64 Also during the meeting, Pollock said that he produced copies of the Financial

Services Guide, the Supplementary Financial Services Guide and the Terms

of Engagement and explained the gist of these documents to Hewitt. Pollock

said he went through the major items in the Financial Services Guide about

remuneration and process. With the Terms of Engagement, Pollock went

through the “Purpose of the engagement” section of the document and asked

whether Hewitt wanted Pollock to help him with each of the categories set out

in the document. Because Hewitt, in relation to every category, said that he

did not want Pollock’s assistance, Pollock did not tick any of the boxes. It was

because Hewitt answered all categories in the negative that Pollock

concluded that there was no action required at that time and he wrote this in

the box at the bottom of the front page of the Terms of Engagement. Pollock

said he also wrote “nil” at the time of the meeting in the fees section on page 2

of the Terms of Engagement. Because no work was to be done, there would

be no fees. Count never rendered any bill to Hewitt. Pollock gave Hewitt the

documents to take away at the end of the meeting and told him to have a think

about the situation.

65 Hewitt says that, after the meeting, he did not attend Pollock’s office again or

indeed see Pollock again. In contrast, Pollock says that Hewitt returned to the

office late one day about a week later just as they were finishing up for the

day. Pollock said that his receptionist called him to the reception area to see

Hewitt. Hewitt had brought back the documents. Pollock kept the original

documents but had his receptionist make copies for Hewitt to take away with


him. Hewitt agreed that Pollock had given him copies of the documents but

says he did not retain them. He agreed the copies in the Court Book were the

copies which Count produced from its records.

66 In my opinion Count, through Pollock at the meeting on 28 June 2007, did not

advise Hewitt to obtain a margin loan. I reached this conclusion for several

reasons.

67 First, as explained already, Hewitt’s evidence is not particularly credible or

consistent.

68 Secondly, Pollock’s evidence is more believable in circumstances where:

it was the first time Hewitt and Pollock had met.

the first meeting was a “getting to know you” session to determine

whether a client/adviser relationship would be established.

Hewitt rejected Pollock’s offers to provide the services of a financial

planner.

Hewitt chose not to become a client of Count.

Count required that advisers provide no advice in the initial meeting with

a prospective new client. If an adviser gave personal advice, having

regard to the circumstances and needs of the individual client (as the

alleged advice would likely have been here), then the client should

receive a written statement of advice. There was no client relationship in

this case and no statement of advice provided to Hewitt.

Pollock could not give the advice alleged in circumstances where neither

the particular security nor the particular margin loan alleged was on the

list of products approved by Count. An adviser in Pollock’s position was

restricted at the time to the products which Count approved. As a result,

Pollock was not permitted by Count to give advice about the same.


Further, Pollock struck me as sufficiently professional as not to advise on

a security about which he knew nothing. Pollock explained, and I accept,

that before his meeting with Hewitt, he was unable to access any

information about the MIT through Count and the only information he

obtained (through the Australian Stock Exchange website) was very

limited.

69 In reaching this view, I do not ignore the email correspondence passing

between the parties in the period from July 2007 to November 2007. Hewitt

relied on that correspondence to support his version of the facts. However, I

do not regard these documents, which were created after the event, as

changing the substance of what took place at the meeting or creating any

other retainer or duty of care. It is far from enough to just refer to “margin

loan” in the subject of an email. While it would have been helpful at one level

for Pollock to have responded in an email, not by merely ignoring almost all of

the many questions asked of him by Hewitt but by reminding Hewitt that he

was not a client and Pollock had not advised him to obtain a margin loan to

buy more MIT units, Pollock did not do so. Ultimately, I doubt it would have

made any difference to the end result. My assessment of Hewitt is that he

was very pleased with his investment in the MIT units and their yield and he

was keen to obtain as many units as possible. When he saw the article about

margin loans, this fuelled his pre-existing enthusiasm and, save perhaps if an

adviser had specifically told him not to take out a margin loan, I think it far

more likely than not that he would have sought a loan regardless.

70 It was apparent from the evidence that Hewitt was a long-term saver and had

some familiarity with investments and the financial press. He knew about the

MIT units due to his account with CommSec and advised Pollock in his email

of 10 July 2007 that he thought he now had enough information “to make a

correct decision on precisely what to do”. Hewitt had a level of confidence in

his own ability. He admitted also in cross-examination that after the initial


loan, he increased the margin loan from $60,000 to $100,000 and then further

increased it to $150,000 without reference to Count or Pollock.

71 Thirdly, it is well established that when a party relies upon oral evidence as

founding negligence and breach of contract and/or statutory duty, that the

elements of the cause of action should be proved to the reasonable

satisfaction of the court. The court should feel an actual persuasion of its

occurrence or existence. This satisfaction is not obtained or established

independently of the nature and consequence of the fact or facts to be proved

including the seriousness of the allegation made, the inherent unlikelihood of

an occurrence of a given description or the gravity of the consequences

flowing from a particular finding.23 Although these statements of principle were

made in the context of a claim for misleading and deceptive conduct under the

Trade Practices Act 1974 (Cth), it seems to me that the point remains relevant

in the present case. I am not satisfied that Hewitt has discharged his onus in

this regard. In this context, Hewitt did not give convincing detailed evidence of

the meeting between himself and Pollock at which Pollock gave him the

allegedly negligent advice to take out a margin loan to buy more MIT units.

72 For the reasons already given, I do not accept that Hewitt has established his

claim against Count.

Issue 4 – If yes to Issue 3, did Count breach a term of a retainer, or a duty

of care, or a statutory duty to Hewitt owed at common law or

under the Corporations Act or the ASIC Act?

73 In circumstances where there was no retainer between Hewitt and Count and

where, at their meeting in June 2007 Count, through Pollock, did not advise

Hewitt to take out a margin loan in order to buy more units in MIT, Count did

not breach any retainer, duty of care or statutory duty arising under the

Corporations Act or ASIC Act.

23 See Watson v Foxman (1995) 49 NSWLR 315, 318-9.


74 I have referred already to the absence of a contract and duty of care between

Count and Hewitt. The following comments relate to Hewitt’s claim for breach

of statutory duty.

75 Hewitt claimed Pollock’s conduct during the 28 June 2007 meeting and the

emails that followed it, constituted a breach of duty under section 12ED of the

ASIC Act and sections 945A and 945B of the Corporations Act.

76 For completeness, I have set out below the further factors which would

prevent me from finding that Hewitt has established these claims.

77 Hewitt relied upon section 12ED of the ASIC Act which implies warranties into

contracts for the supply of financial services by a person to a consumer in the

course of a business.

78 Hewitt’s claim in respect of section 12ED is misconceived for two reasons.

First, section 12ED imposes warranties on contracts for the supply of

financial services,24 rather than duties on persons providing those services –

as claimed by Hewitt.

79 Secondly, the imposition of a warranty under section 12ED(1) presumes that a

contract is in place between the parties. I have found that there was no

retainer or contractual relationship between Hewitt and Count.

80 Sections 945A and 945B, which were replaced in 2012 by the obligations

under Division 2 part 7.7A, required that Australian Financial Services

licensees and their representatives:

(a) had a reasonable basis for personal advice provided to clients; and

(b) were obliged to warn the client if advice was based on incomplete or

inaccurate information.

81 Although these obligations were in force at the time the meeting took place

24 Australian Securities and Investments Commission Act 2001 (Cth), section 12ED.


between Hewitt and Pollock in 2007, the provision of advice concerning

“margin loans” was not captured by the legislation at that time. This is

because “margin loans” were not included in the definition of a “financial

product” under the Corporations Act until January 2010.

82 Section 944AA provided that the Division in the Corporations Act would apply

in relation to the provision of “personal advice” which was defined as “financial

product advice”. 25 Financial product advice was, (and still is) defined as: 26

(1) … a recommendation or a statement of opinion, or a report of either of those things, that:

(a) is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or

(b) could reasonably be regarded as being intended to have such an influence.

83 Part 7.1 of Division 3 of the Corporations Act set out what constituted a

“financial product”. In 2007 when the meeting took place, margin loans did not

fall under the definition of “financial product”. 27

84 Even assuming the MIT units were “financial products” within the definition in

the Corporations Act, I have found that Pollock did not advise Hewitt to obtain

a margin loan in order to buy more MIT units. Also, Pollock said, and I accept,

that he knew very little before the meeting with Hewitt about MIT units. He

gleaned some information from the ASX website. I am satisfied that Pollock

gave no advice to Hewitt about the wisdom or otherwise of buying MIT units,

and that he made no recommendation or statement of opinion as required by

the “financial product” definition. There were good reasons why Pollock would

not have advised Hewitt about a product and margin loan which were not on

the approved list of Count products.

25 Corporations Act 2001 (Cth), section 766B(3). 26 Ibid section 766(1). 27 Margin loans were not included in the definition of “financial product” until 1 January 2010.


85 Given my view that Pollock did not give Hewitt advice to obtain a margin loan

or to purchase MIT units, Pollock did not give financial product advice as

defined in the statute and the obligations in sections 945A and 945B have no

application.

Issue 5 – Did the contents of any of Pollock’s email communications to

Hewitt between July and November 2007 constitute a breach of

retainer, duty of care or statutory duty to Hewitt owed at common

law or under the Corporations Act or the ASIC Act?

86 As noted earlier, emails created after the critical interaction between Hewitt

and Count cannot retrospectively create a retainer or a duty. Nor in my view

do the circumstances giving rise to the emails between July and November

2007 create any new duty between Hewitt and Count. While Hewitt, although

not a client of Count, persisted in sending Pollock emails raising various

questions, Pollock directly answered virtually none of them. In any event, his

responses were so general and of such a nature that they could not give rise

to any duty of care of the kind alleged by Hewitt. Also, in his email of 10 July

2007 Pollock made clear that before he could provide advice or information in

response to the questions raised, he would have to charge Hewitt for the

service provided. Pollock explained that he could not provide detailed specific

advice free of charge but had to charge Hewitt $150 per hour. Pollock asked

whether Hewitt agreed to the charges. Hewitt responded by email saying that

he could not afford to pay Pollock. When Hewitt continued to email him,

Pollock in his email of 5 August 2007 said:

“Darren, at some stage soon I am going to have to charge you for my time.”

87 Further, in the context of the alleged statutory duty I note again that until the

Corporations Act was amended with effect from January 2010, a margin loan

was not a financial product for the purposes of Chapter 7 of the Corporations

Act.


Issue 6 – If yes to issue 5, did Hewitt rely upon Pollock advising him in late

June 2007 to obtain a margin loan to buy more MIT units or the

contents of Pollock’s emails to him between July – November

2007 in deciding both to apply for an increase a margin loan in

order to buy MIT units?

88 As previously discussed, I have found that Pollock and Count gave no advice

to Hewitt to obtain a margin loan in order to buy more MIT shares. In relation

to the emails passing between Pollock and Hewitt, I do not consider that

anything sent by Pollock could reasonably have induced Hewitt to obtain a

margin loan in order to buy more MIT units. Pollock gave him no explicit

encouragement to do so. On 6 July 2007, Hewitt said that he was intending to

apply for the margin loan as soon as he received the last quarter’s

distributions. On 10 July 2007, Hewitt said that he thought he now had enough

information to make a correct decision on precisely what to do. I infer from

these comments by Hewitt that, consistent with his interest in and history of

saving and investing, he had made up his own mind. Especially is this the

case when Pollock was contractually and practically (due to ignorance)

prevented from advising Hewitt about the MIT units or a CommSec margin

loan.

89 Hewitt has not satisfied me that he relied upon what Pollock said either in the

28 June 2007 meeting or later emails in obtaining the CommSec margin loan

and buying more MIT units.

90 The same situation obtains in relation to the two increases in the margin loan

from the initial $60,000 limit to $100,000 and then $150,000. Hewitt himself

acknowledged that he pursued the increases without reference to Pollock or

Count.

Issue 7 – If yes to Issue 6, did Hewitt suffer any and what loss caused by

Pollock advising him to obtain a margin loan or Pollock’s emails


constituting a breach of retainer, duty of care or statutory duty?

91 From the earlier parts of this judgment, it is apparent that I consider:

(a) Pollock did not advise Hewitt on 28 June 2007, or any other time, to

obtain a margin loan in order to buy more MIT units;

(b) Pollock did not breach any retainer with Hewitt or duty of care or

statutory duty owed to Hewitt.

Thus, Pollock and Count did not cause Hewitt any loss for which either of

them should be legally responsible. But if I am wrong about this, I make the

following comments about Hewitt’s damages claim.

92 As the plaintiff in the proceeding, Hewitt has the onus of proof in establishing

his claim, including any loss or damage, on the balance of probabilities.

93 When considering the issue of damages, Hewitt’s claim is affected by at least

two considerations:

(a) Hewitt acknowledges that he increased the margin loan from $60,000 to

$100,000 and then to $150,000 without reference to Count or Pollock.

Hewitt alone decided to obtain the two increases. But for them, the

margin loan would not have exceeded $60,000. Further, Hewitt gave

evidence that CommSec reduced the loan to valuation ratio in relation to

the MIT units from 60 per cent to 50 per cent before deciding that it

would no longer make any loans where the security comprised MIT units.

This factor affects causation and quantum.

(b) Hewitt used funds made available through the margin loan for purposes

other than the purchase of MIT units. In this way, Hewitt treated the

margin loan like any other financial accommodation and used the money

for his own purposes. His private expenditure of these funds cannot be a

recoverable loss. While initially Hewitt accepted that there were two


major components of personal expenditure, one for advances taken

between July 2008 and August 2010, totalling $30,720.24, and another

in October 2007 for $30,003.40, he ultimately seemed to agree that he

withdrew only the first amount for his personal expenditure. At a

minimum, these moneys, therefore, cannot form part of any loss claimed.

94 These two matters show that either through an absence of causation or the

proper assessment of damages, Hewitt’s claim must be reduced.

95 I note also that in his calculation of loss, Hewitt gave no credit for the sum of

$29,209.08 which he received as dividends from his MIT units between

October 2007 and April 2009. This figure would need to be taken into account

when assessing any damages.

96 The loss of opportunity claim is affected by the fact that I am not satisfied that,

but for receiving the allegedly negligent advice from Pollock, Hewitt would

have purchased a four bedroom property in Wantirna in September 2007.

The inconsistencies in Hewitt’s evidence and his general lack of credit,

together with the absence of available properties, means that Hewitt has not

established with the necessary degree of probability what alternative

transaction he would have undertaken. This affects Hewitt’s ability to prove

both the existence and quantum of any loss.28

97 The evidence from Hewitt’s experts was not persuasive or helpful.

98 Consideration of the expert evidence was influenced generally by the dicta of

Dixon J in Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty

Ltd.29 In that case, His Honour discussed principles relevant to the admission

of expert opinion. Section 76 of the Evidence Act 2008 (Vic) provides that

evidence of an opinion is not admissible to prove the existence of a fact about

the existence of which the opinion was expressed. Section 79(1) provides an

28 See BHP Billiton Olympic Dam Corporation Pty Ltd v Steuler Industriewerke GmbH [2014] VSCA 338

at [540]. 29 [2012] VSC 99.


exception to that admissibility rule. It says that if a person has specialised

knowledge based on the person’s training, study or experience, the opinion

rule does not apply to evidence of an opinion of that person that is wholly or

substantially based on that knowledge.

99 Dixon J referred to the decision of the High Court in Dasreef Pty Ltd v

Hawchar,30 and said that: 31

“ the majority stated that when considering opinion evidence, admissibility is to be determined by application of the requirements of the Evidence Act rather than by any attempt to parse and analyse particular statements in decided cases divorced from the context in which those statements were made”

100 The High Court said that a two-stage inquiry was needed.32 The first part of

the inquiry concerned whether the evidence was relevant – what fact in issue

could it rationally affect? Assuming relevance was shown, the next stage

involved the satisfaction of two criteria. The expert witness must have

specialised knowledge based on the person’s training, study or experience.

Further, the opinion must be wholly or substantially based on that knowledge.

To be admissible, expert opinion must demonstrate not only that the opinion

and the reasoning underlying it has a proper basis in the witness’s specialised

knowledge but also that the opinion and reasoning has a proper basis in

assumed or observed facts.

101 Dixon J noted that this requirement for a proper basis can refer to three

distinct requirements for admissibility of an expert opinion. He referred to the

judgment of Heydon J in Dasreef Pty Ltd v Hawchar and said:33

“Firstly, the ‘assumption identification’ rule requires that the expert disclose the ‘facts’ and ‘assumptions’ which found the expert’s opinion. Often called the ‘basis rule’ but more conveniently referred to as the ‘proof of assumption’ rule is the second requirement, that the ‘facts’ and ‘assumptions’ stated by the expert be proved before the opinion is admissible. Thirdly, the requirement is a statement of reasoning showing how the ‘facts’ and ‘assumptions’ related to the opinion stated

30 (2011) 243 CLR 588. 31 Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd [2012] VSC 99 at [87]. 32 Ibid. 33 Ibid at [89].


so as to reveal that that opinion was based on the expert’s expertise, which may be called the ‘statement of reasoning’ rule.

102 Rule 44.03 of the County Court Civil Procedure Rules 2008 (Vic) reinforces

part of the above by requiring that an expert report setting out the opinion of

the expert specify the facts, matters and assumptions upon which the report is

based and the literature or other materials utilised in support of the opinion.

103 Peter Bolitho was a financial adviser with superannuation and investment

expertise who produced a series of reports for Hewitt as his instructions

changed over time. Mr Bolitho’s work suffered from a number of limitations.

He did not reveal the existence of all the facts, matters and assumptions

underlying his reports. For example, he agreed that he received 116 emails

from Hewitt in relation to the litigation. He did not refer to these emails in his

reports or append a listing of the emails to his reports. Rather, his reports

made specific reference to particular emails or documents received but

ignored the others. Also, Mr Bolitho received at one point an eight page proof

of evidence from Hewitt which was not revealed in the reports.

104 Next, Mr Bolitho purported to give evidence about the valuation evidence

concerning the extent of increase in the capital value of the property at

30 Gresford Road, Wantirna and whether that increase was consistent with

the increased capital value of properties in Wantirna and surrounding suburbs.

On the basis of his curriculum vitae set out in the report dated 27 January

2017, I am not satisfied that Mr Bolitho was appropriately qualified to give

such an opinion.

105 Further, it was a matter of some disquiet that, pursuant to a request from

Hewitt, Mr Bolitho amended a draft report to remove from it any reference to

an outline of evidence which Hewitt had sent him and which he read. Later

the reference to the outline of evidence was restored and the draft report

changed again. This came about at least partly because Michael Gronow, a

barrister providing pro bono assistance to Hewitt for a time, learned of the


matter and directed that the expert comply with the Rules of Court. Mr Bolitho

says that he would have acted in this way in any event or, if not, might have

withheld the report because the removal of the outline of evidence took away

the basis of his advice in the report.

106 The final problem with Mr Bolitho’s opinion evidence was that there was no, or

no sufficient, evidence to make good the assumptions about Hewitt’s ability to

buy in September 2007 a four bedroom house in Balwyn, at 30 Gresford

Road, Wantirna or anywhere else in Wantirna for $300,000 or thereabouts.

107 Thus, Mr Bolitho’s evidence was strictly inadmissible or, if admissible, was of

no probative value.

108 Ronald Stepnell was a mortgage broker and loan consultant who prepared

four reports for Hewitt. Again, as with Mr Bolitho, Mr Stepnell’s instructions

changed from time to time and he prepared additional reports to reflect the

new instructions.

109 Mr Stepnell’s latest report dated 16 February 2017 was presented to me in

court on 23 February 2017. In that report, Mr Stepnell referred to two

documents: a delegated lending authority which granted to some bank lending

officers and managers a discretion about the implementation of lending policy

and the Westpac Bank lending policy. The delegated authority and the

lending policy documents were relevant to the extent to which (if at all) a

lender could take into account moneys which Hewitt received from boarders.

The context was that in 2007, Hewitt was the head tenant of the property at 30

Gresford Road, Wantirna and was responsible for payment of the rent.

However, the landlord had authorised him to take in three boarders who

occupied the other bedrooms in the house. Count’s expert had said that the

major lenders would not take such boarder income into consideration when

assessing Hewitt’s suitability for a loan, and as a result, Hewitt lacked the

financial strength to obtain the necessary loan to buy the house he sought in


Wantirna in 2007. Mr Stepnell failed to attach either document to his report.

Count correctly submitted that this breached the applicable provisions of the

Rules and the report was not strictly admissible.

110 There were other problems with Mr Stepnell’s reports. He attached to the

most recent report extracts from the lending policies of three second tier

lenders where they provided for board income. But the extracts were from

current policies – there was no evidence of the policy position in 2007.

Common to the three lenders as a precondition for taking account of board

income was a requirement that the income be included in the applicant’s tax

return. Alternatively, two of the three lenders required that there be a formal

tenancy agreement between the applicant and the boarders. One of the

lenders allowed for the possibility that there might be other evidence

acceptable to it which would justify the making of a loan. Hewitt said that he

was not obliged to, and did not, include the board income in his tax returns.

Nor was there any formal written agreement between Hewitt and his boarders.

111 Mr Stepnell expressed a view that, given his extensive history of dealing with

boarders, a lending institution might have accepted board income from Hewitt

as sufficiently stable to be taken into account in assessing his ability to repay

a loan. However, because of difficulties with the underlying facts about

Hewitt’s intent to buy a property in September 2007 and the lack of availability

of such a property, the Stepnell evidence, even if admissible, was not

relevantly probative.

112 Ian Clayton was a valuer who gave evidence for Hewitt by providing two

reports. In his latter report, he was asked to:

assess the market value of the property at 30 Gresford Road, Wantirna

in September 2007; and

provide market evidence of other sales of like properties in the area in

mid to late 2007 and early 2009 (sic).


113 Clayton valued the Gresford Road property at $315,000, largely it seems,

because the property sold at auction on 7 September 2007 for $315,150.

Mr Clayton regarded that price as the best evidence of the value of the

property in September 2007.

114 Clayton could not identify any comparable sales of property in the area at a

price of $300,000 - $330,000 sold after 1 September 2007. The comparable

sales which Mr Clayton identified were either single storey properties, three

bedroom properties or more expensive properties. None of the properties he

identified was equivalent to the characteristics and price of the Gresford Road

property.

115 Because the Gresford Road property was irrelevant to the latest version of

Hewitt’s claim for loss and damage and there was an absence of any

equivalent properties which Hewitt might possibly have bought in or after

September 2007 for about $300,000, Mr Clayton’s evidence had no

probative value for Hewitt’s case.

Issue 8 – What, if any, claims made by Hewitt are statute barred?

116 The plaintiff claims he received negligent advice on 28 June 2007. He alleges

that, as a result of this advice, he entered into a margin loan to increase his

holding of MIT units. The plaintiff contends that, had he not received this

advice, he would have sold his MIT units in September 2007 and invested the

proceeds to purchase a property in Wantirna for approximately $300,000.

117 Count submits that because the meeting at which the alleged advice was

given took place almost seven years before proceedings were issued in May

2014, Hewitt’s claims are statute barred.

118 Hewitt makes his claim alternatively in the context of:

(a) contract, specifically breach of the retainer allegedly entered into

between Hewitt and Count;


(b) tort, specifically breach of the duty of care owed to Hewitt to avoid

pure economic loss; and

(c) statute, specifically breach of statutory duties owed to Hewitt under

the Corporations Act and the ASIC Act.

119 Turning first to the Hewitt’s claim in contract, section 5(1)(a) of the Limitations

of Actions Act 1958 (Vic) (“Limitations of Actions Act”) provides for a limitation

period of 6 years from the date the cause of action accrues, namely, the date

of the breach of contractual term. Even if the plaintiff had been able to

establish a formal contract between himself and Pollock (which he did not),

on any interpretation of his claim, the alleged breach – advising Hewitt to

obtain a margin loan to increase his holding of MIT units – occurred in 2007.

As proceedings were issued in May 2014, any claim in contract is statute

barred.

120 Secondly, Hewitt claims that Count breached its common law duty of care to

him to not cause him to suffer economic loss. As with the contract claim,

section 5(1)(a) of the Limitations of Actions Act provides for a limitation period

of 6 years from the date when the cause of action accrues. The cause of

action in negligence is complete when the claimant suffers damage. It is not

enough that the negligent advice be communicated. A plaintiff must suffer loss

as a result of acting on the advice.34

121 In this case, Hewitt claims that he suffered loss when he acted upon the

alleged advice to obtain a margin loan to increase his holding of MIT units.

Only from this point, and not earlier, can any claim for economic loss be

made. That is the time at which the plaintiff’s alternatives in relation to his

investment, such as selling his MIT units and investing in property as he

claims he would have, were effectively ‘cut off’. As such, Hewitt’s alleged loss

was sustained on no later than 22 October 2007, when he increased the credit

34 See the discussion in Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 (albeit in the

context of a claim under section 52 of the Trade Practices Act 1974 (Cth)).


limit of his margin loan to $150,000 in order to buy more MIT units. As

proceedings were issued in May 2014, any claim at common law is therefore

statute barred.

122 Finally, Hewitt claims that Count breached the statutory duties owed to him

under sections 945A and 945B of the Corporations Act (which are no longer in

force) and/or section 12ED of the ASIC Act.

123 In 2007, section 953B provided the means to recover loss or damage from a

financial services licensee which, amongst other grounds, contravened

sections 945A and / or 945B. Subsection 953B(5) provided that any action

would be limited to 6 years after the day on which the cause of action arose.

Thus, as the alleged advice was given in 2007 and proceedings were issued

in May 2014, the relevant claims under the Corporations Act are statute

barred.

124 Assuming, contrary to my findings, that Hewitt’s claim for breach of the statute

was sustainable, he would have suffered loss and damage no later than 22

October 2007 when, instead of selling his MIT units and buying a property in

Wantirna for about $300,000, he obtained a margin loan and bought more MIT

units. Because Hewitt issued proceedings in May 2014, more than 6 years

after the cause of action arose, this claim under the Corporations Act is

statute barred.

125 The second of the duties alleged by Hewitt is said to arise under section 12ED

of the ASIC Act which implies a number of warranties into contracts for the

supply of financial services, including that they be rendered with due care and

skill. Section 5(1)(a) of the Limitations of Actions Act provides for a limitation

of 6 years from the date the cause of action accrues, not for actions based on

contract. As such, any action based on breached of the section 12ED implied

warranties is statute barred.

126 Again, due to the passage of more than six years between the cause of action


arising, and Hewitt commencing his proceeding, the claim for a breach of the

ASIC Act is also statute barred.

127 On each of Hewitt’s alternative claims, the effect of the applicable statute of

limitation is that his claims are statute barred.

Conclusion

128 In summary, the plaintiff has failed to prove his case and, accordingly, I

dismiss it. I shall hear the parties on the question of costs.

Documents

IN THE COUNTY COURT OF VICTORIA Revised AT … · (Cth); Evidence Act 2008 (Vic); Corporations Act 2001 (Cth); ... Hewitt met Pollock at his office in Glen Waverley. There is a significant