QUESTION 1
Felon Tusk is the CEO of Limber Timber Pty Ltd, a company engaged in the supply to wholesalers and retailers of hardwood and softwood timber. Jack is a storeman and packer employed full-time by the company. Jack has a trucking licence, allowing the company to also use him as a truck driver to freight product to the company’s customers around Australia.
On Friday afternoon, after a long lunch at the local tavern The Drunken Duck, Jack reverses one of the company’s 10-wheel flat deck trucks into the timber loading bay in the Despatch section of sawmill. It is a blisteringly cold and wet winter’s day outside, and Jack closes the large roller door to the Despatch area to keep out the wind and rain. Inadvertently he leaves the engine running, and jumps out to help the other storemen and packers load the heavy timber onto the deck of the truck.
The company has erected signs instructing truck drivers to make sure they turn off their engines while inside the Despatch Bay area, but someone has loaded boxes high against the wall so that these signs are obscured from the vision of truck drivers reversing into the loading bay area of the factory. All employees of the company have had mandatory and comprehensive workplace health and safety training and have been made aware of the dangers of carbon monoxide poisoning in the loading Bay.
The concentration of carbon monoxide fumes builds up in the confined space, and all the storemen and packers lose consciousness. Their foreman, Ulysses Odysseus, is out the back of the factory helping the secretaries to operate the photocopier. Because of cost cutting, there are no other foremen or supervisors to replace him in the loading Bay area. When Ulysses returns to the Loading Bay area, he quickly appraises the situation and calls the Ambulance, which rushes the workers to the nearest hospital.
After extensive diagnostic testing, Felon Tusk and Ulysses are advised that the news is not good. One of the storemen and packers suffers brain damage, and all (including Jack) are left with heart irregularities, muscle weakness, and long-term respiratory problems, meaning that they can no longer work ever again as storemen and packers. Jack no longer wants to drive trucks – he is seeing doctors for Post-Traumatic Stress Disorder (PTSD) and none of the others is qualified to work as anything else in the company or elsewhere.
Advise Felon Tusk whether and to what extent the company, Ulysses and/or Jack are likely to be liable in negligence, why, and whether each would have any defences.
QUESTION 2
Gone With the Win Financial Planning (GWW) was a firm of financial planners and advisors who promoted their services as having provided “exclusive, specialized financial advice to high net wealth individuals, professionals and small business for fifty years. Principals with Principles, GWW today deserves its reputation as a market leader in financial advisory services, future-proofing your life-balance through exceptional service, exceptional people, integrity, professionalism and outstanding competence.” The firm’s letterhead showed that GWW was authorised to operate under PMTED Financial Pty Ltd’s Australian Financial Services Licence (No. 987654), issued by the Australian Securities and Investment Commission (ASIC) in 1998.
Fred Flint was a retired academic. Formerly Professor of the University of Brisbane, Fred was confident that he could run his own self-managed superannuation fund on behalf of his wife and himself. Although Fred conceded that he was not an experienced businessperson, he believed that his academic qualifications and a raft of academic finance publications had given him the necessary rigorous training, with relevant advice, to maximise his post-retirement returns.
Fred saw a promotion by GWW in the investment magazine Shrewd Investor, inviting him to enquire about investing $3 million in fully franked transferable revolving underwriting corporate tax credits (TRUCs), secured primarily by ‘at the money’ negative-equity dividend collars to be issued by Beta Corporation Ltd (“Beta”), a public company listed on the Australian Securities Exchange (ASX), which was the parent company of the Beta Group of Companies (“Beta Group”). The TRUCs were underwritten and guaranteed solely by investment company Beta Investments Ltd (“Beta Investments”), another company in the Beta Group of Companies. The TRUCs were also secured by a registered second mortgage over Beta’s fixed assets, as well as an unregistered equitable charge over the circulating assets of the Beta Trust, a unit trust within the Beta Group. The promotion listed the phone number of one Wilma Fudge, a principal with GWW.
Fred phoned Wilmaand enquired about the TRUCs. He told Wilma that he required a secure, short-term investment for his $3 million superannuation payout with a reasonable return, with a coverage of no more than 80% of debt to secured property. Not being a practical person, Fred had always been a little vague about what this meant, but it was something he had written about some year ago in an academic journal, and he thought that mentioning it would be prudent.
Wilma was very engaging on the phone, assuring Fred that the TRUCs were solid investments (“just like a truck”, had a term of no more than 12 months (with a rollover if needed), had a debt coverage ratio of 80%, and were guaranteed a reasonable return. She added that, “This is an excellent opportunity to invest.” All of this sounded particularly attractive for Fred who, even though he had no real understanding of the nature of a TRUC and assumed it was some sort of promissory note, pricked up his ears even more when Wilma told him that there were no entry or exit fees on the product.
Following this telephone conversation Wilma, on behalf of GWW, wrote to Fred introducing the firm, and making it clear that GWW was capable of advising Fred and doing research on his behalf. Wilma even offered in the letter to provide Fred with a financial plan to help secure his financial future.
In response to this letter, Fred spoke with Wilma via video link on Zoom and assured her that he handled his own superannuation scheme and did not require a financial plan, but needed clarification on the nature of the promissory notes she was offering him. Wilma was not specific on the nature of the securities (in truth, she had little real understanding of them herself), but again reassured Fred that they were secure, had a term of no more than 12 months (with a rollover if needed), had a debt coverage ratio of 80%, and were guaranteed a reasonable return.
Fred told Wilma in this Zoom conversation that he had no real understanding of what a second mortgage or ‘unregistered equitable charge’ were, but took these terms to mean that the company guaranteed it would repay his money with interest. He said he assumed that ‘circulating assets’ meant that his securities would circulate through the financial system, helping to provide liquidity for the economy; and that a TRUC was either a promise to repay, or something akin to a warranty. He laughed, saying he had no idea what ‘mezzanine’ meant, except that a mezzanine floor in a building was higher than the first floor, and he assumed that this could only indicate be a good thing, indicating higher returns. Wilma said nothing in response to any of this, merely nodding sagaciously on screen as Fred engaged in what seemed to her to be friendly chitchat.
As a follow-up to this Zoom conversation, Fred wrote the following diary note:
“Spoke to Wilma and said not interested in any other investments she offered me – insufficient return and term too long. I said what I need is –
• A short-term investment of around 12 mths @ around 8%
• Suitable for gearing as I will be using borrowed money
• Regular income returns (monthly)
• Secured Funds.
– Wilma said that investment in these securities would be ideal for my purposes;
– I said that as long as she was satisfied that my investment would be secure, then pls send relevant Info Memo or PDS;
– She said she was satisfied that investment in these securities very secure.”
Three days after writing this diary note, Fred invested his entire $3 million superannuation payout in TRUCs, boasting to his friends at a weekend barbecue that he was now a “TRUC driver.”
Unbeknown to Fred, the day after he had written his diary note, ASIC issued a media release, as well as notification to the ASX. Both documents stated that ASIC had issued a Regulatory Non-Compliance Notice to the solicitors of all companies in the Beta Group, demanding that each and every company in the Beta Group cease any and all activities directly or indirectly associated with public fundraising by security issue “immediately and forthwith on receipt of this Notice.”
GWW’s Research Department immediately notified all GWW partners by internal email on the same day as news of the ASIC action was made public on the ASX, but Wilma had fallen into a habit of not reading her emails, preferring to “get the real work done of making money for the firm.” Nor did Wilma make any enquiries about the nature of the TRUCs she had recommended to Fred.
Six months later, the entire Beta Group of Companies had gone into compulsory liquidation, and all TRUCs were completely worthless.
Fred is enraged, and now consults you to see whether he can sue GWW and/or Wilma on the basis that they were negligent in their advice to him.
Advise Fred, and include in your advice whether GWW and/or Wilma would have any defences.
