FEDERAL COURT OF AUSTRALIA

Deloitte Touche Tohmatsu v Cridlands Pty Ltd [2003] FCA 1413

CONTRACT – assignment of causes of action in tort – maintenance and champerty

NEGLIGENCE – duty of care of solicitors – causation – contribution between joint tortfeasors

Trade Practices Act 1974 (Cth) ss 52, 82, 86, 87

Law Reform (Miscellaneous Provisions) Act (NT) ss 12, 13

Federal Court of Australia Act 1976 (Cth) s 19

Judiciary Act 1903 (Cth) ss 39B, 79

Federal Court of Australia Act 1976 (Cth) s 32

Dowdell v Knispel Fruit Juices [2003] FCA 851

Redman v The Permanent Trustee Company of New South Wales Ltd (1916) 22 CLR 84

Re Daniel Efrat Consulting Services Pty Ltd (in liq) (1999) FCR 154

Re Addstone Pty Ltd (in liq) (1998) 83 FCR 583

Re Movitor Pty Ltd (in liq) (1996) 64 FCR 380

Brownton Ltd v Edward Moore Inbucon Ltd [1985] 3 All ER 499

Trendtex Trading Corporation v Credit Suisse [1980] QB 629

Vangale Pty Ltd (in liq) v Kumagai Gumi Co Ltd [2002] QSC 137

South Australian Management Corporation v Sheahan (1995) 16 ACSR 45

Poulton v Commonwealth (1953) 89 CLR 540

Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1997) 72 FCR 261

Giles v Thompson [1994] 1 AC 142

Stocznia Gdanska SA v Latvian Shipping Co (No 2) [1999] 3 All ER 822

Freehill Hollingdale & Page v Bandwill Pty Ltd [2000] WASCA 150

Bandwill Pty Ltd v Spencer-Laitt (2000) 23 WAR 390

R v Andrews [1973] 1 QB 422

R v Kellett [1975] 3 All ER 468

A v Hayden (1984) 156 CLR 532

Jamieson v The Queen (1993) 177 CLR 574

Plating Company v Farquharson (1881) 17 Ch D 49

Australian Competition & Consumer Commission v FFE Building Services Limited [2003] FCA 1181

Re Daley; ex parte National Australia Bank Ltd (1992) 37 FCR 390

Baxter v Obacelo Pty Ltd (2001) 205 CLR 635

Allison and Van Dorsten v Uatar Management Services Limited [1999] NZCA 324

Thompson v Australian Capital Television Pty Ltd (1996) 186 CLR 574

Jameson v Central Electricity Generating Board [2000] AC 455

Bitumen and Oil Refineries (Australia) Ltd v Commissioner for Government Transport (1955) 92 CLR 200

Brambles Constructions Pty Ltd v Helmers (1966) 114 CLR 213

Thompson v Australian Capital Television Pty Ltd (1996) 186 CLR 574

James Hardie & Co Pty Ltd v Seltsam Pty Ltd (1998) 196 CLR 53

National Australia Bank Ltd v Pollak (2001) 186 ALR 44

Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603

Thompson v Australian Capital Television Pty Ltd (1996) 186 CLR 574

Jones v Dunkel (1959) 101 CLR 298

Cadwallader v Bajco Pty Ltd [2002] NSWCA 328

Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413

British Racing Drivers Club Ltd v Hextall Erskine & Co [1996] 3 All ER 667

Fox v Everingham (1983) 50 ALR 337

Hawkins v Clayton (1988) 164 CLR 539

Austrust Pty Ltd v Astley (1993) 60 SASR 354;(1996) 67 SASR 207; (1999) 197 CLR 1

Amadio Pty Ltd v Henderson (1998) 81 FCR 149

Meehan v Jones (1988) 149 CLR 571

Allstate Life Insurance Co v ANZ Banking Group Ltd (1996) 136 ALR 627

Rosenberg v Percival (2001) 205 CLR 434

Hall v Fong (1995) 65 SASR 281

Tame v NSW (2001) 191 ALR 449

Henville v Walker (2001) 206 CLR 459

Medlin v SGIC (1995) 182 CLR 1

March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506

South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191

Rosenberg v Percival (2001) 205 CLR 434

Trust Co of Australia v Perpetual Trustees WA (1997) 42 NSWLR 237

R Meagher, J Heydon & M Leeming, Meagher, Gummow & Lehane’s Equity Doctrines and Remedies,4th edn, Butterworths, Sydney, 2002

Corbin On Contracts

DELOITTE TOUCHE TOHMATSU and ANOR v CRIDLANDS PTY LTD (ACN 009 651 594) and ORS

D 27 OF 2001

SELWAY J

8 DECEMBER 2003

ADELAIDE (HEARD IN DARWIN)

THE COURT ORDERS THAT:

1.         The proceedings be dismissed.

2.         The fourth, fifth and sixth respondents are jointly liable for the costs incurred by the third respondent up until 29 September 2003.

3.         The fourth and fifth applicants are liable to indemnify the fourth, fifth and sixth respondents in respect of their liability under Order 2.

4.         The fourth and fifth applicants are jointly liable for the costs incurred by the third respondent from 29 September 2003.

5.         Set aside the order for costs made herein on 10 October 2003.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

THE PROCEEDINGS

1                     These proceedings arise out of the purchase of Larrakeyah Station near Katherine in the Northern Territory by Noonbrave Pty Ltd (now the fourth respondent) on 22 December 1998. The purchase price was $2.75 million.  Noonbrave Pty Ltd was the trustee of the Campbell Property Trust.  The beneficiaries of that trust were Mr and Mrs Campbell, now the fifth and sixth respondents respectively.  (Hereinafter Noonbrave Pty Ltd and Mr and Mrs Campbell are collectively described as ‘the Campbells’).  It will be necessary to consider the details of the purchase and the details of the farming operations conducted on Larrakeyah Station in more detail later in these reasons.  For present purposes it is sufficient to say that the purchase price paid for Larrakeyah Station was too high, both in terms of the real market value of that property at the time of purchase and in terms of the viable operation of that property in light of the borrowings made by Mr Campbell so as to effect the purchase.  In any event, the farming operations conducted by Noonbrave Pty Ltd were unsuccessful.  Farming operations were discontinued around March 2000.  Larrakeyah Station, together with an adjoining property called Sandy Creek which was also owned by Mr and Mrs Campbell, was eventually sold on 20 June 2002 for $1.2 million.  The losses suffered by the Campbells as a result of the purchase of Larrakeyah Station and the failure of the farming operations are between $3.43 million plus interest and $4.02 million plus interest.

2                     On 29 November 2001, the Campbells issued proceedings in this Court against DFS Financial Services Ltd (now the fifth applicant) and Deloitte Touche Tohmatsu (now the fourth applicant) and against Cridlands Pty Ltd (the third respondent).  In relation to DFS Financial Services Ltd and Deloitte Touche Tohmatsu (hereinafter together called ‘Deloittes’) the claim was based on the alleged negligence, breach of contract and breach of ss 52, 82 and 87 of the Trade Practices Act 1974 (Cth) by Deloittes in providing financial advice and accounting services to the Campbells.  In relation to Cridlands Pty Ltd (‘Cridlands’) the claim was based on the alleged negligence and breach of contract by Cridlands in providing legal services to the Campbells.  Deloittes and Cridlands both accepted in their respective pleadings that they had been engaged to provide the relevant services, but both denied that they had breached any duty of care as alleged.  In relation to any liability that might be found against them, both Deloittes and Cridlands cross-claimed against the other.  The case was listed for hearing in Darwin to commence on 6 October 2003.

3                     On 29 September 2003, Deloittes reached an agreement with the Campbells to settle the claim against Deloittes for $3.5 million inclusive of costs and interest.  The agreement was contained in a deed.  It will be necessary to consider the terms and effect of that deed in more detail later.  For present purposes it is sufficient to say that the Campbells also agreed to assign to Deloittes their right of action against Cridlands.

4                     When the hearing commenced on 7 October 2003, Deloittes applied by notice of motion for various orders for the purpose of giving effect to the deed.  These included an order that the solicitor for Deloittes act as solicitor for the Campbells; that Deloitte Touche Tohmatsu be named as an applicant; that the Campbells be removed as applicants; that the rights of the Campbells be transferred to the second respondent Deloitte Touche Tohmatsu and that leave be given to file a new statement of claim.  Cridlands opposed these orders on various bases, including that the deed was invalid or ineffective to assign the relevant rights.  I declined to make the orders in the terms in which they were sought on the basis that it would involve Deloittes being both applicants and respondents in the same proceedings.  Given that Cridlands intended to argue that the deed was invalid or ineffective and that they foreshadowed seeking costs against the Campbells in the event that Cridlands were successful, I declined to make any order removing the Campbells or any of them from the proceedings.  I also intimated that I was not prepared for the same solicitors to act for both Deloittes and for the Campbells given that their interests might not be the same.  The notice of motion was then adjourned until 10 October 2003 for Deloittes to consider their position.

5                     On 10 October 2003, on the application of Deloittes, I ordered that Deloittes be the fourth and fifth applicants in the proceedings (rather than respondents); that they have leave to file and serve a fresh statement of claim in substitution for the existing statement of claim by the Campbells, that the Campbells be made the fourth, fifth and sixth respondents in the proceedings and that the solicitors for the Campbells have leave to withdraw from any further attendance in the proceedings.  Leave was given to Cridlands to file a fresh defence (filed on 13 October 2003) and leave was given to Deloittes to file a reply (filed on 20 October 2003).  Given the delay that had already occurred, and the above background, the parties were prepared to commence the trial notwithstanding that the pleadings had not been finalised.  Deloittes opened its case on 10 October 2003 and the first witness was called on 14 October 2003.

6                     The effect of all this was that the Campbells were no longer directly involved in the contest as parties.  Instead the contest was between Deloittes and Cridlands.  Deloittes relied upon the assignment they had obtained under the deed to claim against Cridlands the total amount of the losses suffered by the Campbells on the basis of alleged breaches of duty owed to the Campbells in negligence and in contract.  In response to that claim Cridlands denied the validity or effectiveness of the deed, denied that it had breached any duty of care, whether in contract or in negligence and denied that any breach by it had caused any loss.  Cridlands also claimed that the Campbells had also been negligent and that that negligence contributed to their loss.  They also cross-claimed against Deloittes in relation to any liability found against Cridlands.

7                     In addition Deloittes claimed against Cridlands as joint tortfeasors under the Law Reform (Miscellaneous Provisions) Act (NT) in relation to the sum of $3.5 million that Deloittes had paid to the Campbells.  Cridlands denied that it was a joint tortfeasor. 

JURISDICTION

8                     The initial claim by the Campbells against Deloittes included a claim based upon a breach of ss 52, 82 and 87 of the Trade Practices Act 1974 (Cth).  This Court clearly had jurisdiction to deal with the ‘associated claims’ brought by the Campbells against Deloittes for breach of duty in contract and tort and brought by them against Cridlands in contract and tort and with the cross-claims between Deloittes and Cridlands.  The relevant jurisdiction was conferred by ss 19(1) and 32 of the Federal Court of Australia Act 1976 (Cth) read with s 86 of the Trade Practices Act 1974 (Cth) and also by 39B of the Judiciary Act 1903 (Cth). 

9                     However, with the settlement of the claim by the Campbells against Deloittes and the assignment to Deloittes of the action in tort and contract against Cridlands what was left were actions based entirely on the common law or upon Northern Territory statutes.  The question then arises whether the jurisdiction that formerly existed has been lost.  I had cause to discuss this question in a similar context in Dowdell v Knispel Fruit Juices [2003] FCA 851 at [15]:

‘Even if the federal claims brought by the applicants had all been resolved by the entry of final judgments in each of them then it would still appear that this Court would have jurisdiction to determine the cross-claims.  The binding authority in this Court is that once federal jurisdiction has been attracted it cannot subsequently be lost even by the resolution of the federal aspects of it.  I refer in particular to the decision of the Full Court of this Court in Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564 at [86]-[87] and Burgundy Royale Investments Pty Ltd v Westpac Banking Corporation (1987) 76 ALR 173 at 181.  There is also some dicta in the High Court to the same effect: see e.g. R v Bevan; Ex parte Elias (1942) 66 CLR 452 at 465-466 per Starke J.   The relevant cases are usefully collected and analysed by Allsop J in his paper ‘Federal jurisdiction and the jurisdiction of the Federal Court of Australia in 2002’, Australian Bar Review, vol 23, no 1, 2002, pp 41‑46.  The issue may still be arguable.  For example, the assumption behind the reasoning and the orders in Re Wakim was that the proceedings were not in federal jurisdiction once the constitutional issue raised in that case had been resolved.  Similarly, in Flaherty v Girgis (1987) 162 CLR 574 at 597-598 it is clearly accepted that applications under the Service and Execution of Process Act 1992 (Cth) are in federal jurisdiction, but that, once those applications have been resolved, the proceedings are not thereafter in federal jurisdiction.  Interesting as these issues may be, they do not arise in this case – the federal claims have not been finally resolved and the cross-claims are clearly ‘associated’ with the federal claims.’

10                  In this regard I also note that the Campbells remain parties to the proceedings and may still be subject to orders of the Court, including as to the validity and effectiveness of the deed to which they are parties and as to costs.  It could not be said that their position has been ‘finally determined’ at least until final orders are made in these proceedings.

11                  I find that I do have jurisdiction to deal with the reconstituted proceedings between Deloittes and Cridlands.  In exercising that jurisdiction I note that the common law to be applied is the Australian common law.  I also note that, subject to any other applicable laws of the Commonwealth, the statute laws of the Northern Territory are applicable in these proceedings by virtue of s 79 of the Judiciary Act 1903 (Cth).

FACTUAL BACKGROUND

12                  The parties were in broad agreement about much of the evidence.  The documentary record was basically agreed.  In relation to the events giving rise to the alleged liability of Deloittes on the one hand and Cridlands on the other Deloittes called Mr and Mrs Campbell, who were the alleged victims, and Cridlands called Mrs Christopher and Mr Black, the solicitors who dealt with the matter.  Cridlands also called Mr Perkins, an agricultural agronomist, who gave evidence of what he would have done if he had been engaged by Deloittes to carry out a ‘due diligence’ of the proposed purchase of Larrakeyah Station.  Deloittes also called Mr Garraway, a chartered accountant, who provided accounting services to Mr and Mrs Campbell following the failure of the farming operation in an attempt to resolve their financial position in an orderly manner.  His evidence was primarily related to the proof of his own costs and expenses as part of the damages claim.  Deloittes also tendered the report of Mr Vincent, a forensic accountant, in relation to the calculation of the losses suffered by Noonbrave Pty Ltd and by Mr and Mrs Campbell in the purchase of Larrakeyah Station and in the farming operation conducted there.  Cridlands tendered an answering report from Mr Holmes.

13                  Finally, Cridlands called Mr O’Dwyer, an accountant, to give expert evidence on whether the services provided by Deloittes were consistent with the standards expected by accountants providing that sort of service.  His evidence was received subject to various objections.  Some of the objections had some substance.  However, Mr O’Dwyer did go through the Deloittes’ file (which had been discovered) and was able to give some evidence of various matters in that file.  Most importantly, he gave evidence as to the process apparently followed by Deloittes in making financial projections in relation to the purchase of the Larrakeyah property.  I have relied upon Mr O’Dwyer’s report at least for this purpose.

14                  At least two witnesses who might have been expected to give evidence were not called by either party.  The first is Mrs Faehse.  She was the employee of Deloittes who had the primary role in advising and in managing the affairs of the Campbells.  In addition no-one from the National Australia Bank (‘NAB’)was called to give evidence of the bank’s position in relation to the finance of the purchase of Larrakeyah Station.  The absence of any evidence supportive of the Deloittes’ case from these witnesses has a significant effect upon the ultimate findings in this case.  This is discussed further below.

15                  Another witness that was not called was Mr Wainwright.  His company sold both Sandy Creek and Larrakeyah Station to Noonbrave Pty Ltd and to Mr and Mrs Campbell and then managed the farming operations on their behalf.  Some of the witnesses were particularly critical of Mr Wainwright.  I have not had an opportunity to hear his side of the matter.

16                  Mr Campbell is a specialist general surgeon in private practice.  He moved to Darwin in 1988.  He has a very busy practice.  Mrs Campbell is a general medical practitioner.  She moved to Darwin in 1992 and married Mr Campbell in 1994.  They now have two children.  Mrs Campbell now works part time in a medical practice for three sessions per week.  She also manages the family financial book-keeping and the family budget.  She did not seem to have ‘hands on’ control over the investments made by or for Mr Campbell.

17                  Prior to her marriage Mrs Campbell purchased a house at Wanguri.  This would seem to have been an ordinary residential property.  She was obviously very attached to the property and retained ownership of it after her marriage.  She regarded it as security for herself and her children for the future.  At relevant times the property was leased.

18                  Mr Campbell first retained Deloittes as his accountants in 1988.  Mr Hudson was the partner who supervised Mr Campbell’s file but it was Mrs Faehse who was Mr Campbell’s main contact from late 1994.  Mrs Faehse was an accountant and a financial adviser employed by Deloittes.

19                  In about 1995 or 1996, Mr Campbell spoke to Mr Hudson about purchasing a farm.  He expressed an interest in irrigated farming.  He also asked Mr Hudson to consider developing a financial plan to accommodate the ownership of a farm.  Mr Campbell also says that he told Mr Hudson, ‘I want a self-sustaining farm with reliable income that will allow me to retire from medical practice in about 10 years … I do not wish to enter heavily into debt in order to finance the purchase.  I want an investment that will look after itself and which does not require contributions to sustain cash flow’.  He also made it perfectly clear, not only then but subsequently in the relationship, that he did not have the time or the interest to be actively involved in the management of any business activity (including farming).  He made it clear that he was relying upon Deloittes to carry out that management. 

20                  Between 1995 and 1997, both Deloittes and Mr Campbell looked at a number of rural properties.  For example, on one occasion Mr Campbell was interested in a property at Adelaide River.  Mr Hudson investigated the feasibility of the property and produced a letter of advice recommending a maximum purchase price.  Mr Campbell attended at the auction, but the price was higher than Deloittes had advised.  Mr Campbell did not bid.  Deloittes also conducted a feasibility study on another property called Ceres Downs.

21                  In early 1997, Mr Hudson and Mrs Faehse visited the Campbells where they produced a draft financial plan that they had prepared.  Mrs Faehse and Mr Hudson told the Campbells at that meeting that they were very confident that the Campbells could achieve all of the goals they had concerning their investment portfolio and financial future so that in seven years Mr Campbell could retire to a farm.  The proposed methodology for purchasing the farm would have a tax minimization effect, but the purpose of purchasing the farm was so that the Campbells would own the farm outright at the end of 2007, by which time it would be worth a considerable amount of money.

22                  Mr Campbell said to Mr Hudson and Mrs Faehse that if he got a farm he wanted it fully developed by the time he retired. He said that he did not have the time to run the farm. He also emphasized that the farm had to provide enough income to repay any debt.  He told them, ‘the plan looks fine, I will leave it to you’. Mr Campbell heard nothing more about the plan for a couple of months. As far as he and his wife were concerned, the plan would be implemented by Deloittes.

23                  In July 1997, Mr Campbell saw a television programme on the ABC about Mr Wainwright operating centre pivot irrigators near Katherine. Centre pivot irrigators involve irrigation pipes supported on large motorized wheels.  The irrigation pipes are fixed in the centre at a pump which pumps water through the pipes.  The irrigation system is self-propelled around the pivot.  The use of these irrigation techniques was said to open up land near Katherine for new crops such as peanuts.  Mr Campbell contacted Mrs Faehse and asked for some more information on these developments.  Deloittes were generally supportive of the investment potential of the Katherine region.  Deloittes had an office in Katherine.  Mrs Faehse said to Mr Campbell that Deloittes wanted to put Katherine on the map as they saw a viable agricultural centre being created around Katherine.

24                  Shortly after Mr Campbell contacted Mrs Faehse, Mr Wainwright contacted Mr Campbell and provided him with a pamphlet describing land being sold by Mr Wainwright’s company near Katherine.  Some time later Mrs Faehse contacted Mr Campbell and said that Mr Wainwright would be interested in clearing a block within Larrakeyah Station and selling that block to Mr Campbell if Mr Campbell would then purchase the pivot irrigators and lease the land back to Mr Wainwright on a 5-year contract.  This idea of a ‘lease back’ arrangement appealed to Mr Campbell.  The proposal required no real involvement from the Campbells apart from buying the block and the pivot irrigators. At the end of the lease period the Campbells would own the land and the pivots and have a viable farm.

25                  Mr Campbell asked Mrs Faehse what she thought about the proposed asking price. She said that land prices for agricultural property near Katherine would increase considerably with this new irrigated farming and with the development of the Alice Springs to Darwin railway and that he would not lose if he purchased the property. Relying on Mrs Faehse’s advice, Mr and Mrs Campbell purchased the property (called ‘Sandy Creek’) on 7 November 1997. Mrs Faehse said she would arrange the purchase on the Campbells’ behalf.  Mr Campbell asked her what she thought about Mr Wainwright’s suitably and she said, ‘I’m happy with Max, he knows his stuff’.

26                  Mr Campbell asked Mrs Faehse about instructing a solicitor to act for him and Mrs Campbell in relation to the purchase. She said she knew someone and would fix it. In September 1997, Deloittes retained Cridlands on behalf of Mr and Mrs Campbell to provide legal services in connection with the purchase by them of Sandy Creek.  Cridlands’ instructions came from Mrs Faehse.  The solicitor who handled the matter was Mrs Christopher.  Mrs Christopher understood that Deloittes were the accountants for and financial advisers to the Campbells.  She understood that her instructions were to be conveyed to her by Mrs Faehse and that her advice and services were to be given to the Campbells through Mrs Faehse. 

27                  Mrs Christopher had had previous dealings with Mrs Faehse.  She knew that Mrs Faehse had ‘a lot of experience in business transactions’.  On the other hand Mrs Christopher assumed that Mrs Faehse did not have any ‘special legal knowledge’.

28                  Mrs Faehse instructed Mrs Christopher by telephone to prepare a contract of sale for the purchase of Sandy Creek together with a lease document under which the Campbells would lease the property back to Mr Wainwright (the vendor).  Mr Wainwright was obliged to develop the property as a peanut farm.  Mrs Christopher drafted the contract and the lease, carried out the usual searches and enquiries on the Campbell’s behalf and arranged for the settlement of the purchase. Mrs Christopher sought a meeting with Mr and Mrs Campbell to explain their obligations under the lease arrangement.  That meeting took place at the Campbells’ home on 14 October 1997.

29                  Cridlands was not asked to and did not provide advice to Deloittes or to Mr and Mrs Campbell about the commercial implications or risks associated with the purchase of Sandy Creek or about the price the Campbells were paying for the property.  Mrs Christopher assumed that, to the extent that the Campbells needed advice about those matters, it was being provided by Deloittes.

30                  After Sandy Creek was purchased the Campbells left it to Deloittes to manage the relationship between the Campbells and Mr Wainwright and to monitor his progress. Mrs Faehse attended to everything.  Nevertheless, on 8 September 1998, Mr Campbell visited the property to see the harvest of the first crop.  Only half of the first pivot was under crop.  The other half had not been cleared. Mr Campbell expressed concern to Mr Wainwright who said he was on top of it.

31                  In early November 1998, Mr Campbell received a call from Mrs Faehse who asked him if he wished to purchase the remainder of Larrakeyah Station.  She said that Mr Wainwright was looking to sell it and had ‘Asian investors’ looking for irrigated land.  She said that Mr Wainwright was going to sell it for $2.85 million.  Mr Campbell asked Mrs Faehse if he could afford it. He told Mrs Faehse that the purchase had to be entirely debt-funded, as he ‘didn’t want to put money into it personally’. He asked Mrs Faehse to do the figures as he didn’t have time to be involved. She said, ‘we’ll do it all for you’.  At that time or soon thereafter there was a further discussion about the need for finance.  Mrs Campbell told Mrs Faehse that she was not prepared to put up as security her house at Wanguri.

32                  Subsequently, Mr Campbell received a call from Mrs Faehse.  She said, ‘I’ve done some figures and I think we can do it’.  Some financial projections were then faxed to Mr Campbell.  The calculations provided to him were not particularly detailed.  They showed an income of $800,000 a year from crops, particularly peanuts.  Mrs Faehse said to Mr Campbell that the property would make a profit from year one even with a purchase price of $2.85 million.  Mr Campbell gave evidence that he didn’t understand the financial projections produced by Deloittes but trusted Mrs Faehse and believed she knew what she was doing.  He said to Mrs Faehse that he would not be prepared to buy Larrakeyah Station if he had to fund losses.  He also raised again his concern about going into debt to fund the purchase.  Mrs Faehse said that there would be ‘negative gearing’ advantages to doing it this way.

33                  The Deloittes’ records provide more detail of the calculations and financial projections made by Deloittes, and some of those calculations are repeated in the subsequent application for bank finance prepared by Deloittes.  There are at least two things to note in relation to the detailed calculations made by Deloittes:

(a)          No valuations were sought by Deloittes in relation to the value of Larrakeyah Station.  Nor did Deloittes advise the Campbells that valuations were desirable.  In relation to the issue of valuation, the evidence was that Larrakeyah Station (prior to subdivision) had been sold in November, 1995 for $610,000 and in June 1996 for $735,000.  Subsequent to the 1996 sale the property had been reduced in size from 22,850 hectares to 17,110 hectares as a result of subdivisions, including the creation of the Sandy Creek property.  Mr Campbell did ask Mrs Faehse if there were equivalent values or benchmarks for comparing the property prices. She said words to the effect that ‘because irrigation pivots are operating on the property, and because cropping has occurred, when combined with the likely growth in Katherine I do not think there would be any problems selling the property, the property will sell itself. Taylor’s Park is on the market for $4.1 million. This is a comparable property, and makes your property worth $4 million’.  (The evidence was that the Taylor’s Park property was on the market for $4.1 million, but was not sold at that figure.)

(b)          Deloittes carried out extensive calculations on crop viability at Larrakeyah Station.  They ‘modelled’ peanut crops and maize crops over five years, considered soybean crops and completed some modelling of cattle production.  In doing these calculations they relied primarily upon figures provided by Mr Wainwright, the vendor.  There was some checking of those figures with government agencies and with marketing bodies (e.g. ‘Peanut Company of Australia’).  However it is clear that the calculations over-estimated the prospects of success of the farming venture.  There are at least two reasons for this:

(i)            There was a material mathematical error in the calculations which was contained in the figures provided by Mr Wainwright and which was repeated in the Deloittes’ calculations.  If the calculations were adjusted to remove the error they ‘would have indicated even more clearly the marginal nature of this cropping’; and

                        (ii)     The calculations did not adequately reflect the actual risks of the farming venture, particularly given the very limited history of such farming in the region.

Deloittes did not advise the Campbells that Deloittes did not have the experience or skills necessary to make the relevant farming judgments.  Nor did they advise that it would be sensible to seek the advice of someone who did.  Nor did they advise of the dangers of relying on figures derived from Mr Wainwright, the vendor.  Mr Campbell asked Mrs Faehse if the projections used Mr Wainwright’s actual crop harvest figures. She said that they did and that they were conservative figures.

34                  It is not clear from the evidence whether the purchase of Larrakeyah Station (or, indeed, the previous purchase of Sandy Creek) was intended to form part of the financial plan previously prepared by Deloittes.  Both Mr and Mrs Campbell said that it did not.  The properties were viewed by them as an investment, not as a ‘retirement farm’.  As a retirement farm Larrakeyah Station was too expensive, it was too far from Darwin and it did not have a suitable ‘fishing hole’.  On this approach the purchase of Sandy Creek and Larrakeyah Station could be viewed as a development or an extension of the financial plan, rather than the fulfillment of it.  On the other hand, no issue was ever directly raised by Mrs Faehse or Mr Hudson (or, so far as the evidence revealed, by Mr and Mrs Campbell) as to whether the purchase of Larrakeyah Station and the operation of both properties as a single farm fitted the parameters of the financial plan. There does seem to have been some indirect discussions.  Mr Campbell did say to Mrs Faehse that Larrakeyah Station was not the ideal place of their dreams.   Mrs Faehse said, ‘no, but you will probably end up living on it’.

35                  It was an inherent aspect of the proposal to purchase Larrakeyah Station that it would be managed by Mr Wainwright for the Campbells.  As already noted Mr Campbell did not have the time or inclination to manage the property.  Mr Wainwright was the one who had experience in irrigated farming on the land.  Mr Campbell asked Mrs Faehse if she had any problems with Mr Wainwright managing both properties. Mrs Faehse replied, ‘he knows what he is doing’.

36                  On 14 November 1998, Mrs Christopher received a telephone call from Mrs Faehse. Mrs Faehse said she was acting for the Campbells who were proposing to buy another property from Mr Wainwright.  Mrs Faehse said that she wanted Mrs Christopher to prepare the contract for sale and a management agreement.  On 15 November 1998, Mrs Christopher telephoned Mrs Faehse. Mrs Faehse relayed to Mrs Christopher various details of the proposed sale, including that the sale contract was to be ‘subject to finance’ and subject to a ‘management agreement’.  From these conversations, and from Mrs Christopher’s previous dealings with Mrs Faehse and the Campbells over the purchase and lease of Sandy Creek, Mrs Christopher understood that Deloittes were acting as the business accountants and financial advisers to the Campbells, including in connection with the proposed purchase of Larrakeyah Station.  She understood that the Campbells had authorised Deloittes to retain Cridlands to provide legal services as required by Deloittes to effect the proposed purchase of Larrakeyah Station and the associated management arrangements.  Mrs Christopher also understood from these conversations with Mrs Faehse that Deloittes had had a continuing role in relation to the management and operations of Sandy Creek since its purchase in 1997.

37                  On 11 December 1998, a meeting took place at Deloittes’ offices between Mr and Mrs Campbell and Mr and Mrs Wainwright.  At that meeting Mr Campbell offered to pay $2.75 million for Larrakeyah Station on the basis that Mr Wainwright would manage both Sandy Creek and Larrakeyah Station as a single operation.  Mr Wainwright accepted the offer and they shook hands on it.  Mr Wainwright then immediately asked for $100,000 to plant the wet season crop. Mrs Faehse advised Mr Campbell to pay the $100,000.  He did so.  There was no legal documentation in relation to that payment even though the payment was made before the contract for purchase was signed and before settlement took place on that contract.  Mrs Faehse said she would look after all aspects of finalizing the deal and organizing the finance.  She said she would arrange the solicitors.  (Indeed, she had already done so).

38                  Between 17-22 December 1998, Mrs Faehse and Mrs Christopher exchanged various correspondence in relation to the preparation by Mr Christopher of the contract of sale and management agreement in accordance with Mrs Faehse’s instructions.  On 18 December 1998, Mrs Faehse sent a facsimile to Mrs Christopher which provided in part, ‘Please make the settlement subject to finance and the management agreement being in place and the date of settlement 45 days as discussed.’

39                  On 22 December 1998, Mrs Christopher forwarded to Mrs Faehse two copies of what she described as ‘execution copies of the Contract of Sale’.  The copies were forwarded under cover of a letter which provided:

‘I refer to the above matter and now enclose (*) two (2) execution copies of the Contract of Sale for the consideration of the parties.

Please note in particular the special conditions at clause 27. Also note the Schedule of improvements. I have not listed items 4,5 and 6 on Max’s list, as it goes without saying that these form part of the land.

If the contract is in order, it is proposed to exchange the contract early in the New Year. I do not recommend exchange of contracts prior to Christmas as there is an exploration licence current for the land which needs to be searched. Other routine searches such as Native Title, Sacred Sites, Council and Power & Water Authority searches should also be carried out prior to the Campbells committing themselves to the purchase.

I also enclose (*) two draft copies of the proposed management agreement and look forward to receiving the comments and instructions of the parties. It may well be that clauses 3.9 and 4 are not relevant, but I was not sure as to whether Max would be handling crop payments or whether they would go directly to the Campbells.

I look forward to receiving your further instructions in due course.’

40                  The copies of the contract forwarded under cover of the above letter contained a number of clauses of particular interest.  The sale was from Larrakeyah Farms Pty Ltd (a company controlled by Mr Wainwright) to Noonbrave Pty Ltd as trustee of the Campbell Property Trust.  The purchase price was $2,750,000.  Clause 1 provided:

‘DEPOSIT

The Purchaser shall pay to the trust account of the Vendor’s solicitor as stakeholder the sum of TWO HUNDRED AND SEVENTY FIVE THOUSAND DOLLARS ($275,000.00) which shall vest in the Vendor upon and by virtue of completion. This deposit may be paid by cheque but if the cheque is not honoured on presentation the Purchaser shall immediately and without notice be in default under this Agreement. Notwithstanding termination of this Agreement in the event of default of such payment the Vendor shall in addition to any other remedies be entitled to recover the amount of the deposit as a debt. The balance of the purchase price shall be paid on completion by bank cheque or cheques. Any moneys payable to the Vendor hereunder by the Purchaser or the agent shall be paid to the Vendor’s solicitors or as they may direct in writing.’

41                  Clause 27 of the contract provided:

‘SPECIAL CONDITIONS

This contract and the obligation to complete the same is subject to and conditional upon the following conditions being satisfied:

27.1     27.1.1       The Purchaser obtaining approval for finance from the Purchaser’s lender within twenty one (21) days from the date hereof in a sum adequate to enable the Purchaser to complete the purchase.

            27.1.2       The Purchaser shall immediately upon execution of this Agreement (or so soon thereafter as is reasonably possible) give to the said lender all such information and undertakings including if required such plans and specifications as may be required to enable the Purchaser’s application for finance to be approved. 

27.1.3       If such approval shall not be granted within the period aforesaid then provided the Purchaser shall have complied with the terms of this clause the Purchaser shall be entitled by notice in writing to the Vendor to terminate this Agreement and have repaid to him the said Deposit and all other moneys paid on account of the purchase.

27.2                     The purchaser entering into a written agreement on or before the date for completion for the planting, management and harvesting of crops on the land and other management duties either with the Vendor or another entity nominated by the Vendor and accepted by the Purchaser as an appropriate entity to undertake the role of Manager of the land upon such terms and conditions as may be agreed between the parties thereto.

27.3                     The Purchaser and Roblite Ply Ltd entering into a mutual surrender of the lease over part NT Portion 4981 between the Purchaser as Lessor and Roblite Pty Ltd as Lessee and dated 7th November 1997 and the Purchaser shall and the Vendor shall procure Roblite Pty Ltd to do all things and execute all documents necessary to give full force and effect to such surrender on the completion date as aforesaid.’

42                  Apart from alerting Mrs Faehse to the terms of cl 27, Mrs Christopher did not provide any advice as to the meaning and effect of these clauses.

43                  There is no evidence before me as to whether Mrs Faehse read cl 1 or cl 27 of the sale contract or as to what she understood them to mean.  I return to this issue later in these reasons.

44                  Unbeknown to Mrs Christopher, Mrs Faehse did not advise the Campbells that the sale contract should not be completed before Christmas.  Instead the contracts were executed by the parties on 22 December 1998.  Mr and Mrs Campbell went to the Deloittes offices to sign the contract. Mr Hudson said to Mr Campbell ‘are you sure you want to do this Dan?’ Mr Campbell replied ‘well, Lesley [Faehse] has done the figures’. Nothing more was said.  Mrs Faehse put the contract before the Campbells and asked them to sign.  They did.

45                  Although cl 1 of the sale contract provides for the deposit to be paid to the vendor’s solicitor to hold as a stakeholder, Mr Wainwright did not have a solicitor acting for him.  Mrs Faehse requested that Mr Campbell provide cheques for $275,000 payable directly to the vendor.  He did.  The cheques were delivered to Mr Wainwright on 23 December 1998.  Mrs Christopher was not informed that the deposit was effectively in the control of Mr Wainwright until 14 January 1999.

46                  On 22 December 1998 (the same day that the contract was signed) Deloittes lodged, on behalf of the Mr Campbell, applications for finance with the Commonwealth Bank and with the NAB.  The applications were in similar form.  Under the ‘tax effective’ arrangements proposed by Deloittes, Mr Campbell was to be the borrower for the whole of the purchase price of $2.75 million.  Mr Campbell says he does not recall receiving a copy of the finance application.  He says he was never taken through the document in detail by Deloittes. 

47                  As mentioned above Mrs Faehse was aware that Mrs Campbell was not prepared to provide any security which would place at risk her house at Wanguri.  The application for finance only offered Larrakeyah Station and Sandy Creek, and the pivot irrigators as security.  (It is noted that a separate value was ascribed to some of the fixtures on those properties).  The Commonwealth Bank responded on 31 December 1998, indicating ‘indicative approval’ of a bill discount facility totalling $2.75 million.  The facility was subject to the provision of various securities including a mortgage over Mrs Campbell’s Wanguri property.  Mrs Faehse was aware that this requirement was unacceptable to Mrs Campbell.  Mrs Faehse told the Campbells that they should seek finance from NAB rather than the Commonwealth Bank. 

48                  It would appear that Deloittes informed NAB that the Campbells required an urgent ‘indicative loan approval’ because Mr Wainwright:

‘had found a purchaser for Larrakeyah Station at $100K over the $2.75M paid by Campbell…Deloitte need to ensure Campbell’s loan is available to allow Wainwright to sever ties with the Asian offer and enter an unconditional contract of sale.’ 

49                  It would also appear that Mrs Faehse said something to the bank in relation to the sensitivity of Mrs Campbell relating to the Wanguri property being security for the loan, but that there was some misunderstanding in relation to it.  The internal bank document relating to the loan records that:

‘The Campbell’s family home is a five acre property in Leanyer, a northern suburb of Darwin worth around $450K.  Deloitte have advised that Campbell’s wife is against pledging this as security and if we insisted we would not be in with a real chance of this deal.’

It is clear that Mrs Campbell’s concerns were primarily directed to her own property at Wanguri, rather than the family home.  However, in the absence of any evidence from Mrs Faehse or from the bank officer it is not possible to say how this error occurred.  In any event, the bank required personal guarantees from both Mr and Mrs Campbell so it is not obvious how the bank thought that the family home was not effectively pledged in any event.

50                  On 11 January 1999, NAB responded in writing to the application.  It gave an indicative approval, subject to further investigations and subject to further security.  Mrs Faehse did not show Mr Campbell the letter from NAB but did discuss it with him.  Mrs Faehse suggested that Mr Campbell put properties he had in Queensland up as security. Mr Campbell agreed to this course.  He said that he had originally expected the bank would want more security than they initially had offered.  Mrs Faehse also told him that NAB was seeking a personal guarantee from Mrs Campbell.  Mrs Faehse well knew that such a personal guarantee was unacceptable to Mrs Campbell.  As Mr Campbell said in his evidence: 

‘And do you recall what Mrs Faehse said to you?‑‑‑Well, the - a personal guarantee for Kathy’s property was never to be contemplated in this transaction and somehow the National Bank slipped it in regardless and that was to be expunged at all cost.  Lesley would fix it.

And did she tell you how she would fix it?‑‑‑Well, the understanding we had with Lesley was that she had a good working relationship with the banks and had the wherewithal to achieve that.’

51                  It would appear that no-one thought to inform Mrs Campbell that the proposal from NAB involved a personal guarantee from her.

52                  There is no evidence that Mrs Faehse conveyed to NAB that the proposed guarantee from Mrs Campbell was unacceptable.  There is very little evidence of any attempt to ascertain what concerns the bank had which required such a guarantee, nor was there any evidence of whether those concerns could be accommodated in any other manner. 

53                  Mrs Christopher was not informed that the contracts had been executed on 22 December 1998 until 11 January 1999, when Mrs Faehse informed her that the contracts had been executed.  Until that time she had expected that the draft contracts would be returned with further instructions and she continued with the searches that she had referred to in her letter of 22 December 1998.

54                  Under cl 27.1.1 of the sale contract, finance approval was required within 21 days of the date of execution.  The parties are agreed that this period expired on 12 January 1998.  There is no evidence before me that anyone appreciated the possible significance of this date.  In any event, no-one did anything in respect of it.

55                  In the meantime, Mrs Christopher continued to work on the draft management agreement.  Drafts were provided to Mrs Faehse who conveyed back to Mrs Christopher her own comments and those of Mr Wainwright.  The documents for the transfer of land comprising Larrakeyah Station and the surrender of the lease over Sandy Creek were also prepared.

56                  Sometime about mid-January 1999, Mr Wainwright and Mr Campbell took a helicopter flight over Larrakeyah Station. Mr Campbell observed that the maize crop was infested by peanut plants.  The whole crop was a waste.  Mr Campbell said that he was horrified, he had paid for all the maize seed.  He reported this to Mrs Faehse, but she seemed to him to be unperturbed.

57                  It is likely that there was some communication between NAB and Mrs Faehse on or before 16 January 1999 if only because Mrs Faehse had a telephone conversation with Mrs Christopher on 16 January 1999 about NAB’s requirement (see below).  On 17 February 1999, NAB wrote to Mr Campbell care of Deloittes advising that it had approved a ‘Multi Option Facility’ of $2.75 million.  One of the conditions of the proposed facility was that Mrs Campbell would give a ‘guarantee and indemnity for $2,750,000.’  Mrs Faehse telephoned Mrs Campbell.  She said, ‘You are not going to like this, but the bank has, at the last minute, decided it wants a guarantee.’  Mrs Campbell was at home, being in the last stages of pregnancy with her second child.  She says that she was distraught upon hearing this news.  She did not want to provide a personal guarantee.  There seemed to be two reasons for this.  The first was a philosophical view that a wife should not give a personal guarantee to support her husband’s investments.  The second was the reason already noted, that the guarantee, if called upon, would place her property at Wanguri at risk.  Mrs Faehse told Mrs Campbell that the bank would only rely on her guarantee and enforce against the Wanguri house in the last instance.  Mrs Faehse also said that Larrakeyah Station was a good investment.  She said, ‘this is as sure a thing as primary production gets’.  It would appear that during the telephone conversation that Mrs Campbell had with Mrs Faehse, Mrs Faehse suggested that Mrs Campbell call Mrs Christopher of Cridlands to discuss the guarantee.

58                  Mrs Campbell then called her husband at the hospital to tell him how upset she was at the bank insisting upon a personal guarantee from her.  She told him that she had just received a call from Mrs Faehse saying that unless she was prepared to put up a personal guarantee the loan could not go ahead.  Mrs Campbell was crying whilst talking to her husband.

59                  Mr Campbell called Mrs Faehse. Mrs Faehse told Mr Campbell that she had just received notification from the bank that a personal guarantee was required from Mrs Campbell.  Mrs Faehse gave Mr Campbell to understand that there was no option but to provide the personal guarantee in order to obtain the loan.  Mr Campbell was disappointed at this response, which he thought was inadequate.  He was also disappointed that this issue, which he had assumed had been satisfactorily resolved, had not been. 

60                  Cridlands had had no involvement in relation to obtaining finance in relation to the purchase until 16 January 1999 when Mrs Christopher was informed by Mrs Faehse that the bank would be seeking personal guarantees from Mr and Mrs Campbell that would need to be explained to them. 

61                  On 17 February 1999, Mrs Christopher responded to a telephone message that Mrs Campbell had left for her.  This was the was the only direct contact Mrs Christopher had with either of the Campbells in connection with the purchase of Larrakeyah Station.  The telephone conversation lasted about half an hour.  Mrs Campbell was very upset and concerned because of the requirement that she give a personal guarantee.  She asked Mrs Christopher what liability she would have under the guarantee. She wanted to know what the risk to her matrimonial home was, but she was more concerned about her house in Wanguri.  Mrs Christopher told her that banks drafted their guarantee clauses very widely so that once they had judgment they could get access to all her assets.  Mrs Christopher warned her that if she signed the guarantee she could be sued as the first option.  The bank could sue one or the other of them, or both of them, at its discretion, and they did not have to sue Mr Campbell first.  Mrs Christopher explained the process whereby the bank could get judgment against her and if she defaulted, require the sale of the Wanguri house.  Mrs Campbell told Mrs Christopher that the bank had said that it would put her house at the bottom of its list of assets to be realised.  Mrs Christopher warned Mrs Campbell not to rely on anything the bank said in that respect.

62                  Mrs Christopher asked Mrs Campbell what assets she and Mr Campbell had in order to get some understanding of what the risk to the Wanguri house was.  It was apparent to her from what Mrs Campbell said that the Campbells’ assets to borrowings ratio was approximately two to one.  Mrs Christopher told Mrs Campbell that the risk, meaning the risk to the Wanguri house, was small, however it was a real risk. 

63                  During their conversation Mrs Campbell said words to the effect,  ‘I don’t want to do this, I don’t want to give the guarantee’.  Mrs Christopher said to her, ‘don’t do it; go somewhere else’.  Mrs Campbell replied, ‘I can’t.  We are past the settlement date and I can’t risk Dan losing the farm’.  By saying she couldn’t risk Dan losing the farm, Mrs Christopher understood her to mean that she couldn’t take the risk that Mr Wainwright would sell the farm to someone else if the Campbells rescinded the contract.

64                  Mrs Christopher understood from her conversation with Mrs Campbell that notwithstanding the requirements of NAB in relation to a guarantee, both Mr and Mrs Campbell were very anxious for the purchase of Larrakeyah Station by Noonbrave Pty Ltd to go ahead.

65                  Mrs Christopher did not say to Mrs Campbell during their conversation anything that implied that Mrs Christopher was of the opinion that Noonbrave Pty Ltd would forfeit its deposit if the Campbells did not accept NAB’s security and guarantee requirements.  On the other hand, Mrs Christopher did not say to Mrs Campbell that if finance on satisfactory terms could not be arranged then the Campbells could terminate the contract and seek the return of the deposit, even though that was Mrs Christopher’s understanding of the legal position. 

66                  That night Mr and Mrs Campbell had some discussions concerning the matter.  Mr Campbell described those discussions as follows:

‘Did you have a conversation with your wife that night?‑‑‑I did.

Concerning the guarantee?‑‑‑Yes.

Could you tell us what was said?‑‑‑Well, yes, I come home to be confronted by a distressed woman, once again, and ‑ ‑ ‑ 

When you say distressed, could you ‑ ‑ ‑?‑‑‑Well, she was crying again.

Yes.  Do you recall the conversation?‑‑‑Well, basically, she told me that she didn’t know what to do and what can we do, and it is very hard to get a rational conversation out of a woman who is crying, as you would know.  So I tried to calm her down and reassure her, and by the time I get home I am not really in a mood to - I need some outlet, and - from the pressure of work, and I do a - I do a long day’s work and I don’t have any breaks during the day, so I am fairly mentally and physically exhausted by the time I get home.  To be confronted by another serious issue when I get home I need some time, some space.  As I usually do I go and do some exercise.

And did you do exercise this night?‑‑‑Yes.

Did you have any further conversation that night with your wife on the issue?‑‑‑We did have brief discussions, but nothing substantial.’

67                  Mr Campbell gave evidence that by the next morning he had resolved to call off the purchase of Larrakeyah Station rather than ask his wife to give a personal guarantee. However, I am not satisfied that he made such an unequivocal decision.  If he had it might be expected that he would have told his wife.  It appears that he did not do so. 

68                  Mr Campbell did ring NAB and threaten to call off the deal.  It would not appear from the note of that conversation made by the bank officer that Mr Campbell’s position was as unequivocal as he now remembers it.  That note is also important in that it provides some information as to the bank’s reason for seeking the guarantee from Mrs Campbell: 

‘Dan Campbell rang this morning. The documentation regarding the $2,750,000 loan was delivered to Deloitte’s yesterday and he had one major concern.

He said the inclusion of his wife as g’tor was a major problem-and in fact his wife has been in tears all night and at 37 weeks pregnant this was not preferred. I explained to Dan that this was not “from left field” and in fact our original approval in principle had his wife listed as a guarantor.

I elaborated and explained that the reason she is required is that they own Sandy Creek Katherine jointly and to link that security to our debt in his name solely we required her personal guarantee. He said that his wife is very adamant about this as she owns a house that she saved for and purchased and does not want the Bank to have access to this via a personal guarantee.

I emphasised the Banks position stating that Sandy Creek was an integral part of the peanut operation and needs to be in our security. My suggestion was that the only way he could continue negotiations for this deal without his wife in the guarantee he should consider transfer of Sandy Creek to his name solely. He understood and said he will have Lesley Faehse look at this.

I reiterated that this was common practice for Banks and financiers and the fact we listed the guarantors in our first letter dated the 11/1/99 that they must have glossed over the fact that she was required as a guarantor.

Dan was reasonably blunt and said that he may have to call the deal off. I said did that mean he will rescind the contract and lose his $275K. He said if this needs to be the case he would.

Comment by BBM [A senior bank officer responsible for approving loans]

We will not dilute our position with this nor will we take on a hostile guarantor. Should Dan Campbell convince his wife to provide her guarantee, solicitor sign off is mandatory and when the Bank signs up the rest, we must ask the question to her direct. Does she understand???

Rang Lesley Faehse who was up to date on the situation and suggested that Mrs Campbell had simmered down and was becoming more comfortable with the situation.

I expressed the Banks position and said we would not attend the sign up tonite [sic] at 6-00 pm if either Dr Campbell or Mrs Campbell were not happy or hostile towards the terms and conditions of the loan. Lesley agreed and said that by 6-00 p.m. all will be resolved.’

69                  It may be that Mr Campbell also had a telephone conversation with Mrs Faehse in which he informed her that he may be prepared to call off the deal.  In his statement he refers to such a conversation on the day before (17 January 1999), but it would seem that if such a conversation took place it must have been on 18 January 1999, probably relatively early on that day.

70                  While all this was happening Mrs Campbell telephoned her father.  He asked her what advice she had received and she told him that Mrs Faehse had told her that the purchase was as sure a thing as primary production gets.  Her father said to her, ‘You are being advised by a Big Five accounting firm.  It must be a reasonably safe investment’.  He also told her that should the worst eventuate, he and her mother would ensure that the children would receive their education.  It would not appear that Mrs Campbell mentioned to her father that she had had a conversation with Mrs Christopher.

71                  Following that discussion, Mrs Campbell decided that she would give the guarantee.  She rang her husband and told him that she would do so.  He left it for her to communicate this with Mrs Faehse, which she did.  In consequence, the finance documents were executed that evening (18 January 1999).  Mrs Christopher was unable to attend the meeting and so briefed another solicitor from Cridlands, Mr Black, to attend.  He did so.  He was introduced by Mrs Faehse who said that he was there for the purposes of giving advice in relation to the guarantee that Mrs Campbell was entering into and he was there as the solicitor for the Campbells. Mr Black gave evidence that he typically paints a bleak, frank picture to persons giving guarantees to banks. In this case the guarantee document was almost entirely for the benefit of the lender. He then went through the document clause by clause. He spoke to Mrs Campbell for almost two hours. Not once during this meeting did Mrs Campbell indicate that she was not willing to proceed to give the guarantee or that the Campbells did not wish to proceed with the purchase of Larrakeyah Station.  The key issue for Mrs Campbell was the priority in which the bank would act on its securities in the event of default. She said words to the effect of ‘they won’t take my house first will they?’  Mr Black advised that the bank had free rein.  He also said that the bank would rely on the fact he had given advice to her about the guarantee to further strengthen its position by preventing her from claiming she was not properly advised.  He thought that Mrs Campbell appeared to understand this. Once Mr Black had finished giving his advice he asked if Mrs Campbell wish to proceed with giving the guarantee. She said she did and signed the guarantee.  He subsequently confirmed his advice in writing.

72                  Following the execution of the finance documents the bank officer in attendance produced his own file note of what occurred.  It records:

‘There is no doubt that both the Campbells are well educated and advised people and have entered this transaction fully aware of the loan structure, security and possibilities in the event of a default.’

Mrs Campbell acknowledged that this was a fair assessment.

73                  The settlement of the purchase proceeded a couple of days later.

74                  The invoices and accounts in relation to the farming operations on Larrakeyah Station then started coming in.  Apparently the Campbells had not expected that they would have these continuing demands for extra moneys.  Apparently no discussions had taken place as to the running of the farm.

75                  The farming operations also came under question.  In May 1999, Mr Campbell went to see the first maize crop.  It was a disaster, the crop had failed.  The peanut crop had also become diseased.  The majority of the peanuts could not be harvested.  Mr Campbell reported his concerns to Mrs Faehse on a number of occasions, ‘we are expending significant dollars, but have received no income at all’. Mrs Faehse would usually reply, ‘it should be okay, we will have to wait to see the figures before we know’.

76                  Ms Suzanne Archbold from Deloittes visited the Campbells at their home in June 1999 to discuss their tax returns. She reported a $600,000 loss.  Mr Campbell spoke to Mrs Faehse about abandoning the whole project.  She said that the only way to recoup the losses was to continue and that income could be expected from the more controlled dry season crops.

77                  A meeting took place to discuss the dry season crops. At the meeting Mr Wainwright floated the idea of silos and a dryer to control moisture and the quality of the peanut crops.  This had been identified as a future improvement, but Mr Wainwright stressed the necessity of it for the upcoming crop. Mrs Faehse said to the Campbells that they should purchase the silo.  Mrs Faehse arranged a loan through the Commonwealth Bank to fund the silo purchase.  Mrs Campbell paid the deposit for the silos out of her personal account.  In the event the silos were never erected.  Mrs Faehse and Mr Wainwright blamed each other for the failure to make the necessary, timely arrangements with the suppliers.

78                  By this time the Campbells had no money readily available to pay for the farm invoices which continued to come in – Mrs Faehse advised Mr Campbell to sell some of his shares to fund the operating costs.  Pressure also came from Mr Wainwright about paying his invoices. 

79                  At some time, apparently in late 1999, Mr Wainwright contacted Mrs Campbell about a proposal to sell his farming equipment. He said he was pulling out of contractual work and that the Campbells would have to arrange their own planting and harvesting from now on, but that they could get around that by buying his equipment.

80                  Over Christmas in 1999 the Campbells spoke to Mrs Campbell’s father and brother in relation to their problems.  The father and brother prepared a spreadsheet of the farming operation.  This was the first spreadsheet the Campbells’ had seen relating to the farming operation.

81                  On 17 January 2000, the Campbells attended a meeting at Deloittes to discuss the crop results.  Mrs Campbell’s father also attended.  The crop returns were less than anticipated and the overall result was a financial disaster.  Later in January, Mr Campbell met with Mr Hudson.  Mr Campbell pointed out that the peanut crop had failed.  He said that the farm was going nowhere.  There was a huge debt and the Campbells had not been told about the disasters.  Mr Hudson said he would talk to Mrs Faehse and organize a meeting.

82                  During February, Mrs Campbell and her father inquired about further finance for the farm – they met with NAB, the Commonwealth Bank and with Wesfarmers.

83                  On 2 March 2000, Mrs Campbell and her father met with an officer from NAB.  He said that the bank could not lend them any more money.  He also said that Deloittes had failed to provide the bank with financial reports as they were required to do under the financing arrangements.

84                  Finally Mrs Campbell and her father went to the Commonwealth Bank.  There it was suggested that they contact Mr Garraway for advice.  Mr Garraway was and is a chartered accountant with significant experience in ‘insolvency management’.

85                  Mrs Campbell and her father also sought legal advice from Cridlands about terminating the management agreement with Mr Wainwright. Cridlands advised against doing so at that stage.

86                  The Campbells decided not to plant the next crop as no money was available.  They informed Mr Wainwright of this and the fact that they would not purchase his equipment.

87                  A further meeting with Deloittes took place in about March, 2000.  At that meeting Deloittes presented a proposal to subdivide Larrakeyah.  The Campbells decided it was time to terminate the services of Deloittes.  They did so on 31 March 2000. 

88                  Thereafter they took their financial advice primarily from Mr Garraway.  He provided advice and recommendations to the Campbells about the farm and their financial situation.  Mr Garraway arranged for Mr Pemberton to inspect Larrakeyah Station for the Campbells to decide on its future.  Pending his report it was decided that the farm be put in minimal operational status until an analysis of its performance took place.  Large operating losses had already been incurred on two crops of maize and peanuts.  Mr Garraway advised the Campbells against planting further crops.  In any case there was no money left for planting and cultivation.  Mr Garraway also advised the Campbells against paying Mr Wainwright any of his outstanding invoices.  He also arranged for the properties to be valued by Mr Copland.

89                  In September 2000, Mr Garraway devised an action plan for the Campbells.  He advised the Campbells to sell Larrakeyah Station and Sandy Creek and commence legal action against their former advisers.  Mr Garraway arranged the sale of the properties. An offer was received on 20 June 2002 for both properties, with improvements, plant and equipment.  The sale price was $1.2 million.

90                  Mr Garraway has been paid in excess of $210,000 by the Campbells for his work.  This work has included transmitting instructions from the Campbells to their solicitors, the sale of the Katherine properties, valuation justification and reporting, active sale of assets, liaising and reporting to NAB and other banks, ascertaining and calculating losses and meetings with clients and other financial advisers.  His efforts have been successful.  None of the banks or other creditors have taken action to enforce their securities.  So far as Mrs Campbell is concerned, her personal guarantee has not been called upon.  She still owns the house at Wanguri.

91                  Leaving aside the effect (if any) of the payments to be made under the deed (discussed below) the present outstanding loan to the National Australia Bank is $538,757 in the name of Mr Campbell.  Again, leaving aside that effect (if any), Mr Garraway estimates the losses to the Campbell interests from farming and from farm property ownership (including litigation costs) at $4,698,180; Mr Vincent at $3,895,409 plus interest (which he calculates brings the total to $4,552,007) and Mr Holmes at $3,432,000 plus interest.  Deloittes claim that the losses are $4,062,563 plus interest.

THE VALIDITY OF THE ASSIGNMENT

92                  On 29 September 2003, the Campbells entered into a deed with Deloittes pursuant to which they assigned to Deloittes their rights against Cridlands in contract and tort and released Deloittes in relation to their claim against that firm.  In return the Campbells were to receive $3.5 million of which $350,000 was payable on the date that the deed was executed and the remainder was payable 45 days thereafter. 

93                  The validity and effectiveness of that deed is essential to the success of one leg of Deloittes’ action.  It will be recalled that that action rests upon two bases.  The first is the assertion that the assignment of the rights of action by Noonbrave Pty Ltd and Mr and Mrs Campbell against Cridlands in contract and tort has the result that Deloittes now own and can pursue those rights in their own name:  see Redman v The Permanent Trustee Company of New South Wales Ltd (1916) 22 CLR 84 at 95.  The second is that the compromise reflected in the deed provides an appropriate basis for Deloittes to seek contribution from Cridlands under the Law Reform (Miscellaneous Provisions) Act (NT).

94                  Cridlands says that the deed is invalid for breach of public policy with the consequence that both the assignment and the compromise are ineffective.  If that submission is correct then the action founded upon the assignment must fail.

95                  In order to analyse this dispute some provisions of the deed should be noted:

‘INTRODUCTION

…

H      Dan Campbell would not have entered into the Finance Agreement and Noonbrave would not have completed the purchase of Larrakeyah Station, had Noonbrave and/or the Campbells been advised that as at 18 February 1999, Noonbrave was entitled to terminate the Contract of Sale and obtain a refund of its deposit.

…

1          DEFINITIONS AND INTERPRETATION

…

1.2    Interpretation

            …

(g)     the introduction accurately sets out the circumstances in which the parties have entered into this Deed;

…

4       ASSIGNMENT

4.1    In consideration of this Deed and the payment by Deloitte to Noonbrave and the Campbells of the sum of $1 each (receipt of which is hereby acknowledged), Noonbrave and the Campbells hereby assign to Deloitte:

(a)       all of their joint and several rights, title and interest in and to any and all claims against Cridlands arising under or by virtue of the agreement entered into between Noonbrave, the Campbells and Cridlands in or about December 1998; and

(b)       all of their joint and several rights, title and interest in and to any and all claims and/or rights of action howsoever arising against Cridlands, including the Negligence Claim against Cridlands.

…

4.5    If, for any reason, the assignments referred to in 4.1 of this Deed are ineffective or invalid, that will not affect the remaining provisions of this Deed which shall remain of full force and effect.

…

5       UNDERTAKINGS

5.1    Noonbrave, Dan Campbell and Kathy Campbell each undertake to give evidence and provide such further assistance as Deloitte may require upon reasonable notice, and to use their best endeavours to ensure the provision of evidence by witnesses for Noonbrave and the Campbells in the Proceedings, in order for Deloitte to prosecute:

            (a)        the Negligence Claim against Cridlands; and/or

            (b)        the Cross-Claim against Cridlands.

…

11     GENERAL PROVISIONS

…

11.    Severance

If any clause or part of any clause is in any way unenforceable, invalid or illegal, it is to be read down so as to be enforceable, valid and legal. If this is not possible, the clause (or where possible, the offending part) is to be severed from this Deed without affecting the enforceability, validity or legality of the remaining clauses (or parts of those clauses) which will continue in full force and effect.’ 

96                  The basis of the argument for invalidity is that a purported assignment of a cause of action which amounts to, or savours of, maintenance, is void (see J Starke, Assignments of Choses in Action in Australia, Butterworths, Sydney, 1972 at 62-63).  For this purpose maintenance consists of the ‘support, by means of finance or exertion, of an action by a person who has no interest in it’:  see Re Daniel Efrat Consulting Services Pty Ltd (in liq) (1999) FCR 154 at 162-163; R Meagher, J Heydon & M Leeming, Meagher, Gummow & Lehane’s Equity Doctrines and Remedies,4th edn, Butterworths, Sydney, 2002 at 278 ff. 

97                  There are a number of exceptions to this general rule.  For example, it would seem to be settled that assignments of causes of action by liquidators or by trustees in bankruptcy pursuant to their statutory powers are not subject to the general rule of public policy.  The reason for this is said to be that the relevant sale is authorised by the statutory power:  see Re Daniel Efrat Consulting Services Pty Ltd (in liq) (1999) FCR 154 at 163; Re Addstone Pty Ltd (in liq) (1998) 83 FCR 583 at 592; Re Movitor Pty Ltd (in liq) (1996) 64 FCR 380 at 389-393.  It is not argued that any specific exception has any application in this case and I do not need to consider that issue any further.

98                  In this case Deloittes argue that the assignment does not involve any maintenance.  It points to its pre-existing interest in the proceedings as initially brought.  Deloittes argue that in circumstances where it has reached a reasonable settlement and it is unlikely that it will profit from the litigation (taking account of the amount it has already paid) then it has a sufficient interest in the action to take an assignment of it.

99                  There is considerable recent authority to support this argument.  In particular the case of Brownton Ltd v Edward Moore Inbucon Ltd [1985] 3 All ER 499 (‘Brownton’) involved facts very similar to those in the present case.  Indeed, it may well be that the deed in this case was drafted having regard to the terms of the settlement agreement that appears to have been reached in that case.  In Brownton the plaintiff had sued the first defendant in contract and in negligence and had sued the second defendant in contract.  The plaintiff settled with the first defendant and assigned to the first defendant all its rights of action against the second defendant.  Although it would appear that both the plaintiff and the first defendant retained that status in the proceedings (which, as mentioned above, I did not permit in these proceedings) that does not appear to have caused any concern to the courts or to the parties.  However, the second defendant did argue that the assignment was invalid for breach of the rule against maintenance.  The Court of Appeal held that it did not breach that rule.  Sir John Megaw held that the first defendant, by reason of it being a party in the litigation where both the first and second defendant were sued in relation to the same damage, had a sufficient interest in the assignment that the agreement did not involve maintenance (at 505h).  Lloyd LJ came to the same result, but limited his analysis to causes of action in contract.  It would seem that Lloyd LJ accepted (at 507g), on the basis of the reasoning of the Court of Appeal in Trendtex Trading Corporation v Credit Suisse [1980] QB 629 at 656, 671-674 (‘Trendtex’) that the principle did not apply personal claims for damages in tort.  (Trendtex was appealed to the House of Lords: [1982] AC 679).  It would appear that Lloyd LJ treated the analysis by their Lordships as being consistent with this distinction.  Lloyd LJ concluded that the first defendant had a genuine commercial interest in the contract action by the plaintiff against the second defendant and this meant that the assignment did not involve maintenance or champerty (at 509h).  The Master of the Rolls agreed with both of the other Judges.

100               If Brownton is good law in Australia it would seem to follow that the assignment is valid, at least in relation to the cause of action against Cridlands in contract. 

101               Brownton has been cited in a number of Australian cases with apparent approval.  Further, it has been extended to apply not only to actions in contract, but also to actions in tort.  Mullins J in Vangale Pty Ltd (in liq) v Kumagai Gumi Co Ltd [2002] QSC 137 commented at [70]:

‘The rationale for the unassignability of a bare right of action was that it was objectionable on the grounds of maintenance: Brownton Ltd v Edward Moore Inbucon Ltd [1985] 3 All ER 499, 505. The authorities commencing with Trendtex have changed the laws relating to maintenance and champerty and provided a basis on which an assignment of a right to claim damages for breach of contract or tort which is not coupled with a right of property can be justified. In view of these developments, it is wrong to rely on the statement in Poulton v Commonwealth [(1953) 89 CLR 540 at 602] to the effect that the right of action for the tort was incapable of assignment either at law or in equity, when the assignee in that case did not have a pre-existing genuine substantial or commercial interest in the cause of action that was assigned and the case was also decided before the modern developments in the law of negligence: Beatty v Brashs Pty Ltd [[1998] 2 VR 201] at 215. The analysis in First City Corporation Ltd v Downsview Nominees Ltd [[1989] 3 NZLR 710] and Beatty v Brashs Pty Ltd for not drawing any distinction between rights of action in tort and contract in applying the principles of Trendtex is compelling.’

Similar comments have been made in the cases cited by Mullins J in his reasons.  I also note the similar conclusion reached Debelle J in South Australian Management Corporation v Sheahan (1995) 16 ACSR 45 at [35]-[36].

102               The extension of the Brownton approach to actions in tort is perhaps surprising given that there would seem to be clear High Court authority to the contrary.  In Poulton v Commonwealth (1953) 89 CLR 540 at 602 the High Court expressed itself reasonably clearly on the matter:

‘In the second place, if it were true that the Commonwealth were guilty of conversion of the Donlons’ wool, it would be the Donlons alone who could elect to waive the tort and take the proceeds of sale. This would be so, both because there was not in fact any purported assignment to the plaintiff of the right of action for the tort, and because, according to well-established principle, the right was incapable of assignment either at law or in equity: Dawson v. Great Northern & City Railway Co; Defries v. Milne  [Citations omitted]’

103               Notwithstanding the comments of the UK Court of Appeal, or of Justices of New Zealand and Australian superior courts, I would not be prepared to depart from a clear statement of principle by the High Court (even one 50 years old) unless there was some other contrary statement of principle that was binding upon me.  In this case the only binding statement of principle would appear to be that contained in the decision of the Full Court of this Court in Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1997) 72 FCR 261.  The Court, after noting the history of maintenance and champerty at common law, and after noting that the criminal offence and the tort had been abolished in most Australian jurisdictions (although it is not abolished in the Northern Territory), nevertheless concluded that:

‘…the policy considerations which gave rise to the offence and tort have [not] lost all significance today.  The ability of the Courts to treat agreements for maintenance as contrary to public policy, and therefore illegal, remains unaffected by the statutory provisions. (at 268)’

104               The Full Court noted that the social mischief thought to be effected by maintenance had changed over time.  So, for example:

‘…concerns expressed earlier this century, as to the potential for maintenance of actions to give rise to an increase in litigation, might now be considered of lesser importance than the problems which face the ordinary litigant in funding litigation and gaining access to the Courts. (at 267)’

105               The greater flexibility in the rules as whether a prospective assignee had a sufficient pre-existing interest in the litigation has been one judicial response to those changes.  However, the policy issues involved were not limited to the suggested evil of ‘trafficking’ in litigation (on the one hand) as against access to justice on the other.  One of the policy reasons for not enforcing agreements involving maintenance was that they ‘provided a strong temptation to suborn witnesses and pursue worthless claims’ (at 267).  As the Full Court noted (at 268):

‘Questions will also likely arise for the Courts, where actions are funded by them, as to the integrity of its processes and in particular as to the uses to which they are being put, and as to the conduct of the maintained party and the maintainor with respect to the proceedings.  In this connection it will be necessary to have regard to the provisions of the particular agreement.’

106               This same emphasis on the broader public policy issues involved, and in particular, the need to protect the integrity of the processes of the court, has been noted in a number of other cases.  I refer, for example, to Giles v Thompson [1994] 1 AC 142 at 163-164; Stocznia Gdanska SA v Latvian Shipping Co (No 2) [1999] 3 All ER 822 at 831; Freehill Hollingdale & Page v Bandwill Pty Ltd [2000] WASCA 150 at [25] and Bandwill Pty Ltd v Spencer-Laitt (2000) 23 WAR 390 at 398-400. 

107               One of the specific risks to the integrity of the judicial process which is referred to in these cases is the risk of subornation of witnesses.  It is a common law offence to enter into an agreement to give false testimony to a court: see R v Andrews [1973] 1 QB 422.  True it is that where the parties believed that the relevant testimony was true, an agreement in relation to the giving of that testimony might not be an offence: see R v Kellett [1975] 3 All ER 468 at 479.  But it is not necessary that the relevant agreement give rise to a criminal offence before it is invalid for public policy.  It is not only agreements involving a real and actual risk to the integrity of the judicial process which are contrary to public policy.  Agreements which have a ‘tendency’ for such a risk are also objectionable:  see A v Hayden (1984) 156 CLR 532 at 554-555, 556-557, 572.  In my view a contract ‘to pay compensation for giving [oral] testimony [in court] the content and character of which are specified in the bargain’ has such a tendency and is illegal and unenforceable: see Corbin On Contracts, at§1490.  So too does a contract with a witness or prospective witness where the payment under that contract is contingent upon a particular outcome in litigation.  In my view such contracts have an obvious tendency to affect the course of legal proceedings, not only in actuality, but also in perception.  Such contracts have the effect that a witness could be put to answer for what he or she said in evidence: contrast Jamieson v The Queen (1993) 177 CLR 574 at 582-583, 589-590, 594-595(‘Jamieson’).  As Gaudron J remarked in Jamieson at 595:

‘Resort to the courts for the orderly resolution of disputes between citizens, or between citizens and government, would be greatly put at risk if witnesses were to be subject to restraints with respect to their evidence, other than those which serve to protect the integrity of the judicial process.’

108               Obviously the contract involved in the particular case would need to be closely examined in order to ascertain whether a tendency to affect the judicial process exists in that particular case.  For example, there may be no such tendency in relation to public advertisements merely seeking information and not directly related to the testimony to be given in court.  There may be no such tendency where the relevant evidence is based entirely on existing documents:  see Plating Company v Farquharson (1881) 17 Ch D 49.  It may also be that an agreement with a third party that it will arrange for persons to give specified evidence might be acceptable: see, for example, Australian Competition & Consumer Commission v FFE Building Services Limited [2003] FCA 1181.

109               Once it is appreciated that an agreement requiring a party to give particular and specified evidence in court, or having a tendency to impose such a requirement, is illegal then it may be that many agreements for the assignment of personal claims for unliquidated damages, whether in contract or tort, are illegal.  Many such assignments would be entirely valueless unless it was implicit that the party giving the assignment will give evidence in the legal proceedings and that that evidence would support the cause of action assigned.  This may be the basis upon which courts have historically treated actions of this description as being inherently different from other actions where assignment to a person with an appropriate interest has been more accepted:  as to the different treatment see discussion by Oliver LJ in Trendtex Trading Corporation v Credit Suisse [1980] QB 629 at 663-675.  See also Heerey J in Re Daley; ex parte National Australia Bank Ltd (1992) 37 FCR 390 at 394-395.  It may also justify the general statement of principle by the High Court in Poulton v Commonwealth (1953) 89 CLR 540 at 602 at least in relation to ‘personal’ torts.

110               Whether or not a general rule can be identified in relation to ‘personal claims’ it is clear that in this case the deed does have a tendency to require the Campbells to give particular and specified evidence.  Recital H of the deed, which the parties agree in cl 1 is accurate, is a recital of an essential and disputed fact in these proceedings.  Under cl 5 of the deed Mr and Mrs Campbell both agree to give evidence in these proceedings.  It is clear that if they had not done so then Deloittes would have had no prospect whatever to prove its case against Cridlands, whether under the assigned cause of action or for contribution.  It is also clear that the parties envisaged and expected that the evidence that the Campbells would give in this Court would be in accordance with recital H.  Indeed, they did so. 

111               In my view the assignment of the causes of action to Deloittes involved unlawful maintenance and was in breach of public policy.  The purported assignment was invalid.  Deloittes cannot succeed in their action based upon the assigned causes of action.

112               Cridlands put other arguments as to why the assignment was invalid.  They argued, for example, that the assignment was invalid because there was at least a possibility that Deloittes could profit from the assignment.  In the circumstances it is unnecessary for me to consider these other arguments.

113               Having reached the view I have, it is unnecessary for me to consider whether the release given by the Campbells to Deloittes had the effect that there was nothing left to assign.  This issue was not argued before me.  Nevertheless, it is an issue that may need further consideration in a appropriate case or, indeed, if this case is further considered elsewhere.  It is appropriate to mention it.  At common law a judgment by one joint tortfeasor operated to release all other joint tortfeasors:  see Baxter v Obacelo Pty Ltd (2001) 205 CLR 635 at 647-648 (‘Baxter’).  This common law rule was abrogated by s 12(2) of the Law Reform (Miscellaneous Provisions) Act (NT).  Also at common law a settlement and release by one joint tortfeasor operated as a release of all other joint tortfeasors:  see Allison and Van Dorsten v Uatar Management Services Limited [1999] NZCA 324 at [113] (‘Allison’).  In Australia at least it would appear that this rule was also abrogated by the statute:  see Thompson v Australian Capital Television Pty Ltd (1996) 186 CLR 574 at 584, contrast the position in New Zealand or in the United Kingdom:  see Allison and see Jameson v Central Electricity Generating Board [2000] AC 455.  However, even in Australia it would still seem to be the position that the release of one tortfeasor will release all others if the relevant release was intended to operate as a full release of all liability for the claim: see Baxter at 655-656, 662-663, 668-669.  The purported assignment made in this case would seem to imply that the settlement was not intended to include the claim against Cridlands.  On the other hand it is a step in the argument put by Deloittes for contribution, (discussed below) that the whole of the settlement amount is a reasonably appropriate estimate of the total liability of the joint tortfeasors.  Given this argument, Deloittes may have some difficulty in establishing that the settlement was not a full settlement of the whole of the claim.  Even if the settlement does not fully settle the claim against Cridlands, it is at least arguable that what can be assigned is the difference between the amount received in the settlement and the total amount of damage that was otherwise claimable: see Baxter.  As I say, it is unnecessary for me to resolve those questions in this case.

114               Although the assignment effected by the deed is invalid, the deed is not wholly invalid and ineffective.  Given the terms of cl 11.6 of the deed both the assignment and the obligation to give evidence are severable from the other aspects of the settlement.  The deed should be construed with cls 4 and 5 expunged.  This has the effect that the settlement is still effective in part.  Deloittes are still liable to pay $3.5 million to the Campbells in accordance with the deed and the Campbells are still obliged to release Deloittes from any liability Deloittes may have to them.  Deloittes are also liable to indemnify the Campbells against any order for costs made against them.  Deloittes accepted as much in their submissions.  It is appropriate that any costs orders made against the Campbells should reflect this liability.

CONTRIBUTION FROM A JOINT TORTFEASOR

115               As the relevant clauses of the deed are severable the invalidity of the purported assignment does not affect the cause of action by Deloittes against Cridlands seeking contribution as a joint tortfeasor.  The action for contribution is a statutory action based upon s 12(4) of the Law Reform (Miscellaneous Provisions) Act (NT).  Sections 12 and 13 provide:

‘12.      PROCEEDINGS AGAINST AND CONTRIBUTION BETWEEN JOINT AND SEVERAL TORT-FEASORS

            (1)     This section applies where damage is suffered by a person as a result of a tort (whether a crime or not).

            (2)     Judgment recovered against a tort-feasor liable in respect of the damage is not a bar to an action against any other person who would, if sued, have been liable as a joint tort-feasor in respect of the same damage.

            (3)     If more than one action is brought in respect of the damage by or on behalf of the person by whom it was suffered, or for the benefit of the estate, or of the wife, husband, brother, sister, half-brother, half-sister, parent or child, of that person against tort-feasors liable in respect of the damage (whether as joint tort-feasors or otherwise) -

                     (a)     the sums recoverable under the judgments given in those actions by way of damages do not in the aggregate exceed the amount of the damages awarded by the judgment first given; and

                     (b)     in any of those actions other than that in which judgment is first given, the plaintiff is not entitled to costs unless the court is of opinion that there was reasonable ground for bringing the action.

            (4)     A tort-feasor liable in respect of the damage may recover contribution from any other tort-feasor who is, or would if sued have been, liable in respect of the same damage, whether as a joint tort-feasor or otherwise, but no person is entitled to recover contribution under this section from a person entitled to be indemnified by him in respect of the liability in respect of which the con­tribution is sought.

            (5)     Where the tort causing the damage was, or the torts causing the damage were, committed by the husband or wife of the person suffering the damage and some other person, that other person may recover contribution as mentioned in subsection (4) from the husband or wife, as if the husband or wife had been liable to the person suffering the damage.

13.       EXTENT OF CONTRIBUTION

            In proceedings for contribution under section 12 the amount of the contribution recoverable from a person is such as is found by the court to be just and equitable, having regard to the extent of that person’s responsibility for the damage, and the court has power to exempt a person from liability to make contribution, or to direct that the contribution to be recovered from a person shall amount to a complete indemnity.’

116               In order to succeed on the claim for contribution it is necessary for Deloittes to establish that they were liable for the damage suffered by the Campbells as a tortfeasor; that Cridlands is a joint tortfeasor in relation to the same damage and that Cridlands should contribute in relation to the amount for which Deloittes are liable as tortfeasor. 

117               It was accepted by both Deloittes and Cridlands that if Cridlands was negligent and if that negligence caused the same damage as did the alleged negligence of Deloittes, then Deloittes and Cridlands were joint tortfeasors.  Given the relationship between Deloittes and Cridlands and the fact that they were both engaged in the common action of advising and acting for the Campbells in relation to the same transactions, this was an appropriate approach for each of them to take.  It is still necessary to identify what damage was caused by the negligence of Deloittes, whether Cridlands were negligent and whether that negligence caused the same damage as was caused by Deloittes.

118               The ‘liability’ of Deloittes for the purposes of s 12(4) of the Law Reform (Miscellaneous Provisions) Act (NT) is not a liability in the abstract.  It is a liability established by a court order or by an agreement to settle:  see Bitumen and Oil Refineries (Australia) Ltd v Commissioner for Government Transport (1955) 92 CLR 200 at 212; Brambles Constructions Pty Ltd v Helmers (1966) 114 CLR 213 at 219; Thompson v Australian Capital Television Pty Ltd (1996) 186 CLR 574 at 616-617; James Hardie & Co Pty Ltd v Seltsam Pty Ltd (1998) 196 CLR 53 at 65-66.  There is some authority that a mere agreement to settle is not by itself sufficient and that what is necessary is satisfaction of that agreement:  see National Australia Bank Ltd v Pollak (2001) 186 ALR 44 at 51-56.  In this case there are no pleadings in relation to Deloittes’ ‘liability’.  Nor did I receive any submissions in relation to it.  There is an agreement to settle which is in evidence before me.  As at the date of trial part only of the settlement moneys were required to be paid.  There is no evidence that they were actually paid.  There is certainly no evidence that the whole of the settlement amount has been paid.  By itself this might be fatal to Deloittes’ claim for contribution.

119               Assuming it is not, the maximum possible measure of the liability of Deloittes as a joint tortfeasor in this case is the settlement amount of $3.5 million. 

120               Deloittes submitted to me that it was only necessary for it to establish that the compromise it reached with the Campbells was objectively reasonable in order for Deloittes to establish its own liability in damages.  In this regard Deloittes referred to Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603 at 608 [6], 652-653 [128]-[129].  Cridlands made no submission on this issue.  Nevertheless I think that the approach suggested by Deloittes is in error.  The case of Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd was a case where a person sued an insurance broker for breach of contract in relation to an insurance policy arranged by the broker where the insurer had denied the full amount of the claim.  A previous claim against the insurer was settled under s 28(3) of the Insurance Contracts Act 1984 (Cth).  The insured then sought the remainder of what would have been the insured loss from the broker.  The majority of the Court held that such a loss was recoverable on the ordinary principles for the recovery of damages in contract providing that the settlement reached with the insurer was reasonable: see at 650-651.  On the face of it this analysis would not seem to have any direct application to s 12(4) of the Law Reform (Miscellaneous Provisions) Act (NT).

121               In fact the test for liability under the Law Reform (Miscellaneous Provisions) Act (NT) would seem to be a different one.  Gummow J in Thompson v Australian Capital Television Pty Ltd (1996) 186 CLR 574 described the applicable test as follows (at 616):

‘Authority indicates that the phrase in s 11(4) “any other tort-feasor...liable” includes a party whose liability has been ascertained upon a settlement whether or not reflected in a consent judgment, and that this is so whether or not in reaching the settlement the party now seeking contribution admitted liability. Nevertheless, the party seeking contribution after such a settlement must be prepared in that proceeding to establish that, if the claim had been fought out, that party would have been held responsible in law and liable to pay in whole or in part for the damage referred to in s 11(4). The decision of the English Court of Appeal in Stott v West Yorkshire Car Co [[1971] 2 QB 651], which established these propositions with respect to the UK Act, has been followed in respect of Australian legislation deriving from it [Baker v Joppich (1980) 25 SASR 468 at 472-473; John Holland v Jordin (1985) 36 NTR 1 at 11-12; Ballina Shire Council v Volk (1989) 18 NSWLR 1 at 10]. In New Zealand, the decision of the English Court of Appeal was anticipated by McGregor J in Baylis v Waugh [[1962] NZLR 44; cf Re Securitibank Ltd [1986] 2 NZLR 280 at 288].’

122               On this approach it is not sufficient merely to show objectively that Deloittes had acted reasonably in settling the claim against it by the Campbells for $3.5 million; Deloittes must go further and establish that if the claim by the Campbells against Deloittes had been fought out, Deloittes would have been held liable in tort to the Campbells for at least $3.5 million.

LIABILITY OF DELOITTES

123               Deloittes and Cridlands are in agreement that Deloittes were liable in tort to the Campbells.  They disagree as to the extent of any such liability.  Deloittes accept in their pleadings that they are vicariously liable for Mrs Faehse who was negligent in not causing a valuation to be made of Larrakeyah Station before the purchase, or in failing to advise the Campbells that such a valuation should have been made.  Cridlands in their pleadings identified a number of other alleged breaches of duty by Mrs Faehse. 

124               Mr O’Dwyer was called by Cridlands.  He gave evidence of further breaches of duty by Deloittes, although it seemed to me that some of the breaches of duty alleged by him were based upon the duties that might be expected of an auditor, rather than the somewhat different duties that might be expected of someone in the position of Mrs Faehse.  I also agree with the criticism made of his evidence by Deloittes that Mr O’Dwyer relied almost entirely upon Deloittes’ discovered records in giving his evidence.  On any view those would seem to have been inadequate as records of what work was done.  Furthermore, the records had been reconstituted by Deloittes at some time before proceedings commenced with the result that they were even more confusing than they might otherwise have been.

125               Of course, this problem was compounded by the failure of Deloittes to call Mrs Faehse.  In that respect a necessary inference arises that if Mrs Faehse had been called her evidence would not have assisted Deloittes’ case: Jones v Dunkel (1959) 101 CLR 298; Cadwallader v Bajco Pty Ltd [2002] NSWCA 328 pars [95]-[101].  But that inference does not enable factual inferences to be drawn where there is no evidentiary basis for them.

126               In order to determine what duties of care Deloittes owed to the Campbells it is first necessary correctly to identify the nature of the role that Deloittes were to perform.  Mr Maurice QC, who appeared for Cridlands, characterised that role as that of an attorney; a person designated to transact business for another.  This is probably an apt description.  The role included the provision of financial advice and the provision of more usual accountancy services.  But it clearly extended beyond this.  Deloittes had an active management function in relation to financial affairs of the Campbells generally and, more particularly, in relation to the Campbells’ interests in purchasing and operating Sandy Creek and Larrakeyah Station.  The Campbells had ultimate decision-making control, but Deloittes were expected to provide the advice on which those decisions were based and were then expected to carry them out.  This is made perfectly clear from Mr Campbell’s evidence:

‘MR MAURICE:   Well, I put it to you another way.  You certainly didn’t instruct Ms Faehse to go against any advice given by the solicitors that she had retained on your behalf?‑‑‑No.

And you relied on her to obtain all the necessary advice?‑‑‑I did.

From the solicitors?‑‑‑Yes.

With respect to these transactions?‑‑‑I had to.  That's how I run – that’s how I live my life.  I’ve got no other time to get involved in other extraneous activities; I’m married to work.  And I pay lots of money for expensive accountants to look after me.

Right.

HIS HONOUR:   Mr Campbell, Mr Maurice asked you earlier whether, when you were - the day after you had the - the day after the night when your wife was distressed and you said you were going to explore other options.  Mr Maurice asked you whether one of those options was to talk to a solicitor and you said you hadn’t thought about that as an option?‑‑‑Yes, the thought crossed my mind but I just didn't know the logistics of contacting a solicitor, how you approached them.  I know all about the medical arrangements, how to see a doctor, but I had no idea how to set up an appointment with a lawyer at that stage.

Is that because you’d always left to the accountants the question of whether you needed legal advice, the obtaining of legal advice and telling you what the legal advice was?‑‑‑They encompassed all of my financial dealings.’

127               This is consistent with Mrs Christopher’s understanding that Deloittes were acting as the business accountants and financial advisers to the Campbells generally, including in connection with the purchase of Larrakeyah Station.  She understood that Deloittes were responsible for the oversight on behalf of the Campbells of the farming operations at Sandy Creek and that Deloittes would fill the same role in relation to Larrakeyah Station.  She understood that the Campbells had authorised Deloittes to retain Cridlands to provide and to supervise the provision of legal services as required by Deloittes to effect the purchase of Larrakeyah Station and the associated management arrangements.  She understood that her instructions would be provided by and through Deloittes and that her advice should be conveyed to Deloittes.

128               Indeed, the nature of the relationship between Deloittes and the Campbells was not in dispute.  The duty of care owed by Deloittes to the Campbells needs to be understood in the context of that relationship.  This is particularly so when the firm providing the service is an accounting firm.  Such firms now provide a wide range of services.  Mr O’Dwyer gave evidence that the accounting firm in which he is a partner in Queensland would be prepared to perform the role that Deloittes performed in relation to the Campbells.  I assume other accountancy firms would do likewise.  But it needs to be recognised that the duty of care arising from that relationship is likely to be different from, and is likely to be more onerous than, the duty of care that might arise where the accountancy firm is providing a less expansive service.  In any event, the duty of care will be different from what it would be if the service was (say) an audit service or a book-keeping service.  As already mentioned, it is in this regard that I thought that at least some of Mr O’Dwyer’s evidence did not correctly identify the relevant issues.

129               It is unnecessary in this case to analyse the duty of care owed by Mrs Faehse and Deloittes in any great detail.  Given the general agreement between the parties as to Deloittes’ liability it is probably sufficient to set out in a reasonably summary way my findings in relation to that liability:

(a)          Mrs Faehse breached her duty of care to the Campbells in either not arranging for Larrakeyah Station to be valued before advising the Campbells to purchase the property, or at least not advising them that it would be sensible to obtain such a valuation;

(b)          Mrs Faehse breached her duty of care to the Campbells in relying on the calculations and statistics provided by the vendor for the purpose of carrying out her own calculations as to the viability of the farming operations at Larrakeyah Station without advising the Campbells of the risks in relying on those calculations and statistics;

(c)          Mrs Faehse breached her duty of care to the Campbells in negligently carrying out the calculations as to the viability of the farming operations at Larrakeyah Station with the consequence that those calculations contained a significant mathematical error; and

(d)          Mrs Faehse breached her duty of care to the Campbells in either not arranging for a person with relevant experience to advise the Campbells as to the viability of the farming operations at Larrakeyah Station, or at least not advising the Campbells that it would be sensible to arrange for someone to give that advice.

130               It is possible that there were other breaches of duty by Mrs Faehse.  For example, Mrs Faehse may have breached her duty of care to the Campbells in not accurately conveying to NAB her instructions that Mrs Campbell’s property at Wanguri was not to form any part of the security for the financing of the purchase.  It will be recalled that the bank understood that it was the family residence that should not be included, rather than the Wanguri property.  In any event, the security arrangements the bank proposed did not even have the effect of protecting that property.  However, as mentioned above, in the absence of any evidence from Mrs Faehse or the bank officer is not possible to determine who was at fault or why. 

131               It is also possible that there were breaches of duty of care by Mrs Faehse in supervising the farming operations on the Campbells’ behalf.  Certainly Mr Campbell thinks that there was.  But again the evidence was insufficient to form any conclusion in relation to that.

132               It is also possible that there were breaches of duty of care by Mrs Faehse in advising that Mr Wainwright was capable and could be relied upon.  Certainly Mr Campbell thinks that this advice was wrong.  But there was no evidence as to what actions or inactions by Mr Wainwright caused what loss.  There was no detailed evidence in relation to his competence, reliability, honesty or anything else.  Nor was there any evidence as to how any of these issues may have impacted upon the losses suffered.  There was no evidence of what Mrs Faehse knew or should have known in that regard.

133               Perhaps most importantly, Mrs Faehse may have breached her duty of care in not correctly advising the Campbells about their legal position and in not appropriately instructing Cridlands.  It will be necessary to return to this issue in due course.  For present purposes it is sufficient to say that there is no evidence before me as to what Mrs Faehse actually knew or understood about the Campbells’ legal position.  Some things that were done, such as paying the deposit directly to Mr Wainwright rather than seeking to have some new arrangement for the deposit to be held by a stakeholder, would seem difficult to justify.  Other things, such as proceeding with the execution of the sales contract notwithstanding that Cridlands had advised her not to, maybe less difficult to understand, particularly if Mrs Faehse had a correct understanding that the position of the Campbells was adequately protected by their rights under cl 27 of the Agreement.  And there is no evidence as to what Mrs Faehse understood in that regard.

134               It is not disputed that Deloittes is vicariously liable for the negligent breaches of duty by Mrs Faehse.  It is unnecessary to consider which of the fourth or fifth applicants was vicariously liable for what acts.  Deloittes’ case proceeded on the basis that each of the entities was jointly responsible.  I proceed on the same basis.  It may be arguable that Deloittes would also be directly liable for their own negligence in entering into the particular arrangement it did with the Campbells without having staff with sufficient expertise (particularly in relation to the operation of irrigated agricultural holdings) to discharge the obligations that arose in it.  This issue is not raised on the pleadings and I do not consider it.  However, having not heard from Mrs Faehse, I would not wish it to be thought that the limited nature of the issues that the parties have raised in this litigation has the necessary consequence that it is fair for all fault to be laid at her door. 

135               Deloittes’ submissions in relation to their potential liability to the Campbells seem to have been based upon the same analysis of causation as are their submissions on causation in relation to Cridlands’ potential liability discussed below.  In essence those submissions assume that if the Campbells would not have entered into the transaction but for the breach of duty by Deloittes then all losses suffered by the Campbells as a result of entering into that transaction are recoverable from Deloittes.  For the reasons given below I do not accept that this is a correct analysis of legal causation. Instead, it is necessary to consider the various heads of damage and ascertain whether the relevant head of damage was legally caused by the breach of duty by Deloittes.

136               The losses suffered by the Campbells as a result of entering into the transaction as identified by Deloittes can be summarised as follows:

Capital Loss

Incurred in respect of

Larrakeyah Station and associated plant & equipment:                                        $2,363,312

Borrowing Costs

Made up of:

(a)                  Interest on $2.75 million borrowed to fund

acquisition of Larrakeyah Station:                                                        $625,262

(b)                                                                      Borrowing costs/loan establishment fees:     $41,830

     (c)          Interest on monies used to fund trading losses:                                       $41,327

Trading Losses

Made up of:

     (a)          Losses as calculated by Holmes:                                                         $456,148

(b)                    Amortization and lease charges less

             lease payments made prior to 19/2/99:                                                $315,054

Other Damages

Costs incurred to Garraway:                                                                                  $210,575

Valuation expenses incurred:                                                                                      $9,055

This gives a total amount of damages of $4,062,563 plus interest.

137               With some qualification, Cridlands generally accepts the accuracy of the calculations put forward by Deloittes, but does not accept that all aspects of the loss were caused by Deloittes, much less caused by Cridlands.  There are some matters of detail that are disputed.  For example, the fall in the value of the Sandy Creek property has also been included in the calculation of the capital loss on the basis that the Sandy Creek property and Larrakeyah Station were managed as a single property and were sold in that way in order to maximise value.  However, if this is accepted then Cridlands says that the amortization and lease charges which relate to the transfer of some assets from the accounts of Sandy Creek to the operating accounts of the single farming operation should not be included.  It seems to me that there is some force in this criticism. 

138               In relation to the breaches of duty that I have identified it seems clear enough that Deloittes are liable for the losses caused by the purchase price for Larrakeyah Station being higher than the fair market value at that time.  For similar reasons to those given in Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413 (‘Kenny & Good’) that loss would include, in the circumstances of this case, the difference between the price paid for Larrakeyah Station at the time of its purchase and the price received for it at the time of its sale.  The interest paid by the Campbells to fund the purchase price would also be claimable on the same basis.

139               The various ‘operating losses’ from the farming operation may raise other issues.  The causal relationship between those losses and the relevant breaches of duty were not explored in the evidence or in the submissions.  There would seem to be a number of possibilities.  Some of those losses would seem to be directly related to the amount that Mr Campbell borrowed to effect the purchase.  To that extent those losses might be directly attributable to the excessive price paid for the property.  It may be that some of the other operating losses were inevitable in the sense that it was inevitable that the proposed farming operation would have failed in that region.  If so then those losses might be directly attributable to the breaches of duty by Mrs Faehse in her financial analysis of the farming operation.  But there may have been other causes.  It may be that there were unforeseen events, such as flood, drought or pests which affected the farming operations.  It may be that some of the losses were caused by the actions, or inactions of Mr Wainwright. 

140               It would also seem likely that some, and perhaps most of the fees and charges paid to Mr Garraway can be related to the capital loss on the property and thus can be clearly included within the damages:  see British Racing Drivers Club Ltd v Hextall Erskine & Co [1996] 3 All ER 667.  Again this was not explored in any detail in the evidence.

141               These are issues where the onus rests squarely with Deloittes.  Nevertheless, it would seem clear that the damages comprising only the agreed capital loss and the agreed borrowing costs directly related to the purchase price together total in excess of $3 million.  When interest on that amount and costs are added it is clear that the total damages are in excess of $3.5 million.  As noted above, that is the maximum that can be claimed in any event.

142               I find that Deloittes were liable to the Campbells for at least $3.5 million.

BREACH OF DUTY BY CRIDLANDS

143               It is then necessary to determine whether Cridlands is a joint tortfeasor for the same damage.  There is no dispute between the parties that Cridlands owed a duty of care to the Campbells.  There are at least two issues that are in dispute.  First, the extent and nature of that duty of care on the facts of this case and whether it was breached by Cridlands and secondly, whether any such breach caused the same damage (or any of it) for which Deloittes were liable.  Cridlands denies that it breached any duty of care and says that if it is wrong in that, any such breach did not cause the relevant loss.

144               Various allegations of breach of duty are contained in the statement of claim.  It is unnecessary to consider them all.  Most are simply not made out on the facts, particularly when Mrs Faehse was not called to give evidence.  On the case as presented, the real basis of Deloittes’ claim is that Cridlands, through Mrs Christopher, had a duty of care to advise the Campbells and/or Deloittes of the meaning and effect of cl 27 of the contract, particularly the ‘subject to finance’ clause in cl 27.1.1.  It is alleged that that duty of care arose at various stages:  on the provision of the contract to Mrs Faehse; on the expiration on 12 January 1999 of the time period in cl 27.1.1 and on Mrs Christopher becoming aware on 17 February 1999 that Mrs Campbell did not wish to give a personal guarantee.

145                At its highest Deloittes argue that a lawyer always has a duty of care to go through a contract with his or her client and explain salient features to the client.  They rely upon Fox v Everingham (1983) 50 ALR 337 at 341 (‘Fox’).  In my view the law of negligence does not impose any obligation expressed in such absolute, fixed and unchanging terms.  The comments in Fox should not be understood as laying down any general rule, but only as stating the duty of care that was applicable in that case.  Of course, there may be a bare minimum duty that is implicit from the professional responsibility of the lawyer and that could not be limited even expressly.  Beyond that bare minimum, any fixed or unchanging statement of the duty of care can only be true in the most abstract sense.  When determining the duty of care owed by a lawyer in a particular case consideration will inevitably have to be given to the actual contract between the lawyer and the client and to the surrounding circumstances that led to the alleged breach:  Hawkins v Clayton (1988) 164 CLR 539 at 578.  A good example of the proper approach is the analysis by Mullighan J in Austrust Pty Ltd v Astley (1993) 60 SASR 354 at 372-373 (analysis which was affirmed by the Full Court of the Supreme Court at (1996) 67 SASR 207 at 224-226.  The High Court did not need to consider this aspect of the matter: (1999) 197 CLR 1).  Mullighan J had regard to the experience and expertise of the client; to the historical relationship between the client and the solicitor and to the significant risks of personal liability to which the client might be subject and of which the client was unaware in order to reach the conclusion that the solicitor was under a duty of care to alert the client to the relevant dangers.  It is clear, however, that the duty identified by his Honour in that case was the consequence of the particular factual situation that his Honour identified.  Although not expressly stated in the reasons the factual situation in that case undoubtedly included the professional status of the solicitor involved and the expectations that might be derived from that.

146               The duty of the lawyer to explain the terms of a contract also depend upon the particular factual context.  Whilst in Fox the Court held that there was a duty to go through the contract with the client, in Amadio Pty Ltd v Henderson (1998) 81 FCR 149 the Court held that the lawyers were under a duty to satisfy themselves that the agreement was appropriate and to bring to the client’s attention any aspect of a specified clause that could be regarded as unusually onerous or favourable (at 210, 215).  In considering the applicable duty of care in that case the Court drew attention to the role of other advisers to the clients and the severe time limits that had been imposed on the lawyers (at 208).

147               The relevant features of the relationship in this case would seem to be as follows:

(a)        Deloittes had complete authority to act on behalf of the Campbells.  In particular, Cridlands were retained by Deloittes; were instructed by Deloittes and were expected to give their advice to Deloittes.

(b)        There is no allegation that Cridlands were aware, or should have been aware, that Deloittes were not competent to perform that agency role.  The only evidence on the matter is from Mrs Christopher:

‘HIS HONOUR: At any stage, did it appear to you, Ms Christopher, from your dealings with Mrs Faehse, that Mrs Faehse was not capable or appropriate of conveying to your clients what you were telling Mrs Faehse?---Not at all.

Did it appear to you that Mrs Faehse was unable to carry out satisfactorily the duties of an accountant?---Not at all.’

(c)             In that role Mrs Faehse:

a.       Instructed Cridlands to prepare the sale contract;

b.      Instructed Cridlands to insert into the contract ‘subject to finance’ and ‘subject to management agreement’ clauses;

c.       On 22 December 1998, was specifically directed by Mrs Christopher to the terms of cl 27 of the draft agreement;

d.      On 22 December 1998, advised the Campbells to execute the contract without informing them of the advice from Mrs Christopher that it should not be executed;

e.       Arranged the payment of the deposit cheque directly to Mr Wainwright notwithstanding the terms of the contract;

f.        Did not inform Mrs Christopher until 11 January 1999 that the contracts had been executed;

g.       Continued to instruct Mrs Christopher thereafter.

148               In these circumstances it would seem to me to be reasonable for Mrs Christopher to have acted on the basis that Mrs Faehse was primarily responsible for advising the Campbells including as to issues where some legal knowledge was necessary in giving advice.  The Campbells had put Mrs Faehse in the position of their adviser.  It was not for Mrs Christopher to ignore that position.  On the other hand, Mrs Christopher could not ignore the special responsibilities for which Cridlands had been engaged.  That was to carry out the specialised legal work, including giving specialised legal advice.  Mrs Christopher well understood this:

‘MR ROBINSON: What inquiries, if any, did you make of Lesley Faehse’s legal knowledge?---None. I assumed her not to have any special legal knowledge.

You assumed she was an accountant?--- Yes.

And was giving accounting advice?---And a financial adviser.

And financial advice?---And I also assumed her to have a lot of experience in business transactions, which had been my understanding.

You did not assume that she had any legal knowledge at all?---No, I didn’t say that. I said I didn’t assume that she had any special legal knowledge.

Well, could you tell me what “special legal knowledge” means?---Well, an understanding of legal principles that, if you put them in layman’s terms, would not be easily understood.

At no time did you tell Mrs Faehse that you would only render legal advice if you were specifically asked to do so? That's correct, isn’t it?---I’m sorry, can you repeat the question.

At no time did you tell Mrs Faehse that you would only render legal advice if specifically asked to do so?---No, I didn’t tell her that.

I take it, then, that if an occasion for legal advice to be rendered came up, you would spontaneously render that legal advice?--- To Mrs Faehse?

To Mrs Faehse?---Absolutely.’

149               Of course the duty to ‘spontaneously’ render legal advice would only arise in circumstances where Mrs Christopher knew, or should have known, that the interests of the Campbells in relation to this transaction might be affected.  Clearly enough Mrs Christopher did not have a duty to advise on matters that she could not reasonably have foreseen would affect the Campbells’ interests.

150               Mrs Christopher gave evidence that the relevant circumstances did not arise in this case.  I do not agree.  Certainly, most of the sale agreement is clearly drafted and I think Mrs Christopher was entitled to assume that Mrs Faehse had read and understood it.  But Mrs Christopher could not make any such assumption in relation to a clause of the agreement the interpretation of which required ‘special legal knowledge’.  In my view cl 27.1.1 does require ‘special legal knowledge’.  It will be recalled that that clause provides that the contract and the obligation to complete is conditional upon:

‘The Purchaser obtaining approval for finance from the Purchaser's lender within twenty one (21) days from the date hereof in a sum adequate to enable the Purchaser to complete the purchase.’

Mrs Christopher accepted that the legal effect of the clause was that ‘finance’ would need to be on terms acceptable to the purchaser.  Presumably for that purpose she would rely upon the High Court decision Meehan v Jones (1988) 149 CLR 571 (‘Meehan’).  I think that view is probably correct, although the clause considered by the High Court in Meehan was in quite different terms.  However, I do not think that it could be said that the clause would be understood in that sense by a person without ‘special legal knowledge’.  Nor was there any evidence before me to suggest that Mrs Christopher knew that Mrs Faehse did understand the meaning of the clause.  Clearly enough it was reasonably foreseeable that the meaning of cl 27.1.1 could affect the interests of the Campbells.  In my view Mrs Christopher had a duty of care to advise Mrs Faehse that the requirements of cl 27.1.1 of the sale contract meant that the finance would need to be on terms acceptable to the purchaser.

151               It is more difficult to identify when Mrs Christopher was required to discharge that duty.  I do not think that the duty arose on 22 December 1998.  Notwithstanding that the contracts are described in that letter as ‘execution contracts’ it is perfectly clear that Mrs Christopher advised that the contracts should not be executed.  In the absence of any contrary information from Mrs Faehse she was entitled to assume that the advice would be accepted.  Having drawn Mrs Faehse’s attention to the relevant clauses I think she was entitled to expect that there would be some further contact by Mrs Faehse in relation to that clause prior to execution.  In any event, there was no requirement to advise Mrs Faehse as to the meaning of cl 27.1.1 of the contract until she received final instructions on the contract.  Mrs Christopher was entitled to think that she had not received those instructions on 22 December 1998.

152               Mrs Christopher did discover that the contract had been executed on 11 January 1999.  In my view she had a duty of care to advise Mrs Faehse as to the meaning of that clause on or after 11 January 1999.

153               In my view the duty crystallised on 17 February 1999 when Mrs Campbell contacted Mrs Christopher to discuss her concern about giving a personal guarantee.  Given that concern it was clearly important that Mrs Campbell be given appropriate advice as to her rights and obligations concerning the guarantee.  This included the financial implications to her and her husband of not giving the guarantee.  However, this does not mean that it was Mrs Christopher’s task to provide that advice.  It was Mrs Faehse, not Mrs Christopher, who was providing relevant advice about the whole transaction.  Mrs Christopher’s advice was only sought in relation to the meaning and effect of the guarantee.  Although she did not limit her advice to that, and in fact advised Mrs Campbell not to give the guarantee, it is clear that Mrs Campbell was not relying upon Mrs Christopher for that advice.  In fact she did not do so.  She relied upon the advice of Mrs Faehse.  Further, Mrs Campbell was clearly distressed when she was talking to Mrs Christopher on the telephone.  In my view it would be unrealistic to say that Mrs Christopher was under a legal duty to explain to Mrs Campbell the legal effects of cl 27.1.1.  Consequently, I do not find that Mrs Christopher had a duty to advise Mrs Campbell personally of the effect of cl 27.1.1.  However, the telephone call from Mrs Campbell should have alerted Mrs Christopher to the need to ensure that Mrs Faehse understood the meaning of cl 27.1.1 so that Mrs Faehse could give appropriate advice to the Campbells.  In my view the duty of care to provide the relevant advice to Mrs Faehse was breached on or about 17 February 1999.  Obviously the duty would have been discharged if the appropriate advice had been provided earlier than that.

154               This is not to say that there would not have been any circumstances where Cridlands were required to advise the Campbells directly rather than through Mrs Faehse.  If Cridlands had been aware, or should have been aware, that Deloittes were not capable of discharging, or did not discharge their responsibilities to the Campbells then Cridlands may have had a duty to go directly to the Campbells.  But that is not the case that has been pleaded or argued before me.  In particular, it is not pleaded or argued that there was anything that Mrs Campbell said to Mrs Christopher in the telephone conversation on 17 February 1999 that should have informed Mrs Christopher that the Campbells had not been correctly advised by Mrs Faehse.  In these circumstances the duty remained upon Cridlands to provide advice through Mrs Faehse.  If, immediately following her telephone conversation with Mrs Campbell, Mrs Christopher had contacted Mrs Faehse so as to ensure that Mrs Faehse understood the legal effect of cl 27.1.1 of the sales agreement then Cridlands would have discharged the relevant duty of care they owed to the Campbells.

155               Finally I mention that it is my view that the legal effect of cl 27.1.1 where finance had not been obtained prior to the expiration of the time limit specified in that clause on 12 January 1999 was also a question of ‘specialised legal knowledge’.  In my view Mrs Christopher had a duty to advise Mrs Faehse of the legal consequences of that expiration when Mrs Christopher became aware that the contract had been signed on 11 January 1999.

CAUSATION

156               Deloittes argued that these breaches of duty by Mrs Christopher caused the same loss or damage as that for which Deloittes were liable.  This argument was squarely based on a ‘but for’ test.  Mr Robinson SC who appeared for Deloittes, described that test in this context as the ‘no transaction’ test.  Deloittes argued that:

(a)             if Mrs Christopher had properly discharged her duty of care then the Campbells would have known that if they could not obtain finance upon terms satisfactory to them they could get their deposit back from Mr Wainwright;

(b)      if they had known this they would not have agreed to the terms on which finance was offered (in particular Mrs Campbell would not have given her guarantee);

(c)      if they had not agreed to those terms they would not have obtained finance and the sale contract would have been terminated pursuant to cl 27.1.3; and

(d)      if the contract had been terminated the Campbells would not have suffered the losses they did suffer from the purchase of Larrakeyah Station and the operation of the farming business on that property.

157               There are at least three factual problems with this analysis even assuming that the ‘but for’ test of causation is the only test that needs to be applied. 

158               The first relates to the failure of Deloittes to call Mrs Faehse to give evidence.  As discussed above, given the arrangements that had been put in place by the Campbells and the circumstances as proved in the evidence, Cridlands duty was to provide advice to Deloittes.  It was Deloittes’ responsibility to advise the Campbells.  In terms of causation, the importance of any advice that Cridlands did, or should have given, depends entirely upon what Mrs Faehse knew without that advice, and what she would have done if she had received it.  Cridlands cannot be liable for any losses that would have been suffered even if Cridlands had properly discharged its duty of care: see Kenny & Good at 427, 457, 430-431. For example, if Mrs Faehse correctly understood the meaning and effect of cl 27.1.1 even without receiving any advice from Cridlands in relation to it, then any breach of duty by Cridlands would not have relevantly caused any subsequent losses.  Similarly, if Mrs Faehse would not have passed the advice to the Campbells, then any breach of duty by Cridlands would not have caused any subsequent loss.  In this case there is no evidence whatever as to what Mrs Faehse knew.  Nor is it inherently unlikely that she would have understood the legal effect of cl 27.1.1, or at least that she could have understood what the legal effect in Australia of an ordinary ‘subject to finance’ clause might be.  As already discussed, Cridlands were not entitled to assume that Mrs Faehse had this knowledge, but it would not be at all surprising if a financial adviser in the position of Mrs Faehse with some experience in business transactions nevertheless had it.  Further, given the clear evidence that Mrs Faehse did not inform the Campbells of the legal advice from Cridlands on 22 December 1998 that the contract should not be executed, it cannot be assumed that Mrs Faehse would transmit any advice from Cridlands to the Campbells.

159               For this purpose it can be inferred that if Mrs Faehse had been called her evidence would not have assisted Deloittes.  In any event, the onus of proof clearly rests on Deloittes.  In my view the lack of any evidence as to what Mrs Faehse knew in relation to the meaning of cl 27.1.1 of the sales contract and the lack of any evidence from which a finding might be made as to what Mrs Faehse would have done if she had been advised as to the legal effect of cl 27.1.1 are each fatal to Deloittes’ case that Cridlands is a joint tortfeasor.

160               The second factual problem is also fatal, although less obviously so.  There was very little evidence in relation to what NAB (or, for that matter, any other bank) would have done if Mrs Campbell had refused to give the guarantee.  Mr O’Dwyer gave evidence that the loan to security value ratio of borrowings from a bank is usually about 70 per cent.  On this basis it would seem that the requirement by the bank for a personal guarantee from Mrs Campbell may have been excessive given the other security being sought, even accepting that the bank had valued Larrakeyah Station at a lower value than the price paid by the Campbells.  (Indeed, Mrs Christopher would seem to have made a comment to the same effect to Mrs Campbell during the telephone conversation on 17 February 1999).  What evidence there is which is derived from NAB would suggest that the personal guarantee was not sought for the purpose of accessing all of Mrs Campbell’s assets, including the Wanguri property.  Instead the guarantee was sought for two particular reasons.  One was in relation to an insurance policy on the life of Mr Campbell where Mrs Campbell was a beneficiary.  The other was in relation to the joint ownership of the Sandy Creek property which had been offered as security.  If these were the two issues that concerned NAB then it would seem likely, or at least possible, that there was some opportunity for reaching some accommodation with the bank, which could have avoided a personal guarantee and, in particular, could have avoided any risk that the Wanguri house might be sold if there was a default.  The note made by the bank officer of the conversation between Mr Campbell and that officer on 18 February 1999 (quoted above) suggests that further options were available.  In particular, that note makes it clear that the guarantee from Mrs Campbell might not be required if Sandy Creek was held in Mr Campbell’s name only.  It also makes it clear that Mr Campbell did not reject that suggestion.  According to that note Mr Campbell said he would have Mrs Faehse look at it, presumably for the potential tax consequences of such a change in the transaction.  In fact he did not ask her to do so because, in the interim, Mrs Campbell had decided after talking to her father and Mrs Faehse, that she would give the guarantee.  True it is that another bank officer has recorded that the bank ‘will not dilute our position’, but this depends upon what that position was.  It does not suggest that a compromise was not available.  As Deloittes did not call any bank officers it can at least be implied that if they had been called they would not have assisted Deloittes’ case.  The evidence does not establish that if the guarantee had not been given, the loan would not have been given.  Consequently, the link between the advice, the guarantee, the loan, the sales contract and the losses is not established.

161               This leads to the third factual problem, which is whether, if Mrs Campbell had been given advice as to the meaning of clause 27.1.1 she would not then have given the guarantee.  There is certainly evidence from both Mrs and Mr Campbell that this would have been the result.  However, considerable care must be taken with this evidence.  It is not evidence of what occurred; it is “counter factual” evidence of what would have occurred if something that did not happen (in this case, advice that if the sale contract was terminated the deposit was repayable) had happened.  As Lindgren J remarked in Allstate Life Insurance Co v ANZ Banking Group Ltd (1996) 136 ALR 627 at 630 ‘the self-serving nature of the evidence and the “benefit of hindsight” factor must be taken into account.’  His Honour drew attention to the need to look to the surrounding circumstances in order to determine what weight should be given to the relevant evidence.  In this regard I also note the comments of the High Court in Rosenberg v Percival (2001) 205 CLR 434.

162               Mrs Campbell’s evidence as to what she would have done if she had been properly advised is most explicitly stated in her first witness statement which was tendered before me.  In par 40 of that statement she says:

‘I was reassured by Lesley Faehse’s advice that the purchase was a sure thing. I was comforted by my father’s offer of support if the worst did happen. I thought that we would lose all the money we had paid out if we did not proceed and I could not justify that for the sake of standing on my principles. I agreed to sign the guarantee.’

Taken by itself this might suggest that the reason why Mrs Campbell gave the guarantee was because she believed that otherwise the moneys already paid out (including the deposit) would be lost.

163               However, on any view the Campbells were a wealthy couple.  Mrs Campbell did not seem to me to be a person who would have reacted in the way she obviously did if the only issue was the loss of the deposit.  It is clear from the rest of her evidence that the statement in par 40 of her written statement does not represent the real position or, at least, not all of it.  The real position is that she had two conflicting interests.  On the one hand, she disagreed in principle to a wife giving a guarantee in support of her husband’s investments and she fundamentally disagreed with giving any security which could place her property at Wanguri at risk.  This was the reason and the only reason that she had any concerns.  As she said in her evidence:

‘HIS HONOUR:  Mrs Campbell, you weren’t in a state of uncertainty about the sale contract prior to the news of the personal guarantee though, were you?‑‑‑No.

You were perfectly happy for the deal to proceed?‑‑‑Essentially, yes.

So that if it appeared, for example, that there was a time limit that had been exceeded and people may well have been able to bring the contract to an end for that reason, nothing to do with a personal guarantee, you would have been happy for the contract to continue notwithstanding that?‑‑‑Sorry, if ‑ ‑ ‑ 

There were various time limits in this contract that various things had to be done by?‑‑‑Yes.

Management agreement entered into, and other things, which may have given various parties the right to bring the contract to an end, unrelated to your guarantee?‑‑‑Yes.

And it seems the parties made the decision that they would continue with the contract?‑‑‑Yes.

Again, unrelated to your guarantee.  You had no problem with that.  You would have been happy for the contract to continue?‑‑‑If I didn’t have to sign the personal guarantee?

Yes?‑‑‑Yes, I think so.’

164               On the other hand, she did not wish to refuse to give the guarantee if the result of doing so would be her husband ‘losing the farm’.  This is the reason given by Mrs Campbell to Mrs Christopher as to why she did not simply refuse to give the guarantee.   It is what she said in her oral evidence as to the reason why she gave the guarantee, notwithstanding her unhappiness in doing so:

‘So is that true, you did not want to give a personal guarantee but you were aware that Dan wanted the property?---Yes

…

I was aware that my husband wanted to buy the farm.

Is that true?‑‑‑That's what my belief was at the time.

And you felt that you had to support your husband?‑‑‑Yes’

165               So understood, Mrs Campbell’s distress on hearing that she was required to give a guarantee is much more understandable.  It is not simply distress at the risk of her husband losing his deposit, it is distress at her husband losing Larrakeyah Station which he wanted. 

166               This does not mean that the potential loss of deposit was irrelevant.  As Mr Robinson SC put to me, it might be expected that if Mrs Campbell had known that the deposit was repayable, this was a matter that she might have raised with her husband in order to convince him to agree to the termination of the sale contract.  I accept this, although there does not seem to have been any meaningful discussion on 17 or 18 February 1999 between Mr and Mrs Campbell as to the issues as they then understood them.  Nevertheless, as Mrs Campbell said in her evidence, her husband’s agreement to the termination of the sale contract would be significant to Mrs Campbell ‘on an emotional level’.  But if Mr Campbell had maintained his desire to keep Larrakeyah Station, the possibility of a refund of the deposit would not have resolved the problem as Mrs Campbell perceived it.  She would still have the same conflicting interests.  If Mr Campbell had maintained the position that he still wanted the farm then I can see no reason why Mrs Campbell would not have proceeded exactly as she did do - to contact her father and then rely upon the advice of Mrs Faehse and her father and give the guarantee.

167               So considered, the chain of causation in relation to the counterfactual question of what Mrs Campbell would have done turns entirely on whether I am satisfied that Mr Campbell would have been agreeable to terminating the sale contract if he had known that the deposit was repayable.  As to that, I am not satisfied as to what he would have done.  At trial he gave evidence that by the end of January he had significant concerns about the purchase of Larrakeyah Station, particularly in relation to Mr Wainwright’s suitability.  He said that he conveyed those concerns both to his wife and to Mrs Faehse.  This is inconsistent with Mr Campbell’s written statement; it is inconsistent with Mrs Campbell’s evidence and it is inconsistent with what Mrs Faehse told Mrs Christopher.  It is probably sufficient to say that the action was not pleaded on this basis and both parties submitted to me that I should proceed on the basis that Mr Campbell was keen for the transaction to proceed at least up to the date of settlement.  In any event, I so find.

168               I note that this finding is sufficient to dispose of any claim based upon any failure of Mrs Christopher to advise on the effect of the expiration of the time limit in cl 29.1.1 of the sale contract on 12 January 1999.  It is clear that that breach of duty did not cause any loss to the Campbells.

169               This is not to say that I think Mr Campbell was deliberately untruthful.  I think he probably summarised the position quite well in his own evidence:

‘What I want to suggest to you is that it is difficult today to recall accurately the events which occurred on 17 and 18 February 1999?---That's true.

And, naturally - and I am not suggesting anything improper about this - your version that you have given here today involves a degree of reconstruction?---I think it is a process of evolution over time with some prompting as well with facts and reappraisal of what my actual thoughts on the day were. You’d know that.

I’m suggesting to you it is difficult enough to remember precisely who said what and the sequence of events at this time removed from those events. Do you agree with that?---Yes.’

170               I find that Mr Campbell’s recollection of relevant events does involve a significant degree of ‘reconstruction’ and ‘evolution’.  I am not prepared to rely upon his evidence, particularly in relation to the events of 17 and 18 February 1999, unless it is independently confirmed elsewhere.  This is particularly so in relation to his evidence of what he would have done if he had known that the deposit was repayable if Mrs Campbell refused to give the guarantee.  Mr Campbell gave evidence that he had decided by the morning of 18 February 1999, that he would not go ahead with the transaction.  As I have already mentioned, I am not satisfied that he did come to that decision.  Although he says that he told Mrs Campbell about it, she does not recall being told.  I do not think that she was told.  Mr Campbell says that he told the bank officer that the deal was off.  The bank officer’s note only records that Mr Campbell was exploring what options there were and that he expressed a preparedness to terminate the transaction, if necessary.  What this suggests to me is that Mr Campbell was still keen for the sale transaction to proceed.  However, he was aware that his wife was very upset about the prospect of giving a guarantee and putting the Wanguri property at risk.  In these circumstances, if the guarantee was essential to obtaining finance and his wife remained opposed to giving the guarantee then he was prepared to terminate the sale contract.  I accept that the reason Mr Campbell was prepared to do so was that which he gave in his evidence:

‘Well, she was actually due to give birth the following week, so she was in a profoundly pregnant state, she didn’t need extra duress in a supposedly felicitous sort of occasion, awaiting a second child.  She was inconsolable, as far as the personal guarantee was concerned.  I saw no option but to - the only way I was going to get any peace, now and forever, was to get her out of that personal guarantee problem. 

When you say now and forever, to what are you referring to when you say ‘and forever’?‑‑‑No doubt she would bring that back on me over the years.  She had gone - gone against her principles, and allowed me to use her personal guarantee to buy a farm that she really didn’t want.’

However, if the need for the guarantee could have been avoided (for example, by reaching some accommodation with the bank), or if Mrs Campbell was agreeable to giving the guarantee (as she was after her discussion with her father), then Mr Campbell was still keen to proceed.

171               In the result I am not satisfied that the return of the deposit was critical to any decision that Mr Campbell might make.  I do not doubt that it was a relevant consideration.  As Mr Campbell said in his evidence, that knowledge would have made it easier for him to decide that the sale contract should be terminated.  But the reason for him wishing to continue with the contract was not the risk of losing the deposit, but his wish to purchase Larrakeyah Station.  The reason for terminating the contract was the adverse response by his wife, not the desire to get back the deposit.  Both of those reasons continued to be applicable whether or not Mr Campbell knew that the deposit was repayable.

172               Of course, all of the above discussion is predicated upon the assumption that the deposit would have been repaid if the contract was terminated.  If the deposit had been paid to the vendor’s solicitor to hold as a stakeholder, as the contract specified, then that assumption might be a reasonable one.  But in this case the deposit was paid directly to Mr Wainwright’s company.  Obviously this involved some greater risk that there might be difficulties in obtaining repayment.  What the Campbells might have understood about those risks and what effect it would have had on any hypothetical decision they may have made was not explored in any detail in the evidence, although Mr Campbell did say that he would not have expected to be able to get any money back from Mr Wainwright without an expensive legal case.  However, that evidence may involve the same process of reconstruction as did his evidence that he wished to terminate the contract at that time. 

173               Finally with respect to Mrs Campbell’s evidence in relation to causation I should mention that in some of her evidence there is at least a suggestion that she believed that she was contractually bound to give the guarantee.  This was not explored in her evidence.  If she did have such a belief it cannot be laid at the door of Mrs Christopher.  It is clear that Mrs Christopher advised Mrs Campbell not to give the guarantee.  That advice clearly implied that Mrs Campbell was not legally obliged to give it.

174               In the result I am not satisfied that Mrs Campbell would have refused to give her personal guarantee if either she or Mr Campbell had known that the deposit was repayable.  This also is fatal to Deloittes’ case: see Hall v Foong (1995) 65 SASR 281 at 301.

175               Consequently, even assuming that the test of causation is merely the ‘but for’ test suggested by Deloittes, I am not satisfied on the facts that Deloittes have discharged that test.

176               However, I am also of the view as a matter of law that the application of that test is not sufficient to establish causation.  As it was put by Gummow and Kirby JJ in Tame v New South Wales (2001) 191 ALR 449 at 501[211]: ‘The “but for” test is neither a comprehensive nor exclusive test of causation in tort; value judgments and policy considerations necessarily intrude.’  In order to establish liability in tort, and particularly in negligence, it is necessary to establish that the relevant breach of duty was a legally effective cause of the relevant loss, not merely that the loss would not have occurred ‘but for’ the breach.  The difference may best be explained by an example.  Assume, for example, that a vehicle driven by person A collided with another vehicle driven by person B.  The cause of the collision was the negligent driving of person A.  The journey being undertaken by person B was delayed as a result of that collision.  Subsequently, on that same journey the vehicle driven by person B collided with an animal on the road.  As a matter of fact the collision with the animal would not have occurred but for the delay from the first collision.  ‘But for’ the first collision, the second collision would not have occurred.  Even so, it is clear that the negligence of person A was not the legally effective cause of the second collision.

177               The problem is in identifying the criteria by which a legally effective cause can be identified.  Traditionally courts have avoided identifying any specific criteria by holding that legally effective causation is to be determined as a matter of applying common sense to the facts of the case: see, for example, Henville v Walker (2001) 206 CLR 459 at 480-481, 490-493 (‘Henville’), Medlin v State Government Insurance Commission (1995) 182 CLR 1 at 6 and see the discussion by Mason CJ in March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506 at 515-517; contrast McHugh J at 528 ff.  It is, perhaps, a consequence of the imprecision of this approach that there has been some recent disagreement between the High Court and the House of Lords on the application of the causation test in relation to the losses flowing from negligent property valuations: contrast Kenny & Good with South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191 (‘SAAMCO’).

178               Notwithstanding that impression, it is clear that the legal and factual context in which the breach of duty occurs are critical to the ‘common sense’ analysis.  This is pointed out by Gummow J in Rosenberg v Percival (2001) 205 CLR 434 at 460-461:

‘It is well understood that the legal concept of causation differs from notions of causation which appear in the speculations of philosophers and the perceptions by scientists of the operation of natural laws. This is because the legal concept of causation is primarily concerned with attributing responsibility. It has been said that the test of causation is one of common sense, but, as Lord Hoffmann has observed:

“[C]ommon sense answers to questions of causation will differ according to the purpose for which the question is asked. Questions of causation often arise for the purpose of attributing responsibility to someone, for example, so as to blame him for something which has happened or to make him guilty of an offence or liable in damages. In such cases, the answer will depend upon the rule by which responsibility is being attributed.”

Again, in Chappel v Hart, Gaudron J said:

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

Kenny & Good provides a practical example of this approach.  In that case a negligent valuation was given.  It was clear that the purpose for which the valuation was sought was to enable the party who sought it to determine whether to enter into the transaction.  In that circumstance it is not surprising that the losses arising out of the transaction, including unexpected losses from changes in the market, were recoverable from the negligent adviser: see Kenny & Good at 424-425, 446-447, 456-457.

179               As discussed above, in this case the duty of care that arose was a duty of care in relation to the sale contract.  It was a duty of care to explain what would happen if finance was not available on acceptable conditions.  That circumstance never arose.  As it turned out, finance was available on acceptable conditions.

180               The case brought by Deloittes is that, if Mrs Campbell had been properly informed of her options she would not have given her guarantee and therefore the sale contract would have been terminated.   Assuming for this purpose that that had been established, the breach of duty was not directly related to the sale contract - rather, the duty was directly related to the giving of the guarantee by Mrs Campbell.  This identification of the duty of care is reinforced by the factual analysis above that Mr and Mrs Campbell were keen, or at least content, for the sale to proceed.  The only issue that concerned them was the giving of the personal guarantee by Mrs Campbell. 

181               The identification of the relevant breach of duty and its practical consequences to the Campbells has necessary consequences in relation to causation.  Assume, for example, that a lawyer is retained to give advice to a prospective borrower as to the terms of a mortgage to be given to secure a loan.  The lawyer negligently advises that the mortgage has a particular meaning.  In reliance upon that advice the borrower gives the mortgage.  If properly advised the borrower would not have given the mortgage.  As a result of giving the mortgage the borrower secures the loan.  The borrower uses the loan to purchase and operate a business.  For reasons having nothing to do with the legal advice, the business fails.  Clearly enough the lawyer may be liable for any losses suffered by the borrower in relation to the mortgage.  But, as Mr Robinson SC properly accepted, the lawyer would not be liable for the losses on the failed business.  True it is that ‘but for’ the negligent advice those losses may not have occurred, but the effective legal cause of those business losses was not the breach of duty by the lawyer.

182               The analysis by McClelland CJ in Trust Co of Australia v Perpetual Trustees WA Ltd (1997) 42 NSWLR 237 would seem to be to the same effect.  In that case a firm of solicitors was retained by a trustee company to advise on whether the trustees would have a conflict of duty if they purchased a particular property.  The solicitors negligently advised that there was no conflict of interest.  In fact there was.  In reliance upon that negligent advice the trustees purchased the property.  The trustees suffered no losses directly related to whether or not there was any conflict of interest.  However, they did lose on the transaction which his Honour found to be ‘commercially hazardous and improvident’.  His Honour held that the solicitors had not relevantly caused the losses arising from the transaction (see at 248-250).  Admittedly, his Honour in reaching that result relied upon the reasoning of the House of Lords in SAAMCO which reasoning was rejected by the High Court in Kenny & Good.  Nevertheless, I do not think that there is anything in the reasoning of the High Court in  Kenny & Good which would raise any doubt as to the conclusion reached by McClelland CJ.  For my part I think that conclusion is clearly correct.

183               It would seem to me that this case is analogous.  Although the duty of care was one in respect of the sale contract the relevant breach of duty as alleged was a breach relating to the effect of the guarantee.  That breach of duty if it had been established would not have caused the losses that are claimed.  It would be different if Cridlands had been engaged to advise on the financial wisdom of the sale contract and had breached their duty of care in that regard. But they were not.  Deloittes were.

184               Consequently Deloittes have not established, either factually or legally, that Cridlands are joint tortfeasors in relation to any of the losses claimed by reason of the improvident purchase of Larrakeyah Station.  I note that if it had been established that Mrs Campbell would not have given a guarantee if Cridlands had discharged its duty of care (which it has not) then Mrs Campbell may have been able to recover some part of Mr Garraway’s fees and charges, but the claim has not been presented this way.  Given that the factual background necessary to show that the relevant breach of duty was causative of this loss has not been established, it is unnecessary to consider even this limited aspect any further.

185               Consequently, I find that Cridlands is not a joint tortfeasor with Deloittes in relation to the same damage.  The claim for contribution under s 12(1) of the Law Reform (Miscellaneous Provisions) Act (NT) must be dismissed. 

186               I note that this reasoning also means that the claim on the assigned causes of action would fail (save, perhaps, for nominal damages for the contractual claim) even if the assignment was valid and effective.

187               In relation to costs it is appropriate that Cridlands have its costs against the Campbells up to the date of the settlement and that it have its costs against Deloittes from that date onwards.  I set aside the order for costs made on 10 October 2003.

Associate:

Dated:              8 December 2003