Pilmer and Ors v the Duke Group Limited (in Liquidation) and Ors a46/1999

[2000] HCATrans 699

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Adelaide  No A46 of 1999

B e t w e e n -

ANGUS CLAYMORE PILMER

First Appellant

ALAN ROBERT CRAWFORD

Second Appellant

DOMENIC VINCENT MARTINO

Third Appellant

PETER JOHN MESSER

Fourth Appellant

PETER LAWSON MUNACHEN

Fifth Appellant

PAMELA ANNE ROBINSON and JOHN RICHARD LANGFORD as executors of the estate of GEOFFREY JAMES STOKES deceased

Sixth Appellants

ROBERT JOHN GRAY

Seventh Appellant

and

THE DUKE GROUP LIMITED (IN LIQUIDATION)

First Respondent

FRANCIS ANTHONY QUILTY and KEITH DANIEL SINGLETON

Second Respondents

HAROLD ABBOTT

Third Respondent

KEVIN CLARENCE SOMES  and SIR ERNEST LEE‑STEERE

Fourth Respondents

RONALD WILLIAM EDWARD ARNOLD and OTHERS (as per attached schedule)

Fifth Respondents

FRANCIS ANTHONY QUILTY and KEITH DANIEL SINGLETON

Sixth Respondents

HAROLD ABBOTT, KEVIN CLARENCE SOMES and SIR ERNEST LEE‑STEERE

Seventh Respondents

McHUGH J
GUMMOW J
KIRBY J
HAYNE J
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 23 NOVEMBER 2000, AT 11.38 AM

(Continued from 7/4/00)

Copyright in the High Court of Australia

___________________

MR A.J. MYERS, QC:   May it please the Court, I appear with MR A.J. PAGONE, QC and MR P. ZAPPIA for the appellants.  (instructed by Phillips Fox)

MR R.J. WHITINGTON, QC:   May it please the Court, I appear with my learned friends, MR S.J. LIPMAN and MR S.J. DOYLE, for the first respondent.  (instructed by Fisher Jeffries)

McHUGH J:   There has been some communication between the Registrar and solicitors representing various respondents concerning their attendance here today.  I do not think there is any need to read it on to the record.  The fact is that the solicitors for the appellants have filed a notice of service of the written submissions on all the relevant parties and the solicitor for the first respondent has filed an affidavit of service deposing to the service of the first respondent’s written submissions upon the second and fourth respondents, so I think we just proceed, Mr Myers.

MR MYERS:   Thank you, your Honour.  Your Honours have, or should have, on behalf of the appellants the further written submissions and also a written reply.

McHUGH J:   Yes.

MR MYERS:   I just check in relation to the latter document.  The submissions are, indeed, written submissions, not an outline and I do not wish to burden the Court with any repetition of what is in them.  Your Honours, it is the appellants’ contention that the Full Court did err in finding that the appellants breached a fiduciary duty owed to Kia Ora.

GUMMOW J:   Or that they had one, in the first place.

MR MYERS:   There are two issued wrapped up in the first question.  Your Honour is quite right.  We say there was no duty and we say that, in any event, there was no breach.  The way the Full Court approached it, after dealing with the question whether a fiduciary duty was pleaded, was very simple.  The Full Court held that there was a duty, described as a fiduciary duty, not to accept the retainer.  That is, in particular, to be found in paragraphs [782] to [785] of the judgment and again, in paragraph [880] of the judgment.

The fiduciary duty that was found was not, as the appellants said before the trial judge and before the Full Court, pleaded.  The only words that constitute the plea of the fiduciary duty are found, for example, in paragraph [704] of the judgment and then in paragraph [707].  They are the same words, I believe.

At the end of a very long paragraph 64A, which ran, from recollection, for about 95 pages and is now in the supplementary appeal book, which was really like – it did not read in a coherent way would be the kindest way of describing it.  In paragraph 64A.2(a) it was alleged “Nelson Wheeler breached the express term of the retainer to be independent.” and then 64A.2.2: 

Nelson Wheeler breached the implied term of the retainer and the duty of care to be independent referred to in paragraph 19.7 of the statement of claim and were in breach of fiduciary duty owed to Kia Ora and its shareholders. 

Those words that are italicised in the report are the only plea of fiduciary duty in about 350 pages of statement of claim, all of which your Honours have before you.

The Full Court below said that it was sufficient, and in paragraph [711] and [712] they deal with that issue.  We still assert that there was no proper plea of fiduciary duty and one could not properly be expected to meet a claim based on a fiduciary duty on that basis.

Do your Honours have, may I respectfully inquire, a copy of the decision of the Full Court?  Is that the difficulty?

McHUGH J:   I should have.  It is in volume 31 of the Australian Companies Security Report  ‑ ‑ ‑

MR MYERS:    Yes, it is.

McHUGH J:    ‑ ‑ ‑ but it should be around somewhere, I do not know where.

CALLINAN J:   Yes, you provided us with a photostated copy.

MR MYERS:   Yes, it was supplied last time.  There are paragraph numbers and I am going to refer to the paragraph numbers because I thought on the last occasion some of your Honours were looking at the Federal Law Reports and that is what I have brought along today.

McHUGH J:   I have got it now, yes.

MR MYERS:   But it is all paragraph numbers.  Now, as I said, the way in which the fiduciary duty was ultimately found by the Full Court is in paragraphs 782 to 785, under the heading ‑ ‑ ‑

HAYNE J:   At some point, Mr Myers, could you have somebody turn up and give me a reference in the supplementary appeal book to where in that I find the particular paragraph of the pleadings, paragraphs that are extracted.

MR MYERS:   Yes, page 217, your Honour.

HAYNE J:   Thank you.

MR MYERS:   It is right at the bottom of the page.  Those words, right at the bottom of page 217, if your Honour has got it.

HAYNE J:   Yes.

MR MYERS:   That is the full extent, and I do not exaggerate, 350 pages of pleading of the reference to fiduciary duty.  In any event, the Full Court held that the duty was a duty not to accept the retainer.

GUMMOW J:   Where do we actually see that?  Where do they actually say that, paragraph?

MR MYERS:   Yes, they do say that.  It is paragraph [783], excuse me, no.

CALLINAN J:   I think it is [786], is it not?

MR MYERS:   Yes, I accept that is right, I am very sorry.

GUMMOW J:   Yes, I see.

CALLINAN J:   And at [787].

MR MYERS:   They certainly say it in terms ‑ ‑ ‑

GUMMOW J:   Paragraph [787].

MR MYERS:   Yes, [787].  As I said, I do not want to repeat what we have put in written submissions, but just really to emphasise it.  It is a remarkable conclusion because it follows from that and the decision of the court concerning causation and the assessment of damages that if Nelson Wheeler had written a perfectly correct and accurate report that something had gone wrong whereby the company had suffered a loss as a result of the take-over transaction, for example, because the stock market had decline and the directors had still decided to go ahead, Nelson Wheeler would have been responsible for the whole of that loss.

GUMMOW J:   You get into a Canson v Boughton-type situation, I suppose.

MR MYERS:   I am sorry, your Honour?

GUMMOW J:   You would say you get into a Canson v Boughton type situation, which would cut that off

MR MYERS:   Yes.  Yes, at paragraph [830], for example, their Honours make that clear.  They say:

The breach of fiduciary duty we have identified has nothing to do with the nature and content of the report supplied by NWP –

Nelson Wheeler –

although that will have a bearing on the quantification of any loss flowing from the breach –

The other remarkable thing about the decision is that, in truth, Nelson Wheeler could and should only be responsible for any loss which is caused in some relevant sense by their incompetence in preparing a report.  That is a subject matter which is perfectly adequately dealt with by the law of contract and by the law of torts.  There is no reason in policy whatsoever for the court to be imposing a fiduciary duty in these circumstances.

GUMMOW J:   What was the conflict said to be?

MR MYERS:   The conflict was said to be antecedent connections between members of Perth firm of Nelson Wheeler and some of the directors, which might have led them to be regarded as not fully independent.  For example ‑ ‑ ‑

GUMMOW J:   What does the word “independent” mean though?

MR MYERS:   Well, it can only mean, in that context, liable to be swayed to write something that is incorrect.  For example, Nelson Wheeler Perth maintained the share registry for Kia Ora.  Some of the members of the partnership of Nelson Wheeler Perth had had business dealings with some of the directors of Kia Ora, Mr Stokes, in particular.  Mr Stokes was the director of the company which had purchased the Marvel Loch Gold Mine for a large sum of money, about $80 million, which had put Kia Ora in receipt of this large amount of cash which it was claimed was lost through this transaction.  So it is a question of some antecedent connections.

Your Honours, one also needs to consider the nature of the retainer.  The nature of the retainer is made clear by a consideration of the terms of the listing rule itself, and the listing rule itself provides that the directors, in these sorts of circumstances, need to put before a meeting of shareholders, at which only unassociated shareholders can vote, any reports or valuations tending to show that the price which is to be paid in the takeover is fair.  So Nelson Wheeler were engaged to write a report as to whether the proposed price, which had already been determined by the directors, was fair or not.

So their only task was to write a report which could be used by the directors to put before the unassociated shareholders meeting as to whether the price was fair.  They were not engaged as advisers for the company.  They had no role in the management of the company.  When they wrote their report and handed it over, or put it in the mail, that was the end of their function.  They had no right to attend the meeting.  They did not even have a right to know whether the meeting was held or not.  They were not advisers.  They had no management role.  They were not handling property.

The report itself was expressed, as your Honours will have seen, to be a report for use by the directors at a meeting of unassociated shareholders.  It was not a report which Nelson Wheeler ought to have expected, in the circumstances, would be acted upon by any organ of the company, by the directors or by the shareholders in a general meeting.  The meeting, at which the report was considered, was not a general meeting because not all shareholders could vote, and Article 56 of the articles required that.

Nelson Wheeler were not acting, in any sense, as the agent or representatives of either the company or the directors.  Nelson Wheeler were not, in any sense, performing any of the fiduciary or management functions of the directors.  They had no discretion as to the taking of any step.  The meeting itself, at which the report was considered, was only an enabling meeting for the purposes of the stock exchange rules.  The resolution that was put forward was expressed to be a resolution authorising the directors, for the purposes of the listing rules, to decide to proceed with the takeover.

Your Honours, we say, with respect, that there is not any indicium of fiduciary relationship present that could be the only subject matter of a fiduciary relationship.  That is the report itself.  The Full Court said that it is the whole engagement which is the subject of the fiduciary relationship.

McHUGH J:   The Full Court said though, did it not, that there is more to this than simply the provision of a professional opinion as to the value of Western United?  They listed a number of factors in paragraphs [739] through [745] and concluded that:

Both the company as an entity and the non‑associated shareholders relied on NWP’s expertise and independence in the sense that they knew that the takeover could not proceed without NWP expressing an opinion that the takeover price was fair.

That is the way they have put it.

MR MYERS:   It is only in a very limited sense that the takeover could not proceed without the opinion.  The listing rules required that there be a meeting at which unassociated shareholders and that the directors put before them reports, et cetera, which showed the price to be fair.  As a practical matter, we would concede, as I did below, that, unless there was such a meeting and there was such a report, the takeover would not proceed.  But it is only in that limited sense.

McHUGH J:   What do you say about the sentence in paragraph [745]?

the circumstances were such that NWP were no longer merely undertaking a professional valuation, but a report, the circumstances giving rise to which made it perfectly obvious that there was a necessary expectation that NWP would act solely in the interests of Kia Ora as a whole in preparing the report.

That is about as close as ‑ ‑ ‑

MR MYERS:   We say that they were merely undertaking a professional valuation.  There was nothing else that they did.  All they did was write a valuation report and provide that to the directors and then the directors chose to give it to the unassociated shareholders meeting.  I will just come back to that.  We urge your Honours to remember the timing of all this.  The report is dated 9 October.  The stock market crash occurs in Australia on 20 October.  The meeting is later in that week, I think 22 October.

GUMMOW J:   26 October.

MR MYERS:   26 October, I am sorry.  Even there one would have expected that the directors would have done something, but they just let the meeting go ahead.  The directors put before the meeting a letter signed by Mr Quilty, which is in the Court book, which was extremely positive about this takeover.  It contained a lot of puffery and so on.  The directors then shortly after the 26th met and decided to go ahead with the takeover.  They then got a report from Horwarth and Horwarth which showed that the value attributed to the shares in the takeover by Nelson Wheeler was too high and considered it and still went ahead with the takeover.

They then dispatch the takeover documents.  They then on two occasions waive conditions which, if not satisfied, would have led to the takeover coming to an end.  So they continued on and on and on after the meeting.  That really emphasises ‑ and this is where I bring it back to that sentence, your Honours – Nelson Wheeler were not running the company.  They were not making management decisions.  They did not have the fiduciary responsibilities.  They were just professional advisers.  They did not even know any of these things.

McHUGH J:   I appreciate that, but the way it is put against you is that Kia Ora put its trust and confidence in your clients to look after its interest and that it was vulnerable – and I think they actually used the term “vulnerable” at some stage – and therefore there was a fiduciary duty arising from that fact, that they put themselves in NWP’s hands, so to speak.

MR MYERS:   We say to that, your Honour, with respect, that it is a very inexact and inaccurate way of describing what happened.  Nelson Wheeler were commissioned to write a report as to the fairness of the consideration and they did so.  Your Honours have got the report.  It does nothing more than that and it sets out the reasons for it.  In what sense, one asks, could Kia Ora put itself in the hands of Nelson Wheeler.  It could only put itself in the hands of Nelson Wheeler in the sense of expecting Nelson Wheeler to write a competent report.

The directors were those in whose hands Kia Ora was.  The directors had to make the original decision about the proposed takeover, instruct Nelson Wheeler about what price and terms there were of the takeover, so they expressed the view about whether the price was fair, not whether the takeover was fair but whether the price was fair, then the directors had to make a decision in the circumstances obtaining after 20 October about what to do.  Nelson Wheeler had no access to information about the company after they had written their report.  They had no management role.         One asks, “In what sense was the company in their hands?”  It was not in their hands at all.

HAYNE J:   Was a report of fairness sine qua non to the transaction proceeding?

MR MYERS:   In a practical sense, your Honour, not in a legal sense.  But we would accept that if there was not a fairness report and it was not laid before a meeting of unassociated shareholders and the unassociated shareholders did not vote in accordance with the stock exchange rule, even though none of that was required by the articles, the takeover would not have gone ahead.

HAYNE J:   If Nelson Wheeler had given a report that was negative, that is, “The price is unfair” would that report have had to be placed before the shareholders at the listing rule meeting?

MR MYERS:   Well, one would say that the directors would have a fiduciary responsibility to do that, your Honour.  If it is that sense in which your Honour is saying “would” the answer must be “yes”.  Would these directors have done it?  Well, it was found that they were acting fraudulently, in the end.

GUMMOW J:   Well, they might have gone off and got another opinion.

MR MYERS:   One suspects that they would have, but I am answering his Honour’s question on the two levels, I think, that it is asked and I would concede that ‑ ‑ ‑

HAYNE J:   But had they obtained an expert who had given a favourable report as well as a report that was unfavourable, and if the directors had abided their duty, would they have been bound to place both reports before the meeting?

MR MYERS:   Well, in my submission, as a matter of performance of their fiduciary duties, they would have been so bound.  If used “bound” in the sense “would they have done” well, who knows, but, they were pretty ‑ ‑ ‑

HAYNE J:   I understand that.  Well, then, coming back to the passage which Justice McHugh took you to at para [745], the statement that Nelson Wheeler would act solely in the interests of Kia Ora, their Honours in the Full Court go on to say:

That immediately gave rise, in turn, to the duty avoid acting in their own interests or in the interests of any party that would be in conflict with –

Was any argument advanced, whether at trial or on appeal, which, as you understood it, identified an acting by Nelson Wheeler in their own interests or in the interests of a party in conflict with those of Kia Ora?

MR MYERS:   No, your Honour.  Now, this was, I should say, a hot matter through the trial because the plaintiffs’ case was predominantly a case in tort and/or contract.  Then, later on, there was this long paragraph 64A that came in, which your Honours have seen the concluding words of.

From time to time, counsel on behalf of the plaintiffs said things which suggested that allegations beyond incompetence were being made against Nelson Wheeler and I believe that on every occasion there was an outcry by counsel acting on behalf of Nelson Wheeler to say, “Is there any allegation of impropriety, fraud?”.  It was expressed in different ways at different times and always it was resolved on the basis, no.

HAYNE J:   But do you understand then the Full Court to point, in its reasons for judgment, to an acting in own interests or an acting in the interests of a party in conflict with those of Kia Ora?

MR MYERS:   What the Full Court said in this matter is at paragraph [775], your Honour.  This is, admittedly, dealing with one memorandum:

It cannot be said that in the preparation of the 3J(3) report NWP was, on that account –

on account of the memorandum –

acting in its own interest.

HAYNE J:   Perhaps my question, ultimately, has to be directed more to Mr Whitington than to you, Mr Myers, but if you were able to point to any passage in the judgment which went to this aspect of the matter it ‑ ‑ ‑

MR MYERS:   Paragraph [790], I believe, goes to this aspect of the matter as well.

The breach of fiduciary duty in this case –

I am reading from the last sentence of [789] –

was in providing the report at all.

[790]  Unlike many situations…..no dealings with any trust property…..They did not wrongly apply such property…..They did not mismanage property entrusted to them.  They did not profit in any identifiable way from entering into the transaction they did, other than by being paid a fee.

I know it is not absolutely hitting the nail on the head as far as your Honour is concerned but ‑ ‑ ‑

HAYNE J:   It is simply that on my reading of the judgment, which may be insufficient, I am not conscious of the Full Court taking up that amplification of the duty, which you get at the end of [745] and saying ‑ ‑ ‑

MR MYERS:   I believe that is so, your Honour.  I believe that is so, with respect.  I would just like to make one point in addition, your Honour, and it is not a mere verbal quibble in this sentence:

NWP would act solely in the interests of Kia Ora as a whole in preparing the report.

Well, let us leave the final phrase “in preparing the report”.  In what sense could Nelson Wheeler act in the interests of Kia Ora?  The only way that they could act in the interests of Kia Ora was to prepare a report which gave a correct or fair assessment of the value of the consideration passed in the takeover.

HAYNE J:   By performing the retainer that they were engaged in.

MR MYERS:   By performing the retainer, and the law deals with these retainers.  Now, there were lots of allegations of impropriety and, indeed, fraud against the directors and there was a tendency to try and associate these misdemeanours of the directors with Nelson Wheeler but, in fact, the case against Nelson Wheeler, which was pleaded and particularised and run, did not involve allegations of impropriety, did not.

GUMMOW J:   It was not said, for example, that Nelson Wheeler was assisting, with knowledge, a breach by the directors.

MR MYERS:   No, certainly not.  Certainly not, that was never suggested.  What was suggested was that Nelson Wheeler were too close to the directors and that might have affected the quality of their report.

HAYNE J:   Well, that is flirting.  At least flirting ‑ ‑ ‑

MR MYERS:   Flirting.  That is really as far as it went.  Perhaps, with respect, your Honours, when Mr Whitington has said what he might say about this, there might be something to say by way of reply.

CALLINAN J:   Mr Myers, on that point, I notice that the plaintiff pleaded, at page 11, the policy statement by the Commission ‑ ‑ ‑

MR MYERS:   Yes, it did.

CALLINAN J:   Which includes:

The value of the expert’s report will depend substantially on both the motivation of those who engage him and the professionalism and the objectivity which he displays: the expert’s performance can be influenced by who engages him –

It seems to me that that may go to negligence, but it may also go to the possibility of fiduciary duty.  I do not know what bearing the policy statement can have on the matter but it does not seem to be a bad statement of the reasonable expectations that one might have of an independent professional adviser.

MR MYERS:   One can have an expectation, perhaps, in general terms, that the person who writes this report will be independent, that is to say, independent of the directors.  Is that sufficient, one asks, to convert the writing of the report into the subject matter of a fiduciary duty?

CALLINAN J:   A 3J report is always going to be commissioned by the company, or by the directors of a company, which is involved in the takeover.

MR MYERS:   It is.

CALLINAN J:   There is just one thing you said before, if the expert’s report had not been obtained, the company would have been de-listed, would it not?

MR MYERS:   Well, that would have been one sanction.  Whether that would have happened, one does not know, but – well, listing rule 3J(3) is part of a contract between the company and the stock exchange.  That is all one can say about it.

CALLINAN J:   So it would be virtually inevitable that it would have been de-listed, quite apart from what other consequences would have flowed.

MR MYERS:   From the practical point of view, one would expect that the takeover would not go ahead without the meeting and the 3J(3) report, and one can imagine that there would be a lot of complaint made if the directors had tried to do that and we concede that, in a practical sense, it is a sine qua non, as one of your Honours said before.

HAYNE J:   Could I test the situation against a case where the expert retained has, in fact, a very significant parcel of shares in the target company?  What analysis, if any, would one make of that circumstance, by reference to notions of fiduciary duty?  There would be, plainly, a commercial interest in the outcome of the takeover.

MR MYERS:   The farthest one could go in claiming a fiduciary duty would be to take from that person a profit he might have made in the takeover on the shares.  That is the bottom line of my answer, your Honour.

HAYNE J:   The language of the Full Court, if adopted and accurate, would seem to lead to the conclusion that in that kind of case, the expert could not properly accept the retainer ‑ ‑ ‑

MR MYERS:   Yes, it would ‑ ‑ ‑

HAYNE J:   And then there would be consequences ‑ ‑ ‑

MR MYERS:   It would lead to that.

HAYNE J:   - - - debatable consequences about what equitable compensation, if any, or other relief, would go.  But does that shed any light on whether the characterisation of the relevant relationship is one which properly includes reference to fiduciary obligation?

MR MYERS:   In my respectfully submission, it does not because one still gets back to this.  If the report is competent, the lack of independence does not matter.  If the report is incompetent, it is because someone has relied upon it and suffered a loss thereby which matters. 

HAYNE J:   But it may highlight the fact that competence reflects a range of outcomes, that is, a competent valuation might put the value of these shares at somewhere between X and Y.  Fiduciary obligations expect – I was going to say expect rather more precise outcomes – they expect them ‑ ‑ ‑

MR MYERS:   With respect, what your Honour says is correct, yes.  May I say something about independence because it is important in the background here?  Your Honours will have noticed that the Full Court held quite clearly that there was no implied contractual obligation of independence in these circumstances.  Now, your Honours say, “Well, that stands at odds with the idea of a fiduciary duty”, but not when you consider the circumstances of the case.  The Full Court was bound to so hold because the directors who engaged Nelson Wheeler knew of all the associations between themselves and Nelson Wheeler which were complained of.

CALLINAN J:   Mr Myers, what about paragraph 9 on page 12?  The paragraphs that follow 64A.1 allege ‑ ‑ ‑

MR MYERS:   I am sorry to interrupt.  Your Honour is looking at the pleadings?

CALLINAN J:   Yes, at page 12, for the record.

MR MYERS:   Yes.

CALLINAN J:   The paragraphs that follow 64A.1 allege a number of associations.

MR MYERS:   Yes, they do.

CALLINAN J:   I have not gone into the detail of those, but it seemed to me that they looked as if they might well be associations of the kind to which the statement from the policy report which appears in paragraph 9 refers.  It seems to me that they could well be associations of that kind.  The policy statement apparently requires that they be disclosed.  Were they disclosed?  Am I right to say that ‑ ‑ ‑

MR MYERS:   No, they were not disclosed in any sense.  They could not be disclosed to the directors because the directors knew them and they were not disclosed ‑ ‑ ‑

CALLINAN J:   No, but this is the point, disclosed in the report?

MR MYERS:   No, they were not.

CALLINAN J:   It says quite expressly, as a matter of policy, “The expert should disclose, in his report”, which would give the requirement some meaning.  It would be pointless to disclose them to the directors; they knew.  But the report would disclose them to all of the shareholders.

MR MYERS:   No, your Honour, they were not.  But, on the other hand, it is not alleged that Nelson Wheeler or any of its partners got anything out of this, except the fee of $19,500.  It is not a case like Justice Hayne was putting by way of hypothesis before, or illustration, that one of the writers of the report had an undisclosed financial interest in the outcome of the ‑ ‑ ‑

CALLINAN J:   But this paragraph does not require it, this policy statement, depending upon the effect you give to the policy statement.  But it does not require it because obviously it contemplates that the benefits might be accruing in other areas and in other directions and those benefits, or the possibility of those benefits, might make the experts partial when they make their report and the fiduciary obligation not to be partial.  I am only raising it as a possibility, Mr Myers, but I do not think you can ignore the policy statement entirely.

McHUGH J:   No, and it applies in another way as well, does it not, because Nelson Wheeler had valued part of Western at an earlier stage?

MR MYERS:   Yes.  A Mr Crawford, one of the partners had, yes.

McHUGH J:   Yes, one of the partners had.  Maybe it is working backwards, in a way, but ‑ ‑ ‑

MR MYERS:   A Mr Newman, an employee of Nelson Wheeler, actually wrote the report, and a Mr Pilmer, a partner, signed it – I think that is a fair enough way – reviewed it and signed it, but Mr Newman wrote the report.  Now, Mr Newman gave evidence and was cross‑examined at great length and he did not know of Mr Crawford’s report.  So it was not a question of dishonesty in concealing the existence of that report, but merely that it was overlooked by the author.  There is a disharmony between the two reports, that is certainly true.  As part of the entire valuation of Western United, the stockbroking business was given a higher valuation in the 3J(3) report than it was in the earlier report.

McHUGH J:   So is your answer that the relevant arm of NWP did not know of this?

MR MYERS:   Yes, it is, your Honour.

McHUGH J:   The Full Court seemed to have placed a great deal of emphasis on that, did it not, in terms of breach?

MR MYERS:   Yes, they did.  At page 286 of the trial judge’s reasons, this is dealt with.  It is at about point 7.  I do not know whether your Honours want me to read it.

In my view, the April 1987 valuation was of critical importance.  If Pilmer and Newman had been aware of it, they would have been obliged to consider

it.  The next paragraph:

It is not to the point that Newman (and Pilmer if that was the case) were not actually aware of Crawford’s valuation. 

So Newman himself was not aware of it.  He was cross-examined and Pilmer did not give evidence, so one cannot be absolutely sure in the end.

McHUGH J:   That second paragraph is directed to breach of the duty to take reasonable care, is it not?

MR MYERS:   Yes, it is.  So the Full Court have used that in a sense that ‑ ‑ ‑

McHUGH J:   Yes, they used it as evidence of a breach of fiduciary duty.

MR MYERS:   Yes, they did.  I do not want to descend into every detail of these sorts of things.  There are an enormous number of factual issues that can be addressed and, with respect, your Honours, it would really be better to address them if any of them are relied upon in particular by my learned friends, but that is the answer to that one.  It is one we thought may possibly be relied upon and the Full Court has just used it in a different way.

CALLINAN J:   Should not the partner who is signing the report or making the valuation talk to the others to ‑ ‑ ‑

MR MYERS:   He probably ‑ ‑ ‑

CALLINAN J:   Most big solicitors’ firms have a client register and they go to it.  Indeed, they understand that there is an obligation to go to it to check to see whether other partners or other people in the firm may have advised.

MR MYERS:   He probably should, but the fact of it is the man who wrote the report, Mr Newman – he did write the report.  He did all the work and he wrote the report.  He did not know about it.

CALLINAN J:   The firm got the benefit of the fee, the whole firm.

MR MYERS:   Yes, and it might be negligent.  In the end, Nelson Wheeler conceded that there was negligence, that the report was incompetent.

CALLINAN J:   I am very uncomfortable with the idea of a partner being able to take the benefit of ignorance.  Just in the same way as a corporation has to act through its officers, if one officer does not know something, that cannot be an excuse if some other officer knows it.

MR MYERS:   That was not this case exactly, your Honour, but we accept that the report was negligent.  All I am contending before your Honours today is that this is not an occasion for imposing a fiduciary duty, and the fiduciary duty that the Full Court said was imposed is, with respect, unsustainable because it leads to absurd results and it ignores the substance of the matter, which is that here is a complaint about the competence of a report, or the fairness, accuracy, whatever one likes, of a report.  If any loss followed in this case which is attributable to that report, it has to be loss which occurs because the report is wrong – I am using the words very loosely – and someone relied on it.  In fact, we say no one relied on it because the directors who made the decision knew all along that the report was no good.  It was certainly no good after the stock market crashed.

GUMMOW J:   I think one way of looking at this is to say what the Full Court did comes to this, that it was not, as fiduciary duties ordinarily are, proscriptive; it was prescriptive in the sense that Nelson Wheeler had some duty to the company to refuse to take the retainer because, if it did, the company was at risk of not complying with the requirements for an independent report.  That would be a step forward, I think.  It would be a Canadian type duty, I think.

MR MYERS:   It would.  Indeed, it would go further than the Canadian‑type duty because, just taking your Honour’s simple hypothesis, what if the company said, “Look, we know about all these” ‑ ‑ ‑

GUMMOW J:   Well, the company for this purpose is the directors.

MR MYERS:   Yes.

GUMMOW J:   So they obviously cannot go to a general meeting to hold it all up.

MR MYERS:   No.

GUMMOW J:   So the only thing they can do is not act.

MR MYERS:   The directors?

GUMMOW J:   No, Nelson Wheeler.  They cannot be retained by these directors, in other words.

MR MYERS:   But if the directors say to Nelson Wheeler, in your Honour’s case, “Look, we know about all those problems” ‑ ‑ ‑

GUMMOW J:   Yes, but Nelson Wheeler has got to say, “Okay, you know but the shareholders do not know, so, off.  Get out.”

MR MYERS:   Nelson Wheeler must say, “Well, we won’t do it.  Even though you are begging us to do it and” ‑ ‑ ‑

GUMMOW J:   That is right.  I think that is what it has to come to.

MR MYERS:   Yes, it does, your Honour.  “Even though you are begging us to do it and” ‑ ‑ ‑

CALLINAN J:   No, they can do it so long as they disclose in the report, as the policy requirement insists, or suggests, what their associations are, any reasons as to why they might not be independent.

MR MYERS:   But no loss is caused by the failure to make that disclosure, if it is a good report.

CALLINAN J:   No, I am just making a response to what you said to Justice Gummow, that it is not simply a question of not acting.  The alternative might be to act but disclose, as the policy requirement contemplates.

MR MYERS:   Well, that is not something that the Full Court would allow.

CALLINAN J:   No, but it was pleaded.

MR MYERS:   Well, what was pleaded was, “And they were thereby in breach of fiduciary duty at the end of” ‑ ‑ ‑

GUMMOW J:   But that will be another form of prescriptive fiduciary duty.

MR MYERS:   Yes, it would be.

GUMMOW J:   Yes.

McHUGH J:   Suppose I am contemplating buying a property and I go to a builder and I say, “I want you to inspect this.  I am going to reply on your report in determining whether I should buy this property”.  Is there a fiduciary duty owed to me by the builder, in those circumstances?

MR MYERS:   In that simple case, no, your Honour.  No, your Honour.  If the builder – perhaps I did not quite – could your Honour, with respect, repeat it?  I am sorry, I might not have caught something.

McHUGH J:   Yes.  Well, I am contemplating buying a property.  I go to a builder and I say, “I want you to inspect this for defects and so on.  What you say will be determinative of whether or not I buy this particular property”.

MR MYERS:   No, no fiduciary duty.  I mean, it is a simple case of contract or negligence.  Contract, in the case, probably.

McHUGH J:   Yes.  To a large extent it seems to me not dissimilar from what has occurred here.

MR MYERS:   That is so, your Honour.  In the end – and that word “act”, which I hope I am not said to be relying too much on, encapsulates the vice, really.  These people were not acting on behalf of Kia Ora.  They were writing a report.  The directors were doing all the acting.  They had no management.  They had no control.  They had no decision‑making power.  They were not agents.  They had no discretions.  They could not do anything which a fiduciary would do.  Now, that is really the argument.

Your Honours, the second question which arises, if that first question is answered contrary to the one that I have just addressed, concerns whether the Full Court erred in assessing the amount of compensation.  I do not wish to deal with all the matters that have been dealt with in the written submissions repetitiously.  There are two ‑ ‑ ‑

McHUGH J:   Are you aware of any cases where an independent contractor has ever been held to be a fiduciary?

MR MYERS:   Not even in the western provinces of Canada, where I had the honour to teach law about 30 years ago.

HAYNE J:   That will provoke a different ‑ ‑ ‑

KIRBY J:   Are you being provocative?

MR MYERS:   I am not being provocative.  I beg your Honours’ pardon.  No, is the answer, I am sorry.  May I just go, now, to the second question?  There are two matters upon which I wanted to say something.  One is the question of interest and the other is the question of loss of opportunity.  Interest is very simple.  The decision on interest was made by the trial judge.  It was affirmed by the court, on appeal.  So twice we have had the same decision on interest.  It involves questions of discretion in truth, or judgment.  We have advanced in our written submissions in reply two answers on the question of interest to the submissions that were put as to why Nelson Wheeler should be treated differently from the directors.

The directors were obliged to pay a lot more interest than Nelson Wheeler.  First, the directors were found to have acted dishonestly and fraudulently.  There was no such finding with Nelson Wheeler.  Secondly, the directors were responsible for managing the company and making all relevant decisions relating to the takeover and, indeed, making all relevant decisions in relation to the company after the takeover, when the money that they would have had was lost, and, thirdly – and this is not in here and this what I want to add ‑ the directors who were in default received money in the course of the ‑ ‑ ‑

McHUGH J:   Yes.

MR MYERS:   So we have missed the best point in the written submissions.

GUMMOW J:   Where do we write it in?

MR MYERS:   At (c), in paragraph 12.

GUMMOW J:   What is the point?

MR MYERS:   The faulting directors received cash in the takeover and, so, had the use of it all that time.  The other matter on the question of damages, with which I want to deal, is this.  There has been raised again some contention about a lost opportunity.  Now, when this matter was before your Honours in April this year, the respondent company did not put any submissions about lost opportunity.  I have checked their written submissions again - there is not a word about it.  However, my clients, in their written submissions, did say something about a lost opportunity and they dealt with the matter at paragraph 69 and following of those written submissions.  I respectfully ask your Honours to go back to them because, there, important arguments are dealt with. 

The first thing that we say is that a claim based upon a loss of opportunity was not pleaded.  It would be unfair to raise it.  In the supplementary Court book, at page 232 and following, there is an important passage which arises in relation to the cross-examination and re‑examination of Mr Easton.

McHUGH J:   What page is that again?

MR MYERS:   Page 232 in the supplementary Court book.  I will try and quickly refer to this because it is tedious to refer to all these things.  Line 25, Mr Gray is saying:

One thing your Honour can do, if my friend is right that the loss, properly characterised, is a loss of opportunity to issue that capital for worth, then one way that your Honour can get an idea of the measure is to say what would have it cost at the time if permission had been obtained to buy back those shares so the company then had its opportunity available again.

Now, Mr Gray is raising that.  Then, on page 234, line 28, we come back to it, his Honour says:

Now, it seems to me that you are entitled to ask, contrary to Mr Mansfield’s submission, if there is any other cost.  But I don’t accept, at the moment, anyway, that you can reopen a whole line of possibility for the assessment of damages.

That is a reference to loss of opportunity being cost of buying back.  If your Honours would just accept that for the moment, that is what follows from the intervening parts.  Then his Honour says, over the page, the second line:

But I don’t think you can, at this stage, put a whole new premise for the assessment of damages on the basis postulated in your question.

Then his Honour goes on – I will not read it all – over to page 236, although it all does repay reading.  Line 15, his Honour says:

My ruling is that, unless you can point to something else in the transcript as having arisen in cross-examination, you are not permitted to ask the question that you have asked, but you may take up other losses, apart from money out, based upon the evidence given at –

a certain page.  So his Honour has stopped re-examination, on the basis that it is not reasonably open.  Now, it was not pleaded, and when it was attempted to be raised, his Honour made that ruling.  In fact, there is some evidence, if your Honours go to Court book No 3 at page 538, dealing with this subject.  Mr Mansfield is cross-examining Mr Easton and he is testing ‑ ‑ ‑

GUMMOW J:   I think we were taken to this before.

McHUGH J:   We were taken to this last time.

GUMMOW J:   Line 23.

MR MYERS:   I did, exactly, but it is really crucial and since the matter has now been raised – it has now been raised.  The matter has not been argued.  There is nothing further I want to say about that.  Your Honours, subject to your Honours’ questions, I do not want to supplement the written submissions on the second question.  On the third question I wish only to say this:  we respectfully adopt the reasoning of the President of the Court of Appeal in New Zealand in Mead v Day.

GUMMOW J:   That is a courageous submission.

HAYNE J:   His Honour was admiring your courage, Mr Myers.

GUMMOW J:   If you said you adopted Sir Edward Somers’ judgment, I would not be so - - -

MR MYERS:   On the point as to whether a court, assessing equitable compensation, can take into account the conduct of the beneficiary so‑called.

GUMMOW J:   Yes.  It is a sort of contributory negligence argument.

MR MYERS:   Yes, it is.

GUMMOW J:   Contributory negligence is a bar at common law, anyway, and you have to have a statute and Astley v Austrust says you have to just read the statute and the statute does not talk about this.  It does not talk about contract either.  It certainly does not talk about this.

MR MYERS:   Your Honour, we say, with respect, that one should not be confounded by titles or words in this.

GUMMOW J:   It is principles.

MR MYERS:   We are not saying that the law of contributory negligence is imported into the law of ‑ ‑ ‑

GUMMOW J:   I know.  I know that and you say that, but what you are trying to do is then disrupt the whole conceptual underpinning of fiduciary obligations.

MR MYERS:   No, with respect, we are not, your Honour.  We are trying to bring about a situation where there is a fair result.

GUMMOW J:   Quite often it is an unfair result.  Regal (Hastings) v Gulliver has been criticised as an unfair result for 60 years.

MR MYERS:   Regal (Hastings) v Gulliver, without debating that issue just for the moment, your Honour, is a case dealing with quite different and distinct facts.  If one is attempting, by a rule which provides for an award which is greater than the loss that has been suffered, to ‑ ‑ ‑

GUMMOW J:   That becomes a causation question and it is all dealt with in Canson v Boughton.  Now, why you have to jump on this other bus, I have no idea.

MR MYERS:   If your Honour pleases, if it can all be dealt with in causation, then one would be happy.  However, that has not been the approach of the courts in many cases and the path of analysis does not ‑ ‑ ‑

GUMMOW J:   It is not a path of analysis.  It is a path of emotional reaction.  That is the problem.

MR MYERS:   Your Honour, what I am suggesting is that in this day and age primitive rules of responsibility ‑ ‑ ‑

GUMMOW J:   That is more emotion, too.

MR MYERS:    ‑ ‑ ‑ by whatever words they are described, would impose upon a wrongdoer a punishment out of – simply have no place in the civil law and that, in the end, is really it.

Sometimes there might need to be presumptions that are necessary to reinforce institutions, such as a trust, and there might be distinctions that need to be made in this area between cases where there is a breach of trust or trust property has been improperly handled and other cases of breach of fiduciary duty, but, with respect, one way or another, we submit that the decision of the Full Court is correct and we respectfully adopt what was said by the learned President in Mead v Day.  If your Honours please, they are the supplementary oral submissions I wish to make.

McHUGH J:   Yes, thank you Mr Myers.  Yes, Mr Whitington.

MR WHITINGTON:   If the Court pleases, for the Court to have full appreciation of the facts of the matter, it needs to be said that there was a much wider and deeper array of associations between Nelson Wheeler  and the directors of Kia Ora.

Can I just put that in context.  The directors, and principally Mr Harold Abbott, but also his co-directors, Mr Lee-Steere and Mr Somes, had proposed a takeover of Western United and each of those three directors had a very substantial interest in Western United and the takeover proposed ultimately was at a grossly inflated price and, as a result, they received an enormous free benefit at the expense of their company, Kia Ora.

3J(3) was designed to act in those very circumstances to provide a kind of gate to such a transaction and the role of the expert was to be the gatekeeper, and if he or she opened the gate, then the directors could proceed to put the proposal before the meeting.  The meeting would assess the proposal, based upon the advice in the report.  But if there was no such opening of the gate by the gatekeeper, the practical result was the transaction could not proceed.

Now, in this case, Mr Abbott went to Nelson Wheeler, no doubt, because he had a very strong background of associations.  Can I just highlight two of the most substantial.  Mr Stokes, one of the partners of Nelson Wheeler, was the chairman of directors of a company, Mawson Pacific.  Mawson Pacific purchased, in February 1987, the year in question, one half of the Marvel Loch Gold Mine from Kia Ora for $26 million.

Later, at the very time the takeover was under way, a further agreement was entered into with Mr Stokes’ company, Mawson Pacific, that it would buy the other half of the gold mine for $40 million.  It was that money, the $40 million, which was to be used to fund the takeover of Western United.  So, as things transpired, it was necessary for Mr Stokes’ company to buy the other half of the gold mine and pay $40 million to Kia Ora so Kia Ora could pay $26 million in cash to Western United, ie, to Mr Abbott.

This association went back to February 1987 when Stokes had purchased, or caused Mawson Pacific to purchase, the first half of the gold mine.  From that time on Kia Ora, of which Mr Abbott was the most substantial director, the effective controller, Kia Ora and Mawson Pacific conducted a joint venture of the Marvel Loch Gold Mine, until the other half was sold in November 1987.  There was another critical antecedent association ‑ ‑ ‑

HAYNE J:   Just before you come to that one, that association describes a series of commercial transactions among which there was a period where there was a working together between a director of Duke Group and an accountant in Nelson Wheeler.  Is that right?

MR WHITINGTON:   Yes, and there was another substantial involvement through a company called Wattle Gully.  Mr Stokes and Mr Munachen, partners of Nelson Wheeler, became directors of that company in, I think, late 1986.  Mr Abbott had procured that Western United fund their initial shareholding so that they obtained control of the company, and then those directors caused the company to issue shares to Kia Ora so it became the dominant shareholder.

That company then entered into a joint venture with Kia Ora and two other companies to purchase an entity called the Mount Pleasant Gold Trust, and the funds used by that venture to purchase Mount Pleasant Gold Trust, some $22 million, were borrowed from Mr Abbott’s company, Western United, and that $22 million, to a large extent, represented the proceeds of the first purchase of the Marvel Loch interest, the $26 million which Mr Stokes’s company had paid.  So Mr Stokes’s company paid $26 million to Kia Ora.  Kia Ora deposited the money with Mr Abbott’s company, Western United.  That money was then lent back to the joint venturers to undertake another venture.  So there was a further association.

McHUGH J:   But these matters seem to be directed rather to breach a fiduciary duty rather than whether a fiduciary duty existed.  I see it is a quarter to one.

MR WHITINGTON:   I see what your Honour says about that, I just ‑ ‑ ‑

McHUGH J:   Over lunch, I would like you, if you have not already done so, to have a look at what Sir Anthony Mason said in the Hospital Products Case (1996/1997) 156 CLR, of the critical feature in fiduciary relationships always being, or, I think, almost always being, that the fiduciary acts in a representative capacity and is that not the difficulty that you face in this case in arguing that there was a fiduciary relationship?  In no sense, was NWP acting in a representative character – for NWP, was it?  It was an independent contractor.

MR WHITINGTON:   We accept what your Honour says about what Sir Anthony Mason says and we accept what your Honour says about Nelson Wheeler, but we say there are at two answers.  One is, for instance, Chief Justice Brennan’s proposition – I was going to say in Hospital Products but it cannot be that – a proposition that agency or representative capacities are only one of the ways in which a relationship can arise, otherwise it can arise in an array of circumstances.  Secondly, we say that the critical feature here is that ‑ ‑ ‑

McHUGH J:   But Justice Mason said that that is the critical aspect when one is talking about trust and confidence and that is really what is relied on in this case, is it not, a relationship of trust and confidence.  You have got to go beyond trust and confidence.  There has got to be a representative character in the person who owes the fiduciary duty.  Any way, you might have a think of that.

MR WHITINGTON:   Yes.

McHUGH J:   Now, how long are your submissions likely to take?

MR WHITINGTON:   They may be two hours, if the Court pleases.

McHUGH J:   Yes.  We will resume at 2 o’clock.

AT 12.46 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.OO PM:

McHUGH J:   Yes, Mr Whitington.

MR WHITINGTON:   Your Honour, can I take up the matter that your Honour Justice McHugh raised with me before lunch in the Hospital Products Case in the judgment of Justice Mason.  We would refer the Court particularly to the passage at the bottom of page 96 on to the top of page 97 and we would respectfully submit that it is significant that his Honour started by talking about “The accepted fiduciary relationships” and then in the sentence on the bottom of the page he said:

The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of –

Can I pause there.  We would emphasise the notion of agreeing or undertaking.  Then he went on to say:

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.

We say that is the case we have here.  But we also say that need not be ‑ ‑ ‑

GUMMOW J:   You have to look at the second paragraph, do you not, on 97, the example of the subcontractor?

MR WHITINGTON:   Yes.  We accept that he has an example of a subcontractor.

McHUGH J:   Take your accountant who prepares your income tax return.  He does not owe you a fiduciary duty in the preparation of your income tax, does he?

MR WHITINGTON:   Your Honour, there may be an issue here about the stages of the inquiry.  Frequently one does not ask the question, “Is there a fiduciary duty?” until a situation of conflict arises.  With respect, I think Justice Hayne put his finger on that this morning when he talked about that circumstance throwing light on the relationship.  Of course, we do not submit that a situation of conflict is relevant to the finding of a duty, but a situation of conflict does throw light on the relationship.  It may be that a relationship is fiduciary but it does not attach to any circumstance – and I have in mind something your Honours Justice McHugh and Justice Gummow said in Breen v Williams – creating a fiduciary obligation at a particular time.  One might say the relationship is not fiduciary until it attaches to the circumstance or one might say it is inherently and innately a fiduciary relationship which, if you like, hovers in the background and when a relevant circumstance comes along, it attaches to it and creates a fiduciary obligation.

McHUGH J:   But the Full Court, in this case, did not really identify a subject matter over which the fiduciary duty was owed, did it?

MR WHITINGTON:   That is the criticism that Mr Myers and the appellant make, but we think he answered that himself this morning when he said unless it be the entire subject matter of the retainer, and we say that is what it was.  It was the very report itself, the preparation of the report.  Now, there was no need to be explicit about the subject matter in this case because it was evident.  It spoke for itself. 

In your Honour’s case about the tax accountant, we would say that your Honour’s tax accountant probably is a fiduciary because, as some of the authorities analyse it, it is material that your Honour would have given information of a personal and sensitive nature.  Your Honour has invested confidence, if you like, in that person.

McHUGH J:   That is the point, is it not?  The accountant might be a fiduciary in respect of confidential information I give him, but in terms of the preparation of the report, is the accountant a fiduciary?

MR WHITINGTON:   We agree with your Honour.  We cannot assert a priori, in this case, that this is a status relationship or per se relationship and that everything done under it involves a fiduciary obligation, and we do not assert that.  What we do say is that the relevant inquiry is in the facts of this case, did a fiduciary obligation arise?  Now, that involves an investigation of all the facts and the cases say that one must look at all the circumstances and one critical circumstance here is that the ‑ ‑ ‑

HAYNE J:   Before you come to the circumstances, obligation to do what, to be what?  What is the obligation?

MR WHITINGTON:   The obligation, when it arises, your Honour, is the fiduciary obligation and we submit it is ‑ ‑ ‑

HAYNE J:   Yes, fiduciary obligation of what content?

GUMMOW J:   Is it any greater content that the contractual retainer?

MR WHITINGTON:   In a sense it is, your Honour, because it involves a proscription at two levels, but, principally, a proscription on acting at all.  You see, here there was a hideous conflict.

GUMMOW J:   Well, it is a duty not to contract.

MR WHITINGTON:   Yes, it is.  Now, that involves a kind of logical dilemma, we accept, because it might be put against us, “But how can there be a fiduciary duty not to contract that precedes the very relationship?”.  We say that is almost a semantic problem because looked at another way, once the parties did come into a relevant relationship the duty existed and operated at all times.

GUMMOW J:   Well, the breach is the entry into the contract.

MR WHITINGTON:   It is, your Honour, but also we say and everything else done purportedly under the contract and the Full Court so found.  It is put against us in the appellants’ written submissions that the only breach that the Full Court identified was the accepting of the retainer.  The Full Court did not say that.  They said that everything up to the provision of the report. 

GUMMOW J:   Where do they say that?

MR WHITINGTON:   I think paragraph [770], going by memory.  It is [788], I am sorry.

HAYNE J:   So, by providing, Nelson Wheeler was in breach of its fiduciary obligations.  You say the relevant fiduciary obligation, singular, was an obligation not to contract, not to accept the retainer.

MR WHITINGTON:   Yes and no.  Above that there is an obligation to be loyal.  That is the overriding obligation.

HAYNE J:   Can I just pursue this notion of obligation not to contract, which I understand either to be part of or a complete statement of the fiduciary obligation.  Let us not debate, for the moment, which it is.  What is it that gives rise to this obligation not to contract?

MR WHITINGTON:   Would your Honour let me just read, very briefly, a passage from his Honour Justice Gummow’s reasons in Breen v Williams because I think it comes closest to what I want to say and I cannot, I am afraid, remember it by heart.  I think it is page 136 in Breen v Williams – it is 134.  At about point 7, your Honour said this:

Advice given by the physician to the patient involves specialised knowledge and matters of skill and judgment, which render the advice difficult, if not impossible, of objective and unassisted assessment by the patient.  Hence the particular reliance placed upon the physician.

Now, we do not, of course, say that is a complete statement of the relevant circumstances, but we say, in this case, that is a highly material matter because the very purpose of rule 3J(3) was to permit shareholders to get informed advice, if you like, in lieu of advice from their directors who were conflicted out.  So, in a sense, the accountants stepped into the shoes of the directors.  There are, I think, 18,000 shareholders here.  It is fair to say they were in no position, unassisted, to make any objective assessment of the facts of the matter or of that advice.

They were not privy to the material relating to Western United that Nelson Wheeler had.  They, by and large, did not have the expertise to work with that material and reach appropriate conclusions.  So when the accountant said, “This company is worth $82 million, but, furthermore, it is fair for Kia Ora to pay a premium for control”, which actually is a nonsense when you are buying 100 per cent of the company, “and, therefore, it is fair for Kia Ora to pay”, I think something like, “$112 million by giving its shares in exchange” and in circumstances where the financial interests of the company was substantially at stake, we say, the accountants came under a fiduciary duty.

McHUGH J:   But the difficulty I am having at the moment, Mr Whitington, is this:  in the passage at 134 in Breen, to which you referred, there is already the pre-existing relationship of patient and physician in Justice Gummow’s example.  So, when it comes to give advice in that relationship, there may be a fiduciary duty, but your argument seems to be that the fiduciary obligation struck before there was any relationship between the parties.

If I may take your Honours very briefly to what was said by Justice La Forest, if I a may give it an Anglo-Saxon pronunciation, at page 194.  At about letter F, there is a quotation at around about where the letter appears, emphasised by his Honour.  It is there said, four lines from the bottom of that paragraph:

“In effect, Mr Simms assumed the responsibility for Mr Hodgkinson’s choice.  He analyzed the investments, he recommended the investments, and he effectively chose the investments for Mr Hodgkinson”.

Earlier on on the previous page at 193 the same kind of general approach.  At 218, again, the same kind of general approach.  That can be contrasted, if your Honours please, rather markedly with the situation here.  At paragraph 12.2 of our submissions we set out a passage from the primary judge which appears at, I think, page 377.  In any event, the passage that we quote from at 12.2:

“There is no evidence to suggest that the first defendants gave any advice, or made any representation to, Kia Ora about the efficacy or wisdom of the takeover.  Indeed, there is no evidence to suggest that the first defendants advised, or even suggested to Kia Ora , that the takeover of Western United be undertaken.  In fact the evidence suggests the contrary…

Nelson Wheeler Perth were obliged to value the issued capital of Western United and to express an opinion as to whether the purchase price was a fair price:  LR3J(3)(b).  That is what they did albeit incompetently and in breach of duty in contract and tort but they did not give advice in the relevant sense.

Then, over the page we also quote from what the Full Court said about this matter at 12.3 and there we quote from the Full Court at paragraph 600 where their Honours say:

“In our opinion the value of Western United and of its shares, was not a matter upon which the directors of Kia Ora were entitled to disregard their own knowledge…or to suspend judgment, as it were,…and act entirely upon the advice of [Nelson Wheeler], without regard to their own commercial judgment…The advice on the fairness of the price was not a matter upon which Kia Ora can claim that it was entitled to rely entirely upon its adviser.  Kia Ora, through its directors, had the knowledge and experience to form its own view of the soundness of the advice, and failed to do so.”

HAYNE J:   That is, as I understand it, what Mr Whitington described as Nelson Wheeler being beholden to Abbott as the inverse of the kind of relationship which is discussed in the Canadian cases where the client is beholden to the adviser.

MR PAGONE:   That is correct, your Honour.  Quite so, your Honour.  Your Honours, in view of the time I do this with a bit of taking breath, but if I may, nonetheless, just again confine myself to some page references in the transcripts because there is a risk that by referring to some parts of what appears in the judgment one might be led to draw inferences that might be rather more unsafe than they should be.  The fact of the matter is, if your Honours please, that the underlying evidence made it quite clear that Nelson Wheeler were not found to be parties to either a fraud or a conspiracy or an arrangement to effect some form of dastardly work upon the unassociated shareholders.

In the Full Court judgment, your Honour will see that, graphically enough, at paragraph [639] and [651].  Specifically in the middle of that paragraph, paragraph [639], their Honours note:

that in the present case there is no finding that NWP acted in fraud of Kia Ora, or that NWP were acting in combination with the directors of Kia Ora who were acting in fraud of Kia Ora.

At [651], a positive conclusion, not a finding, of course, by the Full Court, but a statement about the finding at first instance:

NWP were not acting fraudulently.  There is no finding that NWP were in any way a party to the fraud of the directors.  NWP is liable for its failure to take proper care.  It seems to us both fair and reasonable that Kia Ora should, for the purposes of contributory negligence, be responsible for the faults of its own directors, even though they were acting in fraud of Kia Ora.

The state of mind of Nelson Wheeler, as my learned leader indicated this morning, was relevantly that of Mr Newman, who prepared the report.  The evidence about that your Honours will find in the judgment of the primary judge at page 272.  Mr Pilmer adopted the report.  There was never any case, ever, put that Nelson Wheeler were preferring the directors of the company Kia Ora.

GUMMOW J:   Preferring them to, what?

MR PAGONE:   To presumably the duty that they might otherwise have had independently.  There was no cross-examination to that effect and the case was ‑ ‑ ‑

GUMMOW J:   It said that there was a real risk, I think, that it has to be a real risk of conflict-type case.  You say, “Where is the reality of the risk?”, I suppose?

MR PAGONE:   Exactly, your Honour, but, in any event, I am also saying for present purposes that it was a different case and it was simply not put, and what one has now is facts that, looked at in a particular way, might be thought to look odd, and inferences being drawn from it, without delving into all of the facts and evidence that was before his Honour, that led his Honour to reach a very different conclusion from the one that is being urged upon the courts now.

So far as some of the transactions were concerned, if your Honours please, a good many of them were some time before.  We have taken the Court to that.  So far as the share registry work is concerned, your Honours, I again confine myself to refer the Court to page 259 of the primary judge’s decision and the Full Court at 774 to indicate only that the evidence does not go as far as our learned friends would perhaps like to imply.  The so‑called no-transactions finding that our learned friends were putting this afternoon, I think my learned friend took the Court to paragraph [798] of the Full Court decision where their Honours talked in global terms about:

There can be no doubt in this case that there would have been no loss if the breach of fiduciary duty had not occurred.  The takeover simply could not have gone ahead.

That is usefully to be compared, your Honours, with what the primary judge said at page 120, at about lines 20 to 40, where what his Honour found, after what on any view might be regarded as being a lengthy court case, at lines 21, his Honour said ‑ ‑ ‑

McHUGH J:   What page is this, Mr Pagone?

MR PAGONE:   Page 120, your Honour.  This is in relation to the Marvel Loch mine that my learned friend referred to:

Upon the sale of the Marvel Loch mine, in two stages, Kia Ora had substantial cash.  The shareholders of Kia Ora were entitled to the benefit of the improved financial position of Kia Ora.  However, those controlling Kia Ora decided upon the takeover of Western United at a highly inflated price and to use a good deal of the cash in that way.

The takeover by Kia Ora of Western United was orchestrated by Harold Abbott with the assistance of Gary Abbott and Gardiner. 

It had proceeded a significant way before the other directors became aware of what was happening.  The various incidents in the process clearly establish that Harold Abbott, Gary Abbott and Schneider‑Paas were determined to proceed with the takeover regardless of any opposition or reliable indication to the contrary.  During the trial their determination was described as their being “hell bent” on the success of the takeover and that is an appropriate description.  The extent ‑ ‑ ‑

McHUGH J:   That hardly answers the reasoning of the Full Court at [798].  What the Full Court is saying is that because this report was so negligently compiled, you could not have got any other competent accountant to give a similar report.  As a matter of reality it could not have gone ahead.

MR PAGONE:   But that, your Honour, might have been caused by the negligence, not by the breach of duty.  The breach of duty is said to have been the acceptance of the retainer and one can readily enough understand that if one is negligent the law will fashion a remedy to deal with that.  The problem that we face is that we now face an action based on breach of fiduciary duty and one needs to be quite careful not to be chopping and changing, as it were, as our learned friends, perhaps, urge.             Your Honours, there comes a point where one must decide whether to go on for several hours or call it a day.

McHUGH J:   Are there any transcript references you want to give us?  As long as you put them in within seven days there can be no problem about that.

MR PAGONE:   Your Honours, we are indebted for that indication.

McHUGH J:   You will give a copy to your opponent.

MR PAGONE:   We shall try to exercise restraint, your Honour.

McHUGH J:   Yes.

MR PAGONE:   If your Honours please.

McHUGH J:   Yes.  The Court is indebted to counsel for their submissions and will reserve its judgment in this matter.

AT 4.16 PM THE MATTER WAS ADJOURNED