Promissory notes or broken promises? Misleading and deceptive conduct regarding financial products
The following issues were in dispute:
- whether the First, Second and Third Defendants breached s12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (the Act) by engaging in misleading and deceptive conduct, in making representations regarding promissory notes issued to the Plaintiff; and
- whether the Fourth Defendant had actual knowledge of the falsity of the representations made by the other Defendants and intentionally participated in the misleading and deceptive conduct in breach of s12DA of the Act.
The Plaintiff sought to invest money with Mayfair 101 Group (Mayfair), which described itself as providing investment banking-style services that built value for shareholders and investors. Mayfair consisted of the Third Defendant (Quattro Capital Group Pty Ltd), an AFSL holder that appointed the First Defendant (Mayfair Holdings) and the Second Defendant (Mayfair Platinum) as its authorised representatives. The Plaintiff directed an enquiry to Mayfair through its website, and received a response from the Fourth Defendant, Mr O’Keefe, who was a client relationship manager on behalf of Mayfair.
Mayfair offered two types of promissory notes: unsecured M+ Fixed Income (M+) notes and secured M Core Fixed Income notes. Following communications with Mr O’Keefe, the Plaintiff invested $1 million in M+ notes issued by Mayfair Holdings, with a payment date of 20 April 2020 (the Notes). The Notes were subject to a Deed Poll, which provided that Mayfair Holdings may extend the payment date if it did not have sufficient liquidity to fund the repayment of the Notes. On 7 April 2020, Mayfair wrote to the Plaintiff to inform him that due to the COVID-19 pandemic, it had suspended redemption of promissory notes indefinitely. The Plaintiff claimed that the defendants intentionally misled/deceived him by representing that the Notes were secured and would be repayable after 3 months (or earlier if required).
The decision at trial
In order to make a finding of misleading/deceptive conduct, the Plaintiff needed to prove that the Defendants had engaged in conduct that was misleading/deceptive or likely to mislead/deceive, and that there was a causal link between the conduct complained of and the damage suffered. The Court found in favour of the Defendants for two principal reasons.
Firstly, the Plaintiff failed to meet the evidentiary burden of establishing that Mr O’Keefe made the representations. Contemporaneous emails indicated that he made no express representations to suggest that the Notes were secured. Additionally, there was evidence that Mr O’Keefe disclosed the caveat to repayment contained in the Deed Poll. The Plaintiff also failed to properly particularise how the alleged representations were made.
Secondly, the Plaintiff failed to establish that the alleged misrepresentations were causative of his loss. The Plaintiff performed poorly during cross-examination, and revealed little appreciation of what “security” meant or its operation/ramifications. Moreover, the Court held that the Plaintiff’s evidence as to what he would or would not have done was coloured by the fact that the catastrophe of the loss of his “life savings” had befallen him. The Court concluded that the Plaintiff would have invested in the Notes regardless and, as such, he failed to overcome his burden in proving causation.
Implications for you
The case is another example of the need to carefully consider the counter-factual scenario and what a plaintiff would have done if the conduct complained of had not occurred. Importantly, this case serves as a reminder on the dangers of relying on evidence based on hindsight, particularly after a plaintiff has suffered significant harm.
In the decision, his Honour, Justice Hammerschlag also provides some useful commentary on the importance of properly pleading a case and how inadequate pleadings affect a parties case at trial.