- Unreported Judgment
SUPREME COURT OF QUEENSLAND
Appeal No 8510 of 2007
DC No 1917 of 2006
Court of Appeal
General Civil Appeal
Application for Leave s 118 DCA (Civil)
4 April 2008
10 March 2008
Keane and Fraser JJA and Chesterman J
Judgment of the Court
1. In Appeal No 7887 of 2007: Appeal dismissed. Appellants to pay the respondent's costs of the appeal assessed on the standard basis
2. In Application No 8510 of 2007: Application dismissed. Respondent to pay the appellants' costs of the application assessed on the standard basis
TRADE AND COMMERCE – OTHER REGULATION OF TRADE OR COMMERCE – STATUTORY REGULATION OF PARTICULAR MATTERS – MISCELLANEOUS STATUTORY REGULATION – where the appellants carried on the business of providing financial services to the public – where the respondent requested from the appellants information about an advertised investment opportunity – where the appellants sent the respondent the information memorandum for the investment accompanied by a cover letter from the appellants – where the appellants' cover letter misstated the security of the investment – whether the conduct of the appellants was misleading or deceptive or likely to mislead or deceive
TORTS – NEGLIGENCE – ESSENTIALS OF ACTION FOR NEGLIGENCE – DUTY OF CARE – SPECIAL RELATIONSHIPS AND DUTIES – PROFESSIONAL PERSONS – where the appellants carried on the business of providing financial services to the public – where the appellants misstated the security of an investment opportunity in correspondence sent to the respondent – whether the misstatement amounted to negligent conduct on the part of the appellants – whether reliance by the respondent upon information provided by the appellants was reasonable
PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – JURISDICTION AND GENERALLY – where the trial judge admitted into evidence the report of an expert witness – where the report was tendered without objection from the appellants – where the appellants claim that the matters addressed by the report had not been pleaded – whether the trial judge erred in admitting the report in to evidence
PROCEDURE – COSTS – COSTS OF WHOLE ACTION – WHERE MONEY PAID INTO COURT OR OFFER OF COMPROMISE MADE – OFFER OF COMPROMISE MADE – where the respondent made an early offer to settle the action for a sum significantly less than that amount later awarded to him at trial – where at the time of making the offer the respondent had not disclosed documentation later relied upon to support an important aspect of the respondent's case – whether the trial judge erred in refusing the respondent's application for indemnity costs pursuant to r 360 of the Uniform Civil Procedure Rules 1999 (Qld)
Australian Securities and Investments Commission Act 2001 (Cth), s 12DA
District Court of Queensland Act 1967 (Qld), s 118(3)
Uniform Civil Procedure Rules 1999 (Qld), r 360
Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592;  HCA 60, cited
Downey & Anor v Carlson Hotels Asia Pacific P/L  QCA 199, cited
Gould v Vaggelas (1985) 157 CLR 215;  HCA 75, applied
I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109;  HCA 41, applied
McWilliam's Wines Pty Ltd v McDonald's System of Australia Pty Ltd (1980) 49 FLR 455;  FCA 159, cited
R A Perry SC for the appellants/cross-respondents
D R Cooper SC for the respondent/cross-applicant
ClarkeKann for the appellants/cross-respondents
Quinn & Scattini for the respondent/cross-applicant
 THE COURT: In 2005 the respondent lent $100,000 upon the security of two promissory notes from Bayshore Mezzanine Pty Ltd ("Bayshore"). The appellants had proposed this investment to the respondent. Administrators were appointed to Bayshore on 6 December 2005. The promissory notes issued by Bayshore were valueless and the respondent recovered none of the principal of his loan.
 The respondent commenced proceedings against the appellants to recover his loss, claiming that he had made his investment with Bayshore by reason of the contravention by the appellants of s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) ("the ASIC Act"). Section 12DA provides: "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."
 The respondent also advanced an alternative claim for damages for loss suffered by reason of negligent advice by the appellants.
 At the trial of the action, the learned primary judge upheld the respondent's claim both under the ASIC Act and in negligence at common law. Judgment was given in favour of the respondent for $114,736.62 together with the costs of the action.
 The appellants' challenge to the decision of the learned primary judge is based principally on the contention that the respondent acted, not upon advice or information provided by the appellants, but upon an erroneous understanding of the structure of the investment for which he alone was responsible. The appellants contend also that the findings of negligence which the learned primary judge made against the appellants were not open on the respondent's pleaded case.
 The respondent seeks leave to cross-appeal in relation to the costs order made by the learned primary judge, contending that his Honour erred in failing to award the respondent his costs of the action on an indemnity basis. We shall discuss this application after first dealing with the substantive appeal.
 We shall discuss the arguments agitated in the appeal in more detail after first setting out the facts of the case. It is convenient to do that by reference to the findings of the learned primary judge.
 The respondent retired from the Commonwealth Public Service in 1995. The first appellant was a director and duly authorised agent of the second appellant. The second appellant carried on the business of providing financial services to the public.
 On 6 April 2005 the respondent spoke to the first appellant in answer to an advertisement of investments available through the appellants. The learned primary judge found that the respondent told the first appellant that he, the respondent, was managing his own superannuation fund and that he had a line of credit on his house on which he could draw "for secure investments". The respondent said that if the first appellant thought that the advertised investment was secure he could send him information about it. The first appellant asked if the respondent wanted a full financial plan done; and the respondent replied that all he wanted was the first appellant's advice on the products which the first appellant was offering. Information was sent to the respondent by the appellants promoting an investment in the Prime Retirement and Aged Care Property Trust. The respondent rejected this suggestion on the footing that he would lose money if he withdrew his funds early. He subsequently told the first appellant that he wanted a short term investment with a return of around 10 per cent and that he had about $50,000 to invest.
 After some further inconsequential correspondence, the appellants sent the respondent a letter dated 18 July 2005 which referred to "an excellent opportunity to invest in high yielding promissory notes offering a 14% return on a minimum of $50,000 with a company who have an established record of over 20 years." The letter went on:
"For specific projects, unsecured Promissory Notes are issued in a special purpose company. In each project, this company has a second ranking mortgage over the development property and a second ranking charge over the special purpose company. In addition, Westpoint Corporation and associated entities provide a guarantee for the company’s obligation under the loan and security documents that will be released once all Promissory Notes have been repaid and all interest payments made."
The letter further summarised the attractions of the proposed investment under the hearing "Investment Highlights" which included "Security: Guarantee from the Westpoint Group and a charge over the Bayshore Port Melbourne Trust." The letter also contained a disclosure notice which said, inter alia: "Please note that the attached information is not financial advice and is for information purposes only." Attached with the letter was a newsletter from Westpoint Corporation which discussed a number of projects in which that company was then involved.
 The particular development referred to by the appellants in the letter of 18 July was the Westpoint Group Bayshore Development. The "special purpose company" turned out to be Bayshore. On 21 July 2005 the respondent spoke to the first appellant again. The respondent's evidence of the conversation was this:
"I spoke to him and ... said I wasn't interested in the Prime Time Aged Care Trust and ... what I needed was a short term investment around about 10 per cent, suitable for gearing as I'll be using borrowed money, regular income returns on a monthly basis and secured funds. [The first appellant] then said to me that the investment in Bayshore Mezzanine would be ideal for my purposes. Then I said as long as he's satisfied that the investment would be secured please ... send out the ... Information Memorandum and he said he was satisfied that the investment in Westpoint would be very secure."
 Because he decided to invest with Bayshore after that conversation, he made the following notes of the conversation:
"– I said what I need is –
- A short term investment @ around 10%
- Suitable for gearing as I will be using borrowed money
- Regular income returns (monthly)
- Secured funds
– He said that investment in Bayshore Mezz would be ideal for my purposes
– He said that investment in Bayshore Mezz would be ideal for my purposesI said that as long as he is satisfied that my investment would be secure then pls send relevant im.
– He said that he was satisfied that investment in Westpoint very secure." 
 We pause in this narrative to note that, at trial, the respondent called evidence from Mr Child, an expert financial adviser, to the effect that the investment in Bayshore was a high risk investment for a number of reasons, not the least of which were the high rate of commission paid to investment advisers such as the appellants and the high rate of interest payable on Bayshore's promissory notes. The appellants did not call any evidence. The evidence of the respondent and of Mr Child was uncontradicted. In these circumstances, it is hardly surprising that the learned primary judge found that the first appellant had represented to the respondent that the investment in Bayshore was secure and that this statement was misleading.
 We return to the narrative of events: the appellants wrote a letter on 22 July 2005 to the respondent, which referred to "our recent telephone conversation" and included an Information Memorandum, evidently the "im" referred to in the respondent's note of the conversation of 18 July 2005. This letter repeated the assertion that lending money to Bayshore in return for a promissory note would be "an excellent opportunity to invest ... with a company who have an established record of over 20 years." The letter went on:
"The Westpoint Group has a track record of success in the property development field. The Group was founded in 1985 and since then has completed development projects valued in excess of $600 million. The Westpoint Group currently owns and/or manages retail and commercial properties with a total value of over $300 million and has substantial net assets flowing from the successful completion of its present developments (in excess of $80 million).
Each project is approached from a disciplined and structured understanding of the property market and the needs of the purchaser. This approach has been extremely successful as evidenced by the consistently high ratio of pre-sales."
The letter also repeated the assertions made in the earlier letter of 18 July with respect to the "security" for the promissory notes. We set out the passage in paragraph 10.
 These statements were apt to convey the impression, which the respondent said had been conveyed explicitly in his conversation with Mr Brannelly, that the investment in the promissory notes was, indeed, "secure".
 The Information Memorandum contained an explanation of the structure of the transaction and a diagram which showed the Westpoint Guarantor Group giving a guarantee to Bayshore, and a "charge" between Bayshore and the Bayshore Port Melbourne Trust under which was the development property. A synopsis of the promissory note offer contained the following entry: "Security – Guarantee from the Westpoint Guarantor Group … and a charge over the Trust."
 The diagram, or "schematic description" as the appellants' counsel called it, is, to say the least, complicated. One can, we think, without cruelty, describe it as a derivation of the work of the late Heath Robinson. As an explanation of the "position with respect to the guarantee" it is at best ambiguous and at worst misleading. The one thing it is not is comprehensible.
 According to the respondent, at this time, he did not know what a promissory note was: he said that he believed that it was like a mortgage or shares in a company. The proposal appealed to him because of the suggested return, the 12 month term of the investment, the reputation of Westpoint, and the fact that Westpoint would provide a guarantee which he understood to mean "a guarantee to [him] that they would repay [his] moneys with interest." The respondent understood the reference to "unsecured" to mean that there was no first mortgage. He said that he believed that the reference to the second mortgage over the development property and the second charge over the special purpose company meant that he "with [his] promissory note – would have some interest in that particular charge."
 It was common ground that the promissory notes were not guaranteed by the Westpoint Guarantor Group and that Bayshore did not have a charge over the development property. The respondent said that if he had understood the lack of security attending his investment in Bayshore, he would not have invested. The learned primary judge referred to the following piece of evidence:
"Mr Delmenico, if you had been told that with respect to these promissory notes that what you were getting was really a promise from Bayshore Mezzanine to pay you your money back with interest, that any guarantee was not directed to you but to Bayshore Mezzanine, that there was no mortgage in favour of Bayshore Mezzanine over the property and that there was no registered charge in place in favour of Bayshore Mezzanine, would you have made the investment?-- Absolutely no way."
It may be said that the learned primary judge would have been entitled to regard the respondent's answer to this grossly leading question as of little weight, but it is clear that his Honour accepted this evidence as reliable having regard to the objective circumstances of the case, including, of course, the fact that the respondent was himself borrowing on the security of his home to make the investment. In these circumstances, it was no stretch to accept that the security of his investment was important to him.
 The respondent signed the application for a promissory note and sent back the application with his cheque for $50,000. The appellants confirmed in a letter dated 1 August 2005 that the respondent's cheque had been received. This letter asserted that "you have decided to make an investment based on your own research" and that "[a]s you did not describe your current situation to me, have not sought advice …"
 By letter dated 12 October 2005, the appellants informed the respondent that they were undertaking research into alternative investment opportunities for him. It referred to the Bayshore investment as the type of investment which the respondent might wish to continue with.
 In a conversation between the respondent and the first appellant, after receipt of the letter of 12 October, the respondent asked if the Bayshore investment was still open and was told that it was. The respondent said that he wished to invest a further $50,000. The appellants then sent the respondent a letter dated 17 October 2005 with an application form and another copy of the Information Memorandum. The letter included a disclosure sheet which claimed that the appellants were not giving the respondent financial advice. The respondent completed the application form and sent it off with a cheque for $50,000.
 The learned primary judge found that the first appellant, in his letter to the respondent of 18 July 2005, misinterpreted the terms of the Information Memorandum to the respondent, and, in so misinterpreting the structure of the proposed investment, did not merely provide information but gave advice. We should say that, whether or not the first appellant misinterpreted the Information Memorandum, or was "giving a advice" rather than "providing information", it was common ground that the Westpoint Guarantor Group did not provide a guarantee to investors in promissory notes of the performance by Bayshore of its repayment obligations to those investors.
 His Honour accepted that the respondent "did not appreciate the nature of a promissory note" and that he "relied upon the recommendations or advice offered by the [first appellant] as an expert in the field."
 His Honour also accepted the respondent's evidence that he relied upon what he had been told by the appellants in the letter of 18 July 2005 in order to clarify his lack of understanding of the terms of the Information Memorandum which accompanied the applications for promissory notes.
 On the other hand, the learned primary judge also accepted that the respondent was careless in failing to make further enquiries of the first appellant to clarify his lack of understanding of the structure of the investment which resulted from the discrepancies between the description in those letters and in the Information Memorandum. Nevertheless, his Honour concluded that this carelessness did not preclude recovery pursuant to s 12DA of the ASIC Act.
 The learned primary judge noted that the "thrust of the [appellants'] case" was that the plaintiff's testimony, that he relied upon what he read in the correspondence, was unacceptable given his employment as a relatively senior public servant and an investor. The submission was, apparently, that the respondent had acted unreasonably in assuming that the respondent's letters contained representations and were not merely passing on the information contained in the newsletter and Information Memorandum. His Honour found:
"In the present case, having regard to the relevant letters, and the conversation of 21 July 2005, the plaintiff proceeded on the erroneous basis that:
a.That there was a mortgage in favour of Bayshore over the development property, whether second ranking or otherwise.
b.That there was a guarantee by Westpoint Corporation and associated entities to the promissory note holders.
c.There was a second ranking charge in favour of Bayshore.
d.That the investment was an excellent opportunity and secure."
 We digress shortly to note that the appellants complain that these findings are incompatible with other findings made by his Honour, but there is no substance in the complaint. In that paragraph his Honour recited the "nine features" which the respondent had been invited to identify in his cross-examination as being relevant to his decision to invest in the promissory notes. In fact the sixth, seventh, eighth and ninth features were uncontroversial and irrelevant to the causes of action. The second, third, fourth and fifth features are identical to the four identified by his Honour in paragraph 38. The first feature is an amalgam and repetition of the third and fourth features.
 In relation to the respondent's claim based on the ASIC Act, the learned primary judge concluded:
"The defendants conceded that the information in the letters relating to the existence of a second registered mortgage was inaccurate but was corrected by the Information Memorandum. That aspect has been explained by the plaintiff. He did not understand the diagram. Obviously, if the first defendant misconstrued the meaning of the Newsletter or the Information Memorandum as to the nature of the security, it was not unreasonable for the plaintiff to make the same erroneous assumptions. Damages can be claimed pursuant to s 12GF of the ASIC Act. In the present case, it is not pleaded nor has it been argued that the plaintiff has contributed to his own losses."
The parties' arguments on the appeal
 The appellants argue that a correct statement of the information about the structure of the Bayshore investment which was found to be material to his decision to invest was contained in the Information Memorandum which the respondent read before making his investment. In the appellants' written submissions, they asserted that "it is the [respondent's] misconstrued belief [sic] as to what the documents said that is alleged to constitute the actionable misrepresentations" and that "the erroneous assumptions held by the [respondent] in proceeding with the investment were so extreme, so fanciful, that no reasonable person in the position and with the knowledge of [the respondent] would have held [sic]." The appellants also contend that the findings made by the learned primary judge in relation to the negligence case were not open to him having regard to the respondent's pleaded case.
 The appellants' submissions seek to controvert the learned primary judge's acceptance of the respondent's evidence and his Honour's assessment of his credibility. Rather than confront the difficult task of overturning such an assessment, counsel for the appellants endeavoured to outflank the finding by arguing that the case deposed to by the respondent had not been pleaded and could not, therefore, be accepted. As part of the encirclement the appellants submitted that no matter how subjectively honest the respondent might have been, no:
"reasonable person in the position of the [respondent], when confronted with a letter from the first [respondent] summarising the investment which he recognised as being inconsistent, and an Information Memorandum which he did not fully understand ... would ... have been misled by any alleged error in the letters of 18 and 22 July 2007."
 On behalf of the respondent, it is argued that there can be no real doubt that the respondent was misled by the appellants as to the structure of the investment and the security of the investment. The point is made that the appellants' argument is essentially a "disguised attempt to appeal against the learned primary judge's findings of fact about the reliance by the respondent upon the representations, which were based upon his acceptance of the credibility of the respondent as a witness."
 In our respectful opinion, the appellants' argument that the respondent's misunderstanding of the terms of the investment was something for which he was solely responsible does not survive scrutiny in light of the settled principles to be applied to the evaluation of such a contention.
 It may be accepted that there are cases where a consumer's erroneous understanding of a transaction is wholly the result of the consumer's own misconceptions. McWilliam's Wines Pty Ltd v McDonald's System of Australia Pty Ltd affords an example of such a case: there, consumers who inferred a common commercial origin between the products of different manufacturers in different markets were misled by their own mistaken belief that one manufacturer had a legal monopoly of the use of a particular product description.
 It must also be accepted, in conformity with the decision of the High Court in Butcher v Lachlan Elder Realty Pty Ltd, that a statement may be seen in its context to be no more than the passing on, without adoption or endorsement, of a statement made by another and that a disclaimer of responsibility for the accuracy of a statement may serve to qualify the character of the statement which would otherwise be misleading, so that it can be regarded as innocuous.
 On the other hand, it is also well-established by decisions of the High Court of which the most recent is I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd,  that the circumstance that a consumer, who is in fact induced to rely upon a statement which is objectively misleading, could have avoided the loss consequent upon that reliance by the exercise of reasonable care does not mean that the consumer did not act in reliance upon it so as to be entitled to recover damages by way of compensation for that loss.
 To the extent that the appellants argue that the respondent's loss was the result of his failure to understand the position as it was stated in the Information Memorandum, the respondent's confusion was itself the product, in substantial part, of statements by the appellants about the structure of the investment made in their letter of 18 July 2005.
 The appellants' letter of 18 July 2005 contained two clearly false statements: first, that the borrowing company, Bayshore, "has a second ranking mortgage over the development property"; and, secondly, Westpoint Corporation and associated entities guaranteed Bayshore's obligations in respect of the respondent's loan. The appellants' letter misstated the structure of the investment in a way which was apt to encourage in the respondent a favourable view of the security of the investment. The disclaimer which accompanied the appellants' letter of 18 July was in no way apt to convey to the respondent that the appellants' description of the structure of the investment was not reliable. Further, the terms of the Information Memorandum were not such as to demonstrate unequivocally that the appellants had misstated the structure of the investment. In particular, the description in the synopsis of the security for the promissory notes makes little, if any, sense, if it is not a description of a guarantee from the Westpoint Guarantor Group for the benefit of holders of promissory notes from Bayshore.
 There is a distinct air of unreality about the appellants' argument. It is abundantly clear that the letter of 18 July 2005 was intended to be acted upon by the respondent: the only purpose of the letter was to encourage the respondent to invest. It can readily be inferred that it had the effect intended for it, and it is a hard thing for the appellants to criticise the respondent for his failure properly to interpret the Information Memorandum when they themselves interpreted its effect in essentially the same way in their letter to the respondent. And, finally, whether one describes the statements in the letter of 18 July as "information" or "advice", the making of these statements is aptly described as "conduct in relation to financial services" for the purposes of s 12DA of the ASIC Act.
 It may be accepted that the discrepancies between what the appellants had told the respondent about the structure of the investment and the true position explained in the Information Memorandum were such as to afford an arguable basis for a challenge by the appellants to the credibility of the respondent on the issue of reliance. They enabled the appellants to suggest that the respondent understood the true position and decided to invest anyway. It was, however, open to the learned primary judge to reject these suggestions on the basis of his favourable view of the respondent's credibility. This view was strongly supported by objective considerations, such as that the terms of the appellants' letter of 18 July which were inherently apt to persuade the respondent to look favourably upon the proposed investment, and the likelihood, as a matter of ordinary human experience, that a person in the respondent's position would be disposed to place reliance on what he was told by a person in the position of the first appellant. Nice legal distinctions between different forms of security were unlikely, in such a context, to have exerted a strong claim on the respondent's attention. Further, the terms of the diary note of 21 July 2005 provide compelling support for the proposition that the respondent regarded the transaction as a secure one from his point of view precisely because he was given the first appellant's assurance to that effect.
 There is no substance in the appellants' complaints that the case advanced by the respondent in evidence and accepted by the learned primary judge was not one of which notice had been given by the statement of claim. Before passing to the detail it is pertinent to note that there was no objection to the plaintiff's evidence on the ground that the case testified to had not been pleaded, or took the respondents by surprise. There was some debate about the condition of the statement of claim. It is prolix and was not expressed with any felicity, but the appellants did not submit that they did not understand the case they had been brought to court to meet, or that they could not fairly meet that case. Indeed their counsel expressly eschewed any suggestion that the appellants required an adjournment of the trial.
 Senior Counsel who appeared at trial and on appeal for the appellants very properly made the concession to the trial judge that in a case involving the amount of dispute "pleading points ought [not] to be determinative" but "the context of the case [should] be identified with some degree of precision before [the respondent] gives evidence." The reason for those remarks was that the respondent's counsel in his opening address had referred to some conversations between Messrs Brannelly and Delmenico which had not been rehearsed in the statement of claim. Mr Perry SC noted that he would need to obtain "instructions about them" but he would not suggest that "the trial has to be adjourned or anything silly like that." He wanted the pleadings "tidied up".
 The pleadings were not in fact amended. Senior Counsel who appeared for the respondent (at trial though not on the appeal) made it clear that the respondent's case would "stand or fall" by reference to paragraph 11 of the statement of claim and he did not intend to set out the essence of the conversations in the pleading because they were only "evidence relevant to the issues raised by the defence", that no advice was given. He invited Mr Perry to object to the evidence of the conversations when it was led. There was no such objection that we were referred to.
 On appeal only one unpleaded conversation was referred to. It occurred on 6 April 2005 and was the first contact between the first appellant and the respondent. Perhaps for that reason it should have been pleaded because in it the respondent gave some information about his circumstances. Nothing else of relevance was said and that conversation did not loom large in the case.
 Having obtained instructions about the conversation opened the appellants' counsel was able to cross-examine the respondent comprehensively and with some vigour.
 We turn to the statement of claim. Paragraphs 7, 8 and 10 refer respectively to the letter of 18 July 2005, the conversation of 21 July 2005 and the letter of 22 July 2005. Each paragraph alleges that the communication contained representations which it identified. Paragraph 9 pleaded that the appellants had represented, in the conversation of 21 July 2005 that the investment in the promissory notes "was a secure investment". Paragraph 11 then pleaded that the written representations would be understood as conveying:
"(m)The repayment of the investment made by the [respondent] ... was to be secured by a guarantee from the Westpoint Group, a second ... mortgage and a charge over the Bayshore Port Melbourne trust."
 We have already referred to the respondent's evidence that he was told by the first respondent that the investment was secure. The respondent also said this:
"Let's explore ... the guarantee point. The importance of it was ... that you considered that the guarantee had been given to you by some company?-- Yes, to investors.
So, you would be the beneficiary of a guarantee given to investors by some company?-- Yes.
Which company ...?-- The Westpoint Group, the whole group.
… So you considered that the Westpoint Group was giving you a guarantee, you and all investors, in respect of your promissory note?
That ... wasn't a matter ever discussed with Mr Brannelly, was it? It's something that arises again out of this letter of 18 July?-- That's what he told me in the letter, yes.
So ... like the first point, this second aspect, which you relied upon in making your decision was something that you divined ... from the terms of this letter only? – It was clear to me."
 The respondent also gave evidence that he relied upon the statements in the letter of 18 July 2005 that Bayshore would have a charge over the Bayshore Melbourne Trust and a second mortgage over the development property. It is apparent then that the representations on the basis of which the respondent proceeded to invest were pleaded and supported by evidence. The learned primary judge said of them:
"Considering the relevant factors objectively and taking into account the particular background of the plaintiff as an investor it is open to find, which I do, that the plaintiff acted reasonably in assuming those matters. His failure to check again with the first defendant having perused the Newsletter and Information Memorandum does not alter that fact. He did not pay much regard to the Newsletter given its nature and the Memorandum, particularly the diagram, did not make sense to him. He went back to the letters drafted by the first defendant. The plaintiff presented as a credible person, supported by his diary note and his interpretation of the relevant letters was reasonable ... Any misunderstanding is not unreasonable ..."
 The representations were pleaded and proved to the learned primary judge's satisfaction. Given his Honour's findings of fact and credibility his Honour's conclusion cannot be assailed. The only oral representation was the fourth, that the investment was secure. There is a finding, based on credit, that it was made. Its making is, in our opinion, corroborated by the contemporaneous documents.
 Accordingly, we can see no reason to interfere with the learned primary judge's finding of reliance on the part of the respondent which was, of course, made with the advantage of seeing and hearing the evidence of the respondent.
 We conclude that the appellants' challenge to the finding of liability for contravention of s 12DA of the Act must fail.
 In relation to the claim based in negligence, the respondent relied upon the evidence of Mr Child to the effect that a reasonable financial adviser would be alert to ensure that a potential investor has a full and accurate understanding of a proposed investment. On this aspect of the case, the learned primary judge concluded:
"In relation to the pleadings and the evidence of Mr [Child], the defendants contend that the effect of his evidence was not pleaded. Mr Child did not attempt to swear the issue. His approach was that if the first defendant had known his product, it would have been obvious that the nature of the security provided, for example, would not have been described in the letters as it was. The errors have been discussed. In fact, the first defendant mis-described the nature of the security … The point made by Mr Child, which I accept, is that the first defendant if he had known his product, should have explained the features of the promissory note more clearly and certainly should not have misrepresented the nature of the security relevant to such promissory notes. One aspect referred to by Mr Child was that ASIC issued a media release in May 2004. It stated that:
The Bayshore Mezzanine action was commenced shortly after ASIC issued a letter of demand in April 2004 to Westpoint group’s solicitor that companies in the Westpoint group cease all promissory note fundraising.
It is contended by Mr Child that such a notice ought to be known to financial advisers and that the plaintiff ought to have been made aware of the situation. It is certainly raised in the pleading at paragraph 23A(10). I am satisfied that the plaintiff would not have invested if such a warning has been told to him by the first defendant. [sic] He was looking for a secure investment. Such a warning would have cast considerable doubt about the promissory notes belonging to the secure category.
The question of reliance has been discussed. The defendants have failed in their duty of care to the plaintiff by failing to advise him about the nature of the security being offered and by misrepresenting or failing to understand the true nature of the security and misleading the plaintiff in the correspondence. It was a clear case of the first defendant not understanding his product."
 The appellants' challenge to this aspect of the case rests squarely on a contention that the substance of Mr Child's evidence, and the particular respects in which he said the appellants fell short of the standard expected of a reasonable financial adviser, had not been pleaded and could not, for that reason, be accepted by the judge. A similar complaint had been made to the learned primary judge at trial and rejected. It is not necessary to consider the pleadings in detail because it is obvious that Mr Child's report was relevant to the case as pleaded.
 The appellants' submission to the contrary faced substantial difficulty. Not the least of these was the point that the report was tendered during the respondent's counsel's opening address without objection. The report had earlier been provided to the appellants' counsel. One would have expected an objection to relevance if the report advanced a case that was not pleaded. The second obstacle is that the points made in Mr Child's report which it is now complained were not pleaded are not material facts or even particulars of material facts. It remains the law that one does not plead the evidence which will be adduced as proving or tending to prove material facts necessary to establish a cause of action. There was no need to plead the content of the report.
 In part Mr Child's report read:
"Financial Planners should understand the nature, structure, benefits and risks of investment products that they recommend. Financial Planners know that clients rely upon the ... Planner to only offer investment products that the ... Planner has an intimate knowledge of. Clients expect that ... the Financial Planner ... is making a personal recommendation. Further they expect that the ... Planner will ... highlight any unusual features, benefits and risks ... A Financial Planner exercising reasonable care and skill would not forward, offer or recommend an investment product that they did not understand."
 After this general introduction the report continued:
"... the Bayshore ... Promissory Notes [had] a number of unusual aspects ... that were warning signs.
1.The investment product paid 6% initial commission to the Financial Planner. A more usual initial commission on an income paying investment is up to 1%. A higher than usual commission on any product is a red light to a reasonable financial planner who would ask the obvious question – why does the investment promoter need to offer such a huge inducement?
2.The investment was a Promissory Note. This is unusual.
3.This investment offered an income return of around 3 times the cash rate. It [is] a fundamental principle of investment that high returns equal high risk and that the higher the return the higher the risk.
Promissory notes are a form of investment with a long history and are known to the investment industry as a high risk investment ... A financial planner exercising reasonable care and skill should satisfy themselves that there was a reasonable basis for the borrower to meet interest payments and the repayment of capital by the due date ... [T]he Financial Planner should satisfy [themselves] that the borrower had sufficient resources to meet their obligation under the ... note. This would involve understanding the cashflow of the borrower ...
In the case of ... Bayshore ... there was no cash coming in to the borrower if the loan funds were used as intended i.e. lent to a property development company. The only income for the borrower would occur when the property development was completed and sold ... The borrower would have no ongoing income to meet the monthly interest payments at 12% pa A reasonably competent Financial Planner would ask the question; what funds will be used by the borrower to meet monthly interest payments ...
The scheme relied entirely upon the successful completion of a property development and yet was designed to give the impression of an interest bearing investment. The client was likely to believe that the investment was a fixed interest investment and thus was more secure than investments in the share market or the property market. A Financial Planner exercising reasonable care and skill would have ensured that the client would have been told that the success or failure of the investment relied entirely on the success or failure of a specific property development and was thus a high risk investment ..."
 From these observations Mr Child distilled six separate "failings", or "fundamental flaws", in the promissory notes as an "investment product" and seven failings in the provision of information to the respondent by the appellants. The appellants' submission came down to the assertion that these "failings", some of which the learned primary judge found to have been established, had not been set out in the statement of claim. They did not need to be. They were conclusions drawn from the evidence of an expert, duly qualified in his discipline, relevant to an issue which squarely arose on the pleadings and was, indeed, the front and centre of the respondent's case: were the promissory notes a secure investment and could the appellants' reasonably have so described them? Mr Child's report provided answers adverse to the appellants. There was no competing evidence.
 In any event any deficiency in the statement of claim by reason of which the appellants were not given specific notice of a matter which might have taken them by surprise was cured by the delivery of Mr Child's report. No complaint was made that it was irrelevant or too late to be met by the defence. In that state of affairs complaints about a lack of comprehensiveness in the statement of claim lose substance.
The respondent's application in relation to the costs of proceedings below
 The learned primary judge ordered that the appellants pay the respondent's costs of the action on a standard basis. The respondent had sought an order for indemnity costs pursuant to r 360 of the Uniform Civil Procedure Rules 1999 (Qld) ("the UCPR") based upon the offer made by the respondent on 13 February 2007 to settle his action for a sum of the order of $17,000 less than the amount of the judgment recovered at trial. The respondent applies for leave to appeal against the order for costs on the basis that the learned primary judge misapprehended the factual circumstances relating to the respondent's offer.
 We do not pause to consider whether the respondent's application for leave to appeal in respect of the question of costs was necessary by virtue of s 118(3) of the District Court of Queensland Act 1967 (Qld). In light of the firm view we have taken on the merits of this application, it is not necessary to decide whether leave to appeal was necessary.
 In relation to r 360 of the UCPR, the learned primary judge decided that an order for costs in the respondent's favour, other than an order for indemnity costs, should be made. In this regard, his Honour concluded that, at the time the respondent's offer to settle was received by the appellants, the respondent had not disclosed to them his diary note of 21 July 2005, and a report by the liquidator of Bayshore which demonstrated that the promissory notes were valueless.
 The respondent contends that the late disclosure of these documents had no impact on the capacity of the appellants to make an informed decision whether to accept the respondent's offer. The respondent emphasises that the appellants did not give evidence to contradict the respondent's evidence of the conversation of 18 July 2005, and the liquidator's report could have been obtained by the appellants themselves.
 But the diary note afforded substantial support for an important aspect of the respondent's case. The respondent's failure to disclose the diary note was not a trivial matter, as the learned primary judge clearly appreciated.
 An applicant for an order for indemnity costs who has failed to observe the important obligations imposed by the UCPR in relation to disclosure will rarely be in a position to insist upon an application of r 360 which overlooks the applicant's failure.
Conclusion and orders in relation to the appeal
 The appeal should be dismissed.
 The appellants should pay the respondent's costs of the appeal to be assessed on the standard basis.
Conclusion and orders in relation to the application
 In our respectful opinion, the respondent has failed to show that the learned primary judge's discretion in relation to costs has miscarried.
 The respondent's application should be dismissed. The respondent should pay the appellants' costs of this application to be assessed on the standard basis.
 Delmenico v Brannelly & Ors  QDC 165 at  - .
  QDC 165 at .
  QDC 165 at .
  QDC 165 at .
  QDC 165 at .
 R 45.55 – R 46.10.
  QDC 165 at .
  QDC 165 at .
  QDC 165 at .
  QDC 165 at .
  QDC 165 at  – .
  QDC 165 at .
  QDC 165 at .
  QDC 165 at .
  QDC 165 at .
  QDC 165 at .
  QDC 165 at  – .
  QDC 165 at .
  QDC 165 at .
  QDC 165 at  – .
  QDC 165 at .
  QDC 165 at .
  QDC 165 at .
 (1980) 49 FLR 455.
 (2004) 218 CLR 592. See also Downey & Anor v Carlson Hotels Asia Pacific P/L  QCA 199 at  – .
 (2002) 210 CLR 109.
 Cf Gould v Vaggelas (1985) 157 CLR 215 at 235 – 239.
 R 72.45 – R 73.15.
 R 74.30-40.
 R 74.20-30.
  QDC 165 at .
 Cf Devries v Australian National Railways Commission (1993) 177 CLR 472 at 479.
  QDC 165 at  – .
  QDC 165 at .
 Exhibit 1 R 262.
- Published Case Name:
Delmenico v Brannelly & Anor
- Shortened Case Name:
Delmenico v Brannelly
 QCA 74
Keane JA, Fraser JA, Chesterman J
04 Apr 2008
No Litigation History