Financial Wisdom Ltd v Newman

SUPREME COURT OF VICTORIA

COURT OF APPEAL

No. 2066 of 2000

FINANCIAL WISDOM LIMITED
	Appellant
v.
DALE NEWMAN & ORS	Respondents

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JUDGES:	EAMES and NETTLE, JJ.A. and WILLIAMS, A.J.A.
WHERE HELD:	MELBOURNE
DATES OF HEARING:	21 and 23 March 2005
DATE OF JUDGMENT:	10 May 2005
MEDIUM NEUTRAL CITATION:	[2005] VSCA 110

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COMPANIES – Securities industry – Liability of principal for representative’s conduct – Conduct engaged in for one of several principals – Presumption that conduct engaged in as representative of some person among indemnifying principals – Whether third party a party to the proceeding - Whether proved for purposes of proceeding that representative engaged in conduct as representative of some person and who that person was – Corporations Law, ss.77, 92, 93, 94, 817, 818, 819 and 820.

APPEAL – Practice and procedure – Parties – Joinder – Whether third party able on appeal to be joined as defendant – Whether non-party able on appeal to be joined or treated as defendant – Amendment – Raising new point not taken below.

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APPEARANCES:	Counsel	Solicitors
For the Appellant	Mr J.H. Karkar, Q.C. with Mr M. Garner	Freehills
For the Respondent	Dr C. Pannam, Q.C. with Mr B. Quinn	Corrs Chambers Westgarth
For Twenty-First Australia Inc.	Mr M. Moshinsky	Aitken, Walker & Strachan

EAMES, J.A.
NETTLE, J.A.:
WILLIAMS, A.J.A.:

This appeal arises out of two proceedings instituted in the Commercial and Equity Division by plaintiffs who invested in tax advantaged investment schemes marketed in the names of Pamacorp and Sentinel. The principal issue is the meaning of Division 4 of Part 7.3 and in particular s.819 of the Corporations Law. At relevant times s.819 provided that:

“819. (1) This section applies where:
(a) at a time when a person (in this section called the ‘representative’) is a representative of only one person (in this section called the ‘indemnifying principal’) or of 2 or more persons (in this section called the ‘indemnifying principals’), the representative, whether within or outside this jurisdiction:
(i) engages in particular conduct; or
(ii)proposes, or represents that the representative proposes, to engage in particular conduct;

(b)another person (in this section called the ‘client’) does, or omits to do, a particular act, whether within or outside this jurisdiction, because the client believes at a particular time in good faith that the representative engaged in, or proposes to engage in, as the case may be, that conduct:
(i) on behalf of some person (in this section called the ‘assumed principal’) whether or not identified, or identifiable, at that time by the client; and
(ii)in connection with a securities business or investment advice business carried on by the assumed principal; and

(c)it is reasonable to expect that a person in the client's circumstances would so believe and would do, or omit to do, as the case may be, that act because of that belief; whether or not that conduct is or would be within the scope of the representative's employment by, or authority from, any person.

(2) If:
(a) subparagraph (1) (a) (i) applies; or
(b)subparagraph (1) (a) (ii) applies and the representative engages in that conduct;

then, for the purposes of a proceeding in a court:
(c)as between the indemnifying principal and the client or a person claiming through the client, the indemnifying principal is liable; or

(d)as between any of the indemnifying principals and the client or a person claiming through the client, each of the indemnifying principals is liable;

as the case may be, in respect of that conduct in the same manner, and to the same extent, as if he, she or it had engaged in it.
(3)Without limiting the generality of subsection (2), the indemnifying principal, or each of the indemnifying principals, as the case may be, is liable to pay damages to the client in respect of any loss or damage that the client suffers as a result of doing, or omitting to do, as the case may be, the act referred to in paragraph (1) (b).

(3A) Subsection (3) does not apply unless:
(a)the conduct was engaged in, the proposed conduct would have been engaged in, or the representation was made, in this jurisdiction; or

(b)the act referred to in paragraph (1) (b) was done, or would have been done, as the case may be, in this jurisdiction; or
(c)some or all of the loss or damage was suffered in this jurisdiction.

(4) If:
(a) there are 2 or more indemnifying principals;
(b) 2 or more of them are parties (in this subsection called the ‘indemnifying parties’) to a proceeding in a court;
(c) it is proved for the purposes of the proceeding:
(i)that the representative engaged in that conduct as a representative of some person; and
(ii)who that person is; and

(d) that person is among the indemnifying parties;

subsections (2) and (3) do not apply, for the purposes of the proceeding, in relation to the indemnifying parties other than that person.[1]”

[1] “Securities“ are defined in s.92 as including debentures, stocks or bonds issued or proposed to be issued by a government or an authority of a government, shares in, debentures of a body corporate, interests in managed investment schemes, units in such schemes and option contracts within the meaning of Chapter 7 of the Law but excluding a futures contract or an excluded security. A “securities business” is defined in s.93 as a business of dealing in securities and an “investment advice business” is defined in s.77, in relation to a person, as meaning a business of advising other persons about securities or a business in the course of which the person publishes a securities report. “A representative” is defined in s.9 as including a “securities representative,” and a “securities representative” is in turn defined in s.94(1) as a person who is employed by or who acts for or by arrangement with another person in connection with a securities business or investment advice business carried on by the other person. Section 94(2) in effect deems a person to be a “securities representative” of securities licensee if the person holds a proper authority from the securities licensee and deems a person to be a “securities representative” of another person if the first mentioned person holds an invalid securities authority from the other person. Section 94(3) provides that a person does an act, or engages in conduct, as a securities representative of another person if, and only if, the first-mentioned person does the act, or engages in the conduct in connection with a securities business or investment advice business carries on by the other person; while the first-mentioned person is a securities representative of the other person; as employee or agent of, or otherwise on behalf or, on account of, or for the benefit of, the other person; and otherwise than in the course of work of a kind ordinarily done by accountants, clerks or cashiers.

The trial judge construed the section to mean that a licensed principal is liable to a client for the conduct of a person holding the principal’s proper authority if the client reasonably believes at the time of the conduct that the representative is acting on behalf of some person (whether or not identified or licensed) carrying on a securities or investment advice business. On that basis his Honour held the appellant liable to a number of the investors for conduct engaged in by representatives, Healey, Quarrell, Schimana and Hughes in connexion with the investment schemes. The appellant contends that judge was wrong to hold that the section applied to the facts of the case.

History of the litigation

As will later be seen, there is some significance in the way in which the two proceedings evolved and were tried at the same time before the same judge. The first proceeding, No.2066 of 2000 (“the Financial Wisdom proceeding”) was instituted in 2000 by a number of plaintiffs, including Messrs. Newman, Duncan and Collins, against Pamacorp Holdings Pty Ltd (“Hold”) (as first defendant), Pamacorp Securities Pty Ltd (“Ambridge”) (as second defendant), Financial Wisdom Ltd (“Financial Wisdom”) (as third defendant), Twenty-First Australia Inc (“Twenty-First”) (as fourth defendant) and Barkworth Management Limited (“Barkworth”) (as fifth defendant). Hence to begin with, both Hold and Ambridge were defendants to the proceeding.

Subsequently, Barkworth (by summons dated 16 March 2001), Hold and Ambridge (by summons dated 9 May 2001) and Twenty-First (by summons filed in May 2001) applied to the Master for orders that the claims against them be struck out on grounds of improper joinder. The plaintiffs countered with an application (by summons dated 12 June 2001) for orders pursuant to rule 9.02(b) that Hold, Ambridge, Financial Wisdom and Twenty-First be or remain joined as defendants. The Master ordered that the statement of claim be struck out but with leave to the firstnamed plaintiff to file and serve an amended statement of claim. He further ordered that the proceeding against all defendants except the defendants to the firstnamed plaintiff’s claims be dismissed.

On appeal on 17 August 2001, and upon an undertaking by Hold and Ambridge (in effect not to plead an Anshun estoppel in any subsequent proceedings)[2], the trial judge refused the plaintiffs leave to join Hold and Ambridge and ordered that all allegations and claims against Ambridge and Hold be struck out and their names deleted from the title to the proceeding. His Honour provided however that the plaintiffs should be at liberty to institute a second proceeding against Ambridge and Hold in which to assert their claims against them.
[2]The terms of the undertaking were recorded in the order under the heading “Other Matters” as follows:
“... that, if leave to join them in this proceeding was refused, they would not object to their joinder in one new proceeding brought by the Plaintiffs who sue them in this proceeding in respect of the same allegations and claims made against them in this proceeding ...”

In his ruling the judge noted that the parties had put forward a number of other options for case management of the claims. For example, Financial Wisdom had submitted that the preferable approach would be a separate proceeding in respect of each investment scheme the subject of proceeding 2066 of 2000, with the result that each party involved in each scheme would be a party to the relevant proceeding. But his Honour concluded that:

“[A] more satisfactory, efficient and natural grouping… would result in two proceedings. … In the first such proceeding there would be joined 61 plaintiffs suing [Hold and Ambridge] in relation to five schemes. In the second such proceeding there would be joined 169 plaintiffs suing [Financial Wisdom and Twenty-First, [Financial Wisdom] … in relation to 11 schemes and [Twenty-First] … in relation to nine schemes…”

The intention was that the plaintiffs should continue the Financial Wisdom proceeding against Financial Wisdom and Twenty-First (with respect to Pamacorp and Sentinel schemes) and institute a new proceeding, proceeding 7702 of 2001 (“the Pamacorp proceeding”) against Hold and Ambridge (with respect to Pamacorp schemes alone).

In his ruling the judge also mentioned submissions made by Financial Wisdom and Twenty-First that because their involvement was restricted to only some of the schemes it would be oppressive and unfair for them to be subjected to a trial involving numerous plaintiffs and many other schemes . But his Honour said that “I think that judicial management can alleviate any unfairness to [Financial Wisdom and Twenty-First Australia Inc] … such that they would be not materially worse off in one proceeding than they would be in two or more proceedings...” [3].
[3]It may be noted that Financial Wisdom and Twenty-First Australia Inc had not at that stage anticipated or submitted to the judge that they could be prejudiced in the application of s.819 if Ambridge or Hold were not made defendants to both proceedings.

Consistently with the orders of 17 August 2001, the Pamacorp proceeding was instituted on 24 September 2001 and in their statement of claim of that date the plaintiffs (including Newman, Collins and Duncan) reiterated the claims against Ambridge and Hold which had been struck out of the Financial Wisdom proceeding.

On 7 February 2002, the trial judge ordered that the two proceedings be managed in conjunction with one another.

On 21 June 2002, the plaintiffs sought orders that a number of selected plaintiffs be nominated to cover every scheme in both proceedings and that those plaintiffs’ claims be advanced at the one time at the one hearing with the remaining claims held back for the time being. On that occasion counsel for the plaintiffs submitted that:

“The ten plaintiffs that we will identify will, we believe, cover every legal issue which is common to the parties in the two actions and will cover every scheme which gave rise to one or other of the actions and we would say if this were a representative proceeding, that they would then govern the outcome for all the plaintiffs, subject to individual matters such as reliance and loss.
Because this is not a representative proceeding, it follows that the ten test plaintiffs will not, as a matter of law, govern the outcome, although as a matter of practicality they may well do.”

As it appears, the issue was put over to be dealt with on another day and was next mentioned on 27 November 2002. On that occasion counsel for the plaintiffs told the judge that:

“…we’re seeking orders in respect of both proceedings which [are] essentially parallel orders treating both the proceedings as the one, so whatever happens today is relevant to both [the solicitor for Hold] and my friend [counsel for Financial Wisdom]”.

On 21 March 2003, the trial judge ordered accordingly that the claims of the selected plaintiffs in the Financial Wisdom proceeding (including Newman, Duncan and Collins) be heard at the same time as the claims of the selected plaintiffs (namely, Newman, Duncan and Collins) in the Pamacorp proceeding.

Meanwhile, on 21 November 2002 Financial Wisdom had filed a defence in the Financial Wisdom proceeding in which it invoked s.819(4) of the Corporations Law. The way in which it was put at that stage was limited to a contention that it was not reasonable to expect that a person in the circumstances of any of the plaintiffs would have believed in good faith that the Lucky Country Representations were made on behalf of Financial Wisdom, and that there was no basis to suggest that Financial Wisdom was involved in the particular Fund or Scheme.

Three months later that changed. On 5 March 2003 Financial Wisdom joined Ambridge as a third party to the Financial Wisdom proceeding and in its third party statement of claim it alleged that although Quarrell had held a proper authority from Financial Wisdom, he had also held a proper authority from Ambridge, and that he had engaged in the relevant conduct solely as representative of Ambridge; with the result under s.819(4) that Ambridge alone was liable.

Thus for the first time was identified one of the more significant arguments dealt with at trial and which is central to this appeal. Curiously, it was not sought to amend the defence, perhaps because it was thought that the defence as pleaded was in terms broad enough to encompass the new argument. But the trial judge’s reasons for judgment show that the argument was put at trial in defence of the plaintiffs’ claims.

The meaning of s.819

The trial of the claims of the selected plaintiffs (including Newman, Duncan and Collins) in the Financial Wisdom proceeding was heard with the trial of the claims of the selected plaintiffs (namely, Newman, Duncan and Collins) in the Pamacorp proceeding on 5-6, 11-14, 18-21 August 2003 and 3-4 September 2003 and judgment was given in favour of the plaintiffs in both proceedings on 29 June 2004.

The judge’s reasoning as to the application of s.819 was that :

“The key requirement of s.819, for present purposes, is the requirement of s.819(1)(b) that a particular plaintiff did or omitted to do a particular relevant act because the plaintiff believed that the representative engaged in his conduct on behalf of ‘some person’ in connection with a securities or investment advice business carried on by that person. In other words, for the purposes of the case against Financial Wisdom, each plaintiff has to prove that he or she made the investment because the plaintiff believed that Quarrell (or another representative of Financial Wisdom) made his recommendation or other representation (or otherwise relevantly conducted himself) on behalf of some person, whether or not identified, in connection with a securities or investment advice business.”

The appellant contends that his Honour’s reasoning ignores the distinction between cases in which a client acts because of a belief that a representative is engaging in particular conduct on behalf of an identified or identifiable assumed principal, and situations where the client acts because of a belief that the representative is engaging in particular conduct on behalf of an unidentified or unidentifiable assumed principal. Whereas the judge held the section to be capable of application to a principal for whom the representative was not acting, and for whom the principal did not believe that the representative was acting, and despite that the client believed that the representative was acting for an identified or identifiable principal other than the appellant, the appellant contends that upon its proper construction the section is incapable of application to a principal for whom a representative is not acting unless the client entered into the relevant transaction in the belief that the representative was acting for that principal or for an unidentified or unidentifiable principal not excluding the principal.

The section does not refer in terms to the distinction for which the appellant contends. But according to the appellant, the provision is sufficiently ambiguous to warrant recourse to extrinsic materials and it is said that they show that the provision is confined to two discernible areas of operation. The appellant says that the first occurs where a client acts because he or she believes in good faith and reasonably that the representative is engaging in particular conduct on behalf of an identified or identifiable assumed principal in connexion with a securities business or investment advice business carried on by that identified or identifiable assumed principal, and the identified or identifiable assumed principal is an “indemnifying principal” (scil. at the time the relevant conduct is engaged in, the representative is in fact a representative of that identified or identifiable assumed principal). The appellant argues that it is not liable in that sense, because on the facts as found below none of the clients believed that any of the representatives was acting as a representative of the appellant.

The second is said to exist where a client acts because he or she believes in good faith and reasonably that a representative is engaging in particular conduct on behalf of an unidentified or unidentifiable assumed principal in connexion with a securities business or investment advice business carried on by the unidentified or unidentifiable assumed principal, in circumstances where at the time the relevant conduct is engaged in the representative is in fact a representative of one or more indemnifying principals (in which event each of the indemnifying principals is jointly and severally liable in respect of the conduct of the representative, unless the conditions of s.819(4) are satisfied). The appellant argues that it is not liable in that sense because the evidence below was that none of the clients acted in the belief that any of the representatives was acting on behalf of an unidentified or unidentified principal. To the contrary, it is said, they believed that the representatives were acting in relation to the several investment schemes on behalf of either Hold or Pamacorp.

Section 819(1)(b) means what it says

We do not consider that s.819(1)(b) is ambiguous. With respect, we agree with the trial judge that the plain and ordinary meaning of the section is that it applies wherever a representative is a representative of one or more indemnifying principals and the client does or omits to do a relevant act because the client believes in good faith and reasonably that the representative is engaging in conduct on behalf of “some person…whether or not identified or identifiable at the time”. As the section is drafted, and subject to s.819(4), it is beside the point that the representative may not be acting on behalf of one or some of the indemnifying principals or that the client may believe that the representative is not acting on behalf of one or some of the indemnifying principals. It is enough that the client believe that the representative is acting on behalf of “some person” whether or not identified or identifiable. It is only where a case can be brought within s.819(4) that any exception applies.

Furthermore, insofar as it is appropriate to have regard to the extrinsic materials[4], they appear to us to confirm that the result was intended. The Explanatory Memorandum to the Corporations Bill 1988 describes clause 819(1) of the Bill as follows:
[4]Interpretation of Legislation Act 1984, s.35(b); Mills v Meeking (1990) 169 CLR 214 at 235; Catlow v Accident Compensation Commission (1989) 167 CLR 543 at 549.

“2497. This is a new provision.
2498. This clause applies where the following 3 elements are satisfied:
(a)a person is a representative (defined in sub-cls. 94(1) and (2) of one or more principals and engages or proposes to engage in particular ‘eligible securities conduct’ (see definition in cl.9);
(b)the client does or omits to do an act because the client believes in good faith that the representative engaged in or proposes to engage in that conduct on behalf of a principal and in connection with a securities business or investment advice business carried on by the principal; and
(c)it is reasonable for the client to have that belief and to do or omit to do the act in question because of that belief (sub-cl. 819(1))

2499.It does not matter that the conduct of the representative may be outside the scope of the representative’s employment by, or authority from, the principal.
2500. Where this clause applies, and the representative has engaged in the particular conduct then the principals of the representative are liable in respect of the conduct of the representative as if they had engaged in the conduct themselves (sub-cl. 819(2)).
2501. The liability of principals under this clause includes a liability to pay damages to the client in respect of any loss or damage that the client suffers as a result of doing or omitting to do an act in reliance on the conduct of the representative (sub-cl. 819(3)).
2502. If during proceedings the identity of the principal on whose behalf the representative acted can be established, and the identified principal is a party to the proceedings, then only the identified principal will be liable in respect of the conduct of the representative (sub-cl. 819(4))”.

The appellant argues that so to interpret s.819(1)(b) would be productive of absurd, capricious or irrational results, which it says are properly to be avoided by construing the section purposively: as confined to the two areas of operation outlined above. We do not accept that contention. It might have had some substance if there were no let-out from the reach of ss.819(2) and (3). For, unless subject to some sort of qualification, they are capable of subjecting a disinterested principal to liability to a client who knew that the principal was not involved. But s.819(4) provides precisely aimed alleviation from liability where its conditions are satisfied. Hence, as it appears to us, the plain and ordinary meaning of ss.819(1), (2) and (3) is to subject all indemnifying principals to liability unless the conditions of s.819(4) are met. And the explanatory memorandum seems to bear that out. In the circumstances, we see no room for further and less precisely defined qualifications based upon subjective notions of purposive construction.

Section 819(4)

The appellant next argues that even if s.819(1)(b) does apply to the facts of the case, the trial judge was in error in holding that the conditions of s.819(4) were not satisfied in relation to the representative Quarrell. The appellant accepts that Quarrell held proper authorities from the appellant as well as from Ambridge, but in the appellant’s submission it was established that Quarrell had acted in relation to some of the transactions as representative only of Ambridge. Thus it is said to follow that liability under ss.819(2) and (3) in relation to those transactions attached only to Ambridge.

The trial judge rejected that analysis for two reasons:

· First, his Honour took the view that, although Ambridge was a third party to the proceeding, it was not a party to the proceeding within the meaning of the section.

· Secondly, his Honour said that he was not satisfied that Quarrell was acting as representative of Ambridge.

The appellant submits that the judge was wrong on both counts.
A third party is a party to the proceeding

As to whether Ambridge was a party to the proceeding within the meaning of the section, the judge reasoned as follows:

“226.A difficulty facing this alternative argument is that Pamacorp Securities is not a party in the Financial Wisdom proceeding unless the word ‘party’ includes a Third Party. Pamacorp Securities is not a defendant in the Financial Wisdom proceeding, but there is a Third Party proceeding by Financial Wisdom against Pamacorp Securities (commenced by Third Party Notice dated 5 March 2003). The plaintiffs submitted that the words ‘a proceeding’ were confined in the context of the Corporations Law to claims which were directly made by one party against another.[5] It was further submitted that the primary meaning of the term was the invocation of the Court's jurisdiction by some person against another.[6] The plaintiffs submitted that the Third Party proceeding was a separate proceeding[7] - the plaintiffs were not ‘proceeding’ against Pamacorp Securities nor was it ‘proceeding’ against the plaintiffs. Financial Wisdom had not sought to have Pamacorp Securities added as a defendant. It was submitted on behalf of Financial Wisdom in answer that it was sufficient for the purposes of s.819(4) if all relevant parties were before the Court in a proceeding, but that, in any event, ‘you can always join a Third Party as a defendant if required’. However, I note that no such application was made. I prefer the submissions of the plaintiffs. For the reasons advanced by them, which I adopt, Pamacorp Securities is not a party to the relevant proceeding.”

[5]Reference was made to ss.1005(4), 1318(1), 1323(1)(c), 1325(1) and (3), 1335(1) and 1336A of the Corporations Law.

[6]Reference was made to Cheney v Spooner [1929] 41 CLR 532 at 536-537, per Isaacs and Gavan-Duffy, JJ., 538-9 per Starke, J.; Re Herbert Berry [1977] 1 WLR 1437, 1446, per Lord Simon.

[7]Reference was made to MacAllister v The Bishop of Rochester (1880) 5 CPD 194 and Boral Resources (Vic) Pty Ltd v Robak Engineering and Construction Pty Ltd [1999] 2 VR 507.

We have reached a different view. According to ordinary conceptions, a third party is a party to the principal proceeding and, although there might be circumstances in which the idea of a “party to the principal proceeding” would be regarded as confined to plaintiffs and defendants, the implications in other provisions of the Law are that it is not so confined in s.819(4). As a matter of policy or perceived legislative purpose of the section, there is also good reason to conclude that “party” in s.819(4) includes a third party. There is too a judgment of Heerey, J. of the Federal Court of Australia[8] in which his Honour reasoned that “party” in s.819 does include a third party[9], and we bear in mind that s.819 is part of a trans-national legislative scheme.[10]
[8]AMP Financial Planning Pty Ltd v CGU Insurance Ltd (2004) 13 ANZ Ins Cas 61-624; [2004] FCA 1330.
[9]Ibid. at [99].
[10]Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 492.

Rule 11.04(1) of the General Rules of Procedure in Civil Proceedings 1986 provides that a third party joined as a third party “shall become a party to the proceeding.” That rule derives from s.8(3) of the Judicature Act 1883 (which traces back to s.24(3) of the Judicature Act 1873) and exists in one or other form in England and in the rules of court of each Australian state and territory. It has been uniformly interpreted as having the effect that a third party becomes a party to the proceeding. Thus, for example, in England in BarclaysBank v Tom[11], Scrutton, L.J. spoke of a third party “as a party to the proceedings.” Similarly, in South Australia, in Roufos Jewellers of Adelaide Pty Ltd v Malltown Pty Ltd[12], Wells, J. held that a contribution notice could be issued by a defendant against a third party joined to the action by another defendant, on the basis that the third party was “already a party to the action.” His Honour regarded it as important that the South Australian rules of court elsewhere referred to the “plaintiff” and “defendant” and concluded that the expression “party to the action” was intended as a conception of broader content. More recently, the New South Wales Court of Appeal held in Sandtara Pty Ltd v Abigroup Ltd[13] that a third party is a party to the proceeding between plaintiff and defendant and is thus bound by the decision between plaintiff and defendant. The court, comprised of Gleeson, C.J. and Meagher and Handley, JJ.A., said in a joint judgment that:
[11][1923] 1 KB 221 at 224.
[12](1980) 27 SASR 270 at 271-2.
[13](1997) 42 NSWLR 5.

“In these circumstances we prefer to decide this appeal on a narrower ground. The earlier proceedings commenced with a claim by Sandtara for rent against Abigroup as guarantor. Cenrin was not a party, and not being a privy of Abigroup, on ordinary res judicata principles, it would not have been bound by or entitled to the benefit of any res judicata estoppel flowing from a judgment in those proceedings. A principal debtor does not claim through or under the guarantor and is not a privy of the guarantor for present purposes. See generally Ramsay v Pigram (1967) 118 CLR 271 at 279.
This situation changed when Abigroup cross-claimed against Cenrin. The cross-claim was authorised by s 78 of the Supreme Court Act which provides, so far as relevant:
(1) ... the court may grant to the defendant in any proceedings (in this section called the first proceedings) all such relief against any person as the court might grant against that person if the person were a defendant in separate proceedings commenced by the defendant for that purpose.
...
(4) Subject to the Rules, a person against whom relief is claimed under this section:
(a) shall, if not a party to the first proceedings, become a party to the first proceedings; and

...
Accordingly when Abigroup cross-claimed against Cenrin, the latter ‘became a party to the first proceedings’. Section 78 can be traced through the Law Reform (Miscellaneous Provisions) Act s 3 to s 24 (3) of the Judicature Act 1873 . The nature and purpose of third party proceedings authorised by the latter provision were explained in Barclays Bank v Tom [1923] 1 KB 221 by Scrutton LJ at 223-4 as follows:
‘... it is important to keep clearly in mind what the third party procedure is. The plaintiff has a claim against the defendant. The defendant thinks if he is liable he has a claim against the third party. With that matter between the defendant and the third party the plaintiff has obviously nothing to do. He is not concerned with the question whether the defendant has a remedy against somebody else. His remedy is against the defendant. But the defendant is much interested in getting the third party bound by the result of the trial between the plaintiff and himself, for otherwise he might be at a great disadvantage if, having fought the case against the plaintiff and lost, he had then to fight the case against the third party possibly on different materials, with the risk that a different result might be arrived at. The object of the third party procedure is then in the first place to get the third party bound by the decision between the plaintiff and the defendant ....’ (Emphasis supplied)

This passage was followed in Standen v G H Varley Ltd (1956) 56 SR (NSW) 346 at 348. A third party bound by the decision between the plaintiff and the defendant must also be entitled to rely on it because res judicata estoppels are mutual: see Ramsay v Pigram (1968) 118 CLR 271 at 276; Reg v Humphrys [1977] AC 1 at 20, 33; Hunter v Chief Constable [1982] AC 529 at 540-1.
Cenrin cannot rely on res judicata based on merger of the cause of action because no judgment was given against it on the cause of action for rent. However, as a party to the earlier proceedings, it can rely on issue estoppels flowing from that judgment, which include an estoppel as to the amount of rent due up to 31 August 1992…”.

The trial judge did not refer to those cases but instead to Boral Resources (Vic) Pty Ld v Robak Engineering and Construction Pty Ltd[14]. His Honour treated it as supporting the idea that a third party is not party to the principal proceeding. In our opinion that is not so. Boral was concerned with s.131 of the Building Act 1993, which directs the court to give judgment against “each defendant to [the] action who is found to be jointly and severally liable for damages for such proportion of the total amount of damages as the court considers to be just and equitable having regard to the extent of that defendant’s responsibility for the loss and damage”.[15] It was held that a third party was not a “defendant” for the purposes of that section. The case does not deal with the question of whether a third party is a party.
[14][1999] 2 VR 507.
[15]Emphasis added.

The trial judge also mentioned the decision of the English Court of Appeal in Edison & Swan United Electric Light Company v Holland[16]. But in our opinion that case does not take the matter any further. It was held there that the court had no jurisdiction to give judgment in favour of the plaintiff against third parties, because third parties were not defendants. In effect it was the same point as was made by the New South Wales Court of Appeal in Sandtara before that court went on to hold that a third party is nonetheless a party to the principal proceeding and as such bound as a matter of issue estoppel by the determination of issues between plaintiff and defendant.
[16](1889) 41 Ch D 28.

The trial judge accepted too a submission of the plaintiffs that terms used in ss.1005(4), 1318(1) and 1323(1) of the Corporations Law imply that “a proceeding” in s.819(4)(b) is a proceeding as between plaintiff (client) and defendant (misfeasor) as opposed to a third party proceeding. But we do not think that is so either. It is true that the reference to “proceeding” in each of the identified provisions is a reference to a proceeding as between plaintiff and defendant. Section 1005(4) provides that: “In a proceeding under this Part…it is a defence if it is proved…” and there follow certain things. Section 1318(1) provides that: “If, in any civil proceeding against a person to whom this section applies for negligence, default, breach of trust or breach of duty in a capacity as such a person, it appears to the court …that …the person ought fairly to be excused…” it may do so. Section 1323(1)(c) provides that where: “(c) a civil proceeding has been begun against a person under this Law;” the court may make certain orders. But it does not follow that “parties to a proceeding” in s.819(4) excludes a third party.

As has already been noticed, according to general conceptions a third party becomes a party to the proceeding as between plaintiff and defendant and, as has already been mentioned, there are a number of provisions of the Law which imply that where legal terms are employed in the Law they are used advisedly; as indeed one would expect in legislation of this kind.[17] For example, s.1005(4) refers to “the defendant” as opposed to a party to the proceeding. Similarly, s.1335(1) speaks of “the costs of the defendant” as opposed to the costs of a party. In our opinion, if it had been intended to confine s.819(4) to a defendant or defendants, it is very likely that s.819(4) would have referred to “a defendant,” as opposed to “a party to the proceeding”, in the same fashion as s.1005(4) and 1335(1). The fact that it did not do so makes this a fairly strong case of expressio unius est exclusio alterius or expressum facit tacitum cessare, despite the limitations of that sort of reasoning.[18]
[17]Pearce & Geddes, Statutory Interpretation in Australia, 6^th Ed. at [4.11] and [4.12].
[18] Anthony Horden and Sons Ltd v The Amalgamated Clothing and Allied Trades Union of Australia (1932) 47 CLR 1 at 7; R v Wallis; Ex parte Employers Association of Wool Selling Brokers (1949) 78 CLR 529 at 550; Houssein v The Under Secretary, Department of Industrial Relations and Technology (NSW) (1982) 148 CLR 88 at 94, referring to Saunders v Evans (1861) 8 HL Cas 721 at 729, 11 ER 611 at 615; O'Sullivan v Farrer (1989) 168 CLR 210 at 214-216; Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 575; PMT Partners Pty Ltd (In Liq) v Australian National Parks and Wildlife Service (1995) 184 CLR 301 at 311-312; Ousley v The Queen (1997) 192 CLR 69 at 111.

Turning then to the policy or purpose of s.819(4), the scheme of the section is plainly enough to allow an innocent principal to escape liability if the true culprit is brought before the court in the proceeding and is proved in the proceeding to be the true culprit. That being so, we think it unlikely that Parliament intended to make the innocent principal’s position depend upon the whim of the plaintiff as to whether or not to join the true culprit as a defendant or even upon the defendant’s chances of persuading the court at an interlocutory stage of the proceeding that the true culprit should be joined as a defendant to the proceeding. Justice and common sense dictate that an innocent principal should be permitted to defend a claim by pleading that liability rests with the true culprit, and by joining the true culprit as a third party to ensure that the true culprit is bound by the court’s determination on that issue (just as the third party was held to be bound in Sandtara). Plaintiffs might wish it were otherwise, for once a defendant joins a third party, a plaintiff will have to face up to the problem of whether it is necessary or desirable to join the third party as a defendant and assert a claim against it, whether in substitution for or in the alternative to the claim first asserted against the innocent principal. In such circumstances, the plaintiff will face the dilemma that if the plaintiff does not take the step of joining the third party as a defendant, the plaintiff will be at risk of missing out altogether and, if the plaintiff does join the third party as a defendant, but fails to establish a claim against the added defendant, the plaintiff will be at risk for the added defendant’s costs. That, however, is not a reason to construe s.819(4) as not applying to third parties. Plaintiffs in general civil litigation are every day faced with the quandary of whether to persist in a claim against an original defendant or join a third party as an additional or substituted defendant. So far as we can see there is nothing about a proceeding under s.819, and nothing has been suggested, which stands out in principle or policy as entitling a s.819 plaintiff in that respect to a more favoured position than plaintiffs in other proceedings.

There is then the judgment in AMP Financial Planning Pty Ltd v CGU Insurance Ltd[19] to which we earlier referred. In that case Heerey, J. was concerned with a question of whether a settlement into which a licensed securities dealer (AMPFP) had entered with investors was a reasonable settlement for the purposes of a claim for indemnity under a policy of insurance with CGU. As his Honour put it, the question was “whether AMPFP would be liable if the Investors were to bring actions against it”. Ultimately he held that it was unnecessary to decide the question (because of the terms of the policy cover), and his Honour said that if it were necessary to decide he would not consider that the settlements were reasonable. Importantly for present purposes, however, Heerey, J. made the following observations about s.819:

“[98]… Central to this case therefore, including, amongst other things, the issues as to the reasonableness of the Settlements and the liability of CGU to provide indemnity for unpaid claims, is the question whether AMPFP would be liable if the Investors were to bring actions against it. In assessing the potential liability of AMPFP in such hypothetical and notional actions the possible defences which AMPFP might raise are plainly relevant. Indeed the potential defences under s 819(4) seem just as relevant as the potential liabilities under s 819(2).
[99]It is sufficient for the purposes of s 819(4) that the indemnifying principals are (or, in the present context, would be) parties to the proceeding. The section would equally apply where an indemnifying principal is a party because it has been joined as a third party. MAG could be so joined although leave would be necessary since it is in liquidation. In any event, MAG could be joined as a defendant, which would overcome the difficulty Mandie J found in dealing with a similar argument in Newman at [225]-[226]. I would observe that the policy behind s 819(4) seems to be to mitigate to some extent the Draconian rigour of s 819, which creates liability whether or not the wrongdoer was the agent of the ‘indemnifying principal’ and whether or not the client had even heard of the indemnifying principal in relation to the impugned conduct. At least where what might be termed the ‘real’ principal is before the court, it seems reasonable that it alone should bear the burden, and s 819(4) has that effect. And this appears to be so irrespective of the solvency of the ‘real’ principal.”[20]

[19](2004) 13 ANZ Ins Cas 61-624; [2004] FCA 1330.

[20]Emphasis added.

We agree with Heerey, J. that “It is sufficient for the purposes of s.819(4) that the indemnifying principals are…parties to the proceeding” and that “The section would equally apply where an indemnifying principal is a party because it has been joined as a third party.” We also agree with Heerey, J. that the policy of the section is that where what might be termed the “real” principal is before the court, it is reasonable that it alone should bear the burden; and that the section has that effect. We do not overlook that his Honour’s observations concerning s.819(4) were strictly speaking obiter, and that his Honour chose not to reject out of hand the possibility that “party” is confined to defendant. But if we may say so, the obiter is surely reasoned and his Honour’s ambivalence appears as more likely the product of judicial courtesy than any doubt about the rectitude of his conclusion that a third party is a party for the purposes of the section.

The respondents’ s.819 argument

The respondents argue that whether or not “party” includes a third party, the only parties who stand to be relieved of liability under s.819(4) are “indemnifying parties” and that, in the context in which it appears, the expression “indemnifying parties” is confined to defendants to proceedings instituted by clients. As we apprehend the argument it proceeds by the following steps:

· First, that in s.819(2) the words “for the purposes of a proceeding in court” mean a proceeding instituted by a client against an indemnifying principal;

· Secondly, that the same words have the same meaning in s.819(4);

· Thirdly, that the conception of “indemnifying parties” to such a proceeding can only be of parties who are liable to indemnify the client in the proceeding; and

· Fourthly, since a party to a proceeding can only be liable to a client in a proceeding instituted by the client if the party is a defendant to the proceeding, it must follow that “indemnifying parties” is limited to defendants.

There is some sense in that. It is likely that a “proceeding in court” of the kind referred to in s.819(2) will be a proceeding instituted by a client against one or more indemnifying principals. Although it is conceivable that an indemnifying principal might institute a pre-emptive proceeding against the client and other indemnifying principals for a declaration of right that another or others of the indemnifying principals alone are liable[21], the practical difficulties that such a proceeding would entail make it an unlikely possibility. As Latham, C.J. said in Hume v Monro (No2)[22]:

“…The procedure enabling a court to make declarations of right without consequential relief is not to be used to enable a person who thinks that another person may make some kind of claim against him to make that person a defendant to proceedings for a declaration, so as to fix upon him the responsibility of supporting some claim which he may or may not determine to make: see In re Clay; Clay v. Booth.[23] In an action for a declaration that a right alleged to be claimed by the defendant does not exist the onus rests upon the plaintiff of establishing first that a claim sufficiently definite and intelligible in its terms to be a proper subject of adjudication has been made against him by the defendant. …Next, the plaintiff seeking a declaration denying any possible foundation for the alleged claim of right must exhaust the possibilities and show that the claim cannot possibly be supported. It is not for the defendant in such a proceeding to make a claim and to justify that claim.”[24]

[21]Russian Commercial and Industrial Bank v British Bank for Foreign Trade Ltd [1921] 2 AC 438 at 448; Forster v Jododex Aust. Pty Ltd (1972) 127 CLR 421 at 435; Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 581-2; cf. Bass v Permanent Trustee Co LtdCo Ltd (1999) 198 CLR 334 at 355[45]-[49].

[22](1943) 67 CLR 461 at 474.

[23][1919] 1 Ch. 66.

[24]But cf. Oil Basins Ltd v The Commonwealth (1993) 178 CLR 643 at 649.

There is a weakness in the argument, however, which comes at the third step, in the weight which it places upon the expression “indemnifying parties” and in particular upon the adjective “indemnifying”. Ultimately it depends on acceptance of the proposition that Parliament must have intended to include in “indemnifying parties” only those indemnifying principals who are liable to the plaintiff as defendants to the proceeding.

We do not consider that that proposition should be accepted. Such significance as might otherwise be attached to a legislative denotation of a party as an indemnifying party is in our opinion eradicated in the case of s.819(4) by the artificiality of the sub-section and the arbitrariness with which principals not liable as defendants are elsewhere in s.819 denoted as indemnifying principals. That is not to suggest that the section is illogical or capricious in describing principals and parties as indemnifying principals and indemnifying parties. To the contrary, the adjective appears to have been chosen to signify principals and parties potentially liable to indemnify the client. But the several instances in which it appears in conjunction with persons whom Parliament plainly contemplates may not be so liable, let alone joined as defendants to a proceeding, in our opinion renders untenable the significance which the respondents would attach to it.

Joinder of Ambridge as a defendant

The appellant presented an alternative argument that if “party” in s.819(4) does not include a third party, and if it were not open or appropriate to treat Ambridge as a party, the court should now join Ambridge as a defendant and thus as a “party” pursuant to Rule 9.06(b)(ii). As it happens, it is unnecessary to decide whether that is so.

This court has all of the powers of the Trial Division[25] in matters which are before it. Consequently, we do not doubt that this court would have power in an appropriate case to join a third party as a defendant pursuant to Rule 9.06(b)(ii). The decision in Boral Resources v Robak Engineering[26] demonstrates the breadth of the power to ensure the determination of any question arising out of or relating to or connected with any claim in the proceeding which it is just and convenient to determine as between the party to be joined and the parties to the proceeding. Consequently, if we had not reached the view that “party” in s.819(4) includes a third party, and if the appellant had established that the result of the case management orders was a denial of natural justice or procedural fairness, one way in which to deal with the problem might have been to join the third party as a defendant for the purposes of the appeal. But whether that would have been the appropriate thing to do would have depended upon a consideration of all of the circumstances, and in particular upon whether the adoption of that course would or might result in injustice to the respondents. As we say, in the events which have occurred, the question does not arise.
[25]Supreme Court Act 1986, s.10.
[26][1999] 2 VR 507.

Treating Ambridge and Hold as defendants

The appellant presented three further alternative arguments to the effect that even if Ambridge were not a party to the proceeding strictly so called, it should in all the circumstances be treated as a party, and that the same approach should also be taken with respect to Hold. So far as Ambridge is concerned, those arguments are made moot by our conclusion that a third party is a party to the proceeding. So far as Hold is concerned, we think that the arguments should be rejected.

(i) The meaning of ”party” argument

The first was based on the definition of “party” in s.3 of the Supreme Court Act 1986[27] and the decision of the High Court in Knight v FP Special Assets Ltd[28]. It was contended that “a party” as so defined is not limited to a party on the record but may include what the courts have sometimes called the “real party.” It was submitted that it ought be concluded that s.819(4) of the Corporations Law refers to “party” in the same extended sense. We do not accept that contention.
[27]“Party” is there defined as including “every person served with notice of or attending any proceeding whether named on the record or not”.
[28](1992) 174 CLR 178.

Plainly, “party” is defined in s.3 of the Supreme Court Act so as to include a range of persons not party on the record. Equally, we acknowledge that the courts have long exercised a jurisdiction to make certain kinds of orders, particularly costs orders, against persons who are parties only in that extended sense. The history of the jurisdiction is recounted in the joint judgment of Mason, C.J. and Deane, J. in Knight. In the past a costs order could be made against a ”the real party to the suit” in ejectment proceedings, in relator actions, by someone interested in an estate who unnecessarily attended on the taking of accounts and thereby occasioned additional costs and directors of a company who unsuccessfully petitioned for the appointment of an administrator, among others. But today the jurisdiction is broader. As Mason, C.J. and Deane, J. stated in Knight:

”Having regard to the variety and the nature of the circumstances in which an order for costs was made against a person who was not a party according to the record, we cannot accept that there was before the Judicature Acts a general rule that there was no jurisdiction to order costs against a non-party in the strict sense. It is plain enough that the courts from time to time awarded costs against a person who, not being a party on the record, was considered to be the ‘real party’. It may be that these cases are capable of being explained on various grounds, including the ground that the non-party ordered to pay costs was guilty of abuse of process, taking a very broad view of what constitutes an abuse of process, but to say that does not deny that there was jurisdiction to make an order for costs against a non-party even if the jurisdiction was exercised in limited circumstances only.
Against this background, it is impossible to construe the wide and general words of O.54 r.1 and its successor O.91 r.1[29] as delimiting the jurisdiction to order payment of costs as one which was and is confined to parties to the proceedings. The language of the rule is quite inapt to give expression to the complex course of judicial decisions at common law and in equity before the Judicature Acts. Moreover, the extended concept of ‘party’[30], including as it does a variety of persons on whom notice of proceedings is served, makes it inappropriate to introduce a limitation which was applied at a time when the concept of ‘party’ related to a person on the record of the proceedings. It is preferable to interpret the words of the rule according to their natural and ordinary meaning as conferring a grant of jurisdiction to order costs not limited to parties on the record and ensure that the jurisdiction is exercised responsibly.”[31]

[29]Order 91, r.1 of the Queensland Supreme Court Rules, which provided that:

[30]See footnote 29.

[31](1992) 174 C.L.R. 178 at 189-190.

But for present purposes all of that is really beside the point. The question under s.819(4) of the Corporations Law is not whether a “real party to the suit” is a “party” within the meaning of s.3 of the Supreme Court Act. The question is whether such an entity is a “party to the proceeding”. The gravamen of Knight and cases like it is that a costs order may be made against a “party” within the meaning of provisions like s.3 of the Supreme Court Act despite that such a party may not be “a party to the proceeding.” The distinction is illustrated in the speech of Lord Goff in Aiden Shipping Co. Ltd v Interbulk Ltd[32], (to which Mason, C.J. and Deane, J. referred with approval in Knight). His Lordship said:
[32][1986] AC 965.

“That word [party] has been defined both in the Act of 1925 and in the Act of 1981. In the former Act, a party is defined as including ‘every person served with notice of or attending any proceeding, although not named on the record’ (see section 225); in the latter Act, a party, in relation to any proceedings, is defined as including:
‘any person who pursuant to or by virtue of Rules of court or any other statutory provision has been served with notice of, or has intervened in, those proceedings’ (see section 1515(1))

Both definitions are expressed not to be applicable if the context otherwise requires. It is plain, therefore, that, in the relevant statutes, the word ‘party’ has been given a technical meaning. It has moreover been changed in the Act of 1981; and, since it includes a person upon whom notice of the relevant proceedings has been served pursuant to or by virtue of rules of court or any other statutory provision, it is so wide that it scarcely seems to provide an apt criterion upon which to found a limitation upon the jurisdiction to award costs. In any event, had the legislature thought it right to limit the jurisdiction under section 51 (1) of the Act of 1981 [to award costs] in this way, it would have been very easy to achieve such a result by drafting the concluding words of the subsection as follows:
‘… and the court shall have full power to determine by which party to the proceedings and to what extent the costs are to be paid.’”[33]

[33]ibid at 977-8. The emphasis is original.

So far from suggesting that a “party to the proceeding” has a meaning equivalent to “party” in s.3 of the Supreme Court Act, the implication for the purposes of s.819(4) is that Parliament chose the expression “party to the proceeding” advisedly, with the intention that it should be given the meaning that it is given in the case law.

(ii) The two proceedings were heard together argument

The next argument was that because both proceedings were heard together and the evidence in one was treated as evidence in the other[34], there was in effect but one proceeding to which all participants were party. That is not so. An order that two proceedings be heard together is not the same as a consolidation order and the parties to one of the proceedings do not become party to the other unless there is a consolidation order. That was the point of the cases on costs which preceded Aiden Shipping[35]. It was considered that a costs order could not be made in favour of one of the successful parties to one of the proceedings against an unsuccessful party to the other proceeding, for the very reason that the successful party was not party to the other proceeding. The House of Lords overcame the problem by holding that the power to order costs in a proceeding was not limited to orders against or in favour of a party to the proceeding. It was not suggested that it was possible to treat a non-party as a party to the proceeding.
[34]There was no order to that effect but it is common ground that that is the way in which the matter was dealt with.
[35]Forbes-Smith v Forbes-Smith [1901] P 258 at 265; John Fairfax & Sons Pty Ltd v E C de Witt & Co (Australia) Pty Ltd [1958] 1 QB 323 at 329.

(iii) The case management orders argument

The third and final argument on the point was that because Ambridge and Hold were removed as defendants to the Financial Wisdom proceeding on the express basis that their removal would not render Financial Wisdom materially worse off in one proceeding than it would have been in two or more proceedings[36], justice and fairness required that Ambridge and Hold be treated as if they were defendants to the Financial Wisdom proceeding. The appellant contended that if there had been a separate proceeding in respect of each scheme Ambridge and Hold would unquestionably have been “parties . . . to a proceeding in a court” for the purposes of s.819(4)(b). It follows it was said that it would be unjust and unfair not to treat Ambridge and Hold as having been at all times parties to the proceeding.
[36]See paragraph 24 of his Honour’s reasons for judgment dated 29 June 2004.

The short answer to that point is that we do not consider that we have the power to treat a non-party as a party to the proceeding. That was the nub of the decision in Edison & Swan United Electric Light Company v Holland, to which we earlier referred, and whatever injustice might or might not be created by case management orders in a particular case, we do not think it can provide a source of power to do that for which there is no power. Generally speaking a court has no jurisdiction over any person other than those properly brought before it as a party or as a person treated as if they were a party under statutory jurisdiction or a person coming in and submitting to the jurisdiction of their own free will to the extent to which they do submit. There is no jurisdiction to make an order against a person not so before it merely because an order made or to be made may or will be ineffectual without it.[37]
[37]Brydges v Brydges and Wood [1909] P 187 at 191; Tedeschi v Legal Services Commissioner (1997) 43 NSWLR 20 at 30 at 31, 37 and 40.

That does not mean that a litigant who has suffered injustice by reason of case management orders is necessarily without remedy on appeal. If a litigant is led by judicial case management decisions to forgo rights or otherwise to change position upon the faith of an assurance that the litigant’s position will not be prejudiced, and it is prejudiced, the litigant’s option is to appeal for a new trial on the ground that it has been denied procedural fairness or natural justice.[38] But of course the likelihood of success in such an appeal will depend upon an assessment of all of the facts and circumstances and their ultimate effect. And in case it matters we do not consider that the appellant was caused any injustice by reason of the case management orders.
[38]Jones v National Coal Board [1957] 2 QB 55 at 67; Stead v State Government Insurance Commission (1986) 161 CLR 141 at 145-6; Mahon v Air New Zealand Ltd. [1984] AC 808 at 821; Re Refugee Review Tribunal; Ex parte Aala (2000) 204 CLR 82 at 115 [78], per Gaudron and Gummow, JJ at 121 [100] – [103], per McHugh, J. and at 153 [211] –[216], per Callinan, J.; Applicant NAFF of 2002 v Minister for Immigration and Multicultural and Indigenous Affairs (2004) 79 ALJR 397.

It is true that the trial judge said that he considered that the orders would not prejudice the appellant. But, as has been seen, the prejudice of which his Honour was speaking was prejudice the result of having to participate in a trial concerning a multiplicity of claims (in only some of which the appellant was interested) as opposed to participating in a number of smaller trials relating only to claims in which the appellant was interested. It was not suggested, for at that point it had not been considered, that the appellant would be affected detrimentally under s.819. And when the s.819(4) point was considered, it is apparent that the appellant dealt with the problem by joining Ambridge as a third party to the proceeding. It could just as well also have joined Hold as a third party. But it chose not to do so because, as counsel[39] frankly conceded, the view was taken that it was the licensed Ambridge and not the unlicensed Hold on whose behalf Quarrell engaged in the relevant conduct. If therefore the appellant has suffered any prejudice by reason of the case management orders, it is prejudice which it could have chosen to avoid but which it chose not to avoid. In the end such if any prejudice as it has suffered is the result only of its own assessment of the facts and of how best to conduct its case below. For reasons to which we shall return, we see no basis in that for a new trial or indeed any other orders calculated to give the appellant a right in respect of Hold.
[39]Who was not counsel at the trial.

Was Quarrell acting as a representative of Ambridge?

In order to attract the protection of s.819(4) the appellant had to establish not only that Ambridge was a party but also that Quarrell engaged in the relevant conduct as a representative of Ambridge. The trial judge held that he was not satisfied that Quarrell engaged in the relevant conduct as a representative of Ambridge. As his Honour put it:

“227.It was also submitted on behalf of the plaintiffs that Financial Wisdom had failed to prove that any of the relevant representatives were acting ‘as a’ representative of Pamacorp Securities. On the contrary, the plaintiffs submitted, such evidence as there was indicated that the relevant representatives were acting as representatives of Pamacorp Holdings and not Pamacorp Securities. Although they held proper authorities from Pamacorp Securities, the business in which they were employed was conducted by Pamacorp Holdings. There is considerable evidence supporting this submission. On the other hand, there is some evidence which Financial Wisdom adduced from Healy that Pamacorp Securities was ‘marketing’ the relevant investments. I am not satisfied on the evidence as a whole that any of the relevant representatives were acting as representatives of Pamacorp Securities. The failure to add Pamacorp Securities as a defendant highlights the point that this issue was not properly raised for determination and, perhaps, shows why it is appropriate to interpret the words ‘parties...to a proceeding’ in the strict sense.
228.It is convenient here to note that I cannot locate any submission, written or oral, on behalf of Financial Wisdom in relation to the relief sought in the Third Party proceeding. This matter may require some attention.”

The appellant contends that the judge’s analysis overlooks the effect of s.820 and is against the evidence and the weight of the evidence.

Section 820

At relevant times, s.820 provided that:

“820.(1) Where it is proved, for the purposes of a proceeding in a court, that a person (in this subsection called the ‘representative’) engaged in particular conduct, whether within or outside this jurisdiction, while the person was a representative of:
(a)     only one person (in this subsection called the ‘indemnifying principal’); or
(b)     2 or more persons (in this subsection called the ‘indemnifying principals’);
then, unless the contrary is proved for the purposes of the proceeding, it shall be   presumed   for those purposes that the representative engaged in the conduct as a representative of:

(c) the indemnifying principal; or
(d) as a representative of some person among the indemnifying principals;
as the case may be.
(2)Where, for the purposes of establishing in a proceeding in a court that section 819 applies, it is proved that a person did, or omitted to do, a particular act because the person believed at a particular time in good faith that certain matters were the case, then, unless the contrary is proved for those purposes, it shall be presumed for those purposes that it is reasonable to expect that a person in the first-mentioned person's circumstances would so believe and would do, or omit to do, as the case may be, that act because of that belief.”

The judge referred to s.820 in paragraphs [208] and [211] of his reasons for judgment, as follows:

“208. …s.817 appears to be strengthened by s.820(1)(a), which provides that, if it is proved that the representative engaged in the conduct at the time when (‘while’) the person was a representative of an indemnifying principal, then, unless the contrary is proved, it is presumed that the representative acted ‘as a’ representative of the indemnifying principal. Section 820(1)(b) deals with a situation where the representative engages in conduct at a time when he was a representative of two or more indemnifying principals, and provides that, unless the contrary is proved, it is presumed that the representative acted ‘as a’ representative "of some person among the indemnifying principals". The intent and effect of s.820(1)(b) is hard to ascertain.

…
211.There is a further condition for the application of s.819 which is contained in s.819(1)(c): in effect (without setting out the full verbiage), that the client's belief is reasonable. However, proof of this aspect is assisted by the presumption contained in s.820(2) which, again without setting out the full verbiage, provides that the reasonableness of the belief is presumed unless the contrary is proved.”

The appellant submits, however, that s.820 was critical to the question of whether Quarrell should be treated as acting as representative of Ambridge and that paragraphs 208 and 211 of the reasons for judgment show that the judge failed to comprehend the significance of the section.

The respondents say that the judge was right to treat s.820 as his Honour appears to have done. Their argument is that the presumption created by s.820 operates only in relation to ss.817 and 818(1)(b); since, as they put it, “it would be curious that a presumption which was clearly designed to facilitate the proofs of plaintiffs operated against them in this context.” The respondents also argued before this court that the language of s.820 renders it inapplicable to s.819(4). They contended that it was obviously designed to mesh with the language of s.817, which does not refer to “proof” or to what needs to be “proved”, and that just as obviously it is ill adapted to s.819(4)(c), because the latter section does speak in terms of what needs to be “proved”. As the respondents would have it, if the presumption were intended to operate upon s.819(4), the latter section would have been drafted in terms such as that: “the representative engaged in that conduct as a representative of one or more of the indemnifying parties”.

In our opinion, the effect of s.820 was critical to the question of whether Quarrell should be treated as acting as representative of Ambridge. The presumption in s.820 is expressed in terms which according to their natural and ordinary meaning are wide enough to extend to the whole of Division 4 of Part 7.3. We think it follows that if Parliament had intended to restrict the presumption to s.817 or ss.818 and 819 there would have been an express limitation to that effect. The Law is replete with specific cross references and specific limitations. It is one of the hallmarks of the Commonwealth drafting style in which it is crafted. By and large that leaves little to implication and less to chance, and to have done so in this case would have been a major aberration.

We also see nothing in the point based upon semantic differences between s.817 and 819(4)(c). Of course s.817 does not mention “proof” or say anything as to what needs to be “proved”. It specifies conditions for the imposition of liability. But s.818(1)(b) does mention what needs to be “proved” and it cannot be doubted that the presumption referred to in s.820(1) is intended to apply as much to s.818(1)(b) as to s.817. Indeed, the expression “proved for the purposes of the proceeding” (which is used in both s.818(1)(b) and s.819(4)(c)) appears calculated to show that the presumptions in s.820(1) are intended to apply. It may be contrasted with the expression “establishing in a proceeding” in s.820(2) which is directed at s.819(b), wherein there is no reference to what needs to be “proved for the purposes of the proceeding.”

Equally, in terms of policy or perceived legislative purpose, we see nothing repugnant to the objectives of Division 4 of Part 7.3B about a presumption which cuts both ways. No doubt the aim of the division is to afford a client a right of recovery from indemnifying principals wherever there is uncertainty about for which of several principals a representative may have acted. But as Heerey, J. put it in AMP Financial Planning Pty. Ltd., the division also contemplates that where the “real” principal is before the court, the real principal alone should bear the burden. Since the policy in those circumstances is to mitigate the rigour of s.819, we think that there is a positive reason to conclude that the innocent principal should have the benefit of the presumption just as much as the client.

The operation of s.820

Turning then to the operation of the section, the appellant submits that the language of the presumption is mandatory. We agree that where its conditions are satisfied it must be applied. The appellant also says that its conditions are here satisfied, in as much as it was proved for the purposes of the proceeding that Quarrell engaged in the relevant conduct while he was a representative of the appellant and of Pamacorp Securities. We agree with that too. It follows as a consequence of s.94(2)(a) of the Law, from the fact that Quarrell held a proper authority from each of the appellant and Pamacorp Securities in relation to all of the Pamacorp schemes other than the Lucky Country Film Fund.

The appellant contends therefore that, unless the contrary were proved, the judge was bound by s.820 to presume that Quarrell engaged in the relevant conduct as a representative of the appellant or of Pamacorp Securities. So much follows from the earlier contentions. The appellant then argues that since it was proved for the purposes of the proceeding that Quarrell did not “engage” in the relevant conduct as a representative of the appellant, the judge was bound to presume that Quarrell engaged in the relevant conduct as a representative of Ambridge unless the contrary were proved. That contention is more problematic. The logical problem is with whether it follows from a presumption that Quarrell engaged in the conduct as a representative of the appellant or of Ambridge, and proof that he did not engage in the conduct as a representative of the appellant, that Quarrell engaged in the conduct as a representative of Ambridge. But on balance we think that it does.

We accept that a presumption that a representative acted on behalf of some person among a number of persons, coupled with proof that the representative did not act on behalf of one of those persons, is not necessarily proof that the representative acted on behalf of all or any particular member of the remainder. Take as an example a case involving three indemnifying principals. A presumption that the representative engaged in conduct as representative of “some person” among the three indemnifying principals, coupled with proof that the representative did not engage in the conduct as representative of one identified person among those three indemnifying principals, is not proof that the representative engaged in the conduct as representative of both of the remainder of the indemnifying principals or as representative of one and not the other. The only ineluctable conclusion is that the representative engaged in the conduct as representative of one or other of the remainder - without being able to say which.

But in other circumstances, and in the circumstances of this case, the result may be different. In our opinion, a presumption that a representative acted on behalf of “some person” among two persons, when coupled with proof that the representative did not act on behalf of one of those persons, is capable of yielding the conclusion that the representative acted on behalf of the other of them (unless the contrary is proved). Therefore, where as here there is a presumption that Quarrell engaged as a representative of “some person” among the appellant and Ambridge, and there is proof that Quarrell did not engage in the conduct as representative of the appellant, there would be proof that Quarrell engaged in the conduct as representative of Ambridge (unless the contrary were proved).

The respondents argued that s.819(4)(c) does not apply in the absence of positive proof of the identity of the person on whose behalf the representative was engaged in the relevant conduct and that a combination of the presumption and proof of the person or persons on whose behalf the representative was not engaged in the conduct cannot amount to positive proof. We reject the argument. In substance it rises no higher than the contention earlier mentioned that the use of the word “proved” in s.819(4)(c) precludes the operation of the presumption. And for the reasons already given, we think that contention is unsound. It also runs counter to common sense. We have already noticed that there can be no liability under s.818 or 819 unless it is proved that a representative engaged in conduct as a representative of “some person.” It is not the purpose of the legislature to subject to liability an indemnifying principal who is proved not to be that person.

In a case involving only one indemnifying principal, it will be presumed (under s.817) that the representative engaged in the relevant conduct as representative for the indemnifying principal “unless the contrary is proved for the purposes of the proceeding.” In effect, the indemnifying principal need do no more to avoid liability than prove for the purposes of the proceeding that the representative did not engage in the relevant conduct as representative of the indemnifying principal.

Similarly in a case involving two or more indemnifying principals, it will be presumed (under s.820) that the representative engaged in conduct as representative of “some person among the indemnifying principals” “unless the contrary is proved for the purposes of the proceeding”. If all indemnifying principles are joined as parties to the proceeding, and each proves that the representative did not engage in the relevant conduct as representative of that indemnifying principal, the concomitance of their proofs will constitute proof for the purposes of the proceeding contrary to the presumption that the representative engaged in the relevant conduct as representative of “some person” among the indemnifying principals. So again each indemnifying principal need do no more to avoid liability than prove for the purposes of the proceeding that the representative did not engage in the relevant conduct as representative of the indemnifying principal.

Take then a case involving two indemnifying principals, where each is joined as a party to the proceeding (and hence in which it is presumed under s.820 that the representative engaged in conduct as representative of “some person among the indemnifying principals” “unless the contrary is proved for the purposes of the proceeding”), but where only one of the indemnifying principals proves for the purposes of the proceeding that the representative did not engage in the relevant conduct as representative of that indemnifying principal. That is not proof contrary to the presumption that the representative engaged in the relevant conduct as representative of “some person among the indemnifying principals.” It is proof only that the representative did not engage in the relevant conduct as representative of one of the indemnifying principals. But unless the combination of the presumption and the proof which is offered with it is treated as “proof that the representative engaged in [the] conduct as a representative of some person …and who that person is”[40], the innocent indemnifying principal will be subjected to liability.
[40]Within the meaning of s.819.

Given that Parliament intended to relieve innocent indemnifying principals from liability in cases involving only one indemnifying principal, and to relieve innocent indemnifying principals of liability in cases involving a multiplicity of innocent indemnifying principals - and given an absence of language pointing positively towards a contrary conclusion - we conclude that Parliament intended the presumption to operate in favour of an indemnifying principal in a case of two indemnifying principals in which only one can prove its innocence. So far as the statute and the extrinsic materials reveal, there is no more reason to impose liability on the innocent indemnifying principal in such a case than there would be to impose liability upon an innocent indemnifying principal in a case involving only one principal.[41]
[41] And in a sense there is less; for at least in such a case the client is left with a remedy against the other principal.

The application of s.820

The respondents then argue, however, that assuming that the s.820 presumption may operate in favour of an indemnifying principal, the fact is that the judge approached the matter on that basis and found on the facts that the presumption was rebutted. They rely in particular on paragraph 227 of the reasons for judgment, in which his Honour said:

“227.It was also submitted on behalf of the plaintiffs that Financial Wisdom had failed to prove that any of the relevant representatives were acting ‘as a’ representative of Pamacorp Securities. On the contrary, the plaintiffs submitted, such evidence as there was indicated that the relevant representatives were acting as representatives of Pamacorp Holdings and not Pamacorp Securities. Although they held proper authorities from Pamacorp Securities, the business in which they were employed was conducted by Pamacorp Holdings. There is considerable evidence supporting this submission. On the other hand, there is some evidence which Financial Wisdom adduced from Healy that Pamacorp Securities was ‘marketing’ the relevant investments. I am not satisfied on the evidence as a whole that any of the relevant representatives were acting as representatives of Pamacorp Securities. The failure to add Pamacorp Securities as a defendant highlights the point that this issue was not properly raised for determination and, perhaps, shows why it is appropriate to interpret the words ‘parties...to a proceeding’ in the strict sense.”[42]

In the respondents’ submission the emphasised part of that paragraph means that the judge regarded the evidence as a whole as being of sufficient strength to overcome the presumption.

[42]Emphasis added.

There are some difficulties with that submission. The first is that the judge did not refer to the presumption, although the respondents answer that by submitting that it is impermissible or inappropriate to concentrate on the text of the reasons for judgment - as it were divorced from the context of the way in which the trial was conducted and the submissions made below - and that once one sees the way in which the matter was dealt with below it becomes clear that his Honour must have had the presumption in mind. They rely in particular on the fact that the appellant did not make any submissions below on the operation or effect of s.820, either in final address or in reply, and they submit that in those circumstances such treatment as the judge accorded to the section should be seen as directed to the submissions made to his Honour on behalf of the respondents: that, if the presumption did apply to s.819(4), it was outweighed by the totality of the evidence. Those submissions were in terms as follows[43]:
[43]Submissions to similar effect were made in writing and orally. These are the written submissions.

“C. Presumption
1144. If the presumption does operate in this context then it can be rebutted by proof of any one or more of the matters listed in section 94(3). For present purposes (a) and (c) are relevant:
‘…a person does an act, or engages in conduct, as a securities representative of another person if, and only if, the first-mentioned person does the act, or engages in the conduct:
(a)in connection with a securities business or investment advice business carried on by the other person;
(b) …
(c)as employee or agent of, or otherwise on behalf of, on account of, or for the benefit of, the other person; and
(d)…’

1145. It is submitted that the evidence in the present case affirmatively proves that Quarrell and Healy were only acting ‘in connection with’ the business of Pamacorp Holdings and not Pamacorp Securities. We shall deal with the detail of that evidence.
1146. In Mr Duncan’s evidence…
[1147 - 1152. …there then followed a detailed analysis of Mr Duncan’s evidence, Mr Noble’s evidence and the documents which he received from Quarrell, Mr Newman’s evidence, Mr Collins’ evidence and Mr Healy’s cross-examination]…
1153.It is submitted that all of the evidence in this case – apart from the answers to a few questions in cross examination – proves to the hilt that it was Pamacorp Holdings and not Pamacorp Securities on behalf of which Quarrell and Healy acted. The Pamacorp brochure and all of the other documents to which we have referred shows that it was Pamacorp Holdings that was the corporate vehicle chosen by Letten and Stanley to conduct the Sentinel program. It was Pamacor Holdings which by letter farewelled the Sentinel clients and introduced them to the new Sentinel business. See: AMH -16.
1154.It is submitted that a consideration of the whole of the evidence [t]ends to the conclusion that Quarrell never purported to, nor did he, act as a representative of Pamacorp Securities. Healy’s evidence – paragraphs 9 to 11 of his Witness Statement – establishes that the Pamacorp group of companies up to March 1991 were primarily involved in provision of taxation advice and accounting services. At this time Letten and Stanley, the principals of the group, decided to set up a new investment advisory business called ‘The Sentinel Professionals Management Program’.
1155.There is no evidence in this proceeding (save for Healy’s answers on cross-examination to which we have referred) which links this business in any way to Pamacorp Securities. All of the documentary evidence provides powerful support for a finding that this new business was established and conducted by Pamacorp Holdings.
1156.In any event even if Healy’s answers are accepted – and we have submitted that they should not be – there is no evidence at all to suggest that Quarrell was acing an any capacity on behalf of Pamacorp Securities and the total impact of all of the evidence affirmatively proves that he did not. Quite to the contrary the evidence of Mr Duncan affirmatively proves that he did not. Quite to the contrary the evidence of Mr Duncan and Mr Noble shows that he identified himself as a proper authority holder from Financial Wisdom rather than as having such a an authority form Pamacorp Securities.
1157.It is therefore submitted that even if all of our other submissions in relation to section 819(4) fail the reverse onus has been met by each of the relevant Selected Plaintiffs who dealt with Pamacorp Holdings.”

The second and related difficulty is that the general tenor of paragraph 227 fits much more naturally with an exercise in weighing evidence in favour of and against a proposition than an exercise of weighing evidence against a presumption. Even allowing for individuality in style, if the question with which the judge was dealing in paragraph 227 was whether the evidence outweighed the presumption, one might have thought that his Honour would refer to the presumption and say something to the effect that he regarded it as outweighed by contrary evidence.[44] As the paragraph reads, the judge might be taken to be saying only that there was a lot of evidence in favour of the proposition that Quarrell acted for Hold and a little evidence in favour of the proposition that Quarrell acted for Ambridge as opposed to Hold, and that his Honour was not satisfied that the little evidence in favour of Ambridge was sufficient to outweigh the lot of evidence in favour of Hold. That perception is heightened by the way in which the judge coupled his conclusion that he was “not satisfied” that the representatives were acting for Pamacorp Securities with his Honour’s complaint that the point had not properly been raised for determination.
[44]cf. Re Peatling, deceased [1969] V.R. 214 at 226-7, Cross on Evidence, Australian Ed. at [7310] and [7315].

The respondents answer that difficulty, however, by pointing again to the submissions made to the judge below, including in particular the peroration that “if all of our other submissions in relation to section 819(4) fail, the reverse onus has been met by each of the relevant Selected Plaintiffs who dealt with Pamacorp Holdings.” They submit that, against that background, his Honour’s expressed lack of satisfaction can mean only that he was not satisfied it had been proved that Pamacorp Securities was the person among the indemnifying principals on whose behalf Quarrell had engaged in the relevant conduct - even taking into account the “reverse onus.”

The third difficulty is that, even allowing that the judge accepted that the presumption applied to the case and that his Honour had it in mind when reaching the conclusion expressed in paragraph 227, there is no immediate way of knowing what operation his Honour may have attributed to the presumption. We have set out our perception of its operation above. Our conclusion is that, when the presumption operates in a case involving two indemnifying principals, it is to be presumed that a representative acted for some person among the two indemnifying principals, and hence if it is coupled with proof that it was not one of them, the result is capable of constituting proof that it was the other of them. But there is no way of telling from paragraph 227 that the judge necessarily understood the presumption as operating in that fashion, or indeed in any other fashion. And his Honour’s observation in paragraph 208 that “the intent and effect of s.820(1)(b) is hard to ascertain” might be taken as an indication that he did not ascertain it.

The respondents give two answers to that. The first is that it is inappropriate to read the reference to difficulty as being forensically significant. It is they submitted more likely an aside upon the inelegance of the expression “some person among the indemnifying principals” as opposed to, say, “one of the indemnifying principals.” That does not strike us as being particularly persuasive. If we may say so with respect, the language used throughout the rest of the reasons for judgment is uniformly precise, and the evident care which his Honour there expressed himself tends to suggest that in this instance, as in the rest of the reasons, his Honour meant what he said. Furthermore, if his Honour’s observation did have the meaning which the respondents suggest, it would tend to confirm rather than dispel the perception that his Honour misunderstood the operation of s.820. The reason that s.820(1)(b) speaks in terms of “some person among the indemnifying principals” is because it is aimed (although not exclusively) at s.819(4)(d). The whole of s.819 proceeds by reference to “persons.” The process starts in s.819(1)(a) with reference to “only one person” and goes on to refer to “2 or more persons (in this section called the indemnifying principals)”. It continues in s.819(1)(b) with the reference to “some person (in this section called the assumed principal)”. It is complicated by the introduction in s.819(4) of the conception of “indemnifying parties,” which is made necessary in order to make the point that an indemnifying principal is not to be taken into account unless joined as a party to the proceeding. But then s.819(4)(d) comes back to the pattern by directing itself to “a person … among the indemnifying parties”. The language of s.820(1)(b) (“some person among the indemnifying principals”) thus matches hand in glove with the language of s.819(4)(d) (“[a] person…among the indemnifying parties”) therefore to which no doubt it was intended to apply. If indeed the judge did not recognise that connection it would suggest that he did not accept that the presumption was capable of operating in the way that it does.

The second answer, however, is to refer again to the submissions made to the judge below which, as can be seen from the parts of them set out above, accord to the presumption an operation the same as we have ascribed to it. Thus it was submitted that in as much as paragraph 227 of the reasons may be taken as an acceptance of those submissions, it is clear that the judge approached the application of the presumption in the way that his Honour should have. We think that argument is persuasive. In light of the way in which the matter was conducted at trial, and the close correspondence between the contents of paragraph 227 and matters mentioned in the respondents’ submissions to the judge, it appears that the judge did decide the matter on the basis which the respondents had submitted it should be decided and that his Honour referred to the appellants’ arguments in order to explain why he did not regard them as sufficiently persuasive to deflect him from accepting the respondents’ submissions. Given his Honour’s considerable experience as a trial judge, and the length of the trial, it is unlikely that he would have decided the matter on a basis which neither party had submitted; at least without first identifying it as a possibility and according an opportunity to each side to be heard. And unless paragraph 227 is read as an adoption of the respondents’ submissions on the operation of the presumption, the result would be a decision made on a basis that was not submitted by either party and upon which neither was heard.

Despite the brevity of his Honour’s analysis and such doubts about its meaning as have been identified, we are therefore persuaded that paragraph 227 should be read as an acceptance of the respondents’ submissions on the operation of the presumption. We conclude that his Honour was satisfied that the evidence that Quarrell acted for Hold, as opposed to Ambridge, was enough to rebut the presumption.

Against the evidence and the weight of the evidence?

We turn to the appellant’s alternative contention that if the judge were to be taken as having found that Quarrell was acting as a representative of Hold as opposed to Ambridge, his Honour’s finding was against the evidence and the weight of the evidence, or at least that he could not properly have been satisfied that the evidence to that effect was sufficient to outweigh the s.820 presumption. The appellant submits that the only evidence that Quarrell was engaged by Hold as opposed to Ambridge was that Quarrell had presented clients with a brochure which was prepared by Hold and referred to Hold, and that correspondence with clients was on Hold’s letterhead. In the case of Mr Duncan, Quarrell had introduced himself with the aid of a Hold “with compliments” slip; in the case of Mr Noble, there was a “farewell” letter in the name of Hold; and, in the case of Mr Newman, there was a Hold client profile document, a “welcoming” letter, a Hold guarantee and a Hold “farewell” letter. As opposed to that, the appellant said, there was the following body of evidence in favour of Ambridge:

1) In his affidavit, Healy deposed that he had been offered a position as a financial consultant with “Pamacorp” and that he accepted the offer. The affidavit was so drawn as to define “Pamacorp” as Hold (Pamacorp Holdings) and Ambridge (Pamacorp Securities). Subsequently, in cross-examination on behalf of the appellant, Healy agreed that between 1991 and 1994 he was employed as consultant to Ambridge and that he did not work for anyone else. He also said that he believed that Ambridge held an unrestricted dealers licence and that Ambridge “marketed” the Lucky Country, Bearfire and Grand Hotel schemes and (for a period of time) the Cabaret Scheme. The appellant submitted that in view of the evidence given by Healy in cross-examination, it was clear that the reference to “Pamacorp” in his affidavit should be taken as a reference to Ambridge; not Hold.

2)In paragraph 12 of his affidavit, Healy deposed that Quarrell was working for “Pamacorp” when Healy joined and in paragraph 14, he deposed that “At Pamacorp, Quarrell was engaged to do precisely the same job that I was doing, namely, promoting the Sentinel program”. The appellant submitted that this taken with the evidence given in cross-examination constituted evidence that Quarrell like Healy was working for Ambridge.
3)In paragraph 16 of his affidavit Healy deposed that during the financial years ended 30 June 1992 and 30 June 1993 “Pamacorp” offered Sentinel Program clients the chance to invest in the production of various films and in cross-examination he said that Ambridge marketed the schemes. The appellant submitted that this was more evidence that it was Ambridge and not Hold on whose behalf Quarrell was engaged.

4) Healy said in paragraph 369(c) of his affidavit that upon being advised that some of the investments that Sentinel was promoting “probably were prescribed interests”, Sentinel set out immediately to apply for a securities dealers’ licence and that the company that was intended to hold the dealers’ licence was Sentinel Corporation Limited. That company was incorporated on 4 March 1997 but at the time that the Sentinel Group went into administration the dealers’ licence had not been obtained. The appellant submitted that given that Ambridge held a securities dealers’ licence and that Hold did not, and given that the relevant schemes were “prescribed interests” (and in the main had prospectuses), it should be inferred that those schemes were being marketed by Ambridge, and not Hold, and that Quarrell was involved in promoting the schemes on behalf of Ambridge (the licensed dealer), and not Hold.

We are not much impressed by the evidence in favour of Ambridge. In terms of paperwork the majority certainly favours Hold, and when there is as little evidence as there was apart from paperwork it is open to treat the paperwork as having considerable significance. If Quarrell really were representing Ambridge as opposed to Hold it is passing strange that he invariably used Hold promotional aids and Hold stationery without once referring to Ambridge.

Healy’s evidence also presents as equivocal and for a number of reasons otherwise unsatisfactory. To start with, the parts of his cross-examination which are relied upon are oblique and imprecise. For whatever reason - presumably tactical - the cross-examiner chose to leave the matter on the basis of a proposition that Ambridge “marketed” schemes. But the fact that one company “markets” schemes is not necessarily inimical to the conclusion that another company advised its clients to invest in the schemes. It depends upon what is meant by “marketing”, and no attempt was made to establish the sense in which Healy understood the word to be used. Secondly, the burden of the appellant’s submission is that the parts of Healy’s cross-examination which are relied upon were so inconsistent with matters to which he deposed in his affidavit as to contradict them. But the existence of such an inconsistency was never put to Healy or otherwise explored with him in cross-examination. In those circumstances we are reticent to treat Healy as having accepted that his affidavit was false in those respects. In the third place, so far as Quarrell’s status is concerned, Healy’s evidence was at best an expression of opinion resting upon a basis that was largely unstated and wholly unexplored. Why should it be assumed that just because Healy believed Quarrell to be promoting the Sentinel Programme that Healy knew that Quarrell was representing Hold as opposed to Ambridge? The evidence shows that they worked independently of each other. Fourthly, the one person who could have said most about Quarrell’s position was Quarrell, and yet Quarrell was not called. It was not and is not suggested that he was in the camp of the respondents. It perhaps may be assumed that anything that Quarrell would have said on the subject would not have assisted the appellant. Finally, and despite what has been said in recent times about the ability of appellate courts to reverse findings of fact not based or not wholly based upon the credibility of witnesses[45], we should be loath to do so in this case. The nature of the case and the way in which it was conducted dictate, more than in many other cases, that the judge’s findings are an incomplete statement of his Honour’s perception of the evidence surrounded, as Lord Hoffman has put it in another context, “by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance of which time and language do not permit an exact expression, but which may play an important part in the judge's overall evaluation”[46].
[45]State Rail Authority (NSW) v Earthline Constructions Pty Ltd (In Liq) (1999) 160 ALR 588 at 619 [89] – [93]; Fox v Percy (2003) 214 CLR 118; Whisprun v Dixon (2003) 77 ALJR 1598 at [65] –[67].
[46]Biogen Inc v. Medeva plc [1997] RPC 1, (1996) 36 IPR 438 at 452.

As an appellate court we are at a distinct disadvantage as against the judge in respect of the evaluation of the evidence, particularly Healy’s evidence, and the “feeling” of the case derived from having heard all of the other evidence and the opportunity over a long interval to reflect upon the evidence and to draw conclusions from it viewed as a whole.[47] In the result, and bearing in mind that this appeal is in the nature of a rehearing and not a hearing de novo[48], we are not satisfied that the judge was in error in holding that the presumption was rebutted.[49]
[47]Fox v Percy (2003) 214 CLR 118 at 125 at [23], per Gleeson, C.J. and Gummow and Kirby, JJ.
[48]Freeman v Rabinov [1981] VR 539 at 548; Williams , Civil Procedure, Victoria, at [64.01.160].
[49]Allesch v Maunz (2000) 203 CLR 172 at [23].

The proposed new ground of appeal

Finally, the appellant submitted in the further alternative that if this court were not satisfied that the judge was wrong in finding that Quarrell engaged in the relevant conduct as a representative of Hold, the appellant should be given leave to amend its defence and notice of appeal to include an argument (not advanced below) that:

1) At the time the relevant representative (Quarrell) engaged in the relevant conduct, he did so either as a representative of Ambridge or as a representative of Hold;

2) Both Ambridge and Hold were “indemnifying principals”, for the purposes of s.819, in respect of Quarrell and the conduct of Quarrell for which Financial Wisdom was held liable to Duncan, Collins and Newman pursuant to ss.819(2) and (3) in relation to their investments in the Pamacorp schemes;

3) Both Ambridge and Hold were parties to the proceeding (“indemnifying parties”); and

4) Accordingly, by reason of the operation of s.819(4), ss.819(2) and (3) do not apply, for the purposes of the proceeding, in relation to the appellant as an indemnifying principal, because the relevant representative engaged in the relevant conduct either as a representative of Ambridge or as a representative of Hold, and each of Ambridge and Hold is an “indemnifying party”.

In our opinion that argument fails in limine. For the reasons already given, Hold is not a party to the proceeding and we do not consider that we should grant leave to join Hold as a party to the proceeding. The appellant chose to run the case below on the basis that Hold was incapable of being an indemnifying principal (because Hold was not a licensed investment adviser), and chose therefore not to join Hold as a party. In our view it is now too late for the appellant to be allowed to go back on that decision.

The rule which we take to be applicable in cases of this kind was expressed by the majority of the High Court in Whisprun v Dixon as follows:

“[51]…It would be inimical to the due administration of justice if, on appeal, a party could raise a point that was not taken at the trial unless it could not possibly have been met by further evidence at the trial. Nothing is more likely to give rise to a sense of injustice in a litigant than to have a verdict taken away on a point that was not taken at the trial and could or might possibly have been met by rebutting evidence or cross-examination. Even when no question of further evidence is admissible, it may not be in the interests of justice to allow a new point to be raised on appeal, particularly if it will require a further trial of the action. Not only is the successful party put to expense that may not be recoverable on a party and party taxation but a new trial inevitably inflicts on the parties worry, inconvenience and an interference with their personal and business affairs.”

In this case it is not shown that the respondents might not have met the point with additional evidence if it had been raised.

It is true that the respondents’ case below was that Quarrell engaged in the relevant conduct as representative of Hold, and it is true that they adduced evidence to that effect. But it is impossible to determine how they might have amended their case if Hold had been joined as a party and if they had been faced with the argument that Hold was an indemnifying principal. Admittedly a good deal of the evidence as to Hold’s involvement would be immutable. The individual plaintiff’s testimony should not and almost certainly would not alter, whatever case was advanced. Consequently, the extent to which the respondents might have amended their case and retained a chance of success may be slight. But among the possibilities that present themselves is that the respondents could have joined further parties of substance, such as some of the scheme promoters, and recovered from them. And it may also be that once those further parties were joined, the s.820 presumption and the direct evidence which might then have been available would lead to a different conclusion than was produced by application of the presumption to the evidence as it stands. In any event, it would not be appropriate to allow the joinder of Hold and an amendment of the kind proposed without affording the respondents a full opportunity to explore all the possibilities and to have the issue retried. But at the same time it would not be in the interests of justice to require a further trial of the action. The respondents are not corporations geared for litigation or persons who are otherwise able to take it in their stride. By and large they are ordinary people for whom the burden of this litigation must be heavy if not close to intolerable. A new trial would not only subject them to expense that may not be recoverable on a party and party taxation, assuming even that they could fund it in the first place, but would likely cause them the kind of worry, inconvenience and interference which the High Court said in Whisprun v Dixon is usually determinative.[50] In our opinion it is neither fair nor otherwise in the interests of justice that they be subjected to that ordeal. The application to amend and put the alternative argument should therefore be refused.
[50]See further Geelong Building Society (in liquidation) v. Encel [1996] 1 V.R. 594 at 604-608, per Tadgell, J.; Simmons v. Story [2001] VSCA 187 at [24], per Winneke, P.

Twenty-First’s summons

It remains to consider an application by Twenty-First by summons, filed on 11 March 2005, for an extension of time in which to file a notice of appeal against the decision of the trial judge in relation to the claims successfully brought against it by the respondents. Twenty-First only intends to appeal in respect of the issue of the construction and interpretation of s.819(2) and (3) and its proposed notice of appeal[51] mirrors relevant parts of the Financial Wisdom notice.[52] Twenty-First was represented throughout the appeal hearing, but took no part in it. If its application were granted, it would adopt the appellant’s submissions on the issue. Those submissions have been rejected.
[51]Exhibit “ACB 9” to the affidavit of Andrew Collis Blogg sworn on 16 March 2005.
[52]In paragraphs 1-2.10.

The background to the application is set out in the affidavit of Andrew Collis Blogg, of Twenty-First’s solicitors, sworn on 9 March 2005. Twenty-First filed a defence which simply denied the respondents’ allegations in relation to the effect of s.819. It participated in the interlocutory processes, including mediation. It was represented by its present solicitors between about 18 May 2001 and 27 June 2003, when leave was granted to the solicitors to cease to act. According to Mr Blogg, Twenty-First and its solicitors had been unable to make “satisfactory arrangements … in respect of the estimated costs and disbursements” associated with the trial which had been set down for an estimated six weeks of hearing from 5 August 2003. Twenty-First was not represented at the trial, in which it took no active part. Judgment was given on 5 August 2004 and the solicitors for the respondents wrote to Twenty-First on 20 September 2004 enclosing a copy of the reasons for judgment dated 29 June 2004 and advising of a stay until 24 September 2004. In about October or November 2004, Mr Blogg informed Mr Pedersen, the principal of Twenty-First, that Financial Wisdom had instituted appeal proceedings. Mr Blogg raised the possibility of an appeal by Twenty–First and Mr Pedersen responded that he would consider its position.

Twenty-First has failed to comply with the orders made below for payment of damages and indemnity costs, despite the respondents having winding up proceedings on foot on the grounds of its failure to satisfy the judgment debts. No application has been made for a stay of the trial judge’s orders. Mr Blogg was told by Mr Pederson that he did not seek legal advice as to an appeal because he believed that Twenty-First would be unable to meet the anticipated costs of an appeal. However, Mr Blogg was subsequently advised that the respondents’ efforts to enforce the judgment had resulted in Twenty-First’s desire to appeal.

The applicable principles relating to the exercise of the Court’s discretion to extend the time for filing a notice of appeal are set out in the judgment of McHugh, J. in Gallo v Dawson[53]. Twenty-First must satisfy the Court that the refusal of the application will result in injustice to it. The respondents’ right to maintain the judgment must be borne in mind and the Court must have regard to the history and nature of the litigation, the parties’ conduct and the consequences to them of the grant or refusal of the application. The length of the delay in bringing an appeal, the reasons for that delay, the prejudice to the respondents as a result of an extension of time and Twenty-First’s prospects of success in the proposed appeal and are “major factors” to be taken into account.[54]
[53]Gallo v Dawson (1990) 64 ALJR 458 at 459; 93 A.L.R. 479 at 480.
[54]Jackamarra v Krakouer (1998) 195 C.L.R. 516 at 520-1 per Brennan, C.J. and McHugh, J.; 542-3 per Kirby, J.

Twenty-First submits that its delay has been relatively short and is explained by Mr Pedersen’s belief that it would have been unable to meet the anticipated costs of any appeal. It contends that the delay has not prejudiced the respondents because Financial Wisdom’s appeal has at all times been on foot and has proceeded on the basis that Twenty-First would seek only to rely upon Financial Wisdom’s submissions in relation to the construction issue. Those submissions are said to demonstrate the existence of an arguable case and Twenty-First would be prejudiced if Financial Wisdom were to succeed in the appeal on that ground. Twenty-First also argues that inconsistent outcomes for the two defendants to the original proceeding would be undesirable.

The respondents submit that they are entitled to retain the judgments against Twenty-First and would be prejudiced by the grant of the extension sought. They maintain that the explanation for the delay should not be accepted, in the absence of evidence to prove that Twenty-First was indeed unable to meet the costs of an appeal. Further, if the explanation for the delay were true, they would be prejudiced by any extension of time by reason of Twenty-First’s inability to satisfy any order in relation to the costs of the appeal. They argue, in the alternative, that the application should only be granted on conditions which include the provision of security for costs.

Twenty-First has not satisfied us that injustice would flow from the refusal of its application in all the circumstances. It chose to take no active part in the trial and has not participated in the appeal. It has not explained its failure to comply with the orders made by the trial judge on 5 August 2004 and has not addressed the issue of its ability to meet any orders for costs of the appeal. The respondents’ attempts to enforce the judgment were always to be expected. It would appear that Twenty-First has made a late and otherwise unexplained decision to change course. Our view as to the prospects of success of the proposed grounds of appeal is indicated by our rejection of Financial Wisdom’s arguments in relation to them. In our opinion, and notwithstanding our conclusion that appeal should be dismissed, the respondents should not be prejudiced by being deprived of the benefit of their judgments against Twenty-First.

The application should be dismissed with costs.

Conclusion

The appeal will be dismissed.

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"Subject to the provisions of the Judicature Act and these Rules, the costs of and incident to all proceedings in the Court, including the administration of estates and trusts, shall be in the discretion of the Court or Judge: Provided that nothing herein contained shall deprive an executor, administrator, trustee, or mortgagee who has not unreasonably instituted or carried on or resisted any proceedings of any right to costs out of a particular estate or fund to which he would be entitled according to the Rules heretofore acted upon in Courts of Equity: Provided also, that, subject to the next following Rule, when any cause, matter, or issue is tried with a jury, the costs shall follow the event, unless the Judge by whom such cause, matter, or issue is tried, or the Court, shall for good cause otherwise order."

[2005] VSCA 110

10 May 2005