Townsend v Roussety & Co (WA) Pty Ltd
[2007] WASCA 40
•20 FEBRUARY 2007
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: TOWNSEND & ANOR -v- ROUSSETY & CO (WA) PTY LTD & ANOR [2007] WASCA 40
CORAM: WHEELER JA
McLURE JA
BUSS JA
HEARD: 18 APRIL & 10 AUGUST 2006
DELIVERED : 20 FEBRUARY 2007
FILE NO/S: FUL 8 of 2005
BETWEEN: ELLEN DALE TOWNSEND
First Appellant
CAROLINE ADRIANA MORRIS
Second AppellantAND
ROUSSETY & CO (WA) PTY LTD (ACN 056 022 130)
First RespondentSTANLEY JOHN PILKADARIS
Second Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram :LE MIERE J
Citation :TOWNSEND & ORS -v- COLLOVA & ORS [2005] WASC 4
File No :CIV 1880 of 2001
Catchwords:
Contract - Offer to acquire shares in company - Offer and acceptance subject to parties entering into formal agreement on terms and conditions to be mutually agreed - Whether offer and acceptance was a binding contract
Contract - Contract of retainer inferred from conduct - Terms of the contract
Misleading or deceptive conduct - Sections 52 and 82 of the Trade Practices Act 1974 (Cth) - Sections 10 and 79 of the Fair Trading Act 1987 (WA) - Characterisation of misleading or deceptive conduct - Respondents made statements which were "halftruths" - Obligation to disclose whole truth - Misleading or deceptive conduct was the nondisclosure of the whole truth - Causation - Whether the misleading or deceptive conduct was a cause of the appellants' loss - The effect of the misleading or deceptive conduct may be inferred - Whether the appellants' loss was attributable to a supervening cause which wholly negatived the misleading or deceptive conduct
Negligence - Professional negligence - Whether concurrent duties in contract and tort - Duty in tort may be limited by contract of retainer - Duty of care may still be owed in the absence of contract of retainer - Whether a duty of care owed - Whether duty of care breached
Equity - Whether fiduciary duties owed by accountant in relation to matters not within the contract of retainer
Legislation:
Trade Practices Act 1974 (Cth), s 52, s 75B, s 82, s 87
Fair Trading Act 1987 (WA), s 10, s 77, s 79
Result:
Appeal allowed
Category: A
Representation:
Counsel:
First Appellant : Mr G R Hancy
Second Appellant : Mr G R Hancy
First Respondent : Ms A M I Schoombee
Second Respondent : Ms A M I Schoombee
Solicitors:
First Appellant : Arthur Metaxas & Co
Second Appellant : Arthur Metaxas & Co
First Respondent : Allens Arthur Robinson
Second Respondent : Allens Arthur Robinson
Case(s) referred to in judgment(s):
Abigroup Contractors Pty Ltd v ABB Service Pty Ltd [2004] NSWCA 181
Astley v Austrust Ltd (1999) 197 CLR 1
Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622
Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1
Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153
Breen v Williams (1996) 186 CLR 71
Como Investments Pty Ltd (in liq) v Yenald Nominees Pty Ltd (1997) ATPR 41‑550
Daly v The Sydney Stock Exchange Limited (1986) 160 CLR 371
Damevski v Giudice (2003) 133 FCR 438
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31
Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (No 2) (1987) 16 FCR 410
Environment Agency v Empress Car Co (Abertillery) Ltd [1999] 2 AC 22
Gould v Vaggelas (1985) 157 CLR 215
GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631
Hanave Pty Ltd v LFOT Pty Ltd (1999) 43 IPR 545
Havyn Pty Ltd v Webster (2005) ATPR (Digest) 46‑266
Henville v Walker (2001) 206 CLR 459
Heydon v NRMA Ltd (2000) 51 NSWLR 1
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109
Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Australia) Pty Ltd (1988) 5 BPR 11,110
Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413
Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494
Masters v Cameron (1954) 91 CLR 353
McMahon v Pomeray Pty Ltd (1991) ATPR 41‑125
Meerkin & Apel v Rossett Pty Ltd [1998] 4 VR 54
Norberg v Wynrib [1992] 2 SCR 226
Pavan v Ratnam (1996) 23 ACSR 214
Pegrum v Fatharly (1996) 14 WAR 92
Pilmer v Duke Group Limited (in liq) (2001) 207 CLR 165
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332
Software Integrators Pty Ltd v Roadrunner Couriers Pty Ltd (1997) 69 SASR 288
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
Travel Compensation Fund v Tambree (2005) 224 CLR 627
Vroon BV v Foster's Brewing Group Ltd [1994] 2 VR 32
Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514
Watkins (t/as Watkins Tapsell) v De Varda [2003] NSWCA 242
Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 97
WHEELER JA: I have had the advantage of reading in draft the reasons for decision of Buss JA. I agree with those reasons and have nothing to add.
McLURE JA: I agree with Buss JA.
BUSS JA: The appellants are sisters.
In June 2000, each of the appellants caused $100,000 to be paid to Poppies Corporation Pty Ltd ("Poppies Corporation"), formerly known as Pimpernel Bakeries Pty Ltd, to obtain an indirect interest in a proposed business to be operated, pursuant to a franchise, under the name "Cookies & More". The business was to be carried on by Poppies Corporation and involved the retail sale of cakes and pastry goods. The appellants obtained their indirect interest in the business by acquiring the issued share capital of Rubylea Holdings Pty Ltd ("Rubylea"). Carlo Collova controlled Poppies Corporation and Rubylea. In consideration of each of the appellants paying the $100,000, Carlo arranged for them to become the sole directors and shareholders of Rubylea, with each of the appellants holding one share. Each of Rubylea and Carlo or his nominee held 50 per cent of the issued share capital of Poppies Corporation.
On or about 1 August 2000, Poppies Corporation commenced carrying on the business in question from premises in the Village Square Shopping Centre in North Perth. The business failed. Each of the appellants lost the $100,000 she invested.
In 2001, the appellants (as first and second plaintiffs) and Rubylea (as third plaintiff) commenced proceedings in the Supreme Court against Carlo Collova (as first defendant), the first respondent (as second defendant) and the second respondent (as third defendant). The appellants and Rubylea pleaded various causes of action against the first and second respondents and Carlo in connection with their investment in the business, and claimed damages and other relief. Shortly after the writ was issued, Carlo became bankrupt. The proceedings were in consequence not maintained against him, but were pursued against the first and second respondents. At the commencement of the trial of the action, counsel for the appellants and Rubylea informed the trial Judge, Le Miere J, that Rubylea had not suffered any relevant loss or damage and would not pursue any claim at trial.
After the trial of the action, the learned Judge found that the appellants had not established any of the causes of action pleaded, and dismissed their claim.
Carlo Collova and his brothers
In January 1996, Carlo Collova and his brothers, Jerry and Riccardo Collova, established a business under the name "Cookies & More". The business involved the manufacture and sale of cakes, pastry goods and other food. Initially, the business was operated by CRJ Assets Pty Ltd ("CRJ") as trustee of the Collova Unit Trust ("the Trust"). Later, The Rise Group Pty Ltd ("The Rise Group") replaced CRJ as trustee of the Trust and continued to carry on the business. At all material times, Carlo was a director of CRJ and The Rise Group. Also, at all material times, the issued units in the Trust were held by entities which Carlo, Jerry and Riccardo Collova controlled.
The Cookies & More business carried on by CRJ (and then The Rise Group) was a wholesale business which supplied businesses in the hospitality industry. By early November 1999, Carlo Collova had developed a proposal for the establishment and sale of retail franchises based on the Cookies & More business. His ideas were embodied in a brochure described as a "profile". The franchise proposal, and its relationship with the existing Cookies & More wholesale business, is described in the brochure. It was proposed that the wholesale business would manufacture and supply the franchise businesses with cakes and pastry goods, and that the franchise businesses would operate in a market which was separate and distinct from the market serviced by the wholesale business. The franchises would be sold by a company to be known as Pimpernel Bakeries Pty Ltd. This company was subsequently incorporated and, as I have mentioned, changed its name to Poppies Corporation.
By February 2000, Carlo Collova and CRJ were experiencing serious financial difficulties. Carlo was pursuing the franchise proposal in the hope that it would ameliorate or resolve those difficulties. He prepared a letter dated 22 March 2000, addressed to "Potential Investor", which explained the proposal. The letter is summarised, at [11] of the learned Judge's reasons:
" … The investor is to invest $250,000 in consideration for 50 per cent of the shares in the investment and master franchise company, Pimpernel Bakeries Pty Ltd (Pimpernel Bakeries), and 50 per cent of the shares in a company that would own and operate any franchise outlets."
The respondents
At all material times, the first respondent has carried on an accounting practice. At all material times, the second respondent has been an accountant, and the sole director and shareholder of the first respondent.
In 1997, the second respondent commenced performing accounting work for Carlo Collova and his companies. On 16 February 2000, Carlo sent to the second respondent a copy of a memorandum in which he said:
"My nightmare continues and I have no way out at this stage except to declare bankruptcy which I most certainly do not wish to do."
The learned Judge found, at [114], that in February 2000 the second respondent read that memorandum. His Honour also found that the memorandum in question disclosed that CRJ and Carlo had serious financial problems, and that Carlo was desperate to obtain money in an endeavour to avoid bankruptcy. In March 2000, the second respondent was involved in giving instructions to a firm of solicitors, Pullinger Stewart, and a barrister, Mr John Chaney, to advise Carlo in connection with his financial difficulties.
Carlo Collova's approach to the appellants
Carlo Collova did not give evidence at the trial. The only evidence relating to Carlo's approach to the appellants to invest in the franchise proposal, and the subsequent dealings between them, comprised the appellants' evidence and various documents which were tendered. The learned Judge accepted that evidence. It was not challenged by the respondents.
On 23 March 2000, Carlo Collova approached the appellants and sought to persuade them to acquire a franchise.
On 31 March 2000, the appellants signed a written offer to purchase a 50 per cent interest in Poppies Corporation (then known as Pimpernel Bakeries) and Rubylea for $250,000. The offer was accepted. It is unnecessary to set out the other terms of the agreement, except to note that the agreement was subject to the appellants obtaining finance. In the event, the condition as to finance was not fulfilled, and the appellants informed Carlo that they were unable to proceed.
On 8 April 2000, Carlo Collova informed the appellants that he would reduce the purchase price to $200,000. The appellants orally informed Carlo that they would accept his offer. The learned Judge found, at [29], that the appellants decided to accept the offer on the basis of the information contained in the brochure or "profile" I have mentioned, and also on the basis of the oral representations, predictions and information which Carlo had given to them. By letter dated 14 April 2000, Carlo wrote to the appellants, relevantly, as follows:
"I … recommend as we will be shareholders in the same project that you meet my accountant and perhaps use [the second respondent] as your own to less complicate business transactions etc."
On 17 April 2000, the appellants paid a deposit of $10,000 to or at the direction of Carlo Collova.
On 26 April 2000, the appellants, and Carlo Collova on behalf of Poppies Corporation, signed a document ("the Acquisition Agreement"). The Acquisition Agreement provides:
"Offer to invest in PIMPERNEL BAKERIES Pty Ltd (A.C.N. 092 265 999)
WE [the second appellant]
and
[the first appellant]
Hereby offer to purchase a fifty percent (50%) share in PIMPERNEL BAKERIES PTY LTD A.C.N. 092 265 999 and the right to operate and own the first out let [sic] of 'Pimpernel's Bakery'.
The purchase price of the above mentioned company and shares is $200,000.00 of which $110,000.00 will remain in PIMPERNEL BAKERIES PTY LTD and drawn down as required and $90,000.00 is to be paid to RISE GROUP PTY LTD [sic].
Manner of payment: A deposit of $10,000.00 of which $10,000.00 is paid herewith and held in trust and $190,000.00 shall be paid on settlement as described above.
Settlement date: Monday the 8th May 2000.
This is a cash offer. This offer is only subject to the parties entering into a formal agreement for sale prepared by the vendors [sic] solicitors on terms in [sic] condition [sic] mutually agreed between the parties.
Purchaser
Witness
Date
………………………….
Adriana Caroline Morris
[the second appellant]
……………………..
……………………….
………………………….
Ellen Dale Townsend
[the first appellant]
……………………..
……………………….
We the vendor PIMPERNEL BAKERIES PTY LTD A.C.N. 092 265 999
HEREBY ACCEPT the above offer.
Vendor
Witness
Date
………………………….
Carlo Collova
Chairman of Directors"
……………………..
……………………….
The evidence relating to the appellants' meeting or meetings with the second respondent
On 27 April 2000, the appellants met the second respondent, for the first time, at his office.
At trial, there was a conflict between the appellants' evidence, on the one hand, and the second respondent's evidence, on the other, concerning whether there were one or two meetings between them, and what occurred at the relevant meeting or meetings.
The appellants' evidence, in relation to their contact with the second respondent on 27 April 2000, is recorded at [36] ‑ [38] of the learned Judge's reasons:
"[The appellants] say that Carlo arranged for them to meet [the second respondent] on Thursday 27 April 2000 at about 11 am at his West Perth office before [the appellants] met the finance broker, Mr Langoulant, at S Mitchell & Co, at 12 noon. The purpose of the meeting with [the second respondent] was, and they informed [the second respondent] that the purpose of the meeting was, to obtain information about the business and Carlo to tell the finance broker. [The appellants] say that [the second respondent] made certain statements to them concerning Carlo and the proposed business. [The appellants] were running late for their meeting with Mr Langoulant. [The second respondent's] secretary Debbie, who was [the second respondent's] wife, telephoned S Mitchell & Co and informed them that [the appellants] were running late for their meeting. [The appellants] then went to their meeting with Mr Langoulant.
[The appellants'] evidence is that later on 27 April 2000 [the appellants] met with Mr Langoulant of S Mitchell & Co. [The appellants] took with them Carlo's letter of 22 March 2000 and the brochure. Mr Langoulant gave [the appellants] application forms. [The appellants] completed and signed the forms.
[The appellants'] evidence is that they later decided that the brokerage was too high. They told Carlo that they would not use S Mitchell & Co. Carlo suggested they see [the second respondent] to see what he could do to assist. Carlo then arranged a second meeting with [the second respondent]."
The learned Judge noted, at [39], the second respondent's evidence as to his contact with the appellants on 27 April 2000:
"[The respondents] admit that [the second respondent] met [the appellants] on 27 April 2000. They admit that [the second respondent] made certain statements concerning Carlo and the proposed franchise business. However, [the respondents] say that the meeting took place after [the appellants] had met the finance broker, Mr Langoulant. [The second respondent's] evidence is that the meeting was not pre-arranged. One of [the appellants] telephoned [the second respondent]. She told [the second respondent] that they had just seen a finance broker and were just around the corner and asked whether they could drop in and see him. The meeting lasted 15 to 20 minutes. There was a social conversation. They spoke about Carlo and made some comment about the proposed cake franchise. [The appellants] told [the second respondent] that they had just acquired the Applecross pizza shop business. [The appellants] told [the second respondent] that they were trying to obtain finance and that they had just seen the finance broker, Mr Langoulant. They showed him a certificate of appointment of S Mitchell & Co signed by [the first appellant] that set out the brokerage and other costs to be charged. [The second respondent] said the brokerage was too high and that they should approach someone like WA Home Loans. He offered to phone WA Home Loans on [the appellants'] behalf. [The second respondent] phoned Mr Pinto of WA Home Loans. Mr Pinto said he would arrange for a loans representative to contact [the second respondent]."
The appellants alleged that on or about 1 May 2000 there was another meeting with the second respondent. The second respondent denied that there was another meeting on or about that date.
The loan arrangements with WA Home Loans
In early May 2000, each of the appellants completed and signed an application for a loan from WA Home Loans.
After meeting with the appellants in early May 2000, Mr Smith of WA Home Loans requested the second respondent to confirm that the estimated income for a pizza shop business carried on by the appellants in partnership at Applecross was approximately $60,000 per annum. Mr Smith made this inquiry of the second respondent in the belief that he was the appellants' accountant.
On 7 May 2000, the second respondent attended the Applecross pizza shop. According to the first appellant, the second respondent asked her about the turnover of the pizza shop business, and she told him that it was about $3500 per week and that she would like to get close to $5000 per week, but $4500 was more realistic. According to the first appellant, the second respondent did not tell her that he was preparing a financial projection for WA Home Loans.
The second appellant's partner, Robert Bandy, gave evidence that while the second respondent was at the pizza shop on 7 May 2000, he said to the second respondent:
"I'm not really happy about the girls getting into this. What do you think?",
and the second respondent replied:
"Carlo and his brothers are good blokes. This is a solid investment opportunity for [the appellants]."
The first appellant and Mr Bandy gave evidence that after the second respondent left the pizza shop on 7 May 2000, Mr Bandy informed the first appellant that the second respondent had told him that Carlo and his brother were good blokes and this was a solid investment opportunity for the appellants.
The second respondent, in his evidence, accepted that he had a conversation with Mr Bandy at the pizza shop on 7 May 2000 and he had told him that Carlo and his brother were good blokes, but otherwise denied Mr Bandy's version of the conversation. In particular, he denied having said words to the effect that "this is a solid investment opportunity".
On or about 8 May 2000, the second respondent prepared and sent to Mr Smith a budgeted profit and loss statement in respect of the pizza shop business for the 2001 financial year. The learned Judge records, at [52], the second respondent's account of the circumstances in which the profit and loss statement was prepared and sent:
"The next day Mr Smith sent [the second respondent] a facsimile dated 8 May 2000, which referred to their previous discussions and discussed a profit and loss statement for the pizza shop for the 1998 and 1999 financial years. Mr Smith asked [the second respondent] to confirm the estimated income of the pizza shop and its purchase price. [The second respondent] then prepared a budgeted profit and loss statement for the 2001 financial year for the pizza shop. He based the budgeted profit and loss statement on what [the appellants] had told him about the estimated turnover for the upcoming financial year and their drawings. He used $5000 as the average weekly estimated turnover in the budgeted profit and loss statement. At his visit to the pizza shop he did not make a written note that [the appellants] had estimated the average weekly turnover to be $5000 but he asserts that one of [the appellants] must have told him that. The expenses listed in the budgeted profit and loss statement were primarily based on the standard cash flow projections that he had used for the various Domino's Pizza shops for which he did the accounting work. He also compared the residual profit together with the owners' remuneration as shown in the budgeted profit and loss statement, namely $9252 plus $74,900 for the year, with what [the appellants] had told him their current drawings were. At weekly drawings of $1000 each, the yearly profit together with the owners' remuneration would have been at least $104,000. That confirmed to him that the budgeted profit and loss statement was a fair estimate. He then forwarded the projections to Mr Smith under cover of a facsimile."
On 16 May 2000, the second respondent sought information from the first appellant as to her business experience. He then sent a facsimile to Mr Smith in which he referred to the first appellant's business experience and confirmed that she was seeking a loan of $100,000 from WA Home Loans for investment purposes. On 17 May 2000, Mr Smith informed the second respondent that WA Home Loans had approved the making of loans to the appellants. On 17 and 18 May 2000, the second respondent obtained further information from the first appellant and sent it to Mr Smith.
On or about 23 May 2000, WA Home Loans gave formal notice to the appellants that their applications for loans had been approved.
Other dealings involving the second respondent
On 25 May 2000, the second respondent informed a solicitor, Eric Ross‑Adje, that Poppies Corporation would lend $90,000 to The Rise Group for three years at an interest rate of 6.5 per cent per annum. He also informed Mr Ross‑Adje that The Rise Group would provide services and advice to Poppies Corporation in connection with the establishment of the franchise proposal, and that Poppies Corporation would pay The Rise Group $3000 per month for the relevant services and advice over a period of three years.
On 26 May 2000, the second respondent informed Carlo Collova that refinancing was being held up by the banks, but he anticipated funds would be available the following week.
Completion of the transaction between the appellants, Carlo Collova and Poppies Corporation
Pursuant to the Acquisition Agreement:
(a)on 2 June 2000, and at the direction of Carlo Collova, the second appellant caused $100,000 to be paid to Poppies Corporation from the loan funds advanced by WA Home Loans;
(b)on 13 June 2000, Carlo resigned as a director of Rubylea and the appellants were appointed as directors, Poppies Corporation transferred its share in the issued capital of Rubylea to the second appellant and a new share in Rubylea was issued to the first appellant (and thereafter the appellants were the sole directors and shareholders of Rubylea); and
(c)on 26 June 2000, and at the direction of Carlo, the first appellant caused $100,000 to be paid to Poppies Corporation from the loan funds advanced by WA Home Loans.
The failure of the franchise business
At all material times the franchise business, in which the appellants acquired an interest, performed poorly. As I have mentioned, the business commenced on or about 1 August 2000. On 27 October 2000, Carlo Collova informed the appellants that the business was "paying for itself but there was insufficient revenue to pay finance costs". A trial balance as at 31 December 2000 revealed that Poppies Corporation was trading at a loss. On 20 April 2001, Carlo informed the appellants that the business was losing substantial amounts of money and that its position appeared to be hopeless. On 18 July 2001, Poppies Corporation (which by then had changed its name to Poppies North Perth Pty Ltd) sold the business to Quantum Assets Pty Ltd in consideration for the payment of $1 and an indemnity from Quantum Assets Pty Ltd in respect of any liabilities under the lease of the premises from which the business was conducted.
The credibility of the principal witnesses
The learned Judge made adverse comments in relation to the reliability of the evidence of the appellants and the second respondent.
The learned Judge found, at [74], that the appellants were wrong in their evidence that their first meeting with the second respondent occurred before they met the finance broker, Mr Langoulant, and were wrong in their evidence that they had a second meeting with the second respondent before they applied for loans from WA Home Loans.
The learned Judge also found, at [75] ‑ [78], that the second respondent's evidence was unconvincing in several areas. In particular, his Honour said:
" … His evidence about his knowledge of and belief as to Carlo's financial viability was evasive and unconvincing. His evidence about his knowledge of and belief as to the basis for Carlo's representations in the brochure was evasive and unconvincing. [The second respondent] was unwilling to concede the apparent difficulty of Carlo's financial position. I do not accept that [the second respondent] got the revenue figures for the Applecross pizza shop financial projections from [the appellants]. He did not write the figures on the notes he took. It is more likely that [the second respondent] drew up the Applecross pizza shop projections so as to achieve the $60,000 profit that Mr Smith had requested and used his knowledge of Domino's Pizzas' operations to construct the figures. [The second respondent's] denial that [the appellants'] investment in the Pimpernel or Poppies project would have benefited [Carlo Collova's] financial position was not convincing.
I reject [the second respondent's] description of his meeting with [the appellants] on 27 April 2000 as a social conversation. [The second respondent] knew that [the appellants] were proposing to make a substantial investment and to borrow substantial funds to do so. He knew Carlo, his brothers, CRJ and The Rise Group were in a precarious financial position. [The second respondent] had advised Carlo about the investment structure he should set up for the franchise project and had set up two companies for Carlo - Pimpernel Bakeries Pty Ltd and Rubylea Holdings. [The second respondent] knew that Carlo had asked [the appellants] to come and see [the second respondent] because [the second respondent] had been involved in setting up Pimpernel Bakeries and Rubylea Holdings and would do the accounting work for those companies.
…
The meeting took place in a context where [the second respondent] must have realised that [the appellants] would or might be influenced by, and rely upon, what he said about the structure and operation of the proposed franchise business. In my view, [the second respondent's] description of the meeting as a social conversation was a conscious attempt to downplay the significance of what he said to [the appellants] at that meeting."
The appellants' pleaded causes of action
The appellants' pleaded causes of action, were these:
(a)a claim in contract as against the first respondent;
(b)a claim against the first respondent for contravention of s 52 of the Trade Practices Act 1974 (Cth) ("TPA"), alternatively s 10 of the Fair Trading Act 1987 (WA) ("FTA"), and a claim against the second respondent for knowing involvement in that contravention;
(c)a claim against the first and second respondents in negligence; and
(d)a claim against the first and second respondents for breach of fiduciary duty.
The claim for breach of contract
In par 12 of their statement of claim, the appellants pleaded that there was an oral agreement, alternatively an implied agreement, that the first respondent would, for reward, act as accountant and adviser to the appellants in respect of their proposed investment. The appellants argued that the existence of the contract was to be discerned from, relevantly:
(a)the conversations between the appellants and the second respondent;
(b)the second respondent acting on behalf of the appellants in connection with the obtaining of the loans from WA Home Loans;
(c)the second respondent assisting the appellants to become directors and shareholders of Rubylea and Poppies Corporation; and
(d)the first respondent rendering accounts for services.
The learned Judge found, at [104], that the appellants had not established the existence of any contract of retainer with the first respondent. His Honour's reasons, at [103] - [104], were brief, and as follows:
"There was no express contract. There was no communication of an offer and acceptance. Of course, there may be an agreement in the absence of an offer and acceptance. On this approach, the Court's task is to ask whether, objectively and having regard to the totality of the dealings between the parties, they should be considered to have entered into a contractual relationship without inquiring too closely into the formalities of offer and acceptance. A contract may be inferred from the acts and conduct of parties as well as or in the absence of their words: Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110.
[The second respondent] did things to facilitate WA Home Loans making loans to [the appellants], but that was not in pursuance of any contractual undertaking by which [the first or second respondent] agreed to do so. The invoices rendered by [the first respondent] were rendered to Rubylea and Poppies Corporation not to [the appellants]. [The appellants] have not established that there was any contract of retainer between [the appellants] and the [first respondent]."
The claim for breach of contract was dismissed.
The claim for contravention of s 52 of the TPA, alternatively s 10 of the FTA
The learned Judge found, at [110], that the second respondent made statements to the appellants to the following effect:
"1.[The second respondent] had known Carlo and his family for a number of years.
2.Carlo was trustworthy.
3.Carlo and his brothers had worked very hard and had taken their business to its then premises in Malaga.
4.Carlo had done a lot of research over the past four to five years.
5.The concept of establishing multiple retail outlets to sell the Cookies & More products was a good idea.
6.[The second respondent] could see no reason why the concept would not be successful."
The learned Judge then found, at [111], that the second respondent informed Mr Bandy, and Mr Bandy repeated to the first appellant, that Carlo Collova and his brothers "were good blokes and that this was a solid investment opportunity for the [appellants]".
The learned Judge said, at [118], that he was satisfied that on 27 April 2000 the second respondent knew that Carlo Collova and CRJ were in a difficult financial situation which put the continuation of the Cookies & More business at risk.
The learned Judge noted, at [119], that each statement or representation made by or on behalf of the respondents should not be examined in isolation. His Honour added:
" … If [the appellants] were misled by the conduct of the [second respondent], it was because what [the second respondent] said to [the appellants] about Carlo, the Cookies & More business and the proposed franchise investment created an erroneous picture or impression of those matters. [The second respondent] failed to disclose to [the appellants] what he knew about the financial difficulties confronting Carlo and CRJ and the potential risk to the Cookies & More business and hence the franchise business posed by those difficulties."
The second respondent deliberately withheld from the appellants information as to the financial position of Carlo Collova and CRJ. He did not disclose that information to the appellants because he considered it to be confidential. See the learned Judge's reasons at [121].
The second respondent's statements to the appellants created a positive impression of Carlo Collova and the Cookies & More business. See the learned Judge's reasons at [123]. His Honour then said:
" … [The second respondent's] statements led [the appellants] to believe that there was no reason attributable to Carlo and the Cookies & More business why the proposed franchise would not be successful. In fact, the financial difficulties of Carlo and CRJ posed a difficulty, or a potential difficulty, for the proposed franchise. The potential problem was that Cookies & More may not be able to continue to provide the pastries and cakes to the franchise outlets and Carlo and The Rise Group may not be able to continue to provide support to the franchise and the franchise outlets."
The learned Judge characterised the second respondent's statements to the appellants as "half‑truths", and elaborated, at [124]:
"[The statements] presented part of what the [second respondent] knew or believed about Carlo and Cookies & More. The [second respondent] deliberately withheld from the [appellants] what he knew about the financial difficulties of Carlo and CRJ and the risk they posed to the business of Cookies & More. The conduct of the [second respondent] was misleading. The [first respondent] contravened s 52 of the TPA".
The learned Judge then found, at [125], that:
(a)The second respondent must have anticipated and intended that Mr Bandy would repeat to the appellants the second respondent's statement that the proposed investment was a solid investment opportunity.
(b)That statement was misleading in that the second respondent did not have reasonable grounds for asserting that the proposed investment was a solid investment opportunity (that is, a financially sound or strong investment).
(c)Further, it was misleading to assert that the proposed investment was a solid investment opportunity without also disclosing the precarious financial situation of Carlo Collova and CRJ, and the risk that their financial situation posed to the continuation of the Cookies & More business. In other words, the statement could also be characterised as a half‑truth.
His Honour therefore concluded that the second respondent's statement to Mr Bandy constituted misleading or deceptive conduct by the first respondent, in contravention of s 52 of the TPA.
The learned Judge found, at [127], that the second respondent was knowingly concerned in, or party to, the first respondent's contraventions of s 52 of the TPA and, therefore, was a person involved in those contraventions pursuant to s 75B of the TPA.
The learned Judge then addressed issues relating to reliance by the appellants on the misleading or deceptive conduct in question, and also issues relating to damages. His Honour made findings, at [144] ‑ [149], concerning reliance:
"[The appellants] had decided to proceed with the investment before they met [the second respondent]. They had signed two agreements to make the investment. They believed that the second agreement was binding, subject only to obtaining finance.
[The appellants] signed the agreement in reliance upon what Carlo had said to them and upon the brochure Carlo had given them. The information given to them by Carlo orally and in the brochure was much more extensive and detailed than what [the second respondent] said to them on 27 April 2000.
[The appellants] had exhibited a high degree of determination to go ahead with the investment before they met the [the second respondent]. They had signed the agreement without obtaining, or seeking, any accounting, financial or legal advice other than [the second appellant] having discussed the investment with a business broker friend, Mr Day. [The second appellant] cannot recall anything of her discussion with Mr Day beyond the sketchiest of outlines. That of itself is an indication that [the appellants] relied on the information given to them by Carlo and not on the observations of others. They had seen a finance broker and made an application for finance before they saw [the second respondent]. [The appellants] did not make an appointment to see [the second respondent] and seek his views about Carlo and the franchise project before committing themselves to the investment.
[The appellants] did not make an appointment to see [the second respondent] for the purpose of obtaining accounting advice or information or advice concerning the proposed investment. Carlo instigated the meeting. He wrote to [the appellants] on 22 April 2000. Carlo did not suggest that [the appellants] meet [the second respondent] for the purpose of obtaining information about the proposed investment or the wisdom of that investment. Carlo said in the letter that his lawyer would need certain information from [the appellants'] accountant to draw up the necessary documentation. Carlo said it was important that [the appellants] contact [the second respondent], or an accountant of their own, as soon as possible. Carlo said that the accountant would advise [the appellants] how to structure their financial affairs and explain the structure to them.
[The appellants] do not say that they told [the second respondent] that they were seeking information or advice from him concerning the proposed investment. In my view, [the appellants] called upon [the second respondent] in response to the letters from Carlo and for the purpose of advancing the legal and administrative steps that had to be completed to complete the proposed investment.
The statements that I have found [the second respondent] made to [the appellants] at their meeting on 27 April 2000 are, viewed objectively, not likely to have induced [the appellants] to proceed with the investment. The statements were general statements. [The appellants] did not seek from [the second respondent], and [the second respondent] did not give to [the appellants], any information of the sort that one would expect a person considering whether to proceed with an investment would seek. That is consistent with [the appellants] being determined to proceed with the investment."
The learned Judge then found, at [150]:
" … if [the second respondent] had informed [the appellants] of the financial situation of Carlo and CRJ and how it might impact on the business of Cookies & More, then [the appellants] would have not proceeded with the investment, if they were able to do so."
His Honour held, however, at [151], that that finding was not sufficient to establish causation. His Honour observed:
" … What [the appellants] must establish is that they were induced to proceed with the investment by the statements of [the second respondent], not that they would not have proceeded with the investment had [the second respondent] said something different. If the statements made by [the second respondent] did not have a substantial, rather than negligible, influence on [the appellants] proceeding with the investment, then reliance is not made out by establishing that they would not have proceeded with the investment if [the second respondent] had told them of Carlo's precarious financial position and the risks to the proposed investment associated with it."
The learned Judge was not satisfied that the appellants relied upon the statement made by the second respondent to Mr Bandy on 7 May 2000, and subsequently repeated to the first appellant, that the proposed investment was a solid investment opportunity. His Honour gave reasons, at [152], for his failure to be satisfied:
" … [The appellants] did not ask [the second respondent] to call in on them at the pizza shop for the purpose of obtaining any information or advice from him concerning the proposed investment. After [the second respondent] had made his statement to Mr Bandy, neither Mr Bandy nor either of [the appellants] elicited, or sought to elicit from [the second respondent] any more particularised information about the investment. By that time, [the appellants] had already completed and signed loan applications to WA Home Loans."
The learned Judge concluded, at [153], that the appellants had not established that they proceeded with the investment in reliance upon the respondents' misleading conduct. The claim for contravention of s 52 of the TPA, alternatively s 10 of the FTA, was dismissed.
The claim in negligence
In par 14 of their statement of claim, the appellants pleaded that the first and second respondents owed them a duty, relevantly, to advise them with reasonable skill, care and diligence with respect to their proposed investment. A duty in similar terms is also pleaded in par 14C. In par 36, the appellants pleaded numerous breaches of the alleged duties including, relevantly:
(a)failing to warn the appellants not to proceed with the proposed investment;
(b)alternatively, failing to warn the appellants that no moneys should be paid by them to Carlo Collova or Poppies Corporation pursuant to the proposal until they had ascertained the realisable value of the assets offered by Carlo as security, appropriate documents recording the terms of the security had been executed and registered, and a franchise agreement entered into with respect to the proposed business;
(c)alternatively, failing to warn the appellants of various matters relating to the soundness of the proposed investment including failing to warn the appellants that Carlo was desperate to obtain money to avoid bankruptcy and if Carlo did not resolve his financial difficulties then the second respondent could not predict the effect on the Cookies & More business or the proposed investment.
The learned Judge found, at [167], that:
(a)the appellants relied on the second respondent in connection with obtaining the loans from WA Home Loans and advancing the legal and administrative steps that were necessary to complete the proposed investment (in particular, the establishment of the appropriate corporate structure); and
(b)the appellants did not rely upon the second respondent's advice as to the wisdom or desirability of proceeding with the proposed investment or ensuring the provision of security for that investment.
His Honour concluded that, in those circumstances, the appellants had not established that the respondents owed them the pleaded duties. The appellants' claim in negligence failed.
The claim for breach of fiduciary duty
In par 15 of their statement of claim, the appellants pleaded that the first and second respondents, as their accountants, advisers and agents in respect of the proposed investment and the applications for finance, owed fiduciary duties:
(a)to inform the appellants of everything that the respondents knew which was relevant to the proposed investment;
(b)to act in the interests of the appellants;
(c)not to act in a manner which placed the respondents' duties to, or the interests of, the appellants in conflict with the respondents' duties to, or the interests of, Carlo Collova or any other person or corporation; and
(d)to advise the appellants to seek independent legal or accounting advice in the event of a conflict emerging.
In par 38, the appellants pleaded various breaches of the alleged fiduciary duties.
The learned Judge held that the respondents did not owe any relevant fiduciary duty to the appellants and, in consequence, also dismissed that part of their claim. His Honour found, at [178]:
" … the [second respondent] did not undertake to act on behalf of the [appellants] in relation to the proposed investment or its commercial prudence. The [second respondent] did not undertake to advise them or to act as their adviser in relation to those matters. There is no relevant fiduciary duty."
Provisional assessment of damages
Although the learned Judge dismissed the appellants' action, he assessed the damages which he would have awarded if any of their causes of action had been established. His Honour assessed damages for the first appellant of $133,325.15 and for the second appellant of $135,261.20.
The grounds of appeal
At the hearing on 10 August 2006, this Court granted the appellants leave to amend their grounds of appeal. The grounds, as amended, are these:
"1The learned Trial Judge erred in fact in failing to find that the second respondent's misleading conduct was an inducement to the appellants to proceed with and complete the proposed franchise business transaction and was a cause of the losses suffered.
2The learned Trial Judge erred in fact in:
2.1Holding that the respondents did not owe the appellants a duty of care in tort;
2.2Holding that there was no contract between the appellants and the respondents;
2.3Failing to hold that the respondents owed to the appellants a duty in tort or contract to exercise reasonable care when making statements to the appellants or Bandy about Collova and the proposed business;
2.4Failing to hold that the respondents breached the duty by making statements that were half truths;
2.5Failing to hold that the respondents breached the duty by failing to
give the appellants any warning about Collova or the proposed transactionadvise the appellants that:2.5.1Collova and CRJ Assets Pty Ltd had serious financial problems and by reason of the financial situation of Collova and CRJ the continuation of the Cookies & More business was at risk;
2.5.2Collova was desperate to obtain money to avoid bankruptcy.
3The learned Trial Judge erred in fact and/or law in failing to hold that:
3.1The respondents acted on behalf of the appellants to facilitate giving effect to the proposed transaction and owed the appellants fiduciary duties;
3.2The respondents breached those duties in that the second respondent did not tell the appellants what the respondents knew about Collova and his business;
3.3The respondents breached those duties in that the respondents failed to prepare and provide accurate information to WA Home Loans;
3.4The appellants were entitled to compensation for their losses and considerations of causation, foreseeability and remoteness did not enter into the matter.
4The learned trial judge erred in law and fact in failing to hold that if the agreement between Collova and the appellants was relevant to the issues of whether the appellants sustained loss and cause of loss, the appellants would not in fact have made payments under that agreement and would not have been required to make payments because they were induced to enter into it by conduct of Collova in trade or commerce that was misleading or deceptive."
The notice of contention
The respondents filed and served a notice of contention. The notice, as amended, provides, relevantly:
" … the First and Second Respondents wish to contend that if, pursuant to ground 1 of the Notice of Appeal, this Honourable Court finds that the Appellants suffered loss and damage by the conduct of the Respondents,
A.the misrepresentations made by the Second Respondent (Third Defendant) did not constitute misleading conduct in contravention of Section 52 of the Trade Practices Act 1974 (Cth) on the following grounds.
Grounds
1.The statements made by the Second Respondent (Third Defendant) to Mr Robert Bandy were off the cuff remarks and in such general terms as to not constitute representations likely to mislead or deceive.
2.The omission by the Second Respondent to inform [the Appellants] about the financial position of Collova did not constitute misleading and deceptive conduct by silence as:
(a)the Second Respondent did not owe a duty to disclose to third parties the confidential information of his clients;
(b)the circumstances were not such to give rise to an obligation on the First and Second Respondents (Second and Third Defendants) to disclose the information regarding the financial position of Collova;
(c)the circumstances were not such to give rise to a reasonable expectation on the part of the Appellants (Plaintiffs) that the First and Second Respondents (Second and Third Defendants) would disclose any information regarding the financial position of Collova.
B.the misleading and deceptive conduct by the Second Respondent (Third Defendant) did not cause the Appellants' (Plaintiffs') loss and damage.
Grounds
1.The retail outlet failed because of the unsuitable location and lack of customer base at the shopping centre, not by reason of any financial difficulties of Collova."
The status of the Acquisition Agreement
The status of the Acquisition Agreement (in particular, whether the agreement constituted a binding contract and, if it did, whether the appellants were entitled, at material times, to rescind or terminate it) is relevant to the issue of causation.
The appellants did not plead in their statement of claim that the Acquisition Agreement was not a binding contract or, if it was, that they were entitled, at material times, to rescind or terminate it.
Counsel for the appellants did, however, on 19 August 2004, in his closing submissions to the learned Judge, refer (at T573) to Masters v Cameron (1954) 91 CLR 353 and submit that the Acquisition Agreement was not a binding contract. That submission was made in response to the following exchange which had occurred earlier on 19 August 2004 between his Honour and counsel for the respondents (at T531 ‑ 532) in relation to the status of the Acquisition Agreement and causation:
"LE MIERE J: If it was enforceable, then that's a knockout win for you, isn't it?
SCHOOMBEE, MS: Yes, in the sense that it was also not pleaded or alleged that [the appellants] came to [the second respondent] on the basis of saying, 'Look, we've already entered into this agreement but we think we could reverse it.'
LE MIERE J: But if at the time they came to [the second respondent] they had entered into the agreement, and we know they had signed a written agreement, if that agreement was enforceable and they could not withdraw from it, then it may not be put that anything that your client said or did was irrelevant [sic] because [the appellants] were bound to proceed with the agreement and the losses would flow.
SCHOOMBEE, MS: That's correct. I agree, your Honour, particularly in the context that they did not say, 'We would've taken the risk of calling up the agreement and running the risk of being sued,' et cetera. Such a case was not made out, in fact there wasn't much case made out on reliance at all. [The appellants] happily admitted that they had already decided to go ahead at various stages, that they were keen to proceed with the proposal.
LE MIERE J: Yes.
SCHOOMBEE, MS: They had clearly already signed the offer. They had paid a deposit. They had already on their case applied to [sic] a loan or they were happy to apply to [sic] a loan to obtain all of the funds necessary to proceed with the transaction. So I'm not sure what [the appellants'] case is on reliance because, as your Honour has said, certainly if the agreement was valid, then there was no case at all and otherwise no case had been made out that they could somehow reverse the agreement. So in my respectful submission, whatever was said, whatever was done, at the end of the day, [the appellants] did not rely on it."
In par 33 of written submissions filed on 18 August 2004, the respondents had submitted to the learned Judge that:
" … it is irrelevant whether [the appellants] were legally bound to proceed with the Proposal, because the only relevant question for purposes of reliance is whether [the appellants] had already made up their mind to proceed or whether it was something that [the second respondent] said which finally allowed them to make up their mind."
In my opinion, whether the Acquisition Agreement was a binding contract or not depended on the proper construction of the agreement and involved a question of law. It was an issue in the trial as it was litigated. The status of the Acquisition Agreement was relevant to causation, and causation was in contest between the parties. In the circumstances, the appellants' failure to plead that the Acquisition Agreement was not a binding contract does not preclude them from advancing that submission in the appeal.
The appellants did not plead in their statement of claim that if the Acquisition Agreement was a binding contract then they were entitled, at material times, to rescind or terminate it in consequence of Carlo Collova's misleading or deceptive conduct. The appellants had pleaded, however, that, in the course of their dealings with him, Carlo had engaged in misleading or deceptive conduct. See pars 6, 7 and 34 of the statement of claim. At trial, the appellants adduced evidence, without objection, in relation to Carlo's misleading or deceptive conduct, and the learned Judge made findings favourable to the appellants on the basis of that evidence. Further, his Honour found, at [150], that if the second respondent had informed the appellants of the financial situation of Carlo and CRJ, and how it might impact on the Cookies & More business, then the appellants would not have proceeded with their investment, if they were able to do so. The finding that the appellants would not have proceeded with their investment, if possible, was based on evidence which they gave (at T115 and T194). The respondents submitted to this Court, however, that:
" … they were not asked what they would have done to try and get out of the agreement with Carlo or what their approach would have been if they had been told that the agreement was binding, that their deposit was not recoverable and that they would have to sue Carlo for misleading and deceptive conduct."
In my opinion, it was not essential that the appellants adduce evidence of that nature, which would inevitably have been speculative and involved issues of law. Causation may be established by inference; in particular, the Court may determine the effect which misleading or deceptive conduct has had upon an applicant for relief and the legal remedies which are likely to have been available to the applicant if the conduct in question had been disclosed before he or she incurred actual loss. The appellants are not precluded from arguing in this appeal that if the Acquisition Agreement was a binding contract and if the second respondent had informed them of the financial situation of Carlo and CRJ and how it might impact on the Cookies & More business, then the appellants would have sought the rescission or termination of the agreement pursuant to s 87 of the TPA, alternatively they would have refused to perform the agreement and resisted any proceedings for specific performance or damages by alleging that Poppies Corporation (by its agent, Carlo) had contravened s 52 of the TPA.
I will deal, first, with whether the Acquisition Agreement constituted a binding contract.
The Acquisition Agreement was not a binding contract unless it was the intention of the parties, objectively determined, when they signed the agreement, to be immediately bound by it. See Masters v Cameron, where Dixon CJ, McTiernan and Kitto JJ said, at 360 ‑ 361:
"Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.
In each of the first two cases there is a binding contract: in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution. Of these two cases the first is the more common. …
…
Cases of the third class are fundamentally different. They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own: Governor &c. of the Poor of Kingston-upon-Hull v Petch ((1854) 10 Exch 610 [156 ER 583]). The parties may have so provided either because they have dealt only with major matters and contemplate that others will or may be regulated by provisions to be introduced into the formal document, as in Summergreene v Parker ((1950) 80 CLR 304) or simply because they wish to reserve to themselves a right to withdraw at any time until the formal document is signed. …"
As their Honours observed, at 362, the determination of the status of a particular agreement depends upon the intention disclosed by the language used by the parties, and no special form of words is essential to be used in order that there shall be no contract binding upon the parties before the execution of their agreement in its final form. In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ said, at 179 [40]:
"This Court, in Pacific Carriers Ltd v BNP Paribas ((2004) 218 CLR 451), has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction (Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461 ‑ 462 [22])."
It appears now to be accepted that there is a fourth class of agreement (in addition to the three referred to in Masters v Cameron), namely, where the parties have made an agreement and intend to be bound to its performance although anticipating to make a further agreement in substitution for the existing agreement containing, by consent, further terms. See Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622, where McLelland J said, at 628:
"… There is in reality a fourth class of case additional to the three mentioned in Masters v Cameron, as recognised by Knox CJ, Rich J and Dixon J, in Sinclair, Scott & Co v Naughton (1929) 43 CLR 310 at 317, namely, '... one in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms'. Their Honours refer to the speech of Lord Loreburn, in Love & Stewart v S Instone & Co (1917) 33 TLR 475 at 476, where his Lordship said that:
'It was quite lawful to make a bargain containing certain terms which one was content with, dealing with what one regarded as essentials, and at the same time to say that one would have a formal document drawn up with the full expectation that one would by consent insert in it a number of further terms. If that were the intention of the parties, then a bargain had been made, none the less that both parties felt quite sure that the formal document could comprise more than was contained in the preliminary bargain.'"
The judgment of McLelland J was upheld on appeal: GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631. Also see Abigroup Contractors Pty Ltd v ABB Service Pty Ltd [2004] NSWCA 181
In the present case, the Acquisition Agreement was in the form of an offer made by the appellants which was accepted by Carlo Collova on behalf of Poppies Corporation. The agreement described the property to be acquired, and specified the amount of the purchase price, the manner of payment of the price, and the due date for completion. A deposit of $10,000 had been paid before it was signed. Significantly, however, it contained the following provision:
"This offer is only subject to the parties entering into a formal agreement for sale prepared by the vendors [sic] solicitors on terms in [sic] condition [sic] mutually agreed between the parties."
The material substance of that provision is that the Acquisition Agreement was subject to the parties executing a formal agreement, to be prepared by the solicitors for Poppies Corporation, and containing terms and conditions to be agreed between the parties. Although the agreement recorded the parties' consensus in relation to the fundamental matters of the property to be sold and purchased, the amount and manner of payment of the purchase price, and the completion date, the provision relating to the preparation and execution of a formal agreement, containing terms and conditions to be agreed between the parties, indicates an intention not to make a concluded bargain unless and until the formal agreement was executed. The critical features of the provision, which indicate that intention, are the reference to the offer being "subject to" the parties entering into a formal agreement and the statement that the formal agreement is to contain terms and conditions which are to be "mutually agreed". The proper inference from the language of the Acquisition Agreement is that the parties intended that the terms and conditions of the formal agreement would include those expressly embodied in the Acquisition Agreement, and also other terms and conditions to be negotiated. It is not surprising, having regard to the nature of the property to be acquired, that further negotiations were contemplated in relation to matters of significance. For example, it would be usual for a person acquiring a direct or indirect interest in a proprietary limited company to require some representations and warranties from the vendor in relation to the nature and extent of the company's previous trading or business operations (if any), and the company's assets and liabilities (including, for instance, liabilities for taxation and contingent liabilities arising from any pending legal proceedings). Also, the acquisition of a 50 per cent interest in a proprietary limited company (with the vendor or a related entity holding the other 50 per cent) would, ordinarily, involve negotiations and agreement in relation to such matters as corporate governance, pre‑emptive rights upon one party desiring to sell or otherwise dispose of its shares, and means for resolving deadlocks. In my opinion, the objective intention of the parties, when they signed the Acquisition Agreement, was not to be immediately bound by it.
I turn now to consider whether the appellants were entitled to rescind or terminate the Acquisition Agreement at material times if, contrary to the opinion I have expressed, the agreement did constitute a binding contract. The learned Judge made various findings, at [23] ‑ [25], as to statements made by Carlo Collova to the appellants on 25 March 2000:
"On 25 March, Carlo met with [the appellants] at the Applecross pizza shop and made a proposal to them to the effect that [the appellants] should pay $250,000 to purchase a half interest in the master franchiser [sic] of coffee and cake shops to be established and a half interest in the company that was to operate the first franchised store. Carlo handed [the appellants] the letter dated 22 March 2000 addressed to 'Potential Investor' and the brochure, to both of which I have already referred. The letter outlines the investment proposal. The brochure provides background information on the growth of the business of Cookies & More, the experience of Carlo and his brothers in the restaurant and pastry baking business and information on how the proposed master franchise and retail business would work. [The appellants] both read the brochure.
In the course of this meeting, Carlo told [the appellants] that the proposed business would be very successful, that he and his brothers had done four years' research and that Cookies & More was almost number one in supplying cakes to the restaurant industry in Perth. Carlo said that the money invested by [the appellants] would be repaid in 6 to 18 months and that he was looking to establish five retail shops by Christmas, which would pay $500 per shop per week in franchise fees.
[The appellants] told Carlo they wanted to go ahead with the investment. Carlo gave [the first appellant] the telephone number of S Mitchell & Co, finance brokers."
The learned Judge's findings in relation to the financial situation of Carlo Collova and CRJ and the risk to the continuation of the Cookies & More business, and his Honour's finding that the second respondent did not have reasonable grounds for representing that the proposed investment was a solid investment opportunity (that is, that the proposed investment was a financially sound or strong investment), indicate that Carlo did not have reasonable grounds for representing to the appellants, at the meeting on 25 March 2000, that "the proposed business would be very successful". Based on his Honour's findings, I am satisfied that if the appellants had sought, before completion, to set aside the Acquisition Agreement, a court would have been likely to have made an order, pursuant to s 87 of the TPA or s 77 of the FTA, rescinding the agreement in consequence of misleading or deceptive conduct by Carlo on behalf of Poppies Corporation.
Approach to the analysis of the issues in the appeal
It is convenient to analyse the issues raised in the grounds of appeal, as amended, and the notice of contention, as amended, in the context of each of the appellants' claims at trial; that is, the claim in contract, the claim for contravention of s 52 of the TPA (alternatively s 10 of the FTA), the claim in negligence, and the claim for breach of fiduciary duty.
The appeal in relation to the claim in contract
The existence of a contract for the provision of professional services, and the terms of the contract, may be implied or inferred. As McHugh JA (with whom Hope and Mahoney JJA agreed) said in Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Australia) Pty Ltd (1988) 5 BPR 11,110, at 11,117:
"It is often difficult to fit a commercial arrangement into the common lawyers' analysis of a contractual arrangement. Commercial discussions are often too unrefined to fit easily into the slots of 'offer', 'acceptance', 'consideration' and 'intention to create a legal relationship' which are the benchmarks of the contract of classical theory. In classical theory, the typical contract is a bilateral one and consists of an exchange of promises by means of an offer and its acceptance together with an intention to create a binding legal relationship. Compare PS Atiyah, 'Contracts, Promises and the Law of Obligations', Law Quarterly Review, vol 94, 1978, p 194. A bilateral contract of this type exists independently of and indeed precedes what the parties do. Consequently, it is an error 'to suppose that merely because something has been done then there is therefore some contract in existence which has thereby been executed' : Howard, 'Contract, Reliance and Business Transactions' [1987] Journal of Business Law, p 127. Nevertheless, a contract may be inferred from the acts and conduct of parties as well as or in the absence of their words: Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523. The question in this class of case is whether the conduct of the parties viewed in the light of the surrounding circumstances shows a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the essential elements of an express contract: cf Baltimore and Ohio RR Co v US 261 US 592 (1923); Fincke v US 675 F2d 289 (1982). Care must also be taken not to infer anterior promises from conduct which represents no more than an adjustment of their relationship in the light of changing circumstances.
…"
Those observations were applied by the Court of Appeal of New South Wales in Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at [74] ‑ [77]. Also see Damevski v Giudice (2003) 133 FCR 438 at [82] ‑ [88]; Vroon BV v Foster's Brewing Group Ltd [1994] 2 VR 32 at 82 ‑ 83.
In Pegrum v Fatharly (1996) 14 WAR 92, the salient facts were these. A man called Wilkins and his group of companies wished to borrow money from the appellants. The loan and security documents would ordinarily have been prepared by the lender's solicitors, at the cost of the borrower. Wilkins suggested to one of the appellants that the respondent, who was retained as solicitor for the Wilkins group, prepare the documents. The male appellant agreed. At all material times it was understood that the respondent would be, and he was, the sole solicitor involved in the transaction. Both parties met with the respondent and gave him information to enable him to prepare the documents. At the meeting the respondent sought and obtained the male appellant's confirmation that it was in order for him to prepare the documents. The respondent prepared the documents which imposed on the borrower (Wilkins) the obligation to pay the lenders' (the appellants') costs of and incidental to the instructions for and the preparation of the documents. At all material times, the respondent knew that Wilkins and his group of companies were a bad risk and that the securities given by them were inadequate to secure the loan. He did not warn the appellants of the existence of the risk or the inadequacy of the security. Wilkins defaulted in the repayment of the loan, the securities were inadequate, and little of the loan was recovered. The appellants sued the respondent for damages for professional negligence in failing to give proper advice and also for breach of fiduciary duty. The trial Judge dismissed the claim, holding that the appellants had not proved the respondent had acted for them in the transaction or that he owed them any relevant duties. The Full Court of the Supreme Court of Western Australia allowed an appeal by the male appellant. It was held that, in all the circumstances, the proper inference was that the respondent had tacitly agreed to act as the male appellant's solicitor and owed him the usual professional duties. Anderson J (with whom Kennedy J agreed) said, at 102:
"When both parties to a transaction consult the same solicitor and together give him the information needed to prepare the documents in which their respective rights and obligations are to be set out and the solicitor accepts responsibility to prepare the documents without any indication that he cannot fully discharge his professional duties to them both there is a strong bias towards finding that the solicitor tacitly agrees to act for both parties and to undertake the usual professional responsibilities to them both: see Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384 esp at 396. In the absence of a clear indication by the solicitor that the solicitor does not accept one of the parties as his client it is natural in such a case to assume both are relying on him for professional advice and assistance. This follows from the mere fact that both have consulted him. There may be other circumstances which show that there is no reliance by one or other of the parties on the solicitor, but, if not, reliance should be inferred as a fact. And when a solicitor accepts responsibility to do professional work requiring special knowledge and skill and there is in fact a reliance on him to apply his expert knowledge and skill in the performance of that work, there exist 'the elements which lie at the heart of the ordinary relationship between a solicitor and his client …': see Hawkins v Clayton (1988) 164 CLR 539 at 578, per Deane J. This is not a special rule applicable only to solicitors, I do not think. For an example of its application to a statutory auditor see Shire of Frankston & Hastings v Cohen (1960) 102 CLR 607 at 619, per Fullagar J.
This does not mean a solicitor whose services are sought by both parties is bound to accept that he is to serve both parties. He can refuse to do so and elect to act for one party only. This requires a very clear statement by the solicitor that this is to be his position. It has even been held that he is duty bound in such a case to positively recommend that the other party get another solicitor and take independent advice before entering into the transaction, and in the event that recommendation is not followed, to give him proper advice as to the risks in signing the documents: see Irvine v Shaw [ 1992] ANZ Conv R 83."
Also see Meerkin & Apel v Rossett Pty Ltd [1998] 4 VR 54, per Charles JA at 62 ‑ 66 (with whom Callaway and Batt JJA agreed).
It is apparent, from the authorities I have reviewed, that, in the present case, the facts and circumstances established at trial must be examined for the purpose of determining whether the existence of a professional retainer should be inferred and, if so, the nature and scope of the retainer.
The relevant facts and circumstances, which were found by the learned Judge or which were not in dispute between the parties, are these:
(a)At all material times, the first respondent carried on an accounting practice.
(b)At all material times, the second respondent was an accountant, and the sole director and shareholder of the first respondent.
(c)Since 1997 the second respondent had performed accounting work from time to time for Carla Collova and his companies.
(d)The meeting on 27 April 2000 between the appellants and the second respondent was not a "social conversation": his Honour's reasons at [76] ‑ [78].
(e)At the meeting on 27 April 2000, the second respondent realised that the appellants would or might be influenced by, and rely upon what he said, about the structure and operation of the proposed franchise business: his Honour's reasons at [78].
(f)The second respondent assisted the appellants to make application for the loans from WA Home Loans and facilitated the obtaining of those loans: his Honour's reasons at [104]. This assistance included speaking by telephone with Mr Pinto of WA Home Loans, preparing and sending profit and loss projections to Mr Smith of WA Home Loans, and writing to Mr Smith by letters dated 16 May 2000 and 22 May 2000.
(g)The preparation of documents relating to changes in the company structure of Rubylea pursuant to the transaction between the appellants and Poppies Corporation.
(h)On or about 30 June 2000, the first respondent sent a fee note dated 30 June 2000, for professional services, addressed to Rubylea. Carlo had formerly controlled Rubylea and the appellants had obtained their indirect interest in the proposed business by acquiring its issued share capital. The fee note provided, relevantly:
"Changes to company structure including preparation of Form 304 - Notification of Change to Office Holders, Form 207 - Notification of Share Issue issuing one share each to [the first appellant] and [the second appellant] including new share certificates
$250.00
Consultations and discussions with WA Home Loans and institutions for the refinancing of mortgages and funding shares in Poppies Corporation, including the preparation of projected cashflows necessary to approve loans -
our costs on this exceed $640 but say to you
$450.00
Total
$700.00"
The learned Judge was, with respect, in error in deciding that the appellants had failed to establish that they had any contract of retainer with the first respondent. His Honour appears to have attached undue significance to the fee note dated 30 June 2000 having been addressed to Rubylea rather than the appellants, and to have given little or no weight to the nature of the work actually performed by the second respondent (on behalf of the first respondent) and the other facts and circumstances set out at [80] above.
In my opinion, it is to be inferred, from the facts and circumstances set out at [80] above, that the appellants retained the first respondent to assist them in making application for and obtaining the loans from WA Home Loans and also to prepare the documents required to enable them to assume control of Rubylea pursuant to the transaction with Poppies Corporation. The mere fact that the fee note dated 30 June 2000 was addressed to Rubylea is not, on analysis, inconsistent with the appellants having retained the first respondent. The appellants met with the second respondent (on behalf of the first respondent) in their personal capacities and not as agents for Rubylea. The work which the second respondent (on behalf of the first respondent) performed related to the appellants' acquisition of Rubylea, and was for their benefit. The fee note was sent after the requisite work had been completed. It related to work undertaken for the appellants and not for Rubylea.
Although there was a contract of retainer between the appellants and the first respondent, the terms of the retainer comprised, relevantly, those I have mentioned. Significantly, the retainer did not include a term to the effect pleaded by the appellants. In other words, the appellants did not impliedly retain the first respondent to act as their accountant and adviser in respect of their acquisition of an interest in the proposed business. In particular, the appellants did not impliedly retain the first respondent to advise them, with reasonable skill, care and diligence, with respect to that transaction.
The appeal in relation to the claim in contract therefore fails.
The appeal in relation to the claim for contravention of s 52 of the TPA: introduction
Sections 52 and 82 of the TPA are not materially different from ss 10 and 79 of the FTA. It is convenient, in these reasons, to refer only to s 52 and s 82 of the TPA.
By s 52(1) of the TPA, a corporation shall not, in trade or commence, engage in conduct that is misleading or deceptive or likely to mislead or deceive. Section 52 establishes a norm of conduct. See Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 per Gummow J at 520 [76].
At the material time, section 82(1) of the TPA provided, relevantly:
"A person who suffers loss or damage by conduct of another person that was done in contravention of [s 52] may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention."
In Marks, Gummow J observed, at 526 ‑ 527 [95], that s 82 has at least five discrete elements:
"First, it identifies the legal norms for contravention of which the action under the section is given. Secondly, it identifies those by and against whom that action lies. Thirdly, the section specifies the injury for which the action lies as the suffering of loss or damage. Fourthly, it stipulates a causal requirement that the plaintiff's injury must be sustained 'by' the contravention. Finally, the measure of compensation is 'the amount of' the loss or damage sustained."
In the present case, the critical issues in the appeal, in relation to the claim for contravention of s 52 of the TPA, are:
(a)the proper characterisation of the misleading or deceptive conduct which the learned Judge found had occurred; and
(b)causation.
The appeal in relation to the claim for contravention of s 52 of the TPA: the proper characterisation of the misleading or deceptive conduct in question
The first respondent's misleading or deceptive conduct (in which the second respondent was knowingly involved) was a cause of the appellants' loss, notwithstanding that, as the learned Judge found:
(a)the appellants had decided to proceed with the investment before they met the second respondent;
(b)the appellants had signed the Acquisition Agreement before they met the second respondent, and believed that it was binding, subject only to obtaining finance;
(c)the appellants had signed the Acquisition Agreement in reliance upon representations made and information given to them by Carlo Collova; and
(d)the appellants had exhibited a high degree of determination to proceed with the investment before they met the second respondent.
No doubt, the matters the subject of those findings were a cause of the appellants' loss, but the existence of that cause is not inconsistent with, and does not preclude a finding that, the first respondent's misleading or deceptive conduct was also a cause of the relevant loss.
The respondents asserted, in their notice of contention, as amended, that the first respondent's misleading or deceptive conduct (in which the second respondent was knowingly involved) did not cause the appellants' loss in that the loss in question was caused by the proposed business having failed as a result of "the unsuitable location and lack of customer base at the shopping centre, not by reason of any financial difficulties of Collova".
The respondents had submitted to the learned Judge, in par 9 of their supplementary closing submissions dated 24 August 2004, that:
"The reason for the lack of profitability was the unsuitable location of the retail outlet and the lack of a customer base at the shopping centre …"
That submission was based upon some evidence given at the trial by Nicholas Saba (a director of Quantum Assets Pty Ltd which, as I have mentioned, purchased the business from Poppies Corporation on 18 July 2001 for $1 and an indemnity in respect of any liabilities under the lease of the relevant premises) and some statements in a letter dated 2 January 2001 from Carlo Collova on behalf of Poppies Corporation to Colliers Jardine (WA) Pty Ltd. His Honour did not, however, address the respondents' submission or make any findings of fact as to the precise cause or causes of the failure of the business.
In Henville, the respondent, Walker, made various representations to the appellant, Henville, which induced Henville to purchase a piece of land and construct on it a block of units. Henville was unable to sell the units at the price or within the time‑frame that Walker had represented. The High Court held that Henville was entitled to recover his loss under s 82 of the TPA, notwithstanding that he had negligently prepared a feasibility study that underestimated the cost of the development and contributed to his decision to construct the block of units. It was sufficient that Walker's conduct, in contravention of s 52 of the TPA, was a cause of Henville's loss. McHugh J (with whom Gummow J agreed) said, at 503 [135]:
"Where a person contravenes the Act and induces a person to enter upon a course of conduct that results in loss or damage, an award of damages that compensates for the actual losses incurred in embarking on that course of conduct best serves the purposes of the Act and should ordinarily be awarded."
Also see the reasons of Hayne J at 510 [165].
In I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109, it was held that once a causal connection is established between a contravention of s 52 of the TPA, on the one hand, and the plaintiff's loss, on the other, the plaintiff is entitled under s 82 to recover the whole of that loss. Gaudron, Gummow and Hayne JJ said, at 130 [62]:
"As was recognised in Henville v Walker ((2001) 206 CLR 459 at 474 [35], per Gleeson CJ; at 481 ‑ 483 [65] ‑ [72], per Gaudron J; at 493 [106], per McHugh J; at 507 [153], per Gummow J; at 510 [166], per Hayne J) there may be cases where it will be possible to say that some of the damage suffered by a person following contravention of the Act was not caused by the contravention. But because the relevant question is whether the contravention was a cause of (in the sense of materially contributed to) the loss, cases in which it will be necessary and appropriate to divide up the loss that has been suffered and attribute parts of the loss to particular causative events are likely to be rare. Further, it is only in a case where it is found that the alleged contravention did not materially contribute to some part of the loss claimed that it will be useful to speak of what caused that separate part of the loss as being 'independent' of the contravention. Although the respondent submitted to the contrary, for the reasons given earlier, there is no basis in this case for concluding that some identifiable part of the loss suffered by the appellant was caused by the appellant's carelessness and not by the respondent's contravention."
In Henville, Gaudron J held, at 483 [70], that it is for the defendant, whose contravention of s 52 of the TPA has materially contributed to the plaintiff's loss, to establish what component of that loss (if any) is referable to some act or event other than his or her contravening conduct, and not for the plaintiff who suffers the loss to establish the precise component or components referable to that conduct. Also see Havyn Pty Ltd v Webster (2005) ATPR (Digest) 46‑266 per Santow JA (with whom Tobias JA and Brownie AJA agreed) at 52,577 [116]. The other members of the High Court in Henville neither accepted nor rejected Gaudron J's observation. Hayne J, at 510 [166], expressly reserved his position on the point. It is unnecessary, in this appeal, to determine, with great respect, the correctness of the principle which Gaudron J articulated.
I am satisfied, for the reasons I have given at [105] and [106] above, that the first respondent's misleading or deceptive conduct (in which the second respondent was knowingly involved) was a cause of the appellants' loss. That conduct induced the appellants to complete the purchase of the proposed business and expend capital (and incidental expenses) which they lost. If the misleading or deceptive conduct had not occurred, and the second respondent had made full disclosure in compliance with the norm of conduct which s 52(1) of the TPA prescribes, the appellants would not have incurred the relevant loss. Even if the business failed as a result of operating at an unsuitable location and with an inadequate customer base, rather than as a result of Carlo Collova's financial difficulties, that would not, in my opinion, wholly negative the causal effect of the first respondent's misleading or deceptive conduct. The failure of the business would be attributable to a supervening cause, but the misleading or deceptive conduct in question would still have made a material contribution to the loss which the appellants suffered. My conclusion on this aspect of the appeal is consistent with the principle that causation should be approached by asking whether the misleading or deceptive conduct can properly be said to be a cause of the loss, and not by asking what caused the loss.
The respondents have not made out the assertion in their notice of contention, as amended, in relation to the cause of the appellants' loss.
The appeal in relation to the claim for contravention of s 52 of the TPA: conclusion
In my opinion, the appellants have established that the learned Judge erred, with respect, in his analysis of the appellants' claim for contravention of s 52 of the TPA. His Honour should have found that the appellants had established the requisite elements of the cause of action conferred by s 82 including, in particular, causation, and should have entered judgment against the respondents in the amount of the damages which he provisionally assessed.
The appeal in relation to the claim in negligence
Professional negligence may give rise to concurrent liabilities in both contract and tort. Prima facie, a plaintiff may claim against an accountant or other professional adviser in either contract or tort or both. See Astley v Austrust Ltd (1999) 197 CLR 1 per Gleeson CJ, McHugh, Gummow and Hayne JJ at 20 [44].
Since the decision of the High Court in Astley, a professional person does not have a "penumbral" duty in tort which requires the giving of advice on matters which are beyond the limits of his or her retainer. Where there is a contract of retainer with a professional person, it is the contract that defines the relationship of the parties so that, ordinarily, the presumed intention of the parties is that any duty in tort is limited or excluded. See Heydon v NRMA Ltd (2000) 51 NSWLR 1, where McPherson A‑JA said, at 118 [364]:
"At one time a solicitor's duty was considered to be limited by the terms of the retainer from the client, there being no affirmative legal obligation to give advice going 'beyond the specifically agreed task or function'. Then, in Hawkins v Clayton (1988) 164 CLR 539 at 585, it was held that there was no justification for imposing a contractual duty of care that was co-extensive with the parallel duty independently imposed in the law of negligence. It followed that an obligation might arise requiring a solicitor to take positive steps, beyond the specifically agreed professional task or function, to avoid a real and foreseeable risk of economic loss being sustained by the client, or even by others who were not the clients who had retained the solicitor. The result was that in Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642 at 652, a majority of this Court held that an affirmative duty to advise might exist in relation to matters that were not directly within the ambit of the retainer from the client. The decision on this point in Waimond Pty Ltd v Byrne has since been followed on several occasions. More recently, however, in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 at 193–194, the House of Lords rejected the reasoning of Deane J in Hawkins v Clayton, holding instead that there was 'no sound basis for a rule which automatically restricts the claimant to either a tortious or a contractual remedy', and that it was the contract that defines the relationship of the parties, so that ordinarily 'the parties must be taken to have agreed that the tortious remedy is to be limited or excluded'. In Astley v Austrust Ltd (1999) 197 CLR 1, the High Court decided to follow the reasoning in Henderson v Merrett Syndicates Ltd, in preference to that of Deane J in Hawkins v Clayton. The result, in my respectful opinion, is that what was said by Deane J in Hawkins v Clayton has ceased to be good law in Australia. Because it formed the or a pivotal point in the reasoning in Waimond Pty Ltd v Byrne, it is no longer possible to say that there is a 'penumbral' duty in tort requiring a solicitor to advise on matters going beyond the limits of his or her retainer. On that aspect, the decision in Waimond Pty Ltd v Byrne is inconsistent with the reasoning in Astley v Austrust Ltd, and should, in my opinion, no longer be followed. It had the effect of enlarging or extending the range of matters on which a solicitor, and possibly also a barrister, might be required by the law of tort to advise a client or other persons."
Also see the observations of Malcolm A‑JA at 103 [309]. Those passages from the judgments of McPherson A‑JA and Malcolm A‑JA in Heydon were cited, with apparent approval, by Ipp J (with whom Sheller JA and Foster AJA agreed) in Watkins (t/as Watkins Tapsell) v De Varda [2003] NSWCA 242 at [145] ‑ [146].
Where, however, a contract of retainer does not exist with a professional person, the absence of a retainer does not necessarily mean that the professional person does not owe a duty of care. In Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1, Beach Petroleum argued that a firm of solicitors, Abbott Tout, owed duties to it even in the absence of a retainer. Spigelman CJ, Sheller and Stein JJA said, at 78 [359] ‑ [360]:
"In order to show that advice or the failure to give advice or warn amounted to a breach of a duty of care owed by Abbott Tout to it, for reasons which the High Court re‑stated in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241, Beach had to establish that a relationship of proximity between the parties existed, that is to say had to identify a factor or factors of special significance in addition to the foreseeability of harm, when Abbott Tout acted or failed to act in the manner alleged. Foreseeability of harm alone was not enough to give rise to the necessary assumption of responsibility by Abbott Tout.
To do this, in the context of this case, Beach had to show that Abbott Tout gave advice or failed to give advice or warn in circumstances where Abbott Tout realised or ought to have realised that they were being trusted to give their advice as a basis for action on the part of Beach: Mutual Life & Citizens' Assurance Co Ltd v Evatt (1968) 122 CLR 556 at 572."
Also see Watkins at [140].
In the present case:
(a)At all material times, the first respondent carried on an accounting practice.
(b)At all material times, the second respondent was an accountant, and the sole director and shareholder of the first respondent.
(c)Since 1997 the second respondent had performed accounting work from time to time for Carlo Collova and his companies.
(d)The meeting on 27 April 2000 between the appellants and the second respondent was not a "social conversation": the learned Judge's reasons at [76] ‑ [78].
(e)The second respondent knew that the appellants were proposing to make a substantial investment and, for that purpose, to borrow substantial funds: the learned Judge's reasons at [76].
(f)The second respondent knew that Carlo, his brothers, CRJ and The Rise Group were in a precarious financial position: the learned Judge's reasons at [76].
(g)The second respondent knew that Carlo had requested the appellants to meet with the second respondent because the second respondent had undertaken work to establish Poppies Corporation and Rubylea, and would perform accounting work for those companies in the future: the learned Judge's reasons at [76].
(h)At the meeting on 27 April 2000 the second respondent realised that the appellants would or might be influenced by, and rely upon what he said, about the structure and operation of the proposed franchise business: his Honour's reasons at [78].
(i)There was a limited retainer between the appellants and the first respondent in the terms set out at [82] above.
(j)At all material times, it was reasonably foreseeable that the appellants might suffer loss as a result of the matters which were not disclosed when the second respondent told the "half‑truths" to the appellants and Mr Bandy.
Although the contract of retainer did not include a term which obliged the first and second respondents (or either of them) to advise the appellants with reasonable skill, care and diligence (or at all) with respect to the proposed investment, the limited nature of the retainer does not necessarily mean that the first and second respondents did not owe a duty of care to the appellants in relation to the second respondent's statements to the appellants and Mr Bandy.
In my opinion, the second respondent (on behalf of the first respondent) should have realised (if he did not actually realise) that, to the extent he made statements concerning the financial situation of Carlo Collova and CRJ, the prospects of the Cookies & More business, and the wisdom or strength of the appellants' proposed investment, he was being trusted to give an accurate, complete and balanced account of those matters (based on the facts he knew or should have known). It is to be inferred, from the facts and circumstances set out at [118] above, that at the material time the appellants in fact trusted the second respondent for that purpose and to that extent.
I consider that, on the basis of the facts and circumstances referred to at [118] above, the first and second respondents owed a duty to the appellants to exercise reasonable care to provide accurate, complete and balanced information and advice to the appellants in relation to the subject matter of the second respondent's statements to the appellants and Mr Bandy.
For the reasons I have given at [91] ‑ [94] above, in the context of the claim for contravention of s 52 of the TPA, the first and second respondents breached the duty of care.
The issues of causation, foreseeability of loss and remoteness of damage in the tort of negligence are not replicated in the issue of causation in a cause of action under s 82 of the TPA. See Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (No 2) (1987) 16 FCR 410 per Gummow J at 418 ‑ 419; Marks per McHugh, Hayne and Callinan JJ at 510 [38]; Henville per Gleeson CJ at 470 [18] and per McHugh J at 494 ‑ 495 [110] and 497 [119]. I have already decided that the learned Judge should have found that the appellants had established the requisite elements of the cause of action conferred by s 82 and should have entered judgment against the respondents in the amount of the damages which he provisionally assessed. In those circumstances, it is unnecessary, in this appeal, to resolve the issues of causation, foreseeability of loss and remoteness of damage in relation to the appellants' claim in negligence.
The appeal in relation to the claim for breach of fiduciary duty
In Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, Mason J said, at 96 ‑ 97:
"The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations (cf. Phipps v. Boardman [1967] 2 AC 46, at 127), viz., trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners. The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions 'for', 'on behalf of', and 'in the interests of' signify that the fiduciary acts in a 'representative' character in the exercise of his responsibility, to adopt an expression used by the Court of Appeal.
It is partly because the fiduciary's exercise of the power or discretion can adversely affect the interests of the person to whom the duty is owed and because the latter is at the mercy of the former that the fiduciary comes under a duty to exercise his power or discretion in the interests of the person to whom it is owed: see generally Weinrib, 'The Fiduciary Obligation', University of Toronto Law Journal, vol. 25 (1975), pp. 4-8."
The categories of fiduciary relationships are not closed. See Hospital Products per Gibbs CJ at 68 and per Mason J at 96.
The nature of the relationship between a professional adviser and his or her client including, in particular, whether the adviser owes any fiduciary duties to the client, depends on the particular facts and circumstances. In Pavan v Ratnam (1996) 23 ACSR 214, Beazley JA (with whom Meagher JA agreed) said, at 224:
"The cases establish that a number of factors may characterise a relationship as being of a fiduciary nature. They include: vulnerability, reliance and the presence of loyalty, trust and confidence. The notion of vulnerability, as used in this context, is not to be understood in the sense of any 'weaker party' concept. Rather, it refers to the circumstance where another party agrees (not necessarily contractually) 'to act on behalf of or in the interests of another and, as such, is in a position to affect the interests of that other person in a legal or practical sense. As such, fiduciary relationships are marked by vulnerability in that the fiduciary can abuse the power or discretion given him or her to the detriment of the beneficiary': see Hodgkinson per La Forest J at 168. [Hodgkinson v Simms (1994) 117 DLR (4th) 161]."
In Pavan, it was held that a fiduciary relationship did not exist between a tax accountant and his client where the accountant advised the client, for the purpose of reducing his tax liability, to invest in property which the accountant proposed to develop. Compare Daly v The Sydney Stock Exchange Limited (1986) 160 CLR 371.
In Pilmer v Duke Group Limited (in liq) (2001) 207 CLR 165, McHugh, Gummow, Hayne and Callinan JJ applied the observations of Mason J in Hospital Products (which I have set out at [124] above) and emphasised, at 196 [70], that the critical feature of a fiduciary relationship is an undertaking or an agreement by the fiduciary to act for the principal in the exercise of power or discretion that will affect, in a legal or practical sense, the interests of the principal. Their Honours recognised, at 196 ‑ 197 [71], the distinct character of the fiduciary obligation which distinguishes it from contract and tort, and cited this passage from the judgment of McLachlin J in Norberg v Wynrib [1992] 2 SCR 226 at 272:
"The foundation and ambit of the fiduciary obligation are conceptually distinct from the foundation and ambit of contract and tort. Sometimes the doctrines may overlap in their application, but that does not destroy their conceptual and functional uniqueness. In negligence and contract the parties are taken to be independent and equal actors, concerned primarily with their own self‑interest. Consequently, the law seeks a balance between enforcing obligations by awarding compensation when those obligations are breached, and preserving optimum freedom for those involved in the relationship in question. The essence of a fiduciary relationship, by contrast, is that one party exercises power on behalf of another and pledges himself or herself to act in the best interests of the other."
The High Court has held, however, contrary to some judgments of Canadian courts, that fiduciary obligations are proscriptive, rather than prescriptive, in nature, and the duties imposed upon fiduciaries do not include positive legal duties to act in the best interests of their principals. See Breen v Williams (1996) 186 CLR 71 at 113, 137 ‑ 138; Pilmer at 197 ‑ 198 [74].
In the present case, the second respondent acted on behalf of and in the interests of the appellants in assisting them to make application for the loans from WA Home Loans and facilitating the obtaining of those loans. He did not, however, act for and on behalf of the appellants in relation to the negotiation of their investment in the proposed business. Further, the second respondent did not undertake or agree to act for the appellants in the exercise of any relevant power or discretion that would affect, in a legal or practical sense, their interests in relation to their investment in the proposed business. In the circumstances, the first and second respondents did not owe any fiduciary duties to the appellants in respect of their acquisition of the proposed business pursuant to the Acquisition Agreement.
The learned Judge was correct, with respect, in deciding that the appellants' claim for breach of fiduciary duty should be dismissed.
Conclusion
I would allow the appeal. The appellants should be awarded damages in the amounts assessed provisionally by the learned Judge, namely, $133,325.15 for the first appellant and $135,261.20 for the second appellant. Counsel should be heard as to the precise terms of the orders, and also in relation to interest and costs.
72