FEDERAL COURT OF AUSTRALIA

McCarthy v McIntyre

[1999] FCA 784

TRADE PRACTICES - misleading or deceptive conduct - third party reliance - purchase of shares in hotel company - overstatement of sales figures for hotel where sales figures supplied to valuer and formed basis of valuation supplied to financier - whether misrepresentor can be liable if financier relied upon false valuation in financing purchase and applicant suffered damage as a result.

DEBT - agreement to transfer property in consideration for repayment of mortgage over property - repayment of mortgage by transferee with funds of transferor - onus of proving that transferee repaid funds to transferor - whether transferor has claim in debt or for breach of contract.

RELEASE - principles applicable to construction thereof.

INTEREST - pre-trial interest - whether discretion of trial judge miscarried when ordering pre-trial interest for part only of period between arising of cause of action and judgment.

REAL PROPERTY - vendor’s lien - whether circumstances indicate intention of parties that vendor not have equitable lien over property.

Federal Court of Australia Act 1976 (Cth) s 51A(1)(a)

Trade Practices Act 1974 (Cth) ss 52, 82, 87

Conveyancing Act 1919 (NSW) s 54A

Fair Trading Act 1987 (NSW) ss 42, 68, 72

Jurisdiction of Courts (Cross-Vesting) Act 1987 (NSW)

Real Property Act 1900 (NSW) ss 74F(5)(b)(v), 74L

Real Property Regulations (NSW) reg 7(2), Sch 2

Gould v Brown (1998) 193 CLR 346, followed

Janssen-Cilag Pty Limited v Pfizer Pty Limited (1992) 37 FCR 526, followed

Haynes v Top Slice Deli Pty Limited [1995] ATPR 46-147, distinguished

Marks v GIO Australia Holdings Ltd (1998) 158 ALR 333, cited

Wardley Australia Ltd v Western Australia (1992) 175CLR 514, cited

Young v Queensland Trustees Ltd (1956) 99 CLR 560, followed

Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221, followed

Trident General Insurances Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107, followed

Turner v Bladin (1951) 82 CLR 463, followed

Abalos v Australian Postal Commission (1990) 171 CLR 167, cited

Devries v Australian National Railways Commission (1993) 177 CLR 472, cited

State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) (1999) 160 ALR 588, cited

Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 123, applied

Davies v Littlejohn (1923) 34 CLR 174, applied

Wossidlo v Catt (1935) 52 CLR 301, distinguished

Hewitt v Court (1983) 149 CLR 639, cited

Buckland v Pocknell (1843) 13 Sim 406;60 ER 157, followed

Mackreth v Symmons (1808) 15 Ves 329; 33 ER 778, cited

RONALD IAN McCARTHY & ORS v NEVILLE McINTYRE & ORS

NG 1043 OF 1998

EDLAN NO. 54 PTY LIMITED v AURO ROMANO McINTYRE

N 494 OF 1999

HILL, SACKVILLE, KATZ JJ

SYDNEY

11 JUNE 1999

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	RONALD IAN McCARTHY NG 1043 OF 1998 First Appellant MAXWELL McCARTHY Second Appellant EDLAN NO. 54 PTY LIMITED Third Appellant/Cross Respondent
AND:	NEVILLE McINTYRE First Respondent AURO ROMANO McINTYRE Second Respondent/Cross Appellant NEVITORO INVESTMENTS PTY LIMITED Third Respondent
BETWEEN:	EDLAN NO. 54 PTY LIMITED N 494 OF 1999 Appellant
AND:	AURO ROMANO McINTYRE Respondent
JUDGES:	HILL, SACKVILLE AND KATZ JJ
DATE OF ORDER:	11 JUNE 1999
WHERE MADE:	SYDNEY

The Court orders that:

1. The parties file and serve by 10 am, Tuesday, 15 June 1999, written submissions as to costs and any written submissions as to the form of orders proposed in the Court’s reasons for judgment.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

RONALD IAN McCARTHY NG 1043 OF 1998

First Appellant

MAXWELL McCARTHY

Second Appellant

EDLAN NO. 54 PTY LIMITED

Third Appellant/Cross Respondent

AND:

NEVILLE McINTRYE

First Respondent

AURO ROMANO McINTYRE

Second Respondent/Cross Appellant

NEVITORO INVESTMENTS PTY LIMITED

Third Respondent

BETWEEN:

EDLAN NO. 54 PTY LIMITED N 494 OF 1999

Appellant

AND:

AURO ROMANO McINTYRE

Respondent

JUDGES:	HILL, SACKVILLE AND KATZ JJ
DATE:	11 JUNE 1999
PLACE:	SYDNEY

REASONS FOR JUDGMENT OF THE COURT

The Proceedings

1 Before the Court are appeals and a cross appeal from a number of judgments of a judge of this Court, arising out of what, on any view of the matter, may be described as complicated litigation which occupied many weeks of hearing.

2 The appeals and cross-appeal arise out of two separate transactions in which either all or some of the parties were involved. One transaction, which occurred in 1993 and involved all of the parties, related to shares in Edlan No 54 Pty Limited (“Edlan”), which company owned a hotel known as the Tropicana Hotel (“Tropicana”). The other transaction, which occurred in 1990 and involved only two of the parties, namely Edlan and Auro McIntyre (“Auro”), related to a property known as Riverview Lodge.

3 The Tropicana transaction gave rise to a proceeding commenced in this Court by Mr Ronald Ian McCarthy, generally referred to as Jack McCarthy (“Jack”), his brother Maxwell McCarthy (“Max”) and Edlan against Neville McIntyre (“Neville”), Auro and Nevitoro Investments Pty Limited (“Nevitoro”), a company owned by McIntyre interests. In proceeding numbered NG 1043 of 1998, Jack, Max and Edlan appeal against the judgment dismissing their claims in respect of the Tropicana transaction.

4 Some time after the commencement of the Tropicana proceeding in this Court, the claims in the proceeding were amended to permit Edlan alone to make an additional claim against Auro alone in respect of the Riverview Lodge transaction (“the first Riverview Lodge claim”). Proceeding numbered NG 1043 of 1998 also involves Edlan’s appeal and Auro’s cross-appeal against the judgment on Edlan’s first Riverview Lodge claim.

5 The Riverview Lodge transaction gave rise to a further action commenced by Edlan against Auro in the Supreme Court of New South Wales and subsequently transferred to this Court, seeking a declaration that Edlan held an unpaid vendor’s lien over Riverview Lodge and consequential relief (“the second Riverview Lodge claim”). In proceeding numbered N 494 of 1999, Edlan appeals against the judgment dismissing its second RiverviewLodge claim.

6 The appeals and cross-appeal in proceeding numbered NG 1043 of 1998 were heard together with the appeal in proceeding numbered N 494 of 1999.

7 Edlan’s two Riverview Lodge claims involved no federal matter. Perhaps the claims made by the McCarthys and Edlan in this Court in respect of the Tropicana transaction did, although it is not clear to us whether the claim for loss suffered as a result of misleading or deceptive conduct arose under the Trade Practices Act 1974 (Cth) or, given that it involved conduct of an individual, arose under the Fair Trading Act 1987 (NSW) and so could only be brought in this Court as a result of cross-vesting legislation.

8 When the proceedings were called, Mr Biscoe QC, senior counsel for Auro, indicated that it was proposed to argue a constitutional point, namely that the cross-vesting legislation of the State of New South Wales, the Jurisdiction of Courts (Cross-Vesting) Act 1987 (NSW), was invalid. The Court accordingly ordered that notice be given under s 78B of the Judiciary Act 1903 (Cth) to the Attorneys-General of the Commonwealth, the States and the Territories. A number of them replied, indicating that they did not desire to intervene. That was far from surprising, given that the issue had recently been argued in the High Court of Australia in Re Wakim; ex parte McNally and that judgment was expected to be delivered in that case on 17 June 1999, approximately two weeks after the argument of the proceedings before us.

9 Pending that decision, this Court is, in any event, bound to follow the decision of the High Court in Gould v Brown (1998) 193 CLR 346, in which an equally divided High Court affirmed the judgment of a Full Court of this Court upholding the validity of the cross-vesting scheme under the Corporations Law. This Court was of the view that, in the circumstances, a reasonable time had elapsed from the giving of the notices and, accordingly, embarked on the hearing of argument on the substantive issues involving Riverview Lodge.

10 It is convenient to deal with the issues in the order in which they were argued before us, namely first, the issues which concern the Tropicana transaction and, secondly, those which concern the Riverview Lodge transaction.

The Tropicana Transaction

11 For some time prior to 17 August 1993, Jack and Neville had been involved in business together. Neville managed the Tropicana, which was owned by Edlan. Max was a pharmacist, who, as his Honour found (although the finding is challenged), relied upon his brother in the Tropicana transaction.

12 Although the learned primary judge made no findings on certain matters which were pleaded, they appear not to be in dispute and are helpful in sketching the background to the Tropicana transaction. The matters to which we refer are taken from the final form of the statement of claim. It may also be noted, and it is apparent from the litigation itself, that what, presumably, had been an amicable business relationship between the McCarthys and the McIntyres disintegrated into a bitter feud. The Tropicana transaction was entered into against the background of the two families severing their business connections.

13 In 1988, Jack and Neville entered into an agreement whereby Jack would lease from Neville for 15 years a hotel called the Macquarie Arms Hotel. The lease could not proceed because Neville was ultimately restrained by a court order from proceeding with it. However, Jack had paid Neville a deposit of $500,000 for the lease. Neville repaid Jack $200,000. The parties then agreed that Jack would purchase the freehold of the Macquarie Arms Hotel and that the remaining $300,000 would be a down payment. However, the sale did not proceed.

14 In 1990, Neville offered to sell to Jack for $300,000 one quarter of the shares in Edlan, which then owned the Tropicana. In about August 1990, that transaction was completed and Jack became the beneficial owner of one quarter of the share capital of Edlan. By mistake, however, one half of the share capital was transferred to him. There was, initially, a dispute between the parties as to whether there in fact had been a mistake. That dispute was ultimately resolved between the parties.

15 In 1992, an oral agreement was reached for the sale to the McCarthy interests of the remaining shares in Edlan. That oral agreement ultimately gave rise to three agreements which were entered into on 17 August 1993.

16 The first was a share sale agreement. Under it, Auro, described as “the vendor”, agreed to sell 2501 shares in Edlan to Max for $2,501. The agreement also required Max, as purchaser, to pay $2,100,000 to discharge a debt which Edlan owed to the Commonwealth Bank, with any remaining indebtedness being discharged by Auro and Jack.

17 The second agreement was referred to as the deed of settlement. The parties to it included Auro, Neville, Nevitoro, Edlan, Jack and Max, as well as other members of the McIntyre family and a Mr Riddell. It recited the fact that there had been a dispute as to the ownership of the issued capital of Edlan (5002 shares) and provided, among other things, for Auro to transfer to Max the disputed shares. The deed included mutual releases. The construction of the mutual releases is a matter which arises in connection with the Riverview Lodge transaction, dealt with subsequently in these reasons.

18 By clause 6.1 of the deed of settlement, Nevitoro was to advance to Edlan $360,000 at interest. No other provisions of the deed of settlement are presently relevant.

19 The third agreement was a deed of charge, the parties to which were Edlan and Nevitoro. It recited that Nevitoro had advanced to Edlan $360,000 on the terms of the deed of settlement and charged Edlan’s assets with the repayment of that amount to Nevitoro.

20 It seems that the shares in Edlan, which Max purchased from Neville in August or September 1993, were purchased for the benefit of a Mr Riddell. The background to this transaction is not clear. Ultimately, however, on 11 November 1993, Max paid Mr Riddell $313,000 for the transfer to him of the beneficial interest in those shares in Edlan. Thus, by 11 November 1993, the whole of the issued share capital of Edlan had become owned, legally and beneficially, by Jack and Max.

21 As noted above, one of the terms of the share sale agreement was the refinancing of a loan to Edlan from the Commonwealth Bank in an amount in excess of $2 million. There was evidence from the McCarthys (although not referred to in the judgment appealed from) that, prior to the entry into of the three agreements in August 1993, they had made attempts to obtain finance to permit the Edlan loans to be repaid, but without success. Ultimately, Westpac Banking Corporation (“Westpac”) agreed to provide the necessary refinancing. Westpac required that sales figures of the Tropicana and a valuation based on those figures be provided to it before it would entertain the refinancing. A letter from Westpac, dated 19 April 1993, made it clear that it was a condition of Westpac’s providing finance that a valuation of the Tropicana be obtained in line with valuations which had been obtained in December 1992 of $3.18 million. This letter was likewise not referred to in the judgment appealed from.

22 The case advanced by the McCarthys at first instance was that Neville had supplied sales figures for the hotel to an accountant to enable a valuation of the hotel to be made. The McCarthys claimed that those figures were overstated and, in consequence, the valuation prepared was overstated. A valuation of the Tropicana made in June 1993 by a valuer, Mr Baker, based upon the false trading figures, was $3.16 million.

The Judgment Appealed From

23 The learned primary judge found, and it is no longer in contest before us, that Neville did supply sales figures to the accountant that were false and, in consequence, engaged in conduct which was misleading or deceptive, or likely to mislead or deceive, in breach of either s 52 of the Trade Practices Act or s 42 of the Fair Trading Act. The valuation ultimately prepared by Mr Baker, based as it was on the sales figures supplied by Neville, was likewise overstated by approximately $1 million.

24 His Honour also found that Auro and Nevitoro “at least acquiesced” in the misleading or deceptive conduct of Neville and concluded that it “therefore” followed that they were “knowingly concerned” in that conduct. It was conceded before us by Mr Slattery QC, senior counsel for the McCarthy interests, that his Honour had erred in law so far as he had held that acquiescence was sufficient to constitute the person acquiescing an accessory by virtue of being “knowingly concerned”.

25 His Honour then turned to the question whether the McCarthy interests had any claim arising under ss 82 and 87 of the Trade Practices Act or the equivalent ss 68 and 72 of the Fair Trading Act.

26 His Honour, while accepting that the McCarthys had no knowledge of the falsity of the trading figures, nevertheless held that they had not relied upon those figures, or the valuation based upon them, in acquiring the shares. His Honour found that Jack and, therefore, Max were at all times prepared to accept that the hotel was worth $3.2 million. They knew, as indeed did all parties, that a valuation had to be found to induce a financier to refinance the Commonwealth Bank loan to Edlan. That was the only reason they were interested in the trading figures. This was, his Honour held, fatal to their claim, since the McCarthy interests had relied neither on the trading figures nor on the valuation in entering into the share sale agreement, or for that matter, any other agreement.

The Submissions of the McCarthy Interests (Including Edlan) on the Appeal

27 The McCarthy interests submitted that the case which they had advanced before his Honour was not merely (as his Honour had apparently thought) that Max and Jack had relied upon the incorrect valuation in entering into the share sale agreement. Rather, they contended that they had put the case in two further alternative ways and that his Honour had not addressed their alternative submissions.

28 The first alternative contention was that, if the McCarthys had been made aware that the valuation was false, they would not have continued with their plan to purchase the shares in Edlan. They would therefore not have incurred the obligations created by the deed of settlement and deed of charge. This submission was referred to before us as the “negative reliance” argument.

29 The second, and more important, alternative submission was that, if the valuation, based as it was on the incorrect figures supplied by Neville, had been reduced by approximately $1 million, Westpac would not have proceeded with the arrangement to refinance Edlan. Moreover, no other financier would have done so and in consequence Max would not have been in a position to purchase the shares. Also, it was submitted that the share sale agreement, the deed of settlement, the deed of charge and the ultimate acquisition of shares from Mr Riddell for $313,000 could not have proceeded and in the result the McCarthy interests would not have suffered loss. We shall return later to the question of the loss which might be asserted to have been suffered if this claim is correct.

30 The McCarthy interests submitted before us that, despite the alternative submissions having been advanced in this way, the learned primary judge had simply not addressed them. Consequently, necessary findings of fact, such as whether any financier would have been prepared to refinance the loan from the Commonwealth Bank and the value of the shares acquired from Mr Riddell (asserted to be nil by the McCarthys), had not been made.

31 As already noted, the finding that Max had relied upon Jack in entering into the purchase of the shares and other agreements was also criticised, particularly because, in another part of his Honour’s reasons for judgment, he had said that Max had relied “very much”, rather than exclusively, upon his brother. This matter may be put to one side. His Honour held that in the transactions Max relied upon his brother Jack. That was a factual finding which was open to his Honour. It was not necessary for his Honour to state reasons for that finding, as the McCarthys submitted. The finding should not be disturbed by this Court.

The Submissions of the McIntyre Interests

32 For the McIntyres, it was submitted that the case as pleaded by the McCarthys, when taken in conjunction both with a statement of facts, issues and contentions which had been filed and with submissions which had been made, did not raise the issues now sought to be advanced. That was not the case, it was submitted, which the McIntyres had been required to meet. It was for that reason that the primary judge had made no, or allegedly insufficient, findings of fact on certain matters. Accordingly the appeal should be dismissed.

33 In the alternative, the McIntyres submitted that the evidence made it clear that a case along the lines now advanced by the McCarthys could not succeed. It should be observed that there were nine appeal books, including thousands of pages of transcript and exhibits, which would have to be examined before we could reach a view on the factual matters raised by this submission. Moreover, we have not had the advantage of observing the witnesses, in circumstances where the primary judge’s reasons for judgment make it clear that there would be real questions of credit to be decided. We therefore reject the invitation that we should make factual findings where no such findings have been made. If the primary submission of the McCarthys succeeds, the matter must be sent back to the learned primary judge for the facts to be found.

34 Next, it was submitted that, as a matter of law, ss 82 and 87 of the Trade Practices Act (and, no doubt, their State equivalents) cannot apply where the case is one of third party reliance. That is to say, ss 82 and 87 cannot apply where a third party has relied on the misleading or deceptive conduct and the claimant argues that the transaction would not have proceeded but for that reliance and that in the result the claimant has suffered loss.

35 Finally, it was submitted on behalf of the McIntyre interests that, even if the third party reliance submission was correct in principle, neither Jack nor Edlan could be seen to have suffered loss in consequence of Westpac’s reliance on the misleading or deceptive conduct.

The McCarthy Case As Pleaded and Advanced Below

36 The first issue to be determined is whether the pleadings (including the statement of facts, issues and contentions) and the submissions below demonstrate that the McCarthys had indeed advanced the case which they now rely upon, so that both the primary judge and the McIntyres were alerted to the case that was being put.

37 At the commencement of the hearing before the learned primary judge, an application was made by the McCarthy interests further to amend their statement of claim. This resulted ultimately in leave being given to file a second further amended statement of claim. Relevantly, that statement of claim alleged that Neville had supplied to the valuer and others and “prospective financiers” overstated sales figures for the Tropicana, that being the conduct alleged to be misleading or deceptive. Paragraph 12 of that statement of claim then alleged:

“As a result of the misleading and deceptive conduct and contraventions of legislation referred to in paragraphs 10 and 11 above the First and Second Applicants entered into the Transaction and undertook the obligations and liabilities created by the Share Sale Agreement, the Deed of Settlement, the Riddell Share Sale and the Deed of Charge and thereafter the Applicants suffered loss and damage in the operation of the business of the Third Applicant.”

The “transaction” is defined in the pleading as being the entry into each of the share sale agreement, the deed of settlement and the deed of charge.

38 It will be noted that paragraph 12 does not seek to allege a claim by Edlan. Other paragraphs of the pleading do, but they are not relevant to the present discussion.

39 The McCarthy statement of facts, issues and contentions was filed prior to their final statement of claim. It said that, in entering into the various agreements in August 1993 or November 1993, each of Jack, Max and Edlan had relied upon the valuation emanating from the wrong figures supplied by Neville. The statement claimed that:

“As a result of the 1993 Transaction the net asset position of the First and Second Applicants deteriorated by the amount being the difference between the June 1993 valuation and the valuation contained on the experts report … such difference being an amount of $1,226,401.00.”

40 The amendments incorporated in the second further amended statement of claim were the subject of some debate before his Honour. Two amendments were especially relevant to the present issue. The first was an amendment to particulars, which sought to add that the valuations had been supplied to prospective financiers. Mr Coles QC, then senior counsel for the McCarthy interests, was questioned by his Honour as to the materiality of this allegation. The following interchange followed:

“Mr Coles: Of course, your Honour, as – the financiers, your Honour, of course lend money on the basis of these false valuation. Through no fault of the valuer, these artificially inflated valuations were relied upon ---

His Honour: Your clients incurred liabilities in the loan.

Mr Coles: As a result the bank lent us money.

His Honour: You incurred a liability to the bank.

Mr Coles: We incurred a liability to the bank and spent money paying my learned friends client. The bank in short would not have lent the money without these valuations.”

41 After some further discussion, the transcript continues:

“His Honour: But would it matter if these documents were going to be subpoenaed to financiers or not?

Mr Coles: Yes, it would.

His Honour: It would matter, would it?

Mr Coles: For the simple reason, your Honour, that both the parties contemplated that this deal could not go ahead unless the financiers would lend the money, and there is no doubt, your Honour, and we do not propose to do more than draw your Honour’s attention to the inevitable inference. Your Honour may or may not accept the inference, but there is no doubt, your Honour, that the bank would not have lent the amount of money they did lend, if the valuation had not come in at the price it did come in….

So not only would the applicant not have gone into the transaction, they would not have been able to go into the transaction, because the bank would simply not have lent money.”

42 The amendment was allowed, although his Honour noted that he did not see the entire significance of it.

43 In fairness to his Honour, the written submissions made by the McCarthys did not make as clear as they should have that this was the case being advanced. Although reference was made in the submissions to the incorrect figures being supplied for the purposes of the valuation required by Westpac, the McCarthys put their case substantially on the basis that they entered into the various transactions in reliance upon the figures or the valuations prepared on the basis of those figures. However, the written submissions contended that the valuation was fundamental to the transaction and concluded as follows:

“Finally, the 19 April 1993 letter of offer from Westpac to Mr McCarthy … specifically required a further valuation ‘to come in line with present valuation dated 8/12/92’. Finance would not have been provided by Westpac and the transaction would not have been completed if Mr Baker had produced a valuation that was not in line with the December 1992 valuation of 3.18 million. In particular valuations of $2.4 or $2.09 would certainly not have satisfied Westpac. In those circumstances the Applicants have suffered loss and damage as a result of their financier being mislead irrespective of whether they personally had any knowledge of the 1993 valuation. (Janssen-Cilag Pty Limited v Pfizer Pty Limited (1992) 37 FCR 526 at 530).”

44 The McIntyres’ written outline answered this by submitting: first, that the case had neither been pleaded nor dealt with in the statement of facts, issues and contentions; secondly, that the evidence did not lead to the conclusion in any event, because it was too sparse; thirdly, that Janssen-Cilag was distinguishable; and, fourthly, that a “but-for” test of causation was inappropriate.

45 The amendments to the pleading, together with the submissions, make it tolerably clear that the case below for both Jack and Max (but not for Edlan, which, as already noted, was not included in paragraph 12 of the statement of claim) was put on the basis that they had suffered loss as a result of the misleading or deceptive conduct of Neville (and those with accessory liability) in providing false information to their financier, Westpac, thereby inducing Westpac to refinance the Edlan loan to the Commonwealth Bank. It was said that, had the real figures been provided to the accountant and supplied to Westpac in the form of a valuation, Westpac would not have proceeded with the deal. In consequence, neither Jack nor Max would have entered into the various agreements which ultimately caused them to suffer loss.

46 This aspect of the case was not addressed by the primary judge. For it to succeed, the following findings would need to be made:

1. That had the true figures been revealed, Westpac would not have provided finance.

2. That finance would not have been available from any other source.

3. Related to the first two findings, that in consequence the parties would not have entered into the transactions they did.

4. That Max or Jack or both suffered loss in the result, including within that finding the extent of that loss. (It should here be mentioned that it was conceded by senior counsel for the McCarthys before us that it could not be shown that Jack had suffered any loss, so any such finding would be limited to Max.)

Can a Third Party Reliance Case Be Brought as a Matter of Law?

47 It was submitted by senior counsel for the McIntyre interests that a third party reliance case could not succeed as a matter of law. Support was sought in the decision of Einfeld J in Haynes v Top Slice Deli Pty Limited [1995] ATPR 46-147. That case does not, however, deny the possibility of a third party reliance case succeeding. It points instead to difficulties of causation and the necessity for an applicant to prove the requisite proximity to constitute causation, which in the ordinary case reliance would provide. Otherwise, Haynes is merely a case on its own facts. In that case, which involved an allegation of reliance by a third party (a bank), Einfeld J found that there was no nexus between entry into the transactions which caused loss and the bank’s approval which had been induced by the misrepresentation.

48 With respect, we agree with Lockhart J in Janssen-Cilag that there is nothing in s 82 of the Trade Practices Act (or s 87 or their State equivalents) which requires, in a case where the misleading or deceptive conduct involves a misrepresentation, that the person who alleges damage must rely upon that misrepresentation. In a passage at 529, cited with approval by Gummow J in Marks v GIO Australia Holdings Ltd (1998) 158 ALR 333 at 359, Lockhart J said:

“What emerges from an analysis of the cases (and there are many of them) is that they do not impose some general requirement that damage can be recovered only where the applicant himself relies upon the conduct of the respondent constituting the contravention of the relevant provision.”

All that is necessary, in our opinion, is that there be a sufficient and direct link (ie, causation) between the loss or damage alleged to have been suffered by the claimant and the misleading or deceptive conduct.

49 It is well established that the misleading or deceptive conduct need not be the sole cause of the loss. However, causation must be established. So much emerges from the word “by” to be found in ss 82 and 87 of the Trade Practices Act (and their State equivalents). As was said in Wardley Australia Ltd v Western Australia (1992) 175CLR 514 at 525, that word “clearly expresses the notion of causation without defining or elucidating it”. Precisely what test should be used to judge what constitutes the sufficient causal connectionrequired between the misleading conduct and the outcome is the subject of some difficulty. Perhaps there is no simple test capable of formulation. It is necessary that the issue of causation be approached in what the High Court in Wardley called a “practical or commonsense” way. In many areas, the courts have applied a “but for” test of causation. As McHugh, Hayne and Callinan JJ pointed out in Marks v GIO Australia Holdings Ltd at 346, the idea that a “but for” test is the exclusive test of causation has been found wanting in some contexts and it may yet be found to be wanting in the context of ss 82 and 87 of the Trade Practices Act (and their State equivalents). Whether this be the case or not, the “but for” test, applied in a common sense and not a pedantic way, provides still a useful approach to the issue of causation.

50 Where a claimant is able to show that, but for the misleading or deceptive conduct, he or she would not have entered into a transaction, then such loss as flows directly to the claimant from the transaction will satisfy the requirement of causation. This is so where the claimant relies upon the misleading or deceptive conduct (the usual case). It is also so where a third party whose action was a sina qua non of the entry by the claimant into the transaction (the present case as alleged) relies upon the misleading or deceptive conduct.

51 In our view, the case which Jack and Max sought to make out is, assuming appropriate factual findings, one which in law was capable of being sustained and the argument to the contrary by the McIntyre interests should be rejected.

Negative Reliance

52 In so far as the McCarthy interests submitted before us that the primary judge had not dealt with their “negative reliance” case, we regard his Honour’s findings of fact on their positive reliance case as being inconsistent with acceptance of their negative reliance case. We therefore do not consider that the negative reliance case is available to the McCarthy interests.

Loss

53 It follows from what we have said above about third party reliance that Max may be able to establish that he suffered loss in consequence of the acquisition by him of the shares in Edlan, provided that necessary factual findings are made in his favour. If the shares in Edlan were worthless, as he contends, or were worth less than he paid for them, he would prove that he had sustained loss.

54 The situation is different with Jack. Jack, it is true, guaranteed the Edlan finance from Westpac. In that sense he incurred a contingent liability. However, it has not been suggested that Edlan defaulted on its obligations to Westpac, thereby causing a loss to Jack. It is also the case that Jack guaranteed the repayment of moneys which were required to be paid by Edlan to Auro. Again, that amount was repaid, and no liability was incurred by Jack. As was pointed out to senior counsel for Jack during argument, in these circumstances it is difficult to see how any loss could have been suffered by Jack. As already mentioned, senior counsel for Jack conceded this.

55 Accordingly, the orders made by the learned primary judge do not need to be varied so far as they dismissed the application brought by Jack. Likewise, since third party reliance was not pleaded in the case brought by Edlan, the application, to the extent it concerned Edlan, was rightly dismissed.

56 However, the appeal should be allowed in part. The application, so far as it concerned Max, should be remitted to the primary judge to make the necessary factual findings to determine whether the case of third party reliance made by him should succeed. Since the case for accessory liability could not succeed on a finding of mere acquiescence in the misleading or deceptive conduct, the application should be dealt with only in so far as it concerns Neville as respondent.

The Riverview Lodge Transaction

57 Riverview Lodge is a rural property which was the subject of a transfer, dated 20 August 1990, from Edlan to Auro.

58 The Riverview Lodge appeals and cross-appeal concern orders made by the primary judge in consequence of three sets of reasons for judgment delivered by him, each relating to aspects of Edlan’s two Riverview Lodge claims against Auro.

59 Edlan’s first Riverview Lodge claim related to the sum of $505,476.43 (“the Sum”), which Edlan alleged was due to it by reason of Auro’s failure to comply with a contractual obligation to assume responsibility for a secured loan made by Westpac to Edlan. That obligation was said to arise by virtue of an oral agreement between Edlan and Auro entered into in or about August 1990, whereby Edlan agreed to transfer Riverview Lodge to Auro in consideration for his assuming responsibility for the secured loan.

60 On 11 September 1998, the primary Judge decided in favour of Edlan on its claim for the Sum (McCarthy v McIntyre, unreported, 11 September 1998). Then, on 8 February 1999, his Honour decided that Edlan was entitled, pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth), to interest on the Sum, but only from 1 December 1997, approximately the date on which Edlan had first demanded payment of the Sum from Auro (McCarthy v McIntyre [1999] FCA 155).

61 As already mentioned at the outset of these reasons, Edlan’s second Riverview Lodge claim had been made in separate proceedings transferred to this Court and was for a declaration that it was entitled to a charge or lien in respect of the Sum over Riverview Lodge and to consequential relief.

62 On 29 April 1999, his Honour dismissed that claim (Edlan Pty Ltd v McIntyre [1999] FCA 523).

63 The appeals that must be considered are as follows:

· Auro appeals (by way of a notice of cross-appeal in proceeding numbered NG 1043 of 1998) against the judgment for the Sum. We describe this as the “Westpac Loan Appeal”.

· Edlan appeals (by way of an amended notice of appeal in proceeding numbered NG 1043 of 1998) against the orders limiting the award of interest to the period from 1 December 1997. We describe this as the “Interest Appeal”.

· Edlan appeals (by way of a notice of appeal in proceeding numbered N 494 of 1999) against dismissal of its claim in the transferred proceedings for declaratory and consequential relief. We describe this as the “Vendor’s Lien Appeal”.

As has been noted, all appeals and the cross-appeal were heard together.

Background

64 Edlan and Auro were in dispute on the appeals and cross-appeal as to what issues had been pleaded or otherwise raised in the proceedings determined by the primary judge. In consequence, argument about the pleadings and the conduct of the trial necessarily took some time.

65 It should be said at the outset that the Riverview Lodge claims presented considerable difficulties for the primary Judge. In part, as with the Tropicana claim, this was because of lack of specificity in the pleadings and statements of facts, issues and contentions. It was also due to the fact that dealings between the McCarthy and McIntyre interests, including between Edlan and Auro, were often informal. As his Honour found, the McIntyre and McCarthy interests elected to transact much of their business in cash. When documentation was prepared, “insufficient time was given to important details”. His Honour considered that the documentation had to be approached with caution and sometimes with scepticism and that the Court could not “attempt to recreate order out of chaos”.

The Riverview Lodge Facts

66 With this background in mind, we can turn to those facts relating to the Riverview Lodge transaction which no longer seem to be in dispute. The following is largely drawn from documentation found by the primary judge to be genuine.

67 On 26 June 1989, Riverview Lodge was transferred by the then registered proprietors to Edlan, for a consideration of $710,000. On the same date, Edlan executed a series of mortgages over Riverview Lodge in favour of Westpac.

68 As at 25 July 1990, Edlan owed Westpac a debt of about $915,000, secured on Riverview Lodge. On 4 September 1990, prior to deposits and interest being credited on that day, the debit balance in the relevant account (known as the “Property Loan Account”) was $938,378.47.

69 In or about July or August 1990, negotiations took place between a Mr and Mrs Edwards, on the one hand, and Auro and Jack, on the other, for the sale of the Edwards’ shares in Edlan.

70 At about that time (there is no finding as to a precise date), Jack, acting on behalf of Edlan, entered into an oral agreement with Auro. It was accepted before us that the terms of the oral agreement were recorded, in substance, in a share sale agreement dated 31 August 1990, to which we refer shortly. In essence, the oral agreement provided for Edlan to transfer Riverview Lodge to Auro, in consideration of Auro’s assuming responsibility for Edlan’s secured Property Loan Account with Westpac.

71 Edlan subsequently executed a transfer of Riverview Lodge to Auro for an expressed consideration of $700,000. The transfer is dated 20 August 1990, but appears in fact to have been executed on 4 September 1990. In any event, it was stamped on 5 September 1990 and registered on 3 October 1990. As with so much of the documentation in this case, the recorded consideration of $700,000 was wrong (presumably resulting in an under-payment of stamp duty). The true consideration was Auro’s agreement to assume responsibility for Edlan’s secured Property Loan Account, having a debit balance in the order of $938,000.

72 On 4 September 1990, the share sale agreement was executed, although it was backdated for unexplained reasons to 31 August 1990. It provided for the sale by Mr and Mrs Edwards of their shares in Edlan to Auro and Jack. Edlan was not a party to the share sale agreement. However, cl 3 referred to the oral agreement for the sale of Riverview Lodge. As we have noted, it was accepted that cl 3 (subject to one error) accurately recorded the substance of the terms of the oral agreement. Clause 3 provided as follows:

“3. The Vendors (jointly and severally) warrant:-

(a) That the balance Sheet of the Company comprising the Third Schedule hereto is a true and accurate statement of the assets and liabilities of the Company as at the 30th June, 1989,... nor has the financial position of the Company altered other than in the ordinary course of business since the date of the said Balance Sheet except as set out hereunder:-

1. The property describbed [sic] as Riverview Lodge was transferred to the Purchasers [sic] in consideration of the Purchasers assuming responsibility for the loan from Westpac.

2. The value of property plant and equipment will be reduced by $744,995.50 consequent on the disposal of the land described as Riverview Lodge.

3. The amount of non current liabilities will be reduced by $900,000 consequent upon the repayment of the Westpac advance in full.”

It was common ground that the reference to “the Purchasers” was in error: the sole purchaser of Riverview Lodge was Auro. The apparent disparity between the figures in cl 3(a)(2) and cl 3(a)(3) reflects the fact that the value of Riverview Lodge seems to have been recorded in the accounts on an historical cost basis. The figure of $900,000 recorded in cl 3(a)(3) was not precisely correct.

73 Auro became a director of Edlan on 3 September 1990.

74 On 4 September 1990, Edlan drew a cheque payable to itself in the sum of $700,000. By a process it is unnecessary to recount, $505,476.43 of this amount was credited to Edlan’s Property Loan Account with Westpac on the same day. A further payment of $430,000, made by or on behalf of Auro, was also credited to the account on 4 September 1990. Those payments, taken in conjunction with an amount of interest, reduced the debit balance of the account from $938,378.47 to nil.

75 Westpac executed a discharge of mortgage in respect of Riverview Lodge in favour of Edlan as mortgagor. This document was dated 20 August 1990, but was apparently executed after the payments referred to in the previous paragraph had been made.

The Riverview Lodge Pleadings

76 Edlan’s pleaded case was as follows. It alleged that it (Edlan) was the registered proprietor of Riverview Lodge and that it owed Westpac an amount secured upon that property. Edlan then pleaded the oral agreement made between Jack on behalf of Edlan and Auro relating to the transfer of Riverview Lodge and the execution and registration of the transfer of Riverview Lodge to Auro as transferee.

77 Edlan alleged that Auro had breached the oral agreement by failing or neglecting to “repay to [Edlan] or Westpac” the moneys due to Westpac. The particulars referred to Edlan’s cheque for $700,000, which was said to have been cashed, and the amount of $505,476.43 paid from the proceeds to Westpac in reduction of the loan. The particulars also stated that Auro failed to repay “such moneys” to Edlan or Westpac. It was said that Edlan had suffered loss and damage in consequence of Auro’s breach of the oral agreement.

78 Edlan also pleaded alternative causes of action in restitution and breach of fiduciary duty, apparently in order to overcome a foreshadowed limitation defence by Auro. That limitation defence has not, however, been pursued. Edlan did not plead a case that Auro was simply indebted to it for the Sum.

79 Auro pleaded what Mr Biscoe QC conceded was a formal defence. This is a matter of some significance, because Auro complains before us that the primary judge failed to address a contention raised by him at the trial, namely that Jack, prior to 4 September 1990, had authorised Edlan to advance to Auro an amount sufficient to pay out Westpac (that is, the Sum). In other words, Auro now says that Edlan advanced to Auro the Sum in order to enable him to pay out the whole of the Westpac debt, thereby discharging his obligations to Edlan under the oral agreement. The effect of this was (so it is said) that Auro owed Edlan the amount of $505,476.43, not under the oral agreement or in consequence of its breach, but under a simple loan made shortly before 4 September 1990. Since Edlan had never pleaded such case, it was bound to fail on its claim for the Sum.

80 In our view, the reason that the primary judge did not address the claim now made, to the effect that Edlan and Auro entered into what was described in argument as an “intermediate loan agreement”, is that the claim was never pleaded or put in issue in the proceeding by Auro. We have considered carefully the successive statements of facts, issues and contentions filed by the parties in connection with the Riverview Lodge claim. There is nothing in those documents which suggests that Auro wished to contend that he had complied with his obligations under the oral agreement by means of the intermediate loan agreement with Edlan. Doubtless, this explains why Edlan did not take the obvious course of amending to plead an alternative case based on simple non-payment of a loan.

81 Auro should not be permitted to raise this contention for the first time before us. For the issue to be addressed, it would have been necessary to make findings of fact and Edlan, as Mr Slattery QC argued, would have wished to explore factual questions bearing on it.

Issues on the Westpac Loan Appeal

82 Two issues therefore remain on the Westpac Loan Appeal.

· The first is whether Auro “reimbursed” (to use the language adopted by the parties) the Sum to Edlan. If he did, then Edlan accepted that he had satisfied his obligation under the oral agreement or, in any event, was no longer liable to Edlan under that agreement.

· The second is whether Auro has been released from any claim Edlan might have had in respect of the Sum by mutual releases contained in the deed of settlement executed on 17 August 1993, to which deed we have already referred in connection with the Tropicana transaction.

The Repayment Issue

Auro’s Case

83 Auro’s case at the trial was that he had repaid the Sum (or an amount very close to the Sum) to Edlan in March 1991. At that time (so it was said), Edlan owed Wayne Edwards Transport Pty Ltd (“Edwards Pty Ltd”) (a company controlled by the Edwards) $458,326. The existence of this debt was supported by Edlan’s balance sheet as at 4 September 1990, which showed as a current liability a loan from Edwards Pty Ltd in that amount. On 26 March 1991, Edlan drew a cheque for $465,321.65 in favour of Edwards Pty Ltd. This cheque was endorsed by Mr Edwards in favour of Auro and then deposited to Edlan’s bank account on 1 April 1991.

84 Auro also relied on a rather curious document dated 26 March 1991, purportedly signed by Mr Edwards, in the following terms:

“I, WAYNE EDWARDS of Macquarie Arms Hotel, 99 George Street, Windsor NSW 2756 a director of Wayne Edwards Transport Pty Limited do hereby assign the debt of four hundred and sixty five thousand three hundred and twenty one dollars and fifty nine cents ($465,321.59) owing to Wayne Edwards Transport Pty Limited by Edlan 54 Pty Limited trading as Tropicana Hotel Motel of Rose Street, Wilberforce to Auro Romano McIntyre of 2 Caldy Place, Glenhaven NSW 2156 for the amount of one dollar ($1.00) and hereby acknowledge receipt of same in acknowledgment of the payment of the debt in full to Wayne Edwards Transport Pty Limited.”

85 Neville gave evidence that the assignment and the endorsement of the cheque to Auro were part of a settlement of accounts between himself and Wayne Edwards. Each owed the other money and Mr Edwards owed Nevitoro money. The March 1991 transactions, according to Neville, were part of the adjustments which “washed everything up”.

86 It was also said on behalf of Auro that the balance of the Sum (some $40,500) was repaid at about the same time. There was no contemporaneous documentary evidence to support this claim, although Mr Biscoe QC sought to explain this before us on the basis that Edlan’s records had been destroyed years before the trial. Neville gave some very vague evidence in support of the claim that an amount of $40,500 had been repaid to Edlan by or on behalf of Auro.

The Primary Judge’s Reasons

87 The primary judge approached the issue of repayment on the basis that the onus was on Auro to make good his defence. His Honour found that Auro had not succeeded, for the following reasons:

· Auro had not given evidence in the proceeding and no explanation had been proffered as to why he had not been called. His Honour therefore drew the usual inference that, if he had been called, his evidence would not have assisted his case.

· Although Mr Edwards had been called, he had no recollection of the relevant events.

· The only witness to give evidence of the payment was Neville. However, he had been unable to indicate the circumstances of the alleged payment in any detail. His Honour was unable to accept the evidence given by a party with such an obvious interest in the outcome of the proceeding.

· The assignment dated 26 March 1991 was to be treated with “caution and scepticism”. His Honour referred to it as a “curious document”, doubtless reflecting the fact that it raised more questions than it answered.

· Apart from Neville McIntyre’s evidence, the only material said to support the claim that Auro McIntyre had repaid the additional sum of $40,500 was a trial balance prepared for Edlan. However, the relevant entry did not support Auro’s claim.

Onus of Proof

88 Mr Biscoe QC submitted that his Honour had erred in placing the onus of proof of repayment on Auro. He accepted that the onus to prove repayment in an action for debt is on the defendant. But, he said, this was not such an action. Rather, it was an action for damages for breach of contract, in which the onus of proving loss or damage rested on Edlan.

89 In a sense, Edlan invited this submission by pleading its principal claim as one for loss and damage for breach of agreement, rather than as a claim for a liquidated sum due under the agreement. Nonetheless, in our view, Auro’s submission places form above substance and should not be accepted.

90 In Young v Queensland Trustees Ltd (1956) 99 CLR 560, the High Court held that, in an action for the recovery of moneys lent, the onus of proving repayment lies on the defendant. The Court based its holding on a detailed analysis of the history of common law pleading and of the emergence of indebitatus assumpsit. In a frequently cited passage, the Court said (at 567) that:

“[t]he common law does not and never did conceive of indebtedness in a sum certain for an executed consideration as a mere breach of contract: it is rather the detention of a sum of money and that was so whether the creditor enforced his demand by an action of debt or by indebitatus assumpsit.”

91 In Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221, Dawson J, at 265, cited this passage and explained the emergence of indebitatus assumpsit as the form of action for recovery of a debt:

“every student of legal history is familiar with Slade’s Case [(1602) 4 Co.Rep. 92(b), at p 94(a) [76 ER 1074, at p 1077]] in which it was decided that ‘every contract executory imports in itself an assumpsit, for when one agrees to pay money, or to deliver any thing, thereby he assumes or promises to pay, or deliver it ...”. Thereafter proof of the new promise became unnecessary. This form of assumpsit took the name of indebitatus assumpsit and it came to supplant debt as a means of recovering liquidated sums. It is to be distinguished from the other form of assumpsit in which the action was for breach of a promise, albeit a separate promise, to perform the terms of an agreement.”

The Findings

95 Mr Biscoe QC criticised the primary judge’s finding that Neville’s evidence as to the alleged repayment should be rejected. However, that finding was based on the primary judge’s assessment of Neville’s credit, after he had had the opportunity to observe Neville giving evidence over a considerable period of time. There is nothing to show that the primary judge misused his advantage or acted on evidence which was inconsistent with facts incontrovertibly established by the evidence or which was glaringly improbable: Abalos v Australian Postal Commission (1990) 171 CLR 167; Devries v Australian National Railways Commission (1993) 177 CLR 472, at 479; cf State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) (1999) 160 ALR 588, at 620-22 per Kirby J.

96 Mr Biscoe QC submitted that, even if Neville’s evidence were put to one side, the documentary evidence strongly supported Auro’s claim. He emphasised that the primary judge had accepted that the cheque made out to Edwards Pty Ltd had been endorsed to Auro and paid into Edlan’s bank account.

97 It is true that this documentary evidence, considered in isolation, is consistent with Auro’s claim. However, Auro also relied on the unexplained assignment of Edwards Pty Ltd’s debt to Auro. As we have remarked, that document raises more questions than it answers. For example, why did Edwards Pty Ltd assign a debt of $465,321.59 for a consideration of one dollar? Did the company receive any other consideration for the assignment and, if so, what and from whom? Why was the indebtedness of Edlan to Edwards Pty Ltd said to be $465,321.59, when the only indebtedness recorded in the financial statements was a different amount, namely $458,326.34, recorded in an unaudited balance sheet prepared as at 4 September 1990?

98 These questions were simply not addressed in the evidence. As the primary judge said, Mr Edwards said that he had no recollection of the transaction, notwithstanding that it apparently involved a very large sum of money. Auro himself chose not to give evidence.

99 The difficulties facing Auro were compounded by the primary judge’s rejection of Neville’s evidence about the repayment of the sum of $40,500. That finding was virtually inevitable, having regard not merely to his Honour’s view of Neville’s credit, but also to the vagueness of his evidence on the point and to the absence of any supporting documentation whatsoever. One is therefore left with a single alleged payment, in an amount that bears no clear relationship to Auro’s indebtedness to Edlan.

100 Further, the only reference to a debt due to Edwards Pty Ltd was in the unaudited balance sheet prepared as at 4 September 1990. This debt was not recorded in the accounts for the year ended 30 June 1990. It must therefore have come into existence, if at all, in the nine week period between 1 July 1990 and 4 September 1990. Yet no evidence was called to authenticate or explain the consideration for this recorded indebtedness.

101 The evidence left the matter in a state of uncertainty. Given the inference that Auro’s evidence would not have been helpful to his case, the primary judge was justified in concluding that Auro had failed to establish, on the balance of probabilities, that he had repaid, in whole or part, the amount due under the oral agreement with Edlan.

The Release Issue

Terms of the Release

102 Clause 12.2 of the deed of settlement, dated 17 August 1993, is in the following terms:

“12.2 Edlan, [Jack] and [Max] hereby release [Auro], [Neville],... and Nevitoro to the full extent permitted by law from and against any claim, action, judgment, damages, loss, costs, expenses or liabilities whatsoever that Edlan, [Jack] and [Max] might now and hereinafter maintain against [Auro], [Neville],... and Nevitoro and Edlan, [Jack] and [Max] guarantee and agree to hold [Auro],… [Neville],... and Nevitoro harmless and indemnified against and from all action, suits, claims, demands, verdicts, judgments, costs and expenses legal and otherwise and at any time which have arisen or may hereafter arise from the ownership of the entire issued share capital of Edlan other than claims, actions, judgments, damages, loss, costs, expenses or liabilities arising out of the Edlan No 54 Pty Limited Share Sale Agreement referred to in clause 3.1 hereof.” (Emphasis added.)

The reference to the Edlan No 54 Pty Limited Share Sale Agreement is to the contemporaneous agreement to which we have already referred above whereby Auro transferred his shares in Edlan to Max.

Auro’s Submissions

103 Auro’s contention, both before the primary judge and before us, commenced with the proposition that cl 12.2 contains two distinct parts. The first is a release and the second is, in effect, an indemnity. According to this argument, the phrase “which have arisen or may hereafter arise from the ownership of the entire issued share capital of Edlan” qualifies only the second part of cl 12.2 (the indemnity) and not the first (the release). The clause is therefore to be read as follows:

“12.2(a) [Edlan]...hereby release[s] [Auro] ... to the full extent permitted by law from and against any claim, action, judgment, damages, loss, costs, expenses or liabilities whatsoever that [Edlan] ... might now and hereinafter maintain against Auro ..., and

(b) [Edlan] ... guarantee[s] and agree[s] to hold [Auro] ... harmless and indemnified against and from all actions, suits, claims, demands, verdicts, judgments, costs and expenses legal and otherwise and at any which have arisen or may hereafter arise from the ownership of the entire issued share capital of Edlan

other than claims, actions, judgments, damages, loss, costs, expenses or liabilities arising out of the Edlan No 54 Pty Limited Share Sale Agreement referred to in clause 3.2 hereof.”

104 Mr Biscoe QC submitted that this construction of cl 12.2 was supported by several contentions:

· the use of the word “whatsoever” in the first, but not the second part of the clause, suggested that the first part should be construed broadly;

· it was logical for the indemnity to be limited to claims arising out of the ownership of Edlan’s share capital, since it was designed to protect Auro and others from third party claims; and

· the McIntyre and McCarthy interests were in dispute on a wide range of issues which the deed was intended to resolve, suggesting that the release was intended to have a broad scope.

The Primary Judge’s Reasons

105 The primary judge rejected Auro’s submissions and held that the qualifying words applied to both parts of cl 12.2. Clause 12.2 therefore did not operate to release Edlan’s claim against Auro, since the claim did not arise from the ownership of the entire issued share capital of Edlan, but from the transfer of Riverview Lodge.

Reasoning

106 In Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 123, the joint reasons for judgment (Dixon CJ and Fullagar, Kitto and Taylor JJ) approved two related principles. First, the general words of a release should be restrained by the particular occasion (at 123). Thus, the general words of a release are to be construed by reference to the recitals in the particular deed. Secondly, the general words in a release are limited to those things which were specially in the contemplation of the parties at the time when the release was given (at 123-124). Their Honours also said this (at 129-130):

“From the authorities which have already been cited it will be seen that equity proceeded upon the principle that a releasee must not use the general words of a release as a means of escaping the fulfilment of obligations falling outside the true purpose of the transaction as ascertained from the nature of the instrument and the surrounding circumstances including the state of knowledge of the respective parties concerning the existence, character and extent of the liability in question and the actual intention of the releasor.”

107 In the light of the principles laid down in Grant, we think that his Honour’s construction of cl 12.2 is correct. The better view of this ill-drawn clause is that the release in the first part of cl 12.2 was intended to be limited by the qualifying words “which have arisen or may hereafter arise from the ownership of the entire issue share capital of Edlan”. The following matters strongly support this construction:

· The recitals to the deed of settlement record that Auro had agreed to sell certain shares in Edlan; that a dispute existed between Auro and Max to the ownership of other shares in Edlan; and that in settlement of that dispute Auro had agreed to transfer the disputed shares to Max. The recitals relate directly to the qualifying words in cl 12.2.

· The dispute between Edlan and Auro concerning Auro’s alleged failure to comply with the terms of the agreement for the transfer of Riverview Lodge had not yet arisen in 1993. In fact, the issue was not raised until 1997. The dispute was therefore not in the contemplation of the parties at the time the deed was executed.

· The deed of settlement includes specific releases in clauses other than cl 12.2. For example, cl 9.2 records that Jack and Auro are in dispute concerning an advance of $300,000 from Jack to Nevitoro and that Jack releases Nevitoro from repayment of the $300,000. This specific release would be superfluous (as would others in the deed) if cl 12.2 had the broad meaning attributed to it by Auro.

108 For these reasons, we do not think Auro has established any error in the primary judge’s construction of cl 12.2.

The Interest Appeal

109 Paragraph 51A(1)(a) of the Federal Court of Australia Act provides as follows:

“(1) In any proceedings for the recovery of any money (including any debt or damages or the value of any goods) in respect of a cause of action that arises after the commencement of this section, the Court or a Judge shall, upon application, unless good cause is shown to the contrary, either:

(a) order that there be included in the sum for which judgment is given interest at such rate as the Court or the Judge, as the case may be, thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date as of which judgment is entered;....”

The primary judge ordered, in the exercise of the discretion conferred by par 51A(1)(a), that interest should run only from 1 December 1997, shortly after the date Edlan first demanded payment of the Sum by Auro. Although his Honour’s reasons were expressed briefly, it is clear that he considered that Edlan’s delay in asserting the claim against Auro justified the exercise of his discretion in that fashion.

110 Mr Slattery QC contended that his Honour’s exercise of discretion had miscarried, because he had failed to take into account the explanation given for the delay by the McCarthy interests. Mr Slattery QC did not point to evidence to this effect during oral argument, but supplied a list of references after the hearing had concluded.

111 The evidence to which we were referred, for the most part, consisted of claims by Jack that he did not know about certain matters, such as Edlan’s Property Loan Account with Westpac or the fact that Auro had assumed responsibility to pay off the loan, and that he had no recollection of other matters, such as the cheque for $700,000 drawn by Edlan.

112 It is true, as Mr Slattery QC pointed out, that the primary judge made no adverse finding about Jack’s credit. However, the scattered evidence to which we have been referred does not provide a clear and coherent explanation for the long delay by Edlan in commencing proceedings. Moreover, some of Jack’s evidence is inconsistent with findings made by the primary judge. For example, the proposition that Jack did not know that Auro had assumed responsibility to pay off the Westpac loan cannot stand with the finding that the oral agreement between Edlan and Auro was made by Jack on behalf of Edlan.

113 In these circumstances, we consider that his Honour’s discretion in relation to the starting date for the calculation of interest on the Sum did not miscarry.

The Vendor’s Lien Appeal

The Proceeding

114 The origin of Edlan’s claim to a vendor’s lien over Riverview Lodge was a summons filed by Edlan in the Supreme Court of New South Wales seeking an order for the extension of a caveat lodged by it against dealings in the property. As we have already mentioned, those proceedings were transferred to this Court. Subsequently, Edlan amended its pleadings to include in the relief sought a declaration that it holds a vendor’s lien over Riverview Lodge in respect of the Sum due by Auro to Edlan.

115 The primary judge dismissed Edlan’s application for declaratory relief. His Honour extended the caveat until further order, but reserved Auro’s right to apply for further relief in respect of the caveat.

116 Edlan’s notice of appeal seeks orders allowing the appeal and granting appropriate declaratory relief. It also seeks an order appointing a trustee of sale of Riverview Lodge and directing a sale of the property. It does not appear that the latter order was sought at the trial and nothing was said about it before us.

The Primary Judge’s Reasons

117 The primary judge identified the relevant principle as that laid down by Knox CJ in Davies v Littlejohn (1923) 34 CLR 174, at 181:

“The rule to be applied seems to be that, where a vendor delivers possession of land to a purchaser without receiving the purchase-money, equity gives the vendor a lien on the land for the money unless there is something in the transaction itself, or in the circumstances, leading to a clear and manifest inference that the intention of the parties is otherwise….” (Emphasis added).

118 His Honour said that, in the light of that principle, the question was whether the circumstances of the case led to the inference that the parties had intended that the vendor should not have the benefit of a lien over Riverview Lodge in respect of amounts not paid by Auro to Westpac. He referred to a series of annuity cases, of which the most important for present purposes is Wossidlo v Catt (1934) 52 CLR 301. There, a purchaser of land covenanted to pay the vendor an annuity during her lifetime. It was held by the High Court that the fact that the vendor had transferred the land and bargained only for a personal covenant from the purchaser to pay the annuity was inconsistent with the vendor’s retaining a lien over the property in respect of unpaid instalments.

119 The primary judge took the view that the circumstances of the present case were also inconsistent with the parties’ having intended that Edlan should hold a vendor’s lien over Riverview Lodge. He pointed out that the share sale agreement of 31 August 1990, which had been prepared with the benefit of professional assistance, contained no provision for Auro’s assumption of responsibility to be secured in favour of Edlan. Nor did he consider that the relationship between any indebtedness and Riverview Lodge was such that Auro “would be acting unconscientiously or unfairly if he were to dispose of the property ... to a stranger without the consent of [Edlan] and without the ... liability having been discharged”: Hewitt v Court (1983) 149 CLR 639, at 668, per Deane J.

120 On the contrary, his Honour considered that the case should be viewed as analogous to the annuity cases, reasoning as follows:

“since the proper inference is that the creditor accepted, at the time, that the matter might go forward upon the footing that the giving of the promise to pay was sufficient, that is, that other security for the performance of the promise was not required, it was not appropriate, or just, that the law should, automatically and by implication, give rise to a lien over the Property to secure the liability. To imply such a lien in the present circumstances would, I think, be unfair, especially in modern times where professional advice was readily available and in this case was used. This is not, in any event, the ordinary case where payment in full upon completion may be anticipated. Rather, the circumstances enable the inference to be drawn that Edlan was content to abide the outcome specifically contemplated by cl 3(a), that is, that Edlan would transfer the Property to Mr McIntyre in return for his promise albeit unsecured, that he would assume responsibility for the Westpac debt.”

Auro’s Contentions

121 Before us, Auro repeated his contention that Edlan’s claim was merely one for repayment of a debt arising out of revised arrangements negotiated on or shortly before 4 September 1990. As we have explained, this contention was not pleaded or otherwise raised in the proceeding. It therefore cannot be relied on by Auro at this point in the proceeding.

122 Secondly, Auro submitted that the circumstances did not allow Edlan to rely on an unpaid vendor’s lien. Mr Biscoe QC adopted the primary judge’s reasoning on this issue.

Were the Circumstances Inconsistent with a Lien?

123 The rationale underlying the presumption that the unpaid vendor is entitled to a lien over the property was stated in another annuity case, Buckland v Pocknell (1843) 13 Sim 406, at 411;60 ER 157, at 159, per Shadwell V-C:

“Where the consideration is to be money paid down, and the money, in fact, is not paid, but a conveyance is made as if it had been paid, and that is all; or, if there be, in addition to it, the giving merely of a note or bond, still, in substance, the vendor has not that which, in point of justice, he ought to have; and, therefore, a Court of Equity considers the holder of the land by means of the conveyance as a trustee of the money for the vendor, which is to be made good out of the land itself: because the land never would have been parted with but for the sake of the money.”

A similar rationale was provided by Dixon J in Wossidlo v Catt, when he said (at 310) that,

“[t]he lien of an unpaid vendor arises by operation of law, but its existence is commonly ascribed to the fact that he does not intend to transfer the beneficial ownership of his estate except in exchange for the stipulated price”.

See further Hewett v Court, at 645, per Gibbs CJ, citing Mackreth v Symmons (1808) 15 Ves 329, at 340; 33 ER 778, at 782.

124 The difficulty with his Honour’s analysis in the present case lies not in his statement of the relevant principles, but in the application of those principles to the facts. His reasoning appears to assume that the share sale agreement dated 31 August 1990 was intended to be an exhaustive record of the terms of the agreement between Edlan and Auro relating to the transfer of Riverview Lodge. The operative agreement was an oral contract between Edlan and Auro entered into some time before the share sale agreement. It will be remembered that Edlan was not a party to the share sale agreement. The purpose of cl 3(a) of the share sale agreement was to record an exception to the vendor’s warranty that the financial position of the company had not altered otherwise than in the ordinary course of business since the balance sheet date.

125 The share sale agreement has been accepted by Auro as a sufficient note or memorandum of the oral agreement signed by the party to be charged (that is, Auro himself) for the purposes of s 54A of the Conveyancing Act. However, that is different from the proposition that the share sale agreement was intended to state exhaustively the terms of the antecedent oral agreement, including whether a lien was to be created in favour of Edlan as the unpaid vendor. That the share sale agreement was not so intended (despite being prepared by professional advisers) is shown by the absence of any attempt to quantify precisely either Auro’s “responsibility” to Westpac or the corresponding figure for the reduction of Edlan’s non-current liabilities (the correct figure being more than $900,000).

126 What occurred in the present case was that Edlan entered into an oral agreement to transfer Riverview Lodge to Auro, in consideration of Auro’s promising to assume responsibility for Edlan’s Property Loan Account with Westpac. The Westpac loan was secured by a mortgage over Riverview Lodge granted by Edlan to Westpac. The Westpac loan was discharged on 4 September 1990, with funds provided partly by Auro and partly by Edlan. The obvious inference is that Edlan and Auro contemplated, at the time they entered into the oral agreement, that Auro would discharge the Westpac loan within a relatively short time.

127 The present case is quite different from the annuity cases such as Wossidlo v Catt. There, the reason for the holding that the vendor must be taken to have relied on the covenant to pay the annuity, as distinct from a lien over the property, was the fact that a “life annuity involves a series of recurrent payments extending over a quite unknown time”: at 308, per Rich J. As Dixon J observed (at 311), it is difficult, in the absence of the annuity being expressly secured over the property, to understand the vendor as intending to invest the transferee with full beneficial ownership only when and if the annuity is paid. That difficulty is not present in the circumstances of the present case.

128 Mr Biscoe QC, in written submissions, suggested that Edlan’s claim to an unpaid vendor’s lien did not sit comfortably with Auro’s subsequent actions in mortgaging Riverview Lodge to another bank, to secure advances to Jack and Auro, some of which were apparently on-lent to Edlan. That contention was not raised before the primary judge. In any event, Auro’s subsequent actions cannot displace the effect of the principle stated by Knox CJ in Davies v Littlejohn. In our opinion, in the circumstances of the present case, Edlan’s claim to an unpaid vendor’s lien must succeed.

Form of the Caveat

129 Since the primary judge refused Edlan’s claim for declaratory relief in relation to the unpaid vendor’s lien, it was unnecessary for his Honour to consider the form of the caveat lodged by Edlan. His Honour extended the caveat until further order, presumably by reason of an intimation by Edlan of an intention to appeal, but reserved liberty to Auro to apply for further relief in respect of the caveat.

130 Auro’s written submissions on the appeal assert that the caveat lodged by Edlan on the title to Riverview Lodge was “fundamentally bad” in form, because it mis-stated Edlan’s interest and thus did not comply with subpar 74F(5)(b)(v) of the Real Property Act 1900 (NSW). The submission was not developed and, indeed, a copy of the caveat was not included in the appeal books. (A copy was delivered to the Court after the hearing had concluded, in compliance with a request made on behalf of the Court.)

131 The nature of the estate or interest claimed by Edlan was described as follows:

“an equitable interest being a lien to secure the sum of $505,476.43 agreed to be paid by the registered proprietor to the caveator in consideration for the transfer of the property from the caveator to the registered proprietor.”

Subparagraph 74F(5)(b)(v) of the Real Property Act provides that a caveat lodged under s 74F must specify:

“(v) the prescribed particulars of the legal or equitable estate or interest ... to which the caveator claims to be entitled;”

132 The current prescribed particulars are set out in Schedule 2 to the Real Property Regulations, operative 1 September 1998: see reg 7(2). The prescribed particulars include the following:

“(1) Particulars of the nature of the estate or interest in land claimed by the caveator.

(2) The facts on which the claim is founded, including (if appropriate) a statement as to the manner in which the estate or interest claimed is derived from the registered proprietor of the estate or interest or the primary or possessory applicant against which the caveat is to operate.”

Neither party addressed whether the Real Property Regulations applied to the caveat in the present case. The copy caveat provided to the Court is dated 5 November 1997, but there is no indication as to when it was lodged.

133 Auro’s contention was that the caveat erroneously assumed that Auro had agreed to pay moneys to Edlan, rather than (as was the case) that Auro had agreed to assume responsibility for the Westpac loan.

134 Edlan’s response was an assertion, again undeveloped, that any defect in the caveat was to be disregarded by virtue of s 74L of the Real Property Act, which provides as follows:

“74L If in any legal proceedings a question arises as to the validity of a caveat lodged under a provision of this Part, the court shall disregard any failure of the caveator to comply strictly with the requirements of this Part, and of any regulations made for the purposes of this Part, with respect to the form of the caveat.”

135 Having regard to the conclusion we have reached on Edlan’s entitlement to declaratory relief, there may be little practical utility in considering the form of the caveat. In any event, as far as we are aware, Auro has no application before the Court for relief in relation to the form of caveat.

136 In our view, the appropriate course is that any application Auro may wish to bring in relation to the form of the caveat should be determined by the primary judge, pursuant to the leave reserved to Auro by the primary Judge. It may be that, depending on the course of events, there will be no occasion to take advantage of that reservation. In any event, any application should be determined by his Honour.

Summary Regarding Both the Tropicana and Riverview Lodge Transactions

137 The conclusions which we have reached in proceeding numbered NG 1043 of 1998 are as follows: first, the appeal by Jack and Edlan against the dismissal of their claims in respect of the Tropicana transaction should be dismissed; secondly, the appeal by Max against the dismissal of his claim in respect of the Tropicana transaction should be allowed in so far as the claim was made against Neville and that claim should be remitted to the primary Judge for determination in accordance with these reasons; thirdly, the appeal by Max against the dismissal of his claim in respect of the Tropicana transaction should be otherwise dismissed; fourthly, Auro’s cross-appeal against the judgment in favour of Edlan for the Sum, together with interest on the Sum as from 1 December 1997, should be dismissed; and, fifthly, Edlan’s appeal against the order that interest on the Sum should be payable only as from 1 December 1997 should be dismissed.

138 We note that the learned primary judge did not formally order the dismissal of the claim by Jack, Max and Edlan against Neville, Auro and Nevitoro in respect of the Tropicana transaction. We have taken that omission to be a slip and have framed the proposed orders which follow to correct that slip.

139 The conclusion which we have reached in proceeding numbered N 494 of 1999 is that Edlan’s appeal should be allowed and a declaration should be made that Edlan is entitled to a lien over Riverview Lodge as unpaid vendor.

Submissions on Orders Generally and Costs Orders Specifically

140 The position in relation to orders generally and costs orders specifically is complex. Although we have framed proposed orders generally, we have not framed proposed costs orders. We intend to invite submissions from the parties, but in accordance with a very stringent timetable, both as to the form of the proposed orders which follow and as to the appropriate orders as to costs in the light of those proposed orders. It is desirable that the proceedings before us be finalised prior to 17 June 1999, when the High Court is to deliver judgment in Re Wakim; ex parte McNally.

141 The orders which we propose, other than those as to costs, are as follows:

“THE COURT ORDERS IN PROCEEDING NUMBERED NG 1043 OF 1998 THAT:

1. The appeal by the first appellant and the third appellant against the orders made by Beaumont J on 11 September 1998 and 25 February 1999 be dismissed;

2. The application by the first applicant and the third applicant against the respondents in proceeding numbered NG 672 of 1996 be dismissed;

3. The appeal by the second appellant against the orders made by Beaumont J on 11 September 1998 and 25 February 1999 be allowed, in so far as those orders were intended to dismiss the second appellant’s application against the first respondent;

4. Subject to order 3, the application by the second applicant against the respondents in proceeding numbered NG 672 of 1996 be dismissed;

5. Remit the second appellant’s application against the first respondent for determination by Beaumont J consistently with this Court’s reasons;

6. The second respondent’s cross-appeal against the judgment given by Beaumont J on 25 February 1999 in favour of the third appellant in the sum of $505,476.43, plus interest, be dismissed; and

7. The third appellant’s appeal against the order made by Beaumont J on 25 February 1999 that interest be payable only in a sum calculated as from 1 December 1997 be dismissed.

THE COURT ORDERS AND DECLARES IN PROCEEDING NUMBERED N 494 OF 1999 THAT:

8. The appeal be allowed;

9. Set aside order 1 of Beaumont J made on 29 April 1999; and

10. Declare that:

(a) the appellant holds an unpaid vendor’s lien over the property comprising the whole of the land in folio identifier 1/71148 and 2/516593, now comprising folio identifiers 1/811506 and 21/812698, known as Riverview Lodge; and

(b) the said lien secures the judgment debt owing by the respondent to the appellant in the sum of $505,476.43 together with interest.”

I certify that the preceding one hundred and forty-one (141) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.

Associate:

Dated: 11 June 1999

Counsel for the Appellants/Cross Respondent:	M Slattery QC, M Ashhurst

Solicitor for the Appellants/Cross Respondent:	Hunt Partners

Counsel for the Respondents/Cross Appellant:	P Biscoe QC, M Cohen, J Stephenson

Solicitor for the Respondents/Cross Appellant:	K A Garling

Date of Hearing:	31 May, 1 and 2 June 1999

Date of Judgment:	11 June 1999

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