Thirty-seven investors in Queensland have been awarded $792,509 in damages and interest after the Australian Securities and Investments Commission mounted a successful class action.
In August 2003, ASIC brought the class action against Lawyers Private Mortgages Pty Ltd to obtain damages for the mostly retired investors from south-east Queensland.
LPM was a practitioner nominee company of the Brisbane legal firm McCarthy Durie Ryan Neil Solicitors, which promoted the solicitors’ mortgage scheme.
The relatively inexperienced investors, whose original investments ranged from $5,000 to $250,000, were promised an annual return of 9.25%.
Their money was used by LPM to lend $1.4 million to Rivett Project Results Pty Ltd in 1999.
RPR was the developer of the Yandina Greens Retired Folks Village Pensioner Accommodation at Yandina, Queensland.
The loan defaulted in March 2000 and Jessup and Partners were subsequently appointed as the liquidator to wind up the scheme together with other schemes run by MDRN.
MDRN partners, Jonathan McCarthy, Bruce Durie, Philip Ryan and Ian Neil, who promoted and managed the scheme, were also included in the ASIC action.
The Federal Court subsequently found that MDRN made misleading statements as well as negligent misstatements when they promoted the mortgage scheme to investors.
These statements concerned the asset position of RPR and its director John Rivett, whose net asset position was considerably less than stated in the investment summary, while his company, RPR, had no net worth.
A statement concerning the pre-sale of the retirement village units was also found to be misleading by the Court.
The investment summary contained statements that all 12 units in stage one of the retirement village development had been sold.
The Court found that although there were contracts of sale and pre-sale offers for some of the 12 units in stage one, there were no sales of, or offers for, all 12 units.
“The decision is an important one for ASIC in that it provides a judicial interpretation of the law regarding misleading and deceptive conduct in relation to the promotion of solicitors mortgage investments, and related insurance issues,” ASIC’s executive director Jan Redfern said.
“Fortunately these schemes are no longer a significant issue because all such schemes are now required to be registered with ASIC and to hold an AFSL. However, this outcome will assist ASIC in formulating future regulatory responses in relation to losses incurred under the old scheme,” she added.
The manner in which the Court made determinations as to which aspects of MDRN’s alleged conduct was misleading and deceptive provided ASIC with significant guidance to determine the merits of future cases.
The Court also determined that where there was dishonesty involved in the conduct which was found to be misleading and deceptive, such conduct was not covered under an insurance policy taken out by MDRN which contained an effective clause exempting dishonest conduct from cover.
Cross-claims were made by MDRN against insurers St Paul International Insurance Company Limited and QBE Insurance.
The cross-claims were made by MDRN because both St Paul and QBE declined to indemnify MDRN for civil liability arising out of the proceedings.
The Court directed MDRN to recover against St Paul in respect of one investor and against QBE in relation to the remaining thirty-six investors.
By Kathryn O’Meara
