Carey v Freehills

[2013] FCA 954

FEDERAL COURT OF AUSTRALIA

Carey v Freehills [2013] FCA 954

Citation:

Carey v Freehills [2013] FCA 954

Parties:

NORMAN PHILLIP CAREY & ORS (ACCORDING TO ATTACHED SCHEDULE); FREEHILLS and AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

File number:

VID 485 of 2008

Judge:

KENNY J

Date of judgment:

20 September 2013

Catchwords:

NEGLIGENCE – Solicitor negligence – Duty of Care - Implied retainer alleged between solicitor and sole and effective controller of corporate structure – Status as ‘sole and effective controller’ of corporate structure in establishing duty of care independent of retainer – Novel category of duty – Duty of care to majority and third party shareholders of client company - Multifactorial approach applied – No duty of care found.

NEGLIGENCE – Solicitor negligence – Alleged breach of duty of care – Statements of law made by solicitor - Advice and advocacy on behalf of client– Duty to warn - No breach of duty found.

NEGLIGENCE – Causation – Interaction of s 5C(1)(a) of the Civil Liability Act 2002 (WA) and common law test – ‘but for’ test – Not appropriate case to otherwise attribute causal link - No causal link established.

NEGLIGENCE – Loss and Damage - Claim for damages where damage suffered characterised as lost opportunity to float Company – Capacity of shareholder to claim loss shared by company – Capacity of ‘sole and effective controller’ to claim loss shared by company – Whether loss was loss of company - Rule against shareholder claims for mere reflective loss of Company.

MISLEADING OR DECEPTIVE CONDUCT – Alleged loss suffered by non-client as a result of misrepresenations of law and fact by solicitor – No reliance on alleged misrepresentations – Not applicable case for liability absent reliance – Claim not made out.   

CORPORATIONS – Corporate collapse - Shareholder claim for damages where damage suffered characterised as lost opportunity to float Company – Capacity of shareholder to claim loss shared by company – Whether loss was loss of company - Rule against shareholder claims for mere reflective loss of Company.  

Legislation:

Managed Investments Act 1998 (Cth)
Financial Services Reform Act2001 (Cth)
Trade Practices Act 1974 (Cth)
Fair Trading Act 1987 (WA)
Trade Practices Amendment (Australian Consumer Law) Act (No 2) 2010 (Cth)
Consumer and Competition Act 2010 (Cth)
Civil Liability Act 2002 (WA)
Wrongs Act 1958 (Vic)
Civil Liability Act 2002 (NSW)

Cases cited:

Emu Brewery Mezzanine Ltd (In Liq) v Australian Securities and Investments Commission [2006] WASCA 105
Jones v Dunkel (1959) 101 CLR 298
Financial Industry Complaints Ltd v Deakin Financial Services Pty Ltd (2006) 157 FCR 229
Australian Securities and Investments Commission v Ann Street Mezzanine Pty Ltd (2005) 56 ACSR 340
PeterBodum A/S & Ors v DKSH Australia Pty Ltd (2011) 280 ALR 639
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191
Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514
Henville v Walker (2001) 206 CLR 459
Heydon v NRMA Ltd (2000) 51 NSWLR 1
Rafferty v Madgwicks (2012) 203 FCR 1
Yorke v Lucas (1985) 158 CLR 661
Elders Trustee and Executor Co Ltd v EG Reeves Pty Ltd (1987) 78 ALR 193
Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82
Inn Leisure Industries Pty Ltd (Prov liq app) v D F McCloy Pty Ltd (No 1) (1991) 28 FCR 151
Boland v Yates Property Corporation Pty Ltd (1999) 167 ALR 575
Hill v van Erp (1997) 188 CLR 159
IGA Distribution Pty Ltd v King and Taylor Pty Ltd [2002] VSC 440
Pegrum v Fatharly (1996) 14 WAR 92
Meerkin & Apel v Rossett Pty Ltd [1998] 4 VR 54
Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465
Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241
Blackwell v Barroille Pty Ltd (1994) 51 FCR 347
Beach Petroleum NL v Kennedy and Others (1999) 48 NSWLR 1
Hawkins v Clayton (1988) 164 CLR 539
Caltex Refineries (Qld) Pty Ltd v Stavar (2009) 75 NSWLR 649
Anns v Merton London Borough Council [1978] AC 728 Caparo Industries Plc v Dickman [1990] 2 AC 605
Perre v Apand Pty Ltd (1999) 198 CLR 180
Sullivan v Moody (2001) 207 CLR 562
Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540
Stuart v Kirkland-Veenstra (2009) 237 CLR 215
Makawe Pty Ltd v Randwick City Council [2009] NSWCA 412
Hoffmann v Boland [2013] NSWCA 158
Maronis Holdings Ltd v Nippon Credit Australia Pty Ltd [2001] NSWSC 448
Dean v Allin and Watts (a firm) [2001] 2 Lloyd’s Rep 249 Hancock Family Memorial Foundation Ltd v Fieldhouse [No 5] [2013] WASC 121
Irvine v Shaw [1992] ANZ Conv R 83
Brownie Wills v Shrimpton [1998] 2 NZLR 320
Johnson v Gore Wood & Co [1999] PNLR 426
White v Jones [1995] 2 AC 207
Johnson v Gore Wood & Co [2002] 2 AC 1
RP Howard Ltd & Witchell v Woodman & Co (a firm) [1983] BCLC 117
Scottsdale Homes Pty Ltd v Gemkip Pty Ltd & Ors [2008] QSC 326
Christensen v Scott [1995] 1 NZLR 273
Sutherland Shire Council v Heyman (1995) 157 CLR 424 Ross v Caunters (1980) 1 Ch 297
Australian Securities and Investments Commission v Emu Brewery Mezzanine Ltd (2004) 52 ACSR 168
March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506 Henderson v Amadio Pty Ltd (No 1) (1995) 62 FCR 1 Ricochet Pty Ltd v Equity Trustees Executors & Agency Co Ltd (1993) 41 FCR 229
Janssen-Gilag Pty Limited v Pfizer Pty Limited (1992) 37 FCR 526
De Bertoli Wines Pty Ltd v HIH Insurance Ltd (in liq) and Ors (2011) 200 FCR 253
De Bertoli Wines Pty Ltd v HIH Insurance (in liq) [2012] FCAFC 28
Adeels Palace Pty Ltd v Moubarak (2009) 239 CLR 420 Bennett v Minister of Community Welfare (1992) 176 CLR 408
Chappel v Hart (1998) 195 CLR 232
Fitzgerald v Penn (1954) 91 CLR 268
Sellars v Adelaide Petroleum; Poseidon Ltd v Adelaide Petroleum NL (1994) 179 CLR 332
Gould v Vaggelas (1985) 157 CLR 215
Harris v Milfull [2002] FCAFC 442; (2002) 43 ACSR 52
Willoughby v Clayton Utz [2005] WASC 47; (2005) 193 FLR 373
Thomas v D’Arcy [2005] 1 Qd R 666
Giles v Rhind [2002] 4 All ER 977
Fabre v Arenales (1992) 27 NSWLR 437

Books cited

Powell, JL and Stewart, R, Jackson & Powell on Professional Liability (7th edition, Sweet & Maxwell, 2012)
Balkin, RP and Davis, JLR, The Law of Torts (5th edition, Lexis Nexis Butterworths, 2013)

Date of hearing:

22-25, 28-30 November 2011
1-2, 5-9 December 2011
30-31 January 2012
1 February and
2 April 2012

Date of last submissions:

30 March 2012

Place:

Melbourne

Division:

GENERAL DIVISION

Category:

Catchwords

Number of paragraphs:

456

Counsel for the Cross-Claimant:

I D Martindale SC with E F Wheelahan

Solicitor for the Cross-Claimant:

Metaxas & Hager

Counsel for the First Cross-Respondent:

P Riordan SC with D A Klempfner

Solicitor for the First Cross-Respondent:

Monahan + Rowell

Counsel for the Second Cross-Respondent

K McMillan SC with A Dinelli

Solicitor for the Second Cross-Respondent

Johnson Winter & Slattery

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION	VID 485 of 2008

BETWEEN:

NORMAN PHILLIP CAREY & ORS
(ACCORDING TO ATTACHED SCHEDULE)
Cross-Claimants

AND:

FREEHILLS
First Cross-Respondent

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Second Cross-Respondent

JUDGE:	KENNY J
DATE OF ORDER:	20 SEPTEMBER 2013
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1.The cross-claim, as amended on 17 October 2011, be dismissed.

2.The parties file and serve any written submissions (not exceeding 3 pages) on or before 7 October 2013 in respect of costs, failing which the cross-claimants pay the first cross-respondent’s costs of and incidental to that cross-claim.

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

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION	VID 485 of 2008

BETWEEN:

NORMAN PHILLIP CAREY & ORS
(ACCORDING TO ATTACHED SCHEDULE)
Cross-Claimants

AND:

FREEHILLS
First Cross-Respondent

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Second Cross-Respondent

JUDGE:	KENNY J
DATE:	20 SEPTEMBER 2013
PLACE:	MELBOURNE

TABLE OF CONTENTS

INTRODUCTION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[1]
Parties........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[3]
Norman Carey........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[3]
Freehills........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[8]
Other key people........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[9]
Simon Jasper Bell........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[9]
Graeme Rundle........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[14]
Richard Beck........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[18]
Brian Thomas........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[19]
Gregory John Nairn........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[20]
Andrew Shearwood........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[22]
Brief overview of the circumstances in which the cross-claim is made........ ........ ........	[25]
Case pleaded against Freehills........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[37]
Freehills’ defence........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[39]
CIRCUMSTANCES IN WHICH THE CROSS-CLAIM ARISES........ ........ ........ .......	[41]
Tea Tree Plus Project........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[41]
Mr Shearwood is engaged on further work........ ........ ........ ........ ........ ........ ........ ........ ...	[47]
Warnbro Fair Project........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[51]
The alleged April 1998 presentation........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[53]
Proposed float of the Westpoint Group........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[78]
Introduction of the Managed Investments Act 1998........ ........ ........ ........ ........ ........ .....	[85]
The Murray Street Project begins........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[87]
Mr Shearwood’s letter of 17 January 2000........ ........ ........ ........ ........ ........ ........ ........ ....	[103]
Mr Shearwood’s letter of 9 February 2000........ ........ ........ ........ ........ ........ ........ ........ ....	[120]
Mr Shearwood’s original involvement in the Bayview Project........ ........ ........ ........ ....	[128]
Freehills’ involvement in the Bayview project........ ........ ........ ........ ........ ........ ........ ......	[139]
Written advice about whether the Murray Street Project was a MIS........ ........ ........ .	[147]
ASIC first queries the use of promissory notes........ ........ ........ ........ ........ ........ ........ ......	[152]
Mr Shearwood’s letter of 2 June 2000........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[155]
York Street Project........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[169]
Other mezzanine companies and projects........ ........ ........ ........ ........ ........ ........ ........ ......	[182]
August & November 2001: Mr Shearwood’s promissory note warnings........ ........ ....	[187]
May 2002: Mr Shearwood’s further promissory note warning........ ........ ........ ........ ...	[191]
Further surveillance by ASIC........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[195]
5 February 2003 letter........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[201]
ASIC’s response........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[223]
Mr Shearwood briefs senior counsel........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[226]
ASIC’s regulatory action........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[228]
2 September 2003 meeting........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[234]
Events after September 2003........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[242]
Over-subscription........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[249]
Continuing negotiations with ASIC........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[256]
Litigation in contemplation........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[267]
Proceedings in the Western Australian Supreme Court........ ........ ........ ........ ........ .......	[268]
Further regulatory action by ASIC........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[270]
MISLEADING AND DECEPTIVE CONDUCT CLAIM........ ........ ........ ........ ........ .....	[287]
Relevant legal principles........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[294]
NEGLIGENCE CLAIM........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[302]
Duty of Care........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[303]
Construction of the duty by the Carey parties........ ........ ........ ........ ........ ........ ........ .......	[304]
Some relevant legal principles........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[310]
Duty to Mr Carey........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[318]
Solicitor – Client relationship........ ........ ........ ........ ........ ........ ........ ........ .......	[319]
Duty to Mr Carey as the effective/ultimate stakeholder of the westpoint companies (Apart from Any Retainer)........ ........ ........ ........ .......	[322]
Duty to Mr Carey (and Quartz and Heca to the extent they held their interests for Mr Carey) as shareholder........ ........ ........ ........ ........ ...	[338]
applying the multifactorial approach does not support the existence of a duty........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[340]
FREEHILLS DID NOT BREACH ITS DUTY OF CARE AND DID NOT MAKE ANY MISREPRESENTATIONS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[343]
Promissory Notes issued in accordance with the Promissory Note Advice were not interests in a Managed Investment Scheme (amended cross-claim, par 30(a))........ ...	[345]
Letter of 17 January 2000........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[346]
Letter of 5 February 2003........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[347]
Meeting of 2 September 2003........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[355]
It was not necessary to issue a prospectus in respect of the promissory notes (amended cross-claim, par 30(b))........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[359]
Letter of 17 January 2000........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[360]
Letter of 9 February 2000........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[361]
The raising and deploying of mezzanine finance in accordance with Promissory Note Advice: (i) was in the best interest of Carey and the Westpoint Group; (ii) would serve the objective of developing a profitable funds management business consistent with the BCG Strategy; and (iii) was to be preferred over other ways of raising mezzanine finance (amended cross-claim, par 30(c))........ ........ ........ ........ ......	[367]
The issue of promissory notes in accordance with Promissory Note Advice was “totally legal” (amended cross-claim, par 30(d))........ ........ ........ ........ ........ ........ ........ ..	[374]
There were no material inherent risks involved in raising and deploying mezzanine finance in accordance with the Promissory Note Advice (amended cross-claim, par 30(e))........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[377]
They had and were continuing to exercise due care, skill and diligence in carrying out their obligations under their retainer (amended cross-claim, par 30(f))........ ........	[391]
They had conducted a proper and diligent review of the legislation and case law relating to managed investment schemes as they apply to the proposed issue of Promissory Notes (amended cross-claim, par 30(g))........ ........ ........ ........ ........ ........ ....	[391]
They had reasonable grounds for making representations in paragraphs 30 (a) to (e) above of the cross-claim (amended cross-claim, par 30(h))......... ........ ........ ........ ...	[398]
Conclusion on misleading and deceptive conduct and negligence........ ........ ........ ........	[406]
CAUSATION ISSUES........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[410]
LOSS AND DAMAGE........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[443]
DISPOSITION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[456]

REASONS FOR JUDGMENT

INTRODUCTION

1. At the commencement of the trial in this proceeding, the cross-claimants pursued claims against the Australian Securities and Investment Commission (‘ASIC’) as well as against Freehills.  In the course of the trial, the cross-claimants and ASIC settled the matter as between them and, in consequence, orders were made by consent on 9 December 2011 dismissing the cross-claim against ASIC, with costs fixed in the sum of $75,000. 

1. The cross-claim against Freehills remained, which, for the reasons stated hereafter, I would now dismiss.

   Parties

   Norman Carey

2. Norman Phillip Carey, who is the first cross-claimant in this matter, founded the Westpoint Group of companies (‘the Westpoint Group’) in 1985. In these reasons, I refer to Mr Carey and the other cross-claimants as ‘the Carey parties’.

3. Until November 2005, the Westpoint Group was involved in the business of property development around Australia.  The companies in the Group were linked through Mr Carey; and, as senior counsel for Mr Carey (Mr I D Martindale) observed, came to be known as the Westpoint Group “through usage rather than from the structural relationship of the companies”.  The class of companies identified as part of the Westpoint Group for the purposes of the cross-claim was more confined than those generally referred to as constituting the Westpoint Group.

4. Mr Carey was not an honest and reliable witness.  Given my findings with respect to the alleged presentation at the Westpoint Group’s offices in April 1998, I conclude that Mr Carey fabricated this evidence to support his case.  The provenance of the presentation documents that Mr Carey produced to give verisimilitude to his account of the presentation was doubtful.  More generally, Mr Carey’s evidence led me to conclude that, in the main, his evidence was either reconstructed with little and in many instances no independent recollection and/or that it was recently invented.  Thus, for example, Mr Carey claimed that he could recall the April 1998 meeting clearly but was unable to recall other meetings at more proximate dates.  In cross-examination, Mr Carey gave evidence about meetings with Mr Shearwood that were not mentioned in his earlier-prepared affidavit and/or were not corroborated by any contemporaneous documents.  Furthermore, Mr Carey was frequently evasive in cross-examination, providing lengthy non-responsive answers or answers that were not warranted by the relevant question.

5. In giving evidence, Mr Carey was apparently motivated by a desire to blame Mr Shearwood for the financial collapse of the Westpoint Group.  In evidence-in-chief, Mr Carey made statements about Mr Shearwood’s involvement in events even though, as his cross-examination made clear, he had no first-hand knowledge about the matter.  His evidence that Freehills prepared the Paragon Apartments prospectus was one such example.      

6. I have concluded that Mr Carey’s evidence was inherently unreliable. 

   Freehills

7. Freehills (now Herbert Smith Freehills and, at an earlier date, Freehill Hollingdale & Page) was and remains a relatively large and well-known firm of solicitors.  In these reasons I refer to the firm as ‘Freehills’.  As Freehills, the firm acted for companies in the Westpoint Group from, relevantly, 1997.  Andrew Shearwood was a partner of Freehills in Perth.  He acted for some companies in the Westpoint Group and his role in this regard was central to the cross-claim against the firm.  I refer to Mr Shearwood below.

   Other key people

   Simon Jasper Bell

8. Simon Jasper Bell became a chartered accountant in 1990.  From 1990 until about mid 1997, Mr Bell worked for the London branch of KPMG and, later on, stockbroking and securities firms in Perth.  Prior to joining a Westpoint Group company, Mr Bell had no experience in funds management. 

9. In mid 1997, Mr Bell contracted with a company in the Westpoint Group to manage the syndication of a project (referred to below as the Tea Tree Plus Project).  He was given the title of “General Manager Syndications”.  Twelve months later, Mr Bell became an employee of a company in the Westpoint Group.  In or about 1998, Mr Bell was appointed Director of Finance & Operations of the Funds Management Division (‘FMD’) within the Westpoint Group.  In his capacity as Director of Finance & Operations, Mr Bell deposed that he reported to Mr Beck for funds management operations; to Mr Rundle (Group Financial Controller) for finance matters; and to Mr Carey, in respect of development project matters. 

10. Between January 1998 and April 2000, Mr Bell was also a director of numerous companies in the Westpoint Group: namely, Westpoint Management Ltd (15 January 1998 – 19 April 2000); Bayview Mezzanine Pty Ltd (21 January 2000 – 19 April 2000); Cinema City Mezzanine Pty Ltd (26 November 1998 – 19 April 2000); Market Street Mezzanine Ltd (27 January 2000 – 19 April 2000); 297 Murray Street Pty Ltd (30 June 1999 – 19 April 2000); Mount Street Mezzanine Pty Ltd (8 June 1999 – 19 April 2000); and York Street Mezzanine Pty Ltd (‘York Street Mezzanine’) (26 November 1999 – 19 April 2000).

11. As between Mr Bell and Mr Carey, I have preferred the evidence of Mr Bell.  I would not find Mr Bell a dishonest witness, although, as will be seen, he was an unreliable witness on some important matters.  Mr Bell’s evidence indicated that he gave evidence on the basis of reconstructing what he believed was likely to have happened and was not speaking from direct recollection.  Mr Bell’s actual recollection about many matters was poor.  The following exchange occurred in cross-examination:

    OK.  Is it fair to say, after all these years, what you’ve drawn on are various facts and reconstructed it, as best you can, as to what you believe occurred? --- Based on the other documents we have looked at previously, and through the recollections at the time we put together what I believe are the facts that occurred at the time.

    Mr Bell was not assisted by having kept any contemporaneous detailed written record.  Thus, for example, after giving evidence about a conversation with Mr Shearwood on 6 September 1999, Mr Bell said that, other than the conversations recorded by Mr Shearwood, he had no specific recollection of any other conversations or communications about promissory notes between himself and Mr Shearwood between 6 September 1999 and 17 January 2000. 

12. As between the evidence of Mr Bell and Mr Shearwood, I have preferred the evidence of Mr Shearwood.  After hearing their evidence, I was left with the impression that Mr Shearwood’s recollection of the pertinent events, which was corroborated by his detailed and careful records, was much better than that of Mr Bell. 

    Graeme Rundle

13. Graeme Rundle became a chartered accountant in 1987.  Mr Rundle deposed that he was the Chief Financial Controller (‘CFC’) of the Westpoint Group from April 1997 to January 2006.  Prior to working for the Group, he worked at Challenge Bank in various management positions and for the Taxation Consulting Division of Coopers & Lybrand.  Relevantly, at Challenge Bank his work over the period 1990 to 1996 included handling the provision of senior debt funding to property development projects. 

14. According to Mr Bell, Mr Bell reported to Mr Rundle in relation to matters of finance in his role as Director of Finance & Operations of the FMD.  The FMD handled the syndication and asset management of the Westpoint Group.

15. Mr Rundle recollection of some pertinent matters was poor and he was not assisted by any detailed contemporaneous written record.  His evidence was sometimes vague and his answers were, at times, evasive or apparently self-serving.  Mr Rundle was not a reliable witness.

16. As between the evidence of Mr Rundle and Mr Shearwood, I have preferred the evidence of Mr Shearwood.

    Richard Beck

17. Richard Beck joined the Westpoint Group in or about 1998 as Managing Director of the FMD.  Mr Beck did not give evidence.

    Brian Thomas

18. By June 2000, Brian Thomas assumed Mr Bell’s role as “General Manager, Syndications” in the FMD.  Mr Thomas did not give evidence.

    Gregory John Nairn

19. Gregory John Nairn was a chartered accountant, who deposed that he had been an audit partner of PriceWaterhouseCoopers from July 1987 until March 2003.  He joined the Westpoint Group in October 2003 as “General Manager – Special Projects” and, in April 2004, became a full-time employee in the same role.  In July 2005, his title changed to “General Manager – Financial Accounting”.  He ordinarily reported to Mr Rundle, as CFC. 

20. I mention him here because he was part of the Westpoint Group personnel, who gave evidence at trial.  As will be seen, however, I have not found it necessary to mention his evidence a great deal in these reasons.

    Andrew Shearwood

21. Mr Shearwood was a solicitor with many years experience in the areas of corporate law and financial services, including corporate compliance.  He became a partner of Freehills when that firm became a single national firm on 1 July 2000, having previously been a partner of Freehill Hollingdale & Page and, since 1 July 1986, a partner of Parker and Parker (a firm which ultimately became Freehills).  He deposed that he had specific experience in the establishment and operation of various kinds of managed investment schemes, including those with investments in regional shopping centres and commercial property.  In addition, he listed his experience as including the regulation of the financial services industry, the listing of companies on the Australian Stock Exchange (‘ASX’), capital raising activities by companies and managed investment schemes, and the acquisition and sale of a wide range of businesses and assets.  In 2010 and 2011, the Best Lawyers peer review survey named Mr Shearwood as one of Australia’s best equity capital markets lawyers.

22. Mr Shearwood first became involved with Westpoint Corporation Pty Ltd (‘WPC’) in December 1997, when he acted for it on the Tea Tree Plus Project (discussed in more detail below).  Over the period 1997 to 2000 he acted for WPC and Westpoint Management Limited (‘WPM’) in numerous matters.

23. Mr Shearwood was an impressive witness.  He was honest and reliable.  He had kept detailed and comprehensive contemporaneous written records of his work for the companies in the Westpoint Group.  His evidence was given conscientiously, with a view to giving a truthful account about what he could recall.  This meant that he conceded the limits of his recollection when appropriate to do so, but gave clear evidence as to what he could in fact recollect.  I have generally accepted his evidence.

    Brief overview of the circumstances in which the cross-claim is made

24. The Carey parties’ case was that mezzanine companies in the Westpoint Group issued promissory notes as part of their business strategy in reliance on Mr Shearwood’s advice.  In particular, the Carey parties submitted that the Court should infer that, had Mr Shearwood: (1) not suggested to Mr Bell on 6 September 1999 that mezzanine finance might be raised via the issue of promissory notes; and (2) advised that the proposed issue of promissory notes would result in interests in a managed investment scheme (‘MIS’), then no company in the Westpoint Group would have proceeded to issue promissory notes as it subsequently did. 

25. In opening, Mr Martindale SC stated the Carey parties’ case as follows:

    [I]n late 1999, Mr Simon Bell of Westpoint asked Mr Shearwood … what alternatives there were to raising funds via a prospectus and in particular, for the purpose of raising mezzanine finance from the public for project development funding. And this request by Mr Bell was motivated not by any desire to avoid prospectus level disclosure, but out of a desire to speed up the fundraising process. Mr Shearwood advised that the promissory notes [with] the face value of at least $50,000, did not require a prospectus to be issued and were not otherwise regulated by the corporations [law] – that is to say the latest chapters for corporations law dealing with the licensed dealers selling the product would not apply and that to issue promissory notes having such a face value, the only relevant regulation was the fair trading laws such as the Trade Practices Act.

    [O]n the basis of that advice, Westpoint proceeded to establish a number of mezzanine companies that issue[d] promissory notes pursuant to information memoranda and …the information memoranda were not providing disclosure prospectus level of detail.  …Westpoint commenced almost immediately after obtaining the advice to issue promissory notes and over time raised a considerable volume of money … raising some $160 million by about July 2005 …

26. Some eleven mezzanine companies were ultimately established.  The first in February 2000 was, so Mr Martindale said in opening, “for the purpose of the first information memorandum that was also put into circulation in February 2000 to raise $10.5 million for Bayview’s Port Melbourne development project and by May 2000, had already raised something of the order of $6 million”.  This statement, as appears hereafter, was not entirely correct.

27. ASIC became concerned about the activities of the Westpoint Group at the end of May 2000 and wrote to one of the companies in the Group querying its use of promissory notes for mezzanine fundraising.  Freehills replied on the company’s behalf; and, on 23 August 2000, ASIC sent a “no action letter”, as it was described in the evidence at trial, confirming that subject to any additional information coming to its attention, ASIC intended to take no further action in respect of the matter.

28. Over two years later, in September 2002, ASIC wrote to a second Wespoint Group company asking it to explain why its promissory notes were not interests in a MIS.  Freehills again replied on the company’s behalf by letter dated 16 October 2002.  ASIC sought senior counsel’s advice.  That advice was, in substance, that the promissory notes were debentures; and, if not debentures, then interests in a MIS.

29. Early in 2003, the financial press reported that ASIC was reviewing the status and regulation of the use of promissory notes in property development schemes such as those undertaken by the Westpoint Group.  The Carey parties claimed that, in early 2003, as a result of statements in the financial press, “Mr Carey called in Mr Shearwood and asked for an opinion as to the legality of the use of the promissory notes by Westpoint”.  For the Carey parties, it was said that by early 2003:

    Westpoint had large amounts of public funds tied up in … projects of varying stages of completion … and the promissory note – instrument was particularly unsuitable for property projects due to the requirement for the validity of a promissory note that they be payable on a fixed date.  And property developments on the other hand, were notoriously prone to delay.

30. On 14 July 2003, ASIC published an Information Release indicating its on-going concerns about about the use of promissory notes for fundraising on a significant scale and subsequently informed Westpoint Group companies that it would take enforcement action consistent with this view, unless the relevant companies entered into an acceptable arrangement, preferably by an enforceable undertaking, no longer to use promissory notes in this way. 

31. From July 2003 until the end of April 2004, ASIC and Westpoint Group companies negotiated to achieve resolution of their dispute.  The negotiations ended in May 2004.  On 10 May 2004, one of the Westpoint Group companies issued a proceeding in the Supreme Court of Western Australia (‘Supreme Court’) seeking a determination as to the legal status of the promissory notes; and, on 12 May 2004, ASIC responded, seeking (amongst other things) determination of whether representations, in an information memorandum used for promissory notes, were misleading or deceptive.  Judgment in a consolidated proceeding was delivered on 19 November 2004, with neither party being entirely successful: see Australian Securities and Investments Commission v Emu Brewery Mezzanine Ltd [2004] WASC 241; (2004) 52 ACSR 168. The parties appealed. An appeal was ultimately discontinued by consent; and a cross-appeal was dismissed: see Emu Brewery Mezzanine Ltd (In Liq) v Australian Securities and Investments Commission [2006] WASCA 105.

32. On 22 November 2005, ASIC commenced proceedings in the Federal Court seeking an order for the winding up of York Street Mezzanine on the grounds of insolvency and, alternatively, on the ground that it would be just and equitable for the company to be wound up.  At the same time, ASIC filed an interlocutory application for the appointment of a provisional liquidator to York Street Mezzanine.  Mr Martindale SC affirmed in opening that, “[i]t was a foreseeable consequence that the Westpoint Group as a whole would collapse once action was taken to wind up one of its principal entities in insolvency”.  On 23 November 2005, the directors of York Street Mezzanine placed the company in voluntary administration. 

33. On 5 December 2005, ASIC filed an application seeking a winding up order against Ann Street Mezzanine Pty Ltd (‘Ann Street Mezzanine’) on the ground of insolvency and, alternatively, on the ground that it would be just and equitable to make such an order.  ASIC also sought, by way of interlocutory application, an order for the appointment of a provisional liquidator to Ann Street Mezzanine. 

34. On 6 or 7 December 2005, the directors of Ann Street Mezzanine and other mezzanine companies placed their companies into voluntary administration. 

35. On 20 December 2005, this Court, constituted by French J, ordered that provisional liquidators be appointed to York Street Mezzanine and Ann Street Mezzanine on the basis that the companies were insolvent.  By mid February 2006, the Westpoint Group had collapsed. 

    Case pleaded against Freehills

36. The Carey parties sued Freehills for damages caused by Freehills’ alleged negligence and misleading and deceptive conduct.  The claims were said to arise from the “Promissory Note Advice”, which Freehills gave between 2000 and 2003.  The Carey parties alleged that the Promissory Note Advice was constituted by four letters and an advice presented by Mr Shearwood on the following dates: 17 January 2000; 9 February 2000; 2 June 2000; 5 February 2003; and 2 September 2003.  The Carey parties alleged that Mr Shearwood gave the Promissory Note Advice; and that, in accordance with this advice, in early 2000 the Westpoint Group undertook fundraising by way of promissory notes.  This alleged advice formed the basis of their claims for negligence and misleading and deceptive conduct.

37. By an amended cross-claim dated 17 October 2011, the Carey parties alleged that:

    (1)       Freehills owed a duty of care to them.

    (2)Freehills was negligent in providing the Promissory Note Advice in breach of its duty of care.  (In an outline of opening, the Carey parties submitted that Freehills “gave unqualified advice that a prospectus was not required to issue Promissory Notes having a face value of $50,000 or more” and alleged that this advice was contained in the four letters written by Mr Shearwood.) 

    (3)       Further, Freehill’s Promissory Note Advice was misleading and deceptive.

    (4)The breach of the duty of care and/or the misleading and deceptive conduct caused them to suffer loss and damage as a result of the collapse of the Westpoint Group following the winding-up orders made by French J in December 2005. 

    (5)       The loss suffered by the first, second and third cross-claimants was:

    (i)the lost opportunity to publicly list their shareholding in the companies comprising the Westpoint Group; and

    (ii)the loss of the value of their shareholding in the companies comprising the Westpoint Group.

    (6)The loss suffered by each of the corporate cross-claimants was also the depletion in the value of their assets and loss of income by reason of the collapse of the Westpoint Group.

    Freehills’ defence

38. Freehills alleged that the Carey parties failed with respect to each essential element of their cause of action.  This was for the following reasons:

    (1)The Carey parties were not clients or persons to whom any representations were made.

    (2)       The Promissory Note Advice was accurate and reasonably based. 

    (3)       The collapse of the Westpoint Group was the result of:

    i.ASIC applying to wind up York Street Mezzanine and Ann Street Mezzanine on grounds of insolvency and other conduct justifying a just and equitable winding up unrelated to the Promissory Note Advice; and

    ii.the winding up of York Street Mezzanine and Ann Street Mezzanine by the Federal Court on the ground of insolvency.

    (4)The loss, which the Carey parties claimed by reference to the value to be added to the companies’ assets on a public float, was: (i) not substantiated by the evidence; (ii) unrelated to the Promissory Note Advice; and (ii) not a loss claimable by the Carey parties.

1. As will become apparent, it is unnecessary to resolve all the issues raised by the pleadings in order to determine that the Carey parties’ cross-claim fails.

   CIRCUMSTANCES IN WHICH THE CROSS-CLAIM ARISES

   Tea Tree Plus Project

2. As outlined below, Mr Shearwood was first engaged by a company in the Westpoint Group in December 1997, to work on the Tea Tree Plus Project.  He worked on this project for nearly ten months.  He met Mr Carey around the middle of December that year at a meeting relating to the Tea Tree Plus Project.

3. At a meeting on 5 December 1997, Mr Shearwood, in his capacity as a Freehills partner, was introduced to Mr Bell, then the General Manager of Finance and Operations of the Funds Management Business Unit in the FMD within WPC.  At this meeting, Mr Shearwood and Mr Bell discussed the Tea Tree Plus Shopping Centre project (‘Tea Tree Plus Project’), which was a property development in Adelaide.  Some days later, on 8 December 1997, Mr Shearwood wrote to Mr Bell concerning a proposal that Mr Bell had outlined at that meeting, “for Westpoint Corporation to promote a fixed term property trust that would own the Tea Tree Plus Shopping Centre in Adelaide”. 

4. In this 8 December 1997 letter, Mr Shearwood stated that Freehills, chiefly through him, would, in conjunction with experts from WPC, “provide advice on the due diligence process and the legal requirements” involved in the proposed trust.  Also in this letter, Mr Shearwood stated:

   I have been involved with fund raising in the unlisted and listed property trust industry since 1982 and since then have advised management companies, trustees and underwriters in relation to the formation of and capital raisings of trusts and syndicates that have raised over $1.5 billion. 

5. Mr Shearwood sent Mr Bell, at WPC, a revised letter of engagement for the Tea Tree Plus Project on or about 10 January 1998, which stated that Freehills would perform work including preparation of the prospectus and due diligence program, liaising with ASIC on licensing issues and reviewing loan documentation provided by the lender.  The revised letter of engagement indicated, however, that Freehills was not the only lawyers’ firm retained by WPC to work on the Tea Tree Plus Project, because it noted that another solicitor, Richard Warren of Corke & Co, had already prepared a trust deed for the Project.

6. Freehills, again chiefly through Mr Shearwood, later also acted for WPC with respect to the “Tea Tree Plus Fixed Capital Term Property Trust”, as reflected in a timesheet narration made by Mr Shearwood on 16 December 1997, which read:

   Attending on Simon Bell, Norm Carey, Nick Aitken and Steve Scudamore to discuss due diligence committee issues, prior to the holding of the first DDC meeting and general issues in relation to structuring and use of others.

7. This was also the first occasion that Mr Shearwood and Mr Carey met.  There is no earlier recorded attendance by Mr Shearwood on him.  (Mr Shearwood ceased work on the Tea Tree Plus Project when the property was sold on or about 9 October 1998.)

   Mr Shearwood is engaged on further work

8. In the two and a half year years after December 1997, during which time Westpoint Group companies decided to raise funds by way of promissory notes, Mr Shearwood acted for WPC and WPM in respect of a number of other matters.  Freehills’s files described these matters as:

   ·Warwick Shopping Centre;

   ·Cinema City;

   ·Centreways Arcade Syndication;

   ·Warnbro Fair Syndicate;

   ·Huntingdale [Village Shopping Centre];

   ·ASX Listing Float Team;

   ·Executive Employment [contracts];

   ·Paragon CBD;

   ·Market Street MIS;

   ·Paragon Commercial;

   ·Chocolate Factory;

   ·297 Murray Street;

   ·MIA – General;

   ·Bayview Port Melbourne; and

   ·General – AAS.

9. Mr Shearwood’s evidence, based on his review of Freehills’ files, was that much of the work touching these matters was not relevant to the present controversy.  I accept this evidence.  Thus, for example, work on the Centreways Arcade Syndication and Huntingdale Village Shopping Centre files involved advice about particular trust structures; work on the Warwick Shopping Centre file involved the preparation of a particular trust deed; work on Cinema City file involved considering investment structures for development on the Cinema City site; work on Paragon CBD file included advice on the stamp duty implications of a two-tier trust structure and the drafting of a trust deed; and work on Paragon Commercial file related to the conversion of a private unit trust into a regulated investment.  None of this work was relevant to the present controversy.  Further, as Mr Shearwood’s affidavit of 14 November 2011 disclosed, he also undertook, or was involved, in other work for Westpoint related entities, for example a Triple Cee Retail Investment Trust.  None of this other work was said to be relevant to the issues in dispute.

10. The work done by Mr Shearwood, which was relevant to the cross-claim, is discussed hereafter.

11. In cross-examination, Mr Shearwood said that Freehills did not always generate a retainer letter for advice in relation to “incidental matters”.  On these occasions, there was no engagement letter setting out Freehills’ specific instructions, although, as will be seen, Freehills’ instructions can be inferred from the careful records that Mr Shearwood kept at the time. 

    Warnbro Fair Project

12. Some months after he was engaged to work on the Tea Tree Plus Project, Mr Shearwood received further instructions with respect to a different matter.  By a letter dated 30 March 1998, WPM, again through Mr Bell, then General Manager – Syndications, sought advice with respect to the Warnbro Fair Syndicate and, in particular, “an opinion from yourselves covering the steps required to move the existing syndicate through to a public fixed term syndicate and the tax consequences for the existing syndicate members”.  In consequence, Mr Shearwood advised in relation to the proposed restructuring and, subsequently, with respect to related issues.

13. Mr Carey said Mr Shearwood’s involvement in the affairs of the Westpoint Group companies was important to him at this point, specifically deposing that Freehills’ work on the Warnbro Fair Shopping Centre Project (‘Warnbro Fair Project’) was “the foundation for my belief that I could rely on Freehills to exercise the mandate I had given them to achieve the Westpoint Group’s objectives” (emphasis added).  As already stated, Mr Carey was not an honest and reliable witness and I would not accept his uncorroborated evidence on this point.

    The alleged April 1998 presentation

14. An alleged meeting in the April of 1998 between Mr Carey and Mr Shearwood was significant in the Carey parties’ statement of their case at trial.  In their opening outline, they maintained that, at this meeting, “Mr Carey made a presentation to Freehills setting out the parameters for the overall advice that he and the Westpoint Group required”; and that “Mr Carey made clear to Freehills that he and the Westpoint Group had limited experience in the area of funds management and relied upon Freehills’ expertise in this area”.  The alleged April 1998 presentation was the basis for Mr Carey’s statement about “the mandate” he gave Freehills regarding “the Westpoint Group’s objectives”: see [52] above.

15. Mr Carey alleged that, at this April 1998 meeting, he and Mr Shearwood met for a second time and that he made the presentation to Mr Shearwood, which is described below.  Mr Shearwood denied that there was any such meeting between him and Mr Carey and that he had seen the presentation prior to this proceeding.

16. Mr Carey’s evidence was to the effect that, as early as 1994, he had engaged the Boston Consulting Group (‘BCG’) to provide him with a strategy to assist the Westpoint Group to transition into a larger organisation.  Following advice from BCG in 1996, Mr Carey implemented a plan to transition the Westpoint Group into a public company.  In his consolidated affidavit of 11 November 2011, Mr Carey deposed that “[f]rom the time I first engaged Andrew Shearwood, I had been speaking with him intermittently about the strategy which had been devised by BCG”.  I do not accept Mr Carey’s evidence on this last-mentioned point.  It was inconsistent with Mr Shearwood’s account of his dealings with Mr Carey.  As already stated, I have preferred the evidence of Mr Shearwood to that of Mr Carey.

17. Mr Carey said that he and Mr Bell had invited Mr Shearwood to a meeting in or about April 1998, which took place at the Westpoint Group’s offices in West Perth, in effect to brief Mr Shearwood about the strategic direction of the Group.  Mr Carey said that, at this meeting, he made a presentation to Mr Shearwood, in the presence of Mr Bell and Mr Rundle (neither of whom corroborated Mr Carey on this latter point).  A printed copy of the alleged presentation (‘the presentation document’) accompanied Mr Carey’s consolidated affidavit.  In cross-examination, Mr Carey claimed to recall contributing to the content of certain pages of the presentation document.  

18. The presentation document was lengthy and relatively detailed.  Under the heading “Purpose of Presentation”, the following appeared:

    The purpose of this presentation is to:

    1.Brief Freehill Hollingdale & Page (FHP) on the work done by BCG for NPC/Westpoint Group entities (Westpoint) 10-year strategy and on the important aspects of Westpoint’s continuing evolution through a transitional phase moving from a small business to a medium sized organisation and plans to become a larger organisation that will become a publicly listed company in the next 5 years.  BCG strategy based on Lend Lease/Westfield who have been the two publicly listed co.’s who have created the largest shareholder value in the past 20 years in the same industry.

    2.To instruct FHP to act for Westpoint in relation to this transition including the IPO.

    3.To instruct FHP to act for Westpoint in establishing and developing a professional, profitable and valuable property & retail funds management business which will be an important component of the IPO.

    4.To instruct FHP to act in relation to Warnbro Fair Shopping Centre (investment product) and other projects & properties in Westpoint’s development and investments programs.

    5.Confirm FHP becoming part of the tier 1 consulting team to assist Westpoint in achieving 10-year strategy, goals and objectives.

    Other firms include BCG, KPMG, FHP, BDW.

    Westpoint is prepared to pay the price (value) of this tier 1 consulting team to ensure that it receives top quality work, the best advice & a successful IPO outcome.

19. A part of the presentation document headed “Property & Retail Funds Management Business Objectives”, reiterated the need for “a professional, profitable & valuable property & retail funds management business” and stated that “Westpoint property development & investment funding models require” … “[i]nvestment product – to facilitate the investment program (see funding model)” and “[d]evelopment products – to facilitate the development program (see funding models)”.

20. Significantly, the presentation document showed three types of funding models.  The first was an investment funding model for use in investment properties such as shopping centres.  The second and third funding models were both for use in major residential property developments.  These two latter models differed in that the second funding model involved only two categories of funding – senior debt and equity – whilst the third funding model involved three categories of funding – senior debt, equity and “mezzanine debt”.  As discussed below, since mezzanine funding was not discussed with Mr Shearwood until September 1999, the reference to mezzanine debt here militates against Mr Carey’s evidence that the presentation was made in April 1998. 

21. I interpolate here that Mr Carey deposed that the first funding model was used in the Tea Tree Plus Project (up to sale), the Warnbro Fair Project and the Paragon Commercial syndicate, whilst the second funding model was used in the Chocolate Factory and Paragon Apartments Projects, discussed below, and which were, so Mr Carey said, completed in early 2002.  The third funding model was said to have been used in later projects such as Bayview and Bayshore in Port Melbourne, York Street and part of Market Street, all of which are significant in the context of this litigation and are referred to in greater detail below. 

22. Under the heading, “What we require from FHP”, the April 1998 presentation document further stated:

    1.Westpoint’s current capabilities and competencies are in property development & investment.

    2.Westpoint has no current knowledge, skills or experience in property and/or retail funds management.

    3.FHP has demonstrated substantial knowledge, skill & experience in property & retail funds management acting for numerous clients in Australia to establish and develop property & retail funds management businesses.

    4.To act for Westpoint on all aspects of its transition to build a substantial publicly listed company in the next five (5) years including the IPO.

    5.To act for Westpoint in establishing and developing a professional, profitable & valuable property & retail funds management business which will be an important component of the IPO.

    6.We require FHP to act for Westpoint in achieving our property & retail funds management business objectives by advising & developing

    a)To establish & develop a professional, profitable & valuable property & retail funds management business which will be an important component of the IPO

    b)Investment product – to facilitate the investment program (see funding model)

    Development program – to facilitate the development program (see funding models)

    This work will include advising & developing the required organisational capabilities including all necessary processes & systems.

    7.To act in relation to Warnbro Fair Shopping Centre (investment product) and other projects & properties in Westpoint’s development and investments programs.

23. Under another heading, “Instructions to FHP”, the presentation document purported to set out Freehills’ instructions, noting also that “[a]s NPC owner/director/financially liable, FHP must report overall to NPC”.  The reference to “NPC” here is clearly to be read as a reference to Mr Carey (Norman Phillip Carey).

24. In his consolidated affidavit, Mr Carey deposed in substance that, at the April 1998 meeting, he told Mr Shearwood all that appeared in the presentation document and that he would be relying on Freehills for their expertise in property and retail funds management.  In particular, Mr Carey deposed:

    When I was speaking to the section titled “What we require from FHP”, I said that Westpoint’s current capabilities and competencies were in property development and investment and that it had no knowledge, skills or experience in property funds management or retail funds management.  I said that Westpoint would be relying on Freehills expertise in these areas.

    At this point, Mr Carey clearly overstated Westpoint’s lack of expertise, bearing in mind Mr Rundle’s experience and putative knowledge.  As noted already, Mr Bell too not only had experience at KPMG in London, but also in stocks and securities in Perth.

25. Mr Rundle did not give any evidence that he attended the April 1998 meeting.  His affidavit did not refer to the presentation or to the meeting and there was no explanation for this omission.  It can be inferred that his evidence would not have assisted the Carey parties: Jones v Dunkel (1959) 101 CLR 298 (‘Jones v Dunkel’) at 308 (Kitto J) and 320-321 (Windeyer J).  In cross-examination, Mr Rundle said that he recalled first meeting Mr Shearwood in 1998 or 1999 at a meeting attended by Simon Bell at Westpoint’s offices in West Perth.  He did not say that Mr Carey was present and could not recall the subject of the discussion at the meeting. 

26. Mr Bell had no recollection of a meeting of the kind that Mr Carey described.  Like Mr Rundle, Mr Bell did not give any evidence that he attended the April 1998 meeting.  Rather, he deposed that he recalled assisting in the preparation of the presentation document but that he had no recollection of presenting or delivering that document to Freehills.  Mr Bell was not cross-examined on this point.

27. As already stated, Mr Shearwood denied attending a meeting in April 1998 at which Mr Carey made the alleged presentation to him.  Mr Shearwood’s evidence was that he had not attended any such meeting and that he had not seen the presentation document at any time before he was provided with it as an annexure attached to Mr Carey’s affidavit of 30 September 2011. 

28. Mr Shearwood’s evidence was that, after he met Mr Carey on 16 December 1997, he did not meet him again until 21 July 2000.  (On this date, he met Mr Carey and others, including Beck, Rundle and Thomas, to discuss with KPMG personnel a prospectus to be issued with respect to the Paragon Commercial MIS and a revised report prepared by KPMG concerning the Westpoint Group.) 

29. I accept Mr Shearwood’s evidence that there was no such meeting in April 1998, as Mr Carey alleged, and that Mr Shearwood’s second meeting with Mr Carey was on 21 July 2000.  There was no reference to an April 1998 meeting in his daily records, notwithstanding that the meeting was said to be a substantial out-of-office one.  In cross-examination, Mr Shearwood said, and I accept, that he would have remembered “such a significant presentation”.  Further, Mr Shearwood’s evidence is consistent with the contemporaneous documentary record that he and Freehills maintained.  Mr Shearwood said in cross-examination (and I accept) that he himself created the time records, saying specifically:

    … the records I created myself.  I typed them into my time records myself.

30. The Carey parties did not challenge Mr Shearwood’s evidence that there was no record of an attendance of the kind alleged by Mr Carey to have taken place in April 1998.  There is no reason to suppose that Mr Shearwood would have failed to record in a file note or timesheet narration his attendance at a significant meeting at which, if Mr Carey were believed, Freehills received important and specific instructions.  It may be noted that the Carey parties did not challenge Mr Shearwood’s evidence about the contents of his non-billable time records or call for them. 

31. Mr Carey maintained that the contents of the presentation indicated that the presentation was prepared in or around April 1998.  As I am about to explain, however, the date indicia within the presentation document are inconclusive, pointing, on the one hand, to a March preparation date and, on the other, to its preparation in the latter half of the following year. 

32. In closing submissions, Mr Carey relied on a letter dated 30 March 1998 from Mr Bell, WPM, to Mr Shearwood, in which Mr Bell sought Freehills’ opinion about the steps “required to move the existing [Warnbro Fair] syndicate through to a public fixed term syndicate and the tax consequences for the existing syndicate members”.  Mr Carey submitted that the reference in this letter to previous discussion of the proposal regarding Warnbro Fair was consistent with the presentation being made around March or April 1998, as he alleged, because the presentation document stated that one of its purposes was to instruct Freehills to act in relation to Warnbro Fair.  I accept that, having regard to the extrinsic evidence concerning Warnbro Fair, statements about Warnbro Fair in the presentation document are consistent with this part of the document having been prepared in or around March 1998.  These statements indicate nothing about when the presentation document as a whole was created, finalised or whether it was ever presented to Mr Shearwood, as Mr Carey alleged.

1. Furthermore, this is not the end of the timing issue, because Mr Carey’s evidence about the April 1998 meeting is inconsistent with other evidence given by him.  As noted earlier, Mr Carey’s evidence was that, at the April 1998 meeting, he referred to a third funding model involving mezzanine debt.  This reference is not entirely consistent with his evidence that it was, “in or about 2000, following advice from the Boston Consulting Group, [that] Westpoint Group developed a funding model whereby it utilised mezzanine finance” (emphasis added).  This latter account is far more consistent with Mr Shearwood’s evidence corroborated by a file note, which records that by telephone on 9 September 1999, Mr Bell first asked him about methods of obtaining mezzanine finance.  Mr Shearwood’s evidence would be consistent with a preparation date sometime around September 1999, whilst Mr Carey’s statements about the BCG would indicate an even later preparation date.  Of course, none of these considerations would indicate that the presentation was ever made.

2. It should be noted again (see [55] above) that Mr Carey did depose that, in or around 1996, he had received “a number of presentations” from BCG, that BCG had provided “strategic and management consulting services” between 1994 and 1996; and that, “[s]hortly after receiving the advice from BCG”, he had “caused the Westpoint Group to proceed to implement a plan” to move towards a public company.  Mr Carey produced a letter from himself to Mr D Brownell of BCG dated 4 October 1994 in relation to Mr Carey’s interest to engage BCG as part of its growth strategy.  There is nothing in this, or any other evidence to which I was directed, that contemplated the introduction of a mezzanine finance model in 1998. 

3. Mr Bell’s evidence also, even if accepted, does not militate against acceptance of Mr Shearwood’s evidence.  Mr Bell’s evidence was only that, at some unspecified date, he had assisted in preparing the 1998 presentation document.  The fact that the document was prepared at some time by some person or persons cannot be gainsaid.  The critical issues concern when it was prepared and, if presented, when and to whom.  His evidence said nothing about these issues.

4. As noted already, Mr Rundle’s evidence does not assist the Carey parties.

5. Further, as already noted, I found Mr Shearwood to be an honest and reliable witness, whose evidence I preferred to that of Mr Carey.

6. For these reasons, I reject Mr Carey’s evidence concerning the meeting in April 1998 and the presentation allegedly made at that meeting to Mr Shearwood.  I accept Mr Shearwood’s evidence on this issue.  I find that Mr Carey fabricated his evidence about the making of the April 1998 presentation to Mr Shearwood in order to support his case against Freehills.  Precisely when and by whom the presentation document as a whole was created remains unclear.

   Proposed float of the Westpoint Group

7. As already indicated, Mr Carey’s evidence was that, in 1994, he approached the BCG to seek advice about the way forward for his business interests.  Mr Carey contemplated a publicly listed company on the ASX.  Mr Carey’s evidence was that, sometime after receipt of BCG’s advice in or around 1996, he sought to have an annual report for the Westpoint Group prepared in ASX format and set about “updating the Westpoint Group’s financial and business systems so that they matched those of a public company”.  Mr Bell’s evidence, which I accept in this regard, was more specific in that he said that, around mid 1998, he set about preparing the Group’s annual report in ASX format, reviewing the Group’s structure and engaging another firm (Bojanjac Partners) to prepare a pro forma prospectus, listing plan and review of listing rules. 

8. At some time in 1997–1998, advice was received from KMPG and Freehills about restructuring to facilitate the transition to a public company structure.  A “float team” was formed in 1998, for the purpose of guiding the proposed listing of the Westpoint Group.

9. In September 1998, Mr Shearwood joined the float team, which comprised Messrs Shearwood, Rundle, Bell, Richard Buchanan of KPMG (Sydney) and Jorgen Elstoft of Como Consulting Group in Melbourne.  The float team met on 22 September 1998, 29 October 1998, 1 December 1998, 27 January 1999, 21 September 1999 and 15 December 1999.  Broadly speaking, discussions at meetings of the float team were about reorganizing the Westpoint Group and transferring the Westpoint Group companies’ business to a float entity. 

10. There may have been some other meetings in March and April 1999, although nothing turns on this.  Mr Shearwood deposed that “… an agenda was faxed to me on 19 March 1999 for a meeting to be held on 30 March 1999, however I have no other record of this meeting ever having been held”.  Further, Mr Shearwood’s timesheet entry for 30 April 1999 indicated that a float team meeting was planned for that day, but the entry recorded “aborted phone hook-up”, indicating either that it was never held or that Mr Shearwood did not participate in a float team meeting held on that date.

11. The Westpoint Group’s immediate commitment to move to a public company structure significantly diminished after 1999.  The float team did not meet again after 15 December 1999.  In a letter to Westpoint Holdings Ltd dated 19 June 2000 enclosing a fees memorandum, Mr Shearwood described the matter as “in abeyance”. 

12. Within the Westpoint Group itself, the float proposal may have remained alive between 2003 and March 2005 for some purposes.  This may be inferred from the existence of certain documents annexed to Mr Carey’s consolidated affidavit, including (1) a presentation document called, “Westpoint Restructure – Towards a Listed Group” dated 2003 apparently prepared by KPMG; (2) a presentation document called “Westpoint Group – Transition to a Public Listed Company” dated 2003 also apparently prepared by KPMG; (3) an unsigned letter  apparently from KPMG personnel to Mr Carey and others dated 20 February 2004; (4) a draft letter apparently from KPMG personnel to Mr Rundle at WPC dated 27 February 2004; and (5) a presentation document called “Westpoint IPO – Presentation to Managers” dated 4 March 2005.  The author of this last-mentioned document is not indicated on the face of the document. 

13. Apart from Mr Carey’s evidence, there was, however, little or no other evidence about the provenance of these documents.  None of the authors of these documents gave evidence; and indeed no-one from KPMG was called as a witness.  They were inadmissible as hearsay evidence; and their significance was merely the fact of their existence and supposed receipt.  As already stated, Mr Carey was an unreliable witness.  In the circumstances, the documents are of limited evidentiary value and I place little weight on them. 

    Introduction of the Managed Investments Act 1998

14. Around July 1998, the legal context in which the Westpoint Group relevantly operated changed with the introduction of the Managed Investments Act 1998 (Cth) (‘Managed Investments Act’) on 1 July 1998. Freehills prepared a paper dated 30 July 1998 and entitled “The Managed Investments Act: Overview”, outlining in general terms the impact of this legislation. According to Mr Carey, Freehills sent the paper to him, Mr Bell and Mr Rundle.

15. In August 1998, Mr Shearwood opened a file entitled “MIA [Managed Investment Act] General File” following a conversation with Mr Bell in which he agreed to send Mr Bell (amongst others) a compliance plan checklist and constitution with respect to the Managed Investments Act. Mr Shearwood deposed (and I accept) that it was his practice to open this type of file “when providing incidental advice to a client, which did not relate to a particular matter of substance”. Mr Shearwood made timesheet narrations on this file from 5 August 1998 until 9 February 2000. Some of these narrations are significant, as discussed below.

    The Murray Street Project begins

16. Mr Carey claimed that the 297 Murray Street Project (‘Murray Street Project’) was contextually important to his understanding of Freehill’s advice on funds management and, in particular, the use of promissory notes to raise mezzanine finance.  To assess this proposition, it is necessary to examine the evidence concerning Mr Shearwood’s involvement in the Murray Street Project and his advice in the context in which it was given.  As will be seen, I substantially reject the Carey parties’ characterisation of their consultations with Mr Shearwood touching this Project.

17. In 1999, a company in the Westpoint Group acquired property at 297 Murray Street, Perth.  The property was an old office building that a Westpoint Group company proposed to develop into a serviced apartment hotel.  In September 1999, the proposal was to sell rooms to investors on strata titles subject to a lease to the hotel operator.  In planning for the Murray Street Project, an issue arose about the applicability of ASIC’s Policy Statement 140 (‘PS 140’), published in 1999, which relevantly stated that, in some circumstances, serviced strata arrangements would, in ASIC’s opinion, constitute a MIS.  This issue was the principal issue about which Mr Shearwood’s advice was sought and received in this period.  At around the same time, however, Westpoint Group personnel began to explore the possibility of new ways to raise finance and, in this context in a conversation with Mr Bell, Mr Shearwood referred to promissory notes. 

18. Mr Bell deposed (and I accept) that, in the second half of 1999, he “conducted … research into the ways Westpoint’s competitors were raising mezzanine finance”.  Mr Bell explained that:

    Mezzanine was an emerging form of finance around this time.  There was a gap between the amount of money a bank would lend you and the amount you needed to complete a property project.  At this time there were institutions which would offer mezzanine finance.  I also met with representations of industry super funds which provided this type of funding to different groups. 

19. In August or September 1999, Mr Carey asked Mr Bell (so the two men said) to speak to Freehills about fundraising for mezzanine finance.  This much may be accepted. 

20. On 6 September 1999, in the period he was working on the Murray Street Project, Mr Shearwood had a relatively brief telephone conversation with Mr Bell about different methods of obtaining finance, including by promissory notes.  The significance of the conversation was contested.  The Carey parties submitted that, in this conversation, Mr Carey and Mr Bell intended to obtain general advice concerning mezzanine finance.  Freehills’ position was that, although the topic of mezzanine finance as temporary funding was raised, it was discussed in only a very general and abstract way while Mr Shearwood was working on the matter of the Murray Street Project.

21. Mr Bell gave evidence about a conversation with Mr Shearwood in which promissory notes were first mentioned.  Mr Bell deposed that, in August or September 1999, Mr Carey asked him to ask Freehills whether there were fundraising “methods available to Westpoint that would not involve the time required for a prospectus”.  Mr Bell said that, in late 1999, he telephoned Mr Shearwood to seek advice about ways for raising mezzanine finance that were “less time consuming and burdensome than issuing a prospectus”; and that, “[e]ither then or a few days later”, he had a conversation with Mr Shearwood in which Mr Shearwood raised the possibility of using promissory notes.  Mr Bell’s evidence was that he had not previously “heard of a promissory note”.  Mr Bell deposed that Mr Shearwood explained to him that a promissory note was:

    … a promise to pay money at a future time. A promissory note for $50,000 or more is excluded from the definition of a ‘debenture’ in the Corporations Law. This means Westpoint can issue promissory notes to raise mezzanine finance and so long as the notes are for $50,000 or more there will be no requirement for a prospectus. So long as the promissory notes are not issued as part of a managed investment scheme all Westpoint would need is to issue an information memorandum.

22. In cross-examination, Mr Bell said that he had two specific recollections of the latter half of 1999: the first was that Mr Carey asked him to “look at alternative methods for raising capital for the mezzanine financing of projects” and the second was sitting at his desk on the telephone to Mr Shearwood, “with the Corporations Act open on my desk and we were having a look at different sections within the Act, at which point the – the promissory notes were brought up as a potential …”. According to Mr Bell:

    We looked at the definition of a security. He pointed out that a promissory note was specifically excluded as a security, then gave a brief run-down of what a promissory note was, which was a – a promise to pay at a certain date in the future and that it had to have a minimum face value of $50,000. But it wasn’t governed by the Corporations Act, so therefore it wasn’t – or it wasn’t a security. It didn’t require a prospectus to be issued to issue them.

    Mr Bell could not recall anything else being discussed in that telephone conversation.

23. Mr Shearwood’s evidence was that the relevant conversation took place on 6 September 1999.  The conversation was general and relatively brief.  Mr Shearwood said that, at this time, “Mr Bell was asking him about methods of raising finance without the need for a prospectus” because Mr Bell was “concerned about the time and cost associated with prospectus disclosure”.  Mr Shearwood’s evidence was supported in part by a file note dated 6 September 1999 and a fee narration for that date.  The file note referred to “temporary funding of projects pending syndication”, “mezzanine finance” and “PN”.  This abbreviation was, as Mr Shearwood said, a reference to a discussion about promissory notes.  The fee narration records the conversation as “[s]peaking to Simon Bell about different methods of obtaining mezzanine finance” and as lasting about 12 minutes.  Mr Shearwood’s account is also generally supported by his invoices for the Murray Street Project sent under cover of a letter dated 15 December 1999.  Whilst Mr Shearwood said in cross-examination that he had no precise recollection of the 6 September 1999 conversation, he did say that he could “visualise the conversation taking place”; and it was evident from his evidence that he had some limited recollection of that conversation. 

24. Bearing in mind that Mr Shearwood’s account was corroborated by Freehills’ contemporaneous records, I accept that this conversation occurred on 6 September 1999 and, as I have said, during the period of Mr Shearwood’s work on the matter of the Murray Street Project.  Further, I accept Mr Shearwood’s account of the 6 September 1999 telephone conversation in preference to that of Mr Bell.  I reject Mr Bell’s evidence to the extent that he said that MrShearwood gave specific and unqualified advice about the use of promissory notes for raising mezzanine finance.  This would have been entirely out of character for Mr Shearwood.  Mr Shearwood’s evidence that the discussion was general and abstract was corroborated by Freehills’ contemporaneous records; to the extent Mr Bell’s evidence suggested it was more than this, his evidence was not corroborated by any contemporaneous written record, whether of his own making or Mr Shearwood’s.  Given the passage of time, Mr Bell properly conceded that he could not recall the specific dates of conversations around this time.  In purporting to recollect specific statements said to have been made by Mr Shearwood about promissory notes, I find that Mr Bell was reconstructing a conversation, which, over time, he had come to believe took place with Mr Shearwood.  I accept Mr Bell’s evidence only to the extent that it is consistent with Mr Shearwood’s evidence about the conversation on 6 September 1999.

25. The evidence showed that, in late 1999, so far as Westpoint’s consulations with Mr Shearwood were concerned, the real issue of concern was whether or not ASIC would consider the Murray Street Project to be a MIS.  Mr Shearwood met with Mr Bell and Mr Thomas on 3 November 1999, to discuss whether the proposed investment structure for the Murray Street Project would constitute a MIS.  This is evidenced in Mr Shearwood’s file note of that date, timesheet narrations and invoices sent under cover of a 15 December 1999 letter.  When it was put to him in cross-examination that, since he had no independent recollection of this meeting, then he could not dismiss the possibility that the use of promissory notes in financing was further discussed, Mr Shearwood replied in substance that he believed that he would have made some notation of such a discussion.  Bearing in mind the careful entries that Mr Shearwood made at the time, I would accept his evidence in this regard.  There is no reference to promissory notes in Mr Shearwood’s records for the 3 November 1999 meeting. 

26. Consistently with Mr Shearwood’s evidence about the 3 November 1999 meeting, some days later, in a note dated 8 November 1999 and copied to Mr Bell, Mr Thomas, on behalf of WPM, faxed a request to Mr Shearwood for his advice about the applicability of PS 140 to the Murray Street Project.  Mr Thomas’s note relevantly stated:

    The details on the arrangements for the sale of the strata hotel rooms are yet to be finalised and we are awaiting advice on how to best structure the sales to not be caught in the MIS serviced strata scheme net. 

    To that end could you advise on the key elements to the MIS legislation and regulations that we need to look for in the arrangements between the proposed hotel operator and Westpoint plus the sale contracts between Westpoint and the strata purchasers. 

    Could you also please give an estimate of the time that will be expended in this brief, including the time already in WIP for the meeting Simon Bell and myself [sic]. 

27. I interpolate at this point that Mr Shearwood deposed that, in addition to Mr Thomas, he received instructions from Mr Bell and Mr Rundle to act for WPM, with respect to the Murray Street Project.  I accept Mr Shearwood’s evidence on this point, which is corroborated by Freehill’s contemporaneous records and the written communications made by Westpoint Group personnel to Mr Shearwood.  Mr Carey deposed that Mr Thomas (who was not called to give evidence) was acting on his instructions when he sought this advice from Mr Shearwood, but this was hearsay evidence and, as Freehills maintained, “neither admissible nor persuasive”. 

28. In early to mid December 1999, Mr Shearwood had further conversations with either Mr Rundle or Mr Bell about the application of PS 140 to the Murray Street Project.  Mr Shearwood’s timesheet narration for 1 December 1999 indicated that he met with Mr Bell and Mr Rundle on that date, and was “provided with more background information so as to give an opinion on whether a managed investment scheme would be involved”.  Mr Shearwood stated, in cross-examination, that he had no independent recollection of this meeting.  Bearing in mind Mr Shearwood’s evidence that he often used a timesheet narration for a file note of a meeting, there is no reason to doubt the accuracy of his entry made at the time. 

29. There was a further conversation between Mr Shearwood and Mr Rundle on 7 December 1999 apparently about the MIS issue, because, on 8 December 1999, Mr Shearwood sent a copy of PS 140 to Mr Rundle, under cover of a letter bearing that date.  In this letter, Mr Shearwood specifically drew Mr Rundle’s attention to the definition of MIS in PS 140, suggesting they discuss the matter further once Mr Rundle had considered the material sent to him.  Further, according to his timesheet narrations, also on 8 December 1999, Mr Shearwood sent Mr Bell a copy of PS 140 and spoke with Mr Bell about it.  Mr Shearwood also spoke to Mr Bell again on 9 December 1999, presumably about the same matter. 

1. Having regard to the whole of the evidence, the Carey parties have failed to establish, on the balance of probabilities, that they sufferred loss and damage by the alleged contravening conduct of Mr Shearwood. 

2. For much the same reasons, so far as the Carey parties’ negligence claim is concerned, I am not satisfied on the balance of probabilities that any representation was “a necessary condition of the occurrence of harm” within s 5C(1)(a) of the Civil Liability Act 2002 (WA) or that “factual causation” within s 5C(2) is otherwise established.

3. So far as the negligence claim is concerned, both parties proceeded on the assumption that the Civil Liability Act 2002 (WA) (‘Western Australian Civil Liability Act’) provided the primary legal framework for the purposes of the causation question, which meant that, on their analysis, the issue of causation was governed by s 5C of that Act.

4. The relevant division (Division 3) of the Western Australian Civil Liability Act came into operation on 1 December 2003. No party drew my attention, however, to s 5A(3) of that Act, which provides that Division 3 does “not apply unless the harm giving rise to the claim for damages arises out of an incident happening on or after 1 December 2003”. Since no argument was addressed to the point, I assume that the relevant incident for the purposes of s 5A(3) is the incident broadly described as the Westpoint Group collapse, and not the Promissory Note Advice.

5. At the same time, the application of the Wrongs Act 1958 (Vic) remained doubtful. I note that no party was able to articulate whether and, if so to what extent, the Victorian Wrongs Act 1958 applied. Mr Riordan SC stated that he “suspect[ed] that different parts of the [Promissory Note Advice] could be said to be given in Victoria; acted upon elsewhere”, but that there was “no material difference” between s 5C of the Western Australian Civil Liability Act and the equivalent provision – which was s 51 in the Victorian legislation. For present purposes, it may be accepted that there is no material difference between s 51 of the Victorian legislation and s 5C of the Western Australian Civil Liability Act. There was, as indicated, no argument to the contrary. As a result, I propose to deal with the question through the lens of s 5C, acknowledging that what I say in relation to causation on its terms would apply equally to the question of causation under the Victorian Act. This course is an appropriate one in the current circumstances, where I have already found that the Carey parties’ claims against Freehills have failed.

6. Section 5C of the Western Australian Civil Liability Act provides a statutory basis for determining the questions of causality between the negligent act and the harm suffered, and the scope of the defendant’s liability. Section 5C relevantly provides:

   (1)A determination that the fault of a person (the tortfeasor) caused particular harm comprises the following elements -

   (a)that the fault was a necessary condition of the occurrence of the harm (factual causation); and

   (b)that it is appropriate for the scope of the tortfeasor’s liability to extend to the harm so caused (scope of liability).

   (2)In determining in an appropriate case, in accordance with established principles, whether a fault that cannot be established as a necessary condition of the occurrence of harm should be taken to establish factual causation, the court is to consider (amongst other relevant things) –

   (a)whether and why responsibility for the harm should, or should not, be imposed on the tortfeasor; and

   (b)whether and why the harm should be left to lie where it fell.

   Section 5D provides:

   In determining liability for damages for harm caused by the fault of a person, the plaintiff always bears the onus of proving, on the balance of probabilities, any fact relevant to the issue of causation.

7. In considering the equivalent provision in the Civil Liability Act 2002 (NSW), the High Court noted in Adeels Palace Pty Ltd v Moubarak (2009) 239 CLR 420 (‘Moubarak’) at 440 [42] that the provision “divides the determination of whether negligence caused particular harm into two elements: factual causation and scope of liability”. The Court continued (at 440-443 [43]-[44], [52]-[56]):

   Dividing the issue of causation in this way expresses the relevant questions in a way that may differ from what was said by Mason CJ, in March v E and MH Stramare Pty Ltd [(1991) 171 CLR 506 at 515] to be the common law’s approach to causation. The references in March v Stramare to causation being “ultimately a matter of common sense” were evidently intended to disapprove the proposition “that value judgment has, or should have, no part to play in resolving causation as an issue of fact”.  By contrast, s 5D(1) treats factual causation and scope of liability as separate and distinct issues.

   It is not necessary to examine whether or to what extent the approach to causation described in March v Stramare might lead to a conclusion about factual causation different from the conclusion that should be reached by applying s 5D(1). It is sufficient to observe that, in cases where the Civil Liability Act or equivalent statutes are engaged, it is the applicable statutory provision that must be applied.

   …

   Counsel for the plaintiffs, in this court, relied upon passages in Chappel v Hart [(1998) 195 CLR 232].  But in that case the majority proceeded on the basis that but for the failure to warn the event would not have happened; the question then was whether certain additional factors, combined with the satisfaction of the “but for” test, were sufficient to establish causation.

   In the present case, in contrast, the “but for” test of factual causation was not established.  It was not shown to be more probable than not that, but for the absence of security personnel (whether at the door or even on the floor of the restaurant), the shootings would not have taken place.  That is, the absence of security personnel at Adeels Palace on the night the plaintiffs were shot was not a necessary condition of their being shot.  Because the absence of security personnel was not a necessary condition of the occurrence of the harm to either plaintiff, s 5D(1) was not satisfied. Did s 5D(2) apply?

   Section 5D(2) makes provision for what it describes as “an exceptional case”. But the Act does not expressly give content to the phrase “an exceptional case”. All that is plain is that it is a case where negligence cannot be established as a necessary condition of the harm; the “but for” test of causation is not met.  In such a case the court is commanded “to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party”.  But beyond the statement that this is to be done “in accordance with established principles”, the provision offers no further guidance about how the task is to be performed.  Whether, or when, s 5D(2) is engaged must depend, then, upon whether and to what extent “established principles” countenance departure from the “but for” test of causation.

   At once it must be recognised that the legal concept of causation differs from philosophical and scientific notions of causation.  It must also be recognised that before the Civil Liability Act and equivalent provisions were enacted, it had been recognised that the “but for” test was not always a sufficient test of causation.  But as s 5D(1) shows, the “but for” test is now to be (and has hitherto been seen to be) a necessary test of causation in all but the undefined group of exceptional cases contemplated by s 5D(2).

   Even if the presence of security personnel at the door of the restaurant might have deterred or prevented the person who shot the plaintiffs from returning to the restaurant, and even if security personnel on the floor of the restaurant might have been able to intervene in the incident that broke into fighting in time to prevent injury to anyone, neither is reason enough to conclude that this is an “exceptional case” where responsibility for the harm suffered by the plaintiffs should be imposed on Adeels Palace. To impose that responsibility would not accord with established principles.

   (Emphasis in original) 

   I note that, instead of the expression “an exceptional case” in s 5D(2) of the NSW legislation, the equivalent provision in the Western Australian Civil Liability Act – s 5C(2) – uses the expression “an appropriate case”.

8. In the present case, having regard to paragraphs [414]-[427] above, the Carey parties have not shown that, on the balance of probabilities, the “but for” test of factual causation was satisfied.  It was not shown to be more probable than not that, but for the Promissory Note Advice, the Westpoint Group companies would not have proceeded to issue promissory notes under the arrangements in place at the relevant time.  That is, the existence of the Promissory Note Advice was not shown to be a necessary condition of the promissory notes being issued. 

9. In their causation argument, the Carey parties submitted that “[b]ecause [this] case is about advice it is essential to ask what would have occurred had Freehills given the advice without negligence”.  They contended that this was “not stating a ‘but for’ test of causation”; rather, so they said, “it [was] asking whether the advice was still operating causally”.  In this connection, the Carey parties relied on Bennett v Minister of Community Welfare (1992) 176 CLR 408 at 414 and 420-421 in support of the proposition that the advice would only cease to operate as a cause “if it can be said that the events which have occurred would have occurred even if the correct advice and proper warnings had been given”. In the context of this case and the facts as found, I reject the Carey parties’ submission. This is because I have found that the Promissory Note Advice was not operating causally at any relevant time on the events: see above paragraphs [414] and following. Therefore, any consideration, hypothetical as it already is, of what would have occurred if the advice was different is wholly misplaced. This is also because there is simply no factual foundation for the Carey parties’ argument that it was some supposed failure to warn about the use of promissory notes that was a cause of their loss. I have already referred to Mr Shearwood’s repeated warnings to Westpoint Group personnel about the use of promissory notes, including his express statements that uncertainty attended the legal position with respect to this use and that there was a risk that the promissory notes would be considered an interest in a MIS: see above paragraphs, including [352] and [379]-[387] and [416]. This is, therefore, not a case in which it is appropriate to enquire what would have happened had a positive duty been performed because it has not been shown that such a duty was not performed.

10. Further, this is not a case in which, in accordance with established principles, causation should be taken to be established even though the ‘but for’ test is not satisfied. It is not an “appropriate case” with the meaning of s 5C(2) of the Western Australian Civil Liability Act. Rather, to impose that responsibility would be contrary to established principles. Section 5C(2) of that Act is therefore inapplicable.

11. That is, causation, considered according to established principles and as a question of fact, has not been established.  Causation within the established principles is not “susceptible of reduction to any one philosophical or scientific formula such as the ‘but for’ test, but rather to be resolved as a matter of common sense and experience”: RP Balkin and JLR Davis, The Law of Torts (5th edition, Lexis Nexis Butterworths, 2013) (‘Balkin & Davis’) pp 318-319, citing March v Stramere at 509 and Chappel v Hart (1998) 195 CLR 232 (‘Chappel v Hart’) at 242-243 [23] (McHugh J) and [62] (Gummow J), even if, as the Carey parties urged, causality is not determined by reference to commonsense alone. Given my findings at paragraphs [414]-[427] above, it simply cannot be said here that the Carey parties have shown that, in any relevant sense in accordance with established principles, the supposed representations, assuming they were made, ‘resulted in’, ‘led to’, ‘operated as a cause of’ or was ‘a factor in bringing about’ the harm suffered; alternatively they were not a ‘substantial’, ‘material’ or ‘real’ cause of the injury: see Balkin & Davis at pp 317-318 citing Fitzgerald v Penn (1954) 91 CLR 268 at 274; and I & L Securities Pty Limited v HTW Valuers (Brisbane) Pty Limited (2002) 210 CLR 109 at 128 [56]- [58] (Gaudron, Gummow and Hayne JJ).

12. Having regard to the whole of the evidence, the Carey parties have failed to establish, on the balance of probabilities, the factual causation required to succeed in their negligence claim.

13. In these circumstances it is unnecessary to consider the Carey parties’ submissions that:

    Freehills’ advice exposed the Westpoint Group to the risk of investigation and enforcement action being taken by ASIC because of the use being made of promissory notes to exploit a loophole in the law to raise millions of dollars from retail investors without the protection of prospectus standard disclosure and without the protection of a registered managed investment scheme.

    For the reasons set out already, the factual foundation for this argument was not established by the Carey parties.

14. In the same way, it is unnecessary to consider Freehills’ alternative submissions in support of the proposition that the Westpoint Group’s use of promissory notes was not the cause of the collapse of the Westpoint Group.  In these submissions, Freehills contended that the Group collapsed because of: (1) the insolvency of the Group; (2) the orders made by French J winding up York Street Mezzanine and Ann Street Mezzanine in insolvency; (3) ASIC’s applications for the winding up of York Street and Ann Street Mezzanine, which were based on the insolvency and misleading conduct of the companies and unrelated to the use of promissory notes as the method of fundraising; and (4) ASIC’s issuing of an Initial Stop Order on the Westpoint Income Fund on 25 October 2005 and a Final Stop Order on 23 November 2005.  These submissions would only have been necessary to explore on the causation issue if the Carey parties had established there was the relevant reliance on the Promissory Note Advice.  Since it is unnecessary to explore the solvency issue raised by these submissions, it is also unnecessary to rule on the admissibility of what the parties referred to in submissions as the ‘Read report’.

    LOSS AND DAMAGE

15. From the outset, the Carey parties’ fundamental claim was that, by reason of the Promissory Note Advice, they lost the opportunity to publicly list their shareholding in, or ‘float’, the companies in the Westpoint Group; alternatively, that they lost the value of their shareholding in the companies in the Westpoint Group: see amended cross-claim, particulars to paragraph 56. Other kinds of loss were also originally pleaded by the Carey Parties in their amended cross-claim, specifically, damages under s 87 of the TPA (or s 77 of the FTA) for Mr Carey’s loss of remuneration as a result of the collapse of the Westpoint Group; depletion in the value of the other cross-claimants’ assets and their loss of income. As previously noted, in the course of the trial, an application to amend in respect of claims by Vannin Pty Ltd and Earlmist Pty Ltd as “guarantor companies” was refused; and the loss said to have been occasioned to the non-shareholder cross-claimants was abandoned. Taking these matters into account, had the Carey parties made out the other elements of their misleading and deceptive conduct and negligence claims, I would have been required to focus on the loss said to be suffered by Mr Carey (and potentially Heca and Quartz to the extent that they were said to hold Mr Carey’s interests for him), namely: the lost value of Mr Carey’s shareholding; his lost remuneration; and the lost opportunity to publicly list his shareholding in the companies comprising the Westpoint Group.

16. In closing submissions, however, the Carey parties’ claim for loss and damages was apparently further narrowed.  In closing written submissions, the Carey parties stated that the relevant loss was “the lost opportunity to float the Westpoint Group” or “the loss of the chance to list” and claimed damages in respect of “the lost opportunity [that] arose from the planned public listing of the Westpoint Group”.  Mr Martindale SC confirmed in closing that it was “Mr Carey’s loss, as the holder of the shares in the would-be float vehicle that we [are] focussing on”.  The other forms of claimed loss were not pursued.  

17. Depending on the circumstances, loss and damage may encompass “the loss of a commercial opportunity which had some value (not being a negligible value) the value being ascertained by reference to the degree of probabilities or possibilities”: see Sellars v Adelaide Petroleum; Poseidon Ltd v Adelaide Petroleum NL (1994) 179 CLR 332 at 355 (emphasis in original).

18. This final part of the Carey parties’ case was far from straightforward.  Even if they had succeeded in establishing the other elements of their pleaded causes of action, the factual basis for their loss and damage claim was not strong.  Furthermore, the Carey parties’ loss and damage claim necessitated consideration of the question whether they could claim in respect of the alleged loss at all.  At this point, the Carey parties’ case faced both factual amd legal hurdles: it might fairly be argued that they could not recover because the loss, even if established, was merely a reflection of the loss of WPC (or some other company or companies or even that of the Westpoint Group companies as a whole, if such a whole could be said to exist).  An issue of this kind was considered by the House of Lords in Johnson v Gore Wood & Co [2002] 2 AC 1, where it was held that it was not open to recover damage that had in fact been suffered by the company of which the plaintiff had been the principal shareholder and director where the loss suffered was that of the company: see Johnson v Gore Wood & Co [2002] 2 AC 1 at 35-37. See also Gould v Vaggelas (1985) 157 CLR 215 at 219-220; Harris v Milfull [2002] FCAFC 442; (2002) 43 ACSR 52 (‘Harris v Milfull’) [15]-[34]; and Willoughby v Clayton Utz [2005] WASC 47; (2005) 193 FLR 373 at [42]-[55].

19. Whilst the loss ultimately sought by the Carey parties was the “loss of the opportunity to publicly list Mr Carey’s shareholding in the companies comprising the Westpoint Group”, this too may be attended by the same difficulty encountered by a direct claim for the lost value of Mr Carey’s shareholding.  In this connection, the statements of McPherson JA (Williams JA and White J concurring) in Thomas v D’Arcy [2005] 1 Qd R 666 at [17]-[18] are of some significance. After noting (at [17]) that:

    … to the extent that the loss is the same, and is measured by the diminution in value of the plaintiff's shareholding in those companies, it reflects the loss suffered by the companies and so falls within the exclusionary principle recognised by Lord Millett in Johnson v Gore Wood & Co [2002] 2 AC 1, at 62. …

    his Honour continued (at [18]):

    In attempting to escape the reach of this rule, the plaintiff has sought to couch his claim in this action not as one against the Bank or Ebbage, but against the defendants for negligence or breach of their retainer.  It was submitted that it was, legally speaking, a claim for the value of the chance or opportunity, which the plaintiff has lost through the defendants’ breach of retainer or negligence, of preventing mismanagement or sale of corporate assets at undervalue, and it was not to be confused with the value of the lost assets themselves. … But in any event and with due respect to Mr Savage SC, this is a form of legal legerdemain. The prima facie measure of the value of the lost chance is the value of the lost assets themselves discounted to the extent necessary to make allowance for the uncertainties and risks of the proceedings which the plaintiff claims the defendants should have advised him to bring against the Bank or Ebbage in order to protect those assets.  In so far as they were or are corporate assets, the measure of the loss which the plaintiff seeks to recover from the defendants is the diminution in value of the shares that he holds in the companies or which they in turn hold in others.  The damages he claims are merely a reflection of the loss sustained by the companies, although in this action he seeks to recover from the defendants rather than from the Bank or Ebbage.

    It may be that a lost chance to protect an applicant from the sale of corporate assets at undervalue is not unlike the loss of a chance to publicly list corporate assets.  

1. Alternatively, it may be that there is something truly distinct from the “mere” value of the shareholding which arose out of what the Carey parties described in closing written submissions as the “additional value … derived from the interrelatedness of the companies, synergies within the group, the structures and business processes which had developed within the group over the period of its existence together with its goodwill and earning capacity”.  Indeed, the loss of opportunity to publicly list that additional value was argued by the Carey parties to be “not dissimilar” to the situation of the appellant in Giles v Rhind [2002] 4 All ER 977 where Waller LJ of the English Court of Appeal distinguished Johnson v Gore Wood & Co [2002] 2 AC 1 and stated (at [28]) that:

   Obviously the value of [Mr Giles’] shares reflect to some extent the value of the assets of the company but in his case they also reflect what Lord Millett described as market sentiment, or what would have been considered their value because of the potential which the business had.

   Chadwick and Keene LJJ agreed that Johnson v Gore Wood & Co [2002] AC 1 ought be distinguished and did not govern Mr Giles’ position.

2. I do not consider it appropriate, however, to consider the interesting question, whether in this case there was some additional value of the kind the Carey parties described that was in truth distinct from the value of the shareholding, or the many other questions that might arise at this juncture of the Carey parties’ case.  Whatever I were to say about the recoverability issue would be entirely unnecessary for the decision in this case.  Further, I am mindful of the cogency of the statement of the Full Court of this Court in Harris v Milfull at [40] that “the development of the law in this area will take place in a more orderly way if decisions are based upon actual findings of fact rather than upon mere allegations.” Given the findings already made, findings in respect of loss and damage would be entirely hypothetical and are not sensibly made. Any comment I would make here upon the recoverability question would not be made on the basis of “actual findings of fact”. Any supposed ‘findings’ would require me to assume an abundance of unproven suppositions and, in doing so, I could not be other than inexact. Such inexactness would not be of assistance in such a case as this, or in any future proceeding in which this recoverability question requires determination. In the circumstances, I do not consider it helpful to venture further. In this case, moreover, notwithstanding the parties’ voluminous submissions, relatively little attention was given to this particular point.

3. Similarly, it is inappropriate and unnecessary to delve too deeply into the question whether the companies in the Westpoint Group were solvent at 30 June 2005, or indeed at any relevant point.  The insolvency question was also far from straightforward and raised many complex issues.  It is possible that any factual finding of insolvency in this proceeding may have an as yet unknown impact in relation to other proceedings.  In this context, it is unnecessary to determine whether the Carey parties’ failure to call Ms Lindsay (who had prepared a report on the insolvency issue that they did not ultimately tender) would justify what Mr Riordan SC referred to as “a Jones v Dunkel inference” on the issue: see [174] above.

4. If I had reached different conclusions on the various issues already discussed in this case, the question of solvency would have been significant for the question of loss and damage, and potentially to the question of causation as well.  As already explained above, however, it was unnecessary to consider the solvency of the companies in the Westpoint Group to conclude that the Carey parties’ failed to make out requisite causation.  This was because I rejected their case regarding the alleged misrepresentations made in the supposed Promissory Note Advice and that they could have operated causally on the events the subject of the claimed loss. 

5. At its heart, the relevance of the solvency question to loss and damage amounted to the proposition that no damage could be claimed for a lost opportunity to float the Westpoint Group if the companies in the Group were insolvent.  An insolvent company cannot be listed and, therefore, so Freehills submitted, no such loss of opportunity could possibly have been suffered by the Carey parties. 

6. Given that the Carey parties have not made out the other elements of their negligence and TPA claims, it is unnecessary to consider further the solvency of the companies in the Westpoint Group at 30 June 2005 to determine the outcome of this proceeding. Whatever I were to say about the solvency question would be entirely unnecessary for the decision in the case. Bearing in mind this lack of utility and the comments at [449]-[450], I would not examine the solvency question further.

7. Since, for the reasons stated, I would not address the recoverability or solvency issues further, it is therefore quite unnecessary to consider the supposed ‘gaping hole’ and other deficiencies that Freehills claimed attended the report of Mr Leibowitz (dealing with the supposed lost opportunity to float); the Carey parties’ objections to the report of Mr Read (on the solvency question); or the significance of the evidence of Mr Smith’s report (challenging aspects of Mr Leibowitz’s report).  As already noted, in the same vein, nothing further need be said about the decision made by the Carey parties not to call any expert evidence in relation to solvency and their stated reasons for not doing so: see [450] above.  It is also unnecessary to discuss the evidence of other witnesses (as, for example, Mr Carey, Mr Bell, Mr Nairn or Ms Margaret Mote) to the extent that they bore on these issues of recoverability and solvency.

8. It suffices to say that I would dismiss the Carey parties’ cross-claim, principally because the Carey parties failed to establish on the balance of probabilities that:

   (1)the Carey parties, or any of them, were persons to whom Mr Shearwood owed a duty of care;

   (2)the representations as pleaded were made and/or if made, were untrue, not soundly based or negligently made;

   (3)the Carey parties, or any of them, relied on the alleged representations or that the Promissory Note Advice had the requisite causal relationship with the events said to have resulted in the claimed loss and damage.

   DISPOSITION

9. For the reasons stated, I would dismiss the cross-claim.  In the ordinary course, costs would follow the event.  I would, however, afford the parties an opportunity to make short submissions on costs if they wish, such submissions to be limited to 3 pages.  If there are no submissions received within 10 days of the delivery of judgment, I would order that the Carey parties pay the first cross-respondent’s costs of and incidental to the cross-claim. 

I certify that the preceding four hundred and fifty-five (456) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny.

Associate:

Dated:       20 September 2013

SCHEDULE

NORMAN PHILLIP CAREY	First Cross-Claimant
QUARTZ NOMINEES PTY LTD (ACN 008 859 103) ATF THE QUARTZ TRUST	Second Cross-claimant
HECA NOMINEES PTY LTD (ACN 053 581 874)	Third Cross-claimant
ACEBID PTY LTD (ACN 074 566 046)	Fourth Cross-claimant
ANDRIANNI PTY LTD (ACN 005 458 720) ATF THE ANDRIANNI TRUST	Fifth Cross-claimant
ANN STREET BRISBANE PTY LTD (ACN 101 943 711) ATF THE ANN STREET BRISBANE TRUST	Sixth Cross-claimant
BENNALONG HOLDINGS PTY LTD (ACN 008 741 008)	Seventh Cross-claimant
DOSIUS PTY LTD (ACN 009 449 450)	Eighth Cross-claimant
EARLMIST PTY LTD (RECEIVER & MANAGER APPOINTED) (CONTROLLER APPOINTED) (ACN 069 056 926) ATF THE EARLMIST UNIT TRUST	Ninth Cross-claimant
ETNAS PTY LTD (ACN 056 599 350) ATF THE ENTAS TRUST	Tenth Cross-claimant
HEALTHCARE PROPERTIES PTY LTD (ACN 074 501 955) ATF THE HEALTHCARE PROPERTIES TRUST	Eleventh Cross-claimant
HUNTINGDALE VILLAGE PTY LTD (RECEIVER & MANAGER APPOINTED) (ACN 085 048 531) ATF THE HUNTINGDALE VILLAGE UNIT TRUST	Twelfth Cross-claimant
JEVWOOD PTY LTD (ACN 074 525 321)	Thirteenth Cross-claimant
K.I.S. REALTY PTY LTD (ACN 100 871 314)	Fourteenth Cross-claimant
KEEP IT SIMPLE INVESTMENTS (GLOBAL) PTY LTD (ACN 100 871 270)	Fifteenth Cross-claimant
NORTH SYDNEY DEVELOPMENT PTY LTD (CONTROLLER APPOINTED) (ACN 107 037 838) ATF THE NORTH SYDNEY DEVELOPMENT TRUST	Sixteenth Cross-claimant
PAQUERO PTY LTD (ACN 003 540 556)	Seventeenth Cross-claimant
PARAGON APARTMENTS LTD (RECEIVER & MANAGER APPOINTED) (ACN 087 200 413)	Eighteenth Cross-claimant
RENAISSANCE MEZZANINE PTY LTD (ACN 110 978 491)	Nineteenth Cross-claimant
ROMPRIDE PTY LTD (ACN 074 524 824) ATF THE ERLEY UNIT TRUST	Twentieth Cross-claimant
SCOTS CHURCH DEVELOPMENT LTD (RECEIVER & MANAGER APPOINTED) (ACN 091 686 323)	Twenty-first Cross-claimant

SILKCHIME PTY LTD (RECEIVER & MANAGER APPOINTED) (ACN 066 849 429) ATF THE SILKCHIME UNIT TRUST	Twenty-second Cross-claimant
VANNIN PTY LTD (RECEIVER & MANAGER APPOINTED) (ACN 067 610 271) ATF THE HAY FAMILY TRUST	Twenty-third Cross-claimant
WARWICK ENTERTAINMENT CENTRE PTY LTD (RECEIVER & MANAGER APPOINTED) (ACN 054 246 918) ATF THE WARWICK ENTERTAINMENT CENTRE UNIT TRUST	Twenty-forth Cross-claimant
WESTPOINT FINANCIAL SERVICES PTY LTD (ACN 074 148 324)	Twenty-fifth Cross-claimant
WESTPOINT MANAGEMENT (CENTREWAYS) PTY LTD (ACN 082 349 068) ATF THE CENTREWAYS REFURBISHMENT SYNDICATION TRUST	Twenty-sixth Cross-claimant