Trenorth Ltd v Mallesons Stephen Jaques

[2000] HCATrans 61

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 WEDNESDAY, 8 MARCH 2000, AT 10.23 AM

Copyright in the High Court of Australia

MR N.J. YOUNG, QC:   May it please the Court, I appear with MR M.D. WYLES for the appellant.  (instructed by Arnold Bloch Leibler)

MR W.F. LALLY, QC:   If the Court pleases, I appear with MR N.D. HOPKINS for the respondent.  (instructed by Phillips Fox)

GLEESON CJ:   Yes, Mr Young.

MR YOUNG:   This case concerns a section 32 statement under the Victorian Sale of Land Act which falsely stated that the lease contained the whole of the agreement between the vendor of the property, Trenorth, and a tenant, Swaeder Sales.  Reduced to their most simple expression, the facts are that the false statement only appeared in those documents and was only proffered to the purchasers because the solicitors, Mallesons, negligently prepared the section 32 statement and negligently advised Trenorth that it was appropriate to put that document forward.  Trenorth suffered financial loss as a result.

GLEESON CJ:   Just before you go any further, if the false statement was only made because the solicitors negligently advised that it should be made, wherein lay the fraud of Trenorth?

MR YOUNG:   The fraud of Trenorth was to be found in the fact that this Court in Eurolynx inferred that Eurolynx intended that statement to be made and to be understood in accordance with its plain meaning.  It was only the finding that there was an intention that the statement should be understood in accordance with its plain meaning that triggered a finding of fraud against Trenorth.

GLEESON CJ:   That seems inconsistent with your earlier proposition that the only reason the statement was made was because the solicitors advised that it should be made.

MR YOUNG:   No, your Honour, it is not inconsistent.  The statement was only made and would not have been made, according to the findings of the trial judge, but for the fact that Mallesons drafted it and advised that it should be made.  I will take the Court in a moment, if I may, to what we say are the key factual findings to be derived both from Eurolynx and from the trial decision in the third party proceedings.  But our simple proposition at the outset really is that in the circumstances I endeavour to express very shortly, Mallesons breach of its contractual retainer and its negligence in breach of a concurrent general law duty caused Trenorth’s loss.

GAUDRON J:   Well, that is the question, is it not?  That is the whole question, is it not?

MR YOUNG:   It is the whole question, your Honour.  The point I was endeavouring to make is that there is both a contractual dimension to it and a tortious dimension because, of course, the findings by Justice Eames were of both breach of retainer and of negligence.  So the question of causation, albeit it is the same one, arises in contract and in tort, but it does mean that some of the other arguments that are advanced need to be assessed in their proper context, that is to say, both contract and tort.

GAUDRON J:   Is causation any different?

MR YOUNG:   Causation is no different.

GAUDRON J:   In this case is the loss, recoverable loss, any different, assuming there is some loss?  Well, in contract you would get something anyway.

MR YOUNG:   We would say the recoverable loss is no different in contract or in tort but there may be argument about that.

GLEESON CJ:   On that point, Mr Young, and it is not relevant to the outcome of this appeal, but at some stage it is convenient to you, and it may be right at the conclusion of your address would be a convenient stage, could you just explain to us the difference in the outcome of this litigation that turns upon whether you succeed or fail in the argument you are putting to us here.  It is a point relating to the form of the orders.

MR YOUNG:   Yes, your Honour, I will come back to that.  Some of the key factual findings we identified in paragraph 28 of our outline and I ask the Court to turn to that for a moment simply as the reference point for the passages in Eurolynx and in Mr Justice Eames’ judgment that I wish to take the Court to.  We have identified what might be described as four key factual findings in paragraph 28.

The first is that the operative representation was both drafted by Mallesons and provided by Mallesons to the purchasers.  Secondly, that Mallesons knew that the representation in clause 9.8 of the lease, which was attached to the section 32 statement, was false.  Clause 9.8 said that the lease was the entirety of the agreement with the tenant.

Next, the false representation was conveyed by the plain and natural meaning of the document drawn by Mallesons and the fourth point is a finding by Mr Justice Eames that if advised by Mallesons to disclose the side agreement Trenorth would have done so with the consequence that there would have been no fraudulent representation.

GLEESON CJ:   That prompts me again to seek to understand a little better than I do at the moment the nature of the fraud that was practised by Trenorth.

MR YOUNG:   That is best explained, your Honour, by going to Eurolynx, which I will immediately.  Can I add to those four factual matters one additional matter before I do.

McHUGH J:   Just before you do, when you refer to Trenorth, subparagraph (4), does that mean Gilbert or does it mean Ryan?  Does it include Ryan?

MR YOUNG:   I think Mr Justice Eames’ finding is directed to Gilbert because it was Gilbert and only Gilbert who was liaising with the solicitors.

McHUGH J:   Yes, but Ryan knew of the contents of the side agreement, did he not?

MR YOUNG:   Yes, as did Gilbert.

McHUGH J:   And also knew about the section 32?

MR YOUNG:   There are no findings about that, your Honour.  The dealings between the solicitors ‑ ‑ ‑

McHUGH J:   But did not Ryan sign the section 32 statement?

MR YOUNG:   I do not think there is any finding to that effect.  We are prepared to assume that he did, your Honour.  There is a squiggle on the document that may well have been Ryan but we do not take any point about that, and let it be assumed that Ryan did sign the section 32 statement.

McHUGH J:   But was that not the fraud in the Eurolynx Case that Ryan and Cini knew what the true facts were and yet, nevertheless, they intended to put this document out with this representation?

MR YOUNG:   That was the finding against Eurolynx, that having regard to the knowledge of Ryan and the agent Cini, who had negotiated the purchase, on the basis that the purchaser wanted a 10 per cent return on the rental and that emphasised the importance of the lease and the fact that the rental should start from the commencement day of the lease.

GLEESON CJ:   Did they intended to deceive?

MR YOUNG:   The finding, it must be inferred, encompasses that, it would seem.

GLEESON CJ:   That is what I want to understand.  Trenorth was found to have committed the tort of deceit.

MR YOUNG:   Yes, your Honour.

GLEESON CJ:   Was any officer or agent of Trenorth found to have intended to deceive anybody?

MR YOUNG:   No, your Honour, not in terms.

McHUGH J:   That was because we said, did we not, in Eurolynx that in order to succeed in fraud the representee had to prove that the representor had no honest belief in the truth of the representations in the sense in which the representator intended them to be understood.

MR YOUNG:   But that was not the key issue.  Findings here by Mr Justice Eames were to the effect that neither Trenorth nor Mallesons had an honest belief in the truth of the statement contained in the section 32 statement.

GLEESON CJ:   But, is an intent to deceive an element of the tort of deceit?

MR YOUNG:   In the way in which it was regarded by the High Court in Eurolynx that was not expressly addressed in those terms but it would seem to be implicit because the steps in the High Court’s reasoning were these:  first, the representation was that the entirety of the agreement with the tenant was set out in the lease.  That was the whole agreement.  The High Court said that that representation was false and, moreover, false on its face because to the knowledge of both Mallesons, Gilbert, Cini and Ryan that was not true.  There was, from the inception of the lease, a side agreement that excused the tenant from paying rent for the first three months.

McHUGH J:   We expressly said, did we not, relying on Smith v Chadwick, that the representor - that fraud did not require any premeditation or any evil motive.

MR YOUNG:   Yes, your Honour, that is so.

McHUGH J:   But we cannot recollect whether we mentioned intention to deceive.  You say we did not.

MR YOUNG:   Not in terms, your Honour, no.  Can I take the Court immediately to Krakowski? It is in volume 183 CLR 563. The progress of reasoning of the Court involved first identifying what the representation was that was alleged and whether it was false. The Court, at page 574 at point 4 on the page identified what the alleged misrepresentation was:

There seems to have been no misunderstanding about the gist of the alleged misrepresentation, namely, that the annexing of the instrument of lease to the s 32 statement and the inclusion of those documents in the proffered contract of sale misrepresented the true contractual arrangement between Eurolynx and Swaeder.

The next step in the Court’s reasoning was to say that the Full Court of the Victorian Supreme Court correctly perceived the nature of the representation whereas the trial judge had not.  At page 576 at point 5 on the page:

The trial judge was in error in perceiving the purchasers’ allegation to be merely one of non-disclosure of the separate agreement rather than an allegation that the disclosed instrument of lease was not the exhaustive contractual arrangement between Eurolynx and Swaeder.  The Full Court perceived the true gist of the allegation –

Then, the next step, having identified what the alleged representation was, the Court identified its falsity, at page 577 under the heading “Falsity of the representation”:

There is no doubt but that the instrument of lease did not contain the whole of the agreement between Eurolynx and Swaeder.

In the middle of the page, last sentence of that paragraph:

Once the representation is understood in the sense of a statement of the whole contractual arrangement between Eurolynx and Swaeder, its falsity is clearly established.

Then the Court turned to the question of whether there was a fraud by Eurolynx.  At page 578 Akerhielm v De Mare is quoted in support of the proposition that:

a representee must prove, inter alia, that the representor had no honest belief in the truth of the representation - - -

GLEESON CJ:   “must prove, inter alia,”

MR YOUNG:   Yes, your Honour.  As for Eurolynx, in the middle of page 579, just after the footnote 36, this statement appears:

Their Honours observed that the trial judge was entitled to accept Gilbert’s evidence that he did not know why the terms of the separate agreement had not been incorporated in the instrument of lease and that Eurolynx “had no idea when a purchaser was going to come along and buy the property”.

At the end of that paragraph the Court says this:

Yet this conclusion, derived largely from Gilbert’s evidence, seems to leave out of account “the manner in which the property was offered to the plaintiffs by the defendant’s estate agent” – a factor which their Honours took into account in determining the gist of the representation.

It would have been erroneous for their Honours to have declined to find fraud merely because Eurolynx or its solicitor had not first formed a plan (set out) to trick the purchasers into buying unit 12.

And Derry v Peek is cited.  Then there is an important passage at page 580 at point 4, which we rely upon as a factual finding of real significance in this case: 

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.

CALLINAN J:   Why would it not have been fraudulent if it had been made recklessly?

MR YOUNG:   We would say that is the case, that would be so.

CALLINAN J:   Motivation may be completely irrelevant in the case of a reckless representation.

MR YOUNG:   Yes, and likewise there may be no need to establish intent to deceive because of the extension of the principle to embrace recklessness.

GLEESON CJ:   I just cannot pick up that sentence.

MR YOUNG:   Your Honour, it is page 580 just below the second quote at about point 3 to 4 on the page, “a representation”.

GLEESON CJ:   Was not that representation made consciously by the solicitor?

MR YOUNG:   It was.  It was made consciously by each of them.  All that happened in this case is that the Court in the end refrained from making a finding of fraud against the solicitors because the third party proceedings were not before the Court.

GAUDRON J:   Because there was no evidence that the solicitor knew of the prior negotiations.

MR YOUNG:   That is so, your Honour, but that does not deny the proposition that, having regard to what is said at 580, knowledge of the prior representations was not necessarily the only way of establishing the tort of deceit embracing both the solicitors and Eurolynx.

GAUDRON J:   No, but they did undoubtedly provide the factual matrix for the finding of fraud.

MR YOUNG:   They did more than that, your Honour.  They provided a statement which on its face bore only one meaning, namely, that the lease was exhaustive of the agreement with the tenant when it was not.  They knew that to be so, so they made that statement with knowledge of its falsity, and that is why the Court said:

There is no sense in which a representation in those terms could have been honestly made by Eurolynx or by its solicitor.

But the key question was:  did Eurolynx or its solicitor intend the representation to be understood in those terms?  There was a finding in that regard against Eurolynx but the Court essentially said the solicitor stands in a different position because of no knowledge of the prior negotiations.  But the second reason for not making any finding against the solicitor was that the third party proceedings were not before the Court.

GLEESON CJ:   Does the tort of deceit require an intention to deceive on the part of the tortfeasor?

MR YOUNG:   As explained by the High Court in this case, it is not clear that it does, your Honour.  The way in which the Court addressed it required only knowledge of the falsity of the representation and an intention that the representation should be understood in those terms by the representee.  That may embrace an intention to deceive but certainly not in the sense of either a premeditated design to deceive or perhaps even a recognition that the representee is going to be deceived.

McHUGH J:   That was fairly common ground in the case.  Krakowski opened the appeal by saying that it was irrelevant that there was no intent to deceive or cheat or injure, and that was accepted.

MR YOUNG:   Yes.

GLEESON CJ:   There is a difference between an intent to deceive and an intent to cheat, is there not?  You might deceive somebody for his own good.

MR YOUNG:   Yes.  There is certainly a difference between what might be called sharp practice and an intention to deceive, but the point we draw from the passage at 580 is that the representation in the section 32 statement with the annexed lease bore only one meaning on its face and that was its plain meaning, and that was a false meaning and that falsity was known to the solicitors and to Trenorth.  That of itself, without even going to the prior negotiations, opened up the possibility of finding deceit as against Eurolynx and, if need be, had it been relevant, as against the solicitors.  That is particularly so when the contract of sale in this case included a special condition that the purchasers had insisted upon, namely, that the lease be in place before settlement.

So the importance of the lease and the commercial rent it provided for was known to the solicitors simply because the purchasers had insisted that a special condition go into the contract of sale to that effect.  A relevant condition of the contract of sale is 19.  It is at 597.  It provided that:

A fundamental condition of this contract is:

(i)the tenant must sign a lease prior to the signing of this contract.

(ii)       the above lease must be stamped prior to settlement.

(iii)     the terms of the lease are:
(a)       a period of six years with a further option of six years
(b)       commencement rental of $156,000.00 –

So leave aside the prior negotiations.  The solicitors knew from the purchasers insistence on a special condition providing for a commencement rental of $156,000 that it was of fundamental importance to them that the rent provided in the lease of 156,000 inset from the commencement date of the lease.

HAYNE J:   Is there not a timing problem in that somewhere, Mr Young, that the negligence alleged is in relation to the section 32 statement, which is a pre‑contractual document, is it?

MR YOUNG:   The section 32 statement is part of the contract of sale.  It is incorporated into the contract.

HAYNE J:   But the negligence concerned the preparation of that document for the purposes of its inclusion in the contract or for the purposes of inclusion in this contract?

MR YOUNG:   It is both, your Honour.  The negligence commences when the section 32 statement is put forward as being a proper form but the negligence does not cease then.  It continues ‑ ‑ ‑

HAYNE J:   But the negligence lies in the advice, does it not?

MR YOUNG:   No, the negligence lies both in the advice and in the documentation.

HAYNE J:   Yes.

MR YOUNG:   There was both a duty to draft proper documents and to include proper documents in the contract of sale that did not make false statements and there was a concurrent duty to advise as to the form of that document and that is what his Honour Justice Eames found.  So we would respectfully say there is no timing problem, that where the court went from that finding – if one stopped there, one might think, “Well, that is really enough for the tort of deceit, plain meaning of the representation, no other sense which it could bear and no sense in which it could be honestly made.”

GLEESON CJ:   Yes, but this was a tort committed by a corporation.

MR YOUNG:   Yes, your Honour.

GLEESON CJ:   Which was a matter of some importance, as I understand, from the reasoning.

MR YOUNG:   It was, your Honour, yes.

GLEESON CJ:   Now, I am just looking at Bullen and Leake Pre‑Judicature Act where it is said, “An action to recover damages arising from fraud will lie where the defendant has stated or represented as a matter of fact what is untrue, knowing it to be untrue, with intent to induce the plaintiff to act upon it and has thereby induced the plaintiff to act upon it.”

MR YOUNG:   Yes.

GLEESON CJ:   Now, in the case of a tort of deceit committed by a corporation, is the corporation guilty of the tort if one officer of the corporation knows the representation of fact to be untrue and a different officer of the corporation intends to induce the plaintiff to act upon it?

MR YOUNG:   Yes, your Honour.

GLEESON CJ:   Even though the one who knows it to be untrue does not intend the plaintiff to act upon it and the one who intends the plaintiff to act upon it does not know it to be untrue?

MR YOUNG:   Yes, that is, as we understand it, the effect of this Court’s decision of Krakowski.

McHUGH J:   And it was one of the critical questions in Krakowski.

MR YOUNG:   Yes.  As against the corporation, the corporation was found to have engaged in the tort of deceit because the knowledge of those two different officers of the corporation was, indeed, aggregated.

McHUGH J:   We expressly said that at page 583:

A division of function among officers of a corporation responsible for different aspects of the one transaction does not relieve the corporation from responsibility determined by reference to the knowledge possessed by each of them.

MR YOUNG:   Yes.

GLEESON CJ:   What this case establishes is that the corporation can be guilty of deceit even though no individual officer or agent of the corporation is guilty of deceit.

MR YOUNG:   That is so.

GLEESON CJ:   Then that indicates that it is something of an oversimplification to describe what went on here as fraud, is it not?

MR YOUNG:   It certainly is, your Honour, and that is one of our complaints about the Court of Appeal decision.  It dealt with the matter at a level of generality in which the label of “fraud” was attached in a very abstract way without paying close attention to the particular facts of the case.  That, in our submission, lead the Court of Appeal into error.  The next step in the Court’s reasoning ‑ ‑ ‑

McHUGH J:   Before you just leave that point:  the fact is that although Krakowski itself does stand for that wider proposition, on the evidence, was not Ryan, who was an employee of the corporation, and Cini, who was its agent, in possession of all relevant knowledge, and in the case of Ryan, you accepted he signed the document which contained the representation?

MR YOUNG:   On the assumption he did sign that document, which we make, your Honour, it is still another step to go from there to say that because he signed it he was conscious of the representations which it contained, and conscious thereby of the falsity of the statement in it.  But that might perhaps be inferred, but he did not give any evidence and there were no findings about that.  It is, therefore, true to say that the High Court’s decision really did aggregate the knowledge of two different agents.  It was not a case where Eurolynx was found to be guilty of the tort of deceit, or to have committed the tort of deceit, because in a single officer all relevant knowledge resided.  The very point of the case was that the knowledge of two different agents was aggregated.

GLEESON CJ:   Or more accurately, the knowledge of one and the intent of the other.

MR YOUNG:   Yes, your Honour.

HAYNE J:   Is not that critical to your argument?

MR YOUNG:   It is a step in our argument.  We would not describe it as critical, your Honour, because at the end of the day the question that must be attended to is a different one:  not why Trenorth was found liable to the purchaser, but whether Mallesons’ breach of retainer and negligence caused Trenorth’s loss.

HAYNE J:   But the relevant loss was the loss occasioned by its liability?

MR YOUNG:   No, the relevant loss was financial loss occasioned by liability.

HAYNE J:   Yes.

MR YOUNG:   But the solicitors’ duty, both in contract and in tort, we would say, was to safeguard the client against any head of liability that might arise by reason of the incorporation in the section 32 document of false statements.

HAYNE J:   Let that be assumed the loss that you say came home and which you seek to recover, is the loss occasioned by the finding of liability.

MR YOUNG:   Yes, your Honour.

HAYNE J:   Then it becomes critical to determine the basis upon which liability was found and, in particular, the aggregation that has earlier been mentioned.

MR YOUNG:   We differ from your Honour only in saying that that becomes a critical step in analysing a cause of action and causation as against the solicitors.  It may be relevant; we would say it is not critical.  In so far as it is relevant, none of it denies the proposition that Mallesons’ negligent conduct perpetrated the very representation which was essential to the fraudulent misrepresentation, and the findings are that without Mallesons’ negligence, there would have been no fraud.

GLEESON CJ:   But if you look at this as a novus actus problem, which is one possible way of looking at it, it may be right as a generalisation to say that the fraud of a solicitor’s client will break the chain of causation, but it may be a different thing again to say that where the solicitor’s client is a corporation and the tort of deceit arises from combining the knowledge of one officer of the corporation that a representation is untrue with the intent of a different officer of the corporation that somebody should act upon it, then the responsibility of the solicitor takes on a different aspect.

MR YOUNG:   We agree with that, your Honour, and that, we would say, quite proper and appropriate analysis is not to be clouded by talking in generalities about a fraud or the fraud or any fraudulent conduct.  One must examine what the precise facts were that resulted in liability, and that is why I said to Justice Hayne that it is relevant, and also one must attend to the role that Mallesons played in the commission of a fraudulent statement by Eurolynx.  Without their conduct the finding is there would have been no fraud.

GAUDRON J:   And no sale.

MR YOUNG:   And no sale.

GAUDRON J:   But that is also an important element in the question of what damages flow.

MR YOUNG:   It does.  It comes to the question of damages, yes.

CALLINAN J:   Mr Young, you might get an analogy with defamation.  The solicitor might advise that publication was safe but not knowing what the collective knowledge and the collective state of mind of the various officers of the corporation doing the publication was.

MR YOUNG:   Yes.

CALLINAN J:   That is to say whether they could satisfactorily mount a case of good faith or not, or could refute a case with absence of good faith.

MR YOUNG:   Yes.  The principle hitherto applied, your Honour, it seems to us, is that the solicitor giving advice must attend to all the possible consequences of his advice being wrong and that also means that if he advises the adoption of a statement that is false, he is liable for all the possible heads of liability that might thereafter result, whether he specifically turns his mind to them or not.

HAYNE J:   But in the context of this case your proposition that without their conduct this would not have happened may depend factually, at least in this case, upon the division of functions within the corporation that was aggregated or, at least, it would be sufficient for your purposes to make it depend factually upon that division of functions without having to go the larger step that your submission, perhaps, seeks to take.

MR YOUNG:   That may be so, your Honour.  We can see that it may be sufficient simply to say that, in the particular circumstances here identified by the Chief Justice, Mallesons’ role was causative of any loss that flowed.  But we do say that the findings made by the trial judge that if Mallesons’ advice had been correct, there would have been no misrepresentation at all to which knowledge or intention of others could attach, thereby giving rise to deceit, really cannot be overstated in a sense.

The findings were that if Mallesons had given correct advice there would have been no misrepresentation.  Therefore, no embryonic deceit to which Cini and Ryan’s intentions could attach and, moreover, as Justice Gaudron observed, the findings were that the purchasers would not have proceeded in those circumstances had they known of the side agreement.

So,  the transaction would not have happened and the losses that Trenorth suffered in consequence of going into a transaction in which the contract of sale contained false statements by way of incorporation of the section 32 statement, that would not have occurred and the losses would not have been suffered.  Can I finish the references I was making to Krakowski?  I will be quick about it because the Court has probably read ahead of me.  The Court turned to the aggregation of knowledge in two places, at 582 in the middle of the page, halfway through that first complete paragraph:

Though Gilbert’s explanation as to why he did not advert to the separate agreement when he was supervising the sale of unit 12 be accepted, the question is not whether Gilbert’s mind adverted to the making of the representation but whether Eurolynx’ mind should be held to have adverted to the making of that representation.

The next paragraph – I will not read it all – says, in effect that:

The mind of Eurolynx does not depend upon the acceptance of the evidence of Gilbert alone…..Account must be taken of the evidence that Eurolynx’ agent (Cini) and Eurolynx’ officer (Ryan)…..Their knowledge –

or, perhaps, more accurately, the last sentence, their intention was that:

of Eurolynx, for they were the persons who were responsible for the initial negotiations –

The way the Court treated it, though, was that it was their knowledge of the fact that in the initial negotiations the purchasers had stipulated for a 10 per cent rate of return and wanted to know what the commencing rent was that was regarded as the key piece of knowledge and when the two pieces of knowledge are aggregated the Court then made the finding that appears at 583, point 7:

Even if Gilbert, not knowing of the prior conversations between Mermelstein and Cini and Ryan, did not perceive that the s 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 able to draw inferences from the primary facts as are the Courts below.

McHUGH J:   The point that was developed in Krakowski was that for the purpose of the civil action of fraud you impute to a corporation the acts and …..of all its performance.

MR YOUNG:   Yes, but the purpose of doing so was to infer an intention either that Eurolynx intended or was willing that the representation not only be conveyed but be understood in accordance with its plain meaning.  That inference was confirmed by reference to a series of facts mentioned on the next page, 584, commencing at line 4:

First, cl 9.8 of the copy instrument of lease contained the express representation that the terms of the lease cover “the entire understanding and the whole agreement”.  Next, the s 32 statement…..Then, the proffered contract of sale included the s 32 statement –

And, then, subsequently, four lines on –

requisition 8(c) specifically directed attention to all agreements “relating to the tenancy –

And, the only answer that came back was:

the Lease.

Finally, that the settlement adjustments gave the purchasers 11 days rent by way of monetary adjustment, even though none was paid.  So, they were the facts that supported the inference against Eurolynx.  What the Court said concerning the position of the solicitor appears at page 584 in the last paragraph to the top of 585.  It said:

In the absence of any evidence from the solicitor who acted for Eurolynx, there is nothing to establish her knowledge of the basis on which the negotiations for sale had been conducted.  Her absence from the witness box gives greater confidence in the drawing of inferences against Eurolynx, for Eurolynx was a party to the proceedings and might have called its solicitor to give evidence had it wished to do so.  But the solicitor was not a party; nor was her employer, Mallesons, a party to the proceedings as between the purchasers and Eurolynx.  In these circumstances, no finding of fraud should be made against the solicitor who, had she been entitled to do so, may have testified and given an innocent explanation of her part in the transaction.  If she had given evidence that she had not adverted to the representation made by her conduct…..it might have appeared that she did not intend to make the representation that was in fact made.

CALLINAN J:   What about recklessness there?  What if she had been reckless?

MR YOUNG:   That would ‑ ‑ ‑

CALLINAN J:   What I am really after:  the debate seems to have been simply upon the basis of intention.  There does not seem to have been any attention paid to the question of recklessness.  I take it there was no submission in that regard.

MR YOUNG:   Not that we are aware of, your Honour, but it is obviously part of the tort of deceit.  But, it essentially appears that the Court found it unnecessary to go on and make findings as against the solicitor that then could be attributed to the principal, Mallesons, simply because there was a more direct route.  The inference was available as against Eurolynx without the need to make any findings concerning the solicitor’s possession. 

Now, can I turn, if the Court pleases, to the judgment of the trial judge, Mr Justice Eames, that dealt with the third party proceeding.

KIRBY J:   Where does one find the classic statement of the constituent parts of the tort of deceit?  I mean, I am referring to the old English law.

MR YOUNG:   Yes.  I think the answer is probably still in Derry v Peek, your Honour.

KIRBY J:   Does that discuss the matter that Justice Callinan just raised?

MR YOUNG:   Recklessness?  Yes, it does, your Honour, yes.

KIRBY J:   And intent?

MR YOUNG:   It discusses recklessness and intention in the sense that there must be either knowledge or recklessness as to the making of a false statement with intent to induce, but whether that is the same thing as intent to deceive, I am not sure that the concept of intent to deceive is addressed in Derry v Peek.

GLEESON CJ:   Well, what Bullen and Leake refer to is representing a fact which is untrue, knowing it to be untrue, with intent to induce the plaintiff to act on it.

MR YOUNG:   Yes, that seems to encompass, as I said to your Honour, that if you put those two limbs together of knowledge of the falsity of the statement and intention to induce, that would seem to add up in most instances to intent to deceive.

GLEESON CJ:   But “recklessness” in this context does not mean extreme carelessness, does it?  It means not caring whether it is true or false.

MR YOUNG:   That is so, but that would have been open, your Honour, on the facts as found by the High Court.

GLEESON CJ:   As I understand the facts of the present case, but correct me if I am wrong, there was no individual, either in the solicitor’s office or in the corporation, who set out to deceive your client.  In other words, there was no individual who individually had a guilty mind.

MR YOUNG:   That is correct, your Honour.

GLEESON CJ:   But it was the combination of circumstances including the negligent preparation of certain documents by your client which when aggregated together were held to constitute the tort of deceit.

MR YOUNG:   That is so, your Honour.  That is the way in which the findings have gone.  That is not to say, as I said earlier, that one cannot look at, for instance, the contract of sale and ask the question whether there was very much difference between the culpability, to try and pick a neutral word, of the solicitor compared to the officers of Eurolynx.  It would have been open to find that they each possessed facts which underscored the importance of the commencing rental to the purchaser.

Mr Justice Eames made a number of findings that, in our submission, are of importance.  It is volume 2 of the appeal book, first pages 1001 to 1002.  Justice Eames referred to the admission made by Mallesons but at 1002, line 10, went on to make his own independent findings.  His Honour found:

Quite apart from the admission made on behalf of Mallesons, I am satisfied that the evidence called before O’Bryan, J established negligence and breach of retainer by Mallesons within well recognised principles.

At 1002, the reliance placed upon Mallesons is addressed by his Honour at line 23:

Gilbert swore that the company, through him, relied on the advice and skill of the firm, a fact plainly understood by the firm.  In particular, Gilbert relied upon the advice proffered, by virtue of the documents drafted by the firm, as to the contents of any documents which should be provided to the purchasers by the Company in any of the transactions.

Mallesons’ conduct and state of knowledge was addressed by his Honour first at page 1009 at line 21:

on the evidence before me, the solicitor must have known that Gilbert would follow the advice constituted by the proffering of the documents and would authorise their delivery by the solicitor to the plaintiffs.

At the next page, line 3, his Honour found that:

The solicitor knew that the documents which she had drafted falsely stated that there was no agreement with the tenant other than that constituted by the memorandum of lease.

At page 1017, line 21:

The solicitor knew that there was, contrary to what the contract of sale and s 32 statement said, a separate agreement which had been given to induce the tenant to enter the lease.  Gilbert’s evidence, which I accept, supports the inference that the solicitor must have known that the Company would probably act on her advice.  Indeed, the Company, through Gilbert, instructed the solicitor to deliver the documents in precisely the terms in which she had drawn them.

Then as to what would have happened had the solicitors acted in accordance with their contract and without negligence, his Honour made a finding at the top of page 1003:

I am satisfied that had the documents been properly drafted so as to disclose the separate agreement, Gilbert would have approved their delivery to the purchasers, with that disclosure, and the purchaser/plaintiffs, having been thus alerted to the existence of the separate agreement, would not have executed the contract of sale.

Those factual findings informed the conclusion that Justice Eames reached on causation, which we say was not simply the commonsense conclusion, but one that gave effect to the authorities.  The passage where his Honour expresses his conclusion commences at page 1009, line 10:

Nonetheless, in my opinion, applying the commonsense approach to the question, which the High Court deemed to be appropriate in Medlin, it must be said that the actions of the solicitor in drafting documents, and thereby advising Gilbert on behalf of the Company as to the appropriate contents of those documents, was a cause of the loss which was suffered, when, upon delivery of those documents to the plaintiffs, by virtue of the negotiations with the plaintiffs which were known to other agents of the Company, what would have been an innocent misrepresentation was constituted a fraudulent one.

And his Honour at the next page, page 1010, between lines 6 and 18 – I will not read the whole passage - his Honour states, particularly at lines 9 to 10:

the fraud could not have happened, and would not have happened, had she drafted the documents correctly.  In those circumstances, it is impossible, in my view, to deny that the actions of the solicitor were a causative factor in the loss which the Company suffered.  The solicitor was in a position, had she given correct advice as to its duty of disclosure.....to have prevented the Company from committing a fraud.

His Honour also took the view, that appears at page 1011, line 4, that:

the solicitor’s ignorance of the prior negotiations –

may have insulated it –

from a claim of fraud –

had one been brought against the solicitors but it offered –

no protection on the issue of negligence and breach of –

contract.

GUMMOW J:   Is not page 1010, line 18, important too?  It follows immediately after the passage you read:

The motivations or temptations of a client - - -

MR YOUNG:   Yes, that is so.  Indeed, really the nub of his Honour’s reasoning ‑ ‑ ‑

GUMMOW J:   We are to understand that is what happened, are we not; looking at it as a whole is that not what happened?  That is to say, the solicitors provided the client with the instruments or occasion to provide it with a temptation to which it succumbed.

MR YOUNG:   We would say that that is an oversimplification, your Honour, because the facts, if we look at them sequentially for a moment, with ease, is prior negotiations between the estate agent and Ryan with the purchaser about selling the shop.  The purchaser makes it clear he wants the commencing rental that will give a 10 per cent return.  What subsequently happens is that Mallesons’ draft, the false section 32 statement, incorporated in the contract of sale and send it directly to the purchasers.  Then they compound the position by false suggested answers to requisitions.  Then all of it comes together with no one thinking, “I am tempted to exploit the situation to commit a fraud”.  It simply comes together at settlement and the company is held liable, in the tort of deceit, because the earlier knowledge is aggregated with the later knowledge possessed by both Gilbert and the solicitors ‑ ‑ ‑

GLEESON CJ:   More accurately, with the later intent.

MR YOUNG:   With the later intent, and from that it is inferred against the corporation that it possessed the necessary intent to induce the purchasers to rely upon false statements.  None of that gainsays the fact that but for Mallesons’ negligence and breach of contract there would have been no false statements for any of that to attach to.  So it really is, we would say, correct to say that the motivations or temptations of the client are really beside the point when analysing Mallesons’ liability, but to suggest that that really is an encapsulation of what really happened factually is, we would say, an oversimplification, your Honour.

GLEESON CJ:   Could you just remind us, the finding of the state of mind in Gilbert about the falsity of the representations was that he knew the facts.  He knew the representations were being made and he knew facts which rendered the representations false but he did not appreciate the falsity; is that ‑ ‑ ‑

MR YOUNG:   No, it falls short of that, your Honour.  It is really that he did not advert to the significance of stating that the lease was the whole of the agreement simply because he did not advert to the possibility that the rent‑free period was still in existence at the time of the sale.

GLEESON CJ:   Well, he did not know the negotiations that were going on between Cini and Ryan on the one hand and the Krakowskis on the other.

MR YOUNG:   That is so, but nor did he advert to the separate agreement in approving the section 32 statement.  He simply instructed that a section 32 statement be prepared.

GLEESON CJ:   Well, what was his state of knowledge?

MR YOUNG:   His state of knowledge was accepted in essence that he believed - or did not believe that the separate agreement had anything to do with the purchase and he simply did not advert to it, therefore, he did not ‑ ‑ ‑

GLEESON CJ:   So he knew the statement was made and he did not have an honest belief in its truth?

MR YOUNG:   No, I do not think it goes so far, your Honour.  What the High Court found is at 582.  It really starts the last line of 581, 183 is the volume:

Gilbert, the Eurolynx officer responsible for the giving of instructions to Mallesons…..gave evidence that he relied on the advice of the solicitor dealing with these transactions and that, as he did not believe that the separate agreement “was anything to do with the purchase”, he did not advert to it.  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 then expired.  Clearly enough, his evidence shows a belief that inducements given to prospective tenants to secure their entry into a lease of property to be sold by Eurolynx were immaterial ‑ ‑ ‑

GLEESON CJ:   Well, what exactly were the states of mind that were aggregated to produce the conclusion of deceit?

MR YOUNG:   The states of mind appear to be that Eurolynx – I am sorry, I will start again – that Gilbert, either himself or through Mallesons, knew that the section 32 statement incorporated into the contract of sale contained a false statement.

GLEESON CJ:   You mean he knew facts which, if he had adverted to them, would have rendered the statement untrue?

MR YOUNG:   Yes, that is so.

GLEESON CJ:   But he did not advert to them?

MR YOUNG:   He did not advert to them.

GLEESON CJ:   So he, either directly or through the solicitors, made a statement that was objectively false ‑ ‑ ‑

MR YOUNG:   Yes.

GLEESON CJ:   ‑ ‑ ‑ not adverting to its falsity ‑ ‑ ‑

MR YOUNG:   That is so.

GLEESON CJ:   ‑ ‑ ‑ but not having a belief in its truth?

MR YOUNG:   That is so.  Likewise, it would seem that Mallesons’ state of knowledge was the same on the facts as found by the High Court, namely that it knew of facts which objectively demonstrated the statement was false, the plain meaning was simply false.  There is no evidence one way or the other because the solicitor did not give evidence as to whether or not she adverted to the matter.

GLEESON CJ:   So Gilbert knows that a statement is being made.  He does not intend to make a false statement.

MR YOUNG:   That is so.

GLEESON CJ:   He does not advert to its falsity, but he knows facts which if he had thought about them would have told him that it was false.

MR YOUNG:   Yes.

GLEESON CJ:   Therefore, Gilbert makes a false statement, not having an honest belief in its truth.

MR YOUNG:   That is so.

GLEESON CJ:   That is the finding?

MR YOUNG:   Yes.

GLEESON CJ:   Then you aggregate that state of mind with Cini and Ryan.

MR YOUNG:   Yes.

GLEESON CJ:   What is their state of mind?

MR YOUNG:   Their state of mind is set out at page 582.

GUMMOW J:   They gave no evidence.

MR YOUNG:   No, but the Court’s finding about their state of knowledge is at page 582, about point 6 on the page:

Account must be taken of the evidence that Eurolynx’s agent (Cini) and Eurolynx’s officer (Ryan) who had first procured the agreement of Mermelstein (as agent to the purchasers) to buy unit 12 knew that the purchasers were willing to buy on the footing that the rent reserved by the lease was what the tenant had been and was willing to pay for a lease of the property offered to them.  In other words, they were willing to buy at a price ten times the amount of the rent ‑ ‑ ‑

GLEESON CJ:   The inference that is drawn against them is that they did not know that the false statement was being made.  Is that right?

MR YOUNG:   That is so.  The inference drawn against them is that they knew of the importance of the commencing rent to the purchaser.

GLEESON CJ:   Yes, but what we are looking for by way of a conclusion is an intent to induce the plaintiff to act on the false statement.

MR YOUNG:   That is drawn, not by any finding concerning the individuals, but as a finding inferred from all the facts as against Eurolynx.  At page 583, in a passage I did not direct the Court to, at about point 4, this is said:

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 that the premises the subject of the proposed purchase would yield and that there was no other agreement –

et cetera .  So really, as I understand the point your Honour is directing questions too, it would seem to be an inference drawn in all the circumstances against Eurolynx.

McHUGH J:   It was not vicarious liability; it was the liability of Eurolynx itself, the primary liability.  The Court relied on a passage in Tesco and Dunlop ‑ ‑ ‑

MR YOUNG:   Yes, your Honour.  Ordinarily, those principles proceed on the basis that you find some individual who is the directing mind or will of the company, and having found that individual or a number of individuals, one then ascertains the intention to induce that would be relevant.  Here, the intention to induce seems to be a mix of inferences about what Cini and Ryan knew because they gave no evidence, based on Mermelstein’s evidence of the discussions he had with them as the purchaser’s agent, findings about Gilbert, who did give evidence that he knew of the false statement but never thought it was material and, in that sense, did not advert to it, so he had no intention to induce, and then inferences drawn against Eurolynx itself in the circumstances described at page 583 and again at page 584.

GLEESON CJ:   This would not affect the argument you are putting, I think, but is this a form of imputation of intention to the corporation, as distinct from an inference about the state of mind of an individual or an aggregation of individuals?

MR YOUNG:   In the end, your Honour, we would say yes.  It is an imputation against Eurolynx in respect of its intention that draws support, in part and perhaps even in large measure but not totally, from findings concerning the state of knowledge of the individual officers and agents.  That is the way it is expressed at 583 point 7:

an inference that Eurolynx intended or was willing…..should be drawn against Eurolynx.

And again that is the way it is expressed at the top of 584:

does nothing to throw doubt on the inference that should be drawn against Eurolynx.

CALLINAN J:   Mr Young, can I just ask you a question?  I see in that passage at the top of page 582 there is a reference to Gilbert’s not realising:

“until we came to settlement” that the rent‑free period had not then expired.

What was the evidence about what happened at settlement?  What is the significance of that?  It may have no significance.  I do not know.

MR YOUNG:   I do not think it has any significance, your Honour.  There is, I think, very spare evidence about what happened at settlement, if any.

CALLINAN J:   Did that provide an opportunity, and perhaps an indication, that he should correct something?

MR YOUNG:   I will have to check that, your Honour.  I think the answer is no but I will have to check Gilbert’s evidence dealing with that particular point.

GLEESON CJ:   Suppose a customer of a bank is dealing with two officers of a bank, perhaps in two separate locations - one in Sydney and one in Melbourne - and enters into a transaction with the bank and, in the course of the discussions, the officer in Sydney makes a representation of fact to the customer which is objectively untrue, although the officer does not appreciate its untruth simply because he does not advert to some matter, but he has no honest belief in its truth and he has no appreciation of the significance of the representation to the customer.

The officer of the bank with whom the customer is dealing in Melbourne has a full appreciation of the significance to the customer of the subject matter of the representation but he does not realise that the bank officer in Sydney has made an untrue representation about it.  Does the combination of those circumstances, coupled with actual inducement, produce the consequence that the bank has committed the tort of deceit?

MR YOUNG:   We would say yes, as that would seem to be an application squarely within what was decided in Krakowski.  It may be, your Honour, that we are not talking about dishonest intention in any criminal law sense of the word.  What we are speaking about, relevantly, it would seem, is an intention to induce, that is an intention that the representee should rely upon the representation in a particular sense and here there is no argument about the sense of the representation because it was its plain meaning sense.

GLEESON CJ:   I can understand that from the point of view of the customer.  The customer would say, “I’ve been deceived by the bank”.

MR YOUNG:   Yes, and so we would say, your Honour, that the tort of deceit would apply in those circumstances but it does not necessarily follow ‑ ‑ ‑

McHUGH J:   That was the development that Krakowski made, but it is settled law, has been for a long time, that if a principal knows facts, his agent makes a representation with a particular state of mind, you cannot put the two together.  But in the case of corporations, the Court in Krakowski accepted a different view, that you could put the various agents’ states of mind and acts together and impute it to the corporation.

MR YOUNG:   Yes.  There is a case in our learned friend’s list of authorities that might illustrate this point about aggregating knowledge.  This was in a negligence context.  The case is Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642. This was a case where a solicitor was held liable in negligence for the consequences of fraudulent conduct by clients. The facts are a little bit difficult to disentangle, but can I summarise them in this fashion. The firm of solicitors had two groups of clients. They had joint venture interests together but they also had separate interests. On the solicitor’s side the relevant work was being done both by the managing clerk, a Mr Flanagan, and a solicitor, Mr Byrne.

What happened is that one group of clients improperly sought to mortgage a property in which the other client had interests for their own individual purposes.  The clerk assumed that this was being done with the acquiescence and knowledge of the client who was going to be prejudiced by the transaction, and he simply made that assumption.  The knowledge of the clerk and the knowledge of the solicitor was aggregated to ascertain whether there was a duty and whether it had been breached and the court held that the fraud perpetrated by one group of clients mortgaging this property for their personal interests occasioned loss which was recoverable against the solicitor, and knowledge was there aggregated as between the managing clerk and the solicitor.

The relevant passage is in the judgment of Justice Kirby in his role as President of the Court of Appeal.  It is at pages 656 to 657.  The aggregated knowledge appears in the first paragraph under the heading “The solicitor’s clerk should have sought instructions”.  The second sentence:

The solicitor, through Mr Flanagan, was aware of the differing interests of the co‑venturers…..it was not sufficient for the solicitor…..to make assumptions about the authority…..to act as they did.

Just below F, the solicitor is found to have breached his duty.  At page 657B, the causation argument that there was an intervening fraud by the other group of clients that prevented the solicitor being held liable in negligence was rejected.

GLEESON CJ:   That expression, “wholly independent and fraudulent acts” of a client is interesting in its application to a case such as the present.  It is a little difficult to describe the fraudulent act of the client as being wholly independent of the solicitor when it is constructed out of a number of elements.

MR YOUNG:   Yes, your Honour.  One of them being the misrepresentation perpetrated by Mallesons.  But even ‑ ‑ ‑

GUMMOW J:   One has to look at Mr Justice Hope too, does one not?

MR YOUNG:   Yes, your Honour.  Mr Justice Mahoney dissents.  Mr Justice Hope deals with the matter, I think, most directly, at the foot of 664 and the top of 665.  That is really a case where an argument that there was an independent intervening fraud by another group of clients robbed solicitor’s negligence of any causative influence was rejected.  But it is also a case where the solicitor’s knowledge was aggregated across the managing clerk and the partner.

GUMMOW J:   His Honour deals with that in the last paragraph, does he not, on 665?

MR YOUNG:   Yes, your Honour, that is so.

GLEESON CJ:   This, however, was a case of vicarious liability.

GUMMOW J:   Yes.

MR YOUNG:   Yes.  It is not as if, your Honour, that Eurolynx does not have elements of vicarious responsibility in the sense that the knowledge of, and intentions, of different agents is aggregated into the corporate being.  It is a different sense, vicarious responsibility, but it is not a long way from what happened in Waimond. 

The next step I wanted to take is to take the Court to the Court of Appeal’s analysis, again in volume 2 of the appeal book, and the analysis ‑ ‑ ‑

KIRBY J:   Is this reported?

HAYNE J:   (1999) 1 VR 727.

KIRBY J:   Thank you.

MR YOUNG:   Would the Court prefer that we use the report?

KIRBY J:   No.

MR YOUNG:   At 1095 her Honour Justice Kenny commences the analysis of the factual position, having set out the salient findings made by the High Court.  Mr Justice Buchanan agreed in the judgment of Justice Kenny, so too did Mr Justice Callaway, although he added a few words of his own, very few words, at the top of 1083.  The first step that Justice Kenny took in her analysis of the causation issues was to characterise what the trial judge had found as nothing more than an application without more of the “but for” test of causation.  In paragraph 24, at 1095, her Honour refers to the trial judge’s finding:

that the fraud would not have happened (and Trenorth would not have suffered the loss it did) had Samuel’s advice been correct.

That is the passage I read from Justice Eames at 1003 and 1010.  Her Honour then went on to say:

His Honour might equally have said that but for her negligence, Trenorth would not have committed the fraud upon the Krakowskis.

Now, in our respectful submission, her Honour has translated an observation about what is a key and relevant matter in multiple cause cases into the proposition that his Honour was doing no more than stating the “but for” test for causation.  In our respectful submission, that is not so.  A number of cases in this Court have established that where you have arguments that there were multiple causes it is imperative that one ask, “What would have happened had the solicitors or had the doctor in Chappel v Hart performed their duty without negligence?”  That is not to state a “but for” test, it is really to address the critical issue of whether the solicitor’s negligence was still operating as a cause.

Can I take the Court to Bennett 176 CLR 408? The Court will recall that that was a case where there was an argument that a breach of duty by the Director of Community Welfare in failing to obtain legal advice for an injured ward, concerning the ward’s right to recover damages, was said to have ceased to be causally significant because some later incorrect advice was obtained. There are two passages of relevance. In the joint judgment of Chief Justice Mason and Justices Deane and Toohey at page 414 those Judges asked the same question that Justice Eames asked, in effect. At line 4 on the page:

Had the Director performed his duty and procured the advice, that advice would have changed the course of events, namely, the inaction on the part of the appellant which led to the loss, and prompted instead a decision by him which would have both preserved and enforced his cause of action, thereby deflecting the loss which occurred.  In this respect, the Director’s breach of duty, his omission to do what he should have done, was a causal fact which continued to operate until the limitation period expired, unless the obtaining by the appellant of legal advice in 1976 had the effect of superseding the continuing operation –

The possibility of supersession is then rejected in this majority judgment in two places.  The first is in the paragraph that immediately follows, then, secondly, at 416, the first complete paragraph.  Justice Gaudron adopted the same approach and endorsed the same inquiry at page 420, the last sentence, to 421.  In particular, at 421 about eight lines in, her Honour says that:

the question whether some supervening event broke a chain of causation…..can only be answered by having regard to what would or would not have happened if the duty had been performed.  It is only by undertaking that exercise that it is possible to say whether the breach was “still operating” or continued to be causally significant when the harm was suffered.

Hence Mr Justice Eames’ finding that the fraud would not have happened but for Mallesons’ negligence, addressed that key issue.  It was not simply an application of a “but for” approach.

CALLINAN J:   What sort of subsequent events could interrupt the chain of causation then, on the basis of those statements?  Is there anything at all?

MR YOUNG:   Well, if ‑ ‑ ‑

CALLINAN J:   Applied literally, it does not seem to matter what happens subsequently.

MR YOUNG:   Your Honour, what has been said by Sir Owen Dixon, that it will seldom be the case that there is a true supervening event.  Ordinarily, it is when you have a completely independent action by someone else…..and it is only treated as a supervening event that breaks the chain of causation, if it can be characterised as something that thereafter is the sole cause.  So if you postulate a case where that cannot be said about the supervening event, it cannot be described as the sole cause, it necessarily means that the concept of supervening events breaking a chain of causation are, as Sir Owen Dixon said, reserved for a very limited category of case.

At the second sentence:

Mr Krakowski’s nephew, on behalf of the purchasers and one Mark Cini, a selling agent acting on behalf of Eurolynx.  In May 1989, Cini told Mermelstein that unit 12 in the Northland Home Centre was available for purchase for $1.4 million, with a guarantee that the property would return an income of 8 per cent for three years.  Mermelstein conveyed this information to Mr Krakowski, but the proposition was rejected because Krakowski “was looking for a 10 per cent return and … he was not interested in a guarantee, he wanted a strong tenant”.  Mermelstein gave evidence that he “relayed that back to Mark Cini”.  That evidence was not denied.  Mermelstein thus made it clear that the purchasers were seeking a leased property as an investment the rent from which would return a reliable 10 per cent per annum.

Now, the third and necessary ingredient of knowledge that was found by the High Court is at page 583 and it is in the – I will come back to the first paragraph, but if the Court would go to the second paragraph commencing “So to approach”:

So to approach the question of Eurolynx’ liability is not to regard the negotiations with Cini and Ryan as containing the actionable misrepresentation.  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 that the premises the subject of the proposed purchase would yield and that there was no other agreement conferring on the lessee a financial benefit which was reflected in the rent reserved.

So that the emphasis there as to the knowledge that the lease represented – the return rather ‑ was in fact a commercial return that was required being 10 per cent and as then relevant, the fourth material fact of knowledge is that, in that same paragraph, the finding, where the Court says “it must have known”, the second ingredient is there that Trenorth knew that the:

purchasers would believe.....that there was no other agreement conferring on the lessee a financial benefit which was reflected in the rent reserved.

So that those four aspects of knowledge were found by this Court to exist, despite and regardless of the state of mind of Gilbert.

GUMMOW J:   Was this lease registered?  For a term of six years, is it registered or, I think, from another case, they are not registered in Victoria, is that right?

CALLINAN J:   They do not have to be anyway.

MR LALLY:   They do not have to be.

GUMMOW J:   They do in New South Wales, you see.

MR LALLY:   Because they do not appear as an instrument in respect of the Transfer of Land Act.

GUMMOW J:   This variation of rent deed would have a different complexion in New South Wales, I think.  In other words, it would be more difficult to keep it effectively under the carpet.  All this case demonstrates the wisdom of the New South Wales practice.

GLEESON CJ:   Is that a convenient time?

MR LALLY:   It would be a convenient time.

GLEESON CJ:   Very well.  We will adjourn until 10.15 tomorrow morning.

AT 4.17 PM THE MATTER WAS ADJOURNED
UNTIL THURSDAY, 9 MARCH 2000