Edingbay Pty Ltd v Horwath (Vic) Pty Ltd; Benni Aroni (third parties)
[2000] VSC 351
•8 September 2000
| SUPREME COURT OF VICTORIA | |
| COMMERCIAL & EQUITY DIVISION | Not Restricted |
No. 2073 of 1998
| Edingbay Pty Ltd & Ors | Plaintiffs |
| v | |
| Horwath (Vic) Pty Ltd | Defendant |
| v | |
| Benni Aroni & Ors | Third Parties |
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JUDGE: | Hansen J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 3-7, 10-13, 17-21, 24-28, 31 May; 1-3, 7-10, 15-17, 21-25, 28-30 June; 1, 2, 5-8, 12-15, 19-22 July; 10-13, 16-18, 26 August 1999; 8 May; 5 & 13 June 2000. | |
DATE OF JUDGMENT: | 8 September 2000 | |
CASE MAY BE CITED AS: | Edingbay Pty Ltd & Ors v Horwath (Vic) Pty Ltd; Benni Aroni & Ors (third parties). | |
MEDIUM NEUTRAL CITATION: | [2000] VSC 351 | |
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| Contract – Accountant and client – Implied term of reasonable care – Duty to exercise reasonable care and skill in tort – Tax effective investment – Extent of accountant's implied duty – Terms of retainer – Whether breach. Negligence – Accountant and client – Duty to exercise reasonable care and skill – Advice – Tax effective investment – Effect of terms of retainer on scope of duty in tort – Whether breach. Trade Practices – Misleading or deceptive conduct – Tax effective investment – Alleged representation that scheme existed and would produce benefits – Trade Practices Act 1974 (Cth), s. 52; Fair Trading Act 1985 (Vic), s. 11. |
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APPEARANCES: | Counsel | Solicitors |
For the Defendant | Mr. P.R. Hayes QC with Mr. I.D. Martindale & Mr. A.J. Paterson | Deacons Graham & James |
| For the Fifteenth Third Party | Mr. P.N. Vickery QC (until 11 June 1999) with Mr. N. Murdoch | Peter Black & Associates |
HIS HONOUR:
1. Introduction
This judgment is given on the issue of liability on a third party claim. The claim arises in a proceeding brought by 48 plaintiffs, one of whom was Hilip Pty Ltd, against Horwath (Vic) Pty Ltd, to recover the amount of their individual losses suffered in the circumstances outlined below. Horwath joined a number of third parties from whom it claimed relief in respect of the plaintiffs' claims. One of the third parties was Krampel Newman & Partners Pty Ltd. Horwath's claim against Krampel Newman was made pursuant to Part IV of the Wrongs Act 1958 for contribution or an indemnity in respect of any amount which Horwath was adjudged liable to pay to Hilip.
2. Background
Hilip was owned and controlled by Brian Andrew Hamersfeld. Its principal purpose was to make investments. Hamersfeld also owned and controlled Moose Enterprises Pty Ltd which was a trading company. Horwath conducted a chartered accounting practice. Krampel Newman conducted an accountancy practice. Norman Ralph Same is a principal of Krampel Newman. He was Hamersfeld's accountant and acted as such for him and his companies. It was only in the course of the events relevant to this judgment that Hamersfeld commenced to retain Horwath for certain accounting purposes.
The principal witnesses who gave evidence were Hamersfeld on behalf of Hilip, Stephen Andrew Bethune and Amanda Bloom on behalf of Horwath, and Same on behalf of Krampel Newman. Bethune and Bloom were chartered accountants in the employ of Horwath. In the course of giving their evidence some other witnesses were examined on issues between Hilip, Horwath and Krampel Newman. It is not necessary to separately identify these witnesses. I have had regard to all of the evidence.
The subject proceeding of the 48 plaintiffs is one of seven proceedings which together constituted the massive litigation which I tried last year arising out of the actions of a solicitor and fraudster Max Paul Green. Green lived in Melbourne and married into a wealthy family. He was a partner in a firm of solicitors called Aroni Colman. He was a plausible person and, it would seem, reasonably competent. He spoke of having clients and high connections in Asia to which he often travelled and where he apparently had business interests. One witness who knew him well said he was given to "big noting" himself about his contacts with clients in Asia. Another witness who knew him well professionally and socially said he fantasised. He was found dead in a hotel in Phnom Penh on or about 24 March 1998. He was only 46 years of age. He had been murdered. He had stolen millions of dollars from Aroni Colman's trust account. None of the money has been recovered. Much but not all of the money had been paid to Aroni Colman to be held in its trust account pending investment in a scheme devised by Green. The scheme did not exist. It was a sham, which Green had created as a vehicle by which to obtain money, which he could steal. Many of the investors in the scheme sued to recover their loss. Six of the seven proceedings were brought by investors; the seventh proceeding was brought by Aroni Colman against a professional indemnity insurer.
The scheme was based on a leverage lease arrangement. Subject to satisfying certain requirements of the Commissioner of Taxation under the Income Tax Assessment Act 1936 (Cth) and the circumstances being such as not to attract the application of Part IVA of that Act, a scheme using a leverage lease will be effective to provide an investor an immediate tax deduction followed by an income stream derived from payments under the lease.
The scheme was called a joint venture, that being the legal nature of the relationship between the investors. The scheme was undertaken three times. The first scheme was called the CL Joint Venture. This concerned the City Link infrastructure project in Melbourne. I refer to this as the Melbourne joint venture. The second scheme was called the CL (Sydney) Joint Venture. This concerned the construction of the rail link to Sydney Airport. I refer to this as the Sydney joint venture. The third scheme was called the CL (Sydney 1998) Joint Venture. This also concerned the Sydney Airport rail link project. I refer to this as the Sydney 1998 joint venture.
Under each scheme the joint venture was to acquire and let on hire for five years items of plant and equipment, each item being less than $300 in value. The lessee was to be the company or consortium carrying out the applicable project. In the Melbourne joint venture that was the Obiyashi-Transurban Joint Venture and in the Sydney joint ventures it was the Transfield-Bouygues Consortium. (That is how the word Obiyashi or, correctly I think, Obayashi was spelt in the scheme documents.) They were named as the lessee in the Joint Venture Participation Offering (JVPO) documents which described the scheme to potential investors.
The investors in each joint venture were grouped in syndicates. The Melbourne and Sydney joint ventures were each comprised of six syndicates. The Sydney 1998 joint venture was comprised of 14 syndicates.
Investors subscribed to the Melbourne joint venture in April/May 1997. Initially the Melbourne joint venture was to comprise four investor syndicates each of approximately $1.25M of investor funds. The syndicates were fully subscribed. On Green's instruction to William Lionel Lewski (to whom I refer below) in April 1997 two further syndicates were marketed to investors who subscribed a further $2.456M. This completed the Melbourne joint venture, which thus raised $7.456M from investors. On that basis the total pool, including the value of funds to be borrowed, was approximately $30M.
Investors subscribed to the Sydney joint venture in May/June 1997. Green advised Lewski of this offering in late May 1997. It was to comprise five syndicates each of approximately $1.25M of investors' funds. The offering was over-subscribed. In the result a sixth syndicate was offered which was subscribed by investors to the extent of $750,000. Hence the total funds subscribed by investors was $7M which, combined with funds to be borrowed, would have produced a pool of approximately $28M. Hilip made two investments in the Sydney joint venture: $125,000 on 6 June 1997 and $115,000 on about 23 June 1997. These amounts were allocated to syndicates three and two respectively.
One then moves to November 1997 when Green told Lewski the scheme could be offered again in relation to the Sydney rail link project. This was the Sydney 1998 joint venture. There would be 10 syndicates with the same ratio of debt funding. In the result the 10 syndicates were subscribed by investors to a total of $1.190M each syndicate. Following the success of that initial offering a further four syndicates were offered and subscribed in February 1998 to the same amount of $1.190M. This produced total investors' funds of $16.660M which, with funds to be borrowed, would have produced a total pool of approximately $50M. Hilip made an investment of $115,000 in the Sydney 1998 joint venture on 6 February 1998. The investment was allocated to the 12th syndicate.
In summary, investors subscribed a total amount of $31.116M. The funds thus raised were received into Aroni Colman's trust account. Green stole well over $20M from the trust account. In the result all investors lost their money. The six investor proceedings were brought by a total of 195 investors who sued to recover a total amount of $23,428,721.
The investors paid their money on the basis that it would be held in Aroni Colman's trust account until it was appropriate for it to be disbursed in acquiring the goods to be leased and on other proper expenses. The terms upon which Aroni Colman received and was to hold and disburse the funds were contained in undertakings which Green devised and issued on Aroni Colman letterhead. The undertakings were designed to give comfort to investors that their money would be held safely until the transaction was in place, the documentation was complete and it was proper in the interests of the investors to disburse the funds.
The leverage nature of the scheme is seen in the ratio of borrowings to equity funding. By that degree of leveraging and because the scheme was based on a joint venture, which meant that the investors had a direct equity interest in the assets of the venture, and because the taxation law permitted items of plant and equipment of a value less than $300 to be totally written off against tax in the year of acquisition, the value of the tax deduction available to each investor was the amount of the investors' equity interest in the syndicate and which in approximate terms was four times the amount of the investment. Thus an investment of $25,000 would give rise to a deduction of approximately $100,000. An investor could determine the amount to be invested by calculating the amount that was required to significantly reduce if not eradicate his or her taxable income in the year of deduction. The scheme had other features which an investor might think attractive. Neither the lender of the funds to the joint venture nor any other party to the transaction had a right of recourse to the investors. Also, investors were not required to give a guarantee. Further, the investors would receive an income stream during the period of the lease, which in each case was to be for a five-year term. The rent payable under the lease was set at an amount that would exceed the cost of borrowed funds and provide a net return to investors. By the end of the five-year period the loan would be completely repaid and the joint venture would then be terminated. In a sense the scheme may be described as a tax deferral but if that is an accurate description it was a deferral with a significant up-front tax deduction. The rush with which investors subscribed to the joint ventures was sufficient proof that its structure and benefits were very attractive.
This judgment will conclude the litigation. I should briefly state how that has come to be so. By the end of the trial on 26 August 1999 all but two of the proceedings had completely settled. They were the subject proceeding and another proceeding brought by two plaintiffs also seeking to recover the amount of their lost investment from Horwarth. In the latter proceeding the plaintiffs had settled with two other defendants. I reserved judgment in both proceedings. Subsequently I heard some applications. As they did not concern Hilip's claim or Horwath's claim against Krampel Newman it is not necessary to discuss these applications or to more fully set out the course of events subsequent to the close of final addresses on 26 August.
Then, last May, while judgment still stood reserved, the parties announced in court that with one exception all claims in the remaining two proceedings had been settled. On 5 June I made orders by consent which, with that one exception, finally disposed of all claims. The exception is this present claim of Horwath against Krampel Newman. At the request of Horwath's counsel I referred the claim to mediation and adjourned the further hearing to 13 June. On that day, the parties remaining in contention, Horwath's counsel proposed a further adjournment for Horwath to calculate the amount in respect of which it sought relief from Krampel Newman and that the matter be stood over for hearing on another day. The calculation was necessary because Horwath had settled with the 48 plaintiffs on the basis of paying them a single global sum. It seemed regrettable that after so much effort and cost Horwath and Krampel Newman were to continue in contention and incur even further costs. In these circumstances I proposed that I give judgment on liability on Horwath's third party claim. The parties did not oppose that course; indeed Horwath's counsel supported it. I then told the parties that I would give judgment on liability.
3. The Parties
I now say something concerning the parties to the litigation. It is sufficient to refer to those against whom Horwath sought third party relief in the proceeding in which this judgment is given. The third parties were the former partners of Aroni Colman, another firm of solicitors Arnold Bloch Leibler (ABL), CL Custodians Pty Ltd (CLC), Australian Commercial Underwriting Pty Ltd (ACU), Lewski, Krampel Newman and four others. The claims against these four others were compromised during the trial.
At least at this point it is not necessary to further outline the role of Aroni Colman in the matter. ABL's involvement arose out of a retainer from Horwath to advise. There were issues as to the scope of the retainer and as to whether ABL was retained in relation to the Melbourne joint venture and the final four syndicates of the Sydney 1998 joint venture. A very large amount of evidence was given as to the role of Aroni Colman, Horwath and ABL both generally and in relation to particular plaintiffs. There was also a deal of evidence concerning Lewski, who gave evidence, both as to his role and on a range of matters concerning the joint ventures from their establishment to subscription. Lewski owned and controlled ACU.
Lewski had a background in accounting and was known to Green. Green informed Lewski of the City Link proposal and asked him to structure the leasing arrangements. One requirement was to establish a positive yield to investors. The scheme had to be packaged so that it was commercially attractive to investors and the lessor and provided a good return for the promoters. Lewski did what was requested and prepared the JVPO document for each joint venture. It was styled as having been prepared by ACU. Under his arrangement with Green, Lewski was not to be involved in connection with the supply or leasing of the plant and equipment or the arranging of the loan funding. Green kept those tasks to himself. Green also prepared the documents which constituted and implemented the joint ventures.
Green and Lewski agreed to split the profits 50/50. It is not now necessary to consider whether, as Lewski claimed and Aroni Colman denied, the basis of the arrangement was a partnership between Lewski and Aroni Colman. Nor is it necessary to detail what Lewski did in the development and marketing of the joint ventures.
According to a chart in each JVPO a company called Australian Property Custodians Pty Ltd (APC) was to be the manager of the joint venture. APC was also owned and controlled by Lewski. It was appointed as manager by the documentation which Green prepared to implement the joint venture.
The same structural chart in the JVPO included provision for a trustee (in the Melbourne joint venture JVPO) or custodian (in the Sydney and Sydney 1998 joint venture JVPOs) which would own and lease the plant and equipment beneficially for the investors as participants in the joint venture. Green gave CLC this role in the scheme documents. CLC was incorporated on 23 April 1997 with Lewski and Green as the directors, Green as secretary, and each of them holding one share. The registered office and place of business of CLC was at the address of Aroni Colman. On 15 May 1998 CLC was ordered to be wound up. Horwath abandoned the claim against CLC.
4. The Claim Against Horwath
Hilip's claim, in common with that of the other plaintiffs, was put against Horwath on two bases: breach of retainer or duty of care and contravention of provisions of the Trade Practices Act 1974 (Cth) (TPA) or the corresponding provisions of the Fair Trading Act 1985 (Vic) (FTA). Each plaintiff engaged Horwath to advise "on accounting, taxation and investment matters touching upon their affairs". Horwath was required to act with reasonable care and skill both pursuant to the retainer and a duty of care. Between about May 1997 and early February 1998 Horwath advised the plaintiffs to enter into the scheme being promoted by ACU, APC or CLC. The plaintiffs relied on the advice to invest but the scheme was a sham and the investments were lost. Horwath was in breach of its retainer or duty of care because it gave the advice without taking reasonable care, and in particular without carrying out appropriate searches and inquiries concerning the scheme and the parties involved in it as a reasonable accountant would have done in the circumstances, or without disclosing or advising as to certain matters concerning the scheme before introducing or recommending it to the plaintiffs. Put generally, that was the direction of the statement of claim on retainer/duty of care.
The statutory claims were based on the contention that in advising the plaintiffs to invest Horwath represented that the scheme in truth existed and was likely to produce the benefits claimed for it in the form of a tax deduction as I have described it, a return to investors of approximately 14% on their investment and that the finance facility would be non-recourse to the investors who would not have to provide a guarantee. There were no reasonable grounds for the representation. The plaintiffs invested in reliance and suffered loss. In the result Horwath contravened s. 52, s. 53(aa), s. 53(c) and s. 53(g) of the TPA and the corresponding provisions of the FTA.
The relief sought was damages at common law or under the TPA/FTA, interest and further or other relief as appropriate pursuant to s. 87 of the TPA or s. 41 of the FTA.
5. Horwath's Defence
By its defence Horwath admitted that it was retained to advise "some" of the plaintiffs on accounting and taxation matters and otherwise denied the wider retainer to advise on investment matters. In particulars Horwath admitted that it was retained by Hilip as a result of the relationship between Hamersfeld and the Bloom Family (see below) and, inter alia, that its retainer was as set out in paragraph 3A of the defence. Paragraph 3A stated that:
"3A.Its retainers with respect to investment advice (with those plaintiffs who were its clients) were limited to:
(a) identifying proposals that had the potential to result in a reduction and/or deferral of tax and informing those plaintiffs of the existence of such proposals;
(b) investigation of such proposals from an accounting point of view, including the preparation of cash flow projections and identifying the expected benefits of the proposals;
(c) obtaining legal advice in relation to such proposals; and
(d) where possible refining or renegotiating such proposals to make them more profitable and/or tax effective."
As to the giving of advice Horwath admitted that: (a) it informed "many" of the plaintiffs of the existence of the investment; (b) it provided "many of those plaintiffs" with cash flow projections and identified to "many of those plaintiffs" the expected benefits of the proposals; and (c) it provided "many of those plaintiffs" with a letter from ABL dated 30 January 1998. In particulars Horwath stated that Hilip was one of the "many" plaintiffs referred to in (a) and (b) above. Horwath's defence otherwise denied that it had advised the plaintiffs to invest in the scheme.
Horwath then denied that its retainer/duty of care included the range of terms or had the scope alleged by the plaintiffs and it further denied the allegation of breach. At that point in the defence Horwath introduced some allegations concerning ABL. It alleged that pursuant to its retainers from plaintiffs Horwath retained ABL to:
"(a)advise Horwath and clients of Horwath in connection with the documentation associated with the proposed investments to be made by the clients of Horwath;
(b)'sign off' on the commercial issues associated with the investment proposals (that is examine the documents and ensure that they were in the commercial interests of Horwath's clients and that it was appropriate for Horwath's clients to sign them); and
(c)review documents and to conduct a due diligence investigation to ensure that all documentation for the syndicates accurately complied with and brought into effect all points of principle provided in the 'Joint Venture Participation Offering' documents."
The defence then referred to a series of acts by ABL; then to the fact that Aroni Colman acted in the transactions for CLC and ACU; then to the undertakings which Aroni Colman gave to Horwath and the plaintiffs who were its clients. It then asserted that Horwath relied on: the JVPO which was given to it by Green; opinions from tax counsel concerning the scheme; advice from ABL; and advice and undertakings in certain letters and documents provided by Aroni Colman. Having referred to those matters Horwath alleged that it was not aware and had no reason to suspect that the scheme was a sham, that it had complied with its obligations under the retainers, and that it took the steps which a reasonable firm of accountants in Horwath's position would have taken. Thus, it had not breached any duty of care.
The defence then denied the plaintiffs' plea of reliance. It specifically alleged that in making its investment Hilip had relied on the advice of Krampel Newman, Joseph Dukes (see at [40] below) and Lewski, and not on any advice received from Horwath.
The defence further alleged that on previous occasions some or all of the plaintiffs had engaged in transactions for the purpose of avoiding or deferring their liability to tax and which transactions had been identified to them by Horwath. On those occasions it had not been retained to make any inquiry to determine whether or not the subject transaction was a sham. This plea did not apply to Hilip because, as Horwath's particulars stated, Hilip had not had prior dealings with Horwath. The defence further denied that any plaintiff had relied on Horwath to advise whether the scheme was a sham.
Then an issue of causation was raised. Horwath alleged that even if it had breached its retainer or duty of care, no such breach caused loss to a plaintiff. It further alleged that the loss was not foreseeable or was too remote to found a cause of action against it.
The defence concluded with a denial of the TPA/FTA claims. If Horwath made a representation as to a future matter it alleged that it had reasonable grounds for doing so.
6. Horwath's Claim Against Krampel Newman
Horwath alleged that Krampel Newman had advised Hilip as to its investments pursuant to a retainer to advise on taxation, accounting and investment matters. In particulars of the advice it is stated, inter alia, that Krampel Newman advised Hamersfeld that the scheme seemed to be okay but there were doubts about Dukes, that on 29 April a cash flow forecast was provided to Hamersfeld, and that after checking the JVPO Hamersfeld was advised that the scheme checked out and was above board. It is alleged that Hilip made its investments in reliance on Krampel Newman's advice, and that in giving the advice Krampel Newman failed to act with the care and skill which a reasonable accountant would have exercised in the circumstances. In essence the allegations as to the terms of the retainer, the scope of the duty of care, and of breach, correspond to those made by the plaintiffs against Horwath. It is also alleged that Krampel Newman represented to Hilip that the scheme in fact existed and was likely to produce the benefits which the plaintiffs alleged had been represented to them by Horwath. These are the benefits I referred to earlier. The scheme being a sham, the representation was false, misleading and deceptive. Krampel Newman had thus engaged in conduct in contravention of s. 11 of the FTA/s. 52 of the TPA.
7. Krampel Newman's Defence
Krampel Newman denied Horwath's claim. Its defence admitted that Hamersfeld: (a) sought accounting and taxation advice on how the scheme, in which he had decided to invest, would affect Hilip's tax position; (b) instructed Krampel Newman to arrange for an investment on 5 June 1997 and to carry out a cash flow analysis of the scheme and do nothing further; (c) on 23 March 1998 consulted Krampel Newman as to whether an investment made on 6 February 1998 should be in the name of Hilip or Moose. Otherwise Krampel Newman denied that it was retained by Hilip to advise. Krampel Newman did not suggest to Hilip that it should consider investing in the scheme but explained how it was intended to operate and affect the client's tax position. Further, Krampel Newman advised Hilip on 23 May that it did not need to invest in the scheme and that it was not in Hilip's interest to do so. Nevertheless Hilip invested. Krampel Newman denied that it stated that the scheme was okay or that it checked out and was above board. Finally, Krampel Newman contended that if it had represented to Hilip that the scheme in truth existed and was likely to produce the benefits claimed for it, the representations concerned a future matter and there were reasonable grounds for making them. Hence Krampel Newman had not contravened the TPA or the FTA. This is sufficient to indicate the direction of Krampel Newman's defence.
8. Issues for Resolution
When the trial concluded a vast array of issues and fact and law required resolution. The great majority of the issues arose in the cases between the plaintiffs and Horwath. One of the issues was whether Hilip's claim should succeed against Horwath. The claim was strenuously denied by Horwath and Krampel Newman's counsel also addressed submissions that Hilip's claim against Horwath should fail. If I were to now consider the merits of Hilip's case against Horwath I would be trespassing into territory that those parties have preferred to close off by settlement. The issues in that territory would go far beyond mere matters of credit concerning the principal witnesses I identified at [3]. It would include issues that related to the cases of other, if not all, of the plaintiffs against Horwath. Some of the issues concern matters of credit and personal reputation, some require conclusions of law based on facts. In my view, to the greatest extent possible, I should not now in this judgment deal with issues that were raised in a claim that has been settled. Accordingly I approach this judgment on the premise that Hilip has succeeded in its claim against Horwath. On that basis the issue is whether, as a matter of liability, Horwath is entitled to succeed in its claim for contribution under the Wrongs Act.
I mentioned earlier that Horwath's pleading of its case against Krampel Newman matched the pleading of the plaintiffs' cases against Horwath. Horwath's pleading adopted and adapted the plaintiffs' pleading for the purpose of pleading the case against Krampel Newman. Essentially the issue thus raised was how Krampel Newman should have acted and advised in the circumstances. I will not now give judgment on the issues raised between the plaintiffs and Horwath as to the manner of Horwath's practice in the area of tax effective investments and the scope of the duties which Horwath owed to plaintiffs. However it is appropriate to note that Krampel Newman's role or practice in this area could not be equated to that of Horwath. Horwath occupied and prided itself on its niche role and speciality practice in the area of tax effective investments. It was not established on the evidence that Krampel Newman had any such role or practice. I mention this in order that the similarity in the pleadings not disguise the fact that in the area of tax effective investments the role and manner of practice of Horwath and Krampel Newman was quite different.
9. The Evidence – The Melbourne Joint Venture
I commence with some remarks concerning the witnesses, of whom Hamersfeld and Same were the most important. Same was the last witness to give evidence at the trial and was not much challenged in cross-examination. His evidence was clear, logical and given in a reasonable manner. I regarded Hamersfeld as an intelligent and honest person but his evidence suffered from imprecision, internal inconsistency and error. Overall I far preferred the evidence of Same. Where there were differences between them I accept the evidence of Same in preference to that given by Hamersfeld. The evidence of Bethune and Amanda Bloom fits into the context provided by the evidence of the other witnesses.
I now refer to the facts and in doing so state the facts as I find them to be except where I indicate the contrary. Hamersfeld said in evidence that he first heard of the investment proposal from two friends, Andrew Rettig and David Miller. He was told something about it and told to refer to Lewski if he wanted more information. He did not know Lewski. In his witness statement Hamersfeld said that as best as he recalled this occurred in late March or early April 1997. I find that it was in late March on or prior to the 26th. That is indicated by the note in Hamersfeld's diary for 26 March which refers to "Norman re Bill Lewski", to Hamersfeld's evidence that the reference to Norman was a reference to Same who he said he spoke to on that day, and to Hamersfeld's facsimile (on Moose letterhead) to Lewski on 27 March in which he referred to a telephone conversation the previous day.
On 26 March Hamersfeld telephoned Lewski and said he was interested in the investment. Lewski described the investment in general terms and asked how much he was interested in investing. Hamersfeld said he was considering about $200,000 to $300,000. Lewski said that if he wanted to take the matter further he should speak to Joseph Dukes of Dukes Financial Services. Hamersfeld's facsimile to Lewski on 27 March provides some clarification of this conversation. In the facsimile Hamersfeld stated his interest as being to invest $125,000 in what he called "Plant and Machinery investment or even 2 units being $250,000". He asked Lewski to advise urgently if anyone pulled out of their investment or if an accountant was looking for another customer. He "would be most interested". Hamersfeld telephoned Dukes and arranged a meeting with a view to obtaining more information about the investment. He asked Same to attend the meeting to hear what Dukes had to say about the investment proposal.
The meeting between Hamersfeld, Dukes and Same took place on 9 April at Hamersfeld's office. Dukes called the investment proposal the CL Joint Venture and described how it operated. He referred to the features of the scheme and the tax and income benefits of an investment. In the course of the discussion Hamersfeld raised the possibility of taking one or two allotments of $125,000. As it transpired Same was aware of the existence of the venture, as his partner Joseph Krampel had advised him he had received correspondence from Lewski in relation to it. That was by a facsimile on 20 March 1997 to which I refer below. At the time of the meeting Same had not seen or reviewed the documentation provided by Lewski and had not discussed it with him. During the meeting Same informed Dukes and Hamersfeld he was aware of the existence of the proposal but that he had not reviewed any documentation in relation to it. In the discussion Same asked Dukes some questions as to how the transaction worked from an accounting point of view. Other than that, I accept Same's evidence that he just listened to what Dukes had to say and what he presented in describing the investment proposal. I also accept Same's evidence that he did not provide any advice to Hamersfeld in relation to the proposal.
When Dukes had left, Hamersfeld and Same discussed the matter. According to Hamersfeld in cross-examination by Horwath's counsel, Same said that the CL Joint Venture seemed to be okay from what he had seen and what had been explained to him, but they each felt a bit nervous about Dukes. Hamersfeld agreed with the suggestion of Horwath's counsel that Same then told him in effect that it looked as if it stacked up but he had doubts about Dukes. In cross-examination Same agreed that he expressed a doubt about Dukes whom he had not previously met. His doubt was simply a feeling about Dukes that was not related to the scheme itself. However Same denied that he had said the joint venture was okay. I accept Same's evidence. In the light of Same's limited knowledge of the scheme it is not likely that he would have given it a favourable professional opinion as by saying it was okay. It should be observed that, when Horwath's counsel asked Same about this evidence of Hamersfeld, he put it in terms that he had told Hamersfeld the joint venture seemed to be okay. That was not an accurate statement of Hamersfeld's evidence as it did not qualify the statement by reference to what Same had seen and heard. If Same said anything to the effect stated by Hamersfeld it could not reasonably have been understood by Hamersfeld as a statement of professional opinion, on appropriate consideration, that the scheme was okay as an investment proposal. It was evident to Hamersfeld, I find, from what Same had said and in all the circumstances, that Same knew far too little about the proposal to provide any such opinion. Furthermore, I accept Same's evidence, the correctness of which is borne out by subsequent events, that in their discussion Hamersfeld asked Same if he knew about the investment, and that Same said that he had heard of it but did not have a lot of detail on it, and that Hamersfeld asked him to see if he could find out more information about it. For the above reasons I reject Hamersfeld's evidence that Same in effect told him it looked as though the scheme "stacked up".
When Same returned to his office he obtained from Krampel a copy of the facsimile the latter had received from Lewski. It was on ACU letterhead and had been sent to Krampel and Same at their firm. The facsimile enclosed "a synopsis of a JV we are syndicating". The synopsis was a single page document headed Key Summary Data and briefly stated the nature and purpose of the CL Joint Venture, the arrangement for finance and the returns. The facsimile advised that if Krampel or Same were interested in discussing the matter further or wanted complete documentation they should contact Lewski. It concluded with a statement that subscriptions "must be undertaken by 30 April".
Pursuant to Hamersfeld's request to obtain information concerning the scheme, Same contacted Lewski who indicated he would provide further information. On Saturday 19 April 1997 Lewski faxed Same a copy of the JVPO for the CL Joint Venture. Same told Hamersfeld he had received the JVPO and sent it to Hamersfeld at his request.
Hamersfeld and Same spoke on 24 April, a Thursday, and met by arrangement that day. Each had read the JVPO. They had a discussion and Hamersfeld requested Same to prepare a cash flow forecast based on the information contained in the JVPO showing the amount of tax that would be payable over the five year period of the investment. In his oral evidence Same seemed to indicate that he was then told to do nothing else. There is support for this in Hamersfeld's evidence. However in his witness statement Same refers to this instruction being given on 28 April. There is no dispute that the instruction was given. The only issue is on which one of those days. I find it was given on 28 April.
Hamersfeld knew that the JVPO was the only written information that Same had which detailed the investment. The Key Summary Data obtained earlier was a page from the JVPO.
Hamersfeld did not dispute that his only instructions to Same were to prepare a cash flow forecast. In his evidence he said that they were his instructions. Hamersfeld said that he wanted to see what the numbers were and whether the investment worked from the tax point of view. He wanted Same to check the JVPO and see "if the sums added up". He said that he "only asked Norman to run a cash flow for me and to generally have an overview of it, that is all I asked him to do". He added: "I only asked Norman to check the documents for what they were, I didn't ask Norman to go and have it checked by further solicitors, or anyone else like that, to get it completely checked out". The reference to "documents" in this evidence was, I find, a reference to the JVPO. I find that Same correctly understood these instructions as meaning that he was to prepare a cash flow projection and that he was not otherwise being asked or expected to undertake wider inquiries into the efficacy of the scheme.
Later on 24 April Same had a cash flow forecast prepared in his office. He reviewed the forecast.
Also on 24 April Same received a facsimile from Dukes Financial Services enclosing a disclaimer and disclosure document for the CL Joint Venture and requesting that the document be signed and returned to Dukes. On Friday 25 April Same sent this material to Hamersfeld with a request that he "ring to discuss".
It is convenient to mention at this stage that in his evidence Hamersfeld said that subsequent to the meeting on 9 April he spoke to Dukes about the investment. His evidence was not precise as to a date or dates when he spoke to Dukes or specific as to what was said. He referred to speaking in April and then later in the year. He also spoke to his friends Rettig and Miller, the latter of whom advised him that his accountant had said there seemed to be something that was not correct with the CL Joint Venture and that he had been advised not to proceed. Hamersfeld said he could not recall what was considered to be incorrect. He said he talked to Lewski and Dukes about it and the fact that he "felt insecure about certain things". He said they did not alleviate his concerns. Hamersfeld was aware that a decision whether to invest had to be made by the end of April.
On 28 April Same and Hamersfeld spoke by telephone. Same advised Hamersfeld of the cash flow forecast and that it showed the investment worked from a tax point of view. Hamersfeld told Same to send him the forecast and do nothing at that stage. Same made a note of the latter instruction. He sent the forecast by facsimile on 29 April. The facsimile asked Hamersfeld to "ring if you wish to discuss this matter further" As mentioned below, Hamersfeld did not contact Same as he decided not to invest.
It is convenient now to deal with an issue of fact arising in Hamersfeld's evidence. In his witness statement Hamersfeld said that he asked Same if he believed the proposal was above board. He said that Same had said it was but that he did not need to invest. Hamersfeld said that he decided not to proceed. It is correct that Hamersfeld decided not to proceed with an investment in the CL Joint Venture and that he made that decision by the end of April. He made this decision after obtaining the cash flow forecast. The more immediate point is whether Same advised that the proposal was above board. Hamersfeld said in evidence that Same said this in mid April, after he had gone through the JVPO. At a later point he said it was "around the time of April". It is to be borne in mind that Same was not asked by Hamersfeld to inquire into the bona fides of the investment and that all he did was respond to certain requests of Hamersfeld who was at the same time making his own inquiries in other quarters. Same impressed me as a careful man alert to his professional responsibilities and the instructions of his client. In my view it is improbable that he advised Hamersfeld that the investment was above board. Of course the expression "above board" is vague and imprecise and might have been Hamersfeld's understanding of Same's advice as to the cash flow forecast, namely, that it showed the investment described in the JVPO appeared to work from the tax point of view. That was all that Hamersfeld had instructed Same to check and he could not reasonably have understood Same to mean more than that. In addition to these considerations Same expressly denied, in polite or understated terms, which was not surprising considering that Hamersfeld remained his client, that he said the venture checked out and was above board. I accept Same's evidence. I further find that the statement as to Hamersfeld not needing the investment was made on 23 May 1997.
Following their conversation on 28 April Hamersfeld and Same did not speak again on the matter until 23 May when they met at Same's office. In the intervening period, by the end of April Hamersfeld had decided, without further reference to Same, not to invest in the CL Joint Venture. Hamersfeld said in evidence that the reasons which led him not to invest were: the rush to decide whether to invest; it was a lot of money; and he was unsure about the investment. In the latter respect he referred to his friend Miller who felt there were issues with the investment. He also referred to the alleged advice from Same that he did not need to go into the investment. In the end it is clear that for reasons that appealed to him, and which were not talked through with Same, Hamersfeld made his own decision not to invest in the CL Joint Venture. His interest in the investment revived when he heard through his wife to be, Natalie Bloom and her father David Barry Bloom, that Horwath was "selling" the investment.
10. The Evidence – The Sydney Joint Venture
Same said in his witness statement, and I accept, that he did not discuss the matter further with Hamersfeld until 23 May 1997 when they met at Krampel Newman's office. The purpose of the meeting was to discuss a number of matters including information relevant to preparation of taxation returns on behalf of Hilip and other companies in which Hamersfeld had an interest. During the meeting Hamersfeld said that he wanted to invest $275,000 in the CL Joint Venture. I shall return to the discussion that then occurred but, before dealing with it, note how it came about that Hamersfeld's interest revived and he came to the determination to invest which he expressed to Same.
Natalie Bloom was a member of the Bloom family which is the family referred to in Horwath's particulars referred to at [26]. In those particulars Horwath admitted it was retained by Hilip as a result of the relationship between Hamersfeld and the Bloom family. Natalie Bloom's father and her uncle Norman Bloom ran a successful business. They had a long established and trusting relationship with Horwath which provided accountancy services to the business. Horwath also acted as accountants for Natalie Bloom and her sister Amanda was a chartered accountant in the employ of Horwath. Hamersfeld was aware of the relationship between the Bloom family and Horwath. Hamersfeld thought the family had a great deal of commercial experience and wisdom.
According to Hamersfeld he mentioned the CL (Sydney) Joint Venture to Natalie Bloom in April 1997 and she advised him against it. In her evidence Natalie Bloom disagreed, saying that she had said not to get involved in schemes but that if Horwath was looking at it Hamersfeld should feel comfortable about going ahead since Horwath would check things thoroughly. Then, Hamersfeld went on, in or around mid to late May she mentioned that Horwath had proposed the investment to her and her father and other clients of Horwath. There was a deal of cross-examination of Hamersfeld and David Bloom in particular as to who Hamersfeld spoke to, and when, and with what request, in pursuance of the interest he developed in investing in the scheme as a result of learning of Horwath's role in promoting it. The cross-examination was directed to the credit of the witnesses concerned as well as to a proper understanding of the process which led Hamersfeld to invest.
In the end it is clear, and I so find, that Hamersfeld became comfortable about investing because Horwath was promoting the investment. In cross-examination he said, and I accept it as correct, that he "was basically finished with it until such time as I heard that Horwath's . . . were actually selling the investment". To pursue the matter he wanted to use his prospective father-in-law as a means of introduction of himself to Horwath. He said that he asked David Bloom to contact Horwath on his behalf. He said that the initial response was that he could not participate. He asked David Bloom to try again. This time the response was that he could only participate if he became a client of Horwath. He said that he would and asked David Bloom to so advise Horwath. It is not now necessary to deal with any differences in the accounts of Hamersfeld and David Bloom. That is because the differences are irrelevant to the fact, as I find it to be, that Hamersfeld had decided to invest when he spoke to him. He was of this view before he spoke to anyone at Horwath. He was looking to invest $300,000.
Hamersfeld made his decision to invest without reference to Same. Nor did he tell Same that as the price of being able to invest he had agreed to become a client of Horwath. What Hamersfeld did was to engage Horwath as a management consultant to review the internal management systems of Moose while otherwise continuing to retain Krampel Newman for accountancy services.
In the period prior to 23 May 1997 Hamersfeld spoke to Amanda Bloom and Bethune concerning the investment. On 23 May Bethune sent to Hamersfeld by facsimile an analysis of an investment in the CL Joint Venture. After receiving it Hamersfeld telephoned Bethune who explained how the investment worked. Either then or in a later discussion with Amanda Bloom, Hamersfeld was told that he could invest $115,000. According to Hamersfeld Bethune said that there was a high demand and he had to invest straight away or he would miss out.
It was late on 23 May that Hamersfeld met with Same. At this time Hamersfeld had decided to invest in the CL Joint Venture and he advised Same he had an interest to invest $275,000. In response Same advised Hamersfeld that the investment over the five year period would only be slightly better than revenue neutral and any deferred tax payments could create serious cash flow difficulties in the future and therefore Hamersfeld did not need to invest in the CL Joint Venture. The basis of Same's comments was the cash flow forecast based on the JVPO for the CL Joint Venture. Hamersfeld indicated that he wished to make the investment in any event and he asked Same to contact Max Green to determine if it was still possible to invest in the CL Joint Venture. Same said he would make inquiries. I find that neither on this or on any other occasion did Same recommend to Hamersfeld that he make the investment. There is evidence of Hamersfeld that he thought Same did not recommend the investment and I find that to have been Hamersfeld's understanding at all times. What Hamersfeld was doing at this time was proceeding on two separate fronts to achieve his desired level of investment. Those fronts were Horwath on the one hand and Same on the other. He did not inform Same or Horwath of his approach to the other. This reflected his determination to make the investment.
Pursuant to Hamersfeld's request Same contacted Lewski to ascertain if it was still possible to invest in the CL Joint Venture. On 3 June 1997 he received a facsimile from Lewski which enclosed an application form and a synopsis for the CL (Sydney) Joint Venture. The synopsis contained the Key Summary Data, presented in the way of the like document for the CL Joint Venture. The facsimile stated that applications would close on or before 6 June. Same attempted to contact Hamersfeld but he was not in. Hamersfeld telephoned on 4 June and Same advised him he had received the application form. Hamersfeld then told Same he had been offered the investment by Horwath.
On 5 June Hamersfeld advised Same he would invest $125,000 pursuant to the allocation obtained by Same, and the application form and cheque were made out and provided to Same who had them forwarded to Aroni Colman on 6 June. Same advised that the investment should be made by Hilip. In seeking an allocation and, having received a favourable response, handling the application form and cheque, Same acted as a conduit for Hamersfeld.
It should be noted that the investment was in the Sydney joint venture in respect of which Same had not seen the JVPO or any other document concerning it except for the one page Key Summary Data. Same had not considered that joint venture or prepared a cash flow forecast concerning it based upon the applicable JVPO or otherwise advised upon it. I also mention that Hamersfeld said that he did not know the investment was different from the Melbourne joint venture. But he also said in evidence that he knew acceptances for that investment closed on 30 April and that what he was looking at in May was not the same as he was looking at in April. This is consistent with advice of Bethune referred to below that he had missed out on the investment. Hamersfeld never sought advice from Same as to the merits or otherwise of the joint ventures in which he actually invested.
At this point I return to what was transpiring between Horwath and Hamersfeld. Bethune said in evidence that following his conversation with Hamersfeld on 23 May Hamersfeld did not advise whether or not he would invest. In the result the CL Joint Venture was "sold out". Bethune told Hamersfeld, who was "quite upset". Hamersfeld did not advise Bethune of the investment made by Krampel Newman.
At some time in June Bethune advised Hamersfeld that there was a further opportunity to invest in another CL Custodian tranche. This was the Sydney joint venture. Hamersfeld said he wanted to invest. This discussion may have been at a meeting on 3 June at which Horwath's future relationship with Hamersfeld was discussed, or in another discussion. Whenever it was, it led to Hamersfeld making the second investment of $115,000 in the Sydney joint venture. The cheque and the application for that investment were dated 5 June but not sent to or received by Horwath until about 25 June 1997. That is consistent with the evidence of Same that in late June Hamersfeld contacted him and advised that Horwath had obtained a further investment of $115,000 for him and asked him to assist in completing the details of the application form. Same was not asked to advise Hamersfeld or Hilip in relation to this investment, and did not do so.
11. The Evidence – The Sydney 1998 Joint Venture
The opportunity to invest in the Sydney 1998 joint venture was brought to Hamersfeld's attention by Bethune in January 1998. In a discussion concerning the investment Bethune said it was a better investment than the previous version and that a further $115,000 investment was available for him. The investment was further discussed at a meeting on or about 30 January 1998 at Hamersfeld's office. Hamersfeld decided to invest $115,000. Accordingly on 5 February 1998 Hamersfeld completed an application form and on the following day signed a cheque for $115,000 and sent both the form and the cheque to Horwath. The cheque was drawn, and the application completed, in the name of Moose on the advice of Bethune.
Following some other correspondence to which reference need not be made, Aroni Colman sent a letter dated 20 March 1988 to Moose care of Horwath which confirmed that the leasing transactions for the CL (Sydney 1998) Joint Venture No. 12 had been settled. Horwath sent this letter to Hamersfeld's office where it came to the attention of his assistant. She contacted Same and advised that another investment had been made in a joint venture. She asked whether Moose was the correct company to be making the investment or whether it should be Hilip. Same advised it should be Hilip and she asked that he contact Aroni Colman to have the name of the investor changed from Moose to Hilip. This was Same's first knowledge of the investment in Sydney 1998 joint venture.
As instructed, Same telephoned Aroni Colman and asked to speak to Green but he was away. He was overseas on the trip from which he would not return. The next day Same spoke to Green's secretary and arranged for the name change. A letter in replacement of the letter dated 20 March was sent by Aroni Colman to Hilip on 24 March. This was the day on or about which Green was found dead.
In addition to the fact that the third investment was made without any reference to or advice from Same, by the time he became aware of it on 23 March the money invested had been stolen.
12. Submissions Assessed in Light of the Evidence
In light of the above facts, as I have found them to be having regard to all of the evidence, I am of the view that Horwath's claim against Krampel Newman must fail. I now further develop the reasons for that conclusion.
I deal first with Horwath's pleading of the case based on a retainer/duty of care. The allegation is that Hilip and companies associated with it retained Krampel Newman to advise them for reward on taxation, accounting and investment matters. The pleading then alleges as terms of the retainer some of the terms which the plaintiffs alleged against Horwath (para. 4(a) and (b) of the statement of claim) and some paragraphs in the plaintiffs' pleading against Horwath in which the plaintiffs alleged certain things which Horwath was required to do by reason of the retainers/duty of care (para. 8(a)-(f)). The effect was, with only limited and for present purposes immaterial exceptions, that Horwath pleaded against Krampel Newman the same retainer/duty of care that the plaintiffs had alleged against it.
In their final submissions counsel for Horwath agreed that Horwath had made the same allegations against Krampel Newman as Hilip had made against Horwath. Counsel submitted that if the Court should find that some or all of these duties were owed by Horwath to Hilip then because of the relationship between Hilip and Krampel Newman the Court should find that the same duties were owed by Krampel Newman to Hilip.
In my view that submission is quite ill-founded. To compare the role and conduct of Horwath and Krampel Newman is not to compare like with like. It would be like comparing chalk and cheese. It was not suggested and it is not the fact that Krampel Newman had a niche or any sort of established role in the accountancy profession in the area of tax effective investments such as that occupied by Horwath. Horwath was proud of its role together with its high wealth individual client base to whom it took tax effective investments which had first passed its high standards as being appropriate to put to its clients generally with a recommendation to invest. Krampel Newman had no such practice, and did not act in any way similar to Horwath in this case. Same never gave the CL scheme the imprimatur of Krampel Newman, never recommended it and never did or said anything in relation to it that could reasonably have led Hamersfeld to believe that he had any particular special knowledge concerning the scheme. It is not necessary to further elaborate on the manner in which Horwath conducted itself in this specialist area of its practice.
In the end it was common ground at the trial that the case of each plaintiff had to be determined on its own facts, and that was self-evidently a correct proposition. And so in this case the issue as to whether Krampel Newman was retained by Hilip in relation to the investments, and, if so, as to the nature and extent of the terms of the retainer or scope of any duty of care must be determined in light of the dealings between Hamersfeld and Same.
In support of their submission that Krampel Newman owed the same duties as Horwath to Hilip, Horwath's counsel referred to the following:
(a) Same was Hilip's ongoing accountant;
(b)when he decided to invest, Hamersfeld "didn't know Horwath from Adam", had not used Horwath professionally and "had no particular reason to think he could trust what they did";
(c)Hamersfeld had been dealing with Same since 9 April 1997, whereas his first contact with Horwath was on 23 May;
(d)in this instance Horwath, like Krampel Newman, did not take the scheme to the investor; and
(e) Hamersfeld was asked to see what else he could find out about the scheme.
Points (a), (d) and (e) are correct. Point (c) is correct with the qualification that the first contact with Horwath was prior to 23 May. Point (b) is accurate only in part. It is correct that Hamersfeld had not used Horwath professionally. But it would convey a false picture to contend that he did not know Horwath from Adam and that he had no particular reason to trust Horwath. In addition to the fact, which counsel acknowledged, that Amanda Bloom worked at Horwath, he was aware of the professional relationship between Horwath and the successful and commercially experienced family into which he was marrying, including the fact that Horwath were his future wife's accountants. The fact that the Bloom family would use Horwath's services, and had done so for a long time, reflected a favourable assessment by that commercially experienced family and the quality and reliability of Horwath's work. The fact that Horwath was promoting the scheme gave him comfort and that feeling of comfort is understandable in the overall context. I reject the submission that Hamersfeld had no particular reason to think he could trust what Horwath did. Hamersfeld's actions and evidence, including the fact that the commercially experienced Bloom family retained Horwath, belie the submission. In my view he did have reason to regard Horwath as trustworthy. I find that he did so regard Horwath and that that was a significant factor in inducing him to decide to invest before he had even spoken to anyone at Horwath.
To conclude on this submission of Horwath's counsel, I do not accept that points (a)-(e) establish that Krampel Newman owed to Hilip the same duties which the plaintiffs alleged Horwath owed to Hilip. I say alleged because the case between Hilip and Horwath has been settled and I make no finding as to the nature and extent of the terms of Horwath's retainer from Hilip or the scope of any duty of care it may have owed Hilip.
In Horwath's statement of claim against Krampel Newman it is alleged that Krampel Newman was required by the terms of its retainer from Hilip to:
(a) exercise reasonable care when advising Hilip;
(b) act with the utmost good faith and in the best interests of Hilip;
(c)carry out the searches, inquiries and investigations that a reasonable accountant would carry out to satisfy itself of the soundness, benefits and risks of the scheme and the commercial validity of the assumptions on which it was based before suggesting that Hilip consider investing in the scheme;
(d)further or alternatively to that, carry out the searches, inquiries and investigations that a reasonable accountant would carry out to satisfy itself that: CLC had procured the finance facility, the finance facility would be non-recourse to the investors and no guarantee would be required by an investor, CLC had acquired or arranged to acquire the plant and equipment, and each investor would be entitled to the immediate 100% tax deduction and 14% return on investment claimed for it;
(e)provide advice to Hilip in relation to the scheme and in particular as to whether it was a sound investment;
(f)refrain from recommending participation in the scheme unless and until the full extent of the risks associated with the scheme had been explained to Hilip; and
(g)critically evaluate and test the soundness of the financial calculations in relation to the scheme upon which Hilip was asked to rely.
These are terms of wide obligation and a question immediately arises as to how they could be implied in light of the dealings which in fact occurred between Hamersfeld and Same.
Horwath's pleading then alleged that pursuant to the retainer in or about June 1997 and/or in early 1998 Krampel Newman gave Hilip advice in relation to its investment in the scheme. In particulars of this plea there is a chronological reference to the involvement of Krampel Newman. In relation to the first two investments the references commence on 26 March and conclude in late June 1997. As to advice given to Hilip the particulars identify the following matters which I referred to earlier: that Same advised that the scheme seemed to be okay; that he provided a cash flow forecast; and that after checking the JVPO he told Hamersfeld the scheme checked out and was above board. In a later paragraph it is alleged that Krampel Newman made all of the arrangements with Aroni Colman in relation to the investment of $125,000 in June 1997. I do not repeat the discussion and findings concerning these matters. In relation to the third investment the only reference stated is to the discussion on 23 March 1998 as to transferring the investment to the name of Hilip.
The pleading then alleged that Hilip made its investments in reliance on the advice of Krampel Newman. It is alleged that Krampel Newman knew, or should have foreseen, that Hilip would rely on its advice in deciding whether to invest and that in the circumstances Krampel Newman owed Hilip a duty to act with reasonable care in acting for and advising Hilip.
It is then alleged that in breach of the retainer/duty of care Krampel Newman failed to fulfil its obligations under the terms of retainer referred to in points (a), (c)-(f) and (g) in [78] above.
Horwath then claimed that Hilip lost its investment as a result of Krampel Newman's breach.
Finally, in relation to the claim of a contravention of the TPA/FTA it is alleged that by giving the advice referred to above Krampel Newman represented "that the scheme in truth existed and was likely to produce the benefits to Hilip of the kind described" (that is, non-recourse to investors with no investor guarantee, immediate 100% tax deduction and 14% return on investment). The scheme being a sham, the representations were false, misleading and deceptive and Krampel Newman had engaged in conduct in contravention of s. 52 of the TPA and s. 11 of the FTA. Hilip's loss was caused by the representations because, as Horwath alleged, in deciding to invest Hilip had relied on the accuracy of the representations.
These are the bases on which Horwath alleged that Krampel Newman was liable to Hilip in respect to its lost investments, and which constituted the bases of the claim for contribution or indemnity under the Wrongs Act.
13. Conclusions
I turn then to the issues concerning the retainer/duty of care. In my view Horwath's case fails at every turn on the facts.
The issue of the retainer raises the question as to Hamersfeld's instructions to Same and as to what Same should have done, acting reasonably, in response to those instructions. The first step is that Same attended the meeting on 9 April at Hamersfeld's request to hear what Dukes had to say about an investment proposal that Hamersfeld had become aware of. At this time Same was aware of the existence of the proposal but had not reviewed any documentation concerning it. He stated this at the meeting. At the meeting all he knew was what he heard Dukes say. I do not repeat the discussion and the facts which I have found concerning this meeting and the discussion between Hamersfeld and Same which followed the meeting. The fact is that Same gave no advice to Hamersfeld in relation to the scheme. In any event, I find that in the circumstances Hamersfeld could not reasonably have considered that any comment by Same in that discussion was an informed opinion favourable of the investment proposal. I should add that Same impressed me as an intelligent person sensitive to his responsibility in acting as an accountant for a client. It will be recalled that in particulars of the allegation that Krampel Newman gave advice it was stated that Same had said that the scheme seemed to be okay. I have found that he did not do so.
The next step is that Hamersfeld asked Same to see if he could find out more information about the investment, which Same agreed to do. The obvious starting point was Lewski, and the obvious information for him to supply was the JVPO because it was the offering document. The one page Key Summary Data was the first page of the JVPO. This meant that, for the first time, Same had the offering document. This enabled Same to give consideration to the investment, but at this stage he had no further instructions from Hamersfeld. For this purpose and to enable Hamersfeld to read it and form his own view, he gave the JVPO to Hamersfeld. Hamersfeld knew that this was the only written information Same had. The result was that on 24 April, with subscriptions apparently to close on 30 April, Hamersfeld asked Same to do a cash flow analysis of the investment. This could be done, and Hamersfeld expected it to be done, on the basis of the information in the JVPO. The request was understandable and a logical way in which to proceed. It was also the limit of Same's instructions. Hamersfeld was an intelligent person who well understood what he was instructing Same to do and that Same would rely on the JVPO to produce the forecast. It is not to be forgotten that throughout Hamersfeld talked to other persons about the scheme and thereby ascertained information and developed his attitude concerning it.
Then, on 28 April Same advised Hamersfeld of the cash flow forecast. Hamersfeld asked for a copy and told Same to do nothing further at that stage.
It is useful at this point to note the evidence of Hamersfeld that he considered that he had in effect asked Same if he recommended the investment and that Same had not recommended it. I accept that evidence.
It was not suggested that the cash flow forecast was incorrect. It was responsive to Hamersefeld's instructions. Having provided the forecast Same had completed the specific task Hamersfeld had asked him to undertake. Not only was that the limit of his instructions but his instructions were to do nothing further. I repeat my earlier finding that Same did not say to Hamersfeld that the scheme was above board or that it "stacked up" or "checked out". That Same did not say these things is consistent with him not having recommended the investment, and Hamersfeld's understanding that he had not done so.
Then, within a short time Hamersfeld decided, for his own reasons and without further reference to Same, that he would not invest. He decided to let the matter go.
When Hamersfeld next raised the CL matter with Same on 23 May 1997 he had already decided to invest in the scheme if he could get an allocation. He arrived at this decision without further reference to Same, let alone seeking advice from him concerning the scheme or the wisdom of investing in it.
In his evidence Hamersfeld referred to speaking to Krampel Newman on a daily basis and speaking to Same about the possibility of investing through to and including 5 June 1997. I do not accept this evidence if it was meant to convey that Hamersfeld spoke to Same on the CL matter "on a daily basis" or at all between 28 April and 23 May 1997. If the evidence was intended to carry that meaning it was false (unwittingly I think) and suffered from a looseness of recollection and generality of expression that was evident in some other parts of Hamersfeld's evidence. This is also the case with Hamersfeld's evidence that he consulted Same on all three of his investments and had detailed discussions with him about it. In truth, I find, Hamersfeld had some references to Same as I have mentioned previously. Subsequent to 23 May they were directed to having Same obtain an allocation and fulfil what was really a machinery role in effecting Hamersfeld's investments. Hamersfeld put the position correctly when he agreed in cross-examination that Same's role in relation to Hilip's investments "was a purely mechanical one in terms of filling out forms and so forth".
The only instruction to Same on 23 May was to contact Green to see if Hamersfeld could still invest in the CL Joint Venture. At this point Hamersfeld had decided he wished to invest and he was using Same, not as a professional adviser, but rather as an instrument for obtaining an allocation. Hamersfeld could have made the approach himself but he used Same because, I find, he considered that would increase his chance of success. In no way did he seek or desire to obtain from Same professional advice as an accountant in relation to the investment. Nevertheless he received it on 23 May, because what Same told him amounted, in effect, to advice not to make the investment. But, being already of the view to invest, Hamersfeld instructed Same to seek an allocation.
At no subsequent time did Same express a contrary view to that provided to Hamersfeld on 23 May. Nor did Hamersfeld ask for his view or seek advice as to whether to invest. Nor did Same recommend the investment. Hamersfeld continued in his determination to invest and Same, acting exactly as he was instructed to do, obtained the $125,000 allocation and performed the machinery functions referred to above to carry Hamersfeld's determination into effect.
In my view it is quite fanciful in these circumstances to contend, as Horwath did borrowing the idea from the plaintiffs' pleading of their case against Horwath, that throughout these times Krampel Newman was under a retainer of the breadth pleaded. This is not the case of an accountant locating a tax effective scheme, subjecting it to checks and then taking it to a client with a recommendation to invest. This is a case of an accountant acting properly and in logical way in accordance with his instructions, who did not locate the investment or give it his imprimatur and whose client, having considered the information he had been requested to provide, determined not to invest. Moreover, against the contention that notwithstanding the terms of the client's instructions, Same was under some over-riding obligation to undertake searches, inquiries and investigations into the scheme, is the fact that Hamersfeld told Same to do nothing further than the cash flow forecast. At no earlier point in time could it be held that Same was under a duty to make searches and inquiries into the scheme of the nature and breadth contended for. I reject the submission that in the circumstances Same, as a reasonable accountant, should have undertaken such searches and inquiries. Further, Hamersfeld correctly understood that Same had not recommended the investment. He understood that Same had performed the tasks he had been requested to perform. At this point on 29 April Same had performed his work under the retainer and awaited any further instructions.
Then, Hamersfeld made his decision not to invest followed by a decision to invest. But the latter decision was made, and the June investments were made, contrary to Same's advice and without seeking advice or action from Same other than the mechanical role of obtaining an allocation and implementing the investments.
I add a finding that Hamersfeld was well aware of matters such as due diligence inquiries. He deliberately did not ask Same to undertake the sort of checks and investigations that a due diligence inquiry would entail. Same would have been acting outside his instructions to undertake such an inquiry and incur the costs and expenses of doing so. In cross-examination Same said that he did not refer to a due diligence inquiry or further investigation when Hamersfeld asked him to prepare a cash flow forecast and when he told him to do nothing else. He said that it was his practice when advising a client on the acquisition of a business to either undertake a due diligence inquiry or raise the need for it with the client. Horwath sought to rely on this evidence as indicating a failure to take reasonable care in advising Hilip. In the first place however the CL investment was not the acquisition of a business. Secondly, Hamersfeld, being well aware of matters such as due diligence inquiries, deliberately limited Same's instructions.
A further point to mention is that the June investments were made in the Sydney joint venture. Same's cash flow exercise was prepared from the JVPO for the Melbourne joint venture. Same received the Key Summary Data page for the Sydney joint venture but he never had the JVPO from which it came. That is a reflection of the fact that he was never asked to advise upon it.
As far as the Sydney 1998 joint venture is concerned the case is even more stark. Same was not aware of the investment until well after Hamersfeld had made it and hence he never had the relevant JVPO or any other document which offered or described the investment. Put simply, Same was ignored on the making of the third investment. The making of the investment followed Hamersfeld's earlier decision to invest. He did not change his view that it was a good investment. Hence he ignored Same in the sense that he did not refer the making of it to him let alone seek any advice as to whether it should be made. There was no retainer, no advice, no reliance, and the money had been stolen before Same was aware the investment had been made.
For the above reasons the claim that Krampel Newman was in breach of its retainer or duty of care to Hilip fails. I should perhaps say, so that it is clear, that I approach the case with the understanding of the relationship between the implied term of reasonable care in a contract of professional services and a duty of care under the law of negligence that is provided by the judgment of Gleeson CJ, McHugh, Gummow and Hayne JJ in Astley v Austrust Ltd (1999) 197 CLR 1. While it is accepted that an action may be brought for professional negligence in both contract and tort, their Honours point out that the contract defines the relationship of the parties (at 22). It follows, as was stated in Astley and in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, that the duty of care arising under the law of tort may be limited or excluded by the parties' contract, either by express agreement or inconsistency with the terms of the contract. Krampel Newman's retainer in respect of the Melbourne joint venture was clear, limited and duly performed. I do not accept that in the light of that retainer and in the circumstances as I have found them to be, Same was required by the law of tort (or the retainer) to undertake searches and inquiries of the nature and extent contended for by Horwath. In my view Hamersfeld was a knowing client who understood what Same was doing in accordance with his instructions and who was aware of the limited nature of those instructions. Deliberately, he never gave Same a general direction to investigate the scheme. Same's work was followed by Hamersfeld's decision not to invest. Subsequently Hamersfeld changed his mind and decided to invest, regardless of Same's advice, and Same's subsequent instructions in the matter were limited to seeking an allocation and implementing Hamersfeld's decisions. Same did what he was asked to do. Deliberately, Hamersfeld did not ask Same to investigate the scheme or advise upon the Sydney joint venture. Then, Hamersfeld made the third investment without any reference at all to Same; hence there was no retainer at all. In the circumstances Same acted with reasonable care and skill in performing the tasks he was retained to undertake. He did not ascertain that the scheme was not bona fide and did not exist. Deliberately, Hamersfeld never asked him to make such inquiries. He specifically told him to do no more than prepare a cash flow forecast for the Melbourne joint venture and sought no analysis or advice in relation to the subsequent joint ventures beyond the discussion on 23 May 1997 in which Same told him in effect not to invest.
In these circumstances I am of the view that the wider case pleaded as to terms of the retainer/scope of a duty of care, and of the giving of advice, must fail.
The next point in the case is the assertion that in making the investments Hilip relied on "the advice" of Krampel Newman. I refer to the previous discussion. The allegation fails on the facts. Even if it could be said that Hamersfeld was justified in considering that the cash flow forecast applied to the joint ventures in which he invested, and that he did so consider and rely on the forecast in investing, the fact is that the forecast was accurate and that Hamersfeld had told Same to do nothing further than prepare that forecast. Further, Hamersfeld understood Same to have not recommended investment and on 23 May he effectively advised against it. For his own pre-determined reasons, relying on factors other than the cash flow forecast for the Melbourne joint venture, Hamersfeld decided to invest. It is significant that initially following receipt of the cash flow forecast Hamersfeld had determined not to invest. In other words the forecast, and any accompanying advice from Same, did not lead Hamersfeld to invest. He decided not to invest for several reasons that appealed to him. In other words, although the cash flow forecast bore out that the numbers worked, Hamersfeld decided not to invest. Not long after, for reasons unconnected to the forecast, and without any reference to Same, Hamersfeld decided to invest. At that point the forecast was but one part in an overall context of information which Hamersfeld had obtained from a number of sources. But the critical factor in changing his mind and deciding to invest was Horwath's involvement in the family and business context referred to. That was the factor which caused Hamersfeld to invest. In any event, as I have mentioned, the forecast was all that Same was relevantly asked to do and it was accurate. In no practical or common sense way could it be said to have been causative of Hilip's loss.
The final aspect of the case is that based on an alleged contravention of the TPA/FTA. This fails at the threshold because Same did not represent that the scheme in truth existed and was likely to produce the benefits claim for it. All that he did was produce the cash flow forecast on the basis of the JVPO. He was instructed to do nothing further. That is, and Hamersfeld appreciated this, he was not to check into the scheme or have others such as solicitors do so. Hamersfeld knew that all Same would do, and all that he did, was produce a forecast on the basis of what was stated in the JVPO.
For all these reasons Krampel Newman would not if sued have been liable to Hilip as alleged by Horwath. Horwath's claim pursuant to Part IV of the Wrongs Act will be dismissed.
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