Tambree v Travel Compensation Fund - [2004] NSWCA 24

No judgment structure available for this case.

Reported Decision:
(2004) ATPR (Digest) 46-247
(2004) Aust Contract Reports 90-195

Court of Appeal

CITATION: TAMBREE v TRAVEL COMPENSATION FUND & ORS [2004] NSWCA 24

HEARING DATE(S): 29 October 2003

JUDGMENT DATE:
26 February 2004

JUDGMENT OF: Mason P at 1; Sheller JA at 2; Ipp JA at 157

DECISION: 1 Appeal and cross-appeal allowed; 2 Set aside that part of order 1 which refers to the fourth and fifth defendants and add the following order:; 1A In favour of the plaintiff against the fourth and fifth defendants in the sum of $13,320 together with interest on the said judgment sum in accordance with the Supreme Court Act and Rules from 20 September 1999 to 15 November 2002 in the sum of $4,216 being a total of $17,536; 3 The respondent Travel Compensation Fund to pay the appellant and cross-appellant their costs of the appeal and cross-appeal but to have a certificate under the Suitors' Fund Act 1951 if so qualified; 4 Liberty to the appellant and cross-appellant within seven days to make application to vary costs order 4 made by Austin J.

CATCHWORDS: Travel Compensation Fund - accountant - auditor - misleading and deceptive conduct - s42 Fair Trading Act - whether breach of duty of care - whether fact that respondent continued unlicensed in business of travel agent severed chain of causation

LEGISLATION CITED: Evidence Act 1995
Fair Trading Act 1987
Trade Practices Act 1974 (Cth)
Travel Agents Act 1986

CASES CITED: Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112
Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191
Bennett v Minister of Community Welfare (1992) 176 CLR 408
Chappel v Hart (1998) 195 CLR 232
Chester v Afshar [2003] QB 356
Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389
Connor v Blacktown District Hospital (1971) 1 NSWLR 713
Environment Agency (formerly National Rivers Authority) v Empress Car Co (Abertillery) Ltd [1999] 2 AC 22
Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241
Gardam v George Wills & Co Ltd [No 1] (1988) 82 ALR 415
Henville v Walker (2001) 206 CLR 459
Jones v Dunkel (1959) 101 CLR 298
Kewside Pty Ltd v Warman International Ltd (1990) ASC 58821
Mahony v J Kruschich (Demolitions) Pty Ltd (1985) 156 CLR 522
March v E & M H Stramare Pty Ltd (1991) 171 CLR 506
Medlin v State Government Insurance Commission (1995) 182 CLR 1
Millman v Rochester Railway Co 3 App Div 109; 39 NYS 274 (1896)
Modbury Triangle v Anzil (2000) 205 CLR 254
Rahman v Arearose Ltd [2001] QB 351
Ruddock v Taylor (2003) NSWCA 262
The Saints Gallery Pty Ltd v Plummer (1988) 80 ALR 525
Voli v Inglewood Shire Council (1963) 110 CLR 74
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514
Yorke v Lucas (1985) 158 CLR 661

PARTIES :
Robert Tambree t/as R Tambree & Associates - Appellant
Travel Compensation Fund - First Respondent/First Cross Appellant
Phillip Roseby t/as P J Roseby & Co - Fifth Respondent/Cross Appellant

FILE NUMBER(S): CA 41145/02

COUNSEL: P Walsh - Appellant
N Francey - First Respondent/First Cross Respondent
R Dubler - Fifth Respondent/Cross Appellant

SOLICITORS: Burston Cole & Co - Appellant
McCabe Terrill - First Respondent/First Cross Respondent
Phillips Fox Lawyers - Fifth Respondent/Cross Appellant

LOWER COURTJURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): ED 3295/99

LOWER COURT
JUDICIAL OFFICER : Austin J

CA 41145/02
ED 3295/99
MASON P
SHELLER JA
IPP JA

ROBERT TAMBREE t/as R TAMBREE & ASSOCIATES v TRAVEL COMPENSATION FUND & ORS

Ms Fry, the second respondent, was the sole director and shareholder of the Travel Shop International Pty Ltd (TSIPL). The second respondent and her father, the third respondent, were directors and shareholders of Fiji Resorts International Pty Ltd (Fiji Resorts) and of Bali Resorts Pty Ltd (Bali Resorts). The second respondent, trading as the Travel Shop International, and each of these entities, carried on business as travel agents in New South Wales. The first respondent, Travel Compensation Fund (TCF), is a trust established by a deed to provide for a compensation scheme as prescribed by s57 of the Travel Agents Act 1986.

The Travel Shop International collapsed in 1999. When it collapsed, customers claimed upon the first respondent in respect of money they claimed to have paid to the business for the purchase of travel and accommodation, which was never supplied. The first respondent met these claims, making payment to the claimants under cl 15 of the trust deed.

Notably, on 23 February 1999 the second respondent had resigned from the compensation scheme. Thereafter if she was still conducting the business of a travel agent she was doing so illegally and not as a participant in the scheme.

The first respondent commenced proceedings against the second and third respondents seeking recoupment and damages in respect of these claims. The second respondent also brought proceedings against Mr Tambree, the appellant, who provided accounting services to the Travel Shop International and Mr Roseby, an auditor, seeking relief by way of damages for negligent misrepresentation and misleading conduct under the Fair Trading Act 1987.

The trial Judge gave judgment against Mr and Mrs Fry, Mr Tambree and Mr Roseby in the sum of $143,050 together with interest in the sum of $45,280 totalling $188,330.23.

The trial Judge found that the appellant failed to meet the standard of care required of an accountant whose instructions were to prepare financial statements for the purpose of an audit and in connection with renewal applications to the first respondent. This conduct amounted to negligent misrepresentation and a breach of s 42 of the Fair Trading Act. The trial Judge also held that the conduct of Mr Roseby, the fifth respondent, in performing his auditing duties, constituted negligent misrepresentation and was misleading conduct in contravention of s42. Further, the trial Judge considered that the requisite causal connection had been established between the negligent conduct of Mr Tambree and Mr Roseby and the first respondent’s losses incurred in meeting the claims by the customers.

The appellant challenged the findings of the trial Judge that he had engaged in misleading or deceptive conduct within the meaning of s42 of the Fair Trading Act and that the first respondent had suffered loss or damage “by” the representations relied upon within the meaning of s68 of the Fair Trading Act. The appellant also submitted that since the trial Judge found that all, but a small part, of the claims on the first respondent, incurred in 1999 while the second respondent was operating unlicensed, his Honour erred in finding that there was a commonsense causal connection between the representations relied upon and the first respondent’s loss. Further, the appellant contended that the trial Judge erred in holding that he must have been aware that the accounts he prepared would be relied upon by the first respondent and that as a result he owed the first respondent a duty of care. The appellant also relied upon a lack of reliance or causation.

Mr Roseby, the fifth respondent, cross-appealed against the decision of the trial Judge principally on the ground that his Honour erred in finding that Mr Roseby’s 1997 or 1998 audit reports were causally related to the loss claimed by the first respondent, particularly given the unlawful activity of the second respondent and the absolute discretion of the first respondent whether to pay the claimants.

Held: per Sheller JA, Mason P and Ipp JA agreeing:

1. Mr Tambree and Mr Roseby owed a duty of care to the first respondent to take reasonable care in the preparation of the accounts and the giving of audit certificates. They both quite clearly failed to do so.

2. The evidence of the witnesses, Mr Whittaker, Mr Brattoni, Mr Pitts and Mr Given, went to prove a general course of business according to which TCF made decisions about the eligibility of participants for renewal or termination of participation in the fund, “there being a probability that the general course will be followed in the particular case.”

Connor v Blacktown District Hospital

3. It was therefore open to the trial Judge to conclude that in renewing the second respondent’s licence in 1997 and 1998 TCF acted upon the accounts prepared by Mr Tambree and the audit certificate given by Mr Roseby.

4. It is a matter of public importance that accountants, should not, when asked to prepare financial reports of business entities, act so negligently so as to produce a misleading report. Even more so, this can be said of an auditor who provides an auditor’s certificate.

5. On the evidence, a proper discharge by Mr Roseby of his auditing duties or by Mr Tambree of his duties as an accountant would have led to a chain of regulatory events that would have prevented the losses being suffered by the claimants or, alternatively, would have provided a means for meeting them without recourse to TCF.

6. The connection between a wrongful act and harm is negatived if the factors required, in addition to the wrongful act, for the production of harm include “a voluntary human action or an abnormal occurrence.” As a value judgment, Ms Fry’s conduct following the termination of her participation in the fund could not be regarded as a normal occurrence. A person would not normally terminate the licence, which enabled that person to conduct a travel agent’s business, and yet continue to conduct that business illegally.

March v E & MH Stramere Pty Ltd

7. Therefore, by no test could it be said that the negligently prepared accounts and audit and the misrepresentations that flowed from them, were casually related to the second respondent continuing illegally in the business of a travel agent after 23 February 1999. Both the appeal and the cross-appeal should be upheld to the extent that the first respondent was not entitled to recover the amount of compensation paid to those claimants who suffered loss as the result of the second respondent’s activities after 23 February 1999.

Legislation:
Evidence Act

1995

Fair Trading Act

1987

Trade Practices Act

1974 (Cth)

Travel Agents Act

1986

(1990) 26 FCR 112

[1997] AC 191

(1992) 176 CLR 408

(1998) 195 CLR 232

[2003] QB 356

(1991) 22 NSWLR 389

(1971) 1 NSWLR 713

[1999] 2 AC 22

(1997) 188 CLR 241

(1988) 82 ALR 415

(2001) 206 CLR 459

(1959) 101 CLR 298

(1990) ASC 58821

(1985) 156 CLR 522

(1991) 171 CLR 506

(1995) 182 CLR 1

3 App Div 109; 39 NYS 274 (1896)

(2000) 205 CLR 254

[2001] QB 351

(2003) NSWCA 262

(1988) 80 ALR 525

(1963) 110 CLR 74

(1992) 175 CLR 514

(1985) 158 CLR 661

ORDERS

1. Appeal and cross-appeal allowed;

2. Set aside that part of order 1 which refers to the fourth and fifth defendants and add the following order:

Supreme Court Act and Rules

Suitors’ Fund Act

4. Liberty to the appellant and cross-appellant within seven days to make application to vary costs order 4 made by Austin J.

**********

CA 41145/02
ED 3295/99

MASON P
SHELLER JA
IPP JA

Thursday, 26 February 2004

ROBERT TAMBREE t/as R TAMBREE & ASSOCIATES v TRAVEL COMPENSATION FUND & ORS

Judgment

1 MASON P: I agree with Sheller JA.

2 SHELLER JA:

Introduction

Travel Agents Act

3 The first defendant, Renee Julie Fry (Ms Fry) was the sole director and shareholder of the Travel Shop International Pty Ltd (TSIPL). Ms Fry and the second defendant, her father Trevor Fry (Mr Fry) were directors and shareholders of Fiji Resorts International Pty Ltd (Fiji Resorts) and of Bali Resorts International Pty Ltd (Bali Resorts).

4 Ms Fry, (trading as the Travel Shop International), TSIPL, Fiji Resorts and Bali Resorts each carried on business as travel agents in New South Wales. TSIPL, Fiji Resorts and Bali Resorts were at no time licensed under the Act to carry on such a business. Business was conducted in the name of The Travel Shop International in Parramatta until it was shut down on 20 April 1999 by licensing inspectors. When this happened, customers (the claimants) claimed from TCF money said to have been paid to the business for the purchase of travel services, which were never supplied. TCF met these claims and in the proceedings sought recoupment and damages from Ms Fry and Mr Fry. TCF also sought damages from Mr Tambree, who provided accounting services to the business, and from Mr Roseby, an auditor. The third defendant, Robyn Joan Fry, took no part in the proceedings.

5 TCF made payments to the complainants in accordance with cl 15 of the trust deed which, relevantly, provided as follows:

“15.1 Subject to this deed, the Trustees shall pay compensation out of the Fund to a beneficiary -

(a) who is a client; and

(b) who has suffered or may suffer pecuniary loss arising directly from a failure to account for money or other valuable consideration by a participant –

where -

(c) the failure to account arises from an act or omission by the participant or an employee or agent of the participant; and

(d) the client is not protected against the loss by a policy of insurance.

15.2 The Trustees may in their absolute discretion:

…

(b) pay compensation, including compensation in relation to any consequential pecuniary loss suffered by reason of a failure to account, to a person to whom they are not required to pay compensation under cl 15.1.”

6 Some part, but the lesser part, of the payments was made under sub-clause 15.1. The greater part was made in the exercise of the trustees’ absolute discretion under sub-clause 15.2(b).

7 Austin J gave judgment in favour of TCF against Ms Fry, Mr Fry, Mr Tambree and Mr Roseby in the sum of $143,050 together with interest in the sum of $45,280.23 being a total of $188,330.23. The proceedings against the third defendant were dismissed without any order as to costs and Ms Fry’s cross-claim against TCF was dismissed with costs. The first, second, fourth and fifth defendants were to pay TCF’s costs of the proceedings. As indicated, only Mr Tambree and Mr Roseby appealed or cross-appealed from this decision.

The Travel Agents Act

8 Section 6(1) of the Act prohibits a person from carrying on business as a travel agent, otherwise than in accordance with the authority conferred on that person by a travel agent’s licence, or carrying on business as a travel agent in partnership with a person who is not the holder of a travel agent’s licence. Section 4 of the Act provides that a person carries on business as a travel agent if the person carries on a business, whether or not in the course of or incidental to or in connection with any other business of, inter alia, selling tickets entitling another person to travel, or otherwise arranging for another person a right of passage on a conveyance or selling to, or arranging or making available for another person’s rights of passage to a hotel or other accommodation at one or more places within or outside New South Wales and purchasing for re-sale the right of passage on a conveyance. An employee of a business would not ordinarily be regarded as carrying on business as a travel agent.

9 Division 2 of Pt 2 of the Act deals with the issue of licences. An application for a licence may be made to the Director General by a natural person of or over the age of 18 years or a body corporate (s8). The Director General may make such enquiries as the Director General considers necessary in relation to an application for a licence (s9). Section 10(1) provides that subject to that section “the Director General shall grant an application for a licence if the Director General is satisfied that the applicant is a participant in the compensation scheme or that the granting of the application results in the applicant being a participant in the compensation scheme.”

10 Section 11 deals with conditions of, and restrictions on, licences. Section 11(2) provides that a licence is subject to (a) a condition that the licensee shall, at all times during the currency of the licence, be a participant in the compensation scheme.

11 Section 16 deals with the term of, and authority conferred by, a licence. Subsection (1) provides:

“Except where it is suspended, a licence continues in force until, pursuant to the provisions of this Act, it is surrendered or cancelled.”

“Where a licensee ceases to participate in the compensation scheme, the licence is suspended until the licensee again participates in the scheme.”

12 Section 57 of the Act enables the making of regulations not inconsistent with the Act, required or permitted to be prescribed, or necessary or convenient to be prescribed, for carrying out or giving effect to the Act. Section 57(2) provides that regulations may:

“(a) prescribe a scheme for compensating persons who suffer a pecuniary loss by reason of an act or omission by a person who carries on, or carried on, business as a travel agent.”

The Trust Deed

13 The trust deed referred to “the Participation Agreement” entered into by several States relating to the licensing of persons carrying on, or intending to carry on, business as travel agents in the regulation of their operations. Reference was made in the Participation Agreement to a compensation fund, known as the Travel Compensation Fund (the fund). The trust deed included a Schedule which set out the terms and conditions of the trust and established the fund. “Participant” was defined to mean a person “for the time being, in the Trustees’ determination eligible to be a contributor to the Fund and licensed or deemed to be licensed under the Act.” Clause 2.2 of the Schedule provided:

“The Trustees shall hold the Fund on trust for -

(a) the Crown in right of the States; and

(b) every person who entrusts money or other valuable consideration to another person, who carries on business as a travel agent (or an employee or agent of the other person) in connection with travel arrangements or travel related arrangements or both in a State if either:

(i) that other person; or

(ii) any third or subsequent person who carries on business as a travel agent in a State and who, in turn, receives directly or indirectly through an employee or agent of the third or subsequent person all or part of that money or consideration, other than as a principal,

fails to account for the relevant money or consideration, whether due to an act or to an omission of that person (or an employee or agent of that person).”

14 The purposes of the trust as set out in cl 3 of the Schedule included to establish and provide for the operation of a fund to compensate persons who had suffered or may suffer a pecuniary loss by reason of a failure to account in respect of travel arrangements or travel-related arrangements by a person who carries on, or carried on, business as a travel agent and to make emergency payments for the benefit of persons who may suffer such a pecuniary loss.

15 Part 9 of the Schedule provided for initial application and contemplated a form for application and the provision to the trustees of any information that they reasonably required about the applicant’s financial resources. The trustees were to determine whether an applicant was eligible to be a contributor to the fund. Where the trustees determined that an applicant was eligible they were to then certify to the relevant licensing authority that the person was eligible to become a participant.

16 Austin J said:

“32 Financial criteria for the assessment of applications and for the conducting of AFRs [Annual Financial Reviews] have been published. AFRs are conducted by recourse to a points system, which is based on the published criteria. In assessing the financial viability of an applicant, and assessing AFRs, the TCF relies on information submitted by the applicant for participation or renewal, including financial statements which are required to be prepared by an accountant and independently audited. The participant is given a maximum 20 points. The form completed by the participant for an AFR provides for self-assessment. If the self-assessment is in excess of 10 points, participation is automatically renewed for the ensuing year, although the participant is subject to field audit or further review upon receipt of complaints or relevant information. Where a participant scores fewer than 10 points, its financial position is reviewed and generally conditions are imposed on renewal of participation.

33 Mr Antony Whittaker, the Manager Special Investigations of the TCF and a certified practising accountant, gave evidence about the TCF’s financial criteria. At the relevant time he was a person who reviewed the financial statements of participants. I accept his account of the TCF financial criteria.

34 Mr Whittaker said that the TCF’s financial criteria are directed to three main aspects of the participant’s financial status, namely profitability, liquidity and solvency. If a participant had incurred a loss for the most recent financial year and Mr Whittaker was of the opinion that an operating loss of a similar magnitude in the ensuing year would undermine the financial situation of the participant, he would take this into account in determining the level of bank guarantees or other remedial measures that should be required, and whether to require the lodgement of audited financial statements for the ensuing six months rather than waiting another year. Mr Whittaker’s practice was to include a provision for future loss in his calculation of the requirements for the participant to meet the financial criteria, unless the auditor said that the participant had not continued to incur losses. As to liquidity, Mr Whittaker’s assessment would evaluate whether the participant had sufficient current assets to pay its current liabilities and whether it had a sufficient surplus of working capital to meet at least one month’s overhead expenses. Solvency, in this context, involves assessing whether there is a sufficient surplus of tangible assets over liabilities, so that any losses sustained may be written off against shareholders’ funds and not against funds belonging to creditors or consumers.”

17 Part 12 of the Schedule dealt with the determinations regarding financial resources and enabled the trustees to publish from time to time guidelines as to the criteria which they might use to determine whether a person had, and was likely to continue to have, sufficient financial resources to enable the person to carry on business as a travel agent (12.1). The trustees might make it a condition of their determining that a person was, or was to remain, eligible to be a contributor to the fund that the person complied with any one or more of the following:

(b) That the person’s business be guaranteed in a way, or by a person or class of person, specified by the Trustees.

(c) That the person maintain and operate the books of account and other accounting records of the travel agency business in a manner specified by the Trustees.

(d) That a report be obtained at the expense of the person from a duly qualified auditor or accountant nominated by the Trustees stating that the accounting records of the travel agency give a true and fair view of the financial position of the business.

(e) That a report be obtained at the expense of the person from a duly qualified auditor or accountant nominated by the Trustees providing such information as will permit the trustees to determine whether the person has sufficient financial resources to carry on business as a travel agent. (12.2)

Ms Fry’s application to participate in the fund

18 On 13 April 1996 Ms Fry successfully applied to participate in the fund on a printed form which was provided. The principal place of business was given as Suite 1/354 Church Street, Parramatta and the name of the accountant as Sven Klinge of R Tambree & Associates. In the appended statement of personal assets and liabilities, Ms Fry described her assets as Nissan Skyline $5,500, cash at bank $15,000 and plant and equipment $5,400, making a total of $25,900. Against total liabilities was written “0”. Also attached was what was described as a balance sheet as at 21 March 1996, showing a surplus of assets over liabilities of $25,900. Mr Klinge had signed it and certified that he had examined the books and records of Renee Fry and confirmed that the balance sheet showed a true and fair view of her financial viability as at 21 March 1996.

19 On 3 December 1997 Travel Shop International provided TCF with a renewal application, annual financial review, financial statements and an independent audit report. Mr Tambree had prepared the accounts which were included in the renewal material and Mr Roseby had signed the statement of auditor. On 11 November 1998 the Travel Shop International provided TCF with a renewal application, annual financial review, financial statements and an independent audit report. Again, Mr Tambree prepared the accounts included in the renewal material and Mr Roseby signed “an independent audit report”. With each renewal application the Travel Shop International continued its participation in the fund.

The case against Mr Tambree

20 In its third and final amended statement of claim, TCF claimed that Mr Tambree, by preparing the accounts that formed part of the Participation Documents and preparing the accounts that were included in the 1997 renewal material and the 1998 renewal material, intended and well knew or ought to have known that TCF would rely on those accounts and would be induced thereby to permit Ms Fry to participate and/or remain in the compensation scheme prescribed under the Act and/or remain in the scheme without the imposition of a condition. Further, that acting on that material and induced thereby, TCF permitted Ms Fry’s participation and continued participation without the imposition of a condition in consequence of which TCF had suffered loss and damage. In the alternative, under the heading “Trade Practices Claims” TCF claimed that Mr Tambree participated in, or approved, or was responsible for, the preparation of the Participation Material, the 1997 renewal material and the 1998 renewal material. Such materials were misleading and deceptive, or likely to mislead and deceive, TCF by not accurately reflecting the financial position or the trading activities of Ms Fry. As a result, TCF permitted Ms Fry to become a participant in the scheme and allowed her to trade as a licensed travel agent until February 1999 and she incurred liabilities for which TCF was subsequently obliged to compensate customers.

21 On 1 May 1996 Mr Tambree of R Tambree & Associates wrote to TCF “re Renee Fry”:

“I confirm that our firm act as auditors for the above applicant, and we are aware of the need for audited annual statements within three months after each annual year.”

22 According to Mr Tambree shortly afterwards someone from TCF telephoned him and asked for his registered audit number. Mr Tambree said “We are not registered auditors” and was told that this being so he could not do the audit. He said he would speak to his client and arrange for an appropriate person to do the audit. Subsequently, he recommended Mr Roseby.

23 In June 1996 Ms Fry became a participant in TCF and was granted a travel agent’s licence. The licence number was 2TA4438. On 11 October 1996, TSIPL was incorporated. On 19 November 1996, Ms Fry notified TCF of a change of address to 366 Church Street, Parramatta and that she was the proprietor of a registered business name “The Travel Shop International”. In the meanwhile, an account was opened with a ticket consolidator, Metro Travel (Metro), either by Ms Fry as a participant in the fund or by TSIPL, or Fiji Resorts, or Bali Resorts. A ticket consolidator is a wholesaler of airline tickets, which purchases in bulk tickets from airlines and sells these tickets to travel agents. Travel agents use a ticket consolidator when, and to the extent that, the consolidator can offer cheaper airline tickets than can generally be obtained by the agents directly from the airlines. In February 1997 Ms Fry began trading and began use of the Metro account. By 30 June 1997 she owed Metro $36,157.50.

24 The first page of the December 1997 renewal application contained the name “The Travel Shop International” and a declaration dated 2 December 1997 by Ms Fry, as the proprietor of the agency, that the financial and other information provided in the report was true and fair and in accordance with the books and records of the business entity which operated the agency. I will return to the first page of the auditor’s statement dated 2 December 1997 to the trustees of TCF and to International Air Transport Association when considering the claim against Mr Roseby, who signed it.

25 A summary of business income for the period of three months ended 30 June 1997 showed amounts for sales of a value of $287,158. A further document, headed “Financial Ratios Calculation Worksheet”, showed total operating costs of $36,908 and eight points against the ratio of net tangible assets to turnover which was translated as meaning that the percentage of the net tangible assets to turnover was greater than 3 per cent. Eight points were shown for working capital available to meet overheads which represented an overhead expenses cover of more than two months. The total points were shown as sixteen. A summary balance sheet showed total assets at $50,637 and total liabilities as nil.

26 A six page document was prepared by Mr Tambree and dated 12 September 1997. The first page was as follows:

“RENEE FRY TRADING AS THE TRAVEL SHOP INTERNATIONAL
Trading as THE TRAVEL SHOP INTERNATIONAL
Compilation Report

On the basis of the information provided by RENEE FRY TRADING AS THE TRAVEL SHOP INTERNATIONAL, we have compiled, in accordance with APS9 ‘Statement of Compilation of Financial Reports’, the special purpose financial report for the period ended 30 June 1997.

RENEE FRY TRADING AS THE TRAVEL SHOP INTERNATIONAL is responsible for the information contained in the special purpose financial report and has determined that the accounting policies used are consistent with his/her accounts preparation requirements.

Our procedures have been limited to the classification and summarisation of information to compile this special purpose financial report from the information provided to us by the Proprietor and do not include verification or validation procedures. No audit or review has been performed and accordingly no assurance is expressed.

Neither the firm nor any member or employee of our firm undertakes any responsibility or accepts any liability in any way whatsoever to any person other than RENEE FRY TRADING AS THE TRAVEL SHOP INTERNATIONAL in respect of the special purpose financial report including any errors or omissions in the special purpose financial report however caused.

R TAMBREE & ASSOCIATES

27 The six pages included a trading account for the year ended 30 June 1997 showed a total trading income of $288,158, cost of sales $226,548 and a gross profit from trading of $61,610. A document described as the detailed profit and loss account reduced the trading profit by expenses to a net profit of $24,702. The balance sheet for the period showed proprietor’s funds with a capital contribution of $25,900 added to the net profit of $50,637 said to be represented by current assets of cash at bank of $46,377 and non-current assets broken up between loans.

28 There followed notes to and forming part of the financial statements for the year ended 30 June 1997 as follows:

The statements have been prepared in accordance with the requirements of the following Accounting Standards and other mandatory professional reporting requirement:

No other Accounting Standards or other mandatory professional reporting requirements have been intentionally applied.

The statements are also prepared on an accrual basis from the records of the entity. They are based on historic costs and do not take into account changing money values or, except where specifically stated, current valuations of non-current assets. The accounting policies are consistent with the previous period, unless otherwise stated.”

29 The final sheet contained:

“Note 2 – Operating Revenue 1997 $
Sales revenue 288,158

Note 3 - Cash
Bank accounts Cash at bank 46,377

30 By 30 June 1998 Ms Fry owed Metro $178,867.11. The November 1998 renewal application was submitted to TCF by Ms Fry trading as The Travel Shop International. The documentation was relevantly to like effect as the 1997 renewal application. Mr Roseby signed the statement of auditor dated 11 November 1998. Gross sales were shown as exceeding $1.4 million. The gross operating profit was over $83,000, with overhead expenses of nearly $75,000. No more in this document, than in the 1997 document, was mention made of the debt to Metro.

31 Ms Fry’s 1998 AFR claimed a maximum eight points for the ratio of net tangible assets to turnover, as the percentage of net tangible assets to turnover exceeded 3 per cent. It claimed a maximum eight points for working capital, as working capital provided more than two months cover to meet overheads. It claimed a maximum four points for maintaining fully funded client travel account/trust client account. As Ms Fry obtained a maximum twenty points based on the TCF’s financial criteria, the 1998 AFR was not brought to the special attention of the Management Committee and it was decided that Travel Shop International continue as a participant in the fund.

32 In November 1998 TSIPL assumed conduct of Ms Fry’s business and used the Metro account. On 18 February 1999, Ms Fry wrote to TCF indicating she wished to resign from the fund. On 23 February 1999, TCF terminated the participation of Travel Shop International in the compensation scheme. The premises at 366 Church Street, Parramatta were closed by licensing inspectors on 20 April 1999.

33 Austin J described the claims against Mr Tambree as follows:

“14 The complaint against Mr Tambree is that he prepared the accounts that formed part of the Participation Documents, as well as the accounts that were included in the 1997 and 1998 Renewal Materials. The Statement of Claim alleges that Mr Tambree intended and knew or ought to have known that the plaintiff would rely on the accounts. He was therefore under a duty of care to the plaintiff. By providing the accounts he represented their accuracy and compliance with a relevant accounting standard, but his representations were incorrect. The plaintiff alleges that it relied on these representations, which were inaccurate, and that it has suffered loss.

15 The Statement of Claim also alleges that Mr Tambree thereby engaged in misleading or deceptive conduct contrary to s42 of the Fair Trading Act, or was knowingly concerned in Ms Fry’s contravention of s42.”

The case against Mr Roseby

34 In its third and final amended statement of claim TCF claimed that Mr Roseby, in purporting to audit the accounts and provide the audit certificate or report that were included in the 1997 renewal material and the 1998 renewal material, intended, and well knew, or ought to have known, that TCF would rely on those accounts and would be induced thereby to permit Ms Fry to participate and/or remain in the scheme and/or remain in the compensation scheme under the Act without the imposition of a condition. Further, acting on that material and induced thereby, TCF permitted Ms Fry’s participation and continued participation without the imposition of a condition in consequence of which TCF had suffered loss and damage. In the alternative, under the heading “Trade Practices Claims” TCF claimed Mr Roseby, in participating in, or approving, or being responsible for the 1997 renewal material and the 1998 renewal material, was aware that the accounts in the 1997 and 1998 renewal material were misleading and deceptive or likely to mislead and deceive TCF in not accurately reflecting the financial position or the trading activities of Ms Fry. As a result, TCF permitted Ms Fry to become a participant in the scheme and allowed her to trade as a licensed travel agent until February 1999 and Ms Fry incurred liabilities to the claimants which TFC was subsequently obliged to compensate. By providing his audit certificate or report Mr Roseby represented that the accounts were correct and that the audit was conducted in accordance with the Australian auditing standards and with due care and skill.

35 Mr Tambree recommended Mr Roseby to audit the annual financial statements he produced for Ms Fry. After Mr Tambree produced the balance sheet, profit and loss, trading account and income tax return for the 1997 year he took all the source material and his file to Mr Roseby.

36 The 1997 financial statements provided to TCF included a statement of auditor to the trustees and an “independent audit report” both signed by Mr Roseby and dated 2 December 1997. I set out the “independent audit report” in full which, mutatis mutandis, is the same as that signed by Mr Roseby and dated 11 November 1998 for the 1998 financial year.

“INDEPENDENT AUDIT REPORT

To: Renee Julie Fry trading as The Travel Shop International and the Trustees of the Travel Compensation Fund and the International Air Transport Association.

Scope

I have audited the financial statements, being a special purpose financial report comprising the profit and loss account, balance sheet and notes to and forming part of the financial statements of Renee Julie Fry trading as The Travel Shop International for the year ended 30th June 1997 as set out on pages 1 to 6. The proprietor responsible for the financial statements and she has determined that the accounting policies used and described in Note 1 to the financial statements and the accounting disclosures contained therein are appropriate to the requirements of the Corporations Law as it applies to large corporations and the needs of the members, the Trustees of the Travel Compensation Fund and the International Air Transport Association. I have conducted an independent audit of the financial statements in order to express an opinion on them to Renee Julie Fry trading as The Travel Shop International, the Trustees of the Travel Compensation Fund and the International Air Transport Association.

The financial statements have been prepared for distribution to the Proprietors, the Trustees of the Travel Compensation Fund and the International Air Transport Association for the purpose of fulfilling the requirements of the Corporations Law as it applies to large corporations, the Trustees of the Travel Compensation Fund and the International Air Transport Association. I disclaim any assumption of responsibility for any reliance on this report or on the financial statements prepared as a special purpose financial report to which it relates, to any person other than the Proprietors, the Trustees of the Travel Compensation Fund and the International Air Transport Association, or for any purpose other than that for which it was prepared.

My audit has been conducted in accordance with Australian Auditing Standards. My procedures include examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial report and the evaluation of significant accounting estimates. These procedures have been undertaken to form an opinion as to whether, in all material respects, the financial statements are presented fairly in accordance with the application of accounting standards and other mandatory professional reporting requirements (Urgent Issues Group consensus Views), and the basis of accounting as described in Note 1 to the financial statements.

The audit opinion expressed in this report has been formed on the above basis.

Audit Opinion

In my opinion, the financial statements of Renee Julie Fry trading as The Travel Shop International for the year ended 30th June 1997 are properly drawn up:

(a) to give a true and fair view, in accordance with the accounting policies described in Note 1 to the financial statements, of the matters required by Divisions 4, 4A and 4B of Part 3.6 of the Corporations Law as they apply to large corporations, to be dealt with in the financial statements;

(b) in accordance with the provisions of the Corporations Law as they apply to large corporations.

(c) in accordance with applicable Accounting Standards and the mandatory professional reporting requirements (Urgent Issues Group Consensus Views), applied to the extent described in Note 1 to the financial statements.”

37 In his reasons for judgment, Austin J summarised the effect of parts of this report, namely Mr Roseby’s opinion that the financial statements, which he had audited, were properly drawn up to give a true and fair view in accordance with the appropriate accounting policies of the matters required to be dealt with in financial statements by the relevant provisions of the Corporations Law as they applied to large corporations. In Mr Roseby’s opinion the financial statements had been drawn up in accordance with the provisions of the Corporations Law and the applicable accounting standards and mandatory professional reporting requirements to the extent described in Note 1 to the financial statements. In his opinion the proprietor was responsible for the financial statements and had determined the accounting policies to be used as described in Note 1 to the financial statements. The report noted that the financial statements had been prepared for distribution, inter alia, to the trustees of the TCF for the purpose of fulfilling the requirements of the trustees.

38 The renewal application dated 3 December 1997 appeared to have been based on the financial statements for the year ended 30 June 1997 and contained the following statement of auditor signed by Mr Roseby as auditor:

“Statement of Auditor
to the Trustees of the Travel Compensation Fund
and to International Air Transport Association
(Cross out if not reporting to IATA)

I report and acknowledge that the information in this Annual Financial Review:

1. Forms the basis, together with the audited financial statements,

on which the agency’s continued eligibility for participation in the Travel Compensation Fund is determined;

on which the agency’s continued eligibility as an accredited IATA agent is determined; (Cross out if not reporting to IATA)

2. Has been extracted from the agency’s audited financial statements;

3. Is true and fair to the best of my knowledge and belief;

4. In my opinion, discloses all contingent liabilities of the agency;

5. In my opinion, the realisable values of all investments are not less than their values on the agency’s balance sheet;

6. That the person signing this report is a Registered Company Auditor;

(Delete if incorrect)

(Delete if not required)

39 With minor changes on 11 November 1998 Mr Roseby signed such a statement of auditor on the 1998 application by Ms Fry for renewal. It is to be observed that in neither were paras 7, 8 or 9 deleted.

40 In the financial ratios calculation worksheet for the 1997 application, the question “Has a fully funded Client Travel Account/Trust Bank Account been maintained throughout the year in accordance with the criteria set out on page 18?” was ticked “No” and the question “Are the Client Travel Account balance at bank and the related Liability for Client Deposits shown on the Balance Sheet? was ticked “Yes”.

41 Austin J described the claims against Mr Roseby as follows:

“16 The complaint against Mr Roseby is that he audited the accounts forming part of the 1997 and 1998 Renewal Materials and provided an audit certificate in each year. The Statement of Claim alleges that Mr Roseby intended and knew or ought to have known that the plaintiff would rely on the accounts, and that he was under a duty of care to the plaintiff. By providing his audit certificate he represented that the accounts were correct and that the audit was conducted in accordance with Australian Auditing Standards and with due care and skill, and the plaintiff says it relied on these representations. The representations were inaccurate and the plaintiff has suffered loss.

17 The plaintiff also alleges that Mr Roseby engaged in misleading or deceptive conduct contrary to s42 of the Fair Trading Act, or was knowingly concerned in Ms Fry’s contravention of s42.”

Austin J’s findings

42 Austin J said this about the 1997 financial statements and annual financial review:

“77 The financial statements for the year ended 30 June 1997 were prepared by R Tambree & Associates. Mr Tambree’s evidence was that some time in 1997 Mr Fry contacted him, and asked him to prepare some accounts urgently so that he could have his daughter’s travel licence renewed. Subsequently Mr Fry attended Mr Tambree’s office with a box full of material, including computer-generated cashbook statements, cheque books and invoices. Mr Tambree said that the material was coded into a computer by his staff, and the computer then generated a trial balance. He then saw Mr Fry and prepared a spreadsheet on Mr Fry’s instructions. He reconciled the bank account and brought in unpresented cheques. He then carried out journal adjustments. Mr Fry was present while he did this work, and answered questions from time to time. He said that while he verified some items, he was aware that Mr Roseby would audit the accounts. I accept this evidence.

78 Mr Tambree said he asked Mr Fry why there were no amounts owed or owing but he did not recollect the precise terms of the conversation. I find this part of his evidence unconvincing and I reject it.

79 After he completed this process, his staff ran the adjusted figures through the computer, which produced a balance sheet, profit and loss, trading account and income tax return. A little while later, Mr Tambree took all the source material and his file to Mr Roseby. He did not speak to Ms Fry about the financial statements at any time.”

43 His Honour referred to the financial information in the AFR showing sales, net assets and net profit before income tax together with annual expenses and working capital and said: “Nothing was shown for current liabilities or client account balances.” Austin J said that it appeared that, following normal practice, the 1997 renewal application was treated as a “routine renewal” because self-assessment of the participant’s points (16 points) was comfortably above the 10 point threshold. The content of the 1997 AFR was accordingly not brought to the attention of the Management Committee of Trustees, and it was decided that The Travel Shop International continue as a participant in the fund.

44 Turning to the 1998 financial statements and annual financial review, his Honour accepted Mr Tambree’s evidence that the 1998 financial statements were prepared by him in the same manner as the 1997 accounts. Again, the financial statements showed sales revenue, net profit, net assets and working capital but nothing for current liabilities or client account balances. His Honour said:

“92 The financial statements were accompanied by a Compilation Report by R Tambree & Associates dated 6 November 1998. That report said that the firm had prepared its special purpose financial report for the period ended 30 June 1998 ‘on the basis of information provided by Renee J Fry’ and ‘in accordance with APS 9 Statement of Compilation of Financial Reports’. A note stated that the financial statements had been prepared in order to satisfy the requirements of the proprietor to prepare accounts, and on the basis that the proprietor had determined that the entity was not a reporting entity. The note said that the financial statements had been prepared in accordance with the requirements of accounting standards AAS 1 (Profit and Loss Accounts), AAS 2 (Measurement and Presentation of Inventories in the Context of the Historical Cost System), AAS 4 (Depreciation of Non-Current Assets) and AAS 8 (Events Occurring After Balance Date), and other mandatory professional reporting requirements, but no other accounting standards had been intentionally applied. The statements were prepared on an accruals basis from the records of the entity, and were based on historic costs and did not take into account current valuations.

93 The Compilation Report asserted that Ms Fry was solely responsible for the information contained in the special purpose financial report. It continued:

Our procedures use accounting expertise to collect, classify and summarise the financial information, which the Proprietor provided into a financial report. Our procedures do not include verification or validation procedures. No audit or review has been performed and accordingly no assurance is expressed.

To the extent permitted by law, we do not accept liability for any loss or damage which any person, other than the Proprietor, may suffer arising from any negligence on our part. No person should rely on the special purpose financial report without having an audit or review conducted.

The special purpose financial report was prepared for the benefit of the proprietor and the purpose identified above. We do not accept responsibility to any other person for the contents of the special purpose financial report."

45 TCF’s attack upon these financial statements and AFRs was based on reports prepared by two accounting experts, Mr Humphreys and Professor Walker. Dealing with Mr Humphreys’ first report of 4 August 2000, Austin J said:

“125 Mr Rob Humphreys, a chartered accountant, prepared an expert's report for the TCF for the purpose of these proceedings. His report, dated 4 August 2000, dealt with the financial position of Ms Fry trading as The Travel Shop International in 1997 and 1998. Mr Humphreys was supplied with the affidavits in the proceedings and also financial statements and working papers in relation to the June 1997 and June 1998 financial years. He proceeded on the basis of information that Metro Travel was owed $65,684.03 at 30 June 1997 and $152,615.10 at 13 July 1998. His report was admitted into evidence upon the basis that those figures would be treated as assumptions. He also proceeded on the basis that the business owed $6123.10 to The Naviti in Fiji in relation to invoices dated prior to 30 June 1998.

126 I should mention that Ms Fry and Mr Fry deny that any such debt was owed to The Naviti. My finding on that point is that the evidence supports the view that the debt was owing as at 30 June 1998. There is documentary evidence to that effect, and Ms Fry acknowledged that she encountered problems in dealing with The Naviti.

127 As I understand the evidence of Mr Humphreys, it contains a criticism of the Travel Shop's AFRs on a qualitative and on a quantitative basis. The qualitative basis relates to accounting for client deposits, and the quantitative basis relates to the omission of any figures for amounts owing to Metro and The Naviti. The qualitative critique would remain even if I were to find that there were no amounts owing by The Travel Shop International to Metro or suppliers on 30 June 1997 or 30 June 1998.

128 As to the qualitative basis, Mr Humphreys expressed the opinion that an important component of the process of accounting in a travel agency relates to client deposits. When moneys are received on account of sales and placed into a bank account, a liability should be raised in an account designated ‘Client Deposits’ or some equivalent terminology. At balance date, the financial statements should include as a current liability the amount of Client Deposits, net of amounts already paid to service providers. Bank account balances, for the account into which moneys received from clients on account of sales are deposited, should be reconciled against amounts outstanding for unpaid service providers plus undrawn commission plus the total of holding deposits from clients for any work in progress.

129 In the opinion of Mr Humphreys, this reconciliation process should be performed regularly by the travel agent or their accountant, as it provides the basis for recognition of commission, confirmation that the debtors' balances have been properly recorded, and an indication of the liabilities that must be accrued for unpaid amounts due to travel service providers. Mr Humphreys added (at paragraph 3.6 of his report):

‘In my opinion, it is a critical part of the auditor's task to confirm that such reconciliations are performed and to test and verify all of the essential elements, at least at balance date.’

130 Mr Humphreys criticised the 1997 and 1998 AFR's largely on the ground that they omitted any reference to client deposits, or to the Metro and other supplier debts. He produced a re-statement of the 1997 financial statements on the basis that the assumed debts were taken into account, so that an assessment could be made as to the impact of these adjustments on the points claimed by reference to the TCF's financial criteria. He referred to this re-statement as scenario 1. It assumes that the only relevant travel agent entity is The Travel Shop International. Since, however, there is (as I note elsewhere) evidence to suggest that one or more of TSIPL, Fiji Resorts and Bali Resorts may also have conducted travel agency business, he also produced a re-statement of the financial accounts on a "group" basis to take into account those other entities [scenario 2]. He concluded that, while the 1997 financial statements showed positive net assets and proprietors' funds, when adjusted they would show a material deficiency and a significant loss.

131 Mr Humphreys reached the same conclusions, with the same methodology, concerning 1998, except that he was unable to prepare a consolidated set of figures because financial information for the other companies for the year ended 30 June 1998 was not available.”

46 Professor Robert Walker was the Professor of Accounting at the University of New South Wales. He analysed the Compilation Reports that accompanied the 1997 and 1998 financial statements and was very critical of them. In particular, he expressed the opinion that the assertion that the financial statements had been compiled in accordance with APS9 was misleading.

47 Austin J said:

“133 APS 9 is a "miscellaneous professional statement" jointly issued by The Institute of Chartered Accountants in Australia and the Australian Society of Certified Practising Accountants. Its purpose is ‘to identify the basic principles and to provide guidance on a member's professional responsibilities when an engagement to compile a financial report is undertaken for a client’. It also describes the form and content of the report that a member should issue in respect of such an engagement.

(3) Clause 20 of APS 9 specifies that ‘a member must obtain a general knowledge of the business and operations of the client in relation to which the compilation is being prepared and must be familiar with the accounting principles and practices of the industry in which the client operates and with the form and content of the financial report that is appropriate in the circumstances.’ Professor Walker said that, based on the documents produced on discovery, it was reasonable to infer that the firm was aware of the requirements of the TCF for accounts to be prepared in accordance with the Australian Accounting Standards, and for those accounts to be audited. It was therefore inappropriate, in Professor Walker's opinion, for the firm to produce the form of Compilation Report that was used or to assert that the financial statements were a ‘special purpose financial report’ prepared in terms of APS 9. He noted that the explanatory material in the AFR form specified that the TCF required financial reports complying with all accounting standards except for a number of specified standards.

(4) Clause 24 of APS 9 states that ‘a member must consider whether the compiled financial report appears to be appropriate in form and free from material misstatements’. In Professor Walker's opinion, the firm was or should have been aware that the TCF required accounts to be prepared on an accrual basis. Professor Walker's review of the material provided to him suggested that no accrual entries had been made at the end of the year to 30 June 1997. The ledger did not include any accounts for creditors, and receipts from customers appear to have been recorded as revenue at the time that they were received. As to the year ended 30 June 1998, he noted that the accounts recorded operating revenues of $1,402,255 but again, no liabilities. He said (Report, paragraph 28):

‘In my opinion, it would be common knowledge that the business of a travel agent is not a 'cash' business, and that basic services such as electricity or telephone do not render accounts on 30 June. Accordingly, it is inconceivable that such a business would not have had any liabilities to 30 June 1998.’

He also said it would be inconceivable that a travel business with the turnover in excess of $1.4 million for the year did not hold money on deposit from customers, either held in the trust account or else recorded in the accounts as a liability.

(5) Clause 11 of APS 9 states that ‘in undertaking a compilation engagement a member must comply with the requirements of Miscellaneous Professional Statement APS 1 'Conformity with Accounting Standards and UIG Consensus Views'.’ Professor Walker expressed the view that the firm was not entitled to regard ‘Renee Fry trading as The Travel Shop International’ as an entity not required to prepare ‘general purpose financial statements’. General purpose financial statements are prepared when there are users of accounting information who must rely on those reports when making judgments about the financial performance and circumstances of an entity. That was the case for these accounts, which would be relied upon by the TCF.

135 Professor Walker expressed the view that the very act of ‘compilation’ of financial statements necessitates a degree of knowledge and skill, the proper application of which would or should have immediately highlighted serious deficiencies in the financial statements and in particular, the omission of any reference to trade creditors. He concluded (Report, paragraph 30):

‘In my opinion, the failure of these accounts to recognise the existence of any liabilities represented a failure on the part of those who compiled the accounts (or those who were responsible for the issue) to exercise a reasonable standard of skill and care as accountants’. “

48 Professor Walker was also highly critical of Mr Roseby’s audit reports for 1997 and 1998. He drew attention to the inconsistency between describing the financial statements as special purpose financial reports and, at the same time, asserting that the accounting disclosures contained in them were appropriate to the requirements of the Corporations Law as applied (at the time) to large corporations. Professor Walker said that large corporations would require the preparation of general purpose financial statements, and would require that all applicable Australian accounting standards be complied with. Austin J said:

“137 Professor Walker was provided with a file of materials produced by Mr Roseby on discovery. He said he did not locate in those files sufficient audit working papers to provide reasonable support for Mr Roseby's claim that an audit had been carried out in accordance with Australian Auditing Standards. He noted that Australian Auditing Standard AUS 208 ("Documentation", October 1995) requires an auditor to prepare working papers that are sufficiently complete and detailed to provide an understanding of the audit. The material produced by Mr Roseby did not include any document setting up the terms of the audit engagement, or the overall audit plan, and such documents as had been produced seem to focus only on cash transactions, ignoring the need to assess such matters as whether liabilities had been properly recorded in the accounts and the significance of any post-balance date events.

138 Professor Walker also drew attention to Australian Auditing Standard AUS 210 ("Irregularities, Including Fraud, Other Illegal Acts and Errors", October 1995). According to that Standard, the auditor should plan and conduct the audit so as to have a reasonable expectation of detecting misstatements that have a material impact on the financial report arising as a result of irregularities. Professor Walker found no evidence that the audit plan complied with this requirement.

139 Nor was any document seen by Professor Walker which indicated any effort had been made to identify related parties and related party transactions, notwithstanding the requirements of Australian Auditing Standard AUS 518 ("Related Parties", October 1995). Professor Walker found evidence in the documents obtained from R Tambree & Associates that there were related party transactions between Fiji Resorts and The Travel Shop.

140 No document was produced to Professor Walker which indicated that any attention been paid to obtaining audit evidence to support the representations contained in the financial statements, notwithstanding Australian Auditing Standard AUS 502 ("Audit Evidence", October 1995). Nor was any document produced which indicated any attempt to apply analytical review procedures, notwithstanding Australian Auditing Standard AUS 512 ("Analytical Procedures", October 1995).

141 Professor Walker expressed the opinion that if Mr Fry had deliberately not informed Mr Roseby about the existence of certain liabilities, that they could not have exonerated Mr Roseby from his responsibility is [as] auditor to undertake proper procedures to assess whether the financial statements were materially misstated. Nor would Mr Roseby be in any way exonerated for failure to carry out an appropriate and professional audit by the fact that he charged only a modest sum for the conduct of the 1997 the audit.

142 Professor Walker also commented on the certification by Mr Roseby of the 1997 and 1998 AFR forms. He said that there were three misrepresentations by Mr Roseby:

(1) the AFR forms acknowledged that the information contained in them would form the basis, together with the audited financial statements, on which the travel agency's continued eligibility for participation in the TCF would be determined, and yet the notes to the financial statements asserted that they were special purpose financial statements and that Ms Fry had determined that the accounting policies users were consistent with her accounts preparation requirements;

(2) Mr Roseby certified that the information in the AFRs was true and fair to the best of his knowledge and belief and disclosed all contingent liabilities of the agency, but no information was given in the AFR forms about actual liabilities, let alone contingent liabilities;

(3) Mr Roseby signed the 1998 form without deleting Clause 7, thereby asserting that the travel agency had properly maintained a fully funded Client or Travel Trust account, but the material reviewed by Professor Walker indicated that no separate account was maintained.”

49 Of this I would highlight:

· there were no files or audit working papers to support Mr Roseby’s claim that an audit had been carried out in accordance with Australian auditing standards;

· there was no evidence of an audit plan designed so as to have a reasonable expectation of detecting mis-statements that have a material impact on the financial report;

· there was nothing to indicate that any attention had been paid to obtaining audit evidence to support the representations contained in the financial statements;

· if Mr Fry had deliberately not informed Mr Roseby about the existence of liabilities, that could not have exonerated Mr Roseby from his responsibility as auditor to undertake proper procedures to assess whether the financial statements were materially mis-stated;

· Mr Roseby misrepresented -

that the information would form the basis, together with the audited financial statements, on which the travel agency’s continued eligibility for participation in the TCF would be determined;

that the information in the AFRs was true and fair to the best of his knowledge and belief and disclosed all contingent liabilities of the agency when no information was given in the AFR forms about actual liabilities, let alone contingent liabilities; and

that in 1998 the travel agency had properly maintained a fully funded Client or Travel Trust account.

Liability of Mr Tambree

50 Austin J dealt with the liability of Mr Tambree as follows. His Honour noted that it was not contended against Mr Tambree that the financial statements which accompanied the 1996 application for participation were inaccurate. Attention was focused on the 1997 and 1998 renewals and the financial statements in relation to those years. First, the trial Judge dealt with the claim based on misleading conduct and then with the claim based on negligence.

51 Mr Tambree denied that he represented to TCF that the accounts which accompanied the 1997 and 1998 renewal material were true and correct or that he made a representation of his own about whether the accounts could be relied upon. He contended that he did no more than pass on information Mr Fry supplied to him; see Yorke v Lucas (1985) 158 CLR 661 at 666:

“If the circumstances are such as to make it apparent that the corporation is not the source of the information and that it expressly or impliedly disclaims any belief in its truth or falsity, merely passing it on for what it is worth, we very much doubt that the corporation can properly be said to be itself engaging in conduct that is misleading or deceptive.”

Gardam v George Wills & Co Ltd

[No 1]

The Saints Gallery Pty Ltd v Plummer

“A disclaimer of any personal knowledge of the paintings’ authenticity was deducible from the parties’ relationship and the whole of the circumstances we have recounted.”

52 Mr Tambree relied upon that part of the compilation reports for each year which stated that neither his firm, nor any member or employee of it, undertook any responsibility or accepted any liability in any way whatsoever, to any person other than Ms Fry, in respect of the special purpose financial report including any errors or omissions in the special purpose financial report however caused. Further, the provisions stated that Ms Fry was responsible for the information contained in the special purpose financial report and had determined that the accounting policies used were consistent with his or her accounts preparation requirements. No audit or review had been performed and no assurance was expressed. Austin J said:

“170 However, it is clear that Mr Tambree represented, in respect of both years, that the financial statements had been prepared in compliance with APS 9, that The Travel Shop was entitled to prepare a special-purpose financial report and (by inference) that the accounts were prepared on an accruals basis. I fully accept the analysis of Professor Walker with respect to these matters. It follows from Professor Walker's analysis that Mr Tambree’s representations on these three matters were incorrect and misleading representations, and misleading conduct for the purposes of s 42.

171 In my opinion, Mr Tambree's misleading conduct was not confined to particular misrepresentations in the financial statements. His misleading conduct extended to the manner in which he went about his work as accountant in preparing the material. Mr Tambree's evidence was that he converted the data supplied by Mr Fry into a ‘meaningful financial statement’. He did so in consultation with Mr Fry, in a manner inconsistent with his contention that he was a mere conduit or intermediary. He was aware of the purpose for which the accounts were being prepared, namely transmission to Mr Roseby for incorporation into the renewal application and AFRs. His conduct, in purporting to comply with APS 9, could not be described as merely a mechanical act, but was one in respect of which professional expertise was to be applied.”

53 It is helpful to identify in summary the matters which Professor Walker commented on and which are set out in Austin J’s judgment at pars 133-135 which I have quoted;

· There were no documents to support the claims that Ms Fry was responsible for the information in the financial report and had determined that the accounting policies used were consistent with her requirements.

· The financial reports were the product of partly applying accrual accounting (for example, by recording depreciation) and partly applying cash based accounting (for example, by ignoring liabilities).

· It was inappropriate to produce the form of compilation report that was used or to assert that the financial statements were a special purpose financial report prepared in terms of APS9.

· The ledger did not include any accounts for creditors, and receipts from customers appeared to have been recorded as revenue at the time that they were received. It would be inconceivable that a travel business with a turnover in excess of $1.4 million for the year did not hold money on deposit from customers, either held in the trust account or else recorded in the accounts as a liability.

· General purpose financial statements are prepared when there are users of accounting information who must rely on those reports when making judgments about the financial performance in circumstances of an entity. That was the case for these accounts, which would be relied upon by the TCF.

· The failure of the accounts to recognise the existence of any liabilities represented a failure on the part of those who compiled the account (or those who were responsible for the issue) to exercise a reasonable standard of skill and care as accountants.

54 TCF relied upon s42(1) in Pt 5 of the Fair Trading Act 1987 which provides that a person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. Section 68(1) provides, so far as presently relevant, that a person who suffers loss or damage by conduct of another person that is in contravention of a provision of Pt 5 may recover the amount of the loss or damage by action against the other person or against any person involved in the contravention. Austin J pointed out that the requirement of causation under s68 is the same as the “practical or commonsense concept applied by the common law”, with the result, that acts done by a person in reliance upon the misrepresentation of another constitute a sufficient connection to satisfy the concept of causation: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525, a case concerned with the equivalent provision in s82 of the Trade Practices Act 1974 (Cth).

55 Austin J said:

Wardley Australia

March v E & MH Stramare Pty Ltd

March v Stramare

The Law of Torts

March v Stramare

56 Austin J did not agree with Mr Tambree’s contention that the TCF did not rely on the financial statement he had prepared when they assessed the 1997 and 1998 renewal applications. According to his Honour, the evidence showed that the assessors who reviewed the renewal applications applied the TCF’s financial criteria and the system of self-assessment described in para 32 of his judgment, which I have quoted. In so doing they relied on the presence of financial information to support the assessments the applicant made and to support the points allotted to the application. “That reliance involved reliance on the accuracy of certain aspects of the financial information made relevant by the criteria.” Austin J acknowledged that the assessors gave only a little time to each renewal application and that TCF had not demonstrated that the assessors, for the 1997 and 1998 application, in fact looked at the financial statements as opposed to the information in the application form. Further, Mr Brattoni, who had been the chief executive officer of TCF, gave evidence that the notes to the financial statements clearly disclosed that they had not complied with the instructions given in the form with respect to accounting standards. Austin J said:

“176 … Nevertheless the misrepresentations that I have identified go to matters of importance, in respect of which the assessor for each year must have relied on the accuracy of the financial information. In particular, the fact that no liabilities were disclosed when in truth there were substantial liabilities in the business at both balance dates was a matter of fundamental importance. The assessors were entitled to assume that the accountant who prepared the financial statements would have taken steps of the kind prescribed by APS 9, even if the assessors did not read Mr Tambree's representation that he had complied with APS 9. That general assumption would include a particular assumption that the accountant had brought some judgment to bear on the question of liabilities before finalising financial statements which asserted that no liabilities were owing at the respective balance dates.”

57 Austin J disagreed with Mr Tambree’s contention that if the TCF had relied on his financial statements, it would have been so negligent in protecting its own interests, that the court should conclude that the misrepresentation was not any real inducement to TCF’s decision to continue Ms Fry’s participation in the fund. In Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 at 138 Hill J said:

“A case may perhaps be imagined where an applicant is so negligent in protecting his own interests that there will be a finding of fact that the representation complained of was not in the circumstances a real inducement to his entering into a contract. In such a case the element of causation between misrepresentation and damage will have been severed by the intervention of the negligence of the applicant.”

58 In Kewside Pty Ltd v Warman International Ltd (1990) ASC 58821 French J remarked:

Munchies Management Pty Ltd v Belperio

Elna Australia Pty Ltd v International Computers (Australia) Pty Ltd) [No 2]

Pavich v Bobra Nominees Pty Ltd

59 Having regard to the TCF’s method of processing renewal applications, Austin J regarded it as appropriate to infer, and did infer, that Mr Tambree’s misrepresentations were a real inducement to the TCF’s decision in respect of the 1997 and 1998 renewals.

60 Mr Tambree submitted that TCF had not shown that its losses occurred because Ms Fry was twice successful in having her participation in the fund renewed. All but a small part of TCF’s claims, namely thirteen claims in a total amount of $13,320, related to losses incurred in 1999 when Ms Fry was operating without a licence. He relied on Mr Brattoni’s evidence that he did not know whether, if Ms Fry had had her licence terminated a year earlier, she and her father would have stopped unlicensed trading at that time. In Austin J’s opinion, the evidence given on behalf of TCF as a whole and in particular that of Mr Whittaker, an accountant employed by TCF, Mr Pitts, a former chairman of TCF, and Mr Given, a trustee of TCF, provided a commonsense causal connection between Mr Tambree’s misrepresentations and the TCF’s losses, which his Honour accepted.

133 In March v Stramare at 517-8 Mason CJ said:

Novus actus interveniens

In similar fashion, the ‘but for’ test does not provide a satisfactory answer in those cases in which a superseding cause, described as a novus actus interveniens, is said to break the chain of causation which would otherwise have resulted from an earlier wrongful act. Many examples may be given of a negligent act by A which sets the scene for a deliberate wrongful act by B who, fortuitously and on the spur of the moment, irresponsibly does something which transforms the outcome of A’s conduct into something of far greater consequence, a consequence not readily foreseeable by A. In such a situation, A’s act is not a cause of that consequence, though it was an essential condition of it. No doubt the explanation is that the voluntary intervention of B is, in the ultimate analysis, the true cause, A’s act being no more than an antecedent condition not amounting to a cause.”

134 In those terms, one must ask whether, even if the acts of Mr Tambree and Mr Roseby set the scene for Ms Fry’s ability, legally, to conduct a travel agency business in New South Wales and then to continue that business after she terminated participation in the scheme on 23 February 1999, what she did thereafter transformed the outcome of Mr Tambree’s and Mr Roseby’s conduct into something of far greater consequence, a consequence not readily foreseeable by them. The Chief Justice continued at 517-518:

M’Kew v Holland & Hannen & Cubits

Chomentowski v

Red Garter Restaurant Ltd

135 In the present case, can it be said that Ms Fry’s activity or conduct after 23 February 1999 severed the chain of causation?

136 The Chief Justice continued at 518-519:

Chapman v Hearse

M’Kew

Caterson v Commissioner of Railways

Dorset Yacht Co v Home Office

‘But if the intervening action was likely to happen I do not think that it can matter whether that action was innocent or tortious or criminal. Unfortunately, tortious or criminal action by a third party is often the ‘very kind of thing’ which is likely to happen as a result of the wrongful or careless act of the defendant.’

Caterson

Chapman v Hearse

Mahony v J Kruschich (Demolitions) Pty Ltd

Dillingham Constructions Pty Ltd v Steel Mains Pty Ltd

As a matter of both logic and common sense, it makes no sense to regard the negligence of the plaintiff or a third party as a superseding cause or novus actus interveniens when the defendant’s wrongful conduct has generated the very risk of injury resulting from the negligence of the plaintiff or a third party and that injury occurs in the ordinary course of things. In such a situation, the defendant’s negligence satisfies the ‘but for’ test and is properly to be regarded as a cause of the consequence because there is no reason in common sense, logic or policy for refusing to so regard it.”

137 At 534 McHugh J quoted from Mahony at 528:

“A line marking the boundary of the damage for which a tortfeasor is liable in negligence may be drawn either because the relevant injury is not reasonably foreseeable or because the chain of causation is broken by a novus actus interveniens.”

138 McHugh J continued at 534-536:

Oxford Journal of Legal Studies

‘Quite apart from the fact that this is a remarkable departure from ordinary usage for authors committed to analysis of the accurate use of plain language, it serves to disguise the fact that the division between those acts which negative causal connection and those that do not appears, as we have seen, to be value-based, that is, to depend on the evaluation of the interest served by the intervening act.’

Once it is recognised that foreseeability is not the exclusive test of remoteness and that policy-based rules, disguised as causation principles, are also being used to limit responsibility for occasioning damage, the rationalization of the rules concerning remoteness of damage requires an approach which incorporates the issue of foreseeability but also enables other policy factors to be articulated and examined.

Roe v Minister of Health

fairly

Hughes v Lord Advocate

Law of Torts,

‘be made to such other pertinent factors as the purpose of the legal rule violated by the defendant, analogies drawn from accepted patterns of past decisions, general community notions regarding the allocation of ‘blame’ as well as supervening considerations of judicial policy bearing on accident prevention, loss distribution and insurance.’

Thus, the ‘scope of the risk’ test enables relevant policy factors to be articulated and justified in a way which is not possible when responsibility is limited by reference to commonsense notions of causation or to more specific criteria such as ‘novus actus interveniens’, ‘sole cause’ or ‘real cause’, all of which conceal unexpressed value judgments.”

139 As a value judgment I do not think that what Ms Fry did following her termination of participation could be regarded as a normal occurrence. A person would not normally terminate the licence which enabled that person to conduct a travel agent’s business and yet continue to conduct that business illegally.

140 In his report, Professor Walker observed that while Mr Tambree might claim to have only “compiled” the financial statements, the very act of “compilation” necessitates some degree of knowledge and skill. Leaving aside questions relating to whether or not the accounts were prepared in terms of APS9 or other accounting standards, in Professor Walker’s opinion “the proper application of knowledge and skill relating to accounting would (or should) have immediately highlighted serious deficiencies in the accounts prepared for Ms Fry, namely the omission of any reference to trade creditors.” A person who, holding himself out as an accountant, prepares a financial report about a trader in such a delinquent and incompetent manner betrays the standard which people would ordinarily expect of him as an accountant. It is a very serious thing. As serious, if not more serious, is the audit certificate of Mr Roseby.

141 In Ruddock v Taylor (2003) NSWCA 262 Ipp JA at para 90 referred to the English Court of Appeal’s decision in Chester v Afshar [2003] QB 356. The judgment of the Court was given by Sir Denis Henry. The Court, in a case where a doctor had negligently failed to warn the claimant of the risk of developing a syndrome if a surgical procedure on her spine was undertaken, applied the majority views expressed in Chappel v Hart. At 377-8 his Lordship, considering causation, put aside co-incidences with which the defendant had nothing to do, citing the classic example given by Lord Hoffman in Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191 at 213:

“A mountaineer about to undertake a difficult climb is concerned about the fitness of his knee. He goes to a doctor who negligently makes superficial examination and pronounces the knee fit. The climber goes on the expedition, which he would not have undertaken if the doctor had told him the true state of his knee. He suffers an injury which is an entirely foreseeable consequence of mountaineering but has nothing to do with his knee.”

142 Sir Denis Henry continued at 378:

“44 In cases such as the present, however, it simply cannot be said that the injury suffered had nothing to do with the problem which had taken the claimant to the doctor. It was a consequence of that very problem and the doctor’s attempt to put it right. Furthermore it was a consequence about which the claimant had expressed her concern to the doctor and been wrongly reassured. The closer analogy is with the mountaineer who consults his doctor because he is afraid that his knee will give way under the strain of mountain climbing, is wrongly reassured that it will not, and who is injured because his knee does give way. The doctor was not to blame for the knee giving way, any more than the doctor (if the first operation was not negligently performed) was to blame for the cauda equina syndrome in this case, but he was to blame for the mountaineer being on the mountain at all.”

143 In the present case, while neither Mr Tambree or Mr Roseby was responsible for the way Ms Fry conducted her business so as to cause loss to the claimants, the argument is that they were to blame for her being in business at all. At 378-9 his Lordship referred to the observations of Lord Hoffmann in Environment Agency (formerly National Rivers Authority) v Empress Car Co (Abertillery) Ltd at 29, 31.

144 His Lordship said that a somewhat similar point was made by Laws LJ in Rahman v Arearose Ltd [2001] QB 351 at 367:

responsible

145 His Lordship said at 379:

“In principle there seems to be little difficulty in attributing causative responsibility to a doctor who has in breach of duty failed to draw a particular risk to his patient’s attention if in the event that particular risk materialises.

47 The purpose of the rule requiring doctors to give appropriate information to their patients is to enable the patient to exercise her right to choose whether or not to have the particular operation to which she is asked to give her consent.”

146 In Ruddock v Taylor, Ipp JA stated why he considered that the appellants in that case, who were found to have wrongfully imprisoned the respondent, caused the damage sustained by the respondent. His Honour said:

“85 As Professor Jane Stapleton has explained in her article ‘Cause-in-Fact and the Scope of Liability for Consequences’ (2003) 119 LQR 388, there are two fundamental questions involved in the determination of causation in tort.

86 The first relates to the factual aspect of causation, namely, the aspect that is concerned with whether the negligent conduct in question played a part in bringing about the harm, the subject of the claim. Professor Stapleton argues (at 389) that this inquiry involves determining whether there was, on the part the defendant, “historical involvement in [the plaintiff] suffering actionable damage”.

87 The second aspect concerns “the ‘appropriate’ scope of liability for the consequences of tortious conduct” (Stapleton op cit at 411). In other words, the ultimate question to be answered when addressing the second aspect is a normative one, namely, whether the defendant ought to be held liable to pay damages for that harm. This inquiry may involve normative issues of a general kind, or issues such as whether the so-called evidentiary gap should be bridged (in the sense explained in Bonnington Castings Ltd v Wardlaw [1956] AC 613), whether the defendant materially increased the risk (in the sense explained in Fairchild v Glenhaven Funeral Services Ltd [2003] 1 AC 32), and whether the damage claimed is too remote.

,

The Law of Obligations

Essays in Celebration of John Fleming,

Review of

the Law of Negligence

147 Ipp JA said of Chester v Afshar:

“91 On these facts, the Court of Appeal found that the doctor had caused the injury. Part of its reasoning was that the law was designed to require medical practitioners properly to inform their patients of the risks attendant on their treatment. As the surgeon failed to take proper care in regard to this duty, and that resulted in the patient consenting to an operation to which she would not otherwise have given her consent, the purpose of the rule would be thwarted if the surgeon were not to be held responsible. The very risk about which the surgeon failed to warn the patient materialised and caused her an injury she would not otherwise have suffered. In these circumstances, the Court of Appeal considered that it would be unjust to hold that the effective cause of the patient’s injury was the random occurrence of the very small risk in the condition occurring.

92 This was a normative decision, that is, a decision based on policy considerations.”

148 This accords with what Professor Stapleton said in 1988 in Oxford Journal of Legal Studies, Vol 8, 111 at 125:

“… the division between those acts which negative causal connection and those that do not appears, as we have seen, to be value based, that is, to depend on the evaluation of the interest served by the intervening act.”

March v Stramare

149 Austin J found, based on the evidence given on behalf of TCF as a whole, and in particular the evidence given by Mr Whittaker, Mr Pitts and Mr Given, that there was “a common sense causal connection between Mr Tambree’s misrepresentations and the TCF’s losses” (para 178). Turning to Mr Roseby, his Honour found: “a proper audit would have put the TCF in a position to deal with the misleading financial disclosure late in 1997 or early in 1998. In terms of the common sense meaning of causation, Mr Roseby’s conduct of the 1997 audit was a cause of the losses, because it allowed a state of affairs to develop in which Ms Fry and Mr Fry were able to continue to trade and expose the clients of the business to losses” (para 191).

150 Adopting the approach suggested by Ipp JA, the first question is whether there was, on the part of Mr Tambree or Mr Roseby, “historical involvement in TCF suffering the damage claimed.” Austin J found that there was. Factual challenges are made to this conclusion. I am not, however, persuaded that, if Mr Tambree and Mr Roseby had properly and carefully completed their duties, in the one case as an accountant, and in the other case as an auditor, Ms Fry’s licence would have been renewed in 1997 and 1998, or, if renewed, not terminated before 23 February 1999. The performance of those duties in the way Professor Walker said they should have been performed, required in the case of Mr Tambree the proper application of knowledge and skill, which would or should, have immediately highlighted serious deficiencies in the financial statements, and, in particular, the omission of any reference to trade creditors and in the case of Mr Roseby, the undertaking of proper procedures to assess whether the financial statements included material misstatements.

151 As Austin J found, eligibility for participation in the scheme and for the grant of a licence depended upon the financial viability of the applicant. To determine this, TCF relied upon the information submitted by the applicant. The form provided for self-assessment. Self-assessment in excess of ten points led to automatic renewal. But for the negligence of Mr Tambree and Mr Roseby, Ms Fry’s licence would not have been automatically renewed in 1997 and 1998. Had the accounts been properly prepared or properly audited Ms Fry’s financial position would have been reviewed and almost certainly conditions imposed for renewal.

152 Austin J found that either a bank guarantee or an injection of capital would have been required. If it had not been forthcoming, participation in the scheme would have been withdrawn and Ms Fry’s licence would have been cancelled. If the condition had been met for each year there would have been a capital buffer sufficient to meet the claims in fact made. Austin J found that Mr Roseby’s deficient audits in 1997 and 1998 were a cause of this capital buffer not being required.

153 On the evidence and consistent with Austin J’s findings, I am satisfied that a proper discharge of Mr Roseby of his auditing duties or by Mr Tambree of his duties as an accountant would have led to a chain of regulatory events that would have prevented the losses being suffered by the claimants or, alternatively, would have provided a means for meeting them without recourse to TCF.

154 The next question is whether, bearing in mind the particular circumstances in which they negligently made misleading representations, Mr Tambree and Mr Roseby should be held responsible for all of TCF’s loss. It is a matter of public importance that accountants should not, when asked to prepare financial reports of business entities, to be used by an agency such as TCF, act so negligently as to produce a misleading report. Even more so can this be said of an auditor who provides an auditor’s certificate. These documents were about Ms Fry’s financial affairs and were provided for TCF. Again there are challenges on the facts to the conclusion that they fell within the scope of the risk.

155 Mr Roseby’s conduct in negligently preparing a misleading audit occurred in the context of supporting Ms Fry’s application to participate in the scheme. TCF relied upon this conduct in its pleading by claiming that the accounts and audit induced TCF to permit Ms Fry to continue in the scheme and accordingly engage in the business of a travel agent. She subsequently ceased to carry on that business in her own name, and a little later, ceased to participate in the scheme. It is not clear from the findings whether thereafter she did other than work for TSIPL, which seems to have made use of her licence number. Both Mr Tambree and Mr Roseby knew that the accounts and audit certificate were to aid Ms Fry continuing in the scheme and engaging in business as a licensed travel agent. However in my opinion, by no test could it be said that the negligently prepared accounts and audit and the misrepresentations that flowed from them, were causally related to her continuing illegally in the business of a travel agent. The example given by counsel for Mr Roseby, of the negligent testing of a potential driver being causally related to the driver negligently injuring a person while continuing to drive after the licence was cancelled, seems to me apposite. On this ground, in my opinion, both the appeal and the cross-appeal should be upheld to the extent that TCF is not entitled to recover the amount of compensation paid to those claimants who suffered loss as the result of Ms Fry’s activities after 23 February 1999.

Conclusion

156 The appeal and cross-appeal succeed to the extent that there was no sufficient causal connection between the negligence or breaches of s42 of the Fair Trading Act by the appellant and cross-appellant and the loss suffered by TCF in paying compensation to persons who made payments for travel services after 23 February 1999. The verdict and judgment should be adjusted accordingly both as to principal and interest. I propose the following orders:

1. Appeal and cross-appeal allowed;

2. Set aside that part of order 1 which refers to the fourth and fifth defendants and add the following order:

Supreme Court Act and Rules

Suitors’ Fund Act

4. Liberty to the appellant and cross-appellant within seven days to make application to vary costs order 4 made by Austin J.

157 IPP JA: I agree with Sheller JA.

**********

Last Modified: 02/27/2004

Citations

Tambree v Travel Compensation Fund [2004] NSWCA 24

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CITATION:	TAMBREE v TRAVEL COMPENSATION FUND & ORS [2004] NSWCA 24
HEARING DATE(S):	29 October 2003
JUDGMENT DATE:	26 February 2004
JUDGMENT OF:	Mason P at 1; Sheller JA at 2; Ipp JA at 157
DECISION:	1 Appeal and cross-appeal allowed; 2 Set aside that part of order 1 which refers to the fourth and fifth defendants and add the following order:; 1A In favour of the plaintiff against the fourth and fifth defendants in the sum of $13,320 together with interest on the said judgment sum in accordance with the Supreme Court Act and Rules from 20 September 1999 to 15 November 2002 in the sum of $4,216 being a total of $17,536; 3 The respondent Travel Compensation Fund to pay the appellant and cross-appellant their costs of the appeal and cross-appeal but to have a certificate under the Suitors' Fund Act 1951 if so qualified; 4 Liberty to the appellant and cross-appellant within seven days to make application to vary costs order 4 made by Austin J.
CATCHWORDS:	Travel Compensation Fund - accountant - auditor - misleading and deceptive conduct - s42 Fair Trading Act - whether breach of duty of care - whether fact that respondent continued unlicensed in business of travel agent severed chain of causation
LEGISLATION CITED:	Evidence Act 1995 Fair Trading Act 1987 Trade Practices Act 1974 (Cth) Travel Agents Act 1986
CASES CITED:	Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191 Bennett v Minister of Community Welfare (1992) 176 CLR 408 Chappel v Hart (1998) 195 CLR 232 Chester v Afshar [2003] QB 356 Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 Connor v Blacktown District Hospital (1971) 1 NSWLR 713 Environment Agency (formerly National Rivers Authority) v Empress Car Co (Abertillery) Ltd [1999] 2 AC 22 Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 Gardam v George Wills & Co Ltd [No 1] (1988) 82 ALR 415 Henville v Walker (2001) 206 CLR 459 Jones v Dunkel (1959) 101 CLR 298 Kewside Pty Ltd v Warman International Ltd (1990) ASC 58821 Mahony v J Kruschich (Demolitions) Pty Ltd (1985) 156 CLR 522 March v E & M H Stramare Pty Ltd (1991) 171 CLR 506 Medlin v State Government Insurance Commission (1995) 182 CLR 1 Millman v Rochester Railway Co 3 App Div 109; 39 NYS 274 (1896) Modbury Triangle v Anzil (2000) 205 CLR 254 Rahman v Arearose Ltd [2001] QB 351 Ruddock v Taylor (2003) NSWCA 262 The Saints Gallery Pty Ltd v Plummer (1988) 80 ALR 525 Voli v Inglewood Shire Council (1963) 110 CLR 74 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 Yorke v Lucas (1985) 158 CLR 661
PARTIES :	Robert Tambree t/as R Tambree & Associates - Appellant Travel Compensation Fund - First Respondent/First Cross Appellant Phillip Roseby t/as P J Roseby & Co - Fifth Respondent/Cross Appellant
FILE NUMBER(S):	CA 41145/02
COUNSEL:	P Walsh - Appellant N Francey - First Respondent/First Cross Respondent R Dubler - Fifth Respondent/Cross Appellant
SOLICITORS:	Burston Cole & Co - Appellant McCabe Terrill - First Respondent/First Cross Respondent Phillips Fox Lawyers - Fifth Respondent/Cross Appellant

LOWER COURTJURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	ED 3295/99
LOWER COURT JUDICIAL OFFICER :	Austin J