Chew v Amanatidis - [2009] SASC 334

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
CHEW v AMANATIDIS
[2009] SASC 334
Judgment of The Full Court
(The Honourable Justice Gray, The Honourable Justice White and The Honourable Justice Kelly)
3 November 2009
APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - INTERFERENCE WITH JUDGE'S FINDINGS OF FACT - FUNCTIONS OF APPELLATE COURT - IN GENERAL
TORTS - NEGLIGENCE - ESSENTIALS OF ACTION FOR NEGLIGENCE - DUTY OF CARE - SPECIAL RELATIONSHIPS AND DUTIES - OTHER CASES
TORTS - NEGLIGENCE - ESSENTIALS OF ACTION FOR NEGLIGENCE - WHERE ECONOMIC OR FINANCIAL LOSS - CARELESS ADVICE, STATEMENTS AND NON-DISCLOSURE - PARTICULAR PERSONS AND SITUATIONS - OTHER CASES
Appeal from judgment on a third party claim - in District Court proceedings, plaintiffs claimed damages with respect to a contract of indemnity given by defendant (respondent) - defendant brought third party claim claiming that defendant had been induced to enter into contract of indemnity as a consequence of the third party's negligent misrepresentation - Judge found that third party owed defendant a duty of care and had acted in breach of that duty - whether third party owed defendant a duty of care - whether duty breached - whether reasonable reliance established - whether special relationship established.
Held (Gray and Kelly JJ): appeal allowed - defendant a man with business experience and acumen - no duty of care arises - no special relationship established - any reliance contended not reasonable in circumstances.
Held (White J): appeal dismissed - trial Judge did not err in findings of fact - defendant breached duty of care owed to the third party- Judge's determination that it was reasonable for respondent to act on advice of the appellant not demonstrably incorrect.
D’Aloia & Anor v Amanatidis-Amanatidis v Chew [2008] SADC 128; Fox v Percy (2003) 214 CLR 118; Jones v Hyde (1989) 63 ALJR 349; Abalos v Australian Postal Commission (1990) 171 CLR 167; Devries v Australian National Railways Commission (1993) 177 CLR 472; SRA (1999) 73 ALJR 306; Voulis v Kozary (1975) 180 CLR 177; Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326; Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 ALR 599; Brunskill v Sovereign Marine & General Insurance Co Pty Ltd (1985) 59 ALJR 842; Chambers v Jobling (1986) 7 NSWLR 1; Perre v Apand Pty Ltd (1999) 198 CLR 180; Mutual Life & Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556; San Sebastian Pty Ltd v Minister Administering Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340; Tepko Pty Ltd v Water Board (2001) 206 CLR 1; Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465; Bryan v Maloney (1995) 182 CLR 609; O’Leary v Lamb (1973) 7 SASR 159; Presser v Caldwell Estates Pty Ltd [1971] 2 NSWLR 471; Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) (1981) 150 CLR 225, considered.

CHEW v AMANATIDIS
[2009] SASC 334
Full Court Gray, White and Kelly JJ
GRAY J.

This appeal is from a judgment on a third party claim following a trial in the civil jurisdiction of the District Court.
In the District Court proceedings, the plaintiffs, Mario and Angelo D’Aloia, claimed damages with respect to a contract of indemnity given by Gregory John Amanatidis, the defendant and respondent. Mr Amanatidis pursued third party proceedings against Lee Teck Chew, the appellant in these proceedings, claiming that he had been induced to enter into the contract of indemnity as a consequence of negligent misrepresentations made by Mr Chew.
Following the trial, the District Court Judge entered judgment for the plaintiffs against Mr Amanatidis. The Judge concluded that Mr Chew owed a duty of care to Mr Amanatidis and had acted in breach of that duty. As a consequence, Mr Chew was held liable to Mr Amanatidis in the amount of the judgment awarded in favour of the plaintiffs. The Judge also concluded that Mr Amanatidis and Mr Chew had agreed to share the commission to be paid by the plaintiffs to Mr Amanatidis. The question of contribution, if any, between Mr Amanatidis and Mr Chew has not yet been addressed.
On appeal, the primary question to be determined was whether the Judge was correct in his determination of the third party claim. Before coming to discuss the complaints on appeal, it is convenient to set out the general circumstances of the dealings and transactions between the parties.
Mr Chew had learnt of an investment scheme being promoted in the United States of America. The essence of the scheme was that an investor would make a loan at or above a minimum amount of US$100,000.00. In return, interest would accrue at a minimum rate of 25% per week. Protection was said to be provided to an investor in two ways: through an insurance policy and through the placement of the investment in an escrow account with a solicitor in the United States.
Mr Chew and members of his family apparently wished to invest in the scheme but could not advance US$100,000.00. Mr Chew approached Mr Amanatidis to see, it was said, if he would be an investor, but Mr Amanatidis was unable or unwilling to participate. However, Mr Amanatidis agreed with Mr Chew that he would attempt to find another investor to join with Mr Chew, so that the minimum of US$100,000.00 could be invested.
Mr Amanatidis introduced the plaintiffs to Mr Chew and ultimately they agreed to become investors. At some point, Mr Chew suggested to Mr Amanatidis that he should negotiate a commission of 4% from the plaintiffs for introducing the plaintiffs to the scheme. Ultimately the plaintiffs agreed to pay a commission of 4% but required a contract of indemnity in return. On the Judge’s findings, Mr Chew and Mr Amanatidis secretly agreed to share this commission equally.
As a consequence, the plaintiffs made their investment, together, it was said, with an investment by Mr Chew and his family and a total investment of more than US$100,000.00 was made. The moneys were advanced to a United States solicitor’s escrow account.
Unsurprisingly, the investment failed. The entire scheme proved to be fraudulent and a scam. As the Judge observed:[1]
In my view, it is improbable that the scheme in which the plaintiffs invested was anything other than a fraudulent Ponzi scheme. The scheme promised extraordinarily high returns of about 1300% (one thousand three hundred per cent) per year. It is implausible that any legitimate scheme could have yielded such fabulous returns. Furthermore, two of the principal players in the scheme, Gilliland and Talley had participated in a strikingly similar scheme that was fraudulent in nature. In addition, no cogent explanation was ever given to Chew and the plaintiffs by Luxor and Southstar for the failure to pay the profits they had been promised or for the failure to return their investment principal. The correspondence received by Chew from the US in late 1999 and early 2000 comprised a litany of implausible excuses.
…
I am satisfied that the scheme in which the plaintiffs invested their funds was a scam from beginning to end. I am satisfied that Lewis, Talley, Gilliland and others were knowing participants in the scam. I am further satisfied that one or more of the participants in the scam fraudulently converted or misappropriated the plaintiffs’ investment principal, at some stage, after the monies were telegraphically transferred overseas.
[emphasis added]
[1] D’Aloia & Anor v Amanatidis-Amanatidis v Chew [2008] SADC 128 at [161], [163].
It might be expected that the promise that the investors would earn interest at a minimum rate of 25% per week would send alarm bells ringing and resonating loudly to any potential investor. This was no ordinary investment. It was designed to appeal to the avaricious. A minimum interest rate of 25% per week represented an annual return on the investment of at least 1300%. This is a return that belies any suggestion of an honest, legitimate or genuine investment.
The plaintiffs obtained an indemnity from Mr Amanatidis and ultimately recovered judgment on that indemnity. The question on the appeal was limited to the orders made on the third party claim.
As earlier observed, the Judge concluded that Mr Amanatidis and Mr Chew secretly agreed to share the 4% commission with respect to the interest to be paid to the plaintiffs. This would approximate to $1000.00 a week. Mr Amanatidis and Mr Chew became joint venturers in the recruiting of the plaintiffs as investors. In these circumstances, Mr Amanatidis acted as both principal and undisclosed agent with respect to the arranging of the advance by the plaintiffs and the giving of the indemnity. Mr Chew was an undisclosed principal in the transaction. This conclusion would lead, it might be expected, in the ordinary course, to Mr Amanatidis and Mr Chew being jointly liable under the indemnity. In the event of Mr Amanatidis meeting his obligations under the indemnity, the question arises whether he would be entitled to contribution from Mr Chew.
The Judge found that Mr Chew owed Mr Amanatidis a duty of care. In his reasons, the Judge identified the legal principles governing the circumstances in which a special relationship necessary to found a duty of care might arise between representor and representee. The Judge’s critical findings to support the existence of a duty of care were as follows:[2]
[2] D’Aloia & Anor v Amanatidis-Amanatidis v Chew [2008] SADC 128 at [215]-[216].
In my view, the following factors are significant:
·These events did not occur in a social setting but involved, from the party’s [sic] perspective, important matters of business.
·The plaintiff was an experienced accountant who had acted for Amanatidis in the past, albeit in relation to taxation matters, and apparently had discharged his duties competently - it has not been suggested otherwise.
·Chew purported to have knowledge of the investment scheme and access to the promoters of the scheme. Amanatidis’ knowledge of the scheme was based entirely on the oral and documentary information provided by Chew.
·Chew had a financial interest in the scheme both in his capacity as an investor and as the recipient of a secret commission.
·In respect of the private conversation that took place on 10 November 1999 Amanatidis sought Chew’s opinion or advice about the Agreement before he signed it.
In the circumstances, Chew must have realised, or ought to have realised that Amanatidis would act upon the information that he supplied at the meetings in relation to the soundness of the investment scheme and the security provided by the insurance binders and that Amanatidis would also act upon the statements he made, and the opinions he expressed, during their private conversations. As I earlier stated, I am satisfied that that [sic] Amanatidis did rely upon Chew’s representations and statements. His reliance was reasonable in the circumstances.
The Judge then concluded that Mr Chew had acted in breach of a duty of care and in that respect observed: [3]
The investment scheme was fraudulent. Chew was aware that similar high yield investment schemes had resulted in innocent investors losing substantial amounts of money to fraudsters, but failed to disclose his concerns to Amanatidis and the plaintiffs. There was no sound basis for Chew to believe the information he had received from the US about the Luxor scheme and the security afforded to investors. In the circumstances, no prudent and reasonable man would have advised and encouraged Amanatidis to sign the agreement. Chew’s conduct was negligent.
The question on appeal is whether the findings of the Judge can be successfully challenged.
[3] D’Aloia & Anor v Amanatidis-Amanatidis v Chew [2008] SADC 128 at [218].
On the appeal, as pointed out by White J, many grounds of appeal were identified. However, in substance only two main grounds were advanced. The first related to the Judge’s findings as to credit, and in particular his adverse findings with respect to the credibility and reliability of Mr Chew. It was contended that the evidence did not support the Judge’s conclusions and that those findings should be reversed. The second issue advanced on the appeal was whether the Judge’s conclusions in regard to Mr Chew’s liability for his negligent misstatements could be overturned.
The High Court in Fox v Percy,[4] reviewed the approach to be taken by intermediate appellate courts to challenges to a trial judge’s conclusions concerning the credibility and reliability of witnesses, and generally in regard to fact finding by a trial judge. Gleeson CJ, Gummow and Kirby JJ confirmed the correctness of earlier decisions of the High Court on this topic. In particular, reference was made with approval to the observations of the High Court in Jones v Hyde,[5] Abalos v Australian Postal Commission[6] and Devries v Australian National Railways Commission.[7] Their Honours went on to observe:[8]
Over more than a century, this Court, and courts like it, have given instruction on how to resolve the dichotomy between the foregoing appellate obligations and appellate restraint. From time to time, by reference to considerations particular to each case, different emphasis appears in such reasons[9]. However, the mere fact that a trial judge necessarily reached a conclusion favouring the witnesses of one party over those of another does not, and cannot, prevent the performance by a court of appeal of the functions imposed on it by statute. In particular cases incontrovertible facts or uncontested testimony will demonstrate that the trial judge's conclusions are erroneous, even when they appear to be, or are stated to be, based on credibility findings[10].
That this is so is demonstrated in several recent decisions of this Court[11]. In some, quite rare, cases, although the facts fall short of being "incontrovertible", an appellate conclusion may be reached that the decision at trial is "glaringly improbable"[12] or "contrary to compelling inferences" in the case[13]. In such circumstances, the appellate court is not relieved of its statutory functions by the fact that the trial judge has, expressly or implicitly, reached a conclusion influenced by an opinion concerning the credibility of witnesses. In such a case, making all due allowances for the advantages available to the trial judge, the appellate court must "not shrink from giving effect to" its own conclusion. Finality in litigation is highly desirable. Litigation beyond a trial is costly and usually upsetting. But in every appeal by way of rehearing, a judgment of the appellate court is required both on the facts and the law. It is not forbidden (nor in the face of the statutory requirement could it be) by ritual incantation about witness credibility, nor by judicial reference to the desirability of finality in litigation or reminders of the general advantages of the trial over the appellate process.
[4]    Fox v Percy (2003) 214 CLR 118.
[5]    Jones v Hyde (1989) 63 ALJR 349.
[6]    Abalos v Australian Postal Commission (1990) 171 CLR 167.
[7]    Devries v Australian National Railways Commission (1993) 177 CLR 472.
[8]    Fox v Percy (2003) 214 CLR 118 at [28]-[29].
[9]    See discussion in SRA (1999) 73 ALJR 306 at 321 [61]-[64], 325-331 [81]-[93], 337-338 [132]-[137]; 160 ALR 588 at 606-607, 613-622, 629-630.
[10] eg, Voulis v Kozary (1975) 180 CLR 177; SRA (1999) 73 ALJR 306; 160 ALR 588; cf Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326 at 349-351.
[11] eg, Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 ALR 599 at 603 [15]-[16]. See also SRA (1999) 73 ALJR 306; 160 ALR 588.
[12] Brunskill v Sovereign Marine & General Insurance Co Pty Ltd (1985) 59 ALJR 842 at 844; 62 ALR 53 at 57.
[13] Chambers v Jobling (1986) 7 NSWLR 1 at 10.
I have reviewed the evidence and the findings of the trial Judge having regard to the principles set out above. In my view there is no basis on which the general findings as to credibility and reliability can be overturned. I do not wish to add to the reasons of White J on this topic. Subject to one matter discussed below the findings of the trial Judge were appropriate findings on the evidence.
Turning to the Judge’s findings and conclusions with respect to the claim by Mr Amanatidis against Mr Chew for negligent misstatement, an issue arises as to the adequacy of the Judge’s findings with respect to the business experience and acumen of Mr Amanatidis. This in turn, having regard to the nature of the transaction, requires a review of the Judge’s conclusions with respect to whether a duty was owed in the circumstances, and whether any claimed reliance was reasonable reliance within the meaning of the relevant authorities.
In his reasons, the Judge briefly addressed Mr Amanatidis’ business experience. In this respect he observed:[14]
Amanatidis currently receives a disability pension. He has previously worked in the property and real estate industry with the Polites Group and as a self-employed consultant. In 1999–2000 he owned and operated a take-away chicken shop at Glenelg.
[14] D’Aloia & Anor v Amanatidis-Amanatidis v Chew [2008] SADC 128 at [16].
The Judge returned to this topic when considering whether there was a special relationship that gave rise to a duty of care and in that respect observed:[15]
Amanatidis gave evidence of other business dealings with Chew. He gave evidence of discussions that had taken place between them concerning two projects in China involving the construction of a hospital and a bridge. In broad terms, Amanatidis, in each case, had approached Chew to organise finance for the projects. Neither project went ahead.
…
Amanatidis also gave evidence of dealings he had with Chew in relation to a shopping centre at … purchased by Chew in about 2000-2001. There is no dispute that Amanatidis entered into an agreement with Chew to manage the property in exchange for receiving a commission based on rent received. Amanatidis alleged, however, that he was not paid commission for his services. This was disputed by Chew. Once again I understood this evidence to be relevant to Chew’s credit and the question of whether there was an ongoing business relationship.
[15] D’Aloia & Anor v Amanatidis-Amanatidis v Chew [2008] SADC 128 at [207], [209].
The Judge described the evidence relating to the above matters as unhelpful and then continued:[16]
The projects in China took place either well before or well after the events relating to the Luxor scheme. Similarly, the parties’ dealings in relation to the shopping centre did not arise until a considerable time after the Luxor events. They were isolated events that did not give rise to a continuing business relationship. On the issue of credit Mr Gretsas conducted a spirited attack on Mr Amanatidis. I must say that there were aspects of Amanatidis’ evidence on these peripheral topics which did not impress me. However they did not cause me to alter my view that Amanatidis told the truth about the central issue of Chew having encouraged and advised him to sign the indemnity.
[emphasis added]
The Judge in the above paragraph described this evidence of Mr Amanatidis as being given on “peripheral topics”. In my view there was a considerable body of evidence not addressed by the Judge that went to the general business relationship of Mr Amanatidis and Mr Chew, and more importantly to Mr Amanatidis’ business experience and acumen. I consider that this evidence leads to the inescapable conclusion that Mr Amanatidis was an experienced man in business and would have recognised that a minimum return of 25% per week on an investment was the hallmark of a transaction that lacked any commercial or other legitimacy. It is convenient to immediately turn to that evidence.
[16] D’Aloia & Anor v Amanatidis-Amanatidis v Chew [2008] SADC 128 at [210].

When giving evidence Mr Amanatidis agreed that he had been involved in many businesses including the management and running of businesses. He admitted to the Court that during the 1970s and 1980s he had been involved in the “entertainment industry, nightclubs and suchlike”. Mr Amanatidis had formerly been married to the daughter of a well-known and reputedly highly successful South Australian businessman, Con Polites, who owned many nightclubs, entertainment venues and whom he described as “a good teacher”. Mr Amanatidis agreed with the cross-examiner that he was given considerable responsibility in the management of the day-to-day affairs of those businesses. He described himself as being “married 16 years with the [Polites] family” and agreed that throughout that period, he was involved in business enterprises connected to a group of companies known as the Polites Group.
When pressed in cross-examination, Mr Amanatidis agreed that he was involved, through the Polites Group, with the buying and selling of real estate. He became involved in the overseeing of properties leased by the Polites Group. He agreed that he was closely involved in the business activities of the Polites Group from time to time. At times during cross-examination, Mr Amanatidis sought to give the impression that his involvement was limited.
During his involvement with the Polites Group, Mr Amanatidis undertook, but apparently did not finish, a real estate course. However, he worked in the real estate business of Mr Polites. Later he became involved in the running of a food outlet and, in the ownership with others, of a petrol station and 24 hour convenience store business. This group then acquired a second petrol station. Following his involvement in these businesses, Mr Amanatidis became involved with the real estate firm, Savills, and maintained a relationship with a proprietor of that firm until the time of the trial. He would introduce people and potential business opportunities to that proprietor.
Mr Amanatidis agreed that over some years he developed a business relationship with Mr Chew, and that he assisted Mr Chew with respect to real estate transactions, including acting as “dumb bidder”. Although his evidence, at times, was vague, he acknowledged having made a number of introductions to Mr Chew of investment opportunities.
Mr Amanatidis was a man of considerable business experience. He readily acknowledged that he understood what an agreement was and what a guarantee was. He was not a naïve investor totally inexperienced in the affairs of business. To the contrary, he was an experienced man of business.
The Judge made few findings with respect to the evidence outlined above and in particular, did not address Mr Amanatidis’ level of business experience and business acumen. Presumably this was because of the Judge’s view that these matters were only of peripheral interest. However, as earlier observed, the evidence recounted above leads to the overwhelming inference that Mr Amanatidis was well aware that there would be immense risks associated with an unsecured investment that promised a return of 25% per week. It is difficult to conceive that such a transaction could be legitimate. Presumably, the party with a responsibility to provide the return would need itself to make a greater return. Equally, Mr Amanatidis would also have been aware that a return to him of 2% per week of that 25% bore no relationship to the work he undertook associated with the transaction.
It is to be observed that the Judge was critical of Mr Amanatidis’ credibility and reliability in important respects. Examples of adverse findings in that respect are as follows:[17]
By contrast I was unimpressed by Amanatidis’ evidence in relation to his understanding of the nature and effect of the Agreement. Making all due allowance for the age of this case, I found that Amanatidis’ evidence on this topic was excessively vague. I was left with the clear impression that he was deliberately evasive and untruthful.
…
Amanatidis’ account of the discussions concerning the investment scheme was unimpressive. His poor recall about some matters discussed at the meetings may have been genuine but I was left with the clear impression that, in the main, he was being deliberately evasive about conversations that might be seen as relevant to his understanding of the purpose of the Agreement executed on 10 November 1999. I prefer and accept the accounts given by the plaintiffs and Chew on this topic.
[17] D’Aloia & Anor v Amanatidis-Amanatidis v Chew [2008] SADC 128 at [13], [64].
The Judge was also critical of Mr Chew’s credibility and reliability from time to time. However, on the important topic of business experience and an understanding of the proposed transaction and the nature of the indemnity, it is to my mind of particular relevance that Mr Amanatidis’ account was not accepted by the Judge.
These are relevant and material matters when considering whether there could be any reasonable reliance with regard to the transactions the subject of this litigation. These are factors that militate strongly against any conclusion of reliance or dependence that would give rise to a special relationship necessary to support a duty of care.
The Judge in his extensive reasons did not deal adequately with the business experience of Mr Amanatidis. The Judge did not consider whether that experience and business acumen were relevant to the existence of a special relationship sufficient to support a duty of care. The Judge did not consider relevant and probative evidence when making his findings as to the existence of a duty of care. Accordingly, this topic should be reconsidered by this Court.
The High Court in its most recent considerations has developed “the salient factors test” when considering whether a duty of care arises. In Perre v Apand[18] McHugh J listed those factors as including whether the loss was reasonably foreseeable; whether the imposition of a duty of care imposed an unreasonable burden on the autonomy of the defendant; whether the plaintiff was vulnerable to loss from the defendant’s conduct; and whether the defendant knew that its conduct could cause harm to the plaintiff. Gaudron J identified a further factor; whether the defendant was in a position of control vis-à-vis the plaintiff.
[18] Perre v ApandPty Ltd (1999) 198 CLR 180.
The starting point of a consideration of the law with respect to negligent misstatement is the judgment of Barwick CJ in Mutual Life & Citizens’ Assurance Co Ltd v Evatt[19] where the Chief Justice observed:
First of all, I think the circumstances must be such as to have caused the speaker or be calculated to cause a reasonable person in the position of the speaker to realize that he is being trusted by the recipient of the information or advice to give information which the recipient believes the speaker to possess or to which the recipient believes the speaker to have access or to give advice, about a matter upon or in respect of which the recipient believes the speaker to possess a capacity or opportunity for judgment, in either case the subject matter of the information or advice being of a serious or business nature. It seems to me that it is this element of trust which the one has of the other which is at the heart of the relevant relationship. I should think that in general this element will arise out of an unequal position of the parties which the recipient reasonably believes to exist. The recipient will believe that the speaker has superior information, either in hand or at hand with respect to the subject matter or that the speaker has greater capacity or opportunity for judgment than the recipient. But I do not think it can be said that this must always be so, that inequality in these respects must necessarily in fact be present or be thought to be present if the special relationship is to exist.
Then the speaker must realize or the circumstances be such that he ought to have realized that the recipient intends to act upon the information or advice in respect of his property or of himself in connexion with some matter of business or serious consequence. Of course, utterances in the course of social intercourse with no thought of legal consequence could not satisfy such a condition.
Further, it seems to me that the circumstances must be such that it is reasonable in all the circumstances for the recipient to seek, or to accept, and to rely upon the utterance of the speaker. The nature of the subject matter, the occasion of the interchange, and the identity and relative position of the parties as regards knowledge actual or potential and relevant capacity to form or exercise judgment will all be included in the factors which will determine the reasonableness of the acceptance of, and of the reliance by the recipient upon, the words of the speaker.
[19] Mutual Life & Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556 at 571.
The three conditions for the existence of a duty of care in cases such as the present, as espoused by Barwick CJ in Evatt, and referred to above, were restated by Brennan J in San Sebastian Pty Ltd v The Minister:[20]
…These conditions, suitably modified, apply to representations made in order to induce the representee to act thereon. The second condition is subsumed in the representor's intention to induce the representee to act upon the information or advice contained in the representation. But the first and third conditions apply. A person who gives information or advice to another to induce the other to a course of action does not necessarily undertake to be careful in the information he gives or the advice he offers. Helpful information and friendly advice, even on matters of the gravest import, will often be proffered without any thought of the informant or adviser being responsible for its truth or soundness. To impose a legal duty of care on the unsolicited and voluntary giving of any information and advice on serious or business matters would chill communications which are a valuable source of wisdom and experience for a person contemplating a course of conduct.
Where a representor gives information or advice on a serious or business matter, intending thereby to induce the representee to act on it, the representor is under a duty of care in giving that advice or information if three conditions are satisfied. First (corresponding with the first condition expressed by Barwick CJ), if the representor realizes or ought to realize that the representee will trust in his especial competence to give that information or advice; second (corresponding with the third condition), if it would be reasonable for the representee to accept and rely on that information or advice; and third (applying the underlying principle of the law of negligence), if it is reasonably foreseeable that the representee is likely to suffer loss should the information turn out to be incorrect or the advice turn out to be unsound.
[20] San Sebastian Pty Ltd v MinisterAdministering Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340 at 372.
The most recent review by the High Court with respect to negligent misstatements is to be found in Tepko Pty Ltd v Water Board.[21] The question at issue in Tepko was whether a statutory water authority owed a duty of care to a developer who wished to know, and was negligently told, approximately how much the water authority might charge to bring town water to a land development to allow subdivision to occur. The Court divided, four to three, in determining that no duty was owed.
[21] Tepko Pty Ltd v Water Board (2001) 206 CLR 1.
All members in Tepko applied the oft-cited remarks of Barwick CJ in Mutual Life & Citizens’ Assurance Co Ltd v Evatt[22] as the foundation for establishing a special relationship necessary for the existence of a duty of care with respect to statements.
[22] Mutual Life & Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556 at 569-572.
Gaudron J, a member of the majority, discussed reliance in the following terms:[23]
"Reliance" as the test for the existence of a relationship that will call a duty of care into existence is not actual reliance, but reasonable reliance. In this regard, Barwick CJ observed in Mutual Life & Citizens' Assurance Co Ltd that:
"[t]he circumstances must be such that it is reasonable in all the circumstances for the recipient to seek, or to accept, and to rely upon the utterance of the speaker. The nature of the subject matter, the occasion of the interchange, and the identity and relative position of the parties as regards knowledge actual or potential and relevant capacity to form or exercise judgment will all be included in the factors which will determine the reasonableness of the acceptance of, and of the reliance by the recipient upon, the words of the speaker".
In Mutual Life & Citizens' Assurance Co Ltd, Barwick CJ explained his use of the term "recipient", saying that it had been used "to cover both the case where the incorrect utterance is sought by a question or inquiry and the case where it is volunteered by the speaker." His Honour added, however, that "[t]hough it must be relatively rare that the latter case will give rise to a cause of action, the possibility cannot, in my opinion, be ruled out".
[footnotes omitted]
[23] Tepko Pty Ltd v Water Board (2001) 206 CLR 1 at 23-24.
Judicial consideration of these matters has largely focussed on the intention of the information-giver and their knowledge and understanding of the relationship giving rise to a dispute. Of particular relevance for present purposes, however, is the position of the recipient of the information. This is a point which the Judge, I infer, considered to be of peripheral relevance. I disagree. The relationship and the transaction the subject of the present proceeding can only be loosely described as one of “business”. I return to this later, but for the moment it is sufficient to note that I come to this conclusion having regard to the uncommercial nature of the prospective returns of this transaction, considered in light of the experience and business acumen possessed by Mr Amanatidis. In San Sebastian,[24] reliance was described as the “cornerstone of liability for negligent misstatement”.
[24] San Sebastian Pty Ltd v MinisterAdministering Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340 at 357 (Gibbs CJ, Mason, Wilson and Dawson JJ).
It is appropriate to return now to the comments made by the court in Evatt. In assessing the “assumption of responsibility” as a source of a duty of care, Barwick CJ considered the “identity and position of the recipient of the utterance” as relevant to assessing circumstances.[25] In the present proceeding, the position and identity of the recipient is, in my view, directly relevant to assessing the reasonableness of reliance in the circumstances of the case.
[25] Mutual Life & Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556 at 570.
In Evatt Kitto J explored the conditions of a special relationship, and partly approached the matter as one of causation:[26]
…It is in the nature of words that they cause nothing save by their influence upon the mind of a person whose ears or eyes they reach. Between the words and any loss they may be said to cause to a hearer or reader there must always be the hearer's or reader's decision to follow the course of conduct which proves injurious. Accordingly the question whether the words are properly to be described as a cause of the loss depends upon their potency as an influence upon that decision; and the question whether the speaker or writer of the words could reasonably have foreseen a likelihood that his statement would cause the other to pursue the potentially injurious course becomes a question whether it was reasonable for that other to understand and accept the statement as intended to relieve him, so far as an exercise by the speaker or writer of reasonable care and skill in inquiry (as to facts) or judgment (as to opinions) would do it, from having to bear any loss that a decision to act in reliance upon the statement may bring about. But such an intention is not reasonably to be inferred unless the circumstances of the statement supply a context of the kind which normally characterizes matters of business. …
[emphasis added]
As to the nature of the special relationship, Kitto J adopted the following observations of Lord Reid in Hedley Byrne, [27] where it was said that a duty of care will exist where:
…it is plain that the party seeking information or advice was trusting the other to exercise such a degree of care as the circumstances required, where it was reasonable for him to do that, and where the other gave the information or advice when he knew or ought to have known that the inquirer was relying on him.
[26] Mutual Life & Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556 at 582.
[27] Mutual Life & Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556 at 583 citing Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 at 486.
On the topic of reasonable reliance Kitto J said:[28]
…[T]he question whether a person who sought the information or advice was entitled as a matter of law to have care exercised by the person from whom he sought it is thus to be decided by considering whether the circumstances made it reasonable for the inquirer to suppose that the other was replying with an intention of accepting the full responsibility that is ordinarily appropriate to a business transaction.
[28] Mutual Life & Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556 at 584.
In the present proceeding, it is evident from the Judge’s findings that this was at the very least a most unusual transaction. It was not an ordinary business transaction. It is difficult to characterise the transaction as having a serious business purpose when regard is had to the Judge’s findings about the ludicrous nature of the returns. A moment’s thought by a person experienced in business or, for that matter, anybody with a modicum of commonsense would lead to the inevitable conclusion that the proposed investment was a preposterous proposal. A person proceeding with such a transaction would, it might be expected, have been propelled by greed. Having regard to its lack of any commerciality, the transaction could scarcely be described as a business transaction. Having regard to Mr Amanatidis’ years of business experience, this was not an occasion on which one could reach a conclusion that there had been reasonable reliance. Despite Mr Amanatidis’ assertion that he trusted Mr Chew, any suggested reliance that may have followed was not reasonable in the circumstances. To repeat the trial Judge’s conclusion, it is impossible that any legitimate scheme could have yielded such fabulous returns. The circumstances did not give rise to a special relationship and the claim in tort should be dismissed.
As earlier noted, the Judge’s finding that Mr Chew and Mr Amanatidis secretly agreed to share the commission to be paid by the plaintiffs, was a finding supported by the evidence and an appropriate finding to be made on the evidence.
The legal implications of this finding were not explored at trial. This was unsurprising as possible issues of undisclosed agency, fiduciary obligations and rights to contribution were not raised on the pleadings and do not appear to have been discussed before the trial Judge. In these circumstances, apart from noting the possibility of there being further legal issues arising, it is not appropriate to further consider these matters.
Conclusion
I would allow the appeal. I would hear the parties as to costs.
WHITE J: The respondent to this appeal was held liable under a written indemnity agreement to indemnify two brothers, Mario and Angelo D’Aloia, in relation to the monies they lost by investing in a fraudulent investment scheme. The appellant was held to have negligently encouraged and advised the respondent to provide the indemnity to the D’Aloias and therefore liable to indemnify the respondent in respect of his liability to the D’Aloias.[29]
[29] D’Aloia v Amanatidis [2008] SADC 128.

Neither the respondent nor the appellant appeal against the judgment in favour of the D’Aloias. The appellant seeks, however, to have the judgment against him set aside.
The notice of appeal contains some 28 grounds of alleged error by the District Court Judge. However, on the hearing of the appeal, the appellant advanced three substantive grounds. First, that the Judge’s adverse findings concerning the credibility and reliability of the respondent’s evidence on numerous issues, together with his general acceptance of the evidence of the D’Aloias which, in relevant respects, supported his evidence, meant that the finding that the appellant had advised and encouraged the respondent to sign the indemnity agreement did not have an appropriate foundation in the evidence. Secondly, that his relationship with the respondent was not such as to give rise to a duty of care and, thirdly, that even if his advice had been negligent, it had been unreasonable of the respondent to have acted on it.
Background
The circumstances giving rise to the claim of the D’Aloias against the respondent were summarised by the Judge as follows:
Chew is an accountant. In 1999 he informed Amanatidis of a high yield investment scheme in the United States (“US”) conducted by a US company called Luxor Capital Markets Inc (“Luxor”). Amanatidis was aware that the plaintiffs were interested in investment opportunities and introduced them to Chew.
In October-November 1999 the plaintiffs attended a series of meetings with Chew and Amanatidis. Chew explained to the plaintiffs that Luxor bought and sold US government bonds for a profit. The plaintiffs were informed that funds invested in the scheme, and profits derived from the investment, would be deposited into, and disbursed from, the escrow account of Mark Talley (“Talley”), an attorney who practised in Memphis, Tennessee. The plaintiffs were further informed that all relevant financial transactions in the US would be conducted on their behalf by Southstar II Limited (“Southstar”), another company based in the US. The plaintiffs were also advised that investment funds held in Talley’s escrow account would be protected under an insurance policy or policies that had been issued to Talley. In the result the plaintiffs decided to invest US $100,000 (“the investment principal”).
On 10 November 1999, the plaintiffs and Amanatidis signed, in the presence of Chew, a document (“the Agreement” - exhibit P6) which stated, in part, that “should an event occur where the money is stolen or an insurance payment is denied [Amanatidis] shall pay in full to [the plaintiffs] the principle (sic) ($100 k US)”. The Agreement also recorded the plaintiffs’ agreement to pay Amanatidis a commission equivalent to 4% (four per cent) of the profits the plaintiffs received from the investment.
On 11 November 1999 the plaintiffs transferred $156,641.60 (US $100,000) into an overseas account in the belief that the funds would be invested in the scheme. During the ensuing months, the plaintiffs failed to receive any returns from the investment and demanded repayment of the investment principal. In April 2000 the plaintiffs obtained from Southstar a repayment of US $22,500. They failed to recover the balance of the investment principal.[30]
[30] Ibid at [2]-[5].
The Judge found that the D’Aloias presented as “patently honest witnesses” and was satisfied that each gave “a substantially truthful and accurate account”. On the whole, the Judge accepted their account of events, but there were some aspects of the evidence of each which he did not accept. The Judge rejected significant aspects of the respondent’s evidence considering that he had been “deliberately evasive and untruthful” in some respects.
The Judge was also “unimpressed” by aspects of the appellant’s evidence. He considered that the appellant had been prepared “to put his desire for financial gain ahead of the interests of [the D’Aloias and the respondent]”.
As at the time of trial, the appellant had been a chartered accountant for over 30 years. Since 1980, he has conducted his own accountancy practice in Hutt Street, Adelaide. The appellant and the respondent were friends. At one stage, the appellant had acted as the accountant for the respondent but he had ceased doing so two or three years before October and November 1999 when the events relevant to the present litigation occurred.
The appellant first heard of the investment scheme in mid-1999 from a client. He was introduced by the client to one Larry Lewis in the United States. Lewis told the appellant:
[t]hat he was associated with a high yield investment scheme that involved buying US Government bonds and selling them to pension funds for a substantial profit. The investment scheme required a minimum deposit of US$100,000. Lewis stated that investors’ funds were deposited in the escrow account of a US attorney, Mark Talley, and were issued under a binder (policy) issued to Talley that provided cover in the amount of US$5 million.[31]
He also told Chew that monies deposited in the escrow account could not be withdrawn without the permission of Talley or the investor.
[31] Ibid at [20].
Shortly afterwards, the appellant rang Talley in Memphis and obtained further details about the investment scheme from him. Talley confirmed that he was a practising attorney and a certified accountant. Talley asserted that the investment scheme attracted returns of the order of 25 per cent per week. The appellant told Talley that he was interested in investing in the scheme but would not do so without seeing a copy of the insurance binder.
On 25 September 1999 Lewis faxed the appellant a copy of an insurance binder purportedly issued to Talley by Zurich-American Insurance Group (Zurich). This indicated on its face that Talley was insured for “professional liability” in the sum of US$1m and “excess liability” in the sum of US$4m for a period of 12 months from 3 February 1999. Another document indicated that Talley had a policy for “employee dishonesty” in the amount of US$5m for 12 months from 30 March 1999. The Judge had doubts about the genuineness of each of these documents.
After he received the binders, the appellant made enquiries of a manager for Zurich within South Australia concerning their validity and also obtained confirmation from the United States that Talley was a practising attorney and accountant.
Subsequently, the appellant spoke by telephone to each of Lewis and Talley about the investment scheme on about 12 occasions. He also discussed the scheme with his wife and her family. The appellant and his wife and four siblings of the appellant’s wife and their spouses decided to invest a total of US$60,000 (US$12,000 per couple). However, because of the requirement of a minimum investment of US$100,000, the appellant needed to find an additional investor or investors who could contribute at least US$40,000.
In about September 1999 the appellant told the respondent about the investment scheme. The Judge was satisfied that the appellant encouraged the respondent to find investors in exchange for receiving a commission. The Judge rejected the appellant’s evidence that it was the respondent himself who had suggested that he would find investors in the expectation of being able to charge those investors a commission.
The respondent then contacted Mario D’Aloia who expressed interest. He arranged for the two D’Aloias to meet the appellant and him at the appellant’s office in Hutt Street. This meeting took place before 12 October 1999. There were three or four additional meetings between the parties at the appellant’s office before the indemnity agreement was signed on 10 November 1999.
During the course of these meetings, the appellant explained to the D’Aloias, in the presence of the respondent, the elements of the investment scheme, using the information which he had received from Lewis and Talley. He also told the D’Aloias that both he and his wife, and members of her family, intended jointly to invest US$60,000 in the scheme but required an additional US$40,000 to satisfy the minimum investment requirement. The appellant explained that any investment funds paid into Talley’s escrow account could not be withdrawn without the “signatures” of Talley and the appellant and informed the D’Aloias about the insurance binders. He told the D’Aloias of the anticipated minimum return of 25 per cent per week.
Despite the fact that returns of 25 per cent per week on an investment of the kind proposed in this case appear to belong to the realms of fantasy, each of the parties appears to have proceeded on the bases that such returns were genuinely obtainable, albeit at some risk.
On 3 November 1999, the appellant and Lewis executed an agreement, the “Southstar Agreement”, which purported to be an agreement between the appellant, Southstar and Talley in relation to the investment.
The Judge found that at the last meeting before the 10 November 1999 meeting the respondent told the D’Aloias that he wanted to be paid a commission of 4 per cent of the profits which the D’Aloias derived from the scheme. He had previously agreed privately with the appellant to share equally with him the commission from the D’Aloias. Mario D’Aloia then raised the idea of the respondent providing some form of indemnity in exchange. No agreement was reached at that stage about the commission or the indemnity.
The Judge accepted the respondent’s evidence that following the meeting he had a private conversation with the appellant in which the appellant told him “not to worry about the proposed agreement”[32] for indemnity and emphasised that “it was important to obtain from the plaintiffs in writing their agreement to pay a commission”.[33] In making these findings, the Judge rejected the appellant’s evidence that the issue of an indemnity being provided by the respondent had not been raised until the meeting of 10 November 1999; that he had not had any private discussions with the respondent about a commission payment or about an indemnity; and that he had not given the respondent any reassurance about signing the proposed agreement.
[32] [2008] SADC 128 at [76].
[33] Ibid.
The indemnity agreement was signed on 10 November 1999 at the appellant’s office. The two D’Aloias, the appellant and the respondent were present. There were a number of differences in the evidence given by the D’Aloias, the appellant and the respondent about this meeting.
Mario D’Aloia said that he took four copies of the indemnity agreement to the meeting; that he handed one copy to each of the parties; that both the appellant and the respondent appeared to read the indemnity agreement; that he had then read the indemnity agreement out loud word for word; that he asked the appellant and the respondent whether they had any questions; that he received no response; and that he and his brother and the respondent then proceeded to sign each copy of the indemnity agreement. He said that the respondent and the appellant remained in their presence until the agreement was executed. The evidence of his brother Angelo was to similar effect.
The respondent’s evidence was that at the beginning of the meeting Mario D’Aloia had showed him the agreement, of which there was only one copy at that stage, and said “this will convince me more if you sign it”; that he then quickly read through the agreement; that he and the appellant then left and went to another room where the appellant photocopied the indemnity agreement; that while they were in that room he asked the appellant what he thought of the agreement; that the appellant responded with words to the effect of “don’t worry, the insurance will cover it”; and that they then returned to the D’Aloias where each copy of the agreement was signed by the plaintiffs and himself.
The appellant said that he had a limited recollection of the meeting. He did, however, recall Mario D’Aloia reading the agreement out loud and distributing four copies of the agreement, each of which was signed. The appellant said that he could not remember whether the respondent read the agreement before signing it. At one stage he said that he had not left the office at any stage before the agreement was signed but in another passage of evidence said that he could not recall doing so. He did, however, deny that the respondent had sought any advice from him before the agreement was signed.
The Judge found that Mario D’Aloia had read the agreement out loud word for word; that the respondent had read the agreement before signing it; that the respondent was fully aware that the D’Aloias wanted him to sign an indemnity; and that he knew, when he signed the agreement, that it recorded his agreement to pay the D’Aloias the amount of their investment in the event that it was stolen or an insurer’s payment denied.
The Judge also accepted that the respondent had, while away from the D’Aloias, sought advice from the appellant before signing the agreement; that the appellant had told the him “not to worry about the Agreement”; and that the appellant had given the reassurance that “the insurance would cover any losses the plaintiffs sustained”. These latter findings involved an acceptance of the evidence of the respondent and a rejection of the evidence of the appellant and, to the extent that it concerned the absence from the room in which the meeting took place, a rejection of the evidence of the D’Aloias.
The indemnity agreement was in the following terms:
9^th November 1999
This agreement is made between Gregory J. A. Amanatidis of (address deleted)
Angelo D’Aloia of (address deleted)
Mario John D’Aloia of (address deleted)
All parties are of the understanding that Mr Angelo D’Aloia & Mr Mario J. D’Aloia have invested $100k US into an account Managed by Larry Lewis and Mark Tally. (sic) These said funds are to be used for investment purposes and retained in a Solicitors Trust Account. Furthermore these above mentioned Professional people have undertaken insurance to the value Of $5,000,000.00 (FIVE MILLION DOLLARS) to insure this Investment.
Should an event occur where the money is stolen or an insurance payment is denied Gregory J.A. Amanatidis shall pay in full to Mr Angelo & Mr Mario D’Aloia the principle (sic) ($100k US) in full.
Mr Angelo & Mr Mario D’Aloia agree to pay a commission to Mr Gregory J.A. Amanatidis to the amount agreed upon by all Parties prior to entering into this agreement, the amount Being paid is 4% (Four percent) of the profit derived from the initial amount of moneys invested.
All parties have read and understand this agreement, in it’s entirety.
Signed by Gregory Amanatidis Signed by Angelo D’Aloia Signed by Mario D’Aloia
Date 10/11/99 (handwritten)
On 11 November 1999 the D’Aloias made their investment of US$100,000. The scheme in which they invested was fraudulent and, apart from a payment in April 2000 of US$22,500 and a further payment of AUD$6,000 their monies were lost. On the Judge’s findings, they were not entitled to any reimbursement under the insurance binders.
The Judge found that the respondent was liable to the D’Aloias under the indemnity agreement and entered judgment for them in the sum of $147,708.24, inclusive of interest. He also found that the appellant had breached a duty of care which he owed to the respondent by encouraging and advising him to sign the indemnity agreement.
The Challenge to the Findings Concerning the Appellant’s Advice and Encouragement
The only witness who said that there had been a conversation on 10 November 1999 between the appellant and the respondent about the respondent’s signing of the indemnity agreement was the respondent himself. As noted earlier, each of the D’Aloias said that the four men had remained in the room at the appellant’s office until the agreement had been executed. They also said that there had not been any private discussion in the room between the appellant and the respondent before the agreement was signed; that the respondent had not asked any questions about the terms of the agreement; that he had not expressed any concerns about signing it; and that he had not asked for an opportunity to obtain advice.
Apart from one statement to the effect that he could not recall leaving the room, the appellant’s evidence was also to the effect that he and the respondent had remained in the room with the D’Aloias until after the indemnity agreement had been signed and that he had not spoken at all to the respondent about his entry into the agreement.
On the evidence of the D’Aloias and the appellant, there had not been any need for anyone to leave the room as Mario D’Aloia had brought four copies of the agreement to the meeting and had distributed them before the agreement was signed. Further, the appellant had not given any private advice to the respondent about his entry into the agreement.
The respondent’s evidence which was summarised earlier was quite different. He said that Mario D’Aloia produced only one copy of the agreement at the meeting and that, after reading it quickly, he and the appellant then went to another room where the appellant made photocopies. While in that room, he asked the appellant what he thought of the agreement, to which the respondent answered “Don’t worry, the insurance will cover it”. They then returned to the D’Aloias where he and each of the D’Aloias signed the agreement.
The appellant submitted that the Judge’s preference for the evidence of the respondent about the private discussion with him on 10 November 1999 was wrong. It was said to be wrong because the only evidence to support the finding was that of the respondent; because the Judge had rejected so much of the respondent’s evidence on other issues as to make reliance on any part of his evidence inappropriate; because it was inconsistent with the evidence of the D’Aloias whose evidence the Judge regarded as generally reliable; because it was inconsistent with the respondent’s own pleading; and because, while the Judge had rejected some aspects of the appellant’s evidence, the instances in which that occurred were far fewer than in the case of the respondent.
There is force in some of these submissions. The Judge did reject numerous aspects of the respondent’s evidence. This included his account of the discussions between the four men before 10 November 1999 in which the investment scheme had been explained (the Judge considered that the respondent had been “deliberately evasive”); his claim that on 10 November 1999 he had only “quickly browsed” the indemnity agreement before signing it; his claim that he was unaware that the document he was being asked to sign did include an indemnity; and his suggestion that the appellant’s statements that he and his wife’s family intended to invest in the scheme had been a false pretence.
It is also true that the respondent’s evidence departed in material respects from the pleading in his defence to the D’Aloias’ statement of claim (prepared and filed on his behalf by solicitors) as to the circumstances in which he signed the indemnity agreement. In that pleading the respondent asserted that it was the appellant who had prepared the agreement, who explained its purpose as being only to record the agreement as to the commission, and that in signing it, he had relied on statements made by the appellant in the presence of the D’Aloias.
However, there are a number of countervailing considerations. Although the Judge rejected significant aspects of the respondent’s evidence, he also accepted parts of it. This included his evidence on some issues in preference to that of the appellant. As already noted, the Judge accepted the respondent’s evidence that the appellant asked him to find investors for the scheme in exchange for receiving a commission. The Judge accepted the respondent’s evidence that he and the appellant had agreed to split equally between themselves the commission to be paid by the D’Aloias. Despite the evidence of Mario D’Aloia to the contrary, the Judge accepted the respondent’s evidence that he had not agreed with the D’Aloias to provide an indemnity on the first occasion that they had raised the topic. Finally, the Judge accepted the respondent’s evidence in preference to that of the appellant concerning discussions which they had between themselves after the D’Aloias first raised the question of an indemnity. In particular, the Judge accepted that the two men had had a private discussion; that the appellant had advised the respondent to obtain in writing the D’Aloias’ agreement to pay a commission; and that he had reassured the respondent about the proposed indemnity agreement.

Furthermore, in his oral evidence, the appellant also departed in a significant way from his pleading concerning the circumstances in which the indemnity agreement was signed. In his defence to the respondent’s third party statement of claim, the appellant denied that he had seen the indemnity agreement before it was signed and denied that it had been signed in his presence. The Judge considered that the appellant had been “forced to retreat from these false assertions by the plaintiffs’ evidence”.
Although the Judge was impressed by the D’Aloias’ evidence, this did not mean that he was bound to accept their evidence on all factual issues. It is not unknown for honest witnesses whose evidence is otherwise reliable to be mistaken about some topic. On the Judge’s findings, there were instances of that kind in the present case. For example, the Judge did not accept Mario D’Aloia’s evidence that the respondent had said that he had previously invested in the scheme and his evidence that it had been the respondent who had explained the function of the Zurich-American binder. The Judge did not accept the D’Aloias’ evidence that the respondent had immediately agreed, upon the topic first being raised, to provide an indemnity to them. Accordingly, the rejection of the D’Aloias’ evidence that the four men had stayed in the room at all material times on 10 November 1999 was not the only evidence from them which was not accepted.
Quite apart from the oral evidence of the four men, there was some circumstantial evidence bearing upon the acceptance or otherwise of the respondent’s evidence about the advice of the appellant on 10 November 1999. The appellant was the respondent’s friend and a chartered accountant. He was the one who had learnt of the scheme and made enquiries about it. The respondent was entirely dependent upon the appellant for knowledge of the scheme as there was no suggestion that he had made his own independent enquiries about it. It was common ground that it was the appellant who had taken the dominant role in explaining the details of the scheme to the D’Aloias. These considerations made it natural, as the Judge found, for the respondent to have looked to the appellant for advice.
The agreement between the appellant and the respondent to share the commission paid by the D’Aloias meant that the appellant had an interest in common with the respondent in having the agreement signed. The fact that the appellant was prepared to invest his own money and that of his wife’s family tends to suggest that he was satisfied about the safety of the investment. The appellant must have genuinely thought that the insurance binder would protect him and the D’Aloias and, in turn, protect the respondent from being called upon to meet any liability under the indemnity. In addition, it is plain that as at 10 November 1999 the appellant was committed to the investment scheme. On 3 November 2009 he had signed the Southstar Agreement providing for his participation in the investment scheme. It is significant that the appellant indicated in that agreement that he had an amount of US$160,000 available for investment. As at 3 November 1999, the appellant did not have that amount available and could have it available only if the D’Aloias were prepared to invest their US$100,000. Accordingly, the appellant had an additional personal interest in the D’Aloias investing in the scheme and an interest in removing any impediments to their doing so. These features suggest that it would have been natural for the appellant to have given the advice about the indemnity agreement which the respondent attributed to him.
The principles upon which this Court should act when reviewing on appeal findings of fact which were dependent upon the trial judge’s assessment of the credibility and reliability of witnesses are well established. In Devries v Australian National Railways Commission[34] Brennan, Gaudron and McHugh JJ said:
More than once in recent years, this Court has pointed out that a finding of fact by a trial Judge, based on the credibility of a witness, is not to be set aside because an appellate court thinks that the probabilities of the case are against – even strongly against – that finding of fact. If the trial Judge’s finding depends to any substantial degree on the credibility of the witness, the finding must stand unless it can be shown that the trial Judge “has failed to use or has palpably misused his advantage” or has acted on evidence which was “inconsistent with facts incontrovertibly established by the evidence” or which was “glaringly improbable”.[35] [Citations omitted]
This statement of principle and the corresponding statements in the earlier cases of Jones v Hyde[36] and Abalos v Australian Postal Commission[37] were affirmed in Fox v Percy.[38]In this way, the Court on appeal makes proper allowance for the advantages of the trial judge but, nevertheless, is both authorised and obliged to intervene if satisfied that the trial judge has made an error.
[34] (1993) 177 CLR 472 at 479.
[35] Ibid at 479.
[36] (1989) 63 ALJR 349 at 351-2.
[37] (1990) 172 CLR 167 at 179.
[38] [2003] HCA 22 at [26]-[27]; (2003) 214 CLR 118 at 127-8.
Applying those principles, I do not consider that the appellant has demonstrated an error in this case. The Judge had to consider and assess conflicting evidence. He was not obliged to accept the whole of the evidence of any one witness. The Judge’s reasons show that he had regard to the appellant’s criticisms of the respondent’s evidence and to his own findings which were adverse to the respondent. It was not suggested that the Judge’s findings were inconsistent with any facts incontrovertibly established by other evidence. For the reasons given above, I do not consider the Judge’s findings to be “glaringly improbable”.
I would reject this ground of appeal.
The Existence of a Duty of Care
The appellant submitted that the circumstances in which he gave the advice and encouragement (as found by the Judge) to the respondent to sign the indemnity agreement did not give rise to a duty of care. The appellant’s counsel recognised, however, that if the challenge to the finding that the appellant had given advice and encouragement failed, then the submission concerning the existence of a duty of care was very much weakened. Counsel said:
… if this Court doesn’t reverse the factual findings of the trial judge then my argument is very weak.
Hence it was the challenge to the Judge’s underlying findings of fact which lay at the heart of this ground of appeal.
This appeal does not require a detailed review of the authorities concerning the circumstances in which a duty of care to avoid giving incorrect advice or misstatement will arise. In general, what is required is “known reliance (or dependence) or the assumption of responsibility, or a combination of the two”.[39] The authorities show that, in the case of negligent misstatement or advice, the speaker must realise, or the circumstances must be such that the speaker ought to have realised, that the recipient intends to act upon the information or advice in respect of the recipient’s property or person in connection with some matter of business or serious consequence.[40]
[39] Bryan v Maloney (1995) 182 CLR 609 at 619; Tepko Pty Ltd v Water Board [2001] HCA 19 at [74]; (2001) 206 CLR 1 at 22-3.
[40] Mutual Life & Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 628; Tepko Pty Ltd v Water Board [2001] HCA 19 at [47], [75]; (2001) 206 CLR 1 at 17, 23.
As was pointed out by Gleeson CJ, Gummow and Hayne JJ in Tepko Pty Ltd v Water Board, the reference to the matters which the speaker realised, or ought to have realised, emphasises the need for caution lest a duty of care be imposed upon a party who has no appreciation of, and could not be expected to appreciate, the implications of making an error.[41]
[41] Ibid at [48]; 17.
In addition, the reliance of the recipient on the words of the speaker must also be reasonable. If the reliance upon the statement in question was not reasonable, the requisite relationship for the existence of a duty of care will not exist. So much is apparent from the statement of Barwick CJ in Mutual Life & Citizens’ Assurance Co Pty Ltd v Evatt that:
…[T]he circumstances must be such that it is reasonable in all the circumstances for the recipient to seek, or to accept, and to rely upon the utterance of the speaker. The nature of the subject matter, the occasion of the interchange, and the identity and relative position of the parties as regards knowledge actual or potential and relevant capacity to form or exercise judgement will all be included in the factors which will determine the reasonableness of the acceptance of, and of the reliance by the recipient upon, the words of the speaker.[42]
This requirement was endorsed by Gleeson CJ, Gummow and Hayne JJ in Tepko Pty Ltd v Water Board.[43]
[42] (1968) 122 CLR 5556 at 571.
[43] [2001] HCA 19 at [46]-[48]; (2001) 206 CLR 1 at 16-17.
The Judge extracted from the authorities a number of principles of particular relevance to the determination of the respondent’s claim for damages against the appellant.[44] It is convenient to repeat the Judge’s summary:
·First, the duty of care extends to the supply of information and opinion as well as advice.[45]
·Second, an antecedent request for information, opinion or advice demonstrates reliance, which is a key determinant of the existence of a duty of care, but such a request is not essential.[46]
·Third, the reasonableness of the recipient’s reliance on the speaker’s statement will depend upon all the circumstances of the case. This will include the context in which the information or advice was given, for example, whether it was given in a business or social setting.
·Fourth, the elements of the special relationship do not require either the actual possession of skill or judgment on the part of the speaker or any profession by him to possess the same. The speaker’s willingness to proffer the information or advice in the “special relationship” is sufficient.[47] In other words, special skill is not an essential element of the “special relationship” but merely one of the factors affecting the question of reasonable reliance.
·Fifth, the speaker’s opportunity to gain financially from the recipient’s reliance on the information or advice is a relevant factor in determining the existence of a duty of care.[48] Indeed, there is some authority for the view that if the speaker stands to gain financially from the recipient’s reliance on the statement that may be sufficient in itself to establish a duty of care.[49]
[44] D’Aloia v Amanatidis [2008] SADC 128 at [203].
[45] San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340, 356 (Gibbs CJ, Mason, Wilson and Dawson JJ).
[46] Ibid 356-7.
[47] Mutual Life and Citizens' Assurance Co Ltd v Evatt (1968) 122 CLR 556, 574 (Barwick CJ); Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) (1981) 150 CLR 225; San SebastianPty Ltd v The Minister (1986) CLR at 356.
[48] See O’Leary v Lamb (1973) 7 SASR 159.
[49] See Mutual Life and Citizens' Assurance Co Ltd v Evatt [1971] AC 793, 809; Presser v Caldwell Estates Pty Ltd [1971] 2 NSWLR 471 at 493 (Mason AJ).
In my opinion, on the findings of fact made by the Judge, it can hardly be doubted that the appellant must have realised that the respondent intended to rely upon the advice which he gave to him about signing the indemnity agreement. The respondent’s enquiry was made in private after the D’Aloias had produced the agreement. The indemnity proposed by the D’Aloias at the last meeting before 10 November 1999 was put forward at the meeting on 10 November 1999 as a reality. The respondent had to make a decision quickly as to whether to sign the agreement. The appellant knew that it was he, and not the respondent, who had access to information about the scheme and the risks which it presented for an investor. He must have known that the respondent was seeking reassurance about the potential liability he would incur by signing the agreement. The appellant knew the specific purpose for which the respondent made the enquiry of him, and he himself stood to benefit from the respondent signing the agreement presented by the D’Aloias.
As part of the submission that there was no “special relationship” between the respondent and him, the appellant referred briefly to the previous business experience of the respondent. It is plain that the respondent did have considerable business experience. At the time of the events giving rise to this litigation, he was the proprietor of a chicken shop at Glenelg. He had previously been involved extensively in real estate transactions and in the management of property. For some 16 years he had been the son-in-law of Mr Con Polites who, before his death, had been a well-known businessman in Adelaide. Mr Polites had been engaged extensively in the real estate and property industry. During his 16 years as a son-in-law, the respondent had been given considerable responsibility in managing the day-to-day affairs of some of the businesses of Mr Polites, and he acknowledged that he had learnt much from him. The respondent had also undertaken a real estate course, but did not complete it. Despite that, he has experience working as a consultant to some real estate firms.
Upon ceasing to be the son-in-law of Mr Polites, the respondent had operated a fish shop, and later had been an active participant in the operation of two petrol stations with their associated convenience stores.
In short, the evidence showed that the respondent was a man of considerable business experience. The Judge did not overlook these matters.[50]
[50] D’Aloia v Amanatidis [2008] SADC 128 at [16].
It was not suggested that the respondent’s background in business meant that the appellant could not owe a duty of care to him. Such a submission would have been untenable. The duty of care to avoid giving incorrect information, opinions or advice may be owed as much to the educated and experienced as it is to the illiterate, naïve or ingenuous. Indeed, it may because of their education and experience that some persons do seek out information and advice.
The appellant also contended that the Judge had erred in finding that the respondent’s reliance upon the appellant’s advice had been reasonable. This submission was not developed in any detail. The substance of the submission appears in the following paragraph of the appellant’s written outline of argument:
17.Further it was not reasonable for the respondent to rely on any representations made by the appellant in circumstances where the appellant was neither his accountant nor lawyer and the respondent had available to himself the ability to obtain legal advice from a friend who was a lawyer and such an opportunity was not availed of, and was familiar with guarantees, understood the effect of the guarantee he was giving but did not take it seriously.
It can be seen that the appellant’s submission rested on three elements: that he was not the respondent’s lawyer nor accountant; that the respondent had the means of obtaining his own legal advice; and that the respondent understood, by virtue of his own previous experience, the effect of a guarantee.
In my opinion, this submission does not address the particular circumstances which went to the reasonableness of the respondent’s reliance. These were that, as known to both of them, it was the appellant, and not the respondent, who had access to information about the investment scheme in question. The respondent was seeking advice about the risks in the particular investment scheme which he would take on by agreeing to give the D’Aloias the indemnity they sought. The respondent understood the effect of a guarantee and an indemnity and did not wish to have that explained to him. The question of concern to him was whether, given the potential liability he may be called upon to meet, he should give the indemnity sought by the D’Aloias.
That being so, it was reasonable for him to seek the advice of the appellant, rather than from anyone else. Because of the appellant’s access to information about the scheme, he was the one who was best placed to determine the risk of loss of principal by investment in the scheme. The appellant had made his own investigations of the scheme and had told the D’Aloias and the respondent that he had done so. In addition, the appellant’s position as a chartered accountant, together with the fact that he, together with members of his wife’s family, had also determined to invest in the scheme would have confirmed to the respondent that the appellant had himself made an appropriate assessment of the risks and that it was reasonable to rely upon his assessment.
I referred earlier to the prospects of the anticipated investment returns being achieved as fanciful. In some circumstances, it could be said that the very absurdity of the prospect of returns of 25 per cent per week being actually realised meant that reliance on advice concerning any aspect of the investment was unreasonable. However, the appellant did not advance that contention, and it is difficult to see how he could have done so on the present case.
The appellant had promoted the investment program as a serious and genuine investment opportunity. He had sufficiently satisfied himself about the merits of the scheme so as to invest his own monies and to recommend it to his wife’s family. The appellant and his wife’s family were able to make their investments only by accumulating their funds with those of the D’Aloias so as to make up the necessary minimum investment. In those circumstances, it would not have been open to the appellant to claim that, despite his own assessment of the scheme as involving acceptable risk in exchange for the prospect of high reward, it was unreasonable of the respondent to have acted on his advice. It is understandable that the appellant did not advance this submission on the appeal.
I note, in addition, that the D’Aloias did not seek an indemnity in relation to the anticipated investment returns: only an indemnity in case of loss of their principal. The assurance given by the appellant to the respondent related to that aspect of the transaction only.
In summary, I consider that the Judge was correct in concluding that the appellant did owe the respondent a duty of care and correct in concluding that the respondent’s reliance upon the appellant’s advice was, in the circumstances, reasonable.
Conclusion
As I mentioned at the outset, the notice of appeal contains 28 separate grounds of appeal. The appellant did not advance submissions to support all grounds. These reasons address the grounds which were advanced.
For the reasons given above, I would dismiss the appeal.
KELLY J: I agree with the orders proposed by Gray J and with the reasons he has given.