Wardley Australia Ltd & Anor v State of Western Australia

[1992] HCATrans 61

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Perth No P26 of 1991

B e t w e e n -

WARDLEY AUSTRALIA LTD

and WARDLEY AUSTRALIA

SECURITIES LTD

Appellants

and

STATE OF WESTERN AUSTRALIA

Respondent

MASON CJ

BRENNAN J

DEANE J	,
DAWSON J
TOOHEY J
GAUDRON J MCHUGH J

Wardley(2) 1 4/3/92

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 4 MARCH 1992, AT 10.21 AM

Copyright in the High Court of Australia

MR C.J.L. PULLIN, QC:  May it please the Court, with

MR J.A. CHANEY, I appear for the appellants.

(instructed by Northmore Hale Davy & Leake)

MR E.M. HEENAN, QC:  May it please Your Honours, with my

learned friend, MR J.F. YOUNG, I appear for the

respondent. (instructed by the Crown Solicitor for

Western Australia)

MR D.J. ROSE, QC: If the Court pleases, I appear with my

learned friend, MR C.P. COMANS, for the
Attorney-General of the Commonwealth intervening,

but limited to the constitutional issue.

(instructed by the Australian Government Solicitor)

MASON CJ: What is the constitutional issue on which you are

intervening, Mr Rose?

MR ROSE:  The issue set out in the 78B notice, Your Honour,

was the question of the Commonwealth's power to

enact limitation periods in relation to causes of

action arising under State law or under the qommon

law, when they are being heard in the accrued

jurisdiction of the Federal Court. It does seem to

us, with respect, that the issue does not really

arise here because the claims in issue, in this

case, are entirely claims arising under the Trade

Practices Act, and if there is any invalidity in

relation to the Federal Court Rules that are

involved, those rules could be read down so as to

exclude the State and common law actions from them.

MASON CJ: Yes, well it is not apparent to me at the moment

that there is going to be a Constitutional issue.

I do not know whether the contending parties can

enlighten us on that. What do you say, Mr Pullin

and Mr Heenan?

MR PULLIN: Well, Your Honour, it is only a very small point

in our argument.	The argument is this, that
section 82 is said to be a limitation period with

respect to matters rather than causes of action and

on that basis matters, of course, encompass not

only Federal claims, but also State causes of

action, and if one accepts that that is how one

should read section 82, then we would say that

there is no constitutional power to legislate in

that way.

MASON CJ:  Very well. We note that Mr Rose will be

intervening and if the point does arise in that way

he may have something to say about it. Yes,

Mr Pullin.

MR PULLIN:  Thank you, Your Honours. Your Honours, this is

an appeal against the decision of the Full Court of

the Federal Court of Australia. The decision was

Wardley(2) 2 4/3/92

handed down on 17 July 1991 and pursuant to leave

granted by this Court it comes to this Court. I

thought I might just start with a short summary of

the facts in the case. In October 1987 Rothwells

was a merchant bank which was controlled by a Mr

Laurie Connell, which was carrying on business in

Perth, Brisbane and in Sydney and its business was

lending and borrowing money as a merchant bank.

Now the stock market crash occurred on

Tuesday, 27 October 1987 and there was a run on

Rothwells by depositors wanting their money out and

by the following weekend the point had been reached

where it looked as though Rothwells would not have

the liquid funds to be able to pay depositors who

would attend at the doors of Rothwells on that

following Monday.

So by some means or other, which is not

important for this case, a meeting was arranged at

Rothwells' offices in Perth on Saturday,

24 October 1987 - that is just the weekend after

the stock market crash - the idea being to arrange

a rescue of Rothwells. The State of Western

Australia had arranged for three representatives to

be there. One was the Minister for Minerals and

Energy, David Parker, and there were two

non-ministerial representatives, a Mr Horgan and a

Mr Lloyd, and they attended.

The meeting took place as planned. The

statement of claim reveals that there were a number

of people in attendance, including Mr Bond and

Mr Beckwick of Bond Corporation, and Connell and

other people from Wardleys. Wardleys was

apparently consulted as a merchant banker for the

company.

When Messrs Parker, Horgan and Lloyd were

present, certain representations were made, it is

alleged, but the rescue package, if I can just

mention that, involved that Rothwells should

undertake a capital raising of $150 million and

that people should contribute their funds to take

up shares in the company, which would provide

$150 million, that a credit line facility of

$150 million should be arranged with the National

Bank.

That was the claim at the time, but the

National Bank, being cautious, said that it would not lend $150 million to Rothwells unless it had a guarantee or indemnity from the State of Western

Australia. The government representatives were

asked to provide this guarantee or letter of

indemnity. It is pleaded that at this meeting

there were representations made by Bond on behalf

Wardley(2) 3 4/3/92

of Bond Corporation, by Connell and a Mr Yong,

spelt Y-O-N-G, of Wardleys.

The representation is related to the financial

health of Rothwells, about liquidity and whether or

not there were loans by Rothwells to Connell or

Connell related companies and it is said that these representations induced the State of Western

Australia to sign a letter of indemnity on the day

after the weekend, on Monday, 26 October 1987.	Now
that is a critical date, because we say that the
cause of action, any cause of action accrued at
that time, and the time starts to run from that
date, so that is a critical date and a date to
watch.

As a result of receiving the letter of

indemnity - in fact, the letter of indemnity is set out on pages 48 to 50 of the appeal book, and it is

set out in full. It is quite a short document.

You will see it is directed to the National Bank,

it is headed up "Re Rothwells" and then in

consideration of the Bank providing accommodation

to the tune of $150 million Brian Thomas Burke, who

was the Premier, undertakes to hold you - that is

the National Bank - indemnified against any net

loss which may arise in the event that the Company

does not satisfy its liability under the terms of

the Bills Acceptance facility.

Over on page 49, at line 45, you will note

that:

It is a condition of the indemnity that before

the Bank may make any claim hereunder, it must

proceed to the fullest extent of its rights

against the Company ..... to obtain payment out

of the assets of the Company. The amount of

any deficiency remaining after the Bank has

received a final distribution in a liquidation

of the Company may then be the subject of a

claim under this indemnity.

And on page SO, at line 15, is the undertaking to pay on demand $150 million but - and this is

important for some of the reasoning of the Full

Court - although it is said to be payment on demand

it is a payment which cannot be made until the full

rights have been exercised under the indemnity.

As a result of receiving that document, the National Bank then advanced the $150 million

facility and there was a draw down on the next day,

I think the 27th, Tuesday, 27 October. Almost one

year later, on 17 October 1988, Rothwells repaid

the $150 million to the bank and, on the face of

Wardley(2) 4 4/3/92

it, one would say, "Well, that's discharged the

State of Western Australia because the repayment

had been made.", but just on a month later, on

3 November 1988, a petition was presented to wind

up Rothwells and a provisional liquidator was

appointed and a winding-up order was made on

22 September 1989.

There was a contention by the liquidator that

the payment which had been made by Rothwells to the

bank was a preference. The bank denied this and

the Full Court records that some time between

November 1988 and May 1989 the bank then requested

the State to indemnify it in respect of the demand

which had been made on the bank by the provisional

liquidator of Rothwells.

The State contended, of course, that the

payment which had been made by Rothwells on

17 October had discharged the indemnity. The bank

contended to the contrary and said that the

preference was covered and eventually there was a

settlement between the liquidator of Rothwells, the

bank and the State in circumstances which will

require exploration at trial.

One would have expected the bank to pay the

liquidator, either in full or in part, if it was

going to be settled and then the bank to turn round

to the State and make payment. In fact, what

happened is that a payment was made by the State to

the provisional liquidator of $33 million and then

a payment of $10.5 million was paid by the bank to

the State. And, as I say, all of this will require
exploration at trial. But the end result is that

the State says that it paid out a net amount of

$22.5 million and it says it paid it out under the

indemnity, notwithstanding that the State had not

pursued Rothwells to the end and that there had

been a settlement and that was sufficient.	So that
was, sort of, the factual structure for the
proceedings which were commenced.

Now, the State, when it commenced the application in these proceedings, did so on

24 October 1990. So that is the next important

date in the chronology, which is a couple of days

short of three years from the date when the letter

of indemnity was signed which you will remember was

on 26 October 1987, so the proceedings commenced on

24 October 1990.

The claim at that stage was purely for damages under section 82 of the Trade Practices Act with no

other causes of action. Subsequently there have

been amendments which have brought in negligent

misstatement claims, a deceit claim against Connell

Wardley(2) 4/3/92

and negligent misstatement against the others. But

for relevant purposes, the statement of claim which

came before Mr Justice French, and which came under

attack, was - in fact, I should explain: there was

an attack on the pleadings as they were first

formulated. That was partially successful. The

State was given leave to amend generally and then

took the opportunity to introduce what has been

conceded to be and accepted by Mr Justice French

and the Full Court to be a new cause of action.

Now, if it did introduce a new cause of action

which was statute barred then, of course, it was

argued that the grant of general leave which was

given would not permit such an amendment, and I do

not think there is any quarrel with that in the

sense of general leave not covering the

introduction of a new cause of action.

The new statement of claim was filed - and

this is another important date - on

14 January 1991. That is, you will note, three

years and two months and some days from the date

when the letter of indemnity was signed in

October 1987.

It was now that the State decided that it

would complain about other matters, and they are

representations said to have been made by Wardleys,

not on Saturday, 24 October at Rockwells to Parker

Lloyd and Horgan, but representation said to have

been made by Wardleys on Sunday, 25 October, not at

Rockwells' offices but at the Premier's office

where there was a cabinet subcommittee meeting

underway, and there were various ministers, the

Premier, the Attorney-General, Minister Parker,

Minister for Productivity, Peter Dowding, and a

deputy under-treasurer, and the pleading which was

introduced can be found on appeal book page 11,

paragraph 16(c).

So up until now Wardleys was facing a claim of misrepresentations made on the Saturday. Bond, and

I think Connell perhaps, were facing a claim right

from the start there had been misrepresentations

made to the cabinet subcommittee on the Sunday, but

Wardleys had not been attacked on that basis. And

the representation which was introduced and which

came under attack and, ultimately, led to

Mr Justice French striking it out in the Full Court

restoring the effect of it, is paragraph 16(c),

that is Mr Yong of Wardleys:

represented that Rothwells was a sound

financial institution which had substantial

net assets.

Wardley(2) 6 4/3/92

And I might add that is an unqualified

representation, whereas before the complaints that

were being made, they can be seen back on page 9,
which is what was said to have been represented by

Wardleys on Saturday at the Rothwells' offices was

a much more limited representation, that is:

that on the basis inter alia of Rothwells'

1987 audited accounts Rothwells had very

substantial net assets and that the problems

at Rothwells were not problems of capital

deficiency but simply ones of liquidity -

and there was a representation about loans to

Connell. And, as I say, we then have, •in

paragraph 16(c), the introduction of this much more

general representation which you can see the

difference in approach that would have to be taken

at trial in relation to that.

TOOHEY J: So, Mr Pullin, the Sunday representation had been

on foot from the beginning, had it, but only

vis-a-vis persons other than Wardleys?

MR PULLIN:  Yes, similar types of representations, not

exactly that - well in fact, in the case of

Beckwith, yes. You will see that on page 11; 16(a)

was a representation said to have been made by

Beckwith on behalf of Bond Corporation on Sunday

and also some representations about whether or not

the guarantee would be called upon or not.	So they
were similar, but not exactly the same.

Now, the rule in Weldon v Neal, of course, is

the name given to that firmly entrenched rule of

practice, which dates back over 100 years, which is

that a plaintiff may not amend pleadings to set up

a fresh cause of action which has become time

barred since the commencement of proceedings and so

that point was taken about this introduction of

paragraph 16(c) and there was an attack, which was

argued really on the basis that there was an

attempt being made to amend to introduce

paragraph 16(c) at that stage.

We have said, of course, that we argue that

the cause of action accrued when the letter of

indemnity was signed; the State, on the other hand,

argued that when the letter of indemnity was

signed, there was no damage; there was only a

potential for damage and that it was not until some

time later that the State suffered loss or damage

so that the amendments were not more than three

years from the time when damage was suffered.

McHUGH J: At common law an action on an indemnity could not

be commenced until the money was paid, could it?

Wardley(2) 7 4/3/92

MR PULLIN: That is correct and - - -

McHUGH J: In equity the rule was slightly different; equity

in some circumstances might order the indemnifier

to set aside a fund.	How do you distinguish those
cases?

MR PULLIN: Well, Your Honour, the Full Court interestingly

reached the conclusion without actually saying why

it reached its conclusion, but the State had argued

that those common law cases - and those cases - by analogy suggested that damage

accrued when demand was made, but of course they

were - in all those cases, as Collinge v Heywood

and a number of High Court cases cited by my

learned friend and referred to in the Full Court -

were claims in contract. So they are not of any

assistance at all, because where there is an

indemnity which says, I will pay on demand, well

clearly, as a matter of contract, the cause of

action accrues when demand is made. And we say

that has absolutely no relevance and does not

assist the Court in deciding, in this case, whether

of not a cause of action has accrued or not.

McHUGH J:	Why do you say it is when demand is made?
MR PULLIN:	The cases that are referred to were cases where

there had been a contract which said something like

this one, where there is a demand before there is a

contractual cause of action, and in contract, of

course, as those cases are examples of contract,

you would have to prove the contract and its terms.

One of the terms would be that demand has to be

made, and it is only when demand is made and

payment not made that you have a cause of action in

contract. That is all very well for contract, but

we submit it is of absolutely no guidance at all in

cases of tort.

McHUGH J: Is it true that when demand is made, that you - I

thought Mahony v Wren, at least in this Court,

decided the contrary.

MR PULLIN: 

The cases that are cited, Your Honour, are cases

of contract which, on their face, indicate that
they were claims in contract and that, as a matter
of construction of the contract, the right to
payment under the contract only arose when demand
was made, and for that reason they are

distinguishable.

The cases that are cited are merely cases of construction of the contracts in the case, but I

will come to those authorities in due course,

Your Honour, because I need to deal with them when

Wardley(2) 8 4/3/92

looking at how it was that the Full Court reached

its conclusion about the date when the cause of

action accrued. It might be convenient if I deal

with them at that stage, Your Honour.

BRENNAN J:  Mr Pullin, does one identify the loss or damage

referred to in section 82(1) by reference to the

terms in which the statement of claim was couched?

MR PULLIN:  As a matter of construction of the section,

probably not, Your Honour, but one has only the

facts to work on in the statement of claim.

BRENNAN J: Perhaps I should have put my question another

way. In this case, the statement of claim at

page 31 claims the sum of $22.5 million. That is

the plaintiffs' identification c: a loss or damage

which it says falls within section 82(1). That

$22.5 million either does or does not answer the

description, "loss or damage". If it does, is that

the end of the case?

MR PULLIN: If it does, Your Honour, yes. If this Court

says it does then, of course, that would be so.

BRENNAN J:  It does not then matter whether they might also

have been described as having suffered some sort of

loss at an earlier time.

MR PULLIN:  We would disagree with that, Your Honour,

because we say the Darley Main Colliery's case says

that one must sue for all losses and if there is

any loss accruing at any stage then time starts to

run from then. And I think Mr Justice Toohey toyed

with this subject in some Federal Court cases about

whether or not you would have separate causes of

action each time there was some damage and I think

in the end the resolution of that debate came down

on the basis, "No, when some damage has been

suffered time starts to run because your cause of

action has accrued".

BRENNAN J:  Can I just ask you one further question and then

let you develop your argument. Is the problem one

simply of statutory construction in your argument?

MR PULLIN: It is, Your Honour, yes, but, of course, the

whole subject has been bedeviled by the English

cases dealing with defects in buildings which -
they have had a terrible time of it, of course, and

they are starting to resolve it at this stage but
they are anomalous cases, in our submission, and
those cases provide no guidance at all in the

present case.

Our outline of submissions, I am not sure

whether copies have been made available.

Wardley(2) 9 4/3/92

MASON CJ: Yes, we have them.

MR PULLIN:	I just want to give a thumbnail sketch of the English authorities a little later but, first, I
just wanted to take you to the actual ratio of the
decisions of Mr Justice French and the Full Court
and then I want to just run through the English law and how it developed and got into troubles, we would submit, and then come back and deal with the
Full Court's decision and point out where we submit
that it went wrong.

So Mr Justice French dealt with our submission

at appeal book page 64. You will see that it is

headed up "Time Limitation and the Wardley

Amendment". There was a review of relevant

authorities and then, at page 71, comes the ratio

of his decision, starting just under line 15.

His Honour said this, at page 71, line 16:

In my opinion, on the pleaded facts, the

State suffered loss the moment it executed the

Indemnity. If the facts are established, it

assumed a risk of loss that was very much
greater than it had been led to believe was the case on the representations made to it.

It may be accepted on the pleaded facts that

the State was prepared to expose itself to

some risk in consideration of the provision of

credit to Rothwells by NAB. In my opinion,

however, the assumption of a significantly

greater than represented risk is a compensable

loss in the context of s 82. To so conclude

is to say that risk of loss is itself a

category of loss. But to say that is not to

say anything novel. The area of assessment of

damages for personal injuries offers

illustrations of that logic. The risk that an

injury may in later life cause the onset of a

degenerative disease is one example. It is no

less logical than the proposition that the

loss of a chance of benefit is the loss of a

benefit. In a commercial context, the risk

must not be negligible or fanciful.

That is adopting the qualification in Cartledge v

Jopling.

It is perhaps most concretely exemplified by

the assumption of an immediate legal

obligation as in this case. In my opinion,

para 16(c) of the amended statement of claim

does introduce a new cause of action, which is

out of time and should therefore be struck

out.

Wardley(2) 10 4/3/92

I want to correct what we submit is one

slightly misleading aspect which, in fact, I find

we have picked up in our outline of submissions.

That is that really the State's position is this:

it says if the representations had not been made we

would not have given the letter of indemnity, but

under the influence of the representations we

entered into an indemnity which therefore exposed

us to this potential risk of payment out.

In the outline of submissions in paragraph 4

on page 2 it talks really in the same terms as

Mr Justice French, and what we would really do is

seek to amend the second sentence which begins with

"Loss" so that it reads as follows, and perhaps I

will indicate exactly the changes we would make.

In the fifth line down after "contingent liability", it should read: "If" - instead of

"the" - "there was a", and that would be inserted

there, "real risk that payment would have to be made", and delete all of the rest. So in other

words, "Loss will be suffered at the moment of the

assumption of the contingent liability if there was

a real risk that payment would have to be made."

Then we say the last sentence stands: the damages

can be assessed by placing a value of the

likelihood that the contingency will occur.

McHUGH J: But is that the same type of damage as the damage

which flows from actually having to pay? I mean,

the Darley Main principle, for example, does not

stop you from commencing an action for property

damage and an action for personal injury although

they may arise out of the same car accident, for

example.

MR PULLIN: Well, there are some anomalies, and Darley Main

was a good example of talking about you could sue

on the occasion of each subsidence that took place.

But there was a reason given which does not apply in this case, and perhaps I am jumping ahead a bit

as a result of Your Honour's question, but I was

going to go to Potts v Miller which is the best

example of guidance in cases like this, because

Potts v Miller - I just want to develop it in the

right way, Your Honour.

MCHUGH J: Yes, certainly.

MR PULLIN:  I am really just going to jump too quickly to

that point if I - could I go to what the Full Court

had to say about this subject. The ratio on this

point about accrual of the cause of action appears at appeal book page 123. In the middle paragraph, without reading it, what the court did was to set

to one side what they colourfully called "the lemon

cases", which is the purchase of an asset which is

Wardley(2) 11 4/3/92

worth less at the time of purchase than had been

represented, and that is a colourful tag and it is

a useful one, because it helps to illustrate what I

am going to be saying later. So they set those to

one side and then they said this at line 45:

In our view, the mere assumption of an

executory and contingent legal obligation, the

future performance of which is likely to be

more onerous than would have been the case had

the representations in reliance upon which the

obligation was assumed been true rather than

false, is not the suffering of loss or damage

the amount of which is forthwith recoverable

by action under s 82. At that stage, the

cause of action will not have accrued, may

never accrue, and will not accrue whilst the

suffering of the loss or damage remains a
likelihood rather than a reality.

The first thing you will notice is that that is not a test for saying when causes of action do accrue in those cases, it is telling us when'a

cause of action does not accrue. As to when a cause of action does accrue in that case, I am

afraid there is absolutely no principle given to

the conclusion that they reached on that point.	I
will take you to that now.

One needs to go to page 127, at line 45, and

the Full Court said this:

In our view, the cause of action brought

by the State, on the pleading as it stands,

crystallised at the earliest when the Bank, as

detailed in para. 45 of the Amended Statement of Claim, requested the State to indemnify it in respect of the demand made upon the Bank by

the provisional liquidators of Rothwells.

I will just pose some questions without

answering them at this stage about that. Why is

this? Is it because of Pirelli that the damage has

manifested itself at this stage, or is it in fact a

Sparham-Souter test that it has been discovered at

this stage? No explanation is given for this at

all. That is the end of the judgment at that

point. There has been a reference to other cases

which, in my submission, do not help, and as I say,

the Court had earlier recorded a reference to my

learned friend Mr Heenan's submissions at the time

based on Collinge v Heywood and those cases dealing

with contract. As I say, when I come back to the

judgment and go through it in some detail, I would

hope to be able to distinguish those cases.

Wardley(2) 12 4/3/92

That was really all that was necessary for the

Full Court to say, because having said that the cause of action had accrued within three years of

when the amendments occurred, there was no

limitation point, there was no need to be concerned

with Weldon v Neal at all, but nevertheless the

Court went on and said that they would look at that

subject and they said they did not need to consider

it, but because of the submissions which had been

made they would look at the ruling, Weldon v Neal,

and its application in this case, and they started that at page 132. They acknowledged, at page 135,

at the top of the page, line 5:

at first blush, it would appear that Order 13

rule 2 -

which is the general amendment rule in the Federal

Court, the one that gives power to the court to

make amendments -

could not have been relied upon so as to

prevent an amendment, the making of which

introduced a fresh cause of action against

Wardley and Wardley Securities, in such a way

that those respondents could not successfully

raise against that cause of action the time limitation found in sub-s.82(2) of the Act.

But that is not all that is to be said on the

subject.

Without going into it all now, what they said

is you really read the references to "cause of

action" in section 82(2) as a reference to

"matters" because the court has jurisdiction with

respect to "matters" and therefore, down the bottom

of page 135 the court says this, at line 46:

In our view, it is sufficient to meet the

limitation provision of s. 82 (2) of the Act

of a matter arising under the Act, the	for a proceeding to be instituted in respect
substance of which is defined by a factual
base which would encompass conduct said to be
in contravention of the provisions of Part IV
or Part V of the Act. Once the Court is
seized of jurisdiction in such a "matter", the conduct of the proceeding, including its pleading is a matter of procedure placed under the control of the procedural rules of the
Court.

And if that is right, you could have a federal

cause of action commenced within three years. This

court then says, the Full Court of the Federal

Court has said, "Therefore you have proceedings on

foot in relation to a matter". You can of course

Wardley(2) 13 4/3/92

hang various causes of action on a matter,

including common law causes of action, and let us

assume that seven years down the track in the

proceedings an application was made to amend a

State cause of action, say, a breach of warranty of

authority by the agent or breach of contract, what

the Full Court is suggesting is that, "No, you

commence proceedings within time because you

commence proceedings in relation to a matter and,

therefore, all causes of action that might be

comprehended in that matter are protected", if one

likes to speak in those terms, "by the fact that

you have commenced proceedings and time cannot run

against you."

TOOHEY J:	Does the court offer some definition of matter for the purpose of the case in hand?
MR PULLIN:	No, Your Honour, and that of course is the big

problem. If this is right, when one has the

non-specific test of matter, which is quite

satisfactory for jurisdictional purposes when one
talks about whether or not a court has
jurisdiction, which is how the court started off
talking about the subject, it is quite
unsatisfactory when one comes to talk about causes

of action and limitations because, instead

of res judicata or, as it is called, cause of

action estoppel, you would need to talk about

matter estoppal, and then have to define exactly

what a matter is and, with precision, how it can be

defined which is, in my submission, never the
contemplation of this Court in talking about a

substratum of facts for the purpose of

jurisdiction. It is quite unsatisfactory, and it

is not, we would submit, what is said. The plain

words of section 82 do not talk about matter, they

talk about causes of action and there can be no

difficulty with that. But I will come back to that

in a moment.

So that is the structure of the Full Court's

judgment. We complain about all three conclusions.

First, the conclusion that no damage was suffered

when the letter of indemnity was signed, we

complain about that. We complain about the

positive finding that damage was suffered when a

request for payment was made and, thirdly, we

complain that the rule in Weldon v Neal does not

apply, because once you have proceedings on foot
for a matter there is no longer any limitation

points about, and we say that is wrong.

I might add that we are most unhappy with the

second finding which is that the cause of action

accrued on the date specified, I forget the dates

now, May - they specified some dates - because if

Wardley(2) 14 4/3/92

the reasoning behind the court is that it is a

Pirelli test, that is when damage manifested

itself, or if it is a Sparha.m-Souter test, which is

when it was discovered, they are matters quite

properly left to trial and not for any assessment

on a strike-out application.

Now, the one thing before I go on to the

grounds of appeal and to summarize the English law

as a first step, I just wanted to indicate that we

are not now seeking to restore precisely the

judgment of Mr Justice French, which was simply to

strike out paragraph 16(c), and the reason for this

is that the statement of claim has undergone

various other changes since then, so simply to

strike out paragraph 16(c) would be meaningless.

But I have had discussions about this subject with if we were successful, and that is that there could

be no cause of action under the Trade Practices Act
based on a section 82 damages claim brought,

because they have made the step of bringing in that
cause of action outside of three years from when

the cause of action accrued. That is if our

argument is successful. So there would need to be

some form of declaratory relief formulating that

and we will have a minute prepared later which

would show what we suggest would be the appropriate

order.

As I say, the other side has now joined various negligent misstatement and deceit causes of

action which will still go on because there is a

six-year limitation period for those causes of

action but, if we are right, the Sunday federal

cause of action would go and they could not pursue

that.

Now, the first ground of appeal - the grounds

of appeal are set out on page 149, the notice of

appeal, and Your Honours will see, at line 50, we The learned judges erred: - say that:

(a) in concluding that the Respondent did not

suffer loss or damage upon the execution of

the indemnity in favour of the National

Australia Bank -

and we challenge that conclusion.

Now, this is not a case like the strange case

of Hawkins v Clayton where the.last element of the

cause of action to accrue was not the damage. The

last element was the executor's assumption of

office. In this case, everyone is agreed that the

Wardley(2) 15 4/3/92

last element of the cause of action to accrue was

damage, and the question is, quite simply, when was

damage suffered? That is the question for

determination on this first point.

There is, of course, no dispute that damage

suffered was economic loss. There is no physical

damage, of course, so we do not have any of those

aspects troubling us. And speaking in sort of

early historical terms when tort was seen to be

equivalent to trespass and physical damage was
necessary, of course, it was not long before the

tort of deceit developed and, of course, that was a

tort which enabled there to be recovery of pure

economic loss with no physical injury to any person

or property.

And so it is important to remind the Court of the approach in those cases where you are talking

about economic loss, and that is, as a rule the

damages are assessed on the basis of diminution in

value at the time the contract was entered into,

the contract which had been induced. I want to

just read a couple of passages from Potts v Miller

on this subject, because Potts v Miller is relevant

because this Court has said in Gates that the

tortious measure of damage is, of course,
applicable in most if not all cases involving

contraventions of section 52 and damages claims

under section 82.

So I just wanted to go to what was said in

Potts v Miller Although the Hagman decision in the Full

because we would submit that some of decision.

the basic principles have been forgotten by the

Court of the Federal Court made no choice between

this Wardley's decision and the opposing Federal

Court decision of Jobbins, it made some sounds

which we say are inconsistent with the sort of

approach that should be adopted.

The passages I wish to refer to in Potts v

Miller are in 64 CLR 282, and I wanted to refer to

the passages at page 298. This is the third

paragraph down, the second-last paragraph on the

page, where Sir Owen Dixon said this:

"If a man is induced by misrepresentation

to buy an article, and while it is still in

his possession it becomes destroyed or

damaged, he can only recover the difference

between the value as represented and the real

value at the time he bought. He cannot add to

it any further deterioration which has arisen

from some other supervening cause."

Wardley(2) 16 4/3/92

This reasoning makes it necessary to

distinguish between the kinds of cause
occasioning the deterioration or diminution in
value. If the cause is inherent in the thing
itself, then its existence should be taken

into account in arriving at the real value of

the shares or other things at the time of the

purchase. If the cause be "independent,"

"extrinsic," "supervening" or "accidental,"

then the additional loss is not the

consequence of the inducement.

Then His Honour gives an example which I want to

use later on. He says:

"If a man buys a horse, as a racehorse, on the

false representation that it is has won some
great race, while in reality it is a horse of

very inferior speed, and he pays ten or twenty times as much as the horse is worth, and after

the buyer has got the animal home it dies of

some latent disease inherent in its system at

the time he bought it, he may claim the entire

price he gave; the horse was by reason of the

latent mischief worthless when he bought; but if it catches some disease and dies, the buyer cannot claim the entire value of the horse,

which he is no longer in a condition to

restore, but only the difference between the price he gave and the real value at the time

he bought".

The only other passage I wanted to read was further

down on that page, after talking about the

difficulties when one is dealing with share cases,

the acquisition of shares because of what happens

on the market afterwards. He mentioned two

aspects. In the second-last paragraph, he said:

The second qualification -

to what makes the rule less rigid - that is the

rule that I have just indicated and read out -

The second qualification is that the real

value of what the plaintiff got must be

ascertained in the light of the events which

afterwards happened, because those events may
show, for instance, that what the shares might
have sold for was not their true value or that
it was a worthless company; or looking back
from subsequent events to the earlier state of
the company it may appear that at the time the
shares were taken the assets of the company

did not correspond in value to the money paid.

Wardley(2) 17 4/3/92

We say all of that applies equally in
misrepresentation cases under the Trade Practices

Act.

McHUGH J: But how do you apply it to this case? I mean,

this case	- Potts v Miller is concerned with
property.	What property are we concerned with
here?

MR PULLIN: Well if one likes to identify it, Your Honour,

in general terms - the guarantee was not supported

by a specific security. It could have been

supported by the State giving, say, a mortgage to

secure the indemnity, but it did not. But it could

easily have done so, as in Forster v Outred, where

the mother in that case gave a mortgage to secure

the repayment of a loan taken out by her son.

McHUGH J: But that decision itself is controversial. Have

you not got a better illustration than that?

MR PULLIN: Well we say it is the right illustration,

Your Honour, and right in principle, eventually, I

hope to demonstrate. But if one is looking at

property you say, well, the whole assets of the

State were affected by this promise which, in fact,

as it turns out, Rothwells was doomed right from

the start. So they entered into what was almost a

guaranteed loss, because Rothwells was in terrible

trouble, even with the rescue mission that was

undertaken and in those circumstances they were

exposing themselves to a liability which was simply

deferred. I mean, it was going to come at some

stage and it just then becomes a question of

assessment of that risk and there are plenty of

times where one has to make assessments of damages

without knowing what actually will happen at the

end of the day. But I will deal with

Forster v Outred, Your Honour, and Jobbins and

Hagman; I really need to deal with those cases.

Jobbins, Hagman, Forster v Outred and this

Wardley's decision, because they are the four cases

that I suppose are of great importance and I need

to deal with those in detail.

McHUGH J: Well, could the State have claimed in a winding

up in this particular case?

MR PULLIN:  I am sorry, Your Honour.

McHUGH J: Leaving aside questions of liquidated damages and

debt and so on, could the State have claimed in a

winding up of Wardleys?

MR PULLIN: Well no, Your Honour, because it was the

National Bank which would be owed the money by

Wardleys.

Wardley(2) 18 4/3/92

McHUGH J: Well, I appreciate that, but this representation

we are talking about, when did its right against

Wardleys accrue? You say, the moment indemnity was

executed.

MR PULLIN:  Yes, because there was no doubt that there had

been representation before it; there was no doubt

on the pleaded case that it was false and we say

damage accrued at the moment that they entered into

what was a guaranteed loss. They were signing up

saying we are going to give you, the National Bank,

a whole lot of money, but it is just deferred.

Now, of course, it was not appreciated at the time, because the misrepresentations were operating on everybodies' minds, it is said. That is how the case is pleaded against us. But we say there was

damage at that time and it just becomes a matter of

assessment and if the case had come on early - in

fact there is still an argument open that the bank

still has not exercised all its rights, because it

was not supposed to make any demand for payment

until it had exercised its rights in full against

Rothwells, even to the point of proving a

liquidation and recovering what it could there and
only then could it be said what its net loss was.

But the case has been pleaded on the basis that in

fact the claim arose when demand was made or when

payment was made; one or other of those things.

TOOHEY J: But however the case is pleaded, in the end the

question has to be, in terms of section 82(1), when

did the person claiming suffer loss or damage?

MR PULLIN:	By reason of the contravention.
TOOHEY J:	By reason of the conduct.

MR PULLIN: Yes, and we are all agreed on that, Your Honour.

The parties are all agreed that that is the

question, "When was damage suffered by reason of
the contravention?".	We say it is on
26 October 1987.	The Full Court has chosen a date

which we cannot see why, in principle, should be

chosen but it is some time later and we say that is

wrong. We say that the cause of action accrued

when the State entered into this commitment to pay

money which was deferred. There was a contingency

attached to it but it was nevertheless a commitment

which they were bound to meet in due course.

What has been forgotten and Hagman is a good

example, where the courts are starting to

demonstrate an approach by saying, "Well, look, in

these foreign currency loans you have a

representation which is something like this, 'Look,

take this foreign currency loan because they're

very safe and you're getting this very cheap

Wardley(2) 19 4/3/92

interest rate and there's not going to be any

fluctuation in the currency'.". That is a

representation.

In fact, if it is false, and that is a

prediction about what is going to happen, so you

test it in terms of what present fact is involved

and the present fact is, "I have reasonable grounds

for making that representation". Now, assume that

is false, the courts are tending to say, "Well,

let's wait and see because it may be that a couple

of years down the track, when you make your first

interest payment, that there won't have been any

change in the currency and you have to wait and see whether or not there is." We say that is using the

horse example - if I can use that example. That is

waiting to see what extrinsic events bring that

about.

If the fact is that the foreign currency loan

is a risky enterprise, and there are no reasonable

grounds for saying that there is no risk, then you

have got a horse with an intrinsic defect. You

have got a horse with a disease which you must take

into account in your valuation. By the time you

get to trial the horse might not be dead but you

just have to assess that and make an assessment and

take into account contingencies and discount and

all those sorts of things. But the loss has been

suffered. You do not wait to see whether the horse

gets a disease and then say, "The horse which had this disease when I bought it", you have no cause of action until the horse dies.

McHUGH J: Supposing in trade or commerce somebody makes a

false representation that it is safe to walk on

those steps over there and in fact it is not safe.

When does the cause of action arises under

section 82, the moment the statement is made

because I am exposed to the risk or when the stairs

collapse on me?

MR PULLIN:  The physical injury cases create their own

problems, Your Honour. It may well be that the

cause of action accrues when you slip on the steps

there but if you have to got to identify the

interest. Justice Gaudron mentioned this in

Hawkins v Clayton, that you must try to identify

the interest that one is concerned with. The

physical injury cases really just do not provide

any guidance at all and are quite anomalous because

of the problems with changes of ownership have led

the courts into trying to cope with what happens

when there is a change of ownership, how one looks

at the situation of each of those persons involved.

Wardley(2) 20 4/3/92

TOOHEY J: But, Mr Pullin, if you stay within the language

of section 82 - and I note you are using the

passive a great deal, "When damage is suffered",
but if we can shift it to the active voice, the

section looks at recoverability by a person who has
suffered loss or damage by reason of conduct, in this case conduct falling within section 52. Is

there any reason why a plaintiff cannot, as it

were, identify the loss for which action is brought

and that loss fixes the time by which the

limitation period is to be assessed? And in that

event, is it any answer to say, "Well, you suffered

loss earlier or you may have suffered loss

earlier."? If the plaintiff says, "This is the

loss which I am claiming, and identifies it with

sufficient precision, why do you not just measure

the time limitation period against the time when

that loss was suffered?

MR PULLIN:  Your Honour, does that mean that if the day

after, on 27 October, having signed the indemnity,

one of the participants came forward and said,

"Look, we confess that we made misrepresentations.

In fact, Rothwells is not a sound financial institution; it's got a deficiency of assets of

about $400 million. There is no hope of recovery;

payment will have to be made at some time", what

Your Honour's suggestion seems to lead to is that

you could bring an action - surely then loss has

been suffered in economic terms, that when you
entered into the indemnity agreement, there was a
loss sustained at that time by reason of the

contravention, that damage is caused by reason of

that contravention, because you - and it is so easy

to think of a situation where you would sign a

guarantee to support the indemnity in other

j.nstances.

You have therefore diminished the value of

your interest in that asset by reason of this
contingent liability.	You can sue for that then

and there is an assessment of damages made.
Your Honour's suggestion seems to be that you could

then later, if you found that in fact the loss was greater than had been, say, estimated by the judge

coming to trial before demand could be made, that

you could then sue again because there was another

loss.

TOOHEY J:  No, I was not suggesting that, nor was I

suggesting anything so much as inviting your

comment, but to take your illustration, if the

other party confesses as to the worthlessness of

the indemnity, your argument would seem to suggest

that the plaintiffs must then and there, as it

were, sue or, at any rate, the limitation period

starts to run from the confession.

Wardley(2) 21 4/3/92

But may it not be that the plaintiff is

entitled to wait to see what loss crystallizes and
then, if the plaintiff chooses to sue for the

crystallized loss, you assess the limitation period

by reference to when that loss was suffered?	I am
not suggesting it is an easy answer or even the
right answer, but it just seems to me that the
further you get away from the language of
section 82, the more difficulties you get into.

MR PULLIN:  Yes, your Honour, but that would suggest - if

Gates is right - and Gates suggests that Potts v

Miller is the usual test that will apply because it is misrepresentation and the same problems are

developing - that is really suggesting that in the

horse example, with the latent disease when you buy

it, your time does not run until the horse dies of

the disease.	You can wait and see whether the
horse dies.	You say, "There's a chance that it

mightn't die, but it's got this disease".

TOOHEY J: If that is the loss that you are claiming for,

the loss by reason of the death of the horse, maybe

so.

MR PULLIN:  My learned junior points out, Your Honour, that

the expression in section 82(1) is in fact "cause

of action accrued" and not "loss suffered".

Section 82(2), the limitation period - - -

TOOHEY J: That is true, but then how do you identify that,

except by reference to section 82(1), because it is

only by reason of section 82(1) that you can bring

action at all. You cannot bring it by reason of

section 52 standing on its own.

MR PULLIN:  I agree with that, Your Honour, but with

respect, we would not see any difference between

the common law concerns about the accrual of cause

of action and when damage is suffered and

section 82.	We would submit it does not create any
new approach to the law.	We say that Potts v

Miller is a good guide to the sort of problems that

you can encounter and that, with respect, it is a

mistake to say, if there is a latent disease, that

you then wait and see whether or not that latent

disease comes to fruition.

We say that the whole idea is that people with

claims do not sit around. They have always talked
about a policy - the reason for Pirelli and

Sparham-Souter - about the unfairness of the limitation period that might have been brought

about as a result of those tests, but of course

there is the other policy of trying to prevent

stale claims.

Wardley(2) 22 4/3/92

In this area in particular, where you are

talking about misrepresentation cases which are

largely made up of oral representations - and this

is a classic case - we have all seen - we have had
a Mccusker inquiry, we have had an Anne Frank

litigation, we have had a royal commission,

everyone has given evidence in this case, everyone

can see the nuances of different recollections

coming out and will doubtless come out again, and

there will be some more nuances at trial. There

are good policy reasons for making sure that

proceedings are brought within the three-year

period.

TOOHEY J: Well yes, one can understand that. I suppose the

other side of the coin is that on the approach that

you are inviting us to take, the moment misleading

or deceptive conduct produces any loss or damage

whatsoever, then time must be taken to run as from

that date, although the full extent of the loss may

be quite incapable of assessment at that time or

for some time later.

MR PULLIN:  Yes, and that is just the application of the

main rule in the Darley Main Collieries case.

TOOHEY J: Yes, I see that.

BRENNAN J:  Mr Pullin, I am having some difficulty in making

Potts v Miller do any work in this case in this

way. If you have a case where there is fraud

inducing the acquisition of an asset, then your

liability in damages does not consist of the

residual value of the asset. It consists in the

purchase price being outlaid less whatever it is

that the asset is worth.

MR PULLIN:	Yes.
BRENNAN J:	So that it is the outlaying of the money, less

whatever the asset is worth, which is your damages.	If you have an indemnity, again it is the outlaying
of your money which is your damages. You see, in
Potts v Miller damage arises because what goes in
diminution of damages is not quantified until
later. It is the outlaying of the money in both instances which is the first integer of the damage.

MR PULLIN:  I can see that, Your Honour, but if you take the

example of the indemnity supported by a security,

in fact, there is a reduction in the value - you

have suffered loss if - let us assume it was to pay

a sum of money, the guarantee was for a period of

one year, and the representation was made that

really you would not have to pay anything out under

the indemnity. In fact, at the time you were

Wardley(2) 23 4/3/92

doomed. There was going to have to be a payment in

due course.

Now, we would submit that at that stage there

has been a loss suffered. I know it does not

actually result in a payment of money out at that

stage but, in fact, there is a liability which is

deferred. In other words - - -

BRENNAN J:  What you are saying is that a contingent or

deferred liability is a loss or damage.

MR PULLIN:  Yes.

BRENNAN J: Well, that is an interesting proposition. The

question is whether it is a loss or damage within

section 82(1).

MR PULLIN:  Can I take the example, Your Honour, of Potts v

Miller. Let us assume there is a contract of sale

entered into on 1 January with the purchase price
not payable until 12 months hence. In my

submission, the cause of action accrues when the

contract is entered into, not when the payment is

made later on, part of the purchase price is paid

later on.

We say that the test would be there - the test

in Potts v Miller has been said to be a rule but,

in fact, not a rule. I think it is Toteff v

Antonas says it has to be expressed in more

generalized terms than just saying that the rule is

that it is the difference between the amount paid

and the value of the asset that is gained in

return. And we say that more generalized test

means that damage has been suffered at the time the

contract is entered into to buy the asset or at the

time that the liability has been incurred, and the

fact that there is some deferral of payment is, we

say, just a matter that would diminish the damages

because, of course, you discount it. If it is a

long time before it is going to come home to roost,

then you would discount that - - -

BRENNAN J: Well, if you have to value the burden of the

deferred or contingent liability, of course that is

so. The question is whether or not a deferred or

contingent liability is the damage or whether it is

the money that is outlaid under the indemnity.

MR PULLIN:  Yes. Your Honours, having referred to Potts

v Miller which is, of course, guidance on the

deceit type of case, and let me say this, could

easily have been a case involving the acquisition

of an asset, a so-called lemon case, and let me

give this example: let us assume that I say I want

to buy some shares in a company and I say, "Well,

Wardley(2) 24 4/3/92

let me see the balance sheet", and I see the

balance sheet and on it I see 'contingent

liability, indemnity to National Bank', and I go

along to the vendors and I say, "What is this

indemnity here for the National Bank?", and they

say, "It is no trouble, it will not be called on

because Rothwells is a sound company with

substantial net assets, almost no risk of it being

called on, it is only academic really".	So you buy
the shares under the influence of that
misrepresentation.	Now, in fact - let us assume

the price is paid on the date of the contract - you

liability that is there is a nominal amount

find that the misrepresentation is false that that

and the balance sheet is in fact going to appear as

a dreadful number. So you call in your valuer.

Your valuer values the assets of the company. He

says, "The appropriate method of valuation is net

asset backing". He values the balance sheet. He

comes to the indemnity. He makes the inquiries. He says, "What is the position about Rothwells?"

He is told that it is hopefully insolvent. He

says, "Well, this is really a liability which has

simply been deferred.	I will therefore value it
and take it into account.	The shares are not worth

$10 that you paid, they are only worth $1".

Now, if you can easily convert the facts of

this case into a purchase of an asset case, a lemon

case, then why should there be a difference between

them? There is no good reason in policy why there

should be a choice to take this particular factual circumstance and say that that does not constitute

damage.

McHUGH J:  But you are in a different area altogether. I

mean, it strikes me as totally unreal to think that

a cause of action here, or the damage here is a

risk of loss.	If this case goes to trial on this
issue no one will be concerned about valuing the
risk of loss.	You will be working out what was the
amount paid?

MR PULLIN: Yes, Your Honour, and I can use Potts v Miller

again. His Honour says - and that is why I read

that second passage, where Sir Owen Dixon said,

"Well, by all means you can use the benefit of

hindsight". By the time you get to trial,

His Honour said:

the real value of what the plaintiff got must
be ascertained in the light of the events
which afterwards happened, because those
events may show, for instance, that what the
shares might have sold for was not their true

value or that it was a worthless company or

Wardley(2) 25 4/3/92

looking back from subsequent events to the

earlier state of the company it may appear

that at the time the shares were taken the
assets of the company did not correspond in

value to the money paid.

after the voidable reinsurance contracts had

been concluded, would they have been entitled

only to nominal damages?" the answer in the

present case must surely be No.

That has been postulated or referred to in other authorities as the Bigham test. Would a

plaintiff have been condemned to nominal damages in

that point anterior to the suffering of what we

have been calling financial loss? Our answer to

that is: he probably would not have been condemned

to nominal damages and he would have recovered

damages, because it was the duty of the adviser,

the solicitor, the broker, the insurer, to produce

a particular result and he failed, but one is

speaking about a different duty.

No such duty exists, in our respectful

submission, in the present case. While there might

have been an accrual of a cause of action for a

breach of that duty against those advisers in those

Wardley{2) 92 4/3/92

instances, nothing of a comparable situation exists

in the Wardleys case. We say that in the present

Wardleys case, there was no such duty or no

correlative breach.

We say that as far as the section 52, 82

claims go, the obligation to avoid misleading and
deceptive conduct does not arise because of a

tortious or contractual duty owed by an adviser or

anybody in the position of an adviser to the State.

It cannot be suggested that when the State

entered into this indemnity it received something

less than a person on whom it was relying was

obliged to deliver, because there was no

predetermined requirement as to the content of the

indemnity or the standard that it was expected to

satisfy. The State was dealing at arm's length

with the representors and by virtue of the

misleading and deceptive conduct alleged, it

entered into an indemnity and some time in the

future had to pay out money. But there can be no

comparison made at the point of entry into the

indemnity between the status of the obligation

which the State incurred and the state of the

obligation that some adviser or person under a duty

was obliged to deliver, because there was not any

such intermediary there.

We say that the State may have been deceived, but there was no breach of a contractual or

tortious duty to it at that point that is in any

way material to the section 52 claim. And it is at

this point that the divergence between the common

law remedy of negligence and the statutory remedy

under 82 and 52 of the Act becomes, in our

respectful submission, stark. We put against

Wardleys a claim in damages for negligent

misrepresentatio. That is not the subject of an

appeal.

to advise us in relation to the representations We allege against Wardleys a duty of care

which were made and we allege against them that

there was a breach of that duty, because of the

failure to give accurate or reliable advice at the

point of the transaction.

I have been embarrassed by a concession which has been made before, so I do not make any

concessions here, but it is arguable that any

breach of duty in negligence by Wardleys to the

State existed at that point and, if the Forster v

Outred line of cases has any vitality, they might

apply to the common law duty in negligence so as to

point to, the accrual of a cause of action in
negligence at that point by parity of reasoning

with professional advice cases that I have been

referring to.

Wardley(2) 93 4/3/92

The same consequence will not, in our

respectful submission, follow in relation to the
section 52 claim, because the obligations under

section 52 resulting in damages under section 82 do

not arise because of the existence of a duty of

care. They are normative standards of behaviour,

failure to comply with which will expose the

representer to damages. And it is not as if the

injured party can complain of the failure of the

representer to do something which he should have

done; all he can complain of is misleading or

deceptive conduct. The remedy is to avoid deceit

and misdirection. It is not a remedy designed to

achieve a particular result. So, in that sense

there is a marked contrast between the common law

line of reasoning and the statutory remedy.

BRENNAN J:  I do not see why that line of distinction is

going to work, Mr Heenan. If you look at

section 82, your cause of action is for "loss or

damage by conduct". So that if you compare that

with the elements of your cause of action in

negligence, you must find again there damage caused

by conduct. If it is damage for one purpose, one

might think that it is damage for the other or else
one must find some ground of distinction between

the two categories of damage, one category for

common law and one for statute, which does not seem

to be a very attractive notion. Must you not go to
the extent of saying that if the particular

economic loss consists solely of the assumption of

a contingent pecuniary liability, that that does

not constitute damage for either purpose until the

contingency occurs?

MR HEENAN:  Yes, we certainly say that, Your Honour.

BRENNAN J: Well, must you not say that?

MR HEENAN:	Yes, I think we must.
BRENNAN J: Then, what is there against you in terms of

authority for the proposition, Forster v Outred?

MR HEENAN:  Yes.

BRENNAN J: Anything else?

MR HEENAN: Cases in the same line of country.

BRENNAN J: Are they in the same line of country, because if

the identified economic loss consists simply of the assumption of a contingent liability, then you have

immediately distinguished, have you not, the cases

where there has been negligence in the preparation

of documents and the like?

Wardley(2) 94 4/3/92

MR HEENAN:  Your Honour asked my learned friend, Mr Pullin,

whether he drew a distinction between cases of

contingent liability and deferred liability and he

answered "No"; we would answer "Yes".

BRENNAN J:  It seems to me the difficulty that you have to

meet is the Forster v Outred difficulty of saying

that there is no loss when the relevant loss

consists simply of the assumption of a contingent

pecuniary liability.

MR HEENAN:  Yes, Your Honour. The question postulated about

Lord Justice Bingham's test as to whether a claim

for damages in contract at a point anterior to the

outlay of funds would be condemned to nominal

damages only, which seems to be the critical - - -

BRENNAN J:  May not contracts stand completely apart from

causes of action where damage is of the gist of the

action?

MR HEENAN: It certainly does, Your Honour. But if it could

be put another way, "Could you sue in tort at that

point?", and that begs the question, I am afraid.

DEANE J:  Has there been any indemnity or guarantee case in

England where there was not a mortgage in which

Forster v Outred has been applied?

MR HEENAN: I think there is one guarantee case, Your Honour,

the National House case.

DEANE J:  Would you have any difficulty with Forster v

Outred if it had been an old system mortgage? In

other words, if the lady had conveyed her property

away and all she had left was a remote possibility

of getting it back?

MR HEENAN:  Our analysis of Forster v Outred in those cases

has tended to accept the observations that have

been made in the Full Court that the result in the

case and also the result in Jobbins assumes, as a
matter of fact, that in the Forster case the son

was insolvent and in the Jobbins case that there

would be no return under the film scheme, so that a

loss was inevitable. There tends to be a mixture

of fact and law in the conclusion in both of those

cases.

DEANE J: But if, in Forster v Outred, it had been an old

system mortgage, damage would have been already

sustained. The lady would have lost her real

estate subject to a patently worthless equity of

redemption, because obviously she was not going to

get it back.

Wardley(2) 95 4/3/92

MR HEENAN:  The only hesitation I have in answering

Your Honour's question is that it depends on

whether one analyses the question from the point of

view of a test designed for purely economic loss or a test which accepts that the loss or transfer of a right of property, even with a right of redemption, gives it a different character. If one analyses

the situation from the point of view that it is

solely a question of economic loss, then I would

answer Your Honour's question that we would still

have difficulty with the conclusion in Forster v

Outred because, unless it could be assumed that

economic loss would follow, damage had not been

established. But if one analyses the case from the

point of view of the loss, even of a temporary and conditional kind, of a property right, then we can accept, with respect, the burden of Your Honour's

question.

DEANE J: Well, unless it is understood in the latter sense, is not - I think it was Mr Justice Dunn's comment - "more importantly the mortgage", is that not a

meaningless comment?

MR HEENAN: Well, it depends what probability or what

possibility one gives to the ability to redeem the

mortgage. And that is why we say that the decision

is one of mixed fact and law, because it assumes

that the mortgage is irredeemable, for factual

reasons.

Your Honours, can I turn quickly to the lemon

cases. Your Honours might be interested to know

that that illuminating tag was coined by His Honour

Justice Spender in the Federal Court at an early

stage of the argument and was embraced as a

convenient abbreviation by everybody concerned, but

they are cases which fall into an obvious category

where a loss was inevitable and, in our respectful

submission, can be put to one side and in that

category are Keen Mar, Jobbins itself and Calmao v

Stradbroke Waters.

Your Honours, can I return to the insurance

policy cases. I have already addressed the first

two English cases: the Iron Trade Mutual Insurance

and Islander Trucking Co cases. Those were cases

where there was voidability of the policy because

of negligent non-disclosure of material facts.

The Australian cases dealing with insurance

policies by contrast deal with cases of valid and

enforceable policies, but which did not cover the
insured for all the risks which were desired to be
underwritten. In SWF Hoists Industrial Equipment

Pty Ltd v SGIC, for example, there was an insurance

Wardley(2) 96 4/3/92

policy for workers compensation given to an
employer which only covered it for liability within
the State of its operation, and it had men working

outside the State and one of those was killed in

Queensland under circumstances in which he was

uninsured.

His claim was met by the uninsured fund of the

Queensland Workers Compensation Board which made a

claim against the employer for recoupment and had

to be paid, and then there was a claim made against

the insurance company for failing to deliver a
policy which covered all the risks insured against,
all the risks in respect of which insurance was
desired.

There was a limitation question which arose,

the question being whether the damage accrued at
the time the insurance policy was written or at the

time when the employer insured had to pay out the

uninsured liability. The conclusion was that the

inadequately insured client only suffered harm on
payment and not on the entry into the inadequate

insurance policy.

It followed Van Win v Eleventh Mirontron,

which I have already cited, and a number of other

cases including Ikin v Same and Lamborghini,

concluding that there had been a potentiality for

loss from the time the employer was inadequately

insured, but until the employee was killed and the

liability arose and it was met by the payment of

the money there was no harm. Similarly, Zoneff v

Elcom, (1990) 94 ALR, which went on appeal to the

Full Federal Court, (1990) ATPR 41-058, there was

another inadequate insurance policy.

MASON CJ:· With the same result, was it not?

MR HEENAN: With the same result, except that on the facts

misleading representation, so the claim was reduced	it was held that there was not reliance on the
to a small sum of damages which is not clearly
referable to that loss. On appeal, the question as
to whether the issue of the inadequate policy
causes damage before the contingency falls in was
expressly left open, Their Honours indicating -
this is at page 51-746 - that any decision on the
subject would require consideration of the English
cases to which reference had been made.

Can I say, in respect of these cases, the

obvious point of distinction between the English

insurance cases and the Australian pair is that the

former involve the issue of voidable policies due

to the non-disclosure of the negligent brokers,

while the Australian cases deal with the issue of

Wardley(2) 97 4/3/92

valid policies but with inadequate cover. In the English cases, the asset or right sold was flawed and worthless, but in the Australian cases each

policy was, in the language of Justice Hill at
first instance in Zoneff, worth what had been paid

for it, even though it was inadequate for the

particular needs of the client.

So no loss was suffered by the Australian

the loss before it fell in and it is a point of

insureds, unless and until they were exposed to a

loss for which an indemnity could not be obtained.

distinction between the English and the Australian

cases, but for all that a line of thought from the

two jurisdictions is very hard to reconcile and one

suspects that the English line of reasoning would
treat the inadequate cover cases also as some form
of loss or damage accruing at the issue of the

policy, even though the quantification of the loss

would create very great difficulties.

The next is the foreign exchange loan cases,

and I think I can content myself in this regard by
submitting with respect that the analysis of the

Full Court in Hagman is the appropriate approach

and that the reservations of Justice Sheppard at

first instance in Hagman are well justified.

There is a professional negligence case,

Wright v Borzi, which is interesting, although it

is not so much a case of economic loss as personal
injury. It was a case of medical negligence and

the facts are somewhat complicated, but a woman who

was undergoing a pregnancy was wrongly advised as

to her blood grouping with the result that after the delivery of her child the medical attendants failed to immunize her against the development of

certain antibodies which arose from the pregnancy.

The development of these antibodies meant that

subsequent pregnancies would be threatened and

complications would be probable. Not having been

alerted, and presumably having developed the

antibodies, the lady had a second pregnancy and

there was a real risk that the foetus would be

malformed or that there would be some difficulties,

and consequently an intrusive surgical test was

necessary in the shape of an amniocentesis

operation, and she claimed damages against the

medical attendants for negligence and failing to

deal adequately with the development of the risk

after the first pregnancy.

It was held that no loss had occurred, no damage was suffered until the amniocentesis

operation took place, and that there was no loss

suffered consequent upon the first pregnancy or the

Wardley(2) 98 4/3/92

development of the antibodies. So although we have

the development of the antibodies within the

woman's system lying, as it were, dormant but ready

potent with the threat of potential harm in a

second pregnancy, that was not regarded as

constituting any form of damage at that point for

the purposes of limitation. And that, in our

respectful submission, is also consistent with the

reasoning of the Full Court and the submissions

which we have been advancing.

That brings me to the Canadian and New Zealand

authorities which can be dispensed with very

quickly. It is sufficient, Your Honours, for me to

stand by the submissions which are in our outline,

and if I may leave it at that.

May I come to the criticisms of the Forster v

Outred doctrine. These are the product of a

variety of learned writings and some judicial

comment. It can be said against the Forster v

Outred doctrine that Lord Justice Dunn's

observation that the cause of action is complete

when the plaintiff acts to his detriment tends to

confuse the foreseeability of damage with its

occurrence. That would seem to be self-evident.

Secondly, there is the proposition, which I

have already put in response to a question from

Justice Deane, that the decision assumes the

insolvency of the principal debtor of an

irreversible nature. Thirdly, the decision has

been said in some English authorities, repeated in

Mr Mullaney's article in the Modern Law Review,

which we have on our list and which we commend to

Your Honours, that the decision is inconsistent

with Pirelli, but that criticism itself has been the subject of criticism on the basis that it is

undeserved.

If it is undeserved, then the distinction

between physical and economic loss cases can

produce capricious results. That can be seen in a

comparison of Forster v Outred itself and the case

of the security gates.

MASON CJ: There is a reference to that article earlier in

your outline, is there not?

MR HEENAN:  Yes, I am sorry, Your Honours, I have just

overlooked it. It is number 27 on our list, Dove v

Banha.ms Patent Locks Ltd. Dove v Banha.ms Patent

Locks Ltd was a case where a contractor was engaged

to install security devices in a firm. They

installed the security devices, gates or alarms,

and they were defective. There was therefore this

latent defect, but no damage was suffered until

wardley(2) 99 4/3/92

there was a robbery when the thief exploited the

deficiency in the security apparatus and the result
was that a claim could be sustained on the basis

that the cause of action had only accrued when the

thief had penetrated the barrier. It was seen as a

case involving defective premises or defective
physical services. If it was seen as an item of economic loss or a claim for economic loss, then

presumably the cause of action would have accrued

when the defective apparatus had been installed and

it would have been statute barred. So it was only

the presence of this property or physical damage

attribute to the case which differentiated it from

Forster v Outred, and it has been said to have

anomalous results.

This criticism turns, to some degree, on the

result being seen as a blurring of the difference

between Pirelli and Junior Books v Veitchi, but

with the discreditation of the reasoning in Junior

Books v Veitchi one must wonder how sound the

criticism remains.

MASON CJ:  Mr Heenan, I think we will adjourn now and we

will resume at 10.15 tomorrow.

AT 4.34 PM THE MATTER WAS ADJOURNED

UNTIL THURSDAY, 5 MARCH 1992

Wardley(2) 100 4/3/92