FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Cassimatis (No 5)

[2016] FCA 612

ORDERS

THE COURT ORDERS THAT:

1.    Evidence of losses suffered by the Part E Investors is admissible.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

EDELMAN J:

Introduction

1    These reasons concern an objection to evidence which is concerned with an allegation that advice given by Storm Financial Ltd (Storm) was not reasonable in all of the circumstances. The issue is whether evidence of losses suffered after the date of alleged contravention is relevant to the facts which are said to establish that the advice was not reasonable.

2    Although there are a number of other objections, with the diligence and efficiency that has marked counsels’ approach to this case, those objections were grouped into categories and mostly resolved, other than the need to rule on a selection of matters that will arise during the course of the trial.

3    For the following reasons, I accept that evidence of subsequent loss is admissible to prove the facts which are alleged to establish that the advice given by Storm was not reasonable.

An example of the proposed evidence of loss

4    ASIC proposes to lead evidence from various investors (described as the Part E Investors) concerning the losses that they suffered as a result of acting in accordance with the investment recommendations that they received from Storm. An example is the evidence which is proposed to be led from Mr Dodson, who was a 64 year old night shift worker when he swore his affidavit in 2011 [CRTA.005.001.3416]. In the year immediately before becoming a client of Storm, he and his wife had a combined taxable income of $58,996 per annum. Mr Dodson had never borrowed money to buy investment property. He had never borrowed money to buy shares, and he had never had a margin loan. His evidence includes that he and his wife received investment advice from Storm which, following the contraventions, led to them having a home loan of $287,000 and to drawing down a line of credit to $32,000. Mr Dodson says that he and his wife made a hardship application to the Bank of Queensland, which has resulted in them having a reduced interest rate and making interest only repayments currently of about $2,000 a month for a period of three years.

The Cassimatises’ three arguments against admission

5    The respondents, the Cassimatises, essentially make three submissions. First, they say that the applicant, ASIC, has not identified the pre-existing facts that are sought to be proved by evidence that the Part E Investors suffered loss. Secondly, they submit that facts occurring after the dates of the alleged contraventions are irrelevant unless they prove the existence (or otherwise) of relevant facts that pre-date the alleged contraventions. Thirdly, they submit that evidence of actual losses suffered is of such peripheral relevance that it ought to be excluded under s 135(a) or (c) of the Evidence Act 1995 (Cth).

The first submission: identification of relevant facts

6    The test for relevance in s 55(1) of the Evidence Act is that “the evidence that is relevant in a proceeding is evidence that, if it were accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding”. It has been described as a “very broad” test: R v Ahola (No 2) [2013] NSWSC 699 [17] (Button J).

7    ASIC says that the evidence of loss by the Part E Investors could rationally affect, even indirectly, the assessment of the probability of a number of facts related to which advice given was reasonable. One of those facts is that the Dodsons “did not have the capacity to meet interest costs on borrowed funds if the investment portfolio did not generate a sufficient cash flow” and that the “geared nature of the recommended investment increased the chance that [the Dodsons] would suffer an irrevocable loss of capital if markets fell in value due to short term volatility” (statement of claim [1993(d), (f)], denied in defence [251]).

8    I accept that these two facts, and possibly others pleaded in [1993], are facts to which the evidence might relate.

The second submission: relevance of the evidence to those facts

9    The Cassimatises’ second submission was that subsequent evidence of losses cannot be probative of facts concerning the reasonableness of conduct at an earlier time. Curiously, given the not uncommon nature of this issue, in the short time in which counsel had to consider this objection there was no authority on the point which could be identified. Nor did my research today disclose any authority.

10    One authority to which senior counsel for the Cassimatises referred was Stafford v Conti Commodity Services Ltd [1981] 1 All ER 691. In that case, Mocatta J held that losses that were suffered from 46 transactions over eight months (where only ten transactions were profitable) on an unpredictable commodities market could not, by themselves, provide evidence of negligence in relation to an individual transaction (697). That case was argued as an application of the maxim res ipsa loquitur. That Latin maxim (“the thing speaks for itself”) applies where there is an “absence of explanation” of the occurrence that caused the loss; the occurrence was of such a kind that it does not ordinarily occur without negligence; and the instrument or agency that caused the injury was under the control of the defendant. That doctrine was discussed by Gleeson CJ and McHugh J in Schellenberg v Tunnel Holdings Pty Ltd [2000] HCA 18; (2000) 200 CLR 121, 132-133 [22] (citing Anchor Products Ltd v Hedges [1966] HCA 70; (1966) 115 CLR 493, 499-500 (Windeyer J); Piening v Wanless [1968] HCA 7; (1968) 117 CLR 498, 506-508 (Barwick CJ) and Government Insurance Office of NSW v Fredrichberg [1968] HCA 54; (1968) 118 CLR 403, 413-414 (Barwick CJ)) and described at 134 [24] as a doctrine which:

may ameliorate the difficulties that arise from a lack of evidence as to the specific cause of an accident, [but] the inference to which it gives rise is merely a conclusion that is derived by the trier of fact from all the circumstances of the occurrence. When it applies, the trier of fact may conclude that the defendant has been negligent although the plaintiff has not particularised a specific claim in negligence or adduced evidence of the cause of the accident.

11    There is no suggestion in this case that the losses by themselves could establish any lack of reasonable care by Storm in the provision of advice. Indeed, it appears to be common ground that the fact that a loss was later suffered or that a lack of capacity to repay was ultimately experienced does not mean that at the time of the alleged contraventions this was the case or even that this was necessarily foreseeable. An assessment with hindsight does not mean that a matter was foreseeable. But where the concern is to assess the possible future effect on particular circumstances of an individual, then it is logically probative to consider whether that future event did occur.

12    An analogy can be drawn with claims for compensation based upon special value to an owner. Although those claims are to be assessed by determining the special value to the owner at the date of taking, in Housing Commission (NSW) v Falconer [1981] 1 NSWLR 547, 558, Hope JA said:

…there are many decisions, including decisions of the High Court, in which it has been held that evidence of future events is admissible not to prove a hindsight, but to confirm a foresight: see for example, Trustees Executors and Agency Co Ltd v Commissioner of Taxes (Victoria) (1941) 65 CLR 33; Minister for Army v Parbury Henty & Co Pty Ltd (1945) 70 CLR 459, at pp 514, 515, McCathie v Federal Commissioner of Taxation (1944) 69 CLR 1, at p 16; Australian Apple and Pear Marketing Board v Tonking (1942) 66 CLR 77, at p 108.

See also Minister Administering the Crown Lands ACT v Deerubbin Local Aboriginal Land Council (No 2) [2001] NSWCA 28; (2001) 50 NSWLR 665, 676 [69] (Spigelman CJ; Powell and Heydon JJA agreeing).

13    In Minister for Army v Parbury Henty & Co Pty Ltd [1945] HCA 52; (1945) 70 CLR 459, 514, Williams J made this point in relation to the right to compensation for a compulsory acquisition which must be determined at the moment of acquisition. His Honour said that “[t]he amount of compensation, being a matter of assessment, can, like damages, be calculated in the light of any subsequent facts to the extent to which they throw light upon the items of value which can properly be taken into account in the calculation, having regard to the circumstances existing at the date of acquisition”.

14    For these reasons, I consider that evidence of losses, if accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding.

The third submission: the relevance of the evidence is too peripheral

15    The Cassimatises submit that the evidence of actual losses suffered is of such peripheral relevance that it ought to be excluded under s 135(a) or (c) of the Evidence Act as evidence which is “unfairly prejudicial” or which would “cause or result in undue waste of time”. They assert that in relation to the foreseeability of the global financial crisis, the experts agree that “nobody could have been aware of the magnitude of the falls that were likely to occur”.

16    I do not accept this submission for three reasons.

17    First, the facts in dispute to which the evidence of losses is concerned are not limited to the magnitude of the falls which were likely to occur.

18    Secondly, the effect and role of the global financial crisis upon the losses suffered by the Part E Investors will be an issue for trial.

19    Thirdly, the precise matter on which the experts are agreed is as follows:

We agreed that generally a financial adviser should have been aware of the risk of share market falls from the second half of 2007 as the world moved to a period of tighter credit. We also agreed that nobody could have been aware of the magnitude of the falls that were likely.

20    The evidence of loss is admissible.

Conclusion

21    The Cassimatises’ application to exclude evidence concerning losses suffered by the Part E Investors is dismissed.

Associate:    

Dated:    30 May 2016