Trenorth Ltd v Mallesons Stephen Jaques

[2000] HCATrans 62

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M100 of 1999

B e t w e e n -

TRENORTH LIMITED (formerly known as EUROLYNX PROPERTIES LTD)

Appellant

and

MALLESONS STEPHEN JAQUES (a firm)

Respondent

GLEESON CJ
GAUDRON J
McHUGH J
GUMMOW J
KIRBY J
HAYNE J
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 9 MARCH 2000, AT 10.25 AM

(Continued from 8/3/00)

Copyright in the High Court of Australia

GLEESON CJ:   Yes, Mr Lally.

CALLINAN J:   Mr Lally, before you begin, can I just ask you a question.  This Court held that the deceit was the product, as it were, of the aggregation of the minds and intentions of officers and an agent of the company, is that correct?

MR LALLY:   Yes, but the word “aggregation” is, in our submission, not quite appropriate.  It is actual knowledge by inference.

CALLINAN J:   All right, let it be treated as actual knowledge.  The sum of those states of mind, as it were, knowledge and intention, was complete by the date of settlement, is that right?

MR LALLY:   Yes.

CALLINAN J:   So that there is a representation which is certainly complete.  Indeed, it may have been made before the date of settlement, but it exists at the date of settlement and it continues thereafter, is that correct?

MR LALLY:   Yes.

CALLINAN J:   A party who is guilty of deceit continues to make that representation until it is withdrawn.

MR LALLY:   Yes.

CALLINAN J:   Why should the Court then treat Eurolynx, Trenorth, as being under other than an obligation to withdraw that representation and thereby almost completely to mitigate any loss?

MR LALLY:   This Court, to find fraud, had to be satisfied that at the time the representation constituted by the proffering of the documents that contained the misrepresentation had carrying with it the intention to deceive.  I will come to that shortly.

CALLINAN J:   You just accept my term for the time being, collective states of mind or aggregated states of mind.

MR LALLY:   I do, yes.

CALLINAN J:   Why is it that if that aggregation or collective state of mind can be the cause of the deceit, why should the deceiving company then be entitled to remain in that state of continuing the representation right beyond the date of settlement, right up until the date of the purported rescission and beyond it?  I mean, in the court below the view was taken that it was reasonable for Eurolynx to defend all the proceedings.  I do not understand how that can possibly be so.

MR LALLY:   That was over our submission, of course, that it was totally unreasonable.

CALLINAN J:   Well, I understand that.  At the moment I just cannot see how it can possibly be so that that is reasonable.  If you have to look at the collective state of mind and the collective state of mind involves a continuing representation from at least the date upon which the sufficient aggregation exists to constitute deceit.

MR LALLY:   Well, we would put it even somewhat more narrowly, that the state of mind of Trenorth is not collectively in some vacuum but it is determined by reference to the actual knowledge of particular servants or agents and the particular ones that are so relevant in this case were Mr Ryan and to a lesser extent Mr Cini.

CALLINAN J:   Well, even Mr Gilbert – I think it is Mr Gilbert who is referred to at page 582 of the report.  Is that Mr Gilbert at the top of page – yes, he was the Eurolynx officer responsible for the giving of the instructions and it rather looks as if this Court, or the majority in this Court, is quoting some evidence at about point 2 where their Honours say:

He was quite familiar with the terms of the separate agreement, though he did not realise “until we came to settlement” that the rent‑free period had not expired.

And that adjustment is effectively a component of the deceit.

MR LALLY:   Yes, that was adjusted, the ‑ ‑ ‑

CALLINAN J:   And there seems to be at least a case to argue that one officer may have had all the knowledge at any rate, or sufficient facts, not that we have to look at one officer, but if one does look at one officer, it may be that Mr Gilbert is that officer.

MR LALLY:   No.  We can establish, and I am going to take the Court quickly to relevant documents that show the basis upon which this Court came to the view that it did in Krakowski, by leaving totally aside the question of the knowledge and intention of Mr Gilbert, to then turn to whether or not the mind of Trenorth should be taken to have an actual knowledge and intent that had a basis other than what Mr Gilbert’s state of mind was, because it was Mr Gilbert that was put forward in the witness box as the innocent person, who gave the authorisation to found the argument that the principal could not be found liable in fraud because the person who gave the instructions for the documentation to go forward had an innocent mind.

GLEESON CJ:   Could I just seek to clarify one aspect of the sequence of events, just to be sure I have got it straight, Mr Lally.  As I understand it, before the contract of sale was entered into on 16 September, there were negotiations between Messrs Cini and Ryan, on the one hand, and Mr Mermelstein, on the other, and in the course of those negotiations Mr Mermelstein made it clear that the Krakowskis would only buy if there was a sitting tenant paying the rent equal to 10 per cent of the purchase price.

MR LALLY:   Yes.

GLEESON CJ:   So before the contract of sale was entered into and before Mallesons made or participated in any misrepresentation, Cini and Ryan arranged for the tenant to occupy the premises, take a lease on the basis of an inducement arrangement, involving the payment of cash of $156,000 by Trenorth to the tenant and a rent holiday of three months.

MR LALLY:   Yes.

GLEESON CJ:   And, if nothing more had occurred, but the contract of sale had gone ahead and been completed, it might be thought that there would have been at least an arguable case, on those facts alone, that there was misrepresentation within section 52 or misleading and deceptive conduct within section 52 of the Trade Practices Act.  It may be harder to establish a case of fraud rather than sharp practice.  But, before Mallesons made or participated in any misrepresentation at all, Cini and Ryan, by entering into a side agreement with the tenant, which was concealed from the purchasers, put in place the lease arrangement at a rent of $156,000 a year.

MR LALLY:   Yes, and that side agreement was negotiated by Mr Adam Ryan.

GLEESON CJ:   That is right.  Now, what Mallesons and Mr Gilbert did, let us assume innocently, albeit negligently, from one point of view was to furnish the Krakowskis with a concrete misrepresentation, that is to say the section 32 statement and the answers to requisitions contained a positive misrepresentation to the effect that there was no relevant side agreement.

MR LALLY:   That is so.

GLEESON CJ:   A misrepresentation that might, arguably, have existed even apart from what Mallesons did but that was impossible to deny once Mallesons did what they did.

MR LALLY:   That is so.

GLEESON CJ:   So, from one point of view the conduct of Mallesons was to arm the Krakowskis with a clear basis upon which they could argue that they were victims of fraud in circumstances where, if it had not occurred, they might have had difficulty establishing that they were victims of anything more than sharp practice.

MR LALLY:   Yes, and could I take the Chief Justice to the relevant page where the relevant document that was tendered in evidence of cross‑examination of Mr Mermelstein which makes good that point, that it is the document that emanated from Mallesons with the copy to Mr Adam Ryan.

If the Court would turn, please, to page 573 – the page before, 572, shows that it was, of course, the evidence in-chief of Mr Mermelstein, not the cross-examination.  The portion that is highlighted in the middle of the page was the highlighted portion that he relied upon.  The wording is clear at page 578:

The date of the commencement is to be 11 September 1989.  Our client is prepared to provide the Lessee with a side letter indicating there will be a rent free period of three months commencing 11 September 1989.

If you turn the page, the copy was sent of that letter to Adam Ryan.  It was that information that was obtained by Mr Mermelstein that resulted in the claim being made.  If we turn to page 681 ‑ ‑ ‑

GLEESON CJ:   But is the vice in that statement the absence of a reference to the inducement payment of $156,000 in cash?

MR LALLY:   Yes.  In the letter of demand, being the relevant letter which constituted the common law rescission out of court for fraud.  As the Court will see in the judgment, the relevant date of 7 December 1990 is that date because of this letter which purported to bring about a rescission on the grounds of fraud and the Court, accordingly, after this matter was heard and determined, made a declaration.  Mr Justice McDonald made a declaration ‑ ‑ ‑

GUMMOW J:   What page is the rescission letter?

MR LALLY:   At page 681.

GUMMOW J:   Thank you.

MR LALLY:   I draw attention to the reference at line 33 to Mr Adam Ryan.

to rescind the said contract forthwith by reason of your misrepresentations with respect to the terms of the lease of the premises to Swaeder Sales Pty Ltd.

In order to induce our clients to enter into the said contract, you represented that you had leased the premises to Swaeder for a term of 6 years and at a rental of $156,000.00 per annum;  both commencing on the 11th September, 1989.

You failed to inform our clients that, in consideration for Swaeder entering into its lease of the said premises you agreed to allow it to occupy the same rent-free for a period of three months from the 11th September, 1989 and further pay to the tenant the sum of $156,000.00.  We are instructed that this agreement is set out in a letter dated 12 September, 1989 from yourselves (signed by Adam Ryan to Mr. Schweda of Swaeder Sales –

That was the term of the side agreement.

GLEESON CJ:    But just pausing there, that rescission was on the basis of a failure to inform which is on a basis that would have existed, even if Mallesons had made no misrepresentation at all.

MR LALLY:   Yes, precisely.

GLEESON CJ:   So, it was misrepresentation by silence on the part of Cini and Ryan that at least formed the basis of the letter.

MR LALLY:   Yes, because it is the classic misrepresentation of the half truth constituted by the provision of a fact which on itself - on its own - on the face of what is provided is true.

GLEESON CJ:   But that is not the basis of the High Court’s finding, is it?

MR LALLY:   No, because coupled with it was the silence as to the rest, so that that constitutes the classic misrepresentation.  What is put forward is, on its face, correct, that the lease provides that, that the rental will be so much, but the sting in the tail with misrepresentation, of course, is what is not said.  The side agreement that is referred to is at page 580 and the signature of Mr Adam Ryan appears at 581.

GLEESON CJ:   Now, this side agreement predates both the contract of sale and the misrepresentation made by Mallesons.

MR LALLY:   Yes, it does.  It is 12 September.

GLEESON CJ:   But where does that leave us, because the basis upon which the purchaser has rescinded, or purported to rescind, is significantly different from the basis upon which this Court found fraud.

MR LALLY:   No, they made good their case that by that notice of rescission on 7 December they were electing to rescind the contract for fraud and when those facts are put together they made good fraud, in accordance with the findings of this Court.

GLEESON CJ:   But the basis on which they purported to rescind did not have as one of its elements any conduct on the part of your client.

MR LALLY:   That is so, but the conduct of our client was in proffering the contractual documents that contained the section 32 statement which provides the detail as to what the lease is and you would need that document to compare with the reality.  You need one document that purports to state what the leasing arrangement is, and then to compare that with what, in fact, had occurred ‑ ‑ ‑

GUMMOW J:   Well, it becomes more than misrepresentation by silence.

MR LALLY:   Yes.

GUMMOW J:   Because it is an express statement of the lack of a negative.

MR LALLY:   There is often debate, is there not, as to whether it is a ‑ ‑ ‑

GUMMOW J:   But the section 32 certificate.

MR LALLY:   The section 32 statement in itself gave limited rights under the Sale of Land Act.  You need to go further than that because you would need to use the section 32 statement as a statement of fact, rather than relying upon any rights, for the reasons that our learned friend said yesterday, that it gives a limited right of rescission prior to completion and entry into possession.  It may be convenient to just complete the references that I was going to make to ‑ ‑ ‑

GUMMOW J:   But what emerges for your case of advantage, perhaps, from what you have been debating with the Chief Justice just then?

MR LALLY:   To come to this proposition, that when the principles that emerge from the decision of the Full Court of the Supreme Court of South Australia in Brambles, that is in our list of authorities, Brambles is a case where it was sought to defend a claim - not a claim but, rather, a charge under the health regulations or safety regulations in respect of procedures to be followed.  They sought to defend it on the basis that they had an honest and reasonable belief that they duly instructed the relevant employees.  The only difficulty was that the gentleman back in Adelaide who was responsible for giving the instructions had instructed the first driver, but unfortunately that driver, who was armed with the appropriate instructions as to what to do, fell ill.  So a replacement driver went out to the scene.  Where the appropriate action was to be taken, unfortunately, the replacement driver did not have the benefit of the safety instructions that he should.  The company sought, however, to say that they had an honest and reasonable belief because the responsible officer back at headquarters had such belief and the court said, “Well, we have to look at what was the actual knowledge and the division”.

If I could take the Court firstly to page 275, on the last paragraph in the judgment of the Chief Justice:

Of course, if mental states like knowledge or belief are to be attributed to a notional and metaphysical entity like a corporation, this can only be done by attributing to it the knowledge or belief actually possessed by some one or more of its officers –

and then reference to Lennard’s Carrying and Tesco Supermarkets –

Very difficult questions can arise in this connection.  I do not think, however, that it is necessary to enter into them now.  It is enough to say that, in my view, it is a fallacy to say that any state of mind to be attributed to a corporation must always be the state of mind of one particular officer alone and that the corporation can never know or believe more than that one man knows or believes.

Then examples are given, if there is a change in successive holders.  Over to 276, in the second paragraph in the middle of the page, after referring to the facts relevant to that case:

I hasten to add that although I think a corporation has in a proper case the combined knowledge or belief possessed by more than one of its officers, that does not mean that it can know or believe two contradictory things at once.  It is rational belief, not schizophrenia, which is to be attributed to it.  The appellant could not believe at the same time through Mr Hope that it was necessary for the rig to be winched down and that it had been winched down, and through Mr Wells that the weight could be properly distributed without any winching down.

Mr Wells was the relief driver who did not have those special instructions as to how to distribute the weight on the semitrailer so that it would conform with the law, whereas the belief that instructions had been given vested back at headquarters in Mr Hope.  This point is further addressed at page 279 in the judgment of Mr Justice Bright in the middle of the page when turning to the three defences:

As to the first:  It is the company’s belief that is important.  The belief of any employee is relevant only in so far as that belief may be imputed to the company.  “Belief” is a strange word to apply to a company.  Always, when beliefs or opinions or states of mind are attributed to a company it is necessary to specify some person or persons so closely and relevantly connected with the company that the state of mind of that person or those persons can be treated as being identified with the company so that their state of mind can be treated as being the state of mind of the company.  This process is often necessary in cases in which companies are charged with offences such as conspiracy to defraud.

It is relevant therefore for this case, and thus the reason for my answer to Justice Callinan in the terms that I did, that the relevant state of mind of the company in this case was the state of mind of Ryan and Cini.  It is not so much an aggregation of pieces of evidence of state of mind but rather determining by looking at those two witnesses and drawing an inference in respect of their conduct that is established by the documentations and the failure to call them, whereupon this Court drew the inference but then made, in accordance with that inference, an actual finding of intent and guilty knowledge.

GLEESON CJ:   But if this Court’s finding of fraud had been put on the same basis as the letter of rescission, factually the case could be quite clear.  Mallesons’ and Mr Gilbert’s misrepresentation would just be irrelevant.  But the basis upon which fraud was ultimately found involved a combination of circumstances including the original attempt by Ryan and Cini, as it were, by silence to mislead the purchasers and what might be described as a perfection or a completion of that attempt by the misrepresentation made by Mallesons and Mr Gilbert.

MR LALLY:   This is where the state of mind is so important.  Given that at the time the documentation goes forward with the necessary intent, Trenorth cannot be treated as having a state of schizophrenia.

This is the third party proceeding which, in a perfect world, would have been heard and determined immediately upon the finding of the trial judge in the way that this Court determined it should have been.  So that the company, Trenorth, has intended to deceive and it has got the state of mind that it knows what the purchasers believe; it knows what is material to them; it knows the fact of the misrepresentation is going to be made and, nevertheless, intends to proceed.

It cannot be now treated as if it has a different state of mind for the purposes of the third party proceeding, ie, we would have, if advised, acted as Gilbert’s state of mind would have dictated, and that is the significance of the finding of fraud in this Court, that this Court found fraud regardless of the state of mind of Gilbert and, if that is so, then the claim for the indemnity or the claim for damages that flows over must be on the same basis that the company has that intention.

HAYNE J:   That may involve two questions on which I would like your help.  First, do you say that your party in this litigation is precluded, is bound by, the disposition of the action between vendor and purchaser?

MR LALLY:   They are the stated facts.

HAYNE J:   Yes, and thus you are in a position, on your submission, as also is the vendor, where there is preclusion between the parties on the issue of fraud but, in particular, that the fraud or the deceit was a contractual representation rather than a pre‑contractual representation.

MR LALLY:   Yes.

HAYNE J:   And thus, if I can just follow it out one step further, the rescission letter to which you took us earlier seemed to be proceeding on an assertion of pre‑contractual fraud, “We entered this contract – or in order to induce our clients to enter the contract you represented.”  Whereas the disposition in this Court in Krakowski’s litigation was a disposition on the basis of contractual misrepresentation; is that right?

MR LALLY:   That is so, Justice Hayne, but they needed the facts that made up the ‑ ‑ ‑

HAYNE J:   How you get to the conclusion of fraud, I understand you go back into history and all of the evidentiary bases.

MR LALLY:   And that is what occurred and I accept that it is ‑ ‑ ‑

HAYNE J:   But thus the loss that is in issue which it is sought to recoup, if I can use that in the most general sense, by the third party proceedings is the loss that followed on being held liable for contractual misrepresentation; is that right or am I misunderstanding the way in which the case now presents at this stage of the litigation?

MR LALLY:   That is the way it is presented because the deliberate act was the act of Trenorth making provision through its solicitors of the section 32 statement accompanied by Trenorth’s, but not the solicitor’s, intention that the relevant misrepresentation be conveyed as a matter of contractual misrepresentation.

HAYNE J:   But that is what troubles me at the moment, that if there is this state of preclusion of all of the parties with whom we are now concerned, does it follow that you are precluded from challenging in any way the basis on which this Court in the Krakowski litigation found liability, in particular, precluded from challenging what appears at 583, this division of function issue, which at least at the moment in this stage of the argument seems to me to present you with a very considerable hurdle over which you have to pass?  Because if there is a division of function of the kind there described and it is in that way that the liability was sheeted home, it seems to me the causation questions now being agitated may be –I emphasise “may be” – more readily resolved in favour of the appellant than otherwise would be so, but I am taking you out of the course of your argument and I am simply expressing a concern, but deal with it as you see fit.

MR LALLY:   I am happy to deal with it in this way, that the knowledge at page 583, the purpose of dealing with the division of functions amongst officers of the company is to determine whether or not, looking apart from Gilbert, there is a method to determine what was the intention and willingness of Trenorth and that appears in the second sentence:

It is erroneous to make a finding as to the company’s intention or willingness to misrepresent the contractual arrangements with Swaeder without reference to the knowledge of Cini and Ryan.

The technique is to put Mr Gilbert’s evidence on the side and look at what is the technique that the Court is going to use to determine what was the actual intention of Trenorth at the time the misrepresentation is made and this is the area of the guilty knowledge that is then dealt with in the next paragraph:

If Eurolynx be treated as knowing that the purchasers were buying on the faith of the rent which the property itself would yield, it must have known that the purchasers would believe that the rent reserved according to the copy of the instrument of lease produced represented the commercial rent –

and that is where we then move from the contract being used as again a factual basis, so that we are moving across from the factual basis to a misrepresentation by the provision of those contractual documents that is material because of knowledge and intention that rests in the company, quite apart from, firstly, Mr Gilbert, and secondly, Mallesons, and it is that actual knowledge and intent of Trenorth; it is not of Ryan personally, or Cini personally, but of Trenorth, and I stress the words “intention or willingness to misrepresent” and this is emphasised at about point 8 of the page:

Even if Gilbert, not knowing of the prior conversations between Mermelstein and Cini and Ryan, did not perceive that the section 32 statement would be taken to represent that the lease contained the whole agreement, an inference that Eurolynx intended or was willing that that representation be conveyed should be drawn against Eurolynx.  In the absence of evidence from Cini or Ryan deposing to their knowledge of the basis on which the purchasers were buying unit 12, this Court is as able to draw inferences from the primary facts –

Now, Justice Hayne, that is then using that technique to determine that at the time what Justice Kenny determines to be then a deliberate wrongful act, is the provision of the contractual documentation which then founds this fraudulent misrepresentation that cannot be fraudulent unless there exists at that time guilty knowledge.  It may be convenient to deal with that aspect that was broached by our learned friend yesterday ‑ ‑ ‑

GLEESON CJ:   Just before you do that, because we do not have the evidence and I am not suggesting that we should, because we do not have the evidence in the original proceedings, could I ask you what was the evidence of inducement?  Did Mr Krakowski or Mr Mermelstein or somebody else say, “the false section 32 statement” or “the false answer to requisitions were something that came to my attention and I regarded it as very important in determining to enter into the contract”.  What was the precise basis of the finding of an inducement?

MR LALLY:   Mr Krakowski was an elderly gentleman whose English was limited but he was able to give sufficiently clear evidence that 10 per cent was a requirement of return, that he had heard that figure in Ackland Street and it was a basis upon which he wished to proceed and his nephew, Mr Mermelstein, had it as an absolute requirement.

GLEESON CJ:   I understand that, but was there any evidence that the false section 32 statement or the misleading answer to requisitions ever came to the attention of either of the Krakowskis or Mr Mermelstein or had any operative effect on their minds at all?

MR LALLY:   It formed part of the documentation that was relied upon ‑ ‑ ‑

GLEESON CJ:   I understand that.

MR LALLY:    ‑ ‑ ‑ as constituting a body of facts.

GLEESON CJ:   Let me put the question slightly differently, Mr Lally.  I cannot help wondering when I look at the terms of the letter of rescission whether it does not represent the deception from the client’s point of view.

MR LALLY:   Yes.

GLEESON CJ:   And you can almost see some barrister in chambers saying, “Come on, we’ve got to do better than that.  Surely, we can find some actual written misrepresentation.”  They go back and look at the contractual documents and say, “Gotcha”.

MR LALLY:   No, because that document that I first took the Court to did not come into the possession of Mr Mermelstein until a later time.

GLEESON CJ:   Was there any evidence given on behalf of the Krakowskis in the original action which demonstrated that the misrepresentations made by Mallesons and Mr Gilbert came to the attention of and had some operative effect upon the minds of the purchasers, or was their decision to enter into the contract based on what had not been said by Messrs Cini and Ryan and the misrepresentation by omission involved in that?

MR LALLY:   Yes.  We would have to check the transcript as to that, as to what the state of evidence was.

HAYNE J:   Some importance seems to have been given in the Krakowski judgment to the terms of clause 19.4 of the contract:

A fundamental condition of this contract is –

in effect, 10 per cent return.

MR LALLY:   That is the contract ‑ ‑ ‑

HAYNE J:   The contract of sale.

MR LALLY:   Yes.

HAYNE J:   The answers to requisitions went to Mermelstein, it seems.

MR LALLY:   Yes.  At page 597 is the relevant special condition which is executed by Mr and Mrs Krakowski on the left and Mr Adam Ryan on the right‑hand side there.  That is his signature as to ‑ ‑ ‑

GLEESON CJ:   But we seem to have a case where there was, at least arguably, a misrepresentation made by silence by Mr Cini and Mr Ryan and then a misrepresentation made in writing by Mallesons and Mr Gilbert and we are being invited to determine the issue of causation without the benefit of any evidence from the victims of the misrepresentation as to which one of those they took into account.

MR LALLY:   But if they rescind the contract and they can make good a ground of rescission for that contract, whether they knew it existed at the time they rescind, they can make that rescission work and so it becomes less important as to what particular knowledge they had at what particular time, so long as it can be substantiated.  That is the difficulty with your Honour’s question, that it requires viewing at a different time sequence, so at the time they give evidence they have had, by that stage, the original letter, they have had the contracts and years pass.  So, what might have been a case of misrepresentation (a), and then at a later time it might have been one of (b), is unfortunately intermingled.  I was not seeking to duck the issue, but unfortunately I do not know whether that could be unscrambled at this stage, even if we went back to the transcript.

GLEESON CJ:   Thank you.

MR LALLY:   I was seeking to approach the problem so far as causation by the attribution of knowledge and intention in the way that I do for the purpose of showing that that act, on the finding of this Court, if it is an act of deliberate intention, it can only be one state of mind.  They cannot be heard to be viewed as having, at that point of time, a different state of mind, which is how they seek to put it.  That is why the question of fraud is very much a question of fact.

GAUDRON J:   Does this really come down to an argument that it was not the duty of your client to protect its client from their own looseness with the truth, or their own preparedness to be loose with the truth?  It would seem to me, if it does, that may also bear on the question of causation.

MR LALLY:   It does.  We put it higher, that it comes down to unless there had been triggered by way of instructions, or the retainer had carried with it some particular facet where there was relevant knowledge, that would trigger a duty to advise the client in respect of its fraud, you cannot make out a case that a solicitor owes a duty of care to protect a client from a fraud about which it knows nothing.

GAUDRON J:   Well, it clearly did know something, in a sense.

MR LALLY:   I distinguish between misrepresentation and fraud.

GAUDRON J:   Yes.  Can I go back to this.  What you have to say is, “Yes, we had a duty of care to do something and it involved taking these steps.  That included advising them as to the correct answers to requisitions, but we did not have a duty of care to protect them from the consequences of their own improprieties.  Even though we failed in one duty of care, which might have adverted those consequences, we did not have a duty of care here at all and therefore we are not liable for this loss”.

MR LALLY:   That is so ‑ ‑ ‑

GAUDRON J:   But that is really a question, I suppose, of duty of care rather than causation, in one sense.

MR LALLY:   No, with respect, it is highlighted.  It is dealing with the question of causation in context rather than in a vacuum and it is in paragraphs 6 and 7 of your Honour’s judgment in Chappel v Hart where you express it in those terms.  If I could just refer the Court to that.

GAUDRON J:   Yes.

MR LALLY:   If that answers your Honour’s question:

Questions of causation are not answered in a legal vacuum.  Rather, they are answered in the legal framework in which they arise.  For present purposes, that framework is the law of negligence.  And in that framework, it is important to bear in mind that that body of law operates, if it operates at all, to assign a duty to take reasonable steps to prevent a foreseeable risk of harm of the kind in issue.

It was not disputed in this Court that Dr Chappel was under a duty to inform Mrs Hart of the possible consequences in the event of the perforation of her oesophagus and subsequent infection, including the possibility of damage to her voice.  The duty was called into existence because of the foreseeability of that very risk.  The duty was not performed and the risk eventuated.

When we come to Medlin for other purposes I will show the Court the passages, that it is the need - and it does not matter where one starts but the focus of causation is to link the damage with the breach of the duty, but part of the process is to determine whether the risk that eventuates is within the scope.  Various passages were read by our learned friends yesterday from, again, Justice Gaudron’s reasons for judgment in Bennett but left out that qualification that your Honour put that it has to be the risk within that scope and it has to be that very risk that eventuates.  As we put it, the relevant very risk that eventuates here for the purpose of that process is the tort of fraud and its consequences, not the Conveyancing Act.

That is where we are like two ships in the night, that we say that for causation you cannot approach this case by putting on one side that there was a case between the Krakowskis and Trenorth which resulted in Mr Justice McDonald making an order for a declaration that the contract of sale had been rescinded out of court and making an order for restitutio in integrum and then approached this by starting on the basis, “We have a solicitor who is acting in a conveyancing transaction and has a duty of care to act with proper care and skill in the work that the firm does in the transaction to save the client from economic loss”, because if you start down that line we end up in the position that we have outlined in our written submissions that the danger is that if you look at it as pure economic loss, then we lose focus.  This is a claim where it was a claim that only comes into being that can be put over against us in the third party proceeding because there was restitution for fraud.

The interesting discussion yesterday is all totally beside the point.  It does not matter what might have happened in some other case if there had been a decision to proceed to agitate a claim under the Trade Practices Act for relief under section 52 leading to a claim for damages under section 82 which then triggered a right to agitate for discretionary relief under section 87.  The fact of the matter is that that is not this case before this Court.

GAUDRON J:   What you seem to have been saying would suggest there would not have been a duty there either - certainly a duty for consequences emanating under section 32 but, if you have no duty to protect your client from the consequences of their own sharp practices, then that would seem to flow over into Trade Practices Act matters as well.

MR LALLY:   If the facts had been simply an innocent representation made by the solicitor’s provision of documents which are incorrect and there was no more, that would ‑ ‑ ‑

GAUDRON J:   That would lead to liability for them.

MR LALLY:   Yes, and that would lead to a liability which in this case the Full Court of the Supreme Court of Victoria heard and determined and decided that it accepted that it had discretion to make an order for rescission under section 87 in the absence of fraud and chose not to.  That has been turned against us that you cannot argue that, but it demonstrates that you can look at a problem where there is a misrepresentation that is made that is used as an opportunity to turn it into an act of fraud to show the difference.  You are not looking at it as to what might have happened.  An example that was put by my learned friend in discussion with your Honour Justice Gaudron yesterday was:  what would happen if they had not gone ahead with the contract?  Here they cannot be put in that position because of the state of mind that I have put before.  They can only be viewed as having that one state of mind and that is because of the company being vested with the knowledge and intention of effectively Mr Ryan.

GLEESON CJ:   A lot of lawyers devote a considerable amount of their time to protecting clients from the consequences of their sharp practices.  I am not sure exactly what were the particulars of negligence here, but was one of the ways the case was put against your client that when they put out this information about the lease containing the whole of the relevant arrangements, they should have said to Mr Gilbert or to Mr Ryan, “Just have some care here.  If you have been representing to these purchasers that there are no other arrangements of possible relevance, you might care to direct your mind to the inducement agreement that we prepared for you”?

MR LALLY:   No, it is not pleaded nor put on that basis.  It was put on the basis that they are wrong and that was the point of the comment made by the late Mr Castan in the Court of Appeal, that it had never been alleged that we had a duty to inquire into the prior negotiations and it shows how the process of reasoning of where Justice Eames started with the proposition and accepted the principles that he had to apply were no different in effect than those outlined by the Court of Appeal, but then when he comes to that very barrier that is highlighted by the Chief Justice’s question to me he had no option but to answer, “Well, they must have known because fraud was on the cards and a solicitor has a duty, a positive duty, to go back and inquire into negotiations.”  Now, that was not how it is put.  It is at page 34, the relevant ‑ ‑ ‑

HAYNE J:   But that has to be read in the light of 36 as well, does it not?

MR LALLY:   Yes.

HAYNE J:   Particularly lines 28 and following on 36 where a particular of negligence is:

Failing to advise the Defendant with respect to the disclosure of the –

side agreement.

MR LALLY:   Precisely.

HAYNE J:   Which was met with a defence that that was outside the scope of the retainer, page 41, and thus there was an issue attendant, “Was it within the scope of the retainer to do it?”

MR LALLY:   And that leads to then – and also the plea of causation that even if it were no relevant loss could have flowed from that – it is at page 41, 12(b), line 16:

if there was any breach of retainer or negligence…..the defendant will not and could not suffer any loss or damage as a consequence thereof;

and that founds the basis of the arguments then that are put on causation and thereafter remoteness and, again, it is the distinction between an act of fraud, not because it is fraud as such, but because the act of fraud of necessity involved ingredients where the perpetrator had to have the knowledge of all of the relevant matters and yet chose to proceed.  If the company could be split in the way that our learned friends would like it to be split for the purpose of the third party proceeding, well, then it could be put on one basis that either this Court should not have found fraud then or, having determined that it was fraudulent, it can only be on the basis that there is a consistency and it is significant that this Court then ordered that the third party proceeding be determined and the remainder of the proceeding – and, of course, the third party proceeding is part of it – had to go forward on a strict basis and that is that the evidence stood where it was, no party was allowed to call any further evidence save and except that any events that had arisen after the date of the original trial that might be relevant to the exercise of discretion as to whether or not an order for restitutio in integrum ought to be made.  That was the only limitation.

That is why much was made yesterday that Justice Eames had found that the solicitor knew, and that is what I want to deal with, that he is not, and nor was it open, that finding had been made about knowledge, but that is not a finding of conscious knowledge relevant to an intent for fraud, and I want to deal with that, and it may be appropriate to deal with it at this point of time, that there is no further finding other than in respect of Gilbert, which is, we have said, that is the “but for” test, but it was when the Court asked in respect of fraud yesterday that reference was made to the question of intent and overnight we have ‑ ‑ ‑

CALLINAN J:   Mr Lally, just before you get to that, could I ask you another question please.  Is it implicit, indeed it might even be explicit, in the reasons for judgment of his Honour Justice Eames, that it was entirely reasonable for the appellant not to withdraw the misrepresentations after settlement, right up until the date of the purported rescission, or the rescission?  It must be implicit in his findings, must it not, because his Honour gave costs in respect of the proceedings that were brought by the purchaser?  There is quite a discussion, is there not, in his Honour’s reasons for judgment, about the question of the reasonableness or otherwise of the appellant’s conduct?

MR LALLY:   Yes.

CALLINAN J:   And his Honour did give, or included in his damages, orders to embrace the costs that were incurred in defending the proceedings, is that so?

MR LALLY:   Yes, that is so.

CALLINAN J:   So his Honour obviously thought it was reasonable to defend the proceedings.  Does that not necessarily involve a finding that it was reasonable for the appellant to maintain, as it were, or not withdraw the misrepresentations?

MR LALLY:   No, not in respect to the findings of this Court.

GLEESON CJ:   But, am I right in thinking, that Mr Justice O’Bryan, right at the very beginning, at first instance, in the original action, found that there were no misrepresentations, either innocent or fraudulent?

MR LALLY:   No, the only representations were post-contractual, constituted by the answers to requisitions, but did not give any rights.

GLEESON CJ:   The very fact that Mr Justice O’Bryan found that, might have some bearing on the reasonableness of the conduct of people, of the kind that Justice Callinan has just referred to.

MR LALLY:   Yes, there was one authority that was relied upon by Mr O’Callaghan; I remember that if you go forward and there is a finding in favour, well that is a question of reasonableness, but in respect of whether or not a party should or should not have committed fraud, and that is why it is a different question – you cannot turn it on its head and come back to say, “Well, I was not guilty of fraud, because it was reasonable to have continued through my solicitors in defending the action”, and, if I could put it that way, Justice Callinan, that is a question as between litigating parties as to how the courts have dealt with the question of costs, but it cannot be an excuse then to be relied upon that for the purposes of the third party proceedings, they should be viewed as a non-fraudulent party, because the law ‑ ‑ ‑

CALLINAN J:   Well, it is a judicial fact that they committed fraud; this Court has held that there was fraud.

MR LALLY:   Yes.

CALLINAN J:   I am not referring to the question of reasonableness in relation to the cost.  I am really referring to it to try to ascertain whether it necessarily involves in it some implicit finding that there is no obligation to withdraw misrepresentations.

MR LALLY:   No, and the relevant page, and I will not go to it, I will give the Court the references:  it is 1023 in Butterworth’s, that was the case that was referred to, and it is dealing with the questions of costs of what is reasonable as between parties who are defending a claim against them and that claim proves to be successful, what should occur in the liability for costs as between those parties.  It is relevant for that, that question of reasonableness, but it cannot – for the reason that I have said – be turned on its head to come back to say, “Well ‑ ‑ ‑

CALLINAN J:   Oh no, no, I am suggesting the contrary.  I am not suggesting that, I am suggesting the contrary, in fact.

MR LALLY:   Yes, and for that reason I would adopt that position that it does not matter what happens in the progress of litigation.  Our system works that if a case comes to this Court, that is the position that is taken to have always been the position for the purposes of how the parties’ respective positions are to be dealt with.

CALLINAN J:   Do any of the judges who have been involved in this case so far – of whom there are, what, eleven or something, eleven or thirteen – do any of them deal with the question of the continuing nature of the misrepresentation?

MR LALLY:   No, not that I recall.  But it is not until now, of course, that there has been the need to closely analyse this question of the intent, although it was – I withdraw that because we did put these sorts of submissions at first instance to Justice Eames that did not find favour which he has recorded, as you would see in his judgment, and they have not changed in substance.  But it is when they brought into stark focus, how does one untangle an act where a company uses different agents and different servants for different purposes?  That is why it is always somewhat of an oddity that if there is one servant or agent who may have one state of mind, and one other servant or agent who has a different state of mind, and with an action that it is said you cannot aggregate innocent and innocent to become a guilty principle, but you can aggregate guilty and innocent to find guilty, but there has to be some guilty one, and here it is the guilty knowledge, and I was concerned yesterday ‑ ‑ ‑

GAUDRON J:   Well, this gets back, really I suppose to the duty.  Now, maybe there is a different type of duty for the corporate client.

MR LALLY:   It would depend upon, if he is a corporate client - is a solicitor to treat a corporate client as a person who is likely to commit fraud more ‑ ‑ ‑

MR GAME:   Well, no, no, if you look – forget about fraud for the moment and just look to the Trade Practices Act.  Nearly every corporate client is, prima facie, exposed to the operation of that Act, and to the extent that the remedies, at least, may be affected by the knowledge to be imputed to a corporate client, then maybe there is a duty in an area such as this to warn them of the possible consequences, except in this case, the company, in fact, knew and Mr Gilbert himself, in fact, knew of the existence of the side agreement.  There is no doubt that he did not know about the existence of the side agreement, did he?

MR LALLY:   But more so than Mr Gilbert, with respect.  It was Mr Ryan who not only executes the side agreement but is the relevant director who signs the contract on behalf of the company and swears the relevant statutory declaration that goes with it.  That appears at - 599 is the vendor’s statement and it is at 601 where you see Mr Cini’s signature as agent, but Mr Adam Ryan’s signature – well ‑ ‑ ‑

GLEESON CJ:   But the corollary of the proposition that Ms Samuel acted innocently is that it never occurred to her that this misstatement could have been significant to the purchasers.

MR LALLY:   Precisely.  That is why I wanted to deal with the question that your Honour alerted to yesterday was the difference – you cannot simply use the word “knowledge”; that there are elements of knowledge and that the proposition that was posed by the Court at page 580 brought that into focus as to whether the knowledge is there because she has drawn the documents or whether she is consciously aware of the significance.

GLEESON CJ:   But was one aspect of the negligence alleged against her that she failed to advert to the potential significance of this misstatement?

MR LALLY:   No, the negligence is that the statement went out that was wrong and she should have advised the clients of that fact and they were the particulars that Justice Hayne referred to.

GLEESON CJ:   But does not that involve a proposition that she ought to have appreciated the significance of the information that was being omitted from the statement?

MR LALLY:   It depends on what the relevant knowledge is.  I do not want to duck the question, but she knew because she drew both documents but was she conscious of the significance of the representation that resulted in the fraud being established, namely that there was a representation as to the commercial rent and for that you need not simply knowledge that two documents are different but a consciousness of the significance.

It would be convenient if I could deal with those now.  If I could just hand a bundle – before going to just the passage in Kerr –the relevant passage is at 580.  If the Court would have open 580 of Krakowski, it is that, point 3 of the page:

A representation that the instrument of lease covered the whole of the agreement between Eurolynx and Swaeder bears only one meaning.  If that representation was made consciously by Eurolynx or its solicitor, it must have been made fraudulently.  There is no sense in which a representation in those terms could have been honestly made by Eurolynx or by its solicitor.  But was Eurolynx or its solicitor conscious of the making of a representation in those terms?

In other words, there needs to be a consciousness, and the Court reached that conclusion at page 583 in respect of the company, with the passages that I read this morning.  It was because of the consciousness, the conscious knowledge was that of Cini and Ryan, and that is how the intention was obtained.  So there was then a finding of consciousness so far as the company was concerned, and then a specific finding, from page 584 to page 585:

In these circumstances no finding of fraud should be made against the solicitor –

The principles that are relevant - and the Court dealt with some of these cases when determining the issue of attribution of knowledge as between various parties that I will come to - the relevant passages out of Kerr that we would draw attention to, at page 2, the “Elements of Fraud”.  At the bottom of the page:

Next, there can be no fraud without an intention to deceive, though the motive is immaterial.  This at least is true as regards an action of deceit which can only be supported by a fraudulent as distinguished from a negligent misrepresentation.  An honest blunder in the use of language is not dishonest and unless there is a duty to be careful it is not actionable.

GUMMOW J:   What year is this edition?

MR LALLY:   It says 1986, I think.

GUMMOW J:   It is a reprint, is it not?

HAYNE J:   It is a reprint of a very old edition of Kerr, is it not?  I think it is a reprint of a very old edition of Kerr.

CALLINAN J:   I think the last edition was 1928.  What does it say about recklessness, anything?

MR LALLY:   Yes.  If I deal with that, it then distinguishes what used to be called “legal fraud”.  If you go to page 4, point 8:

Nothing short of a fraudulent intention in the strict sense will suffice for an action of deceit, and in this strict sense it is quite natural to say that there is no such thing as legal as distinguished from moral fraud.  But when fraud was referred to in the wider sense used in Chancery it is a mistake to suppose that an actual intention to cheat had always to be proved.  A man may misconceive the extent of the obligation which a Court of Equity imposes upon him.  His fault is that he has violated, however innocently because of his ignorance, an obligation which he must be taken to have known, and his conduct has in that sense always been called fraudulent even in such a case as a technical fraud on a power.

GUMMOW J:   None of this is news.  How is it helping us in this case?

MR LALLY:   Leading into the guilty knowledge, and the relevant passage so far as the difference between fraud and negligence is, at the last two lines of that paragraph:

Negligence is not fraud, but negligence may be evidence of fraud if it is “so gross as to be incompatible with the idea of honesty”.

So it is question of fact.

HAYNE J:   All this is precluded by the earlier judgment.  Why are we troubling about it, Mr Lally?

MR LALLY:   Because of what was put yesterday that the solicitor, in effect, should be viewed almost as if she was guilty of fraud.

HAYNE J:   No claim for deceit was made against her.

MR LALLY:   Precisely.

HAYNE J:   Why are we fussed about it?  Why are we not fussed more about questions of causation than these questions?

MR LALLY:   So long as it is clear that that is the position, that it is guilty knowledge that involves a consciousness of what is occurring.  The difference, if I merely give the passages, then, in Angus v Clifford, between “making a false statement through want of care falls far short of, and is a very different thing from fraud”, is at page 465 and at page 466 in the judgment of Lord Justice Lindley that:

If it is fraud, it is actionable.  The passage about knowledge - knowingly making it, and making a statement without believing its truth, are based upon the supposition that the matter was really before the mind of the person making the statement, and if the evidence is that he never really intended to mislead, that he did not see the effect, or dream that the effect of what he was saying could mislead, and that that particular part of what he was saying was not present to his mind at all, that I should say is proof of carelessness rather than of fraud.

GLEESON CJ:   Did you say that Ryan signed the section 32 statement?

MR LALLY:   Yes.

GLEESON CJ:   If Ryan signed the section 32 statement and your argument is correct, it is almost as though the finding of fraud was simply based upon an inference of fact that Ryan, having set out to mislead the purchasers by concealing from them the existence of the inducement arrangements, signed a section 32 statement which positively misrepresented that there was no inducement arrangement.  Why would you be talking about aggregating anybody’s state of mind?  Why would you not just say Ryan, the company director, was fraudulent?

MR LALLY:   That is why I made that point to Justice Callinan, that it is not really a matter of aggregating; it is a matter of determining what was the state of mind of the company.

GLEESON CJ:   But there is no difficulty in attributing Mr Ryan’s state of mind to the company, is there?  He was a director.  But that is not the basis upon which the decision went.

MR LALLY:   But it is, with respect, that at 583 ‑ ‑ ‑

GLEESON CJ:   The basis of what I have just put to you simply consists of a finding of fact against Ryan, who did not give evidence and against whom an inference might be easy, and an attribution of his state of mind to the company.

MR LALLY:   But that is in effect what occurs at page 583, point 3, to focus upon:

the company’s intention or willingness to misrepresent the contractual arrangements –

At point 4 there is then the determination of what was known.  Who are the persons who are referred to?  Cini and Ryan.  At point 8 ‑ ‑ ‑

GAUDRON J:   Really all that is being said on one view is that Gilbert’s ignorance is irrelevant.

MR LALLY:   Yes, but it cannot find what is the state of mind of the company without having some individual, and that was a point made by Chief Justice Bray in Brambles’ Case.

GLEESON CJ:   But if the ratio of this decision is simply that Ryan, from the beginning before the contract was signed, set out to deceive the Krakowskis and signed the section 32 statement knowing its significance to them and appreciating its falsity, all of that being a matter of inference, inference facilitated by the absence of Ryan from the witness box, this is a very straightforward decision.

MR LALLY:   Yes, but unfortunately the Court did not have the benefit of those last pieces of evidence to view it in that way.

GUMMOW J:   At 568, point 5, it is said that Ryan signed the letter of understanding.

MR LALLY:   Yes, that is the letter of understanding and the evidence ‑ ‑ ‑

GUMMOW J:   But at 569 it is not said though who signed the vendor’s statement.

MR LALLY:   Yes.

GLEESON CJ:   I do not think it emerged in the later proceedings, did it?

MR LALLY:   No.  It is not that it emerged, it is that the evidence of Ryan’s signature was given by Mr Gilbert.  We have set out the passage in our submissions.  If you go to549, line 6:

May I first ask you to look at the signature on that letter, who signed it for and on behalf of Eurolynx?

That is the letter, Justice Callinan, that is referred to in that portion of the judgment:

Adam Wright(?).

This is the side agreement, is it not, Mr Gilbert?---I’m sorry?

This is the side agreement, is it not?

And, over the next page at line 6:

Did you negotiate the inducement of the payment of the $156,000?---No.

Who did?---Adam Ryan.

If we go to 558, line 10:

Do you understand that he was only prepared to even contemplate, to use his words, contemplate leasing the property because of the inducement?---I wasn’t involved in any negotiations with that tenant.

If we go to 586 and it is at 586 is the relevant signature there with the words “Director” at line ‑ ‑ ‑

GAUDRON J:   Is there any evidence identifying it?

MR LALLY:   No.

GAUDRON J:   I think that was a problem in the first Eurolynx proceedings in this Court, was it not?  I think it was.

MR LALLY:   It is so long ago, I ‑ ‑ ‑

GAUDRON J:   I am sorry  I think Justice Callinan probably has something to ask of you, but I have a recollection that it was a problem at that stage.

CALLINAN J:   Mr Young said there was some document with a squiggle on it that could be somebody’s signature.

MR LALLY:   Yes.

CALLINAN J:   Is the document he ‑ ‑ ‑

MR LALLY:   No, he - - -

MR YOUNG:   No, it was 601, your Honour.

CALLINAN J:   601.

MR LALLY:   601 is ‑ ‑ ‑

GUMMOW J:   That is the first section 32 statement.

MR LALLY:   Yes, your Honour.

GUMMOW J:   It is said that at line 20 is the signature of Mr Ryan, is it?

MR LALLY:   No, that is Mr Cini’s signature, first, but as agent but it is the signature that second appears.  There is two signatures there.

GUMMOW J:   I see.

HAYNE J:   …..deciphering that.

GLEESON CJ:   Maybe it is just initials.

MR LALLY:   Could the Court look at the side agreement which is at page 580 to 581 and the squiggle appears at the bottom right-hand corner and the relevant line for signature on the next page – in the middle of the page – and that is the document that the Court found in the passage Justice Coleman referred to was signed by Ryan, and there is some further evidence.

The contractual document that is in the Court book at 669G to 669H contains the relevant form of statutory declaration.  Unfortunately, the one in the Court book was not executed but the Court will note that the person provided for in the typed portion of that to execute that declaration on behalf of the company was Adam Abraham Ryan.

GLEESON CJ:   I gather from what appears on page 592 of the judgment in Krakowski that the trial judge had made a finding of fact that neither Eurolynx or “its agents adverted to the possibility that” the inducement arrangements “might be relevant”.  Now, that finding covered Mr Ryan, I presume.

MR LALLY:   Yes.

GLEESON CJ:   And Mr Cini.

MR LALLY:   Yes.

GLEESON CJ:   Was that finding disturbed by the Court of Appeal in Victoria?

MR LALLY:   No, but this Court found fraud.

GLEESON CJ:   Exactly.

MR LALLY:   Yes.

GLEESON CJ:   Presumably then what this Court did, as a matter of inference, was to reverse that finding?

MR LALLY:   Precisely, because the two are inconsistent.

GLEESON CJ:   So this Court inferred that Ryan did advert “to the possibility that the ‘collateral agreement’ might be relevant”?

MR LALLY:   Yes, not only – more than that, that unless there was some particular servant or agent existed whose state of mind could be looked at for the purposes of attribution of knowledge in accordance with the principles in Brambles’ Case, the Court could not have made the finding that it did and that is why I stress the reliance upon the finding of knowledge and intent.

GLEESON CJ:   And where exactly do we find this Court reversing that finding in so far as it applied to Ryan?

MR LALLY:   It does it by the finding at – it is the passages at 583.

GLEESON CJ:   Thank you.

HAYNE J:   Though that passage at about point 6 on the page is predicated on the hypothesis that Gilbert not knowing of the prior – I see, that Gilbert did not know.

GUMMOW J:   No, it is not.  It is a predicament they have been left in by not getting the record in proper form here.  It may be a hypothetical question:  I am not sitting here to decide hypothetical questions about causation if Burrows v Rhodes is a complete answer.  It is just like writing a law school essay; I am too old for that.  It is not a very apt exercise of the judicial power of the Commonwealth, is more to the point.

MR YOUNG:   Well, if the Court were to take that view, and it is only the absence of argument and material concerning Burrows v Rhodes, let me make it clear that for our part we would seek to have the matter relisted for further argument if the Court will hear it on all the outstanding issues.  But our concern is that we should not be left caught between two places, as it were, with the Court of Appeal deciding only causation.  Leaving aside the other matters, we have made it clear to our learned friends that at all times we have been prepared to argue all issues.  But they have not agreed in that course.

GUMMOW J:   I am directing my remarks as much to your opponent as to you, Mr Young.

MR YOUNG:   I understand, your Honour, and I was not meaning to be critical of your Honour, but I am simply trying to plainly state what my client’s position is.

There are a few other brief points I wanted to make by way of reply.  The question of inducement was raised.  We adopt what Justice McHugh said, namely, that one of the constituent elements of actionable deceit is inducement.  That was not complete until the solicitors had provided the section 32 statement and the answers to requisitions and there would have been no inducement had they ‑ ‑ ‑

HAYNE J:   Provided to whom?

MR YOUNG:   To the purchasers.

HAYNE J:   Signed by your client?

MR YOUNG:   The answers to requisitions were not signed by my client.

HAYNE J:   Section 32, Mr Young, signed by your client.

MR YOUNG:   Section 32 was.  Well, section 32 was signed on behalf of my client.

HAYNE J:   Yes.

GAUDRON J:   I do not understand what the requisitions have got to do with it any more?

HAYNE J:   Nothing.

GAUDRON J:   Other than to confirm the negligence, because ‑ ‑ ‑

HAYNE J:   There is a good jury point that not only do they do it once, they kept on doing it.

MR YOUNG:   No, the case against Mallesons is negligence.  It is negligence in the performance of their retainer.

GAUDRON J:   Yes.

MR YOUNG:    Their retainer did not finish with the section 32 statement.  It continued down to settlement with the answers to requisitions which they propounded.  They suggested them and then they conveyed them.  That cannot be divorced from their negligence.

GAUDRON J:   Yes, but we were talking about the inducement before and I do not see that the requisitions have got anything to do with the inducement.

MR YOUNG:   Well, they would have averted any inducement, because if the purchasers were told by truthful answers to requisitions, as they should have been, that there was a side agreement with tenant bearing upon fit-out allowance and rent holiday, that would have, as Justice Eames found, ensured that the contract did not proceed and that there would have been no loss and no fraud.

I wanted to give the Court ‑ ‑ ‑

GAUDRON J:   That would have been because of the operation of section 32?

MR YOUNG:   No, it would have been because ‑ ‑ ‑

GAUDRON J:   Because of fraud.

MR YOUNG:   No, it would have been because the true state of facts would have been revealed to the purchaser ‑ ‑ ‑

GAUDRON J:   Yes, but what would have entitled the Krakowskis not to settle if the answers on requisition had been as they should have been?

MR YOUNG:   They would have had that entitlement under the contract not to proceed.

GAUDRON J:   That is clear, is it?

MR YOUNG:   Yes, your Honour.

HAYNE J:   What is the term upon which they relied, Mr Young?

MR YOUNG:   It is partly table A, your Honour, and partly the term at clause 5, Court book 588.

HAYNE J:   Because I had understood the Full Court in the first round to classify this, not as a requisition, but as a question, and I thought – perhaps entirely mistakenly – that answers to questions gave different rights from false answers to requisitions and that answers to questions did not entitle rescission, but it is a very long time since I have looked at any of this.

CALLINAN J:   Well, I think the Full Court said that there might be a claim for breach of warranty.

MR YOUNG:   At page 844 the court felt that “the plaintiffs could have obtained relief in this action by reason of the answer to requisition 8(c)”, apart from statute.  But let it be assumed, your Honour, that you can have an argument about whether it goes to title or not, there would have been revealed a false ‑ ‑ ‑

HAYNE J:   I am sorry, just back to page 844, it is, I think, to the direct opposite effect to that which you said:

Apart from statute, therefore, we think the plaintiffs could have obtained no relief in this action by reason of the answer to requisition 8(c).

MR YOUNG:   I am sorry, yes, your Honour is correct.  We would say that the false answer would have revealed a misrepresentation of the section 32 statement and rights would have flown ‑ ‑ ‑

GAUDRON J:   And would it then have been within the time?

MR YOUNG:   Yes, your Honour, there would have been an immediate right of avoidance under section 32(5) of the Sale of Land Act, but that is why the answer to requisition is relevant to negligence.  It is another step by which the solicitors, had they performed their duty, would have averted any fraud and more particularly, we would say, in terms of causation, averted any infirmity in the contract by preventing it being made as an infirm contract.

On inducement I wanted to say that there are some references in Krakowski to Mermelstein’s role.  At pages 569 and 570 it is revealed by those findings that he received the section 32 statement, he drafted the condition 19.4 special condition of the contract, he delivered the requisitions and he received the answers.  Mermelstein gave evidence, and the Full Court quoted this, that he would not have proceeded with the purchase if told that the lease was otherwise than the whole agreement between the parties, and we will provide the full judgment of the Full Court that sets out that evidence.

GLEESON CJ:   I suppose it is not necessarily extravagant to say that there might be circumstances in which a solicitor who is advising a client has a duty to advise the client that a certain type of conduct amounts to fraud.

MR YOUNG:   Yes, exactly.  We would embrace what Justice McHugh said to our learned friends and we advance the same submission in‑chief in answer to Justice Hayne, that simply because you label it fraud, it does not mean that it is outside the role of the solicitors who have assumed a duty to safeguard the interests of their client by exercising reasonable care to advise that to go ahead with this would be fraud and you should not do it.

GLEESON CJ:   Well, it is not always obvious to all business people that some forms of playing hard ball amount to fraud.

MR YOUNG:   That is so.  I wanted to make a response to what was said about Mr Ryan.  It was argued that the High Court’s findings read as our learned friend urged amounted to a finding that fraud was based solely on Ryan’s knowledge.  Well, in our submission, that is an attempt to go behind the findings of the High Court.  That is not how the matter was found, but in any event we would say that it does not matter at all.  We are not rearguing the fraud case.  At the end of the day, even if Ryan signed the section 32 statement – and there is no finding anywhere that he did – it does not alter Mallesons’ role because there is no evidence that Ryan adverted to the contents document but, moreover, appending his signature to that document would have been of no consequence if Mallesons had ensured that it contained no false statements.

So, in our submission, what was said about Ryan really takes us nowhere except backwards into the revisiting of the grounds for fraud, impermissibly, we would say by trying to go behind the way in which it was found by the High Court.  So much is clear, we would say, from the fact that ultimately the High Court came back to Gilbert and Gilbert’s role in authorising Mallesons to forward documents containing false statements.  It was the principal’s authorisation of the agent to forward a document containing a false statement in circumstances where the agent knew the statement was false that was attributed back to the principal.  That is at page 585 in Krakowski.  So, Gilbert cannot be dismissed and excluded and one only look at Ryan.  In any event, the argument that was urged here that the fraud was Ryan and Ryan’s alone was not contended for before Justice O’Bryan or before the Court of Appeal or, as we understand it, before the High Court.

Your Honour Justice Callinan asked about Gilbert’s evidence relating to the finding by Justice Eames at page 1003.  We have listed the references to the pages of the appeal book where Gilbert gives the relevant evidence in paragraph 18 of our outline.  I think important passages amongst those, but they are not the only passages, are at pages 532 and 560 of the appeal book where the transcript of Gilbert’s evidence is set out.

Now, there is one other matter which is that our learned friend, as we understood him, seemed to put a position that it is not open to us to contend that the fraud would have been avoided if Mallesons had performed its duty.

That was put in various ways, but it was said that because of the fraudulent intention of Trenorth found by the High Court, it cannot now be said that Trenorth and Gilbert would have stopped short of committing the fraud if advised not to do so by Mallesons.  In our submission, there is no basis for that argument, either in fact or in law.  Part of our learned friend’s argument seemed to be that the High Court’s finding that they would not make a finding of fraud against the solicitor should be turned around into a finding that at all times the solicitor was not conscious of the falsity of the representation.  So a non-finding becomes a positive finding of innocent state of mind of the solicitors.

That is really a corruption of the process.  Justice Eames went on to find, and amply supported by the evidence, that the solicitor knew that the documents contained a false statement.  That is at Court book 1010.

GLEESON CJ:   Does that include “appreciated the falsity of the statement”?

MR YOUNG:   Yes, it does, it is expressly in those terms.  We are not suggesting that it is relevant to inquire whether the solicitor was guilty of fraud, but the solicitor’s state of knowledge is of relevance to the distinction that our learned friend seeks to draw saying that it stands in such a different position than Trenorth that somehow there is a break in the chain of causation.  Indeed, in answer to a lot of questions that were put to our learned friend about the scope of the solicitor’s duty, our learned friend’s answer seemed to be that, “Yes, it owed a duty of care, it admitted that, but not here because fraud intervened and Mallesons did not advert to falsity”. 

Mallesons were fully conscious of the falsity of the statement and Gilbert authorised them to send it on and that fixed Gilbert and Eurolynx, by way of imputation, with a similar knowledge of the falsity of the statement.  As we understand it, that is what the High Court said at page 585.

GLEESON CJ:   The finding was that Miss Samuel was conscious of the falsity of the statement but there was no finding she was conscious of its significance.

MR YOUNG:   There is no finding that she was conscious of its significance in those terms but that, we would say, is implicit in his Honour’s discussion – that is, Justice Eames’ discussion - at 1009 to 1010 that had the solicitor performed her duty she would have averted the fraud.  The solicitor was, of course, conscious of special condition – I forget the number now, 19.4.  She was conscious of the questions asked by way of requisition and the answers, and she must have appreciated, we would say, the significance of the statement that the whole agreement with the tenant was to be found in the lease, and in any event the question is whether she ought to have appreciated the significance and that was plainly within what was alleged to be her duty and her breach of duty at pages 36 and 38 of the third party pleading in the appeal book.  Unless I can help the Court further, those are our submissions.

GLEESON CJ:   Thank you, Mr Young.  Mr Lally, in relation to the grounds that would go back if we were to allow the appeal, do you have any alternative submission to put on that?

MR LALLY:   Yes, our submission is that they should include the ground of remoteness.

GAUDRON J:   That is ground (5), is it?

MR LALLY:   Yes.

GUMMOW J:   And (4)?

MR LALLY:   Yes, (4) and (5).

GLEESON CJ:   Yes, thank you.

GUMMOW J:   Now, why does that not render this appeal possibly hypothetical?  Why do not these reservations of grounds render all this possibly hypothetical?

MR LALLY:   Well, it depends on the way in which the Court treats it.  It may be that ‑ ‑ ‑

GUMMOW J:   Why should it have to treat it at all?

MR LALLY:   Well, then it may be that the Court may require that those matters be then dealt with before it can come to a final conclusion, but the parties should not be prejudiced by the way in which the Court of Appeal chose to not give judgment on ‑ ‑ ‑

GUMMOW J:   You would have put on a cross‑appeal if you were unsatisfied with that and you did not.

MR LALLY:   Well, we are not unsatisfied with the fact that ‑ ‑ ‑

GUMMOW J:   Or a notice of – well, to get rid of the 30,000 or whatever the figure was or a notice of contention.

MR LALLY:   But the notice of contention, with respect, would merely mean that it was not dealt with and we are not contending - and neither party, as it seemed, in the way it has been conducted and at the time of the special leave application, that we were not called upon to proceed with the questions of foreseeability but, rather, quite the opposite, that it was to be treated as a matter that was still in abeyance.

GLEESON CJ:   Where do we find these grounds of appeal?

MR LALLY:   It is at page 1072 to 1074.  Now I accept that in a perfect world with knowledge of hindsight, it may have been more appropriate to

have proceeded in another way.  The fact is that that is the way the litigation has proceeded, with Justice Kenny taking that line, and we have acted accordingly and, at the time of the special leave, when that ‑ ‑ ‑

GLEESON CJ:   Just excuse me.  Why should we not direct both parties now, within 14 days, to put on written submissions addressing any arguments they want to put to the Court in relation to the matters raised by grounds (4), (5) and (7) of the grounds of appeal in the Court of Appeal?  Do either counsel want to make a submission against that?

MR YOUNG:   We are very content with that course, your Honour.

GLEESON CJ:   Very well then.

We will direct both parties to file within 14 days written submissions containing their arguments in relation to the matters raised by grounds (4), (5) and (7) of the notice of appeal to the Court of Appeal. 

Subject to that, we will reserve our decision in this matter.

AT 4.12 PM THE MATTER WAS ADJOURNED