Travel Compensation Fund v Robert Tambree trading as R Tambree and Associates & Ors

[2005] HCATrans 23

[2005] HCATrans 023

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S102 of 2004

B e t w e e n -

TRAVEL COMPENSATION FUND

Applicant

and

ROBERT TAMBREE T/AS R TAMBREE AND ASSOCIATES

First Respondent

PHILLIP ROSEBY T/AS P.J. ROSEBY & CO

Second Respondent

RENEE JULIE FRY

Third Respondent

TREVOR FRY

Fourth Respondent

ROBYN JOAN FRY

Fifth Respondent

Application for special leave to appeal

McHUGH J
GUMMOW J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 4 FEBRUARY 2005, AT 10.34 AM

Copyright in the High Court of Australia

__________________

MR J.E. MARSHALL, SC:   May it please the Court, I appear with MR N.F. FRANCEY for the applicant.  (instructed by McCabe Terrill)

MR R.E. DUBLER, SC:   May it please the Court, I appear for the second respondent.  (instructed by Phillips Fox)

MR P.B. WALSH:   If your Honours please, I appear for the first respondent.  (instructed by Burston Cole & Co)

MR DUBLER:   It was thought convenient if there were to be questions to the respondents that I would take the main carriage if that was convenient to the Court.

McHUGH J:   Yes, Mr Dubler. 

The Deputy Registrar has certified that no appearance has been filed for the third, fourth and fifth respondents in this matter.  The solicitor for the applicant has sworn an affidavit deposing that the third, fourth and fifth respondents have been served with the special leave documents.  Accordingly, you might proceed, Mr Marshall.

MR MARSHALL:   Your Honours, the issue which is raised, in our submission, is the proper test for causation both at common law and under the Fair Trading Act.

GUMMOW J:   Where does the common law get into this?

MR MARSHALL:   Well, the claim against the accountants was both in negligent misstatement and under the Fair Trading Act, so it was put on two limbs.  It was found that there was negligence in the preparation of the accounts and that the accounts contained statements which were misleading and deceptive in contravention of the Fair Trading Act.  Your Honours, the Travel Compensation Fund succeeded before the trial judge, but in the Court of Appeal it failed only on one aspect, which was causation, and that related to the period after Ms Fry resigned from the compensation fund.

GUMMOW J:   How did the primary judge deal with this?

MR MARSHALL:   He first dealt with it – the findings with respect to the resignation start in the application book at page 38 and the background to that is that on – I am reading from paragraph 103:

In February of 1999 TCF decided to conduct a field audit –

That audit led to a Mr Newman having certain conversations and at the bottom of the page, the last line:

Mr Fry asked for 10 days to complete the sale negotiations and said that if TCF closed the agency immediately there would be a loss of client funds –

That was on ‑ ‑ ‑

GUMMOW J:   Yes, I know those are the facts, but where did the primary judge deal with this causation question, or was it not in play?

MR MARSHALL:   It was in play, very much so.  He dealt with it, first of all, in paragraph ‑ ‑ ‑

GUMMOW J:   Starts at page 72 does it?  Sorry, paragraph?

MR MARSHALL:    Well, the first of the findings is in paragraph 179, which is at page 68.  That is quoted by the Court of Appeal, but about line 35 on page 68 of the application book:

The renewals –

These are the renewal applications which contain the accounts prepared by Mr Tambree and the audit certificate –

The renewals permitted her to continue to trade, and then to informally transfer the business to TSIPL, and later to have the business transferred again to DMV Travel –

And this is the important part –

while she and her father continued to deal with clients in much the same way until the business was physically closed down.

Then, in 191, which is at application book page 73, about line 10:

A proper audit would have put the TCF in a position to deal with the misleading financial disclosure late in 1997 or early in 1998.

In other words, earlier than in fact came to attention, because the accounts omitted a substantial amount of material – in particular, omitted any reference to liabilities, it being suggested by the accounts that there were no liabilities at balance date.

In terms of common sense meaning of causation, Mr Roseby’s conduct of the 1997 audit was a cause of the losses, because it allowed a state of affairs to develop in which Ms Fry and Mr Fry were able to continue to trade and expose the clients of the business to losses. 

Then, again at page 75, the trial judge was dealing with – well perhaps it really starts at the foot of page 74 – the trial judge was dealing with the evidence of the witnesses called for the Travel Compensation Fund.  The effect of their evidence is:

that if proper financial disclosure had been made –

there would have been a lower point score and:

TCF would have imposed a requirement for a bank guarantee or an injection of capital –

and at that point:

Either funding would have been provided and so a capital buffer would have been created for the protection of clients, or participation in the Fund would have been withdrawn and Ms Fry’s licence cancelled –

At an earlier point in time, your Honour.

GUMMOW J:   The tenor of 195 is that the judge is accepting this evidence, I guess.

MR MARSHALL:   These are his findings.  Yes, he is accepting it, absolutely, your Honour.  And then the next part of that paragraph:

If funding had been provided for the purposes of the 1997 renewal, it would then have been increased for the 1998 renewal so that, by February 1999 –

the February 1999 date is the date that the licence was surrendered –

there would have  been a capital buffer in the vicinity of $292,000, an amount adequate to meet the claims in fact made.  Mr Roseby’s deficient audits . . . were a cause of this capital buffer not being required and obtained.

Then what is on the same page at about line 27:

What is tolerably clear is that proper discharge of his auditing duties by Mr Roseby would have led to a chain of regulatory events that would have prevented the loss in fact suffered by the TCF.

Then continuing from the foot of that page and over the next page:

The evidence shows –

this is the top of page 76 –

that on the balance of probabilities, and applying the common sense test of causation, Mr Roseby’s deficient audits were a cause of the loss in fact [suffered] –

And then at the foot of page 76 about line 46:

However, the evidence does show, on balance, that if Mr Roseby had conducted proper audits and thereby put the TCF in a position to commence its appropriate and usual regulatory procedures in 1998, the losses suffered by the TCF would have been avoided.

McHUGH J:   In this case, there are no intervening acts as in Cambridge Credit v Alexander, where the majority took the view that the state of the economy and so on was the real cause of the loss, not the negligence of the auditors in failing to pick up material which would have sent the company into liquidation.

MR MARSHALL:   Nothing of that kind, no, your Honour.  It was contended that her handing in her licence was a novus actus, but that was rejected.  That fact that she handed in her licence ultimately was the reason we lost, but not as a novus actus or an intervening cause but because of the two step test for causation which the Court of Appeal applied. 

McHUGH J:   This case is quite different from one of the shipping cases in Lloyds’ Reports, I think the judgment of Justice Willmer’s – The Empire Jamaica, I think might be the name of it – in which the question was whether a master not having the appropriate certificate and the ship sinking, it was held that the failure to have the certificate was not causally connected.  This is looking at it from the opposite angle, really, is it not?

MR MARSHALL:   Yes.

McHUGH J:   You are saying that the auditor prevented the interception of the conduct of these respondents which would have occurred if they had done their duty ‑ ‑ ‑

MR MARSHALL:   Yes, definitely.  If they had done their duty and provided accurate accounts, then there would have been conditions imposed.  That evidence was accepted by the trial judge and, indeed, it was accepted by the Court of Appeal.  Can I take your Honours to that ‑ ‑ ‑

GUMMOW J:   I could not quite work out why you lost in the Court of Appeal.  Anyway, take us to the passage you were going to take us.

MR MARSHALL:   Can I start then by saying that at page 182 of the application book in paragraph 146 there is reference to Ruddock v Taylor and then there is the quote from paragraph 85, reference to Jane Stapleton ‑ ‑ ‑

GUMMOW J:   We all know and respect Professor Stapleton, but I do not think she was reinventing the wheel. 

MR MARSHALL:   Well, there are two fundamental questions involved, and, according to Justice Ipp, the first, which is paragraph 86 ‑ ‑ ‑

GUMMOW J:   Her article seems to have been elevated into some new jurisprudential message from heaven in the New South Wales Court of Appeal.

MR MARSHALL:   It has been taken a long way, your Honour.  In my submission, it has been taken further than the High Court has ever gone and it is not authorised by anything the High Court has ‑ ‑ ‑

GUMMOW J:   What is the essence of it, as you understand it?

MR MARSHALL:   Well, it is the second aspect which is applied.  This second aspect, which is at about paragraph 87 of the quote, concerns the appropriate scope.  In my submission, that is not what it really does, but this part:

In other words, the ultimate question to be answered when addressing the second aspect is a normative one, namely, whether the defendant ought to be held ‑ ‑ ‑

GUMMOW J:   Ought to be held?

MR MARSHALL:   Yes, that is what has been applied and that is why we lost.  We won at actual causation – well, my learned junior appeared – won on the question ‑ ‑ ‑

GUMMOW J:   On a judicial standard.

MR MARSHALL:   Your Honour, if causation is a question of fact – I know there are no jury trials very often for these sort of matters, but how would one deal with this second limb?

McHUGH J:   It seems almost to get close to remoteness.  If you look at paragraph 134:

In those terms, one must ask whether, even if the acts of Mr Tambree and Mr Roseby set the scene for Ms Fry’s ability, legally, to conduct a travel agency business in New South Wales and then to continue that business after she terminated participation . . . what she did thereafter transformed the outcome of Mr Tambree’s and M Roseby’s conduct into something of far greater consequence, a consequence not readily foreseeable by them. 

Now, what does that mean?

MR MARSHALL:   Well, I am not sure what it means, with respect to the statement, and it is not clear from the judgment whether that is the court’s reasonings or ‑ ‑ ‑

McHUGH J:   I mean, questions of readily foreseeable in this area are usually associated with remoteness.

MR MARSHALL:   Or possibly with duty.

McHUGH J:   Yes, well, we have passed duty.  We have duty and we have breach.  We are here in the area of damage.

MR MARSHALL:   Yes.

McHUGH J:   But are there any cases, except in the criminal law field as discussed in Royall’s Case, where reasonable foreseeability is a criterion of causation?

MR MARSHALL:   Not that I have found, none that would seem to be particularly relied upon on the question of causation.  So then the real analysis of why we lost begins – or why we won the first of the two steps begins – at page 184 in paragraph 149.  It refers to findings of Justice Austin, and then about halfway through:

Turning to Mr Roseby, his Honour found:  “a proper audit would have put the TCF in a position to deal with the misleading financial disclosure late in 1997 or early in 1998.  In terms of the common sense meaning of causation, Mr Roseby’s conduct of the 1997 audit was a cause of the losses, because it allowed a state of affairs to develop in which Ms Fry and Mr Fry were able to continue to trade and expose the clients of the business to losses” (para 191). 

That is a quote from a paragraph from the primary judge which I had just a moment ago taken this Court to in answer to Justice Gummow’s question.  Then, in paragraph 150:

Adopting the approach suggested by Ipp JA, the first question –

Well that is the two stage approach, paragraph 150 is applying the first of the two stages –

the first question is whether there was, on the part of Mr Tambree or Mr Roseby, “historical involvement in TCF suffering the damage claimed.”  Austin J found that there was. 

And then for the next few paragraphs, that is supported.  For example, the last two lines:

The performance of those duties –

these are the audit ‑ ‑ ‑

GUMMOW J:   Well, we come to paragraph 153.

MR MARSHALL:   Yes, I do, but on the way to 153 may I only pause to say that the last part of 151:

But for the negligence of Mr Tambree and Mr Roseby, Ms Fry’s licence would not have been automatically renewed in 1997 and 1998.  Had the accounts been properly prepared or properly audited Ms Fry’s financial position would have been reviewed and almost certainly conditions imposed for renewal. 

Then findings of “a bank guarantee or injection of capital” were the options.  Halfway through 152:

If the condition had been met for each year there would have been a capital buffer . . . 

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

In other words, the bank guarantee would have meant that they were there.  So we have established what is the first stage, the factual stage, of the causation test, but then at paragraph 154:

The next question –

That is, in my submission, clearly the second step of the two stage approach advocated by Justice Ipp in Ruddock v Taylor.  The second question: 

is whether, bearing in mind the particular circumstances in which they negligently made misleading representations, Mr Tambree and Mr Roseby should be held responsible –

Well, that is the same as whether he “ought” be held responsible, in other words, the language from Ruddock v Taylor.  At that stage, on an individual case by case basis, the Court of Appeal has adopted a test which would allow causation to be negatived by findings as to what “should” be the result, or “ought” be the result, for possibly policy reasons or mostly policy reasons.

GUMMOW J:   Yes, but what it does not advert to is that your client is set up by statute, is it not?

MR MARSHALL:   Various statutes, yes.  Well, actually a trust deed, yes, but there is co-operative legislation in all the States.

GUMMOW J:   Yes, and it was recouping from the miscreant ‑ ‑ ‑

MR MARSHALL:   Well, the miscreant was probably the travel agent itself, Ms Fry, but the people who negligently – and it was serious negligence, it was found, and seriously misleading statements of account.

GUMMOW J:   That is right.  Money that it had had to pay out.

MR MARSHALL:   Yes.

GUMMOW J:   Well, there is a public interest there, too, if you are going to get down into that sort of level.

MR MARSHALL:   Yes, your Honour.  In the end, I suppose to answer your Honour’s question why we lost, the only answer seems to be found in the last part of paragraph 155.  It is said – and we say this is to adopt a wrong and illogical analysis:

However in my opinion, by no test could it be said that the negligently prepared accounts and audit and the misrepresentations that flowed from them were causally related to her continuing illegally in the business of a travel agent. 

But that is an inappropriate question.  Take the case which we have put in our summary of argument, where a valuer prepares a valuation for a bank, and apply that to the same question.  Could it be said that negligently prepared valuation and the misrepresentations that flowed from them were causally related to the borrower not repaying the loan?  That is the wrong question.  The real question is whether the negligently prepared valuation was causally related to the bank not being able to protect itself by requiring appropriate securities or making a decision perhaps not to go ahead with the loan.  There is an element missed from this question which means that there is a flawed response and the only other – a bit further down, it says:

On this ground, in my opinion, both the appeal and the cross-appeal should [fail] –

It is not clear whether “this ground” refers to the “However” sentence or the example.  Perhaps it refers to the whole of the ground, meaning the second limb, and perhaps that is the more fair reading, the second limb being the “ought fail” or the “should be liable”.

GUMMOW J:   Now, in coming to this conclusion, is any attention paid to the numerous decisions of this Court construing section 82 of the Trade Practices Act and the word “by” in section 82?

MR MARSHALL:   No, there is not, your Honour.  The judgment of the Court of Appeal ‑ ‑ ‑

GUMMOW J:   Which would be applicable to the New South Wales statute, I am sure.

MR MARSHALL:   That is my submission.  We put that in our summary of argument, indeed, your Honour.  We say that that is one of the gaps in the reasoning – that given that there was a claim both in negligent misstatement and under the Act, questions of causation at common law arise and what is that test, and then, equally, the question of what is involved by the word “by” in section 68 of the Fair Trading Act or section 82 of the Trades Practices Act is also involved and there is quite a lot of jurisprudence in this Court as to what that means.  We have set out the references to the cases and the particular passages in our summary of argument ‑ ‑ ‑

GUMMOW J:   Was the Court of Appeal referred to them?

MR MARSHALL:   Well, it must have been.  I know this from my learned junior, that the decision of this Court in the last of the cases was specifically drawn to the court’s attention after it had reserved.

GUMMOW J:   I see there is a reference to Henville v Walker in the list of cases at 99.

MR MARSHALL:   The decision of Murphy v Overton was specifically drawn to the court’s attention after it had reserved by my learned junior, who appeared at the trial and at the Court of Appeal. 

GUMMOW J:   Yes.

McHUGH J:   Just help me.  Did the court consider two separate issues, one, whether there was an intervening act and, secondly, rejected it, but nevertheless for some reason seemed to hold that subsequent conduct was not foreseeable or broke the chain of causation in some way?

MR MARSHALL:   There is no finding that it broke the chain of causation ‑ ‑ ‑

McHUGH J:   I mean, in the passage that I referred you to, it was in the middle of a discussion of intervening acts, but then at paragraph 139:

As a value judgment I do not think that what Ms Fry did following her termination of participation could be regarded as a normal occurrence.

That seems to lead, somehow or other, to the conclusion that on a normative basis you are not entitled to recover, or have I missed something?

MR MARSHALL:   Well, that is one reading of it, yes, your Honour.  It is not, in my submission, entirely clear that paragraph 139 is one of the reasons that my client lost, but, on the assumption that it might be one of the reasons, what your Honour said would be correct.  We do not accept that that is an approach that the High Court has authorised and that what happened in substance is that my client lost because of the adoption of the two stage test.  Can I say only that that test has been adopted again by Justice Ipp in the case of Harriton.

McHUGH J:   What was the basis of the “ought” conclusion?  They said well, the defendants ought not to be held liable, but what is the true basis of that?

MR MARSHALL:   It has to be – if it is found, it can only be found in paragraphs 155 and possibly, as your Honour observed, paragraph 139.  I know that the light is on, your Honour, but can I say one thing about 139 as your Honour may be interested.  It does seem that to say that it is not a normal consequence is not so much established by the evidence.  The findings of Justice Austin in paragraphs 103, which is at the application book 38, 39 and 40, perhaps particularly application book page 40, are relevant because it showed that once she handed the licence in, at application book 40, line 40, essentially, they just continued to operate.  Apparently, at application book 46, about line 15, it is not all that uncommon to find agents in the final stages of collapse to trade in an unlicensed way. 

GUMMOW J:   What is that last reference?

MR MARSHALL:   Application book 46, about line 15.  There is a reference to the unlicensed agents and the evidence was:

He said that cases under clause 15.2 normally involve unlicensed agents.  Commonly participation in the Fund is terminated and then the Department of Fair Trading takes steps to terminate the travel agent’s licence and close the business.  That is what happened in the present case.

Then there is a question of sometime there is a delay in that process because they continue, it seems, otherwise there would not be any common observation about payments under clause 15.2.  So we say it is an appropriate vehicle because the findings of fact of Justice Austin as to factual causation were upheld in the Court of Appeal and the reason the applicant lost was because of the second stage, the “should or ought” test, which is a test not sanctioned previously by this Court. 

McHUGH J:   Thank you.  Yes, Mr Dubler.

MR DUBLER:   Your Honours, special leave ought not be granted principally for three reasons.  The first is that there was no misapplication of the correct test.  The commonsense test or the March v Stramare test was applied, but the so‑called two stage test, as applied by the Court of Appeal, relevantly did not depart from that test or authority.

McHUGH J:   Yes, but what was the reason the application of the second stage led to the conclusion of the Court of Appeal?

MR DUBLER:   It is this, your Honour.  What the Court of Appeal did, and one needs to understand that final or penultimate paragraph in context, which I will do in a moment – the Court of Appeal is essentially applying this well known principle, that merely because a defendant’s negligence, omission or act could be said to have, on a “but for” test, prevented loss in fact suffered by a plaintiff at the hands of illegal conduct of a third party, there are occasions when it would be unjust, unfair, contrary to common sense, to say that the defendant’s act caused that loss, even if a bare “but for” test is made out.  Now, that is what the Court of Appeal’s finding was at paragraph 155.

GUMMOW J:   Why?

MR DUBLER:   Why?  It is this, your Honour, that the finding at best that would give the “but for” test was that the negligent audit or preparation of accounts, if that had not occurred, would have brought about the cancellation of the licence at a point in time.  That is the only finding essentially that the trial judge made which was relied upon to ground causation. 

The proposition we advanced in the Court of Appeal and before the trial judge was not anything to do with remoteness, not anything to do with foreseeability, not anything to do with normative values in the broad.  It was this simple proposition, that if a negligently prepared audit is relied upon to allow a licence to be renewed, not merely issued – that was done properly on the facts – merely because a negligently prepared audit allows a licence to be renewed when it should not have been renewed, the facts then revealed that the fund became suspicious independently of the accounts, the licence was cancelled, terminated, the travel agent then – obviously unknown to the accountants and the fund – traded without a licence, illegally, through a different entity, and then claimants, people who wanted the travel services, lost their money, there was a claim on the fund – the proposition we advance is a relatively simple one and involves no error of principal or law, that is, it would be unjust, it is not a matter of logic or commonsense to say that the negligently prepared audit which allowed a licence to be renewed, which permitted participation in a fund, could be said to relevantly have caused the illegal trading which brought about the losses. 

McHUGH J:   I would have thought that it was as clear as anything that that was the direct result of their conduct.  They knew they were preparing an audit in the context of supporting Ms Fry’s application to participate in the scheme.  They knew the accounts and the audit certificate went - not only to participate in the scheme but to continue in businesses as a travel agent, and as a result people suffered loss as a result of their negligence.  Now, why are they not responsible for it?

MR DUBLER:   Because, your Honour – this is it in a nutshell – that it makes sense to say that the auditor ‑ ‑ ‑

GUMMOW J:   Makes sense to your client.

MR DUBLER:   Yes.  To say that if your audit permits you to get the licence, you are responsible for having inflicted that person on the public because you permitted that.  You gave that person what was required to be a licensed travel agent.  The audits only go that far.  The original accounts were fine.  The original licence was issued without any negligence.  At a point in time of renewal that was only permitted because of negligent accounts.  The licence is then cancelled.  It continues to trade.  It does not make sense, that is the essential essence, to say that the negligent audit still brought about or caused what is now illegal trading that has nothing to do with the licence.

We put forward two propositions to try and make that good, your Honours, firstly, the analogy which was brought up in paragraph 55 of the Court of Appeal.  There are many times licences are issued.  Imagine a truck driver’s licence is issued negligently; a test was passed when it should have been failed.  The authority then finds out, cancels the licence, but the person continues to drive his truck and through negligence injures someone.

GUMMOW J:   Yes, but this is all about travel agents.

MR DUBLER:   Well, I will put a point on that, your Honour.

GUMMOW J:   And they are, to put it mildly, a difficult area.

MR DUBLER:   Yes, I will put the point on that ‑ ‑ ‑

GUMMOW J:   And they have required legislative intervention to control them.

MR DUBLER:   Imagine this scenario, which is very close to the facts here ‑ ‑ ‑

GUMMOW J:   There have been a number of celebrated collapses in that area.

MR DUBLER:   Imagine this scenario, which is very close to this one, your Honour.  The accountant discovers his negligence, informs the Fund and says, “I have now found out that the asset ratio is not up to scratch.  This licence ought to be cancelled” and it is cancelled.  The person though, as happened here, continues to trade.  The submission made is at that point the causal link ‑ ‑ ‑

GUMMOW J:   That was not an unusual event.  That is what the primary judge found.  They do tend to continue to trade.

MR DUBLER:   With respect, I do not think that was the finding.  Can I put this, your Honour.  What needs to be understood are the trial judge’s findings and that of the Court of Appeal is this.  There was no finding that a capital buffer would have been put in place, only that that would have been the requirement or cancellation.  My case would be poor on causal link if there was a finding that but for the negligence the capital buffer would have been there.  The evidence was that this travel agent could never have put up a capital buffer as required, and that termination would have been inevitable.  It comes then down to the fundamental point, whether you can sheet home still what happened at renewal when there is trading after cancellation.

Could I take your Honours briefly to what we say is the true meaning of the trial judge’s finding.  Now, it appears in the Court of Appeal judgment, and perhaps if I could just take your Honours to this passage to make good our point, that there really was no real causal link.  At page 147 of the application book the Court of Appeal refers to paragraph 196 of the trial judge’s finding.  This is the essence of the case on causation, which we say is inadequate.  The trial judge, just over the page commencing at page 146 at the bottom, says:

If the TCF’s funding requirements were not met –

and I pause, sorry, to point out that above the trial judge merely says that the negligent audit led to the capital buffer “not being required and obtained”, not to a finding that it could have been obtained.  Then the judge concludes:

If the TCF’s funding requirements were not met –

which could never have been on the facts –

no one can be sure that Ms Fry and her father would not then have engaged in unlawful trading causing losses.  But there is no evidence that would lead me to conclude that unlawful trading and losses would be more likely than not.  The issue is purely one for speculation.  What is tolerably clear is that proper discharge of his auditing duties by Mr Roseby would have led to a chain of regulatory events that would have presented the loss in fact suffered by the TCF.”

Now, the trial judge in a number of instances uses those words ‑ ‑ ‑

GUMMOW J:   Look, are you backing away from paragraph 153 in the Court of Appeal?

MR DUBLER:   I am saying that what that means, paragraph 153, your Honour, is this, that the Court of Appeal summarises the trial judge’s findings as being that if there had not been negligence then the Fund would have required a capital buffer, and if that had not been met then the licence would have been cancelled.  That is the causal link ‑ ‑ ‑

McHUGH J:   Let us test it this way.  Supposing Ms Fry had not offered her resignation from the scheme and it had not been accepted by the TCF until 20 April 1999, would your client be liable for these losses?

MR DUBLER:   The position we put was, is liable for so long as the travel agent held a licence, because there is some sense in that.

McHUGH J:   But why?  There is no sense at all, it seems to me, with respect.

MR DUBLER:   Because the audit allowed the person to trade under the law.  The audit was used for the purpose of granting a licence.  The audit was not used in any way relevantly to the question of trading without a licence.  The finding of fact was this, your Honour, essentially one of background, that but for the negligence, obviously the same factual scenario of losses would not have occurred because something different would have happened in the past.

McHUGH J:   Well, the Court of Appeal held you liable for the losses up to 23 February.

MR DUBLER:   Yes, and we do not ‑ ‑ ‑

McHUGH J:   Well, once that is accepted, how, as a matter of logic and principle, can it be said that you are also not liable for the losses up to 20 April 1999?

MR DUBLER:   Because of this, your Honour.  There was no finding that the renewal previously, the previous year’s renewal, materially or in a relevant sense increased the risk of loss from unlawful trading.  There would be a case if that was met; that is, for example, the renewal permitted an entity to trade that otherwise would have ceased to exist completely shortly thereafter.  The trial judge said, “Well, obviously that’s all speculation.  We don’t know.”  So the point we say is this, your Honour.  It cannot be said – and I am quoting here from comments of Justice Callinan in Modbury Triangle v Anzil 205 CLR 254 at 303, where his Honour there, in another unlawful third party case, unlawful conduct of a third party case, said that he could not conclude that the conduct of the defendant in any material or relevant sense increased the risk of loss. That is our case. There was no causal link made out between renewal for a period ‑ ‑ ‑

GUMMOW J:   That is backing away from ‑ ‑ ‑

MR DUBLER:    ‑ ‑ ‑ and unlawful trading after the licence.

GUMMOW J:   That is backing away from Ruddock v Taylor, is it not?

MR DUBLER:   This two‑stage approach?

GUMMOW J:   Yes.

MR DUBLER:   That was never put in submissions.  It is not central to the reasoning, in our submission, of the Court of Appeal.

GUMMOW J:   Yes, and it is a case now.  It is going to be reported and followed.

MR DUBLER:   On that point, which is the first point that no error of ‑ ‑ ‑

GUMMOW J:   In other words, the jump from 153 to 154 is the injection of “should”, and that seems to be a recapitulation of Ruddock v Taylor and of Aut.

MR DUBLER:   The way in which it was argued and the way in which the Court of Appeal ‑ ‑ ‑

GUMMOW J:   And that is what is happening in the Court of Appeal.  Perhaps it should be stopped.

MR DUBLER:   Could I submit what the effect of the Court of Appeal judgment is - your Honour, of course, may have a different view - that paragraph 53 is, in essence, accepting a “but for” finding of causation then, in my submission, it was merely a background type of causation, that is, for example, a traveller could say, “But for being dismissed by my employer, I wouldn’t have wanted a holiday.  That caused me to lose my money to the travel agent”.  The only finding of the trial judge was of that nature.  But for the renewal, we would not have had losses in fact at that time with these people.  Something else would have happened, but that is all.  At paragraph 154, in my submission, the Court of Appeal deals with well-known issues of value judgments, of questions of ‑ ‑ ‑

GUMMOW J:   How do you say Ruddock v Taylor squares with our decisions on section 82 of the Trade Practices Act, because this decision of the Court of Appeal will be cited in other trade practice cases.

MR DUBLER:   It is not different.

GUMMOW J:   And has the potential to cause mischief.

MR DUBLER:   Yes.  Your Honour, we would say it does not, if it is applied as being within the rubric of value judgment, as permitted in March v Stramare; that if it goes broader than that by questions of pure normative matters beyond value judgment, it would be.  But, your Honours, it is plain, we would submit, that the Court of Appeal was treating it as within the March v Stramare test.  Could I just point out, your Honours, from pages 176 of the application book through to page 180, the Court of Appeal, paragraphs 133 and following, deals exclusively with March v Stramare, almost exclusively.  It quotes extensively from decisions ‑ ‑ ‑

GUMMOW J:   A lot of water has flown under the bridge in section 82 cases since March v Stramare.

MR DUBLER:   True, your Honour, but ‑ ‑ ‑

GUMMOW J:   There are five or six cases in this Court.

McHUGH J:   And March v Stramare is not a common law negligence case.

MR DUBLER:   But, your Honour, it remains, can I submit, the principle – and could I just direct your Honours’ attention to application book 179 – that value judgments remain a part of any causal finding.  Our submission would be the only true principle of law involved in this decision is if March v Stramare is overturned and the “but for” test becomes the sole test.

GUMMOW J:   We have never said that in a section 82 case.

MR DUBLER:   No.  Your Honours, that is my submission then, that whilst there is still an element of commonsense, value judgment, policy considerations in a causal finding, even under the Fair Trading Act, this Court of Appeal judgment comes within that principle.  There are plenty of cases that involve the Trade Practices Act where there have been findings of no causal link because a “but for” test is not enough.

McHUGH J:   Well, your case comes to this, does it not, that the breach of your clients prevented the TCF from closing down the Fry business and for all losses that are a result of that, you are responsible, but once they did close down the business you are not responsible for anything after that.

MR DUBLER:   Yes.

McHUGH J:   Is that the way you put it?

MR DUBLER:   That is the way we put it.  We emphasised the way in which the statute recognises that distinction as well.  The Fund, in fact, does not compulsorily respond to these claimants.  It is purely discretionary ‑ ‑ ‑

GUMMOW J:   Well, Justice Austin dealt with that in considerable detail.

MR DUBLER:   Yes.

GUMMOW J:   There was an exercise of a discretion by the Fund, but that is not impugned, is it?

MR DUBLER:   Well, I do not know if I can answer that, your Honour, because that may arise in a notice of contention because that was a live point on our side which we lost, but a separate point, that is, a mere discretionary payment under a trust we submitted also breached the causal link that we lost before the trial judge and the Court of Appeal.

GUMMOW J:   Where did the Court of Appeal deal with that?

MR DUBLER:   I think early in the discussion on causation.

GUMMOW J:   The primary judge dealt with it at page 77 and following, in some considerable detail, but I cannot find the Court of Appeal.

MR DUBLER:   I do not have that at hand, sorry, your Honour, but I know it was argued.  Your Honour, we do submit that the Taylor v Ruddock principle, if it is one ‑ ‑ ‑

GUMMOW J:   Well, it seems to be treated as one.

MR DUBLER:    ‑ ‑ ‑ is no different to the question of causal link, as understood by the High Court authorities, your Honour, that there will still be a need to be questions of policy, questions of commonsense, questions of value judgment so long as the “but for” test is not an exclusive test.  May it please the Court.

McHUGH J:   Yes, Mr Marshall.  Mr Marshall, can I put to you what troubles me about this case?  Like Justice Gummow, it seems to me that the reasoning in the Court of Appeal in this matter as such is very difficult to justify, but the actual decision itself is correct because the breach of duty by the respondents prevented a closing down of the business and, therefore, the losses that resulted from the failure to close down the business have to be paid for by the respondents.  But once the business was closed down the breach of duty was no longer an operative cause of the loss.  Supposing, for instance, they had got an injunction against staff from continuing trading, but she went on in defiance of the injunction.  Would the respondents be liable for the losses after that, even though she defied an injunction?

MR MARSHALL:   Your Honour, the answer to that really comes from the fact that the travel agent, Ms Fry, was allowed to get up and running, continued for a year, continued for a second year.  That created a momentum, and there is an express finding of the trial judge that it created a state of affairs which allowed her to continue to trade for that period of time.  It meant if they had been stopped early perhaps that might be right, but because the accounts were negligently prepared and contained misrepresentations of the first year and the second year, it meant that she had the momentum; she had an existing client base, she had a reputation, she had premises ‑ ‑ ‑

McHUGH J:   I know, and up till 23 February the respondents have to pay for their negligence.  But why, as a matter of commonsense or as the scope of breach of duty, should they have to pay after the 23^rd?  Leave aside the Court of Appeal’s reasoning.

MR MARSHALL:   Leaving it aside, if one adopts the trial judge’s reasoning, because it caused a state of affairs to develop which meant that  that is how she was able to continue in that period, because of the two years she had had earlier on.  Those are the findings in paragraphs 179 and 191 of the trial judge.

McHUGH J:   No, but their negligence consists in preparing audit certificates which they knew were going to be used by the TCF to renew the licence, and that allowed her to trade.  But once the TCF did close her down why should they be responsible for what she did after that?

MR MARSHALL:   Because by allowing her to continue to trade that she got the head start, in effect.  She was there and running and, therefore – there takes a time in which to bring about a reversal of the impact of the negligence, but the negligence core had an ongoing effect through to when she could ultimately be closed down.  I am not sure if your Honour appreciates that the TCF deals with the membership of the Fund.  It then passes on to the Department of Fair Trading the operation of closing down, and that took a bit more time here.  The TCF itself does not close people down, it is the Department of Fair Trading that does, and that is what happened in April.  The Department of Fair Trading came and closed down.  So I am not sure if that makes a big difference, but it makes some difference.

The real point is that the finding of the trial judge, which is that – it is not like someone could get into a car, whether they have ever had a licence or not, and drive and cause injury.  That is why the example is not apposite.  Here the first set of accounts and the renewals and so forth were negligently prepared, and it got Ms Fry up and running, it got her into premises and, as was found at application book 69 ‑ ‑ ‑

GUMMOW J:   Well, 68 ‑ ‑ ‑

MR MARSHALL:   Page 68, line 35:

The renewals permitted her to continue to trade –

and then do these other things ‑ ‑ ‑

GUMMOW J:   Paragraph 179.

MR MARSHALL:   Yes, and then in much the same way until the business was physically closed down.  That was the effect of the negligently prepared accounts and audit, because my client would have been able to deal with it earlier – and there is the finding which Mr Dubler has referred to – that had that happened the losses in fact suffered would not have been suffered.

GUMMOW J:   There is some awkwardness in the phrase “permitted her” in line 35 on page 68.  “The renewals permitted her to continue”.

MR MARSHALL:   Well, they did because the way – I accept what your Honour says, but the reason why that is not as odd as it first appears is because the renewals, by disclosing a state of affairs that seemed in order, meant that the TCF had the right to permit or not permit or impose conditions.  So by the accounts not throwing up anything out of the ordinary the TCF then permitted her to continue to trade, but that was caused by the renewal documents and the accounts themselves.  That is the reason why the answer to your Honour Justice McHugh’s question is ‑ ‑ ‑

McHUGH J:   Yes.  It is time.

MR MARSHALL:   Yes, your Honour.

McHUGH J:   The Court will adjourn briefly to consider this matter.

AT 11.23 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.27 AM:

McHUGH J:   Yes, there will be a grant of special leave in this matter but, Mr Marshall, your grounds of appeal as set out at page 94 are not terribly satisfactory to raise the points of principle that are being debated – perhaps ground 2 is.  It is a condition of the grant of leave that you amend your grounds of appeal and they can be heard before a Justice.  They should be filed and considered by Justice Heydon the week after next.  So there will be a hearing as to the adequacy of the grounds of appeal.  The case will finish in a day, I take it?

MR MARSHALL:   If this is the only matter.  Mr Dubler did mention the possibility of a notice of contention about the discretionary matter.  That may – probably would not even be able to take it beyond the day, in reflection.

McHUGH J:   Yes, very well.  The Court will now adjourn to reconstitute.

AT 11.29 AM THE MATTER WAS CONCLUDED