LT King Pty Ltd v Besser

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

No. 7950 of 2000

L.T. KING PTY LTD (TRADING AS YARRA VALLEY FINANCIAL SERVICES) AND LESLIE THOMAS KING	Plaintiffs
v
DANIEL BESSER AND WHITE CLELAND PTY LTD	Defendants

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JUDGE:	OSBORN J
WHERE HELD:	MELBOURNE
DATE OF HEARING:	31 JULY; 1-2, 5-7 AUGUST 2002
DATE OF JUDGMENT:	30 AUGUST 2002
CASE MAY BE CITED AS:	LT KING PTY LTD & ANOR v BESSER & ANOR
MEDIUM NEUTRAL CITATION:	[2002] VSC 354

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TRADE PRACTICES – Whether solicitor acting in "trade or commerce" – Whether solicitor's email misleading and deceptive – Causation – Trade Practices Act 1974, ss.6, 52, 82 – Fair Trading Act, ss.11, 37.

FIDUCIARIES – Whether financial adviser acting as a fiduciary – Whether breach of duty by financial adviser.

NEGLIGENCE – Whether solicitor's email amounted to negligent misstatement – Whether financial adviser gave negligent advice – Sufficiency of evidence.

PRACTICE AND PROCEDURE – Whether defence properly pleaded – Facts relevant to defence particularly within knowledge of plaintiff and admitted by the plaintiff in the course of evidence.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr S.P. Hardy	Keogh & Co
For the Second Defendant	Mr P. Riordan	White Cleland Pty Ltd

HIS HONOUR:

A. General Background and the Claim Against the Firstnamed Defendant

The plaintiffs in this matter are Mr Les King (the secondnamed plaintiff) and a company associated with him which trades under the name of Yarra Valley Financial Services ("YVFS"). King and YVFS carry on the business of an insurance broker and financial adviser in the Yarra Valley.

In 1999 King was put in contact with the firstnamed defendant Daniel Besser ("Besser") by a longstanding acquaintance. Besser was promoting a scheme known as "Project Australian Falcon" ("the project") whereby a company would be established to undertake the refitting and refurbishment of F16 and other military aircraft for the Air Force of the United States of America. It was said this opportunity arose because F16 aircraft needed to have their term of use extended pending replacement with the Joint Strike Fighter.

In the course of discussions Besser attended at King's office and made a detailed presentation to King which included layout plans, descriptive technical material, costings and spreadsheets as to business projections, letters demonstrating government interest in funding, media reports concerning the project and reference to bonds in a substantial sum held by Besser with Citibank in London. The bonds were physically shown to King but were not carefully scrutinised by him or copied by him. They were put forward as confirmation that Besser was a man of personal substance. King made inquiries into the project including inquiries of persons of good reputation and high standing in defence circles. He then entered into an agreement with Besser to invest $300,000 in the project by lending Besser $300,000, in return for which Besser was to hold $300,000 of shares in Aeronautical Defence Systems Pty Ltd (Australia New Zealand Defence Industries Pty Ltd as it was then known) ("the company") on trust for King, after Besser himself had been issued shares in the company. King understood this was a speculative investment with a possibly high return to himself (tp.95). King also procured a series of loans to Besser from individual clients of YVFS namely Mr and Mrs Burke, Mr and Mrs Churchward, Mrs Ould and Mrs Parker. YVFS itself also made a series of loans to Besser. All the loans were made between the period of 17 June 1999 and November 1999.

In due course it became apparent that Besser was unable to give effect to the agreement to hold equity on King's behalf in the company and it was agreed that $300,000 paid by King would be treated as a loan to Besser (although it was still contemplated by the parties that the loan would be utilised for the purpose of the project).

Thereafter neither the loans made by YVFS to Besser, the $300,000 loan, or the loans made by the individual clients of YVFS were repaid in accordance with their terms. A series of abortive arrangements were made for settlement. Besser's chief and recurrent excuse for failing to repay the loans was that he was unable at that point in time to realise funds he held overseas. In particular he maintained that he could not realise the value of long term bonds without taking a significant loss.

King then retained Minter Ellison solicitors ("Minters") to act for him in settlement of the loan transactions.

Because of pressure from two of his clients namely Mrs Parker and Mrs Ould, King paid out the loans made by them to Besser and took assignments of the debts in issue back from them. The deeds of assignment were executed on 17 September 2000.

The pressure to achieve settlement with respect to the debts had increased through 2000 and in or about May or June Besser had retained the secondnamed defendant ("White Cleland"). When Besser first approached White Cleland he was accompanied by a retired Air Vice Marshal of the RAAF. They made a presentation with respect to the project. Mr Taylor of White Cleland ("Taylor") was asked to give advice about ramifications arising from the proposal which he in fact did through to about December 2000. Like King Taylor was given glowing references with respect to Besser by persons of good repute and high standing in the defence industry. In September 2000 while he was in London Taylor was telephoned by Besser who asked him to look at a deed of release relating to the loans forming the subject matter of this claim. It was agreed that on his return to Melbourne, Taylor would finalise the proposed settlement arrangements.

On his return to Melbourne he had a series of communications with Minter Ellison which I shall detail further in due course. In the course of a sequence of communications relating to proposed settlement Taylor sent an email to Minters on 12 October 2000 which stated in part:

"We confirm that we hold sufficient funds to cover the full $857,762.07 plus accruing interest. We also note that our client has confirmed that the payment to your clients will now include payment of your reasonable legal costs."

In fact White Cleland did not hold funds for settlement at all, but had received a cheque from Besser subject to instructions as to when it might be cleared.

The advice that funds were held by White Cleland materially comforted King and he thereafter caused two further pairs of clients of YVFS namely the Burkes and the Churchwards to be paid out in respect of their loans in consideration of assignment of the debts to himself ("the assignment transaction").

Nevertheless settlement with Besser failed to eventuate, ostensibly first because Besser had suffered an attack of viral encephalitis and was unable to properly instruct White Cleland, second because Besser then altered the terms of payment on which he was prepared to settle, and third because he ultimately was unable to come up with the funds.

In the course of the ongoing settlement negotiations Besser admitted liability with respect to the loans in issue on a number of occasions.

In particular on 25 November 1999 Besser wrote a cheque payable to YVFS in the sum of $892,625 and gave such cheque to King with instructions that it should not be banked until funds became available, to be advised by Besser. The cheque was never banked.

Besser further made a part payment to YVFS of $100,000 in reduction of the loans on 23 June 2000.

A series of deeds of release were prepared during 2000 and ultimately by a deed of release dated 15 November 2000 Besser acknowledged default in respect of the loans referred to above and acknowledged that at that date the total amount outstanding was $868,569.87, and that that sum was payable on terms set out in the deed.

Despite the terms of the deed Besser has in fact failed to make any further payment in respect of the loans.

Besser failed to appear on the hearing of this proceeding and I find the claim against him to be proved in the sum of $868,569.87.

The deed of 15 November 2000 contemplated payment of:

-$314,814.86 being the principal sum and interest due to King;
-$553,755.01 as follows:
(a)$432,856.01 to King on behalf of YVFS;
(b)$60,891.50 to King on behalf of Mr and Mrs Burke; and
(c)$60,007.50 to King on behalf of Mr and Mrs Churchward.

Mr and Mrs Burke and Mr and Mrs Churchward have assigned to King the debts due to them. Accordingly there will be judgment for the firstnamed plaintiff against the firstnamed defendant in the sum of $432,856.01, and for the secondnamed plaintiff against the firstnamed defendant in the sum of $435,712.86.

B. The Claim Against the Secondnamed Defendant

The claim against White Cleland is framed first by reference to s.52 of the Trade Practices Act 1974 (Commonwealth), second by reference to s.11 of the Fair Trading Act (Vic.), third by way of an alleged estoppel and fourth by way of alleged negligence on the part of White Cleland. The claim made by way of an alleged estoppel was not pursued (tp.385).

The conduct relied on by the plaintiffs is firstly the email communication of 12 October 2000 to which I have referred stating, "we confirm that we hold sufficient funds to cover the full $857,762.07 plus accruing interest"; second the failure of White Cleland to advise the plaintiffs that this was not in fact the true situation prior to the assignment transaction on 26 October 2000.

White Cleland's case is that:

(a) the conduct complained of was not conduct in trade or commerce;
(b) the conduct was not misleading or deceptive;
(c)the conduct did not cause the payment out of the loans which occurred on 26 October;
(d)the plaintiffs suffered no loss as a result of such payment because the plaintiffs were liable to repay such loans in any event, having regard to the circumstances in which King procured the loans from the Burkes and Churchwards in the first instance;
(e)the plaintiffs cannot recover against White Cleland until it is demonstrated Besser cannot satisfy the debt;
(f)White Cleland owed no duty of care to the plaintiffs; and
(g)the loss claimed cannot be recovered in a claim for negligence.

C. The Preliminary Issue – Conduct in Trade or Commerce

The case for White Cleland raises as a preliminary issue the question whether the conduct complained of by the plaintiffs can be characterised as "conduct in trade or commerce" within the meaning of s.52 of the Trade Practices Act. I will summarise my conclusions and then elaborate my reasons in relation to this aspect of the matter. In summary I have concluded:

A. It is accepted that the concept of "in trade or commerce" is to be given a broad interpretation. Deane J held in Re Ku-Ring-Gai Cooperative Building Society (No. 12) Ltd[1]:
[1](1978) 36 FLR 134 at 167
"The terms 'trade' and 'commerce' are not terms of art. They are expressions of fact and terms of common knowledge. While the particular instances that may fall within them will depend upon the varying phases of development of trade, commerce and commercial communication, the terms are clearly of the widest import … They are not restricted to dealings or communications which can properly be described as being at arm's length in the sense that they are within open markets or between strangers or have a dominant objective of profit making. They are apt to include commercial or business dealings in finance between a company and its members which are not within the mainstream of ordinary commercial activities and which, while being commercial in character, are marked by a degree of altruism which is not compatible with a dominant objective of profit making."

B.        The question of whether conduct in the course of providing professional services is conduct "in trade or commerce" requires an assessment of the essential character of those services.
C.       When the conduct in issue constitutes services provided by a member of a profession such conduct will not automatically amount to conduct in trade or commerce by reason only that the services are provided for fee or reward.
D.       It is clear that the essential character of core activities undertaken by the legal profession is not that of trade and commerce.
E.        Conversely the essential character of some activities undertaken by the legal profession is that of effecting or directly facilitating commercial transactions.
F.        The characterisation of particular conduct will always be a matter of fact and degree and it is not possible or desirable to judicially define the concept by prescribing specific criteria.
G.       In the present case it is sufficient to conclude the essential character of the conduct in issue was commercial being a communication prior to settlement (in a non-litigious context) of the payment of moneys outstanding under a loan agreement and associated costs.

In Concrete Constructions (New South Wales) Pty Ltd v Nelson[2] the High Court held that s.52 of the Trade Practices Act is concerned with:

"… the conduct of a corporation towards persons, be they consumers or not, with whom it (or those whose interests it represents or is seeking to promote) has or may have dealings in the course of those activities or transactions which, of their nature, bear a trading or commercial character." (per Mason CJ, Deane, Dawson and Gaudron JJ at 604)

[2](1990) 169 CLR 594

Conduct and communications in the practice of a profession may be the product of an arrangement for fee but not be described (as a matter of ordinary language) as made in trade or commerce e.g. statements made by an academic to a class, a clergyman to his congregation, and a doctor to his patient.

In the case of the practice of the law it is not appropriate to describe conduct in the area of litigation as conduct in trade or commerce. In Little v Law Institute of Victoria and Others (No. 3)[3] Kaye and Beach JJ said at p.273:

"In our opinion, this aspect of the appellant's claim is quite untenable. For the appellant to succeed he must first establish that the statement upon which he relies was a statement made in trade or commerce. The statement relied upon was made to Southwell J during the course of the proceedings brought by the secondnamed respondent against the appellant seeking to restrain the appellant from acting or practising as a solicitor. In our opinion, statements made during the course of litigation cannot be categorised as statements made in trade or commerce nor can they be categorised as representations."

Ormiston J stated at p.292:
"Notwithstanding the broad interpretation which has been properly afforded to the expression 'in trade or commerce', I agree that it cannot include the present circumstances, that is where the allegedly misleading and deceptive statements are made in the course of evidence, whether on affidavit or otherwise, for the purpose of persuading a judge of this or any other superior court to exercise his judicial functions in making an order in favour of a litigant."

[3][1990] VR 257

It is also doubtful that the expression of professional advice (which lies at the core of the practice of a profession) constitutes trade and commerce. In Prestia v Aknar[4] Santow J quotes from an article by Professor Bernard McCabe "Revisiting Concrete Constructions"[5]:

"If one examines the conduct of a professional carefully, it is possible to discern two different species of act. There is first the exercise of the intellectual skill, which is typically expressed in the form of advice to the client. Then there are the representations about the advice and the adviser which are essentially made to promote the business of providing the intellectual skill. It follows that one may distinguish between the commercial activity of providing the advice (and the representations made in relation to it) and the actual content of the advice …
While the professional relationship clearly bears a trading or commercial character in that a service is provided for reward, the content of the service falls outside the central conception of trade and commerce. In other words the advice is the product: misrepresentations that are made in relation to it in order to induce the client to enter into the professional relationship would clearly be conduct in trade or commerce. The content of the advice, however, will relate to some other matter distinct from the professional relationship … So too with lawyers: where the lawyer advises a client on an appropriate structure for their business, the lawyer is rendering advice that relates to matters of trade, but which do not directly relate to the terms of the commercial relationship between lawyer and client."

[4]40 NSWLR 165

[5](1995) 3 Trade Practices Law Journal 161

If conduct in litigation or by way of advice is not to be regarded as conduct in trade or commerce then it follows that this will be true whatever the subject matter of the litigation or the advice. In Street v Queensland Bar Association Dawson J considered the concept of trade or commerce in the sense in which those words are used in s.92 of the Commonwealth Constitution. He observed:

"A barrister has always rendered a fee for his services and that has never been thought to make those services of a commercial rather than a professional kind. A barrister's work is not by reason of its reward deprived of its professional character involving, as it does, the application of special learning and the maintenance of standards imposed, not by the terms of his retainer, but by the nature of his calling. Nor does the fact that a barrister may undertake cases of a commercial nature involve any alteration in the professional quality of his practice. A barrister preparing for or advising a person engaged in trade does not thereby become a trader any more than a barrister engaged in a criminal case becomes a criminal. The essential nature of a barrister's functions remains the same whatever the jurisdiction in which he is engaged and does not become clothed with the character of his client's pursuits. True it is that a court's function may be seen as incidental to the trade or commerce of parties who invoke its jurisdiction, as may the exertions of a barrister appearing before it. But it could hardly be questioned that a court is not engaged in trade and commerce even when dealing with cases of a commercial nature."[6]

[6](1989) 168 CLR 461 at 539

If conduct in litigation or by way of advice is not to be regarded as conduct in trade and commerce it follows that it cannot be that the element of reward is determinative of the characterisation of the conduct. I do not with respect accept the universality of the view expressed by French J in Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd[7] that:

"However, where the conduct of a profession involves the provision of services for reward then in my opinion, even allowing for widely differing approaches to definition, there is no conceivable attribute of that aspect of professional activity which will take it outside the class or conduct falling within the description of 'trade or commerce'."

[7](1987) 14 FCR 215 at 220; 71 ALR 615 at 620

Nevertheless despite the fact that there are core activities of the legal profession which do not constitute trade or commerce, there are many circumstances where solicitors undertake a significant role in the actual conduct or completion of commercial transactions. In such cases it is in my view clearly open to conclude that the specific conduct is conduct in trade or commerce.[8]
[8]Thus the concession made in Argy v Blunts 94 ALR 719 at 734 on behalf of the solicitor respondents was correctly made.

Likewise there may be circumstances where the conduct of solicitors is properly characterised as the promotion of their business rather than the practice of the profession as such cf. Nixon v Slater & Gordon[9]. Misrepresentations in connected with the possible supply of services by a solicitor may also be caught under s.53 of the Trade Practices Act because the definition of services under s.4 of the Act includes rights under a contract for or in relation to the performance of work "including work of a professional nature."
[9](2000) 175 ALR 15

The characterisation of particular conduct must always be a question of fact and degree. It is not possible or desirable to judicially define the concept of "conduct in trade or commerce" by prescriptive criteria. (See in particular the statement of Deane J in Re Ku-Ring-Gai Cooperative Building Society (No. 12) Ltd referred to above.)

The characterisation of particular conduct is a different and more specific question than that decided by Beach J in Fawke v Holloway and Another[10] and similar cases concerned with whether a person (in that case a chiropractor) is a trader as defined by the Small Claims Tribunal Act 1973 and equivalent legislation. Section 2 of the Small Claims Tribunal Act relevantly defined a "trader" as a "person who in the field of trade or commerce carries on a business of supplying goods or providing services …" Beach J concluded:

"It would seem to me therefore that the occupation of chiropractor is properly described as a profession and a chiropractor in the practice of his profession as a chiropractor is not a trader within the meaning of the Act."

[10][1986] VR 411

A similar conclusion was reached with respect to solicitors in Holman v Deol[11] by Lee J in construing the Consumer Claims Tribunals Act 1974 (NSW). After a careful survey of longstanding authorities as to the meaning of the words "trade" and "commerce" he stated:

"The conclusion I have come to, is that, when the legislature uses the expression 'the field of trade or commerce' in the Consumer Claims Tribunals Act, it is not intending that there should be included within it any business that would not, in relation to ultimate customers, ordinarily be regarded as properly described as one operating in the field of trade or commerce. It did not intend to give the expression artificiality by including within it professions such as law, medicine and dentistry, which traditionally have been regarded as occupying a field separate and apart from trade and commerce as ordinarily understood."

[11][1979] 1 NSWLR 640

Likewise Crockett J concluded with respect to the Victorian Small Claims Tribunals Act in Weigall & Crowther v Levine and Mallesons v Levine[12] that a solicitor is not a trader within the meaning of the Victorian Act.
[12]Unreported and it appears unrecorded decisions delivered on 2 November 1983.

A similar conclusion has also been reached with respect to the Queensland Small Claims Tribunal Act in R v Small Claims Tribunal; ex parte Gibson[13] a decision of the Full Court of the Supreme Court of Queensland.
[13][1973] QR 490

It is to be noted, however, that the critical issue with respect to an alleged breach of s.52 of the Trade Practices Act is whether the particular conduct in issue was conduct "in trade or commerce". Neither s.52 of the Trade Practices Act or the relevant provisions of the Victorian Fair Trading Act require the definition of "profession" or "professional activities". This is in contrast to the Fair Trading Acts of a number of other States such as that of New South Wales considered by Santow J in Prestia v Aknar (supra) under which s.4(1) provided that trade or commerce "includes any business or professional activities".[14] The concept of professional activity in the present case is relevant only insofar as it may assist and inform a judgment as to whether conduct is "in trade or commerce". Further it is relevant with respect to a judgment as to the essential character of particular conduct, and not whether the entity concerned is to be regarded as "carrying on business" in a particular field namely "trade or commerce." Lastly it should not be assumed that the relationship of practice of a profession to conduct in trade or commerce is necessarily fixed and constant.
[14]In Durant v Greiner (1990) 21 NSWLR 119 at 129 Ralph J explains the extended definition as a response to the decision in Holman v Deol above.

In the present case I find that the essential character of the communication and conduct which forms the basis of the plaintiff's claim was conduct in the field of trade or commerce. The secondnamed defendant was engaged in the completion of a commercial transaction on behalf of its client. It would be an unfortunate outcome in my view if the mere fact that it was wearing the badge of a solicitor enabled it to conduct itself in a misleading and deceptive way when effecting a fundamentally commercial transaction.

It was submitted on behalf of White Cleland that s.6(4) of the Trade Practices Act indicates professionals such as solicitors are not acting in trade and commerce. Section 6(4) expressly extends the operation of s.52 to the promotion of professional services. White Cleland contends that this express extension of s.52 indicates that all other aspects of professional conduct are not conduct in trade and commerce. I reject this submission; the concept of trade and commerce cannot be controlled by s.6(4), rather, as I have indicated, the nature or character of the particular conduct must be assessed to see whether, as a matter of fact, the conduct is conduct in trade or commerce as these terms are generally understood.

It was agreed by counsel that it was not necessary for me to consider in the circumstances of this case whether White Cleland is a corporation within the meaning of s.52 of the Trade Practices Act, because the critical conduct complained of is an email falling within s.6(3) of the Trade Practices Act. Further and in any event the claim is formulated in the alternative under s.11 of the Fair Trading Act. Nevertheless a certificate of incorporation of White Cleland was tendered in evidence.

D. Misleading and Deceptive Conduct

The question of whether funds were in fact in the hands of Besser's solicitors was a significant one having regard to the history of King's dealings with Besser.

The "security" for King's involvement with Besser was from the outset said to be bonds held by Besser with Citibank in London. These bonds were physically shown to King at the time of Besser's initial discussions with King. Copies were not provided to King but he accepted Besser's assertions that Besser had substantial funds invested in this way. Thereafter Besser maintained that the bonds were long term bonds which Besser could not realise immediately without incidental loss.

King believed the problem with Besser was a cash flow problem. King did not believe (and is still not prepared to accept):

(a) Besser is without substantial financial resources; and
(b) the project was and is not commercially viable.

Besser had paid King $100,000 on 23 June 2000. This payment again tended to confirm in King's mind that payment was a question of Besser directing funds to King rather than a question of Besser's capacity to pay.

During 2000 a series of proposed settlements by Besser of the balance due with respect to loans from the plaintiffs and the plaintiffs' clients were postponed on the express basis that funds had not come through. Besser strung King along in this way.

The ultimate chain of communications concerning settlement was as follows:

(a) White Cleland's letter to Minter Ellison of 5 October 2000 stated in part:
"2.We will have resolved the various issues relating to Mr Besser's complex affairs by Wednesday 11 October and therefore propose settlement take place on that date. At settlement the whole of the principal and interest due to your clients will be paid.
3.Could you please calculate and advise us of the new payout figures as at that date and what cheques you will want at settlement – which we presume will take place at your office at a time to be confirmed …"

(b) Minter Ellison stated by letter dated 10 October 2000 to White Cleland in part:
"Settlement cheques to be provided by your client are as follows:

(i)     Lesley King   -          $738,889.12
(ii)     Elizabeth and Kevin Burke           -          $ 59,877.05
(iii)   Roger and Joan Churchward         -          $ 58,995.90
The counterparts to the deed of release and settlement cheques can be exchanged at the settlement tomorrow."

(c) White Cleland advised by letter dated 11 October to Minter Ellison in part:
"We are continuing to work hard to resolve the many threads in settling up the financial affairs of our client and the major international project he has been underwriting.
We will receive today sufficient funds to clear your client's full debt
but we are unable to effect the settlement today as we must conclude a number of aspects on the same day. For one of those we are waiting on another party to complete its procedures and whilst we all thought that these would be completed before today it will, unfortunately now be a few more days …"

(My emphasis)

(d) Minter Ellison replied by fax of 11 October in part as follows:
"Our client is extremely concerned about the prospect of the matter not settling today. We are unclear as to why the settlement of our client's claim cannot proceed in the absence of finalisation of 'the number of aspects' to which you refer. Settlement of our client's claim is entirely independent of settlement of other parties' claims against your client.
Please advise the sum you hold for settlement of our client's claim. We expect this to be the sum of $738,889.12, assuming settlement occurs today …"

(e) Minter Ellison sent a further fax on 11 October stating in part:
"To avoid any confusion, we confirm that our earlier correspondence today sought confirmation that the sum of $738,889.12 is held in trust on behalf of our client, Lesley King, only. We also seek confirmation that the sums of $59,877.05 and $58,995.90 are being held in trust on behalf of Elizabeth and Kevin Burke and Roger and Joan Churchward respectively. Accordingly, please confirm that you hold the total sum of $857,762.07 in trust for the above parties …" (My emphasis)

The full terms of the secondnamed defendant's email letter of 12 October were as follows:

"Dear Sirs,
We refer to your second letter of 11 October in this matter.
We confirm that we hold sufficient funds to cover the full $857,762.07 plus accruing interest. We also note that our client has confirmed that the payment to your clients will now include payment of your reasonable legal costs.
Yours faithfully
…"

King was advised on 12 October by Minter Ellison of the terms of the email.

Having regard to the history of the matter confirmation that Besser's solicitors had received funds in the sum of more than $850,000 was a significant matter concerning the existence of funds and pointing to an intention to settle. It could not have been other than a letter of significant comfort to King. Taylor accepted this in cross-examination.

I am not satisfied Taylor consciously sent a misleading letter. Taylor's evidence was that he sent off a very quick email reply and intended simply to confirm the precise amount payable at settlement. Nevertheless it is clear that Taylor ought to have known that the letter was misleading and that it would falsely comfort King, particularly having regard to the terms of the preceding correspondence.

The terms of Besser's actual instructions to White Cleland dramatised the fact that White Cleland had not as yet received funds. On 11 October 2000 Besser delivered a cheque to White Cleland payable to the trust account of that firm and drawn by Besser and Geraldine Besser on a joint account at St. George Bank Ltd subject to express instructions that:

(a)the cheque not be banked by White Cleland until Besser had confirmed that sufficient funds to cover the cheque had been transferred into the St. George Bank account from Besser's cash management account; and
(b)no part of the proceeds of the cheque be paid by White Cleland to Minter Ellison or the plaintiffs unless and until Besser instructed White Cleland so to do.

Taylor's file demonstrates that he was aware that the availability of funds was a critical issue with respect to the proposed settlement.

(a) By letter to Besser dated 3 October 2000 he stated in part:
"Now that I am back from London I will get on to sorting out this matter. As discussed I have no problem with the Deed of Release Minter Ellison have forwarded – it is more the question of when you are able to effect settlement …"

(b) A file note of 5 October 2000 records a discussion with Besser:
"Has organised his funds and can settle next week – what date – Tuesday or Wednesday.
Discuss logistics. I will need to hand over bank cheques.
He can provide or we can draw out of our trust account but need cleared funds for that.
Also lots of FID.
He'll think – probably get us to do it – easier.
Busy chasing Qantas. Lots happening.
Said I'd let other side know – okay."

(c)A file note of 11 October concerning a conversation between Taylor and Besser records:
"Sending me money by courier today.

I not to bank it without it coming to him.
Need more time beyond 3.00 p.m.
It'll be a few days delay as forewarned by client.
Still sorting out overseas issues – many things happening at once.
Working very hard to resolve these matters.
When do – do it with super special clearance.
Send fax."

The comfort given to King materially reduced the likelihood of immediate friction between the parties and further reduced the likelihood of immediate court proceedings against Besser. The secondnamed defendant ought to have known this would be the effect of his email. A file note of 18 October 2000 records the following advice by Taylor to Besser:

"Other side is pushing me. What is his position? Will be able to settle next week. Appreciates my warnings that they may well sue and this will cause costs and damage to his reputation …"

Further Taylor knew by reason of the terms of the proposed deed of release that King had previously paid out Ould and Parker. It must have been apparent to him that it was possible King might also pay out Burke and Churchward.

The correspondence following 12 October put in doubt the date at which Besser would settle and ultimately the sums of moneys that would be paid to King, but it did not put in doubt Besser's capacity to settle.

(a) By email dated 19 October Taylor advised Minter Ellison:
"I am now instructed by Mr Besser that irrespective of whether or not I have completed the negotiations with the overseas parties linked with restructuring of his project by Tuesday next, I am to effect settlement with your client on that day. My client has become increasingly troubled by the delays these negotiations are creating and appreciates the considerable inconvenience and anxiety those delays have caused to your clients.
Could we please therefore schedule for 2.30 p.m. on Tuesday 24 October at your office.
The deed of release needs to be amended to show the new amount due including payment of your reasonable legal costs …"

(b) Minter Ellison responded:
"Thank you for this information. I will have a copy of the amended deed emailed to you together with the cheque details shortly.
I have confirmed with our client that the settlement time is convenient."

(c) Taylor sent a further email referring to the above:
"Sorry to be a nuisance, but I need the items (below) ASAP if I am to get everything organised for tomorrow. Mr Besser has been hospitalised over the weekend and I now want to get the release couriered and bank cheques issued by remote control. Life wasn't meant … !"

(d)Further correspondence was then exchanged with respect to the question of what amounted to reasonable costs
(e)On 24 October 2000 Taylor had a telephone conversation with Besser at 9.00 a.m. The substance of the conversation was that Besser told him that he had had a terrible night. Besser said he had decided not to fund the project but he did not want to kill it just yet. He wanted to wait and see if the Minister for Defence did anything. As a result he did not want to settle with King that day. He said that his neurologist had advised him not to sign documents and settle financial obligations. He said there was fear of brain damage and he should wait until he was off medication. He wanted Taylor to cover for him. He said he was irrational and needed to take it day by day. In the course of the conversation Besser was rambling and questioning a lot of matters with respect to the project.
(f)On 24 October 2000 after this telephone advice concerning his client's situation Taylor sent a letter which stated as follows:
"I refer to our telephone conversation of this morning. I confirm my advice that I believe I have no alternative but to postpone the settlement due today, due to an inability to confirm my client's instructions. Earlier this year my client suffered an attack of viral encephalitis. As you may be aware this is a disease which involves the swelling of the brain and he required hospitalisation. Late last week, due to pressures associated with the project he has been working on and the need to restructure his financial affairs, my client suffered a severe relapse of this illness. He was admitted to Epworth Hospital on Friday and commenced a regime of medication designed to reduce the swelling of the brain and lessen the considerable pain which is a symptom of the illness.
He was discharged into home care on Sunday night with an arrangement that a nurse from Epworth Hospital visits twice a day to administer pethidine injections to control the pain. I have been informed and it is therefore my belief that the recurrence of the illness should ease approximately one week after its onset and it is the expectation that my client's medication will cease at the end of this week.
My current dilemma arises because my client is not currently coherent or (in a legal sense) capable. This is I believe directly due to the illness which can cause short term memory loss, disorientation and impaired judgment, the pain which obviously influences one's ability to think coherently and also the effect of the very strong painkilling medication.
For example I am in no doubt that my client is incapable of signing the deed in his present state but more importantly in his currently incoherent and medication affected state I am unable to satisfy myself that the instructions he gave to me last week (whilst coherent) are still his current instructions. There is sufficient doubt raised in my mind that I believe I am professionally bound not to take any positive action which might later be construed as contrary to his wishes.
By the same token I have tried to explain to him the consequences of my not being able to effect settlement, but I am not sure that he is capable of assimilating that information.
I believe therefore that I have no option but to defer settlement and reassess the position on a daily basis."

In the course of the hearing it was suggested on behalf of White Cleland that the reference by Taylor in his second email of 19 October to the fact that he would now need to "get the release couriered and bank cheques issued by remote control" should have alerted Minter Ellison and in turn King to the fact that Taylor did not hold the funds for settlement. I reject this submission. The terms of the previous correspondence had unequivocally stated that Minter Ellison did hold the relevant funds. The email was sent in the context of dramatic news that Besser had been hospitalised. The reference to bank cheques was at best inconsistent by implication with the previous advice in terms of ordinary solicitors' practice. No positive advice was ever given that contrary to the course foreshadowed in prior correspondence and the express advice of 12 October no funds had been received by Taylor.

King himself investigated Besser's state of illness. In particular King went to Besser's house at Brighton, spoke to Besser's wife in the street and made observations as to whether Besser was in a sick bed made up in the front room as Besser had previously advised. A Minter Ellison file note of 24 October records that King formed the view "think that it is all a sham". Whether or not the word "sham" was used by King it is clear that King did not accept that Besser was acting in good faith.

King was expressly advised by Minter Ellison in a letter of 24 October 2000:

"Even if Mr Besser will see you and sign the deed today Mr Taylor will still require his client's instructions and authority to release any funds from his firm's trust account. In light of Mr Taylor's opinion and Mr Besser's present physical and mental capacity as set out in his facsimile this appears unlikely without fresh coherent instructions from his client."

King elected to pay out the Burkes and the Churchwards and to take assignments of Besser's debt to them on 26 October ("the assignment transaction"). This was a Friday and the day before he went on a fishing trip to Queensland.

The Minter Ellison file documents which refer to discussion of the possibility of a mareva injunction make clear that King and his solicitors believed on 26 October 2000 that the funds were in White Cleland's trust account. A file note of 24 October specifically records a discussion with King which included reference to the following:

"Besser has no property/assets in Australia. Wants mareva/court orders to freeze funds."

A file note at 10.09 a.m. on 26 October records the following:
". advise would write to Taylor seek undertaking – advise client losing patience with delays;
·mareva injunction – need to be here to respond and swear affidavits;
·can be brought on if threat arises to shift funds – at this stage is none – solicitor confirmed is holding dollars – can ask for undertaking to be warned;
·can take matter to court then (undertake) action versus solicitor for breach of undertaking if provided;
·instructed if want to take forward to mareva – need account paid and 15 grand on account of court costs and barristers' fees – for writ need 5 grand;

· not heard anything from Taylor – will advise when do."

By letter faxed to Minter Ellison on 26 October Taylor advised that Besser had revised the terms of his offer but did not advise that White Cleland held no funds. King received a copy of this letter after he effected the assignment transaction with the Churchwards on the morning of that date and, I find on the balance of probabilities, after he had likewise effected the assignment transaction with the Burkes (although he conceded in cross-examination it was possible that it was before). The letter stated in substance as follows:

"My letter of 24 October outlined the difficult situation that my client was facing and the professional dilemma I was facing. My client continues to suffer considerable pain and remains on medication. He has, however, spoken with me yesterday and today to convey what are now his instructions.
Whilst Mr Besser appreciates that the deferral of settlement greatly annoyed your client, I am instructed that the prospect of moving forward to an early rescheduling of that settlement has not been helped by a subsequent confrontation between your client and Mrs Besser.
I am instructed that my client and his wife are greatly distressed by the nature of that confrontation. It has not helped Mr Besser's recovery, nor his attitude to effecting a prompt and amicable settlement of your client's loan.
I am further instructed that by making a commitment to repay the loan last Tuesday my client was causing considerable disruption to both his family's, and broader, financial affairs. He was putting your client's interests ahead of his own during a very complex and delicate period of negotiations and restructuring. Whether as a result of his illness or the outcome of Tuesday's unfortunate confrontation, my instructions in this matter have now changed. My client is now not prepared to disrupt his other arrangements in the manner previously intended and therefore proposes to settle the loan with your client under a different schedule of priorities.
My instructions are that my client will arrange for a partial repayment of $300,000.00 to your client next week, on the strict understanding that there be no further direct communications or confrontations with either my client, his family or his business colleagues (who were also contacted by your client on Tuesday). I am further instructed that the balance of funds owed to your client (together with all interest accrued thereon) and $5,000.00 towards your legal costs, will be paid within the next 20 days."

A typed file note recording a telephone conversation between Minter Ellison and King at 5.30 p.m. on 26 October 2000 after the assignment transaction had occurred includes reference to the terms of the undertaking which Minter Ellison proposed to put into the settlement deed concerning the holding of funds on trust for King.

The letter sent by Minter Ellison to White Cleland on 26 October 2000 (after the assignment transaction had occurred and which responded to the revised terms of settlement put forward on behalf of Besser that day) included the following:

"We refer to your email dated 12 October 2000 in which you confirm that you held sufficient funds to cover the full $857,762.07 plus accruing interest. In light of the continuing delays to effect settlement to this matter, our client also requires a clause to the following effect be inserted in the deed.
'Besser acknowledges that he has instructed his solicitors, White Cleland to:
(a)continue to hold sufficient funds in their trust account to pay out the settlement amount of dollars (to be calculated) and that these funds are to be held on trust for Lesley King;
(b)make the settlement specified in this deed on the date specified in this deed.'

Our client also requires that a letter be provided by White Cleland confirming that they hold these instructions from Mr Besser and that you will provide us with 48 hours' written notice prior to any withdrawal of these funds from your trust account …"

This letter and the terms of the ongoing discussions between King and Minter Ellison during the preceding days are clearly premised upon the fact that the funds are present in White Cleland's trust account.

At the time of the assignment transaction I find that:

(a)King believed approximately $860,000 was lodged with Taylor in Taylor's trust account.
(b)King knew that he had no entitlement against White Cleland to payment of the moneys. He understood that before settlement occurred two pre-conditions needed to be met:
(i) the funds must be available; and
(ii) Besser needed to give effective instructions to Taylor.
(c)Whilst King believed the funds were in White Cleland's trust account King knew effective instructions had not been given either because Besser was sick or shamming sickness.
(d)King knew he could have but had not sought a mareva injunction with respect to the funds believed to be in Taylor's trust account.
(e)I do not accept that King believed that he was entitled to notice before the funds were shifted from the trust account but even if he did the course he took was to make the payment knowing that he was about to depart for Queensland and go out of contact for the period of his holiday (although his wife was authorised by power of attorney to execute documents on his behalf).

In summary King knew at the time he paid out the Burke and Churchward loans and accepted assignments of debt with respect to them, that he had no present entitlement as against White Cleland to the funds due from Besser but he believed that the funds were in fact lodged with White Cleland in White Cleland's trust account. The conduct of White Cleland was misleading and deceptive and the plaintiffs were in fact misled and deceived by it.

E. Causation of Damage

I find further that at the time King effected the assignment transaction on 26 October 2000:

(a)King was very agitated as a result of the failure of the matter to progress and resolve. The sequence of telephone calls to Ms Bigby of Minter Ellison on 24 October shows this, including reference to the possibility of a claim for emotional hardship.
(b)King was understandably concerned as to his reputation as a financial adviser and it is in this regard that I understand the reference to the payments in the Minter Ellison file note of 26 October as having been made "to relieve some heat".
(c)King did not believe he was legally liable to the Burkes or the Churchwards and neither did the Burkes nor the Churchwards believe that he was liable to them. (This is despite those aspects of the original transaction which Mr Riordan has criticised namely the alleged element of conflict of interest, the alleged taking of a commission without disclosure of its terms to the Burkes and the Churchwards, and an alleged failure to properly advise the Burkes and the Churchwards of the risk of the project).
(d)King did have a genuine concern for the Burkes and the Churchwards. Mr Burke was a friend of long standing and the Churchwards were a couple he had already assisted by advancing $20,000 prior to settlement with Besser because Mrs Churchward was suffering from cancer.
(e)King wished to advance resolution of the matter. He was stressed personally and his wife was stressed. The payments were made in part to meet a psychological need to try and progress full settlement of the situation.
(f)King knew that there was a risk that he might not be paid and this is corroborated by the suggestion that he would provide for a hitman in his will if Besser did not pay him which is referred to in a Minter Ellison file note (albeit that I find this statement was not serious).

It follows that the presence of the funds was a material consideration affecting King's mind at the time he made the payments to Burke and Churchward. He understood, however, that he did not at that time have an enforceable right against White Cleland to compel payment of the funds. He further understood that there was a risk that he would ultimately not be paid.

In Henville v Walker[15] the High Court held that the appellants were entitled to recover damages pursuant to s.82 of the Trade Practices Act in circumstances where the loss was caused as a result of a judgment based both on misleading estimates of selling prices provided with respect to a property development venture by the respondent and by the careless estimate of cost calculated by the appellants. The loss also came about as the result of inadequate planning, poor project management and construction delays.
[15](2001) 75 ALJR 1410, 182 ALR 37

McHugh J analysed the notion of causation in the context of multiple causes as follows:

"[106]     If the defendant's breach has 'materially contributed' to the loss or damage suffered, it will be regarded as a cause of the loss or damage, despite other factors or conditions having played an even more significant role in producing the loss or damage. As long as the breach materially contributed to the damage, a causal connection will ordinarily exist even though the breach without more would not have brought about the damage. In exceptional cases, where an abnormal event intervenes between the breach and damage, it may be right as a matter of common sense to hold that the breach was not a cause of damage. But such cases are exceptional.
[107]    Of particular importance to the present case is the longstanding recognition of the possibility that two or more causes may jointly influence a person to undertake a course of conduct. In separate judgments in Gould v Vaggelas, Wilson and Brennan JJ emphasised that a representation need not be the sole inducement in sustaining the loss. If 'it plays some part even if only a minor part', in contributing to the course of action taken – in that case the formation of a contract – a causal connection will exist.
[108]    This principle has been applied in cases where a complicating factor is the intervention of some act or decision of the plaintiff or a third party that allegedly constitutes a more immediate cause of the loss or damage. Thus, in Medlin v State Government Insurance Commission Deane, Dawson, Toohey and Gaudron JJ said:
'The ultimate question must, however, always be whether, notwithstanding the intervention of the subsequent decision, the defendant's wrongful act or omission is, as between the plaintiff and the defendant and as a matter of commonsense and experience, properly to be seen as having caused the relevant loss or damage. Indeed, in some cases, it may be potentially misleading to pose the question of causation in terms of whether an intervening act or decision has interrupted or broken a chain of causation which would otherwise have existed. An example of such a case is where the negligent act or omission was itself a direct or indirect contributing cause of the intervening act or decision.' [emphasis added]

[109] Similarly, in respect of claims under s.82, courts have accepted that loss or damage is causally connected to a contravention of the Act if a misrepresentation was one of the causes of the loss or damage sustained by the claimant. As the Full Federal Court pointed out in Como Investments Pty Ltd (in liq) v Yenald Nominees Pty Ltd:
'The law does not consider cause and effect in mathematical or in philosophical terms. The law looks at what influences the actions of the parties. Acknowledging that people are often swayed by several considerations, influencing them to varying extents, the law attributes causality to a single one of those considerations, provided it had some substantial rather than negligible effect'." [citations omitted]

In my opinion the conduct of White Cleland was a material cause of the assignment transaction effected on 26 October 2000.

It was put on behalf of White Cleland that I should not accept this to be the case because the assignment transaction was substantially paid for with cheques funded by the sale of shares undertaken following the advice of 12 October 2000, but requiring a further period of approximately two weeks to complete. It was submitted that the payment with funds generated in this manner demonstrated that the plaintiffs did not rely on the email of 12 October, or the presence of funds in the White Cleland trust account as the basis of the assignment transaction.

In my view this is to confuse the mechanism adopted with the basis of the judgment made by King to enter into the assignment transaction. For the reasons I have given, I am of the view that King's belief that $860,000 were held in White Cleland's trust account was a material factor in causing him to make the decision to enter into the assignment transaction. It materially affected the risk which King believed attached to the transaction. In this sense it is analogous to the situation in Henville v Walker.

It was also put that a solicitor's letter sent to White Cleland on behalf of the plaintiffs by Keogh & Co. on 30 November 2000 was inconsistent with the plaintiffs' present claim. The critical inconsistency is that the plaintiffs sought the whole (rather than part of) the sum referred to in the email of 12 October 2000 from White Cleland. The first basis of the claim asserted is

"repeated representations on which our client has relied to its detriment that:
(a) funds were in hand for settlement of the debt due to our client."

I do not find that this letter adversely affects the plaintiffs' credit.

It was further put that the conduct of White Cleland could not be said to have caused the plaintiffs' loss and damage, because the plaintiffs were in any event liable to pay out the loans made by the Burkes and the Churchwards. This liability was asserted on three bases. Firstly, it was said that King had negligently advised his clients with respect to the risk associated with the loans made to Besser. Secondly, it was said King had failed to disclose to his clients a 5% commission paid to him by Besser with respect to such loans. Thirdly, it was said that King had failed when acting in a fiduciary capacity to disclose that he had a substantial personal interest in the underlying purpose of the loans namely the facilitation of the project.

It was objected on behalf of the plaintiffs that these contentions were not properly pleaded. The defence of the secondnamed defendant denies the ultimate allegation made on behalf of the plaintiffs that they have suffered loss and damage as a result of actions of the secondnamed defendant and says further:

"Further and without limiting the generality of the denial set forth in paragraph 40 hereof, if the Plaintiffs or either of them have suffered any loss or damage as a result of or consequent upon:
(a)the making of the payment to Burke of the sum of $60,143.88 which is referred to in paragraph 10 hereof; and/or
(b)the making of the payment, to Churchward, of the sum of $59,262.30 which is referred to in paragraph 13 hereof; and/or
(c)the making of the payments which are alleged in paragraphs 31(a) and 31(b) hereof (all of which is expressly denied by the secondnamed defendant), then that loss and damage:
(i)has been caused solely by Besser's failure to meet his obligations to Burke and Churchward pursuant to the loan facility and guarantee agreement referred to in paragraphs 10 and 13 hereof respectively; and
(ii)has not been caused by any actionable act or omission or breach of duty on the part of the secondnamed defendant."

It can be seen that the pleading does not comply with order 13.07(1) of chapter 1 of the Rules of the Supreme Court which provides:

"(1)A party shall with any pleading subsequent to a statement of claim plead specifically any fact or matter which –
(a)he alleges make any claim or defence of the opposite party not maintainable; or
(b)if not pleaded specifically, might take the opposite party by surprise; or
(c)raises questions of facts not arising out of the proceeding pleading."

It further fails to provide the particulars required by Order 13.10.

The failure to expressly plead or particularise the allegations of pre-existing liability upon which the secondnamed defendant now seeks to rely, might be thought to result in different consequences depending on the nature of the liability asserted. Thus one might regard the failure to particularise a case based on allegations of negligence as giving rise to different practical considerations than the failure to specifically plead or further particularise the other claims. For this reason I propose to analyse the evidence as to the contentions made, before expressing a conclusion as to the consequences of the form of pleading adopted. I should record, however, that despite the general form of the pleading Mr Riordan did foreshadow the general thrust of this line of defence early in the hearing. The second defendant's outline of argument delivered prior to the hearing specifically contended that:

"8.The plaintiffs' claim against White Cleland at its highest, is the difference between the amount paid for the assigned debts less:
(a) the value of the assigned debts; and
(b)the plaintiffs' pre-existing liability for the amount of such debts."

Relatively early in his cross-examination of Mr King, Mr Riordan responded to an objection in the following terms:

"Your Honour, in my submission, the relevance is fundamental to the defendant's case. It is said – this claim is brought on the basis that he paid out the two debts that have been unsatisfied by a creditor that he put them into. The case for the defendant is principally, the fact is, is that he was liable to pay those debts in any event if they weren't satisfied by Mr Besser, because he had recommended them to go into this scheme in circumstances where there are risks, in circumstances where he would have been liable, and that is why he paid out. That is why he paid out the ones he did pay out beforehand, and that is why he paid out Churchward and Burke, I didn't think there would be too much secret about that, but." (tp.102)

Insofar as it was submitted that Mr King was shown on the evidence to have negligently advised his clients as to the risk associated with the loans made to Besser, the secondnamed defendant has failed to persuade me for three reasons.

(a) It is difficult to positively conclude as to the precise terms of King's advice. Thus it is not clear that King positively asserted that the loans were of low risk or no risk.
(b) It is not possible to conclude such advice was negligent both by reason of (a) but more particularly because none of the documentation was put in evidence which formed the basis of King's opinion of Besser, the project and the loans. It is easy to be critical of the risk with hindsight, but it is important to recall that Besser initially appears to have persuaded Taylor himself that the project was a significant one and presented Taylor with impressive evidence of his substance and substantial association with the defence industry. Thus Taylor's evidence records:
"Besser's company was Aeronautical Defence Systems Pty Ltd of which he was the General Manager (Strategic Planning). While acting for him I travelled to Canberra and Queensland with him and met with senior officers in the Department of Defence and commercial organisations which had expressed an interest in the project. Besser told me that his background was one with Mobil Exxon, but that Aeronautical Defence Systems Pty Ltd was the facilitator in this arrangement between the U.S.A. Air Force, the RAAF, Qantas and other Australian connections. The first contract was estimated to be worth approximately $500,000,000.
Besser told me that he had substantial assets in the U.S.A. as a result of his time with Mobil Exxon and I had a number of discussions with Peter Black of Tenix Defence Systems and Jim Kelly, an ex Transfield senior employee who was the chairman of the board of Aeronautical Defence Systems Pty Ltd. They gave me glowing references about Besser."

It is quite clear King was bona fide in the assessment he made of the project and of the loans to Besser in association with the project. His own investment in the project and the loans made by his company to Besser demonstrate this. Once it is accepted that the opinion he held of Besser and the project was an honest opinion formed after discussions and investigations, it is difficult to conclude that King's advice to his clients was negligent without direct evidence of the material on the basis of which he formed his opinion. This is particularly so having regard to Taylor's evidence as to his own dealings with Besser. The case as to negligent advice was put most forcefully with respect to the failure to properly investigate the bonds which Besser put forward as demonstrating his substance. It has not, however, been shown as a fact that Besser did not have substantial funds invested in bonds at the relevant time. Further it is clear King's belief as to the substance of the bonds was formed in the context of a whole matrix of evidence as to the project including references from third parties. This matrix of fact was not satisfactorily evidenced before me.
(c) The evidence as to reliance by the clients upon representations made by King is also unsatisfactory. It must have been apparent to all that the loan was unsecured but short term with a relatively high rate of interest. Mrs Burke disputed that the Burkes did other than make their own judgment as to the investment risk in issue. Mr Churchward agreed in cross-examination that he understood that Besser had bonds overseas and he relied on King for the view that the payment of the loans was secure. Nevertheless this evidence did not give me a strong sense of conviction as to the actual terms of the advice and the manner in which it was relied on.

Putting the above matters together I am not satisfied that a claim for negligent advice has been established against King, although it is clear with hindsight he did seriously miscalculate the risk of dealing with Besser.

It was also said King failed to disclose to his clients that Besser had promised to pay him commission on the loans. King's evidence was that he did not charge the clients a fee with respect to these loans. It was apparent from his answers in cross-examination that Churchward found nothing improper in King charging Besser a commission and there was no evidence from either of the Burkes with respect to the commission issue. King was effectively selling a loan opportunity to the Burkes and the Churchwards. I do not accept that the fact of the payment of commission by Besser necessarily entitled King's clients to indemnity from him in respect of non-repayment of the loan. In particular it has not been satisfactorily established that the payment of such a commission was something which was not implicitly accepted by the clients.

It was also submitted, however, that King had a substantial conflict of interest when advising his clients because he was at the time of the loan transactions a party to an agreement whereby he, King, effectively purchased or sought to purchase shares in the company formed to carry on the project. He anticipated that this investment might be highly lucrative, returning $600,000 in short term dividends on his initial investment of $300,000 and providing him with long term equity in the project.

The evidence establishes that this investment was not disclosed to the Burkes but it does not satisfactorily establish that it was not disclosed to the Churchwards. Mr Burke could not recall whether it was disclosed to him but Mrs Burke was quite clear that it was not. King himself gave evidence as follows:

"Mr King did you tell Mr Burke that this was a company that you – I withdraw that. That this money was being supplied for the purposes of developing a company that you were acquiring equity in?---That I was developing equity - a company that I was – no, I didn't.
Why didn't you tell him that you had an interest in this money being advanced for this project because you had an interest in the project?----I just didn't.
Do you understand the concept of a conflict of interest?---Yes.
Is that something that you are instructed about in the course of your training as a financial adviser?---Yes. This was a loan directly with Besser himself, not with his company …
To the extent that it was for the project, do you acknowledge that you should have disclosed to them that you had an interest in the project, that is your customers?---To the extent that I should acknowledge?
I am suggesting to you that to the extent that the money was to be used in the project, you acknowledge that you should have told your customers at the very least that you had an interest in the loan, do you accept that?---I accept that."

It is quite clear from the evidence of both Burkes and King that King did present the loan transaction to the Burkes as comprising part of the finance for the project. In this regard they relied upon him as their financial adviser. It is also clear King's own agreement, like his clients, was with Besser not with the project company although its purpose was to acquire a beneficial interest in that company. The failure to disclose his own very substantial interest in the project, was in direct conflict with his duty to advise them dispassionately, fairly and loyally in their own interests. The failure occurred in circumstances where King held himself out to have knowledge of a project which was not generally public and indeed as he said in evidence confidential. In these circumstances, his clients were particularly vulnerable in terms of the advice he gave them.

The evidence with respect to the Churchwards is not, however, to the same effect. Mr Churchward said when cross-examined:

"Did he mention to you that he invested $300,000 in the project that you were lending the money for?---He didn't mention any amount, but he mentioned that he had put quite a bit of money into it. And he thought it was a good opportunity."

It was not initially put to King in cross-examination that he had not disclosed his interest in the project to Churchward in the same way as it was put with respect to the Burkes. A rolled up admission was ultimately obtained with respect to both the Burkes and the Churchwards after extended cross-examination on a wide range of issues (tp.251). Having regard to the evidence as a whole and the evidence of Mr Churchward in particular, however, I am not positively satisfied as to what was said or not said to the Churchwards concerning King's interest in the transaction. I therefore find on the evidence that King failed to disclose a conflict of interest to the Burkes but I am not satisfied he failed to disclose such conflict of interest to the Churchwards.

The role of a financial adviser does not fit within the traditional categories in which the courts have found a fiduciary relationship to arise (cf Maguire v Makaronis[16]). Nevertheless such categories are not closed. In Hospital Products Ltd v United States Surgical Corporation[17] Gibbs CJ said:

"The archetype of a fiduciary is of course the trustee, but it is recognised by the decisions of the courts that there are other classes of persons who normally stand in a fiduciary relationship to one another – eg, partners, principal and agent, director and company, master and servant, solicitor and client, tenant-for-life and remainderman. There is no reason to suppose that these categories are closed. However, the difficulty is to suggest a test by which it may be determined where a relationship, not within one of the accepted categories, is a fiduciary one."

[16](1997) 188 CLR 449

[17](1984) 156 CLR 41 at 68

His Honour then set out the approach of the Court of Appeal of New South Wales in that case:

"In the present case McLelland J said that there were two matters of importance in deciding when the court will recognise the existence of the relevant fiduciary duty. First, if one person is obliged, or undertakes, to act in relation to a particular matter in the interests of another and is entrusted with the power to affect those interests in the legal or practical sense, the situation is, in his opinion, analogous to a trust. Secondly, he said that the reason for the principle lies in the special vulnerability of those whose interests are entrusted to the power of another to the abuse of that power. The learned members of the Court of Appeal considered that the first of these statements needed a qualification which McLelland J had intended to suggest, namely that the undertaking to act in the interests of another meant that the fiduciary undertook not to act in his own interests; they said that the principle is that 'a fiduciary relationship exists where the facts of the case in hand establish in a particular matter a person has undertaken to act in the interests of another and not in his own'."

The Chief Justice further observed that he doubted that it is fruitful to attempt to make a general statement of the circumstances in which a fiduciary relationship will be found to exist because fiduciary relations are of different types, carrying different obligations. Nevertheless after analysing a number of authorities including in particular the decision of Asquith J in Reading v R[18], and further referring to the opinion of Dr Finn (as he then was) in his work on Fiduciary Obligations (1977) he concluded:

"The test suggested by the Court of Appeal in the present case seems to me not inappropriate in the circumstances, although it must be remembered that any test can only be stated in the most general terms and that all the facts and circumstances must be carefully examined to see whether a fiduciary relationship exists …"

[18][1949] 2 KB 232

Mason J said at CLR 96-97:

"The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations (cf Phipps v Boardman (1967) 2 AC 46 at 127), viz, trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners. The critical features of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions 'for', 'on behalf of', and 'in the interests of' signify that the fiduciary acts in a 'representative' character in the exercise of his responsibility, to adopt an expression used by the Court of Appeal."

Dawson J at 142 similarly observed that cases of fiduciary obligation involve a relationship where there is "a position of disadvantage or vulnerability on the part of one of the parties which causes him to place reliance upon the other and requires the protection of equity acting upon the conscience of that other."

In my opinion such a position of disadvantage and reliance arose in the present case. The loans were obtained for the purpose of a project peculiarly within the knowledge of King. It was a project which he understood to be confidential and he knew his clients relied upon him for advice as to its nature. He implicitly undertook to act in the interests of his clients and not in his own interests in giving advice to them.

This view is supported by the elucidation of principle specifically in the context of a professional adviser in The Duke Group Ltd (In Liq.) v Pilmer a decision of the Supreme Court of South Australia[19].
[19](1999) 73 SASR 64

At paragraphs 726 and 727 of the judgment the Court stated:

"There are many other authorities to which we could have referred. To do so would be largely repetitive of particular indicia of the fiduciary relationship which we have described. At least in the case of the professional adviser, the indicia referred to in the cases include:
·The exercise of a power or discretion;
·In the interests of another whose interests can be adversely affected by the person concerned;
·Where there exists a situation of vulnerability, whether described as being by way of influence or ascendancy in the relationship on the one hand or dependency, trust or confidence by another on the other hand.

Above all, it seems that a fiduciary duty will arise where there is an obligation of loyalty to act only in the interests of the client."

The Court went on to analyse the example of a valuer who gave valuation advice with respect to the value of a property in relation to which he had a direct commercial interest (paras.730-733). In my view King's position was directly analogous to this example. At paragraph 735 the Court stated:

"Thus, in our opinion, it is not the mere conflict of interest which gives rise to the fiduciary obligation to act in the interests of a client. In the case of the professional adviser, it is a situation of dependence or vulnerability, coupled with circumstances surrounding the nature of the retainer which give rise to the duty of unswerving loyalty to the client."

In the present case the nature of the circumstances was such that a duty of loyalty arose to the client because King not only purported to advise the clients as to the opportunity to make the loan but further advised them as to the nature of the purpose of the loan which was a project of which he had peculiar knowledge. In not disclosing his interest in the project, King breached this duty.

In these circumstances White Cleland has in my view established that King was under a liability to indemnify the Burkes with respect to any loss suffered in relation to the loan by the Burkes as at the date of the assignment transaction. Accordingly in my view King cannot be said to have suffered a loss with respect to that transaction. On the other hand no breach of fiduciary duty has been established with respect to the Churchwards.

Having reached these conclusions I return to the issue of the pleadings. Although it may be said that the defence of White Cleland should have better pleaded and particularised its case with respect to loss and damage, it is in my view entitled to make out a partial defence on the basis set out above. In this regard I observe that the facts upon which the defence was established were peculiarly within King's knowledge and further were directly admitted by him in cross-examination. In these circumstances I am not persuaded the plaintiffs have been prejudiced in the conduct of this aspect of the matter by a want of particularity in the pleading. In the circumstances I am prepared to dispense so far as is necessary with compliance with order 13.07(1) and order 13.10 of chapter 1 of the Rules of the Supreme Court. I should add I would not have reached the same conclusion with respect to the failure to expressly plead the allegations of negligence and non-disclosure of commission. In my view the plaintiffs were prejudiced in the conduct of their case with respect to both these issues by reason of the deficiency in the pleading. The total failure to particularise the alleged negligence disadvantaged the plaintiffs and the issue of commission was not raised prior to or during the evidence of the Burkes.

The defendants also assert that the plaintiffs have suffered no loss with regard to the assignment transaction because it is said the plaintiffs have not proved they will fail to recover the sums in issue from Besser pursuant to the rights acquired by reason of the assignment transaction. As at the date of my judgment, however, the plaintiffs have suffered this loss. Furthermore, I find that there is a strong probability on the evidence that they will not succeed in recovering the amount claimed from Besser. I further find that the assignment transaction with the Churchwards has resulted in a loss in respect of which the defendants are each liable. The claim is not an alternative claim in the sense referred to in Lauren v Jolly[20]. It may be that such claim could be the subject of contribution proceedings (although no such claim has been made before me). In Burke v LFOT Pty Ltd[21] McHugh J said (at para.49):

"However, the circumstances in which a court will order contribution are not closed. In recent years, courts have held that a difference in the causes of action pursuant to which two parties are liable will not of itself preclude an order for contribution between them[22] provided the liability of each 'is of the same nature and to the same extent'. In BP Petroleum Development Ltd v Esso Petroleum Co Ltd ([1987] SLT 345), BP was liable under a contract with the Shetland Islands Council for the cost of damage to the council's jetty. Esso was similarly obliged to pay for that damage, pursuant to statute. The Outer House held that the obligations of the two parties were 'substantially the same'. In those circumstances, Lord Ross held that they could properly be regarded as being under a common obligation, or liable for the same debt, even though their respective obligations had different sources ([1987] SLT 345 at 348):
[T]he origins of the obligation placed on the pursuers and the defenders are separate and distinct, but the obligation is a common one because each has to perform substantially the same obligation. [emphasis added]

[50] Although BP Petroleum Development took the doctrine of contribution to new ground, it did so by applying the basal principle – that the right to contribution depends on the claimant discharging a common obligation, that is to say, an obligation of the same nature and extent owed by the claimant and the defendant."

[20][1996] 1 VR 189

[21](2002) 187 ALR 612

[22]BP Petroleum Development Ltd v Esso Petroleum Co Ltd [1987] SLT 345 at 348 citing Lord Chelmsford in Caledonian Railway Co v Colt (1860) 3 Macq 833 at 844; Street v Retravision (NSW) Pty Ltd (1995) 56 FCR 588 at 597.

It follows that not only do I find that the misleading and deceptive conduct of White Cleland was a material cause of the assignment transaction, I find that as a result the plaintiffs suffered damage by reason of the consideration given for the assignment transaction with the Churchwards and that White Cleland is liable to them pursuant to s.82 of the Trade Practices Act and s.37 of the Fair Trading Act.

F. Negligence

In appropriate circumstances a solicitor may be liable for a negligent misstatement to a party other than his or her clients (eg Krambousanos v Jedda[23]).
[23](1997) 142 ALR 604

The essential pre-condition is that the circumstances of the statement are such as to create the necessary proximity between the solicitor and the recipient both with respect to the relevant class of statement and the relevant kind of damage. In Gala v Preston[24] Mason CJ, Deane, Gaudron and McHugh JJ said:

"The requirement of proximity constitutes the general determinant of the categories of case in which the common law of negligence recognises the existence of a duty to take reasonable care to avoid a reasonably foreseeable and real risk of injury."

[24](1991) 172 CLR 243

In Hawkins v Clayton[25] Deane J stated:

"As has been stressed in a number of recent cases in this court (see, eg, the judgment of the majority of the court in Cook v Cook ((1986) 162 CLR 376 at 381-2), a relevant duty of care will arise under the common law of negligence only in a case where the requirement of a relationship of proximity between the plaintiff and the defendant is satisfied. In the more settled areas of the law of negligence involving direct physical injury or damage caused by a negligent act, the reasonable foreseeability of such injury or damage is, of itself, commonly an adequate indication that the relationship between the parties possesses the requisite element of proximity (see, eg, Wyong Shire Council v Shirt ((1980) 146 CLR 40 at 44); Jaensch v Coffey ((1984) 155 CLR 549 at 581-2). That cannot, however, be said of cases in the area where the plaintiff's claim is for pure economic loss. In that area, the categories of case in which the requisite relationship of proximity is to be found are properly to be seen as special in that they will be characterised by some additional element or elements which will commonly (but not necessarily) consist of known reliance (or dependence) or the assumption of responsibility or a combination of the two (see, generally, Sutherland Shire Council v Heyman ((1985) 157 CLR 424 at 443-4, 446-8, 501-2)."

[25](1988) 164 CLR 539 at 576

It can be seen that such a duty is more likely to arise when the very terms of the solicitor's retainer require him or her to make the communication to the person in issue for the purpose of conveying a benefit to that person. As Sir Robert Megarry VC said in Ross v Caunters (1980) Ch 297 at 309:

"When a solicitor undertakes to a client to carry through a transaction which will confer a benefit on a third party, it seems to me that the duty to act with due care which binds the solicitor to his client is one which may readily be extended to the third party who is intended to benefit'."

In the present case the critical communication was with respect to the receipt of moneys by White Cleland which were intended to facilitate settlement with the plaintiffs. It must have been apparent to Taylor that King was likely to rely upon such advice and the terms in which it was given. It must also have been foreseeable that King might take steps in reliance upon that advice. In particular, it was foreseeable that King might pay out the Burkes and the Churchwards and take an assignment of the debts owed to them as he had already done (to Taylor's knowledge) with respect to Parker and Ould. In these circumstances a duty of care arose and Taylor breached that duty.

The situation is to be contrasted with commercial advice or advice about the propriety of an action. The advice here in issue was as to a matter of fact which King might reasonably be expected to rely on. Taylor intended King to rely on the terms of the advice but did not accurately convey his position in that advice.

The loss suffered by the plaintiffs was with respect to the value of part of the sum in respect of which the negligent advice was given. For the reasons I have set out with respect to the claim pursuant to the Trade Practices Act, I find that the advice was a material cause of this loss. Further I observe that no defence of contributory negligence has been pleaded.

In these circumstances, even if I had not been satisfied with respect to the claim based on misleading and deceptive conduct and made under the Trade Practices Act and the Fair Trading Act, I should have been prepared to uphold the claim for negligent misstatement with respect to the consideration given for the assignment of debts from the Churchwards.

G. Conclusion

For the above reasons there will be judgment for the firstnamed plaintiff against the firstnamed defendant in the sum of $432,856.01 and for the secondnamed plaintiff against the firstnamed defendant in the sum of $435,712.86.

There will be judgment for the secondnamed plaintiff against the secondnamed defendant in the sum of $59,262.30 being the consideration for the assignment transaction with the Churchwards.

I will hear counsel as to the question of interest and costs.

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LT King Pty Ltd v Besser [2002] VSC 354

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[2002] VSC 354

30 August 2002