Former Westpoint boss Norm Carey has lost out in his efforts to blame the collapse of the property investment company on his lawyer, with a Federal Court judge slamming him as dishonest, evasive and "inherently unreliable".
Mr Carey (pictured), who founded Westpoint in the mid 1980s, claimed he had been misled and deceived by his lawyer Andrew Shearwood, of Freehills, about raising finance totalling $160 million. In 2006, seven years after the alleged misconduct, the company collapsed owing investors more than $388 million.
Federal Court judge Susan Kenny dismissed Mr Carey's claim, saying he was "not an honest and reliable witness"."Mr Carey fabricated this evidence to support his case," Justice Kenny said. "[He] was apparently motivated by the desire to blame Mr Shearwood for the financial collapse of the Westpoint. Furthermore, Mr Carey was frequently evasive in cross examination."
Justice Kenny praised Mr Shearwood as an impressive witness.
Mr Carey alleged in 1999 Westpoint director Simon Bell asked Mr Shearwood for alternatives to raising funds via a prospectus, "not by any desire to avoid prospectus level disclosure", but to speed up the fundraising process.
The court heard that Mr Shearwood told Mr Bell that mezzanine finance might be raised by issuing promissory notes with a face value of at least $50,000.
Westpoint began its first project in February 2000, raising $10.5 million to start converting Port Melbourne's heritage National Bank building into apartments.
The court heard the corporate regulator became concerned about Westpoint's use of promissory notes for mezzanine fundraising by the end of May 2000. Freehills responded on the company's behalf and the Australian Securities and Investments Commission chose to take no further action.
But as Westpoint companies continued to raise tens of millions of dollars, ASIC became concerned, writing to a Westpoint company to ask why its promissory notes were not interests in a managed investment scheme, which would require a prospectus to be issued.
Finally, in July 2003, it asked them to no longer use promissory notes unless the relevant companies entered into an "acceptable arrangement".
Two years later, ASIC began proceedings in the Federal Court to wind up one of the companies, York Street Mezzanine, in November 2005 on grounds of insolvency. Weeks later another company, Ann Street Mezzanine, toppled, and other Westpoint mezzanine companies (there were ultimately 11) were placed in voluntary administration.
By mid February 2006, the entire Westpoint Group had collapsed.
Mr Carey's counsel told the court that had Mr Shearwood not given the promissory note advice, Westpoint would not have proceeded with the plan.
But Justice Kenny found Freehills did not breach its duty of care and did not make any misrepresentations, saying promissory notes issued in accordance with the advice were not interests in a managed investment scheme.