AUSTRALIAN BREEDERS CO-OPERATIVE SOCIETY LIMITED v GRIFFITH MORGAN JONES, FREDERICK LANCE MESH, EARLE WILFRED BAILEY, THOMAS ALFRED INGLIS BRAYE, JEFFREY W

IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 317 of 1996 GENERAL DIVISION ) On appeal from a Judge of the Federal Court of Australia BETWEEN: AUSTRALIAN BREEDERS CO-OPERATIVE SOCIETY LIMITED Appellant AND: GRIFFITH MORGAN JONES, FREDERICK LANCE MESH, EARLE WILFRED BAILEY, THOMAS ALFRED INGLIS BRAYE, JEFFREY WALL, BRIAN DAVID THORNTON, KEVIN IAN PERKINS, PAUL EDWARD NEILSON, ANTHONY MARMADUKE CARMICHAEL, GLEN WILLIAM GREEDY, PAUL STENBERG, GORDON FRASER, JOHN HOPE GIBSON, EDWARD JAMES AIRD (JNR), DONALD LEVICK, NOLA LEVICK, JEFFREY CECIL FOSTER AND MARK THOMAS SEALES First Respondents RODERICK STUART McDONALD Second Respondent GREGORY ALFRED FARROW Third Respondent PETER DONE Fourth Respondent BRIAN KING Fifth Respondent JAMES BESTER Sixth Respondent C E HEATH CASUALTY & GENERAL INSURANCE LIMITED Seventh Respondent IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 319 of 1996 GENERAL DIVISION ) On appeal from a Judge of the Federal Court of Australia BETWEEN: PETER DONE Appellant/Fourth Cross Respondent AND: GRIFFITH MORGAN JONES, FREDERICK LANCE MESH, EARLE WILFRED BAILEY, THOMAS ALFRED INGLIS BRAYE, JEFFREY WALL, BRIAN DAVID THORNTON, KEVIN IAN PERKINS, PAUL EDWARD NEILSON, ANTHONY MARMADUKE CARMICHAEL, GLEN WILLIAM GREEDY, PAUL STENBERG, GORDON FRASER, JOHN HOPE GIBSON, EDWARD JAMES AIRD (JNR), DONALD LEVICK, NOLA LEVICK, JEFFREY CECIL FOSTER AND MARK THOMAS SEALES First Respondents/First Cross Respondents MORTGAGE ACCEPTANCE NOMINEES LIMITED & ORS Second Respondent RODERICK STUART McDONALD Third Respondent/Second Cross Respondent GREGORY ALFRED FARROW Fourth Respondent/Third Cross Respondent JARPAN MANAGEMENT SERVICES PTY LIMITED Fifth Respondent BRIAN KING Sixth Respondent/Fifth Cross Respondent JAMES BESTER Seventh Respondent/Sixth Cross Respondent AUSTRALIAN BREEDERS CO-OPERATIVE SOCIETY LIMITED Eighth Respondent/Cross Appellant C E HEATH CASUALTY & GENERAL INSURANCE LIMITED Ninth Respondent/Seventh Cross Respondent IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 321 of 1996 GENERAL DIVISION ) On appeal from a Judge of the Federal Court of Australia BETWEEN: BRIAN KING Appellant AND: GRIFFITH MORGAN JONES, FREDERICK LANCE MESH, EARLE WILFRED BAILEY, THOMAS ALFRED INGLIS BRAYE, JEFFREY WALL, BRIAN DAVID THORNTON, KEVIN IAN PERKINS, PAUL EDWARD NEILSON, ANTHONY MARMADUKE CARMICHAEL, GLEN WILLIAM GREEDY, PAUL STENBERG, GORDON FRASER, JOHN HOPE GIBSON, EDWARD JAMES AIRD (JNR), DONALD LEVICK, NOLA LEVICK, JEFFREY CECIL FOSTER AND MARK THOMAS SEALES First Respondents MORTGAGE ACCEPTANCE NOMINEES LIMITED & ORS Second Respondent RODERICK STUART McDONALD Third Respondent GREGORY ALFRED FARROW Fourth Respondent PETER DONE Fifth Respondent JAMES BESTER Sixth Respondent AUSTRALIAN BREEDERS CO-OPERATIVE SOCIETY LIMITED Seventh Respondent IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 323 of 1996 GENERAL DIVISION ) On appeal from a Judge of the Federal Court of Australia BETWEEN: GRIFFITH MORGAN JONES, FREDERICK LANCE MESH, EARLE WILFRED BAILEY, THOMAS ALFRED INGLIS BRAYE, JEFFREY WALL, BRIAN DAVID THORNTON, KEVIN IAN PERKINS, PAUL EDWARD NEILSON, ANTHONY MARMADUKE CARMICHAEL, GLEN WILLIAM GREEDY, PAUL STENBERG, GORDON FRASER, JOHN HOPE GIBSON, EDWARD JAMES AIRD (JNR), DONALD LEVICK, NOLA LEVICK, JEFFREY CECIL FOSTER AND MARK THOMAS SEALES Appellants/First Cross Respondents AND: MORTGAGE ACCEPTANCE NOMINEES LIMITED Respondent/Cross Appellant RODERICK STUART McDONALD Second Cross Respondent GREGORY ALFRED FARROW Third Cross Respondent PETER DONE Fourth Cross Respondent BRIAN KING Fifth Cross Respondent JAMES BESTER Sixth Cross Respondent AUSTRALIAN BREEDERS CO-OPERATIVE SOCIETY LIMITED Seventh Respondent JUDGES: WILCOX, LEE and LINDGREN JJ PLACE: SYDNEY DATE: 12 DECEMBER 1997 THE COURT ORDERS THAT: 1. The orders made by Davies J in matter NG711 of 1991 on 18 December 1995 be set aside. 2. The Order made by Davies J in matter NG711 of 1991 on 2 April 1996 be amended by setting aside: (i) orders 1, 2, 4, 7, 10, 13, 16, 20, 21, 25, 30, 33, 35 and 39; (ii) Schedules 1, 2 and 4. 3. The said matter be remitted to Davies J for the purpose of: (i) determining the amount property payable by: . (a) Griffith Morgan Jones, Frederick Lance Mesh, Earle Wilfred Bailey, Thomas Alfred Inglis Braye, Jeffrey Wall, Brian David Thornton, Kevin Ian Perkins, Paul Edward Neilson, Anthony Marmaduke Carmichael, Glen William Greedy, Paul Stenberg, Gordon Fraser, John Hope Gibson, Edward James Aird (Jnr), Donald Levick, Nola Levick, Jeffrey Cecil Foster and Mark Thomas Seales ("the Investors"), or any of them, to Mortgage Acceptance Nominees Pty Limited by way of restitution of unjust enrichment; and (b) Roderick Stuart McDonald, Gregory Alfred Farrow, Peter Done, Brian King, Australian Breeders Co-operative Society Limited and James Bester to each of the Investors; and (ii) making appropriate orders, including orders for contribution. 4. Australian Breeders Co-operative Society Limited, Peter Done and the Investors each pay to C E Heath Casualty General Insurance Limited one-third of its costs of these appeals and of the appeal NG324 of 1996, such costs being assessed or taxed on the basis they occupied one hearing day. 5. Mortgage Acceptance Nominees Limited pay to the Investors one half of their costs of appeal NG323 of 1996, such costs being assessed or taxed on the basis the appeal occupied one hearing day. 6. The cross-appeal of James Bester to appeal NG319 of 1996 be dismissed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 324 of 1996 GENERAL DIVISION ) On appeal from a Judge of the Federal Court of Australia BETWEEN: GRIFFITH MORGAN JONES, FREDERICK LANCE MESH, EARLE WILFRED BAILEY, THOMAS ALFRED INGLIS BRAYE, JEFFREY WALL, BRIAN DAVID THORNTON, KEVIN IAN PERKINS, PAUL EDWARD NEILSON, ANTHONY MARMADUKE CARMICHAEL, GLEN WILLIAM GREEDY, PAUL STENBERG, GORDON FRASER, JOHN HOPE GIBSON, EDWARD JAMES AIRD (JNR), DONALD LEVICK, NOLA LEVICK, JEFFREY CECIL FOSTER AND MARK THOMAS SEALES Appellants AND: C E HEATH CASUALTY & GENERAL INSURANCE LIMITED Respondent JUDGES: WILCOX, LEE and LINDGREN JJ PLACE: SYDNEY DATE: 12 DECEMBER 1997 THE COURT ORDERS THAT:

1. The appeal be dismissed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 317 of 1996 GENERAL DIVISION ) On appeal from a Judge of the Federal Court of Australia BETWEEN: AUSTRALIAN BREEDERS CO-OPERATIVE SOCIETY LIMITED Appellant AND: GRIFFITH MORGAN JONES, FREDERICK LANCE MESH, EARLE WILFRED BAILEY, THOMAS ALFRED INGLIS BRAYE, JEFFREY WALL, BRIAN DAVID THORNTON, KEVIN IAN PERKINS, PAUL EDWARD NEILSON, ANTHONY MARMADUKE CARMICHAEL, GLEN WILLIAM GREEDY, PAUL STENBERG, GORDON FRASER, JOHN HOPE GIBSON, EDWARD JAMES AIRD (JNR), DONALD LEVICK, NOLA LEVICK, JEFFREY CECIL FOSTER AND MARK THOMAS SEALES First Respondents RODERICK STUART McDONALD Second Respondent GREGORY ALFRED FARROW Third Respondent PETER DONE Fourth Respondent BRIAN KING Fifth Respondent JAMES BESTER Sixth Respondent C E HEATH CASUALTY & GENERAL INSURANCE LIMITED Seventh Respondent IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 319 of 1996 GENERAL DIVISION ) On appeal from a Judge of the Federal Court of Australia BETWEEN: PETER DONE Appellant/Fourth Cross Respondent AND: GRIFFITH MORGAN JONES, FREDERICK LANCE MESH, EARLE WILFRED BAILEY, THOMAS ALFRED INGLIS BRAYE, JEFFREY WALL, BRIAN DAVID THORNTON, KEVIN IAN PERKINS, PAUL EDWARD NEILSON, ANTHONY MARMADUKE CARMICHAEL, GLEN WILLIAM GREEDY, PAUL STENBERG, GORDON FRASER, JOHN HOPE GIBSON, EDWARD JAMES AIRD (JNR), DONALD LEVICK, NOLA LEVICK, JEFFREY CECIL FOSTER AND MARK THOMAS SEALES First Respondents/First Cross Respondents MORTGAGE ACCEPTANCE NOMINEES LIMITED & ORS Second Respondent RODERICK STUART McDONALD Third Respondent/Second Cross Respondent GREGORY ALFRED FARROW Fourth Respondent/Third Cross Respondent JARPAN MANAGEMENT SERVICES PTY LIMITED Fifth Respondent BRIAN KING Sixth Respondent/Fifth Cross Respondent JAMES BESTER Seventh Respondent/Sixth Cross Respondent AUSTRALIAN BREEDERS CO-OPERATIVE SOCIETY LIMITED Eighth Respondent/Cross Appellant C E HEATH CASUALTY & GENERAL INSURANCE LIMITED Ninth Respondent/Seventh Cross Respondent IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 321 of 1996 GENERAL DIVISION ) On appeal from a Judge of the Federal Court of Australia BETWEEN: BRIAN KING Appellant AND: GRIFFITH MORGAN JONES, FREDERICK LANCE MESH, EARLE WILFRED BAILEY, THOMAS ALFRED INGLIS BRAYE, JEFFREY WALL, BRIAN DAVID THORNTON, KEVIN IAN PERKINS, PAUL EDWARD NEILSON, ANTHONY MARMADUKE CARMICHAEL, GLEN WILLIAM GREEDY, PAUL STENBERG, GORDON FRASER, JOHN HOPE GIBSON, EDWARD JAMES AIRD (JNR), DONALD LEVICK, NOLA LEVICK, JEFFREY CECIL FOSTER AND MARK THOMAS SEALES First Respondents MORTGAGE ACCEPTANCE NOMINEES LIMITED & ORS Second Respondent RODERICK STUART McDONALD Third Respondent GREGORY ALFRED FARROW Fourth Respondent PETER DONE Fifth Respondent JAMES BESTER Sixth Respondent AUSTRALIAN BREEDERS CO-OPERATIVE SOCIETY LIMITED Seventh Respondent IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 323 of 1996 GENERAL DIVISION ) On appeal from a Judge of the Federal Court of Australia BETWEEN: GRIFFITH MORGAN JONES, FREDERICK LANCE MESH, EARLE WILFRED BAILEY, THOMAS ALFRED INGLIS BRAYE, JEFFREY WALL, BRIAN DAVID THORNTON, KEVIN IAN PERKINS, PAUL EDWARD NEILSON, ANTHONY MARMADUKE CARMICHAEL, GLEN WILLIAM GREEDY, PAUL STENBERG, GORDON FRASER, JOHN HOPE GIBSON, EDWARD JAMES AIRD (JNR), DONALD LEVICK, NOLA LEVICK, JEFFREY CECIL FOSTER AND MARK THOMAS SEALES Appellants/First Cross Respondents AND: MORTGAGE ACCEPTANCE NOMINEES LIMITED Respondent/Cross Appellant RODERICK STUART McDONALD Second Cross Respondent GREGORY ALFRED FARROW Third Cross Respondent PETER DONE Fourth Cross Respondent BRIAN KING Fifth Cross Respondent JAMES BESTER Sixth Cross Respondent AUSTRALIAN BREEDERS CO-OPERATIVE SOCIETY LIMITED Seventh Respondent IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 324 of 1996 GENERAL DIVISION ) On appeal from a Judge of the Federal Court of Australia BETWEEN: GRIFFITH MORGAN JONES, FREDERICK LANCE MESH, EARLE WILFRED BAILEY, THOMAS ALFRED INGLIS BRAYE, JEFFREY WALL, BRIAN DAVID THORNTON, KEVIN IAN PERKINS, PAUL EDWARD NEILSON, ANTHONY MARMADUKE CARMICHAEL, GLEN WILLIAM GREEDY, PAUL STENBERG, GORDON FRASER, JOHN HOPE GIBSON, EDWARD JAMES AIRD (JNR), DONALD LEVICK, NOLA LEVICK, JEFFREY CECIL FOSTER AND MARK THOMAS SEALES Appellants AND: C E HEATH CASUALTY & GENERAL INSURANCE LIMITED Respondent

JUDGES: WILCOX, LEE AND LINDGREN JJ PLACE: SYDNEY DATE: 12 DECEMBER 1997 REASONS FOR JUDGMENT WILCOX and LINDGREN JJ: TABLE OF CONTENTS INTRODUCTION General The parties The underlying facts OUTLINE OF FINDINGS AND CONCLUSIONS OF THE TRIAL JUDGE ORDERS OF THE TRIAL JUDGE OUTLINE OF THE APPEALS Appeal by ABCOS - NG 317 of 1996 Appeal by Done - NG 319 of 1996 Appeal by King - NG 321 of 1996 Appeal by the Investors against MANL - NG 323 of 1996 Appeal by the Investors against Heath - NG 324 of 1996 LIST OF ISSUES DONE'S BREACH OF FIDUCIARY DUTY The trial Judge's findings Done's submissions The Investors' submissions The initial limitation of Done's retainer Done's subsequent actions Conclusions KING'S APPEAL ABCOS' NEGLIGENCE AND CONTRAVENTION OF s 52 OF THE TRADE PRACTICES ACT The valuation Was there a duty of care? MANL's reliance on ABCOS' valuation Causation SECTION 169 OF THE COMPANIES CODE Offer or invitation to the public Effect of the breach of s 169 Severability Restitution CONTRACTUAL PENALTY ISSUES MEASUREMENT OF INVESTORS' DAMAGES Taxation Fall in market CONTRIBUTORY NEGLIGENCE OF THE INVESTORS APPORTIONMENT OF FAULT DONE'S CONTRIBUTION CLAIM INSURANCE ISSUES The exclusions Exclusion (c) Exclusion (e) CONCLUSIONS AND ORDERS Appeal by ABCOS - NG317 of 1996 Appeal by Done - NG319 of 1996 Appeal by King - NG321 of 1996 Appeal by the Investors against MANL - NG323 of 1993 Appeal by the Investors against Heath - NG324 of 1996

General Five appeals are brought from judgments of Davies J in two proceedings, heard together, arising out of a thoroughbred horse breeding venture called the "the First Trinity Park Stud Breeding Venture". In both proceedings, the applicants were 18 individuals ("the Investors") who, with three others, invested in the venture. They claimed to have suffered loss as a result. The relationship between the 21 investors has been called a "syndicate". Most, but not all, of the syndicate members were clients of an accounting firm, Beattie McDonald, of which Roderick Stuart McDonald and Gregory Alfred Farrow were the partners. In proceeding NG 711 of 1991 the Investors sought to recover damages from eight respondents, being individuals and companies who, in various ways, allegedly caused them to invest in the venture. In the other proceeding, NG 491 of 1994, the Investors sought relief against C E Heath Casualty & General Insurance Limited ("Heath"), the professional liability indemnity insurer of Beattie McDonald, under s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) ("the LR(MP) Act"). The learned trial Judge delivered four judgments: on 10 November 1995 (general), 23 February 1996 (contribution and other issues - now reported at 142 ALR 561), 23 February 1996 (costs) and 25 March 1996 (damages and taxation). The principal Reasons for Judgment were those delivered on 10 November 1995, comprising 111 pages. The factual and legal issues before the trial Judge were complex, as are the legal issues raised on the five appeals. There are two cross appeals and four notices of contention. It will be necessary to discuss in detail the evidence relating to some issues contested before the trial Judge. For the purpose of the present introduction, it is necessary to give only an outline of the background facts, the orders made by Davies J and the appeals.

The parties The first respondent to proceeding NG 711 of 1991 was Mortgage Acceptance Nominees Limited ("MANL"), the financier of the venture. The venture involved the purchase by MANL of fourteen mares for lease to the syndicate as breeding stock, and purchase by the syndicate of four foals. MANL purchased the mares and granted leases of undivided interests in them to the syndicate members. MANL also made loans of venture expenses to all except one of the Investors. By way of security for the loans, MANL took mortgages over each borrower's "one (1) ownership share in the First Trinity Park Stud Breeding Venture". The Investors eventually purported to rescind their contracts with MANL and, in proceeding NG 711 of 1991, sought relief that would establish they had effectively done so. By a cross claim MANL sought recovery of rent, the residual sum due under each lease and the amount outstanding under the mortgages, with pre-judgment interest on the whole sum. MANL was represented by counsel before the trial Judge and on the hearing of the appeals. McDonald, and to a lesser extent Farrow, actively promoted the venture. They were, respectively, the second and third respondents to proceeding NG 711 of 1991. McDonald was the principal author of a document called a Private Offer Memorandum ("POM") which was distributed to interested persons. The Investors allege the POM was negligently drawn, was misleading and deceptive and its distribution contravened s 42 of the Fair Trading Act 1987 (NSW) ("the FT Act"). Further, they allege the distribution of the POM, and of interests in the venture, constituted an offer or issue to the public of a prescribed interest in contravention of s 169 of the Companies Code 1981 (NSW) ("the Code"). McDonald and Farrow represented themselves before the trial Judge and did not appear on the hearing of the appeals. Jarpan Management Services Pty Limited ("Jarpan") was the manager of the venture. Its directors were McDonald and Ray Marshall. Marshall was the manager of the Trinity Park Stud, the property at which the venture's breeding activities were to be conducted. Each Investor entered into a management agreement with Jarpan, in respect of the Investor's interest as lessee of an undivided interest in the mares and the Investor's undivided interest in the natural increase of the mares and the four foals. Although the Investors named Jarpan as the fourth respondent in proceeding NG 711 of 1991, they sought no relief against it. Jarpan played no part in the trial and was not a party to any of the appeals. Peter Done was the fifth respondent to proceeding NG 711 of 1991. He was sued as representing all the persons carrying on business as partners of the accounting firm Peat Marwick Hungerfords ("Peats") between 1 February and 30 June 1989. The Investors allege Peats, principally through Done, were involved in the establishment of the venture and Peats' conduct was a cause of their loss. Done was legally represented at the trial and on the hearing of the appeals. The sixth respondent in proceeding NG 711 of 1991 was Brian King. He played a key role. Both personally and through his company, Natalma Bloodstock Ltd ("Natalma"), he was a seller of bloodstock acquired for the venture. He was also active in the formation of the syndicate. The Investors claim he acted in breach of his fiduciary duty to them and engaged in misleading and deceptive conduct. King appeared on his own behalf before the trial Judge but was represented by counsel on the hearing of the appeals. The seventh respondent in proceeding NG 711 of 1991 was James Bester. He provided a valuation of the bloodstock which was included in the POM. The Investors allege the valuation was negligently prepared and his issue of it constituted misleading and deceptive conduct in contravention of s 42 of the FT Act. Bester represented himself before the trial Judge but did not appear on the hearing of the appeals. A further valuation was obtained from Australian Breeders Cooperative Society Ltd ("ABCOS"), the eighth respondent in proceeding NG 711 of 1991. The Investors claim ABCOS' valuation was also negligently prepared. ABCOS' valuation did not form part of the POM distributed to Investors, but it was provided to MANL. The Investors say MANL relied on this valuation in deciding to finance the Investors into the venture; without ABCOS' valuation the venture would not have "got off the ground"; therefore ABCOS' conduct in issuing the valuation was also a cause of the Investors' loss. The respondents in proceeding NG 711 of 1991 made numerous cross claims for contribution as between themselves. The trial Judge recorded that "almost every conceivable claim based on negligence, misleading and deceptive conduct, misrepresentation and breach of fiduciary duty which could have been made has been made."

The underlying facts In 1986, King, a dealer in bloodstock, instructed Done, his accountant, to establish a corporate structure in Guernsey, one of the Channel Islands, for use in the conduct of his business. In consequence, Natalma was incorporated on 10 June 1986 and a trust called "The Natalma Settlement" was established on 1 September 1986. The Natalma Settlement was managed by Peats and their agents. This was done on behalf of King, the effective controller of Natalma. Done handled Natalma's affairs at the Australian end. King believed the Australian racing industry would benefit if overseas blood lines were introduced. He gradually acquired overseas mares that he thought would be suitable breeders in Australia. By late 1988, he knew of other mares, in America and New Zealand, he believed he could acquire. In the second half of 1988, King arranged to sell Marshall a stallion named "Cardell", to be "syndicated" by Marshall. McDonald was a friend of Marshall, and learned of this acquisition. McDonald thought it would be desirable for his firm, Beattie McDonald, to promote a horse breeding syndicate. In November 1988, he discussed the idea with Marshall. In late December 1988, the two men discussed the proposal with King. King declined to become a member of the syndicate on the ground that there would be a conflict of interest between membership and his position as seller to the syndicate. However, he subsequently promoted the venture. By the end of December 1988, the general concept of a breeding venture based on King's bloodstock had been formulated. During January and early February 1989, King contacted Done about the project. Peats held themselves out as experienced in setting up horse breeding and racing syndicates. At King's suggestion, McDonald spoke to Done. Done agreed to assist but, as King was his client, he put a limitation on his role, the exact nature of which we will later discuss. On 20 February 1989, Done sent a fax to McDonald setting out a suggested structure for the venture. He advised that an independent valuation of the bloodstock would be required. On 28 February 1989, Bester was introduced to King and Done. King and Done decided Bester should undertake the valuation. In a room at Peats' offices, King outlined to Bester what was required. Bester had never previously undertaken a formal valuation of bloodstock, although he had worked for some years for Robert Sangster and was familiar with overseas bloodstock. His discussions with King excited his interest in the project. Almost immediately, he sold to King one of his own mares, "Plaisir d'Amour", for $55,000. Bester had purchased the mare in 1987 for only US$12,500. With McDonald's approval, this mare was later acquired for the syndicate from King at a price of $75,000. In the discussion on 28 February, King gave Bester a schedule of the mares then under consideration and also copies of some documents that had passed between King, McDonald and Marshall regarding the transaction. King put those documents forward as evidence of an agreed sale. Subsequently, he had further conversations with Bester and faxed further documents to him. By 13 March McDonald and King had settled on the bloodstock to be acquired and their prices. There were to be fourteen mares, four with foals. Most of the horses were to be sold into the syndicate by King or his company, Natalma. The remainder, five mares and one foal, came from McDonald's own stock. There were no outside purchases and there was no negotiation over amounts; McDonald acquiesced in the prices King nominated. It suited McDonald's purposes that there be a syndicate with 20 shares and the cost of the bloodstock be approximately $1.5 million; and it was in the interests of both men, as vendors, for the prices to be high. The prices ascribed to the fourteen mares totalled $1,436,000 and for the four foals $130,000 - a total of $1,566,000. Bester was informed of the final selection and the agreed prices. Thereafter, on 15 March 1989, he placed a value on each horse identical to its agreed price. Bester forwarded his valuation to Peats, addressed to the First Trinity Park Stud Breeding Venture. Done thought its form unprofessional so Peats redrew it. In its new form, but without any change in content, it was signed by Bester. Peats forwarded the signed valuation to McDonald. Bester's account for his valuation fee was addressed to King. McDonald forwarded a draft POM to Done in early April 1989. The draft included Bester's valuation, as a Schedule, and contained the statement that "(t)he acquisition price of the bloodstock is based on (Bester's) valuation". This was the reverse of the true position: Bester's valuation had been based on the agreed acquisition prices. On 6 April Done suggested amendments to the POM. There is an issue about how much of the draft he read, but it is clear the suggested amendments did not include any correction of the false statement about the acquisition price. The POM, including Bester's valuation and a description of the bloodstock, was printed. Copies were given to Marshall and King. McDonald had drafted the POM on the basis there would be 20 shares. Most of the persons who became members of the syndicate were clients of Beattie McDonald, but at one stage it seemed there might be a shortfall. King successfully approached some persons in Queensland, and paid substantial fees or commissions to attract extra members. One participant heard of the venture from another source. To make up the numbers, McDonald took one share and he and Farrow together took a further share. Because of another joint holding, there were 21 members, although only 20 shares. Done and King approached NZI Securities ("NZI") for finance. After some consideration, causing delay, NZI decided it did not wish to become involved in the venture. An approach was made to Australian Thoroughbred Finance, a division of Equico Financial Corporation, which advised it would need "a valuation from William Inglis & Sons Ltd to the value of $1,436,000." John on, the brood mare manager of Inglis, was given the task of providing the valuation. Bester spoke with him and gave him the documents that had been supplied to Bester by King. In the middle of June, Hutchinson advised Bester that Inglis could not assist with the valuation. There was some dispute about the terms of the conversation, but the trial Judge found it was made clear to Bester that Inglis could not value the bloodstock "anywhere near the figure that Mr Bester was seeking". However, Bester apparently told King and Done that the "people at Inglis" were "too busy" to do the valuation. It had always been intended that the transactions would be implemented, and the syndicate come into operation, by 30 June 1989. Time was running out. A new financier, MANL, was quickly found but it required an "independent" valuation and apparently did not regard Bester as independent. Accordingly, after speaking with Done, Bester contacted Alistair Pulford of ABCOS and asked him to make a valuation. Bester told Pulford the precise figure that was required ($1,565,000) and gave him the documents he had previously supplied to Hutchinson, as well as pedigrees on which he had noted prices. By 27 June 1989, Pulford completed his valuation. On that day, on his behalf, his secretary signed an "appraisal", valuing the horses at the required total figure of $1,565,000. Some of the component figures were slightly below, and some slightly above, the figures in Bester's valuation, but in general they accorded with them. The total stated value was just $1,000 less than Bester's total. The letter accompanying the appraisal was addressed to First Trinity Park Stud Breeding Venture. The appraisal itself was expressed to be "on a/c of Mr Brian King". The letter and appraisal were faxed to King. A note on the fax shows King brought it to the attention of a MANL officer named Lock. On 30 June 1989, at King's request, the appraisal was retyped on the letterhead of ABCOS and addressed to Jarpan. On 29 June 1989 there was a lengthy meeting at Peats' office attended by McDonald, Done and King. The individual syndicate members, other than Gibson, had given McDonald powers of attorney. At the meeting there were executed, on behalf of each relevant syndicate member: a "Lease Agreement - Livestock" by which MANL leased to the syndicate member an undivided interest as tenant in common in 14 named broodmares for 48 months from 30 June 1989; a "Thoroughbred Owner Management Agreement" between the syndicate member and Jarpan providing for management of the 14 broodmares, four named weanlings and described yearlings by Jarpan; a "Deed of Loan" between MANL as lender and the syndicate member as borrower; and a Mortgage between the syndicate member as mortgagor and MANL as mortgagee over (in substance) the member's undivided interest, to secure the member's indebtedness to MANL. King agreed to become temporary secretary of Jarpan and signed the management agreements with the syndicate members on that company's behalf. On the following day, 30 June, settlement took place at MANL's office. Many payments were made between the parties. It seems the previously agreed total purchase price was reduced by $1,000 to accommodate the difference between the ABCOS and Bester valuations. McDonald received $350,000 for five mares sold to MANL and $10,000 for a foal sold to the syndicate. King and Natalma received $1,085,000 for mares sold to MANL and $120,000 from the syndicate for three foals. The horses sold by King and Natalma had been acquired by them for the equivalent of only A$329,572. Many of the mares were still in the United States. By the time of the 1990 Inglis Easter sales, bloodstock prices had fallen sharply. As the viability of the venture depended on the syndicate obtaining high prices for its yearlings, in practical terms the venture had failed, although the syndicate members were not told of this. MANL took possession of the mares on 1 October 1991. Those in Australia were eventually sold for a net return of $12,598.40. Those in the United States remained there. They were eventually auctioned by the owner of the property on which they were agisted with a view to recovering some of the outstanding agistment fees. One of those mares, "Prospect Digger", later achieved some success in America and, later still, was sold there for US$55,000; but even this was less than the amount ($95,000) paid for her by MANL.

OUTLINE OF FINDINGS AND CONCLUSIONS OF THE TRIAL JUDGE The trial Judge made the following findings: 1. The POM misled and deceived the Investors in various respects. 2. The distribution of the POM did not constitute the making of an offer of a "prescribed interest" to the public in contravention of s 169 of the Code; the offer made in it was "essentially a private offer". 3. The fact that the Investors had not paid out MANL did not constitute a failure by them to mitigate their loss or a break in the chain of causation of the losses suffered by them. Moreover, they were not guilty of negligence which had contributed to or caused their losses. 4. McDonald's conduct in creating and distributing the POM: (a) was misleading and deceptive conduct in contravention of s 42 of the FT Act which caused the Investors to suffer loss and entitled them to recover damages from him; (b) involved a breach by him of a duty of care, not only to the clients of Beattie McDonald, but also to all potential investors in the venture; and (c) involved a breach of fiduciary duty to the members and potential members of the syndicate; but (d) did not constitute fraud. 5. Farrow was: (a) liable as a partner for McDonald's negligence, the venture having been established in the course of the conduct of the accounting practice of Beattie McDonald; and (b) directly liable to the Investors for contravention of s 42 of the FT Act, by reason of his conduct in distributing the misleading and deceptive POM. 6. King, as a seller, had interests in conflict with those of the syndicate members. He was in breach of the fiduciary duties he owed them and was, in consequence, liable to account to the Investors for the benefits received by him as a result of his breach. In addition, he engaged in misleading and deceptive conduct, in contravention of s 42 of the FT Act, by distributing the POM to (at least) three of the Investors. Without those three Investors, it was probable the venture would not have proceeded. Accordingly, King's conduct was a contributing cause of the loss suffered by all the Investors. 7. Done acted as King's accountant and had duties towards him. He also owed fiduciary duties to the syndicate members because he acted in his professional capacity in advising the principal promoter, McDonald, on the venture and assisting in its establishment. As King's interests conflicted with those of the syndicate members, Done ought not to have acted for the syndicate members. In doing so, he breached fiduciary duties owed to them. However, his conduct was not in contravention of s 42 of the FT Act and it was not established that he owed to the syndicate members the particular duty of care pleaded against him, namely, a duty to take reasonable care to ensure the representations in the POM were not made, or to ensure their falsity was disclosed. Nor was it shown Done was knowingly concerned in King's breaches of duty or contravention of the FT Act. 8. Bester's valuation was outside the range at which a competent valuer could have arrived and was negligently prepared. It was misleading and deceptive in contravention of s 42 of the FT Act. Although the Investors no longer made a claim against Bester, he was the subject of cross claims and claims for contribution. 9. Pulford of ABCOS did not give an independent valuation as he was requested to do and as the circumstances required. His values were outside the range at which competent valuers would have arrived. He was negligent and ABCOS was vicariously liable for his negligence. ABCOS' valuation was misleading and deceptive in contravention of s 52 of the Trade Practices Act 1974 ("the TP Act"). 10. MANL had a copy of the POM but took no part in its preparation or distribution or in the selection of syndicate members. Although MANL led no oral or affidavit evidence and relied only on documentary evidence, that evidence showed MANL relied on the ABCOS valuation. Allegations of contributory negligence against MANL were not made out; nor were allegations that MANL was negligent in its management of the bloodstock and had failed to mitigate its loss; nor the allegation that the terms upon which interest and other moneys were payable to MANL under the agreements constituted the imposition of penalties. 11. For the purposes of contribution, the trial Judge apportioned fault as follows: Beattie McDonald 30%; King 20%; Bester 20%; ABCOS 20%; Done 10%.

12. Heath was not liable to indemnify Beattie McDonald, by reason of an exclusion (exclusion (c)) in the relevant policy. Other exclusions relied on by Heath did not apply. Davies J did not have to decide whether subs 6(1) of the LR(MP) Act applied, although he was inclined to think it did. In the judgment delivered on 23 February 1996 relating to contribution, Davies J held Done was entitled to recover equitable contribution in respect of his liability to pay equitable compensation for breach of fiduciary obligation to the Investors.

ORDERS OF THE TRIAL JUDGE On 18 December 1995, judgment was given on MANL's cross claim against the Investors (including McDonald and Farrow) in various amounts. On 2 April 1996, his Honour made complex orders in relation to the other claims. They can be understood only by reference to four schedules to the Order. Schedule 1 lists the names of 17 investors or, in one case, two co-investors. Schedule 2 lists 15 Investors or, in three cases, joint and several Investors. Schedule 3 lists 17 Investors or, in some cases, joint and several Investors. Schedule 4 reads as follows: "Respondent Amount Roderick Stewart McDonald and Gregory Alfred Farrow $1,497,766.20 Brian King $998,510.80 James Bester $998,510.80 Peter Done $499,255.40 ABCOS $998,510.80" Those amounts total $4,992,554. The orders in the two principal proceedings may be summarised as follows: MANL The proceedings were dismissed as against MANL and the Investors were left to pay severally that proportion of MANL's costs set opposite their respective names in Schedule 2. Heath The Investors were ordered to pay Heath's costs. McDonald, Farrow, Done, King and ABCOS Each of McDonald, Farrow, Done, King and ABCOS was ordered to pay the Investors, by way of damages or equitable compensation, the amounts set opposite the respective Investors' names in Schedule 1 (totalling $4,992,554), and the Investors' costs of both proceedings, and to indemnify them in relation to the costs payable by the Investors to MANL and Heath. The cross claims were resolved as follows: MANL Save for the judgment dated 18 December 1995 against inter alia McDonald and Farrow, mentioned earlier, MANL's claims were dismissed against ABCOS, McDonald, Farrow, Jarpan, King, Bester and Done. Certain cross respondents were left to pay severally the proportion of MANL's costs of its cross claim set opposite that cross respondent's name in Schedule 3, including the costs of MANL of its cross claims against ABCOS, Jarpan, King, Bester and Done. McDonald and Farrow McDonald's and Farrow's cross claims against MANL and Heath were dismissed. Save for each man's cross claim for contribution under s 5 of the LR(MP) Act, their cross claims were dismissed as against ABCOS, King, Bester and Done. However, on their cross claims for contribution under s 5, each recovered judgment against each of King, Bester, ABCOS and Done, in the amounts set opposite the respective names of those parties in Schedule 4. Each was left to pay his own costs including his costs of all cross claims. Done Done's cross claim against Heath was dismissed. In his cross claims against McDonald, Farrow, King, Bester and ABCOS, for contribution pursuant to s 5 in respect of damages payable by him to the Investors, Done recovered judgment in the amounts set opposite those respondents' respective names in Schedule 4. He was left to pay his own costs of the proceedings including his costs of all cross claims. King Judgment was given for King on his cross claim against McDonald and Farrow, for contribution under s 5 in respect of damages payable by him to the Investors, in the amounts set opposite their respective names in Schedule 4. King was left to pay his own costs of the proceedings including his costs of all cross claims. ABCOS ABCOS' cross claim was dismissed as against Heath. Save for its claim for contribution under s 5, ABCOS' cross claim was dismissed as against McDonald, Farrow, Done, King, Bester and the Investors. On its cross claim against McDonald, Farrow, King, Bester and Done for contribution under s 5 in respect of damages payable by it to the Investors, ABCOS obtained judgment in the amounts set opposite those respondents' names in Schedule 4. ABCOS was left to pay its own costs of the proceedings including its costs of all cross claims. Bester Bester's cross claim was dismissed; he was left to pay his own costs of the proceedings including his costs on all cross claims.

Appeal by ABCOS - NG 317 of 1996 ABCOS' amended notice of appeal, filed on 21 June 1996, comprises 53 paragraphs. It attacks the conclusions of the trial Judge in favour of the Investors in negligence and for contravention of s 52 of the TP Act. It contends ABCOS was under no duty of care to the Investors; further, the commissions or benefits received by five Investors (Mesh, Bailey, Wall, Fraser and Jones) from King, and by McDonald from his participation in sales to MANL, broke the chain of causation by reason of which ABCOS might otherwise have been liable to them and/or other investors. In relation to breach of duty, ABCOS contends his Honour erred in finding the letter under cover of which the ABCOS valuation was provided did not amount to a qualification of its valuation. The amended notice of appeal also asserts his Honour erred in finding that MANL relied on the ABCOS valuation in entering into the transaction. In this respect, it attacks certain evidentiary rulings of the trial Judge. The notice of appeal further asserts his Honour erred in concluding the Investors' damages should not be reduced by reason of their contributory negligence, in apportioning ABCOS' fault at 20%, and in holding that Done was entitled to claim contribution from ABCOS pursuant to s5(1) of the LR(MP) Act. Finally, ABCOS attacks his Honour's conclusion that exclusion (c) in the policy issued by Heath applied to exclude Heath's obligation to indemnify McDonald and Farrow in respect of the claims made against them. Heath filed an amended notice of contention supporting the trial Judge's decision in its favour on the additional grounds that: (A) exclusion (e) in the policy applied; (B) there was only one claim under the policy, so the total amount recoverable was subject to an aggregate limit of $1,000,000; and (C) on the true construction of subs 6(1) of the LR(MP) Act, no charge could arise under the subsection unless the contract of insurance was in force at the time of the events giving rise to the claim; and the events giving rise to the Investors' claim occurred on 30 June 1989, prior to the inception of the policy.

Appeal by Done - NG 319 of 1996 Done's notice of appeal challenges the conclusion of the trial Judge that he was liable to the Investors for breach of fiduciary obligation, and that exclusion (c) applied. The notice of appeal also says his Honour erred in holding the Investors' acquisition of their interests in the venture did not follow an issue or offer to the public made contrary to s 169 of the Code. The notice of appeal raises several complaints regarding damages. The first is that the trial Judge erred in failing to hold that the amount of damages payable by Done to the Investors ought to be reduced to reflect the fact that they were entitled to deductions, under subs 51(1) of the Income Tax Assessment Act 1936 ("ITAA"), in the years ended 30 June 1991, 1992, 1993, 1994 and 1995, with respect to rent and interest; alternatively, his Honour erred in failing to reduce the amount to reflect the fact that the damages will not be taxable, whereas amounts received as compensation for the rent and interest would have been taxable as income according to general principles under subs 25(1) of the ITAA or as a receipt by way of indemnity under subs 26(j) of the ITAA. This alternative submission was not pressed at the hearing of the appeals. Bester filed a cross appeal in Done's appeal proceeding. This was formally incorrect because it challenges conclusions of the trial Judge that affected others besides Done. However, the point is inconsequential; Bester did not appear to press his cross appeal and it will be dismissed. Heath filed a notice of contention raising grounds (A), (B) and (C) referred to earlier in connection with ABCOS.

Appeal by King - NG 321 of 1996 In his amended notice of appeal filed on 5 June 1996, King complains the trial Judge made 13 errors of law, but his submissions were within a narrower compass, as appears later.

Appeal by the Investors against MANL - NG 323 of 1996 The Investors filed a notice of appeal contending the trial Judge erred in holding that their acquisition of interests in the First Trinity Park Stud Breeding Venture did not involve an issue or offer to the public in contravention of s 169 of the Code. They say his Honour ought to have found the loan and lease transactions with MANL came into existence as the result of an unlawful offer to the public of a prescribed interest and those transactions were therefore illegal and unenforceable. The notice of appeal further contends his Honour erred in finding there was no element of penalty in the arrangement set out in cll 3.1, 3.2 and 3.5 of the deeds of loan, in the provision for payment of the residual value in the lease agreements, or in the provision for payment of interest at the rate of 26% in cl 21.1.3 of the lease agreements. Among other orders, the notice of appeal seeks an order that the management agreement between Jarpan and each Investor, and the lease agreement, deed of loan and mortgage between MANL and each Investor, are not binding on the Investor and each such contract is invalid and unenforceable. By an amended notice of cross appeal filed on 26 September 1996, MANL cross appeals against the Investors' appeal, but only against the possibility that MANL's judgment against the Investors is varied, set aside or vacated. In that cross appeal, MANL submits that, if there was a contravention of s 169 of the Code and the deeds of loan, mortgages and lease agreements are not severable or independent, and are therefore unenforceable by MANL, his Honour should have held that MANL is entitled to recover its outlay from the Investors on a restitutionary basis, founded on unjust enrichment, with interest accruing from 30 June 1989 at the contract rate, the market rate (said to be 25%), or the rate prescribed from time to time under the Rules of the Supreme Court of New South Wales. MANL makes the same submission if it is found anything in the deeds of loan, the lease agreements or the mortgages constituted a penalty. Finally, the amended notice of cross appeal urges that, if the Investors succeed in their appeal to the effect that the management agreements, the lease agreements, the mortgages and the deeds of loan are not binding on the Investors or are invalid or unenforceable, and if the Investors are not liable to pay in the alternative on a restitutionary basis, MANL is entitled to recover damages from McDonald, Farrow, Done, King and Bester with interest at the market rate since 30 June 1989. MANL gives particulars of damage. MANL filed an amended notice of contention in the course of the hearing on 26 September 1996. This seeks affirmation of the decision of the trial Judge on the ground that, if an issue or offer to the public was involved, the deeds of loan and lease agreements are nonetheless enforceable by MANL. The reasons given are that MANL was not involved in the illegal conduct; the deeds of loan and lease agreements are severable or independent, and hence enforceable; MANL is entitled to recover on a restitutionary basis on the ground of unjust enrichment, together with interest at the "market" rate (allegedly 25%) or at rates prescribed under the Rules of the Supreme Court of New South Wales; and the Investors are estopped from denying the deeds of loan and lease agreements are enforceable in accordance with their terms. The amended notice of contention also says that if anything in the deeds of loan or the lease agreements gives rise to a penalty, his Honour should have held MANL is entitled to recover interest from 30 June 1989 on all moneys due to it at the rates prescribed under the Rules of the Supreme Court, or alternatively at the market rate (allegedly 25%), and to recover the residual value discounted by the contractual interest rate.

Appeal by the Investors against Heath - NG 324 of 1996 The Investors contend his Honour erred in finding that exclusion (c) applied. By notice of contention, Heath raises the grounds (A), (B) and (C) referred to earlier.

LIST OF ISSUES As will be apparent, numerous issues are raised by the various appeals, cross appeals and notices of contention. Moreover, in relation to most issues, counsel have put a multitude of arguments, some of them scarcely tenable or inconsequential in terms of result. We have considered each of those arguments but do not propose to discuss them all. To do so would be to make these Reasons unacceptably long. We will confine ourselves to the submissions that are both significant and consequential. Adopting that approach, nine topics arise for determination on the appeals: 1. Done's breach of fiduciary duty 2. King's appeal 3. ABCOS' negligence and contravention of s 52 of the Trade Practices Act 4. Section 169 of the Code 5. Contractual penalty issues 6. Measurement of Investors' damages 7. Contributory negligence of the Investors 8. Apportionment of fault 9. Done's contribution claim 10. Insurance issues We will deal with each of these topics separately and then apply our conclusions to each separate notice of appeal.

The trial Judge's findings Many claims were made against Done. Only one succeeded: that based on breach of fiduciary duty. In dealing with that claim, Davies J said: "The most difficult part of the case is that which concerns the allegations made against Mr Done. I am satisfied that whatever Mr Done did was done by him in good faith, as he saw it. Mr Done had an ability to see affairs in terms of black and white. He informed Mr McDonald that he could not advise him with respect to prices. Mr Done honestly thought that that was the end of that matter. He did not see the significance of his acting in the establishment of the venture nor the significance of steps that he later took. A conflict of interest is an insidious matter. When it exists, it requires that a great deal of positive thought be given to ensuring that each party is given the advice that that party would otherwise be entitled to absent the conflict. Otherwise, the conflict will tend to have an effect upon affairs. Having said to Mr McDonald that he could not advise Mr McDonald with respect to the prices or values of the mares, Mr Done appears to have given the matter of conflict no further attention. Mr Done said in evidence that he perceived Mr King to be his 'Number One client'. He also was aware that the success in establishing the syndicate was very much in Mr King's interests. And he was aware of the difference between the prices which Mr King had paid for the bloodstock and the prices at which he was selling the bloodstock." His Honour then referred to three cases in which comments were made about the undesirability of a professional person acting for parties whose interests are not identical: Commonwealth Bank v Smith (1991) 42 FCR 390, Blackwell v Barroile Pty Ltd (1994) 123 ALR 81 and O'Reilly v Law Society of New South Wales (1988) 24 NSWLR 204. He went on: "If Mr Done had had no information which Mr McDonald would have considered to be material and if he had merely acted in the interests of both Mr King and of the investors in the syndicate, Mr Done would not have breached any duty which he owed to the investors notwithstanding that the interests of Mr King and of the investors were not identical. However, Mr Done did have knowledge which Mr McDonald would have regarded as material and he did not disclose it. That knowledge was knowledge of the prices which Mr King had paid for the mares." The Judge quoted evidence of McDonald that: (a) if he had been told in the first half of 1989 that Bester had never done a valuation for an outside party of this scale, he would have been concerned and would have required an independent valuation; and (b) if he had been told at that time that King was the vendor to the syndicate of many of the horses and was selling them at prices three or four times more than he had paid, this would have been of great concern; indeed the syndicate would not have proceeded "because the mathematics of it wouldn't have worked if the horses were of considerably less value" and he "certainly would not have allowed the POM to be issued without disclosing the information". His Honour said he accepted that evidence. He went on: "Mr King did not make merely a reasonable profit on the sale. Mr King made a very large profit, more than 3 times his costs. Had Mr McDonald been aware of this, he undoubtedly would have taken other action. Mr King gave evidence that, in his opinion, the prices paid overseas were irrelevant to Australian prices. However, in my opinion, the prices paid by Mr King and the profits made by him were not irrelevant, for the quantum of the profits was so great as to cast doubt on the financial viability of the venture. Moreover, at the time when the discussions were taking place, most of the mares were not in Australia. The POM itself proposed that $73,000 would be expended in the 1990 year for transport, most of this being for the transport of the mares from the United States to Australia. In my opinion, the value of the mares where they were agisted when the transaction occurred was a relevant factor. And some of the mares were acquired from Allegra, which was a New Zealand company. Prices in New Zealand have an influence on and are influenced by Australian prices. Australia and New Zealand effectively comprise one market for bloodstock.

Mr Done said in evidence that he would not have regarded the prices paid by Mr King as a relevant matter. That may have been the case had an independent and reliable valuation been obtained. But that was not the case.

Mr Done had knowledge of the prices at which Mr King and Natalma had purchased and of the prices at which they were to be sold to the syndicate. Mr King [sic; scil. "Done"] knew these matters because he was the person through whom all communications were made to Guernsey. He knew that Mr King and Natalma were obtaining prices 3 times or more greater than they had paid, and this included not only the bloodstock purchased in the United States but also the bloodstock which was being purchased from Allegra of New Zealand.

When Mr Done informed Mr McDonald that he had a conflict and could not advise Mr McDonald with respect to prices or values, that disclosure simply indicated to Mr McDonald that he, Mr Done, was an honourable person on whom he, Mr McDonald, could rely. Mr McDonald did not realise that Mr Done had information which, if disclosed, would have materially affected Mr McDonald's course of action. Not knowing that fact, he thought he could rely upon Mr Done. Mr McDonald's consent to Mr Done's non-disclosure was not an informed consent, for he was unaware of the significance of the information which Mr Done withheld.

The problem then arose that, not only did Mr Done not positively insist that Mr McDonald obtain his own valuation totally independently of Mr King, but Mr Done and Mr King selected and instructed the valuer. Just a few days after having informed Mr McDonald that he could not advise on prices or values, Mr Done took an active part in the selection of Mr Bester. Mr Done's diary notes are usually brief. On 28 February, however, one-third of the page is taken up with the heading 'Valuations' and matters associated with that. Under the heading, there is a reference to James Bester and to David Corser. On the top of the page appears the name David Corser underlined and also towards the top of the page is the name James Bester with a star against it. Mr Done was to see Mr McDonald, Mr Marshall and Mr King at 12 o'clock.

Although Mr Done could not recall it, I think it is likely that, before noon on 28 February 1989, Mr Corser and Mr Bester came to the offices of Peat Marwick, as Mr Bester and Mr King testified they did, and that Mr Corser there introduced Mr Bester to Mr Done and to Mr King. Mr Corser did not remain long and I think that it is probable that Mr Done did not remain long thereafter save to assure himself that Mr Bester was a satisfactory person to undertake the valuation. I suspect that the star against Mr Bester's name towards the top of the diary page may be an indication that Mr Bester was selected for the task. Whether or not the star has that meaning, Mr Bester was approved and Mr Done left Mr King to instruct Mr Bester as to what had to be done. Mr King did so in one of the offices in Peat Marwick's premises.

Later in the day, Mr Done held a conference with Mr McDonald, Mr Marshall and Mr King. Mr McDonald and Mr Marshall would have been informed as to what had occurred. As Mr McDonald had confidence in Mr Done and Mr King, he accepted that Mr Bester should do the valuation and he took no further part in the matter.

Mr Done ought not to have allowed that to happen. As he had a conflict, Mr Done should have played no part whatever in the obtaining of a valuation and should have advised Mr King that he too should play no part in it. As it was, Mr McDonald was content to allow the matter to proceed because he trusted Mr Done and Mr King and thought the matter was in good hands."

The Judge referred to evidence illustrating Done's knowledge of the profits about to be made. He found that Peats prepared invoices to Jarpan from Natalma and King and provided them to Pulford of ABCOS for the purposes of his valuation. His Honour also said: "Mr Done not merely gave advice on the structure of the venture but took an active management role in the setting up of the venture. The obtaining of the valuation, of finance and of insurance were matters which Mr McDonald left in the hands of Mr King and of Mr Done." After referring to, and rejecting, Done's claims of a more limited involvement, Davies J concluded: "Mr Done owed fiduciary duties to the investors for he acted in his professional capacity in advising on the venture and in assisting with its establishment. A charge of $13,500 was made by Peat Marwick for this work. In my opinion, Mr Done, who was aware of the prices at which Mr King and Natalma Bloodstock had purchased and were purchasing the mares, ought not to have acted for the syndicate. He could not, without breach of confidence, disclose the information which was confidential to Mr King. The mere fact that he acted in the matter encouraged Mr McDonald to conclude that there was nothing in the background about the value of the horses which he should investigate. The fact that Mr Done was acting without suggesting that there was anything that ought to be disclosed comforted Mr McDonald to such an extent that he thought he could safely leave the valuation and the obtaining of finance to Mr King and Mr Done. Mr McDonald expressly assented to the non-disclosure by Mr Done to him of any information he had with respect to values or prices. However, Mr McDonald's assent was not an informed assent: See Trade Practices Commission v CC (NSW) Pty Ltd (1994) 125 ALR 94 at 105; Commonwealth Bank of Australia v Smith (1991) 42 FCR 390. Mr McDonald was unaware of the large differences which existed between the prices paid by Mr King and the prices sought by him. Mr McDonald would have anticipated that he was speaking with a person who had nothing to hide. In his cross-examination Mr Done conceded, or came very close to conceding, that, but for his conversation with Mr McDonald and his relationship with Mr King, he would have felt himself under obligation to disclose the difference between the prices and the values because he saw himself as having some responsibility to the investors through Mr McDonald. In my opinion, those matters were material, and should have been disclosed if Mr Done was to act as he did. I am satisfied that Mr Done was in breach of the fiduciary duties which he owed to the investors. In these circumstances, the applicants claim equitable damages from Mr Done and the other partners of Peat Marwick to compensate them for the loss that they suffered through his breach. I am satisfied that, if Mr McDonald had gone to an independent adviser, it is probable that he would have been firmly advised to obtain an independent valuation and would have acted on that advice. That is because the success of the venture depended upon the value of the bloodstock."

Done's submissions At the hearing of the appeal, counsel for Done, Mr D F Jackson QC and Mr T D Castle, made no challenge to the trial Judge's findings of fact. Indeed, they seized upon many of them. They referred to findings that Done did not know the Bester and ABCOS valuations were flawed, nor that King was so active in the establishment of the venture as to have a fiduciary duty to syndicate members. Counsel also pointed out that Peats had no direct contact with any of the Investors; Peats did not issue the POM and were not mentioned in it. The burden of counsel's argument in respect of Done's alleged breach of fiduciary duty is that he "owed no fiduciary duty to give advice in respect of the price or value of the syndicate horses, his retainer being expressly limited so as to exclude these matters". They say the trial Judge "erred in failing to give effect to the express limitation of Done's retainer in analysing Done's supposed fiduciary duties. In a case such as this the ambit of any fiduciary duty will depend upon the circumstances alleged to give rise to it". The cases cited by his Honour, say counsel, are all cases in which a person acted or gave advice despite a conflict of interest and duty; but Done specially limited his retainer by McDonald so as to avoid a conflict arising. They say Davies J failed properly to consider what was the ambit or "special terms" of the retainer and this was contrary to the accepted view that an alleged fiduciary relationship should be precisely identified before an analysis is undertaken of the obligations that flow from it. They cite the judgment of Mason J in Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41. At 96-97 his Honour said: "The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations ... viz., trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners. The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions 'for', 'on behalf of', and 'in the interests of' signify that the fiduciary acts in a 'representative' character in the exercise of his responsibility, to adopt an expression used by the Court of Appeal". However, as counsel for Done pointed out, Mason J went on to emphasise the primacy of any contractual relationship: "That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction." Counsel referred to the application of these principles in New Zealand Netherlands Society "Orange" Incorporated v Kuys [1973] 1 WLR 1126 and Kelly v Cooper [1993] AC 205. In the latter case the Judicial Committee of the Privy Council upheld the existence, in a contract between a firm of real estate agents and their client, of an implied term that the agents were entitled not to disclose information about sales of other properties negotiated by them, even if that information was material to a decision to be made by the client. In the present case, counsel argue, there was an express agreement that Done was to have nothing to do with values or prices; this limited his retainer and, therefore, the extent of his fiduciary duty. The submission proceeds: "McDonald knew that he and King represented adverse commercial interests in the transaction for buying and selling the Syndicate horses. He knew that Done acted for King. On any objective analysis of the situation, it must have been obvious to McDonald that the horses were being sold by King (or by King's principals) at a profit - Why else would they be doing it? - and that Done was or might have been privy to information about that profit. McDonald understood precisely Done's position and said in his evidence that if he were in Done's position, he would have done the same thing ... McDonald conceded that he never even asked King about the prices paid by King or his principals for the horses because 'it was not my affair'." Counsel for Done say that, consistently with his retainer, their client gave no advice about the value of the horses; his only involvement in relation to valuation was his participation in the selection of Bester as the valuer. They say that, in relation to this task, Done was not under a fiduciary duty; "there was no element of vulnerability to Done's views in relation to the selection of the valuer". Anyway, counsel argue, Done had no reason to doubt Bester's ability to perform that task; the problem with Bester's valuation was his failure to apply appropriate valuation methods, not his lack of qualifications or experience. Finally, counsel submit that, if Done owed a fiduciary duty, it was not to the syndicate members; he had no proximity to any of them. None of them knew of his involvement, or even the possible involvement of a third party accounting firm; there is no evidence that McDonald sought or obtained their consent in relation to his retainer of Done; and Done's fees were not paid by the syndicate members. It is possible, we think, to dispose immediately of this last submission. It is trite law that promoters owe a fiduciary duty to companies they create. The principle applies equally to other forms of joint enterprise: see per Gibbs CJ in United Dominions Corporation Limited v Brian Proprietary Limited (1985) 157 CLR 1 at 5-6, Ravinder Rohini Pty Ltd v Krizaic (1991) 30 FCR 300 and the cases collected by Rogers J in Catt v Marac Australia Ltd (1987) 9 NSWLR 639 at 651-653. Although there is often a contract between the person alleged to be a fiduciary and the person to whom the duty is said to be owed, this is not essential. A promoter may be under a duty to a company even before it comes into existence, or to joint venturers whose identity is not yet known. In the present case, it is clear that, in establishing the syndicate, McDonald owed a fiduciary duty to those who would become its members. Done was aware of the nature of the syndicate and was engaged to assist McDonald in establishing it. As set out earlier in these reasons his Honour found that Done not merely gave advice on the structure of the venture but took an active management role in setting it up. Done conceded he "saw McDonald as having some obligations to the potential investors". Moreover, he agreed he appreciated that McDonald "had a very personal and financial interest in the venture proceeding". Under these circumstances, it seems to us clear that, subject to any relevant express limitations, Done also came under a fiduciary duty towards future members of the syndicate. This duty extended to all aspects of his participation in the establishment of the syndicate, including the selection of Bester. In relation to all those actions, there was vulnerability on the part of the future syndicate members. It is true that Peats' account for Done's services was sent to Jarpan, not directly to the syndicate members. However, as Done was aware, Jarpan was the manager of the syndicate. As Done would have expected, the moneys paid by Jarpan in settlement of the account were paid at the ultimate expense of the syndicate members. In any event, the destination of the account cannot determine whether or not Done came under a fiduciary duty, at an earlier point of time, to those who ultimately became syndicate members. Subject to the question of express limitation, we agree with the trial Judge that he did.

The Investors' submissions As we understand their position, the Investors do not complain that Done breached any fiduciary duty by introducing Bester to King, as being someone who might suitably be employed to make a valuation. However, their counsel, Mr R B Macfarlan QC, Mr L Einstein and Mr G Grant, argue the trial Judge was correct in finding that Done's silence about the selling price constituted a breach of fiduciary duty to the syndicate members. In that regard they put three propositions: "(a) The purported exclusion from Done's initial retainer did not, on its proper construction, extend to relieving Done of the obligation he would otherwise have had to disclose to McDonald the objective facts of which he was aware as to the purchase price of the horses; (b) The purported exclusion from Done's initial retainer would in any event have required McDonald's informed consent to be effective and such consent as McDonald gave was not informed in the relevant sense; (c) The initial retainer was subsequently broadened so as to supersede the initial purported exclusion." In relation to the first two propositions, it is convenient to interpolate a reference to the evidence concerning the making of the retainer agreement between McDonald and Done. This was done orally, but there seems to be no issue as to the content of the agreement. In a witness statement adopted at the trial, Done gave this account of the conversation at his initial meeting with McDonald, on 17 February 1989: "McDonald: 'I have raced and bred a lot of horses over the years. The breeding of the horses that Brian wants to sell is fantastic. We want to put together a syndicate. I've never done one before. Will you help me to put it together.' I: 'I'd be happy to assist you. But I act for King so I've got a conflict. I can't be involved in the transaction between you and him or any discussions as to the value of the horses. But I can show you how to structure it.' McDonald: 'That's fine. I understand.'" The reference to "Brian" was, of course, a reference to King. So this evidence suggests that, in this conversation: (a) Done learned that McDonald, perhaps with others, wished to "put together" a syndicate to purchase horses from King; (b) Done agreed to help McDonald put the syndicate together, at least to the point of showing him how to structure it; but (c) Done excluded himself from negotiations as to the substance of the transaction between McDonald and King "or any discussions as to the value of the horses". Done gave the following oral evidence: "It is as simple as this is it not Mr Done, that Mr McDonald told you that it was desired that a syndicate be put together and he asked you for help to put it together and you agreed to assist, subject to one matter that you've mentioned in your statement; is that right?---Not openly the way you've put it. Well, let me take it in steps then. He did say to you that we want to put together a syndicate, and he did ask you, will you help me to put it together, did he not?---He did say words to that effect. You did say in response I would be happy to be [sic] assist you but, and then you added a qualification?---And then I explained the areas I could help him in. You explained, so you say, the area the [sic] you could not help him in, did you not?---That's - that's in the sense of then going on to; (a) to work out projections but (b) my biggest problem was to start with is that, as you know, that I knew what my client had paid for prices. I also knew that the two of them, that McDonald and Marshall had, together with King, agreed prices. That came out right at the start that the prices had all been agreed. I said fine. I act for King's side of things, therefore, I can't act for you having this conflict and, therefore, I cannot talk anything about prices or projections on horses which, because I am not expert at doing projections anyway in the sense of sales, if you're happy with that then we can move to the next step which is showing you how this tax - how tax effectively this thing works. You were conscious at your first meeting with Mr McDonald, were you not, that you had information from having acted for Mr King, that you would have to tell Mr McDonald if you did not receive some agreement from him, that you need not do so?---Well, I couldn't have acted otherwise in my view." Counsel for the Investors say it is apparent from Done's evidence that, at the least, his retainer involved showing McDonald how to structure the venture; and, as Done himself recognised, in the absence of any agreed limitation, even that retainer would have required him to tell McDonald the prices at which King had purchased the mares. They referred to a statement of Megarry J in Spector v Ageda [1973] Ch 30 at 48: "A solicitor must put at his client's disposal not only his skill but also his knowledge, so far as it is relevant; and if he is unwilling to reveal his knowledge to his client, he should not act for him. What he cannot do is to act for the client and at the same time withhold from him any relevant knowledge that he has". Counsel submit the same rule applies to other types of professional advisers: "Done was not entitled to withhold from McDonald knowledge of facts plainly relevant to McDonald's and the Investors' interests and he could not honestly act for McDonald and the prospective investors when he knew that McDonald was proceeding in ignorance of facts of fundamental significance to the venture."

The initial limitation of Done's retainer In relation to their first proposition, counsel for the Investors draw attention to the finding of the trial Judge that "Mr Done agreed to assist but said to Mr McDonald that, as he acted for Mr King, he could give no advice with respect to the values of or prices of the bloodstock". They argue there is a distinction between giving advice about values or prices, and disclosing knowledge of the prices at which King and Natalma had bought the horses. An immediate problem about the supposed distinction is that it is not clear from what source the trial Judge took the word "advice", in his account of the conversation of 17 February. It will be remembered that Done put the matter differently. His witness statement account was that he could not get involved in "any discussions as to the value of the horses". In oral evidence he said "I cannot talk anything about prices or projections on horses". The suggested distinction does not arise on either version; the limitation excluded any discussion about the values or prices of the horses, not merely advice about those subjects. The trial Judge gave no reason for summarising the conversation in the way he did. He did not say he disbelieved Done's account of it, and he was generally inclined to accept Done's evidence. It seems from the context of his Honour's summary that, at the point where he used the word "advice", he was simply setting out a narrative of the relevant facts. He was not addressing the precise terms of the conversation. In any event it may be doubted whether anybody would have remembered those terms six years later. What Done would have remembered was that, at the time of the conversation, he was aware of the prices paid for the horses by King and that King stood to make a large profit on the sale of those horses to the syndicate members; and that he had realised at the time that, if he was to become involved, he would have to disclose his knowledge about those matters. He probably knew King was anxious for the syndicate to proceed and that, without Done's expertise concerning its structure, it might not. In that situation, it seems likely he decided to make a statement that, he thought, would excuse him from the responsibility of disclosing his knowledge about the prices. If that was his approach, it seems unlikely he would have limited himself by the word "advice". Having regard to these matters, with respect to the trial Judge's contrary view, it seems to us unsafe to accede to a submission that depends upon the use of the word "advice", or to accept that Done absolved himself only from giving advice, as distinct from disclosing information, about prices or values. Counsel's second proposition - about the necessity for informed consent - was also accepted by the trial Judge, as is apparent from a passage in his Honour's reasons quoted above. In Commonwealth Bank v Smith (1991) 42 FCR 390 the Full Court dealt with the fiduciary duty of a bank manager. At 393 the Court commented: "It frequently is said that the fiduciary will be absolved by the giving of fully informed consent to the existence of what otherwise would be a conflict. There is no precise formula which will determine in all cases if fully informed consent has been given; it is a question of fact in all the circumstances of each case ... The circumstances of the case may include ... the importance of obtaining independent and skilled advice from other parties." In the present case, it seems to us, the appropriate finding is that there was no informed consent. We reach that conclusion even on the assumption, which his Honour adopted but we think erroneous, that McDonald's informed consent would have excused Done from his fiduciary duty to disclose any information in his possession that was detrimental to the venture's prospect of success. In considering the matter on the assumed basis, it seems to us there is a distinction between existing information and information that may be acquired later - future information. In a case of future information, it must be sufficient that the person said to have given a fully informed comment was informed, in precise terms, of the nature of the duty he or she is being asked to waive and, where they are not apparent, the ramifications of granting consent. For example, a solicitor who seeks from a client ("the first client") permission also to act for a person having an interest different from that of the first client, may need to explain to the first client that the consequence may be that the solicitor will thereby obtain information relevant to the first client's interests which the solicitor will not be bound (or even entitled) to disclose to the first client. However, once that is understood and accepted, it would not be sensible to impose on the solicitor an obligation to disclose to the first client information the solicitor in fact receives in the course of acting for the second client. To take that step would be to render nugatory the informed consent. As we read the decision, this was the principle applied in Kelly v Cooper, although in that case it was said the consent of the first client was to be implied from the nature of the proposed relationship; express consent was unnecessary. The situation is different in relation to existing information. An obligation of good faith and disclosure of relevant information exists at the moment consent is sought; it is sought on the implicit understanding that the fiduciary presently has no reason to believe the transaction (including the granting of the consent) is contrary to the person's interests. A fiduciary who was aware of circumstances that made a particular transaction disadvantageous to a cestuique trust would be bound to disclose that fact in discussing the prospect of the transaction proceeding, even on the basis that the cestui que trust would consent to the fiduciary not disclosing future information. Any other rule would mock the duty. In the present case, McDonald knew Done acted for King. He would have assumed Done was aware of the prices King paid for the horses; McDonald would have expected King to seek a reasonable profit on their sale. Accordingly, if the profit being realised by King was within reasonable limits and was not such as to cast doubt on the viability of the venture, there would have been no undisclosed material fact; there would have been no inconsistency with McDonald's implicit understanding that the fiduciary had no existing information detrimental to the venture. But the trial Judge found King was making more than a "reasonable profit" on the sale - "a very large profit, more than 3 times his costs". Moreover, "the quantum of the profits was so great as to cast doubt on the financial viability of the venture". His Honour accepted McDonald's evidence that, if he had known these facts, the venture would not have proceeded. In other words, the information that Done sought McDonald's permission not to disclose was information of such significance as to cast doubt on the very viability of the project; but Done failed to disclose to McDonald that he held information of that calibre. The above comments proceed on the assumption that it would have sufficed for Done to secure McDonald's informed consent to his non-disclosure of material facts. However, as we have said, we think this assumption is erroneous. Done's fiduciary duty was not owed only to McDonald; it was owed to all the future syndicate members. It was not for McDonald to excuse the performance of Done's obligations to those people. If one fiduciary could absolve another from performance of the latter's obligations, serious consequences might ensue. The absolving fiduciary might be corrupt, profiting from the very circumstance that the other fiduciary was absolved from investigating or disclosing. The conclusion we have reached in respect of counsel's second proposition makes it unnecessary for us to consider their third: that the initial retainer was subsequently broadened so as to supersede the initial purported exclusion. But we think it desirable to say we think this proposition is also correct. To justify that conclusion we need to refer to the evidence concerning Done's subsequent actions. Since it will be necessary to do that, at some stage, in connection with arguments about his proper proportion of equitable compensation, the task may as well be undertaken immediately.

Done's subsequent actions It will be recalled that Done's affidavit evidence was that he agreed to "show (McDonald) how to structure (the syndicate)". In oral evidence he said he promised to help McDonald "put it together". In other words, Done undertook to provide guidance to McDonald on the structure of the project and, no doubt, the documentation necessary to carry it through; it being a major purpose of the project to maximise its taxation benefits to syndicate members. All of this could have been achieved in discussions between Done and McDonald, perhaps supplemented by Done providing to McDonald, for use as precedents, copies of documents used in previous schemes. If he had confined himself to the role he defined on 17 February, Done would not have been concerned in any way with the obtaining of valuations, finance or insurance, or the settlement of the terms of the POM. However, as the trial Judge found, Done involved himself in all those matters. Only a week after excluding himself from prices and values, Done took part in the selection of Bester as a suitable valuer. It is not to the point to say, as submitted by Done's counsel, that Done had no reason to doubt Bester's suitability for the task. Even if that is true, Done was already moving beyond his self-defined role. It is noteworthy that Bester sent his valuation to Done, rather than to King or McDonald; Bester must have thought Done had an ongoing role in establishing the venture. Done thought it unprofessional in form, so he redrew it and had the redrawn document signed by Bester. Then he forwarded it to McDonald. Why did he do these things if his only function was to show McDonald how to structure the syndicate? Counsel for Done point out their client was located in Sydney whilst McDonald's office was at Maitland. That may partly explain why he came to do more than he originally stipulated, but it does not affect the fact that he did. Done's developing involvement did not stop with the valuation. On 5 April 1989, he and King had a lengthy conference with NZI seeking finance. According to counsel, Done attended that conference on behalf of McDonald. Mr Jackson QC said in argument: "A person retained as an accountant would assist to obtain the finance for the venture, that is the short simple thing". We agree; but again, in acting as accountant for the promoter of the syndicate for purposes such as the obtaining of finance, Done was well outside the circumscribed role he had stipulated on 17 February. On 17 April 1989, Done wrote to a firm of solicitors, Cohen Brown, instructing them regarding the required management agreement. On 16 May a member of that firm, Brown, sent Done a draft of the proposed agreement. He examined it and gave instructions for changes. Done was the person who took responsibility for the final form of the agreement, on behalf of those associated with the promotion of the venture. At about the time the form of the management agreement was settled, NZI withdrew from the project. So Done approached Australian Thoroughbred Finance. That entity expressed interest, but required a valuation from William Inglis. Done informed McDonald; Bester spoke to Hutchinson of William Inglis and gave Hutchinson the documents Bester had received. Nonetheless, Done remained involved. On 5 June 1989, he told Brown he would "keep on the back of the valuers". The trial Judge found Done was not told the true reason for William Inglis not supplying a valuation; he was told William Inglis was too busy. But he remained involved; it was after a conversation with Done that Bester contacted Pulford of ABCOS. A copy of Pulford's valuation was sent to Done and passed by him to MANL. On 26 June 1989, Done faxed to McDonald two pages of notes on "what needs to be done to finalise settlement of the venture". The items included settling the queries of the "financier", obviously MANL, and agreeing valuations of the horses with the financier. The settlement of the transaction took place at Peats' office. On 13 July 1959, Peats forwarded to Jarpan an invoice for $13,500 being for "Professional Services Rendered in advising and assisting in relation to the First Trinity Park Stud Breeding Venture". Done said he expected this to be paid out of Investors' funds. The wording of the invoice reflects the fact that Done had moved well beyond his original role; this is also apparent from his evidence that the invoice billed some 45 hours of his time. In considering Done's liability to syndicate members, it is important to note his admission under cross examination that he appreciated he had a responsibility to the Investors, through McDonald, at least in relation to the "effectiveness of the structure from a tax point of view". He made that concession because he acknowledged that subject was within his retainer. What Done does not seem to have appreciated is that, as his retainer gradually expanded, so also did the extent of his duty to the Investors. It extended to all the tasks he undertook, on behalf of McDonald or King, in relation to the establishment and implementation of the venture. Nowhere was his duty more important than in relation to the POM. As Done acknowledged, this was a key document; it was the means of apprising potential syndicate members of the nature of the venture, its manner of operation and its advantages to them. It was of critical importance that it be fair and accurate. It appears McDonald prepared a draft POM and sent it to Done about 31 March 1989. Done said in his first witness statement: "I spent some time over the weekend of 1 and 2 April reviewing the document which McDonald had drafted. I recall checking some of the numbers. I didn't make any significant changes to any of the text. The changes which I made were summarised in my fax to McDonald dated 6 April. With that fax, I sent McDonald the retyped private offer memorandum". The fax of 6 April contains a report to McDonald on his meeting with NZI the previous day. After commenting on NZI's requirements, Done said: "The only remaining matter is to finalise the actual 'private offer memorandum' and in particular the cash flow budgets. To have a document to discuss with NZI I made some changes to your original document etc including:- (a) James Bester has signed a more 'professional' looking valuation (b) Brian has added more details on the actual 16 horses in the package and we have amended the names for the two changes of horses in the package - will send later today (c) I made some changes in the mathematics etc. These included:

• amend lease premiums (these need to be again amended due to increase in interest rate to 19.5%).
• allow for additional transport costs particularly re the mares in U.S.A. You need to finalise your cash flow budget as soon as possible. You as manager need to be happy with the syndicate finances. If you want to discuss any facet of the budget please don't hesitate to telephone." Done was cross examined about this fax. It was put to him it contained no suggestion that he had looked only at the figures in the POM. He replied, "I think there's a good suggestion that all I've been interested in is the figures", "the suggestion" being his mention of discussing the budget. But he conceded he had not been concerned only with figures: "my other attention had also been in relation to the structure; the words in relation to the structure as well". He denied he "went right through the POM". Counsel drew Done's attention to the following passage: "The manager has requested Mr. James Bester, Bloodstock Consultant, to value the bloodstock to be acquired by the Venture. A copy of his valuation is attached as Schedule 3. The acquisition price of the bloodstock is based on his valuation." (Emphasis added) Done was not prepared to concede in cross examination that the valuation would have been "of central importance" to a prospective investor. But he said: "I think they would like to have been comforted to see it there, yes". He accepted it would be one of the important things in which an investor would be interested. It was put to him that the above-emphasised sentence was false, but he did not agree. He said: "I don't have any problems with the way that's presented because I look on it that the figures were decided, the valuation was done, if the valuation was different then the figures would have been different. So the logic is that to me it is still based on his valuation." The cross examination went on: "The fact is that the valuation came after the acquisition prices were agreed?---But that's irrelevant to me. Is that the fact as you understood it?---The valuation came after - - - The acquisition prices were agreed as you understood it?---Yes. And how then could the acquisition prices be based on the valuation?---I've just - I'll do it again. We have an agreed price, we have a valuation. If the valuation comes out to be different then it'll be the agreed - then it will based on his valuation. It doesn't necessarily and [sic] follow that because they were the same it's still not based on his valuation. You see that there may be a significant difference from the point of view of an investor between a statement to the effect that the acquisition prices have been based on a valuation on the one hand and a statement that a valuation has been obtained to confirm prices?---I can see what you're getting at but I just don't - I don't necessarily agree with it. Can you see there is a distinction?---I can see what you're getting to but I don't necessarily agree with you. Do not worry about what I am getting to. Can you see the distinction that I mentioned?---No, no. You cannot see that - - -?---At the end of the day I can't see the distinction, no. You cannot see that an investor may regard differently those two propositions that I have mentioned?---I don't think that - no, I think they won't make any difference at all." Done was then asked whether he was aware of the statement in the POM about the acquisition price being based on the valuation. He denied this and explained "that part of the thing was not where I was concentrating". He was asked, "You read it, did you not?" and replied, "Read it doesn't mean I took it in". He said he didn't know "whether I became conscious of it". This evidence is extraordinary. The quoted passage occupies three lines in the middle of a 21 line section of the POM headed "Business Strategy", which explains the structure of the venture. It will be recalled Done stated "the structure" was one of the two aspects of the POM to which he had given attention. The quoted passage immediately follows a sentence setting out the nature of the interests syndicate members would acquire - something fundamental to the structure. It is inconceivable Done failed to read the passage and "take it in". Indeed, it is difficult to believe he did not read and understand the whole POM; excluding schedules, the POM occupied only 2˝ pages. Done's defence of the accuracy of the emphasised sentence is equally extraordinary. That sentence states, in terms, that the acquisition price "is based" on Bester's valuation; that is, the valuation dictated the price. The clear suggestion is that Bester, a bloodstock consultant, addressed his mind to the proper value of each of the horses and arrived at the figures set out in the scheduled valuation; and then it was agreed the horses would be acquired on behalf of the syndicate at those prices. In fact, as Done knew, King and McDonald had agreed the prices before any valuation was obtained; they both having an interest, as vendors of horses to the syndicate, to agree high prices. Moreover, as Done knew, the amounts agreed in respect of King's horses were several times the prices at which he had purchased them. As Done also knew, Bester was instructed to furnish a valuation after prices were agreed between King and McDonald, and after being provided with a list of those prices. Done also knew the "valuation" indicated values that, for each of the 18 horses, were identical with the agreed prices. The document obviously did not reflect an independent assessment of values. As Mr Jackson QC agreed in argument, Bester's valuation was "not a valuation at all. It was just a catalogue of the sale prices dressed up as a valuation". This must have been evident to Done. Done agreed in cross examination that he appreciated, at the time, that McDonald had "a very substantial personal and financial interest in the venture proceeding". But he said he did not consider whether McDonald was in a position "calmly and carefully (to) consider the interests of the investors". Had he done so, he would surely have realised that King and McDonald had a mutual interest in having the valuation figure as high as possible; that the future investors, and perhaps financiers, needed protection against purchases at excessive values; and that it was not satisfactory, from their point of view, to place reliance on a "valuation" prepared by a person who: (i) had never previously performed such a task; (ii) had been selected by the vendor; and (iii) wrote figures identical with prices already negotiated between King and McDonald, being prices, at least in the case of the King horses, several times the figures at which they had last changed hands; all of which Done knew. We accept that Done may originally have intended to confine himself to advising McDonald about the way to structure the proposed venture. But he quickly moved beyond that role. Sensing, no doubt, the task was beyond McDonald's capacity, Done became not only the architect but the builder of the scheme. He played a major, even dominant, role in all aspects of the venture's construction, other than the selection and pricing of the horses and the marketing of the investment units. He had a direct financial interest (earning professional fees) and an indirect professional interest (supporting the interests of his client King) in seeing the scheme proceed. Accordingly, in undertaking his role, he came under a fiduciary duty to those who ultimately purchased the units that was not, and could not be, limited by anything Done had said to McDonald. To apply the words of Mason J in Hospital Products, Done had agreed to act "in the interests of another person" (each ultimate investor) "in the exercise of a power" (the establishment of the venture) "which will affect the interests of that person in a legal or practical sense". In our opinion, Done breached that duty, not only by failing to disclose to McDonald or the Investors the extent of the profit being realised by King, but also by his failure to ensure there was a true valuation of the horses, and, in particular, that investors were not misinformed in a fundamental respect about the relationship between the acquisition price and Bester's "valuation". The circumstances in which Done acted may be distinguished from those considered by the Privy Council in Kelly v Cooper [1993] AC 206. In that case the nature of the business of an estate agent bespoke the prospect that the agent may be acting for several principals and would not disclose to one principal confidential information obtained from another, notwithstanding the materiality of that information to the interests of the former. In that case it was held the implied terms of the contract under which the agent's services were retained confined the scope of the agent's fiduciary duty and prevented a breach of that duty arising in the circumstances. In the instant case, the circumstances in which Done acted and advised in the affairs of McDonald and the other Investors, involved the premise that Done was not then in a position of conflict and was able so to act and to advise. As far as the Investors were concerned, there was no limitation of the fiduciary duty imposed by implied terms of contract. Yet when he accepted the obligation of a fiduciary, Done was not in a position to fulfil his obligation of loyalty to McDonald and, through him, to the Investors. (See: Prof J K Maxton, "Contract and Fiduciary Obligation", (1997) 11 Journal of Contract Law, 222, 235-236; Prof P D Finn, "Fiduciary Law and the Modern Commercial World", in E McKendrick (ed), Commercial Aspects of Trusts and Fiduciary Obligations (Oxford: Clarendon Press, 1992) pp7, 10-11, 12-13.)

Conclusions Done's appeal concerning the finding against him of breach of fiduciary duty must fail. That being so, it is unnecessary to determine whether Davies J ought also to have held Done liable in negligence to the Investors, or that he gave knowing assistance to King in his breach of fiduciary duties, or was guilty of misleading and deceptive conduct in respect of the POM, or was knowingly concerned in McDonald's or King's misleading and deceptive conduct in respect of that document. In assessing the proportion of the total burden that Done must bear, the relevant matter is the nature, extent and effect of his conduct rather than the number or identity of the causes of action pleaded and established against him.

The compensatory remedy sought by the Investors against Done for Done's breach of fiduciary duty does not differ from that available to the Investors if the tort of negligence were relied upon. Therefore, whether the liability of Done arises under a breach of fiduciary duty or breach of a general duty to act with care upon assuming responsibility to act for, or advise, McDonald, and, through him, the Investors, is immaterial. (See: Justice E W Thomas, "An Affirmation of the Fiduciary Principle", [1996] NZLJ 405 at 408; Henderson v Merrett Syndicates Ltd [1994] 3 WLR 761, per Lord Browne-Wilkinson at 798-800; White v Jones [1995] 1 All ER 691 per Lord Browne-Wilkinson at 713; Prof J K Maxton, "Intermingling of Common Law and Equity" in M Cope (ed), Equity - Issues and Trends (Sydney: The Federation Press, 1995) 25 at 40-45.)

KING'S APPEAL King's appeal falls within a small compass. His counsel, Ms J M Housego, concedes King was a promoter of the syndicate but disputes the trial Judge's finding he owed a fiduciary duty to potential investors. Counsel argues that a relationship that is normally fiduciary is not invariably so; parties may modify their mutual rights and obligations by contract in such a way that there is nothing about the resulting relationship that can be called fiduciary: "the notion underlying all the cases of fiduciary obligation is that inherent in the nature of the relationship itself is a position of disadvantage or vulnerability on the part of one of the parties which causes him to place reliance upon the other and requires the protection of equity acting upon the conscience of that other." We accept that statement but do not see its relevance to this case. The evidence does not disclose any limitation of obligation by King; as the obligation was owed to the potential investors, who were identified only late in the day, this would hardly have been possible. The potential investors provide a classic example of people being in such a position of disadvantage or vulnerability as to cause them to place reliance upon someone else. Once it is conceded, as it rightly was, that King was one of the promoters of the venture, it follows he was subject to a fiduciary duty towards those who became members of the syndicate. In Erlanger v The New Sombrero Phosphate Company (1878) 3 App Cas 1218 Lord Penzance said at 1229: "It was the vendors, in their character of promoters, who had the power and the opportunity of creating and forming the company in such a manner that with adequate disclosures of fact, an independent judgment on the company's behalf might have been formed. But instead of so doing they used that power and opportunity for the advancement of their own interests. Placed in this position of unfair advantage over the company which they were about to create, they were, as it seems to me, bound according to the principles constantly acted upon in the Courts of Equity, if they wished to make a valid contract of sale to the company, to nominate independent directors and fully disclose the material facts." In the present case the promoters did not create a company. But they established a joint venture - the syndicate - and sold horses to its members. The principle is the same: see United Dominions Corporation (supra). Placed in a position of advantage over the prospective syndicate members, the promoters were bound at least to make a full disclosure of the material facts. They did not do so. The prospective members were not told about the huge profits being made by King and McDonald on the horses they arranged for MANL to purchase on behalf of the syndicate. They were not told King had agreed to purchase from the venture's valuer, Bester, for $55,000, a horse Bester had acquired for only US$12,500. They were not told that, in reselling the horse to the syndicate after only two months, King was taking a $20,000 profit for himself. They were not told the "valuation" contained in the POM was simply a schedule of the prices the two promoters had agreed between themselves. In our view there is no basis for disturbing the trial Judge's finding that King breached a fiduciary duty owed to the Investors. It became apparent during the course of her submissions that Ms Housego's real case was that McDonald was more at fault than King, and the latter's contribution ought to be reduced. Ms Housego described McDonald as "the principal promoter of the venture" and pointed out the POM was drafted by McDonald. The trial Judge accepted McDonald was more culpable than King. He apportioned a greater share of contribution to Beattie McDonald (30%) than to King (20%). Whether either of these percentages should be varied is a matter to be addressed later.

ABCOS' NEGLIGENCE AND CONTRAVENTION OF s 52 OF THE TRADE PRACTICES ACT

The valuation In dealing with the case against ABCOS, Davies J noted that the document issued by Pulford on 27 June, and addressed to "First Trinity Park Stud Breeding Venture. On the a/c of Mr Brian King", was called an "appraisal" rather than a valuation. But his Honour said the two terms are interchangeable in the thoroughbred industry; "(t)he term 'appraisal' reflects the point that a precise valuation cannot be given of bloodstock and that a valuation necessarily reflects the valuer's personal judgment". The trial Judge commented upon the manner in which Pulford reached his conclusions: "Mr Pulford's first statement ... suggested [he] arrived at his valuation from an examination of the pedigrees. It became clear, however, from supplementary statements and from the sentence in the letter accompanying his valuation, that he placed substantial weight upon what he thought were the agreed prices. In a supplementary statement ... Mr Pulford said:- 'The briefing documents played a significant role in influencing me in preparing my valuation.' Mr Pulford further said:- 'If I had known that the sales reflected in the briefing documents were not market transactions wholly at arm's-length between independent parties I would either have told Mr Bester that I could not have done the valuations based on the invoices or I would have gone to Mr Hancock, my supervisor, for clarification.' Thus, although Mr Pulford had been asked to give an independent valuation for the purposes of a finance company, he was materially influenced by the figures shown in the invoices he received and on the pedigrees supplied. In cross-examination, Mr Pulford said of the documents. '... they were certainly important. Yes, they were important.' " The trial Judge pointed out that Pulford had access, through the library of ABCOS and other sources, to the previous sale prices of the mares; but he did not ascertain those prices because he had "the benefit of a recent Australian sale of the horses in question", that is, the sale prices agreed between King and McDonald. His Honour concluded: "In my opinion, Mr Pulford did not give an independent valuation as he was requested to do and as the circumstances required. His approach to the valuation was flawed and his values were outside the range that competent valuers would have arrived at." Counsel for ABCOS, Mr S D Rares SC and Mr M C Dicker, challenged each element of this conclusion; surprisingly, because his Honour's finding that Pulford failed to give an "independent valuation" is incontrovertible. This is apparent from Pulford's own evidence. In a witness statement, Pulford referred to a conversation with Bester, who briefed him on his task. He thought the conversation took place on 20 June, about the time the briefing documents reached him. Bester pointed out it was "getting close to the end of June". The conversation proceeded: "Bester: 'All you have to do is value the horses at the prices paid on the invoices because you can see that someone's paid that amount for them. My valuation was based on the invoices. After all, whatever someone's prepared to pay, that is their market value.' Myself: 'I want to do my own research into this. I might not come out with exactly the same figure as in the invoices.' Bester:'The finance company has an end figure in mind for the package for the purposes of the arithmetic for the finance and tax arrangements. The figure required is $1,565,000. I don't know why but we have to come out at that figure because they have worked out their tax and finance arrangements on that figure. When you've done it you'll have to send it to a guy called Brian King in Queensland. He's the one who's got all the investors together. They've all agreed to be in the partnership. All that is needed is a valuation for the finance company to complete their paperwork.' Myself: 'Okay, I'll get onto it.'" [Emphasis added.] Pulford's "independent valuation" exactly matched the figure Bester had requested. Pulford admitted the briefing documents played a "significant role" in his valuation and that, if he had known the sales negotiated between King and McDonald "were not market transactions wholly at arm's length between independent parties", he would not have used them. This admission amounts to a concession of the obvious: a non-arm's length transaction provides no evidence of value. Before using sales data in the determination of value, a valuer must be satisfied that the sales were arm's length transactions. Moreover, if there is reason to believe the "sales" have not been completed, that too is a matter for investigation. If there is reason to believe the completion of the sales depends on the valuation itself, the agreed prices can have no weight. To give weight to such sales is to undertake circular reasoning: the value of the horses is demonstrated by sale prices that are rendered operative by a valuation that assumes those prices represent the value of the horses. Pulford failed to address any of these problems. Even though Bester had told him his valuation was on behalf of a "friend who is setting up a tax driven partnership and requires an independent valuation for the finance company for the package to go ahead", he asked no questions about the circumstances surrounding the King-McDonald prices agreement. Although data concerning previous sales of the horses was available to him, he did not examine it, not even as a check on the King-McDonald prices. Pulford's "appraisal" was not quite a catalogue of sale prices. He disguised the situation a little by increasing some of the King-McDonald prices and decreasing others; however, he ended up with the precise figure given him by Bester. This result was not an accident. In one of his witness statements, Pulford himself described how it came about: "First, I examined each horse with the invoice and other briefing documents in relation to that horse. I kept in mind the price in the invoice as I did my research in relation to that horse. I did my initial valuation work at home, because the material had been couriered to my home by Mr Bester. I did this work using the pedigree material supplied by Bester. On the following working day I went into the office of ABCOS to do further research. As I went through the horses, I sometimes lowered the values I had initially given to the horses, depending on the approach that I took and depending upon information gleaned whilst I was valuing the later horses. The next step I took was to add up the values which I had given to the individual horses to come to a total amount. I cannot now remember what that amount was. Then I made adjustments to the values of a few of the horses in order to reach the exact amount sought by Mr Bester." [Emphasis added.] To call this an "independent valuation" is a misuse of language. A good deal of evidence was led at the trial about the range of figures that might be selected by a competent valuer in respect of these horses. That evidence satisfied the trial Judge that the values stated by Pulford were well above any reasonable assessment. Counsel for ABCOS presented us with detailed written submissions referring to what each expert witness said about each horse. Their purpose was to persuade us that each of the figures written by Pulford was within the range of values open to a competent valuer in respect of that horse. We do not propose to enter into an analysis of these submissions. To do so would lend dignity to a farce; Pulford made no attempt to carry out a professional valuation. The trial Judge's conclusion that the values he stated "were outside the range that competent valuers would have arrived at" is supported by the evidence of no less than four experienced valuers, all of whom his Honour saw, heard and found impressive. Davies J's finding against ABCOS in respect of breach of duty and misleading conduct is demonstrably correct.

Was there a duty of care? More substantial questions raised on behalf of ABCOS relate to the consequences of this finding. Counsel argue the trial Judge erred in holding ABCOS liable in negligence to the Investors on the ground there was no relevant duty of care. They point out that the ABCOS valuation was prepared for the benefit of the financier, MANL, and there is no evidence that any of the Investors saw, or even knew of, the ABCOS document before the settlement on 30 June. ABCOS was not asked to advise any of the Investors and it never assumed any legal responsibility towards them. They say: "... the ABCOS Valuation was sought for the purpose of MANL as a finance company. MANL had its own lending policy criteria. No suggestion was made to ABCOS that it was also for or might be relied on by the Investors or their agent, Mr McDonald. What may or may not have been important to MANL in a valuation may have been irrelevant to the Investors. For instance, if MANL had been given a valuation for less than what the Investors had seen in Mr Bester's valuation and MANL proceeded having consciously decided to take a risk, would ABCOS have been liable to the Investors? Surely not; it was for MANL to make a decision to finance or not on whatever basis it chose and on whatever, if any, weight it placed on the ABCOS Valuation ... This was a commercial transaction. The Investors could not claim that MANL owed them a duty of care in deciding whether or not to finance them. ABCOS was not asked to advise the Investors. ABCOS assumed no legal responsibility to the Investors and they never indicated to ABCOS that they were relying on it in any way." The syndicate members were represented at settlement by McDonald. McDonald gave evidence that he did not see the ABCOS valuation prior to settlement, but he knew of its existence. His recollection was that a copy of the valuation was faxed to his office at Maitland on 27 June, but he was then already in Sydney. In cross examination McDonald agreed that MANL looked carefully at the income and assets of each syndicate member, but he did not agree the valuation was irrelevant to MANL's decision to proceed. He gave this evidence: "You knew if something went wrong with the finances for the venture, for example, if it did not generate enough income that MANL would be interested in assuring to itself that the syndicate members could meet in full the obligations that they had to MANL, that is right is it not?---Yes, that's right. You really did not turn your mind at settlement to any question about what the ABCOS valuation came to because you were very busy doing other things, is that right?---No, that's not right. I had to turn my mind to the ABCOS valuation for the simple reason that I realised that if the ABCOS valuation did not come to the value that was being paid for the horses, then the financier wouldn't pay - wouldn't go ahead. Nobody told you that, did they?---I got a bit of commonsense about it. Well, you did not know what was in the valuation, did you?---I didn't know the details of it, no. Well, you did not know what was in it at all, did you?---No, Mr Rares it wasn't me buying the horses, it was up to the financier. I assumed that the valuation was satisfactory to them, otherwise it wouldn't have happened. And you did not know what criteria MANL were applying to determine whether the valuation was satisfactory to them or not, did you; you did not know what the criteria were, did you?---Well, that's up to MANL. But the answer to my question is, you did not know what criteria MANL were using to determine whether the valuation was satisfactory to them, did you?---No, I didn't." Counsel for the Investors responded to this submission by pointing to some evidence given by Pulford during the course of cross examination: "You knew that there were a number of investors who were actual or potential participants in this venture?---I didn't know of a number but I presumed there were investors. I didn't know of any numbers or had no, you know, knowledge of it. But you assumed there were quite a few of them?---Yes, I suppose I did, yes. ... You appreciated that if investors such as the ones that you knew of in connection with this venture became involved in a syndicate which had purchased horses at prices greater than their actual value then those investors could suffer loss?---Yes. And that loss could be a significant loss?---Yes, I suppose depending on, you know, how much too much they paid for them. You realised that the prices set out in the so-called invoices were the ones that were proposed to be paid by the syndicate in respect to the purchase of the horses?---Yes. You realised that the purchasers were going to be, or consideration was being given to them being financed by a finance company?---Yes. You understood that the finance company would not go ahead unless it had a valuation of 1.565 million or more?---Yes." The ABCOS valuation was addressed to "First Trinity Park Stud Breeding Venture". It was sent to a number of people, including McDonald and King, the promoters of the venture. Counsel for the Investors argue that, in these circumstances, "it was or ought to have been known to Pulford that the Investors would be prejudicially affected if he did not carry out the ABCOS valuation diligently and with care". The trial Judge dealt briefly with the question of duty of care. He said: "Both Mr Bester and ABCOS owed the applicants a duty to take reasonable care in the preparation of their valuations. Both were aware that a formal valuation was required. Neither can have been unaware that his valuation would be relied on. Both must have been aware that, if he was negligent in overvaluing the horses, the purchasers and financier might suffer loss. In San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340, Gibbs CJ, Mason, Wilson and Deane said at 355:- 'When the economic loss results from negligent misstatement, the element of reliance plays a prominent part in the ascertainment of proximity between the plaintiff and the defendant, and therefore in the ascertainment of a duty of care.' However, there need not be a direct dealing between the person who is negligent and the person affected by the negligence: Bryan v Maloney(1995) 182 CLR 609. In the present case, the obtaining of a valuation was crucial to the obtaining of finance and to the establishment of the venture. After the ABCOS valuation issued, the various agreements were executed and settlement took place." We do not think Bryan v Maloney resolves this issue. That was a case of physical damage to the plaintiff's house; not a case of pure economic loss. A more relevant High Court decision is one given after oral argument in this case: Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 142 ALR 750. In that case a financier of a company sued the company's auditors for losses sustained by reason of its reliance on accounts that were the subject of an allegedly negligent audit. It was not claimed the auditors were aware of the financier's proposed reliance on the accounts. The Supreme Court of South Australia struck out the relevant part of the Statement of Claim on the basis that it disclosed no cause of action. In unanimously affirming that decision, the members of the High Court summarised the Australian cases dealing with the so-called "Hedley Byrne principle": see Hedley Byrne & Co Ltd & Heller v Partners Ltd [1964] AC 465. We need not refer to those cases. It is sufficient to note what was said by the Justices in relation to the necessary nexus between the maker of a negligent representation and a particular claimant. Brennan CJ said at 757: "The uniform course of authority shows that mere foreseeability of the possibility that a statement made or advice given by A to B might be communicated to a class of which C is a member and that C might enter into some transaction as the result thereof and suffer financial loss in that transaction is not sufficient to impose on A a duty of care owed to C in the making of the statement or the giving of the advice. In some situations, a plaintiff who has suffered pure economic loss by entering into a transaction in reliance on a statement made or advice given by a defendant may be entitled to recover without proving that the plaintiff sought the information and advice. But, in every case, it is necessary for the plaintiff to allege and prove that the defendant knew or ought reasonably to have known that the information or advice would be communicated to the plaintiff, either individually or as a member of an identified class, that the information or advice would be so communicated for a purpose that would be very likely to lead the plaintiff to enter into a transaction of the kind that the plaintiff does enter into and that it would be very likely that the plaintiff would enter into such a transaction in reliance on the information or advice and thereby risk the incurring of economic loss if the statement should be untrue or the advice should be unsound. If any of these elements be wanting, the plaintiff fails to establish that the defendant owed the plaintiff a duty to use reasonable care in making the statement or giving the advice." [Emphasis added.] Toohey and Gaudron JJ said at 764: "It is not pleaded that Esanda approached Peat Marwick for information or advice; it is not pleaded that Peat Marwick knew that Esanda was proposing to enter into the transactions in question or, indeed, any transaction with Excel or its associated companies; it is not pleaded that Peat Marwick knew that Excel's 1989 accounts or their report on the accounts would be communicated to Esanda or any other finance provider with respect to the obtaining of finance or for any other purpose. Had one or more of those matters been pleaded, Esanda might have brought itself within the duty of care recognised by Barwick CJ in Mutual Life & Citizens' Assurance Co Ltd v Evatt (1968) 122 CLR 556 at 572-573 or that recognised by the House of Lords in Hedley Byrne & Co Ltd v Heller & Partners Ltd." At 765 their Honours commented: "... it is neither pleaded that Peat Marwick expressly or impliedly invited Esanda or finance providers generally to act on the basis that the accounts were accurate nor that they had an interest in Esanda so acting. Had one or more of these matters been pleaded, Esanda would have found support in this court's decision in San Sebastian Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340." McHugh J said at 776: "Thus, the position in Australia to date with respect to liability for pure economic loss caused by negligent misstatement is that, absent a statement to a particular person in response to a particular request for information or advice or an assumption of responsibility to the plaintiff for that statement, it will be difficult to establish the requisite duty of care unless there is an intention to induce the recipient of the information or advice, or a class to which the recipient belongs, to act or refrain from acting on it. Mere knowledge by a defendant that the information or advice will be communicated to the plaintiff is not enough ... Nevertheless, the decisions have all emphasised that a lack of an intention to induce the plaintiff to act or refrain from acting is not necessarily fatal to a plaintiff's claim because other factors may be present that obviate the need for such an intention." It is necessary to apply this guidance to the present case. In relation to the statement of Brennan CJ, it is clear that ABCOS, through Pulford, knew the valuation would be communicated to the prospective syndicate members; indeed it was addressed to the syndicate, not to MANL. Copies were sent to King, McDonald and Done, all of whom were acting on behalf of the syndicate members rather than MANL. Pulford did not know the identity of the proposed members of the syndicate and he may not have considered whether the valuation would be seen by each of them. But he intended to place it before them, individually or as a group. Pulford knew, or ought reasonably to have known, that the valuation would be likely to cause the syndicate members to proceed with the venture. This was not only because they might draw comfort from the values ascribed to the horses by him, but because the valuation would be likely to ensure provision of the finance that was critical to the venture proceeding. In other words, Pulford knew the valuation was likely to be a crucial element in the decision whether or not the venture was to proceed; in the words of Brennan CJ, it "would be very likely to lead the plaintiff to enter into a transaction of the kind that the plaintiff does enter into". But it cannot be said Pulford knew, or ought to have known, it would be likely that the syndicate members would enter into the transaction in reliance on the valuation. Pulford knew the financier would rely on the valuation in entering into the transaction; but he also knew the prospective members were already minded to proceed, on the basis of the prices agreed between King and McDonald. The Investors did not rely on the valuation, in the sense of being persuaded by it to proceed with their investment. But the valuation caused them to proceed with their investment, because MANL relied on it in deciding to provide the finance necessary for the venture to proceed. We have hesitated over this aspect of the case but we think it falls within the notion of proximity described by Brennan CJ. As judges have often pointed out, it is erroneous to read a judgment as if it were a statute. In applying an authority, the task is to identify and apply the relevant principle, rather than to determine whether the facts of the instant case fall within the precise language of the earlier case. Courts have imposed a limitation on the extent of the duty of care in respect of a representation because of concern about the effect of an unlimited duty of care on commercial and professional activity: see per McHugh J in Esanda at 781-787. The classic expression of this concern was by Cardozo CJ in Ultramares Corporation v Touche (1931) 174 NE 441 at 444: a duty of care imposed only by reference to the criterion of foreseeability would expose the maker of the representation "to a liability in an indeterminate amount for an indeterminate time to an indeterminate class". An approach that upheld the existence of a duty of care to B where A relied on the representation to enter a particular transaction with B, the representor knowing of B's existence and the general nature of the proposed transaction, would fall well short of exposing representors to the risk described by Cardozo CJ; the class would be determinate, or at least determinable, and the amount and duration of the risk would be limited by the nature of the known transaction. The extent of liability in such a case would be no greater than if the representation had caused B, rather than A, to go ahead with the transaction; a situation clearly covered by the Hedley Byrne principle as developed in Australia by the cases discussed in Esanda. Upon the formulation adopted by Toohey and Gaudron JJ in Esanda, there seems to be no difficulty in the Investors bringing their ABCOS claim within the Hedley Byrne principle. It will be recalled their Honours mentioned some of the matters not pleaded by Esanda and commented that, had one or more of them been pleaded, Esanda might have brought itself within the Hedley Byrne principle. Those matters included "that Peat Marwick knew that Esanda was proposing to enter into the transactions in question or, indeed, any transaction with Excel or its associated companies". In the present case Pulford knew syndicate members were proposing to enter into transactions with a financier, involving the creation of a horse-breeding venture using the horses the subject of his valuation; and the valuation was likely to be critical in determining whether that venture proceeded. Toohey and Gaudron JJ also said "it is not pleaded that Peat Marwick knew that [the relevant representation] would be communicated to Esanda or any other finance provider with respect to the obtaining of finance or for any other purpose". In the present case, Pulford knew his valuation would be - or, at least, might be - communicated to the prospective syndicate members. In fact, because of the shortness of time, it seems not to have been communicated to them individually before settlement. However, before the settlement that committed the syndicate members to the transaction, their representative, McDonald, knew a satisfactory valuation had been received from ABCOS. For his purposes a "satisfactory valuation" was one that valued the horses at a figure not less than $1,565,000. Documents in evidence show MANL required this as a condition of settlement. The requirement was spelled out in a number of documents; it is sufficient to refer to MANL's Credit Approval of 20 June 1989. The first of nine "pre-settlement conditions" was "Valuation of bloodstock to be addressed to MANL - Valued at $1,565,000. Acquisition cost $1,436,000". The proposition that "proximity" in the pure economic loss context may exist otherwise than by reference to reliance on spoken or written words was recognised by the High Court in Hill v Van Erp (1997) 142 ALR 687, a case decided on the same day as Esanda. The Court held a solicitor retained to draw up and attend to execution of a will was in a relationship of proximity to an intended beneficiary under the will and therefore owed to that person a duty to exercise reasonable care and skill in executing the retainer. (The disposition in the will was ineffective because the testatrix's signing was attested by the spouse of the intended beneficiary.) The notion of proximity, in the same context, was recently discussed by a Full Court of this Court in Perre v Apand Pty Ltd, unreported, 21 November 1997. Counsel for ABCOS say that, despite MANL's pre-settlement condition, it was not established at the trial that MANL in fact relied on the ABCOS valuation in deciding to proceed with the transaction. We will come to that issue later. Subject to that, it seems to us the relationship between ABCOS and the Investors was such as to impose upon ABCOS a duty of care towards the Investors in relation to the valuation. However, counsel for ABCOS raised a further point in connection with the existence of a duty of care. It was not discussed in Davies J's principal Reasons for Judgment of 10 November 1995, but was dealt with in these terms in his Honour's supplementary Reasons of 23 February 1996: "Counsel for ABCOS submitted that ABCOS had no duty of care to Mr Bailey, Mr Wall and Mr Mesh, as each had received a secret commission from Mr King, or to Mr Fraser, who had lent $60,000 to Mr McDonald and had been repaid $75,000, or to Mr Jones, whose first year's interest payment of $11,400 had been 'waived' by Mr McDonald. Counsel submitted that, if ABCOS had known of these benefits, ABCOS would not have given the valuation it did, Mr Pulford having believed that the values of the horses had been arrived at in a proper arm's length transaction. ... In my view, commissions or benefits were not a factor which had any relevance to Mr Pulford's valuation or for that matter to the fixing of the value of the bloodstock as between Mr McDonald and Mr King. It seems to me to have been a matter of no concern to ABCOS that one or more of the investors entered into the syndicate on terms slightly different from the others. Mr Pulford made no enquiry about and received no information about the matter. Mr Pulford was requested to make 'an independent valuation for the finance company.' His task was to exercise due care and skill in the making of his valuation. This he failed to do. Mr Pulford's undertaking of the task gave rise to a duty of care to those who would be likely to be adversely affected if he were negligent. Messrs Bailey, Wall, Mesh, Fraser and Jones were among the persons who were likely to be and were adversely affected by Mr Pulford's negligence." Counsel for ABCOS point out neither ABCOS nor Pulford knew of the secret commissions and payments. They ask why a valuer would be expected to inquire regarding secret payments. They refer to Pulford's evidence that, if he had known the sales reflected in the briefing documents were not arm's length market transactions, he would either not have made valuations based on the invoices or would have spoken to his supervisor; and also to evidence that, if he had known of the payments, and the sale by Bester to King of "Plaisir D'Amour", he would not have undertaken the valuation. Counsel submitted: "The omission to disclose to ABCOS a material fact (namely the secret payments) changed the relationship which existed between each of those persons and ABCOS, on the one hand, as against the other Investors and ABCOS, on the other hand. Each recipient of a secret payment not only had a cause to go into the venture which the other Investors did not have, but they also had information which any honest, let alone reasonable, person in their position would have regarded as material to the value of both the bloodstock and the investment. The 'special' relationship of proximity was thus missing between all the Investors, or the recipients of the secret payments, and ABCOS. Indeed, it would be an affront to justice to allow these persons who took secret kick-backs or payments to sue a valuer who made an honest mistake. The same comments apply to their claims under s.52, which are equally unmeritorious. Alternatively, those Investors should be found to have been contributorily negligent." The words "honest mistake" are hardly adequate to describe Pulford's handling of this valuation. But we agree it was not incumbent on Pulford to make inquiries about payments or discounts to syndicate members. He was not concerned with the arrangement between prospective members of the syndicate and its promoters; his job was to value the horses. For that purpose, it was necessary to ascertain whether the prices agreed between King and McDonald, of which he had details in the briefing documents, were negotiated at arm's length, and, if so, whether they could properly be taken as indicative of market value. If he was so satisfied, that was the end of the matter, so far as he was concerned. As we have observed, Pulford made no effort to carry out these tasks. Rather, at Bester's behest he simply rubber-stamped the total figure agreed between King and McDonald. We agree with the trial Judge that there is no substance in this submission.

MANL's reliance on ABCOS' valuation A further ground of appeal raised by ABCOS relates to the issue earlier reserved: whether or not the trial Judge erred in finding that MANL relied on the ABCOS valuation in deciding to proceed with the transaction. This finding was important to both the negligence and s 52 claims. In respect of that matter, his Honour said: "MANL was sent two pages of the valuation prior to settlement on June 30 by facsimile from Peat Marwick at 4.20 pm on 30 June. It is not shown, however, that that copy of the valuation included the covering letter to the valuation. Pages 1-6 of the facsimile have been lost from MANL's records, the only 2 pages in evidence being pages 7 & 8 of the fax. Nor have the circumstances of that transmission been explained. In the absence of evidence from officers of MANL who attended the settlement as to their knowledge of the valuation, I would not accept that these officers or any of them gave detailed attention to the valuation prior to settlement. Nevertheless, I am satisfied that the officers of MANL were aware that the valuation was in existence and that it met their requirements. The fact that the finance broker had the valuation and that there was a request that the valuation be retyped and readdressed are strong indications that attention was given to ensuring that MANL's requirement was met. I am satisfied that MANL made it a requirement of settlement that there be a valuation from an acceptable valuer, such as ABCOS, valuing the mares at $1,436,000, that that occurred prior to settlement, that MANL was made aware of it and acted in reliance on the valuation. This is supported by the notations on the credit approval, which served as a settlement sheet. They state in what appears to be Mr Lock's handwriting that on 30 June each of the conditions was accepted as satisfied. Mr Rares submitted that the copy of the valuation faxed to MANL at 4:20pm on June 30 did not satisfy MANL's own condition which required a valuation 'addressed to MANL'. However, I think the point has no significance. MANL did act on the faith on the valuation." The credit approval referred to in the penultimate paragraph of this passage is the document to which we have earlier referred. Lock's initials and the date, "30/6/89" appear against item 1 referring to a valuation in the sum of $1,565,000. Counsel for ABCOS make the point that nobody connected with MANL gave evidence; accordingly there is no direct evidence as to the causative role of the ABCOS valuation. Referring to Jones v Dunkel (1959) 101 CLR 297, they say the inference should be drawn that the evidence of Lock, or other relevant MANL officers, would not have advanced MANL's case. Perhaps that is so, but the principle in Jones v Dunkel has no relevance to the Investors' case against ABCOS. The discussion in Jones v Dunkel concerned the failure of a party to give evidence. No doubt the principle extends to the failure of a party to call as a witness a non-party who is associated with the party and available to give evidence. But that extension does not apply to this case. The MANL officers were not in the Investors' camp: MANL and the Investors were presenting opposing cases to the Court. The MANL officers were as available to ABCOS as to the Investors. As between the Investors and ABCOS, no particular inference should be drawn from the fact they were not called; cf Northumberland Insurance Co Ltd (in liq) v Alexander (1988) 13 ACLR 170 (NSW/CA). The issue of reliance should be determined, as it was by Davies J, by reference to such evidence as was available; that is, the documents. The documents clearly suggest MANL would not have settled the transaction - which therefore would not have proceeded at all - but for the ABCOS valuation of $1,565,000. Dominello Ford (Hurstville) Pty Ltd v Karmot Auto Spares Pty Ltd (1992) 38 FCR 471 is relevant to this submission. In that case a question arose as to the significance of the fact that a witness, Hutchins, had not given evidence that he relied on the absence of certain information in deciding to proceed with the transactions with which the case was concerned. At 482 the Full Court upheld the approach of the trial Judge in applying to a s 52 case the principles enunciated by Wilson J in Gould v Vaggelas (1985) 157 CLR 215 at 235, viz: "1. Notwithstanding that a representation is both false and fraudulent, if the representee does not rely upon it he has no case. 2. If a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into the contract there arises a fair inference of fact that he was induced to do so by the representation. 3. The inference may be rebutted, for example, by showing that the representee, before he entered into the contract, either was possessed of actual knowledge of the true facts and knew them to be true or alternatively made it plain that whether he knew the true facts or not he did not rely on the representation. 4. The representation need not be the sole inducement. It is sufficient so long as it plays some part even if only a minor part in contributing to the formation of the contract." These four principles were also applied by the New South Wales Court of Appeal in Huntsman Chemical Company Australia Ltd v International Pools Australia Ltd (1995) 36 NSWLR 242. It seems to us these principles, especially 2 and 4, are directly pertinent to this case. In the passage quoted above, Davies J noted the evidence did not establish that the copy of the valuation included the covering letter. Counsel seized on this circumstance, arguing that the letter may have alerted MANL to the flaw in the valuation. In any event, they say, the failure of MANL's officers to see the letter meant they did not see the complete valuation; accordingly, they cannot be said to have acted in reliance on it. The trial Judge provided the answer to this submission: "I have already mentioned that, although the second sentence of the letter which accompanied the valuation stated that it was 'based upon invoices presented and information available to us', the sentence did not qualify the valuation for the letter did not identify what were the invoices and information referred to. The sentence would have been read by anyone other than Mr Bester and Mr King not as a qualification but as indicating that the valuation was solidly based. The valuation was given the authority of ABCOS. Therefore, it purported to be a reliable, independent valuation. A much stronger and clearer statement than that which appeared in the second sentence of the letter would have been necessary if the valuation was to be read and understood as a qualified or limited valuation."

For the sake of completeness we add that counsel for ABCOS contended that Davies J erred in admitting into evidence the credit proposal to MANL and MANL's approval, the reason being that "MANL's discovery was deficient and no witness was called by it who could be cross-examined so as to complete the picture". But this submission suffers from the same fallacy as counsel's Jones v Dunkel argument; any deficiency in discovery by MANL cannot affect the Investors' case against ABCOS.

Causation Counsel for ABCOS put lengthy submissions about causation. For the most part, those submissions repeat the arguments regarding reliance. Undoubtedly the Investors, in deciding to enter the syndicate, were motivated by a desire to reduce their taxable income. They were also influenced by the matters stated in the POM, including, no doubt, its cash flow projections and Bester's valuation. Similarly, in deciding to complete the transaction, MANL took into account other factors, not least the financial circumstances of the various Investors; but the documents clearly indicate the valuation was an essential requirement. It was the last link in the chain of causation. The documents clearly indicate, as a matter of probability, that, if ABCOS had not supplied a $1,565,000 valuation, there would have been no syndicate, regardless of the Investors' hopes of tax deductions and other benefits. One further point should be made about causation. We make it because of the circumstance that there is no evidence that any of the Investors (as distinct from MANL) made any decision in reliance on the ABCOS valuation. In cases where a representation is said to constitute misleading conduct for the purposes of s 52 of the Trade Practices Act, typically it is claimed that the applicant relied on the truth of the representation, and thereby suffered loss. But this is not the only situation in which s 52 is available to an applicant. It is sufficient that the loss was "brought about by virtue of the conduct which is in contravention of s 52": see per Lockhart J in Kabwand Pty Ltd v National Australia Bank Ltd (1989) 11 ATPR 50, 637 at 50,378. In a later case, Janssen-Cilag Pty Limited v Pfizer Pty Limited (1992) 37 FCR 526 at 530 Lockhart J expanded on the point: "The use of the preposition 'by' in s 82(1) is important; it indicates the requirement that there be a sufficient cause or [sic - causal] link between the respondent's conduct and the recoverable loss or damage: see Brown v Jam Factory Pty Ltd (1981) 53 FLR 340 at 350-51; Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (No.2)(1987) 16 FCR 410 at 418. 'By' is used in s 52(1) in the sense of 'by reason of' or 'as a result of': see Munchies Management Pty Ltd v Belperio [1989] ATPR 50,026 at 50,037. Loss or damage must directly result from or be caused by the respondent's conduct. The respondent's conduct must be the real or direct or effective cause of the applicant's loss; it must have been 'brought about by virtue of' the conduct which is in contravention of s 52 ... " Shortly after that decision, Mason CJ spoke to similar effect in Wardley Australia Limited v State of Western Australia (1992) 175 CLR 514 at 525: "The statutory cause of action arises when the plaintiff suffers loss or damage 'by' contravening conduct of another person. 'By' is a curious word to use. One might have expected 'by means of', 'by reason of', 'in consequence of' or 'as a result of'. But the word clearly expresses the notion of causation without defining or elucidating it. In this situation, s. 82(1) should be understood as taking up the common law practical or common-sense concept of causation recently discussed by this Court in March v. Stramare (E. & M. H.) Pty. Ltd (1991) 171 CLR 506, except in so far as that concept is modified or supplemented expressly or impliedly by the provisions of the Act. Had Parliament intended to say something else, it would have been natural and easy to have said so."

In March v Stramare (supra) (at 514) Mason CJ said: "... the law's recognition that concurrent or successive tortious acts may each amount to a cause of the injuries sustained by a plaintiff is reflected in the proposition that it is for the plaintiff to establish that his or her injuries are 'caused or materially contributed to' by the defendant's wrongful conduct ... Generally speaking, that causal connexion is established if it appears that the plaintiff would not have sustained his or her injuries had the defendant not been negligent ... But, as the decision in that case illustrates, it is often extremely difficult to demonstrate what would have happened in the absence of the defendant's negligent conduct." In the present case, as it seems to us, there is no difficulty in demonstrating, on the probabilities, what would have happened in the absence of ABCOS' misleading valuation. MANL would not have completed the transaction, the syndicate would not have proceeded and the Investors would not have incurred the losses they sought to recover in proceeding NG 711 of 1991. We find no substance in any of ABCOS' submissions regarding causation.

Offer or invitation to the public In their Second Further Amended Statement of Claim, the Investors claimed each of the interests in the syndicate taken by them, and McDonald and Farrow, was a "prescribed interest" within the meaning of the Code. Further, they pleaded, the execution by Gibson, and by McDonald for all investors other than Gibson, of the documents required to implement the venture were: "(a) events intended by the Promoters and the parties thereto to be and were in fact integral to the pursuit of the Venture and the setting up of the Syndicate; and (b) integral steps in the acquisition by the Applicants and McDonald and Farrow of their interests in the Syndicate." Accordingly, the Investors claimed, the documents were invalid and unenforceable. Davies J rejected this argument on the basis that any offer or invitation in respect of shares in the syndicate was made privately, not to the public. The Investors contend his Honour erred in that conclusion. They say the documents relied on by MANL in its action against them should be held unenforceable. They are supported in that contention by some of the respondents to proceeding NG 711 of 1991, who are anxious to limit the damages recoverable from them. Before referring to the reasoning of Davies J on this issue, it is desirable to mention the relevant statutory provisions. Section 169 of the Code provided: "A person, other than a company or an agent of a company authorized for that purpose under the common or official seal of the company, shall not issue to the public, offer to the public for subscription or purchase, or invite the public to subscribe for or purchase, any prescribed interest." The term "prescribed interest" was defined in s 5(1) of the Code so as to include a "participation interest", itself the subject of a complex definition. It is not necessary to set out those definitions; it is common ground that the rights taken by the syndicate members under the transaction documents fell within the s 5(1) definition of "prescribed interest". It is also common ground that any offer or invitation made in this case was by a person other than a company or an agent of a company. The first question, therefore, is that identified by Davies J: whether there was an offer or invitation to the public. Section 5(4) of the Code is relevant to that issue. It provided, relevantly: "A reference in this Code to, or to the making of, an offer to the public or to, or to the issuing of, an invitation to the public shall, unless the contrary intention appears, be construed as including a reference to, or to the making of, an offer to any section of the public or to, or to the issuing of, an invitation to any section of the public, as the case may be, whether selected as clients of the person making the offer or issuing the invitation or in any other manner and notwithstanding that the offer is capable of acceptance only by each person to whom it is made or that an offer or application may be made pursuant to the invitation only by a person to whom the invitation is issued, ..." The object of prohibiting a person other than a company from dealing with the public by issuing or offering a prescribed interest was to prevent subscriptions being sought from the public without the scheme being exposed in a document equivalent to a prospectus. Such a provision has been part of company law for many years. It is designed to control the promotion to the public of proposals that may be ill-prepared or even fraudulent: see Paterson, Ednie and Ford, Australian Company Law (3rd ed.) paras 164/3, 164/4. Davies J commenced his discussion of the s 169 issue by referring to authority. He quoted a statement by Barwick CJ in Lee v Evans (1964) 112 CLR 276 at 285-286 that: "... the basic concept is that the invitation, though maybe not universal, is general; that it is an invitation to all and sundry of some segment of the community at large. This does not mean that it must be an invitation to all the public either everywhere, or in any particular community. How large a section of the public must be addressed in a general invitation for it to be an invitation to the public in the relevant connexion must depend on the context of each particular enactment and the circumstances of each case. But within that sufficient area of the community the invitation must be general ... 'An offer of shares to anyone who should choose to come in'." Davies J also referred to Corporate Affairs Commission (South Australia) v Australian Central Credit Union (1985) 157 CLR 201. That case involved a proposal by a credit union to purchase the shares in a company owning a building, on completion of the purchase to rent the building to a unit trust and then to offer trust units to its members for purchase. The case arose under the Companies (South Australia) Code, a statute containing the same s 169 and s 5(4) as the Code. The High Court held the proposed offer would not infringe s 169 because the credit union would be making an offer, not to a section of the public, but only to its own members. Mason ACJ, Wilson, Deane and Dawson JJ pointed out (at 210) that: "the direct interest in the beneficial ownership which a member would acquire by the purchase of a unit would, if all members were to take equal advantage of the opportunity to acquire units, be matched by a diminution of his or her indirect interest, through the credit union, in that ownership. In these circumstances, the offer of units to the members of ACCU would be an offer to them in their domestic or private capacity as members of ACCU. It would arise from their membership, would relate to property in which they would be already indirectly interested as members and would have a perceptible and rational connexion with that membership." The other member of the Court, Brennan J, agreed the offer proposed by the respondent would not be an offer to the public. But he said (at 212) that s 169 was not excluded "merely because the offer is made to a group selected on the ground that the members of the group have a special interest in receiving the offer". At 213 he said: "In my opinion, the criterion which distinguishes an offer to a group of offerees who are not a section of the public from an offer to a section of the public is this: whether the offerees are members of a group who, by reason of their antecedent relationship with the offeror, have an interest in the subject-matter of the offer substantially greater than or substantially different from the interest which others who do not have that relationship would have in the subject-matter of the offer. As the A.C.C.U. offer to its members was an offer to a group whose relationship with the offeror gave them an interest in the subject-matter of the offer substantially greater than or substantially different from the interest which non-members would have in the offer, I agree that the offer was not an offer to the public." Another authority mentioned by Davies J was the decision of the New South Wales Court of Appeal in Hurst v Vestcorp Ltd (1988) 12 NSWLR 394. That case concerned alleged breaches of ss 82 and 83 of the Companies Act 1961 (NSW). The section referred to offers or invitations to the public but there was no equivalent of s 5(4) of the Code. At 404 Kirby P commented: "Clearly, it is not necessary for the issue or offer to be made to all the world in express terms ... Nor does it need to be made to the whole world in its generality, so long as it is not in terms limited so that it can be accepted only by a defined group. ... Nor does the fact that in making an offer a company is careful and economical in the choice of its target investors make the offer any the less one to the public ... Similarly, the fact that by its very nature, an offer is effectively only capable of being accepted by a particular group of persons does not render its character any the less an offer to the public. It is the generality of the offer which gives it the character which attracts the operation of the statute." At 440 McHugh JA observed: "Employment of agents for commission to introduce suitable investors seems almost conclusive evidence of an offer to the public. It is no answer to that proposition to say that the agents themselves came from a specially selected group or that many of the investors came from their clients." Davies J noted that McDonald gave evidence that some 35 to 40 POMs were printed and distributed by him. He gave 10 to 12 copies to King and Marshall. The initial investors were clients of Beattie McDonald identified as being suitable from the point of view of their income, assets, and potential tax liability. However, as 30 June drew closer, fewer than twenty shares had been taken up. McDonald asked King to assist in finding investors. King contacted some of his friends, including Bailey, Wall and Mesh. Unbeknown to McDonald, King offered $30,000 to Mesh to take up a share. He also offered commissions to Bailey and Wall to sign up other investors, apparently at the rate of $20,000 per share. Bailey estimated he contacted as many as thirty-five prospects, using facsimile copies of the POM. He was successful in introducing one investor, Duncombe. Davies J commented: "Notwithstanding the extent to which the venture was ultimately promoted, it seems to me the offer was not made to the public. The offer was communicated to clients and friends in a private way and always to persons whom it was thought would have a particular interest in a horse breeding syndicate, particularly one with tax incentives. The principal promoter, Mr McDonald, did not himself make an offer to the public. The issue arises only because of the commissions paid by Mr King and the activities of Mr Bailey. In my opinion, the activities of Mr Bailey were peripheral and of insufficient consequence to impose the character of an offer to the public upon that which was intended to be and was promoted as a private offer." His Honour referred to the special relationship between Beattie McDonald and its clients, many of whom "would have had a general interest in bloodstock" and for whom Beattie McDonald were tax agents. He said: "The offers made to the clients were not made to them as members of the public but because of their relationship with Beattie McDonald." Davies J noted that only two of the twenty-one members had no association with Beattie McDonald or King. They were Gibson, who heard of the venture through MANL's solicitor, and Duncombe. He went on:

"In my opinion, the offer was essentially a private offer. A doubt arises because of the activities of Mr Bailey who contacted numerous persons after Mr King had offered to pay a substantial commission. If his activities were looked at on their own, the conclusion may be drawn that Mr Bailey made an offer to the public. But those activities had not been directed or authorised by Mr McDonald, who was unaware that Mr Bailey had been promised a commission by Mr King. Mr McDonald was the principal promoter of the venture. He settled the membership and he signed the agreements on behalf of all members other than Mr Gibson. Insofar as interests were issued, he was the person who issued them, for he gave the list of the members and attended the execution of the agreements. It is principally from Mr McDonald's activities and knowledge that the offer derives its character. In my opinion, the offer of interests and the issue of interests were essentially private acts."

Counsel for the Investors challenge his Honour's conclusion. They say that, even if the initial intention was to confine offers to clients of Beattie McDonald, that situation changed as 30 June approached. King contacted people who had no connection with Beattie McDonald and one of them, Bailey, contacted many other people. The offer outgrew its original character. In response, Mr M Skinner, counsel for MANL, emphasises the small number of investors in the syndicate and the comparatively small number of POMs that were printed and distributed. He refers to a passage in the judgment of McHugh JA in Hurst v Vestcorp at 438:

"... care must been taken to distinguish between cases where any member of the public may accept an offer and cases where an offer is made to a particular individual which, if rejected, will be repeated to other specified individuals until an acceptor is finally found. The first class of offer is an offer to the public; the second class is not."

In our respectful opinion, the conclusion of Davies J on this issue was erroneous.

Section 5(4) of the Code provided that a reference to the making of an offer or invitation to the public includes a reference to the making of an offer or invitation to any section of the public, "whether selected as clients of the person making the offer or issuing the invitation or in any other manner". So it is not easy to see how it would have been an answer to the Investors' s 169 argument to say that all the persons to whom the POM was distributed were clients of Beattie McDonald. But we need not determine that matter because, in fact, they were not. McDonald was not the only promoter of the venture; he asked King to assist in finding prospective investors. As Davies J found, King thereby became a co-promoter of the venture. In that role, King authorized and inspired the conduct of Bailey. King was not concerned to confine the offer to a defined group; on the contrary, he was anxious to stimulate interest in the venture wherever he could. The acts of King and Bailey were part of the distribution and publication of the venture by its promoters. Because King was a co-promoter, it does not matter that McDonald did not know about his offer to pay commissions; King's efforts were not separate acts divorced from McDonald's promotion of the venture. In any event, it is not an answer to an allegation of infringement of s 169 to say that the offer, or invitation, to subscribe for a prescribed interest is issued by a person other than the promoter or controller of the scheme. Section 169 of the Code prohibits soliciting the public for such subscriptions and is not concerned with the relationship between the person making the solicitation and the promoter of the scheme: New South Wales Attorney-General v Australian Fixed Trusts Limited [1974] 1 NSWLR 110 at 117. Once King and Bailey acted as they did, it did not matter how many persons were approached - there had been an approach to the public. In Nash v Lynde [1929] AC 158 Viscount Sumner said (at 169):

"No particular numbers are prescribed. Anything from two to infinity may serve: perhaps even one, if he is intended to be the first of a series of subscribers, but makes further proceedings needless by himself subscribing the whole. The point is that the offer is such as to be open to any one who brings his money and applies in due form, whether the prospectus was addressed to him on behalf of the company or not."

That was the situation in this case, at least by the time King became active in seeking investors. Notwithstanding that it bore the title of a "private offer", the POM was directed to an unrestricted class of recipients. According to its terms, the scheme was not restricted to persons who were members of a private group having a particular relationship to the distributor of the memorandum. The venture described by the POM depended on the pooling of the funds of a number of investors. The POM may have assumed the proposed scheme would mainly interest persons with some knowledge of thoroughbred horses, although it also emphasised the scheme's taxation attractions. But it did not look to a discrete group or class of persons, who would form that venture as a private undertaking; anyone was welcome. Nor was this a case of successive invitations to specific individuals, like that mentioned by McHugh JA in Hurst. Approaches were made simultaneously to anybody who appeared to be a reasonable prospect. The case is to be contrasted with Lee v Evans where, in the absence of evidence of widespread requests for deposits or the publication of such an invitation, the subject invitation was treated as a private request to a particular person for the deposit of funds. The request in that case was not part of, or dependent on, the repetition of the request to other persons, so as to stamp it as an approach to the public.

In the instant case the POM, in terms, disclosed a common enterprise, in which the persons likely to invest would be persons desiring a tax advantage. To that extent, the POM had the character of an offer to the public. If acts of publication occurred beyond the control of McDonald, nonetheless those acts were consistent with the terms of the document and within the promotion of the venture as contemplated by King.

Effect of the breach of s 169 Having regard to our conclusion that there was a contravention of s 169, it is necessary to consider its effect upon the contracts which constituted the venture. Because of his view about contravention, the trial Judge did not discuss this question. In Hurst it was held that, subject to the possibility of severing lawful from unlawful parts, a transaction that came into existence as a result of contravention of the relevant provisions of the Companies Act was illegal and unenforceable: see per Kirby P at 412-413, Mahoney JA at 429 and McHugh JA at 443. That decision was followed by the Appeals Division of the Supreme Court of Victoria in O'Brien v Melbank Corporation Ltd (1991) 7 ACSR 19: see per Fullagar J at 31-32, McGarvie J at 48 and O'Bryan J at 67. It was also followed, although with a different result because of the facts, by the New South Wales Court of Appeal in Stammers v Akron Securities Ltd (1997) 24 ACSR 498 at 507-508. In this Court, Heerey J has recently held that the principles applied in Hurst and O'Brien to legislation that preceded the Companies Code applied also to s 169 and that a contract which resulted from a contravention of s 169 was unenforceable (at 184): see Henderson v Amadio Pty Ltd (No.1) (1995) 62 FCR 1 at 184 and Henderson v Amadio Pty Ltd (No.2) 62 FCR 221 at 227-228. Hurst was distinguished by Rolfe J of the New South Wales Supreme Court in Davies v Mortgage Acceptance Nominees Limited (Supreme Court (NSW) 20 April 1994, unreported) on the basis that the financier there was also the promoter. As Rolfe J said, the Court of Appeal was not called upon to consider the position of a third party financier not responsible for, or aware of, the statutory breaches giving rise to the illegality. Rolfe J recognised that a financier might rely on the principles of restitution in order to recover its outlay, but he thought this inappropriate. He said (at 84): "In my respectful opinion it is more consonant with the principles applicable to illegality to allow a party innocent of any illegality to recover under its contract, notwithstanding that the contract is, unbeknown to the innocent party, for the purpose of allowing a different illegal activity to be consummated. If this approach is adopted one leaves the remedy of restitution to those who must, of necessity, have resort to it because their participation in the illegal contract precludes recovery under that contract." We have difficulty with the distinction suggested by Rolfe J. The principle underlying the invalidation of contracts made in breach of a statutory provision is that this result reflects the will of the legislature: see Yango Pastoral Company Pty Limited v First Chicago Australia LimitedI (1978) 139 CLR 410. Therefore, unless there is a suggestion in the relevant legislation that the legislature intended invalidation as against some partiesbut not others, the courts have no warrant for making that distinction. The task of the courts is to determine, as best they can from whatever clues the legislation may contain, whether the legislature intended that transactions bound up with breach of particular legislation should be held to be invalid; or whether the intention was merely that the contravener be liable to punishment. If the former, except in the rare case where there is an indication that the legislature itself intended a distinction, the invalidation rule must be generally applied, even at the expense of an innocent party. Of course, the doctrine of severance may assist an innocent party, or such a party may have a remedy under the law of restitution. Restitution should not be seen as an inferior remedy; it enables the court fully to reimburse the innocent party, with interest at an appropriate rate. As we see the situation, the critical question in relation to invalidity is whether the legislature should be taken to have intended this result, in the case of a contravention of s 169. Counsel for the Investors rely on Hurst and O'Brien. Although those cases involved different statutory provisions, Mr Skinner seems to accept that their principle would apply to s 169, but he urges the distinction adopted by Rolfe J in Davies. As we have observed, the question is one of legislative intention. The Code contained no clear indication of the relevant intention. Section 174(1) provided a penalty of $20,000 or five years' imprisonment for a person who contravened s 169, amongst other provisions. Section 174(2) dealt in a limited way with civil liability. It provided: "(2) A person is not relieved from any liability to any holder of a prescribed interest by reason of any contravention of, or failure to comply with, a provision of this Division." This subsection would, of course, prevent the contravention of s 169 being raised as a defence to a claim by the syndicate members based on the transaction documents. But it does not deal with the situation presently under discussion, where the Investors raise the contravention as a defence to a proceeding instituted against them by a party, MANL, who was not involved in the contravention (cf s 1073(2) of the Corporations Law). There is room for the view that the insertion of subs (2) indicates a legislative assumption that, ordinarily, transactions resulting from activity contravening s 169 will be invalid; and that the legislature was generally content with that situation, but not in relation to liability to prescribed interest holders. We think that view is strongly arguable but we do not find it necessary to reach a conclusion about it. This legislation contains features similar to those seen as requiring a conclusion of invalidity in Hurst and O'Brien. Before referring to those cases we findit is useful to recall some of the observations made in Yango Pastoral Company. The question there was whether it was an answer to a claim for recovery of a loan that, in breach of s 8 of the Banking Act 1959, the lender was carrying on a banking business in Australia without an authority issued under s 9 of that Act. The High Court unanimously held it was not. Gibbs ACJ at 413 said "(t)he question whether a statute, on its proper construction, intends to vitiate a contract made in breach of its provisions, is one which must be determined in accordance with the ordinary principles that govern the construction of statutes". At 414 he noted that one consideration that had been regarded as important in many cases "is whether the object of the statute - or one of its objects - is the protection of the public"; as distinct, perhaps, from safeguarding the public revenue. His Honour accepted that one object of s 8 was the protection of depositors but he pointed out that the receipt of money on deposit is central to the business of banking and, if the appellants' argument was correct: "s 8 would invalidate not only those contracts by which a body corporate carrying on an unauthorized banking business agreed to lend money, but also all contracts pursuant to which it agreed to receive money from depositors. The result of accepting this argument might be that persons who had deposited money with such a body corporate would be unable to seek the assistance of the courts to recover it". He went on at 415: "Another relevant consideration is the fact that the penalty which s. 8 imposes is a pecuniary sum for each day during which the contravention continues. It is immaterial whether, on any day, the body corporate makes one contract, or one hundred; the penalty is the same. This is an indication that the Parliament did not intend to prohibit each contract made in the course of the business, but only to penalize the carrying on of the business without authority ..." And at 416: "There have been many cases in which a statute which imposes a penalty on an unlicensed or unqualified person for acting in a particular capacity has been held to prohibit by implication all contracts express or implied made by such a person to act in that capacity. In those cases the unsuccessful plaintiff did the very thing which the statute forbade him to do unless he was authorized, for example, he acted as a broker ... drew and prepared a conveyance .. did electrical work ... or acted as a real estate agent. Those cases are clearly distinguishable from the present, where in making and performing the contract the parties have not done or contracted to do anything which the Act expressly forbids." Mason J, with whom Aickin J agreed, expressed similar views. He said at 426 that, in determining the critical question, "the court will take into account the scope and purpose of the statute and the consequences of the suggested implication with a view to ascertaining whether it would conduce to, or frustrate, the object of the statute." In Hurst at 411, Kirby P summarised principles he took from Yango Pastoral Company and went on to note that the object of the provisions under consideration in Hurst (ss 82 and 83 of the Companies Act) was the protection of the public. "Clearly", he said, "this is relevant to fastidious and rigorous insistence upon compliance with its terms". He referred also to "the implication which may be derived from the terms of s 86(2)", a provision similar in substance to s 174(2) of the Code. He went on: "Investors, in ignorance of basic information and without minimal protections, may be left with enforceable transactions. For them, it would be small comfort that the penal provisions of s 86 imposed a penalty on those who had secured the transaction despite breach of the Act. The statute must be considered having regard to the generality of its operation. It cannot be construed narrowly simply because the present appellants were well advised and, by implication, knew what they were doing." Against those considerations, Kirby P weighed two matters: that the statute did not expressly prohibit transactions in breach of s 82 and s 83; and the possible detriment to innocent parties. He concluded, at 412-413: "... I consider that the preferable conclusion is that a transaction made as a direct consequence of a breach of, relevantly, s 83, is illegal and unenforceable. Although this conclusion may result in some undiscriminating effects on persons innocent of the cause of breach, the opposite argument would emasculate the effective operation of s 83 and the achievement of its obvious purpose for the protection of the public. To some extent, the law of illegality contains within it means for protecting the innocent from the worse consequence of hardship that may follow illegality ... The construction which, on balance, I prefer is more consonant with the apparent implication inherent in the terms of s 86(2) of the Act." As previously indicated, Mahoney and McHugh JJA agreed with the conclusion of Kirby P. Similar reasoning was adopted in O'Brien. The consideration that proved decisive in those cases applies equally to the present case. The evident purpose of s 169 is to protect members of the public. It operates in aid of s 170. That section prohibits a company, or an agent of a company, issuing to the public, offering to the public for subscription or purchase, or inviting the public to subscribe for or purchase, any prescribed interest, unless a statement in writing has been registered with the Commission. If s 170 stood alone, its prohibition might readily be circumvented; the relevant act could be performed by a person other than a company or an agent of a company. Section 169 was designed to prevent that happening. Although s 174 provides a substantial penalty for a breach of s 169, a conclusion against invalidity, as in Hurst, would "emasculate the effective operation of (s 169) and the achievement of its obvious purpose for the protection of the public", and would provide small comfort to investors who lost money in a transaction effected in contravention of the section.

A point of distinction between this case (and Hurst and O'Brien) and Yango Pastoral Company is that the penalty here attaches to each action in contravention of the statute; in Yango Pastoral Company there was a daily penalty, and it was immaterial whether the body corporate made one contract or one hundred. It will be recalled that Gibbs ACJ saw that fact as "an indication that the Parliament did not intend to prohibit each contract made in the course of the business, but only to penalize the carrying on of the business without authority".

We agree with the conclusion in Henderson that the consequence of a contravention of s 169 is to render void and unenforceable all transactions made in consequence of that contravention.

Counsel for MANL accepts that, if there was a contravention of s 169 and its effect was to render consequential transactions invalid, the management agreements between Jarpan and the syndicate members are unenforceable. But those agreements do not affect his client. He says the transactions that do affect his client - the leases by MANL to the individual Investors of the undivided interests in the horses, the agreements for loan and the mortgages securing those agreements - are severable from the management agreements Only the management agreements were "tainted with the infringement", he says. Mr Skinner points out that MANL had no connection with the contravention of s 169 by the promoters, McDonald and King; there was no requirement for a loan to be taken from MANL (one syndicate member, Aird, did not do so); the venture was independent of the leases, in the sense that additional horses could be (and were) separately purchased for the purposes of the venture; the leases, loan agreements and mortgages were in an unexceptional form and imposed obligations on the parties that were entirely independent of the venture's success or failure; and MANL took into account the creditworthiness of each of the lessees/borrowers according to their individual net asset positions and maintainable incomes, with no reference to their interests in the venture. Counsel refers to the view expressed by Rolfe J in Davies, a case with many factual similarities to the present ones, especially in relation to the structure of the syndicate and the documentation of the arrangement. As in the present case, MANL was the financier, and innocent of any wrongdoing. Rolfe J said at 88-89: "In the present case the lending of money was not in breach of any law. It was entirely lawful to lend the money. What must be said is that because the loan agreement was to place money in the borrower's hands, which money the borrower would use to acquire an interest, which interest could not lawfully be offered to members of the public because of failure to comply with the statute, therefore the loan agreement was also rendered illegal." After referring to various authorities, Rolfe J rejected that argument. He said at 91: "I consider the lease and loan contracts are severable. The lease contracts were not entered into by any party guilty of any illegality and under them the plaintiffs took an entitlement to property. Further, there is no evidence to support a finding that MANL was aware of any illegal conduct. The same observations apply, in my opinion, to the loan contracts." Counsel for the Investors submit that none of the provisions relied on by MANL are capable of severance. They say: "This was not a case of a financier making a loan to investors which loan in turn enabled them independently of the financier to acquire the prescribed interest, the subject of the illegal offer. The very prescribed interests offered to the Appellants by the promoters were ultimately made available to them by MANL pursuant to the Lease Agreements on which MANL relies. The interests so leased to the Appellants by MANL were fractional interests as tenants in common in the horses, the subject of the Trinity Syndicate ..." Counsel point out that cl 3.1 of the lease agreements contained an acknowledgment and agreement by both parties that the "Thoroughbred Investor Agreement" (the management agreement) "shall regulate the manner in which all rights and obligations of the Lessor and the Lessee contained in or implied by this Lease shall be exercised and all such rights and obligations shall at all times be subject to the Thoroughbred Investor Agreement". Hence, it is said, the agreement that, for the purpose of this argument, is admitted to be invalid and unenforceable (the management agreement) is an agreement which regulates the manner in which the lessor's and lessee's rights were to be exercised. Counsel further point out that the loan and mortgage agreements are inter-related, and that the mortgage confers on MANL rights as against the member's interest in the management agreement. In Carney v Herbert [1985] 1 AC 301 the Judicial Committee of the Privy Council considered the question whether the illegality of certain mortgages tainted associated agreements for the sale of shares in a company and a personal guarantee. The sale agreements and guarantee were not caught by the express terms of the prohibition. Lord Brightman, who delivered the Committee's judgment, commented at 309 that "(q)uestions of severability are often difficult" and "tests ... formulated as useful in particular cases are not always satisfactory for cases of other kinds". Nonetheless, at 311 his Lordship quoted with approval an observation of Jordan CJ in McFarlane v Daniell (1938) 38 SR (NSW) 337 at 345: "When valid promises supported by legal consideration are associated with, but separate in form from, invalid promises, the test of whether they are severable is whether they are in substance so connected with the others as to form an indivisible whole which cannot be taken to pieces without altering its nature ... If the elimination of the invalid promises changes the extent only but not the kind of the contract, the valid promises are severable ... If the substantial promises were all illegal or void, merely ancillary promises would be inseverable." The same passage has been referred to with approval in the High Court: Thomas Brown & Sons Ltd v Fazal Deen (1962) 108 CLR 391 at 411; Humphries v Proprietors "Surfers Palms North" Group Titles Plan 1955 (1994) 121 ALR 1 at 7 (Brennan ACJ, Toohey J), 17-18 (McHugh J). The decision in Carney was in favour of severance. At 316 Lord Brightman held the contract was basically one for the sale of the shares; the mortgages and guarantee were merely ancillary to the sale: "The mortgage did not go to the heart of the transaction, and its elimination would leave unchanged the subject matter of the contract and the primary obligations of the vendors and the purchaser". Not so in the present case. The "heart of the transaction" was the documents tainted with illegality: the lease agreements and management agreements. The loan and mortgage agreements were merely ancillary. Even so, the elimination of the management agreements would not leave them unchanged. As counsel for the Investors point out, the management agreement controlled the rights and obligations of the parties to the lease agreements. The invalidation of the management agreements necessarily results in a variation of the operation of the lease agreements. The invalidation or variation of the lease agreements affects the loan and mortgage agreements. The loan agreements were in the form of deeds containing the following provisions: "6.1 The obligations of the Lender under this Deed in particular under clause 2.1 hereof are subject to and conditional upon the following: 6.1.1 The delivery by the Borrower to the Lender on or before the Commencing Date of the Current Securities enforceable in accordance with their terms together with all relevant documents of title and completed forms for the registration of the Current Securities as may be required by the Lender's legal advisers; ..." The term "Current Securities" was defined by cl 1.1.8 of the deed as meaning "the securities (if any) described in Item 10". Item 10 read: "Deed of Mortgage of even date herewith made between the Borrower (as mortgagor) and the Lender (as mortgagee) over the Borrower's one (1) ownership share in the First Trinity Park Stud Breeding Venture." Clause 1.5 of the Deed of Mortgage defined the mortgaged property as, inter alia, the "ownership share". The term "ownership share" was defined in cl 1.7 of that Deed as the "right, title and interest of the mortgagor in and to the Thoroughbred Investor Agreement" and included, inter alia, the leasehold interest of the mortgagor under the lease agreement. Whether the mortgage operated to assign an Investor's undivided interest in the foals was not stated. Putting to one side the meaning of the "right, title and interest" of an Investor in the management agreement, it follows from these provisions that MANL's obligations under the loan agreements were dependent upon the existence of an enforceable mortgage of the relevant borrower's share, or right of participation, in the breeding venture. But, of course, this share and participatory right depended on the management agreement; if the management agreement was void, there was no "right, title and interest" to mortgage. Further, by a Deed made between MANL and Jarpan, Jarpan covenanted separately with MANL that it would duly perform the management agreement and acknowledged the interest of MANL in the management agreement as mortgagee. Having regard to the interdependence of the documents, it seems to us that the illegality of the management agreement necessarily infected the loan agreements and mortgages. Inevitably, in the words of Jordan CJ, the elimination of the invalid promises changes the kind of contract made between MANL and the Investors. We hold MANL is not entitled to enforce against the Investors any of the documents dated 30 June 1989. This conclusion is consistent with that reached by Heerey J in the Henderson cases.

Restitution By a notice of contention MANL asserts that, if its leases, loans and mortgages are held to be unenforceable, it is entitled to recover, "on a quantum meruit basis on the ground of restitution for unjust enrichment", the moneys paid by it on behalf of the syndicate members or lent to them. Counsel refers to a number of cases, including Hurst, O'Brien and Davies, in which it was held that a lender in the position of MANL was entitled to recover moneys paid pursuant to an illegal contract where there would otherwise be unjust enrichment. As explained by the High Court in Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 and David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, the concept of unjust enrichment is a recognition by the law that, in certain categories of cases, an obligation arises for a person who has been enriched to make a compensatory payment to a person who has sustained a countervailing detriment. The right to an order for such a payment depends on proof that the case falls within an appropriate category of case, such as mistake, duress or illegality. If there is enrichment in such a case, prima facie, the enrichment is unjust and an order will be made that the enriched party compensate the party at whose expense the enrichment was obtained. This prima facie situation will not apply if the enriched party shows matters or circumstances that make receipt (or retention) of the payment not unjust. See David Securities at 379 per Mason CJ, Deane, Toohey, Gaudron and McHugh JJ. Where a statute discloses that Parliament intended to exclude restitution, perhaps for the better enforcement of the terms of the statute, no prima facie obligation to make restitution will arise from the illegality flowing from contravention of the statute. See Pavey at 229 per Mason and Wilson JJ and at 262 per Deane J. The Code does not expressly indicate that a lender of money, under a transaction made unenforceable by s 169, may not obtain a restitution order against the borrower. In Henderson, Heerey J considered whether the identical provisions of the Victorian statute implied an intention to exclude restitution. His Honour did not reach a conclusion about the matter and, in effect, determined that, if a prima facie obligation to make restitution arose, it had been displaced in that case by other circumstances recognised by the law as making an order for restitution unjust. In Stammers v Akron Securities Ltd the appellant contended "the taint of illegality blocked the respondent both on a contractual and a restitutionary basis" (see 499) but the contractual claim succeeded. In our opinion there is nothing in the Codethat suggests an intention to exclude the remedy of restitution, in the case of a breach of s 169. We respectfully agree with the observations by McHugh J in Hurst (at 445) in relation to provisions analogous to those of s 169. The reasoning of Mason and Wilson JJ in Pavey (at 229) is as applicable to this case as it was in that. MANL's restitution claim includes a claim that the Investors reimburse its expenditure on the purchase of the horses. That claim is misconceived. MANL's purchase of the horses did not enrich the Investors. Therefore they did not come under any obligation to save MANL from any loss on that transaction. MANL purchased the horses in the conduct of its business. As part of that business, it leased them to the syndicate members. In making the decision to purchase the horses for the purpose of lease, MANL satisfied itself, by obtaining the ABCOS valuation, that the amount to be paid to the vendors of the horses was the market price. In fact the horses were worth less than stated by ABCOS. But this was a commercial risk that MANL accepted. Although the scheme involved the pooling of the syndicate members' leasehold interests in the horses, the illegality of the scheme did not affect the transaction by which MANL purchased the horses. In relation to the leases, there is no question of unjust enrichment. The only moneys paid under the leases were rental payments by the Investors. No doubt the Investors enjoyed taxation savings because of the deduction of the rental payments from their taxable incomes, but these savings stemmed from the payments, not from any detriment suffered by MANL. As we see the matter, the only item in respect of which MANL may claim restitution is the loan it made to each Investor, except Aird. In principle, and subject to some matters we will mention, we think MANL is entitled to recover restitution of its loan but we do not propose to make restitution orders ourselves. It is preferable to remit the matter to the trial Judge for consideration of the reserved matters and the relevant money figures and the making of appropriate orders. To establish the relevant amount of enrichment of each borrower, it is necessary to deduct from the amount of the original loan, first, the loan establishment fee (apparently $928) paid to MANL by the borrower and, second, all capital repayments reducing the loan balance. It seems Gibson repaid $10,400 and each of the other borrowers $5,200, but these figures will need to be checked.

The amount ordered to be paid by way of restitution may include simple interest on the balance of repayable monies from time to time: see Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] 2 WLR 802. The appropriate rate of interest is not that fixed in clause 3 of the Deed of Loan. To accept that rate would be to enforce an element of the invalid agreements. Interest should be fixed by reference to a scale that is independent of the parties and reflects the general trend of interest rates over the period since 30 June 1989. One such scale is the pre-judgment interest rate scale set out in Schedule J to the Rules of the Supreme Court of New South Wales. Rates fixed by that scale are regularly reviewed. They broadly correspond to commercial rates. Of course, in calculating interest, credit must be given for any interest payments already made in respect of the loans. It seems each Investor paid $24,774 in interest, except Gibson who paid $20,592; once again, these figures ought to be checked. The taxation savings achieved by the Investors deducting these interest payments from their taxable incomes are irrelevant. Those savings were not a benefit received by the Investors at the expense, or to the detriment, of MANL.

The question that remains is whether any of the Investors may establish a "defence" to a claim of restitution by relying on change of position or an estoppel. See David Securities at 379 per Mason CJ, Deane, Toohey, Gaudron and McHugh JJ; P Birks, "Change of Position: The Nature of the Defence and its Relationship to other Restitutionary Defences" in M McInnes (ed) Restitution: Developments in Unjust Enrichment (Sydney: Law Book Co, 1996) 49; P A Butler, "Mistaken Payments, Change of Position and Restitution" in P D Finn (ed) Essays on Restitution 87 at 124 et seq; Mason and Carter, Restitution Law in Australia (Butterworths, 1995), ch 24. The defence filed by the Investors in answer to MANL's claims for restitution was in general terms. It is not apparent to us whether either of these "defences" was raised at the trial or whether any Investor would wish to raise them now. Without expressing any view about the availability of either "defence", we reserve them for the consideration of the trial Judge, if he regards that as an appropriate course having regard to the conduct of the earlier trial and our decision in these appeals.

CONTRACTUAL PENALTY ISSUES As previously mentioned, the Investors claim that elements in MANL's claim constitute penalties and are irrecoverable. Davies J rejected that claim. It is not necessary for us to consider it. The effect of our view about illegality and severability is that the relevant documents are totally unenforceable. Consequently, we are not concerned with the recoverability of particular items. Arguments regarding contractual penalties do not, of course, arise in relation to the application of the principles of restitution.

Taxation The Reasons for Judgment delivered by Davies J on 25 March 1996 dealt with only one topic: the effect of taxation on the measure of damages to be allowed to the applicants against the various respondents. His Honour held that: (i) the damages awarded by him to the applicants will not be assessable income in their hands; (ii) the taxation benefits which the applicants claimed, and presumably received, in each of the 1989, 1990 and 1991 taxation year should be taken into account in reduction of their losses; but (iii) no allowance should be made in relation to subsequent years. No challenge is made to the first two holdings but counsel for Done argue the third holding was incorrect. In relation to that holding Davies J said: "We do not know what happened in subsequent years, but I assume that, as the applicants' notice avoiding the agreements was given in October 1991, thereafter claims would not have been made. So in my opinion, it is proper to reduce the damages by those taxation benefits which were received in respect of those first three years, 1989, 1990 and 1991. I agree with counsel that many of the elements that are being taken into account would have been incurred in years prior to the current year. Most of the rent and interest which was incurred by the applicants would have been incurred in prior years. Some of it will be incurred in the current year, but it seems to me that, insofar as that is offset by the damages received or receivable, it is unlikely that it will be allowed by the Commissioner of Taxation as a deduction. That rent and interest will presumably be paid out of the damages which the applicants receive from the respondents. The Commissioner of Taxation is likely to take that fact into account." In reaching that conclusion, Davies J mentioned Placer Pacific Management Pty Ltd v Commissioner of Taxation (1995) 45 ATC 4,459. That decision was relied on by counsel for Done in submitting that the syndicate members were entitled to claim deductions under s 51(1) of the ITAA for amounts that accrued due pursuant to the leases and loan agreements after 13 September 1991, the day MANL gave notice of breach and a demand for payment to each of the syndicate members. The members responded to that notice by avoiding the agreements, as recounted by Davies J. Counsel for Done say the leases and loan agreements were entered into in the conduct of the applicants' businesses: "That being the occasion for the outgoings, incurrence of further outgoings after the cessation of the business would not deny the later deductions; Placer." The facts in Placer were that the taxpayer carried on the business, amongst other things, of manufacturing conveyor belts. In 1978 it contracted for the supply of a conveyor system to a coal company. The system was commissioned in 1979. In July 1981 Placer sold its conveyor belt business to another company. Shortly afterwards the coal company claimed the conveyor system was defective. Ensuing litigation was settled on the basis of a payment of damages by Placer. Placer also incurred legal costs. It claimed to deduct the damages and costs from its 1989 income. The Full Court held it was entitled to do this. After an extensive review of relevant authorities, the Court adopted: "... the proposition that provided the occasion of a business outgoing is to be found in the business operations directed towards the gaining or production of assessable income generally, the fact that that outgoing was incurred in a year later than the year in which the income was incurred and the fact that in the meantime business in the ordinary sense may have ceased will not determine the issue of deductibility. There is no relevant distinction to be drawn between losses and outgoings. Provided the occasion for the loss or outgoing is to be found in the business operations directed to gaining or producing assessable income, that loss or outgoing will be deductible unless it is capital or of a capital nature." As is apparent from his citation of the decision, Davies J was well cognisant of the proposition stated in Placer. This is not surprising; he was a member of the Full Court that had formulated it only a few months earlier. But he thought it had little relevance to this case. After referring to Placer, he said: "Damages should be assessed on the basis of the loss suffered. The loss suffered should take into account the taxation benefits which have been received and, if that is done, the applicants will be compensated for the totality of the loss which they have suffered. I think they will not be liable to pay tax on any part of the damages they receive. There may be a question in relation to this if the applicants were now to seek amendments to prior years' assessments or to claim deductions in the current year. However, I think the better way to approach this matter is to ignore the possibilities in relation to it, for it seems to me to be unlikely that the applicants will receive any net income tax benefit should they take that course." There is no evidence as to whether or not any of the Investors claimed deductions in respect of lease payments or interest in taxation years after 1991. Having regard to the attitude they took in October 1991, presumably they did not. But Done's counsel say that is immaterial; as the liability for those payments arose out of businesses conducted by them prior to October 1991, they were entitled to claim the deductions. They say: "If the Syndicate Members do not claim deductions, or the time expires before they claim those deductions, their failure to make those claims constitutes an unreasonable failure to mitigate their losses. In these circumstances, the damages awarded to the Syndicate Members must be reduced to take into account the amount of the tax benefit that would [have] been received if tax deductions had been claimed. A further enquiry into the position of each of the Syndicate Members might be required to quantify these amounts." We think it was open to Davies J to resolve this issue the way he did. As the Full Court pointed out in Placer itself (at 4,465), in determining whether there was the necessary connection between an outgoing and the production of assessable income, all relevant facts must be considered. In the present case, any claim for an outgoing incurred after October 1991 would need to be considered by the Commissioner of Taxation against the background that, by that time, the relevant taxpayer was claiming that the document under which the business was constituted, the management agreement, was invalid and unenforceable, as were the documents under which the taxpayer became liable to make the claimed outgoing. In that situation, as it seems to us, the Commissioner would have been entitled to determine there was an insufficient connection between the outgoing and the carrying on of the business, and that the outgoing must have been incurred for some other reason, perhaps one connected to the prospective or current litigation. If the Commissioner reached that conclusion he would be bound to reject the claim for deduction of the outgoing.

Fall in market This is an issue raised by ABCOS. In their written submissions counsel for ABCOS submitted that the correct measure of damages is the difference between the price paid and the true value at the date of the ABCOS valuation; subsequent losses suffered because of the fall in the bloodstock market are irrelevant. They referred to the decision of the House of Lords in Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1996] 3 WLR 87 and earlier cases. They said "the value of the bloodstock on 30 June 1989 had nothing to do with the success of the venture. ... The venture failed because the market collapsed and the projections were not realised". This is true; but the falling of the market and the non-realisation of the projections only damaged the Investors because they had become syndicate members, and this would not have occurred but for ABCOS' negligence and contravention of s 52 of the Trade Practices Act. We need not elaborate the point: it was dealt with in some detail, with extensive discussion of Banque Bruxelles, in Kenny & Good Pty Limited v MGICA (1992) Limited (1997) 147 ALR 568. That decision is directly in point. We follow and apply it.

CONTRIBUTORY NEGLIGENCE OF THE INVESTORS This also was an issue raised by ABCOS. In their written submissions counsel said "[t]he Investors failed to review the syndicate documents prior to giving a power of attorney to Mr McDonald". If they had done so, counsel argue, they would have: "(i) discovered that the mares were to be owned by MANL rather than the Investors; (ii) discovered the extremely high default interest rate of 26% per annum; and (iii) realised that the outlays required were substantially more than those indicated in the POM." A similar submission was put to Davies J. He dealt with it in this way: "... it is not at all uncommon for investors in transactions such as the present to rely upon the advice of an accountant such as Beattie McDonald and it is not at all uncommon for investors in such schemes to give a power of attorney to an accountant or lawyer for the purpose of settlement. The applicants were not negligent in leaving the 'paperwork' to Mr McDonald, who was a well regarded accountant." Counsel say his Honour's conclusion, even if true, does "not excuse the Investors from examining the transaction documents themselves or obtaining their own legal advice about them". We reject this response. The relevant documents are lengthy and complex. They would not easily be understood, especially by non-lawyers. To accept, as a general proposition, that a person who has suffered loss because of a failure of duty by a professional adviser is negligent if he or she fails to read and understand complex legal documents would be to introduce an unfair notion into the law. In any event, the fundamental problem in this case was that the horses were acquired at grossly excessive prices, an eventuality against which ABCOS was supposed to protect the Investors. No amount of reading the legal documents would have warned the Investors of that problem.

APPORTIONMENT OF FAULT King and ABCOS each complain that the trial Judge erred in apportioning to them 20% of the burden of the Investors' losses. We have already referred to the submission made on behalf of King. Counsel for ABCOS point out that "McDonald, King and Bester all received substantial undisclosed benefits on settlement" and Done "took an active management role in the setting up of the syndicate and breached his fiduciary duty". The share of ABCOS is too high, they say, and the shares of these four persons too low. Counsel's submission details the sins of McDonald, King, Bester and Done. We do not need to canvass these matters; we have already made clear we are critical of the actions and omissions of all four men. But we are also critical of Pulford's action, in putting ABCOS' name on a "valuation" that was nothing of the sort. While it can truly be said that, but for the breaches of duty by each of McDonald, King, Bester and Done, the syndicate would not have got off the ground and the Investors' losses would not have occurred, the same comment may be made about ABCOS. The apportionment issue arises pursuant to s 5 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW). That section relevantly provides: "5(1) Where damage is suffered by any person as a result of a tort (whether a crime or not) - (a) ... (b) ... (c) any tort-feasor liable in respect of that 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, so, however, that no person shall be entitled to recover contribution under this section from any person entitled to be indemnified by that person in respect of the liability in respect of which the contribution is sought. (2) In any proceedings for contribution under this section the amount of the contribution recoverable from any person shall be such as may be 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 shall have power to exempt any person from liability to make contribution, or to direct that the contribution to be recovered from any person shall amount to a complete indemnity. (3) ... (3A) ... (4) ..." In relation to this issue, Davies J said: "For the purposes of contribution, I would apportion fault as follows: Beattie McDonald 30%. Mr King, Mr Bester and ABCOS 20% each and Mr Done 10%. It is clear that Beattie McDonald must take the greatest responsibility for the venture was promoted by the firm. Mr Done's contribution was least of all, for he informed Mr McDonald that he had a conflict of interest. He, like Mr McDonald, did not know that the valuations were flawed. Mr King, Mr Bester and Mr Pulford by their actions contributed equally to the financial disaster which occurred." The law reports contain many warnings about appellate courts interfering with determinations of trial Judges regarding apportionment of culpability. Perhaps the leading statement on the subject is that of Lord Wright in British Fame (Owners) v MacGregor (Owners) [1943] AC 197, a case concerning relative culpability for a collision at sea. At 201 his Lordship said: "... it would require a very strong case to justify any such review of or interference with this matter of apportionment where the same view is taken of the law and the facts. It is a question of the degree of fault, depending on a trained and expert judgment considering all the circumstances, and it is different in essence from a mere finding of fact in the ordinary sense. It is a question, not of principle or of positive findings of fact or law, but of proportion, of balance and relative emphasis, and of weighing different considerations. It involves an individual choice or discretion, as to which there may well be differences of opinion by different minds. It is for that reason, I think, that an appellate court has been warned against interfering, save in very exceptional circumstances, with the judge's apportionment. The accepted rule was clearly stated by Lord Buckmaster, with the assent of the other Lords, in Kitano Maru (Owners) v. Otranto (Owners)(The Otranto) [1931] AC 194 at 204, in these words: 'Upon the question of altering the share of responsibility each has to take, this is primarily a matter for the judge at the trial, and unless there is some error in law or in fact in his judgment it ought not to be disturbed.' " That statement has been adopted in the High Court of Australia: see Pennington v Norris (1956) 96 CLR 10 at 16 and Podrebersek v Australian Iron & Steel Pty Ltd (1985) 59 ALR 529 at 532. In Macquarie Pathology Services Pty Ltd v Sullivan (New South Wales Court of Appeal, 28 March 1995, not reported) Kirby P observed that "[a]n apportionment will only be set aside and redetermined if the trial Judge has either obviously proceeded on a misunderstanding of the evidence or, alternatively, has clearly assessed the evidence incorrectly in evaluating the parties' comparative blameworthiness". Clarke JA said: "It is well established that a trial judge is invested with a very wide discretion in making his apportionment and that he must be allowed much latitude in arriving at a judgment as to what is just and equitable. In these circumstances the onus cast on an appellant who seeks to disturb an apportionment is a high one ... Obviously where one party can point to an error of fact or of law on the part of the trial judge it may not be difficult to argue that his or her determination as to what is just and equitable may be flawed." In the present case, as it seems to us, the trial Judge did fall into an error of law or fact. The reason he gave for attributing only 10% of the overall culpability to Done was that his contribution "was least of all, for he informed Mr McDonald that he had a conflict of interest". As we have pointed out, however, that disclaimer was quite insufficient; it did nothing for future syndicate members, who needed protection against McDonald himself, as much as anyone else. We think Davies J took an unduly narrow view of Done's breach of duty. He failed to take into account the extent to which Done's role outgrew the role he initially defined for himself, and in relation to which he made his statement to McDonald. And he also failed to take into account Done's position in relation to future syndicate members, as distinct from McDonald. These errors plainly affected his Honour's judgment about comparative culpability. We are puzzled by Davies J's comment that Done, "like Mr McDonald, did not know the valuations were flawed". McDonald certainly knew Bester's valuation was flawed. McDonald knew it merely reproduced the prices he had agreed with King. And he must have realised these prices played, at least, a major part in the ABCOS valuation. There is no finding or evidence that Done knew the values of McDonald's horses, set out in either valuation, coincided with the prices for those horses agreed between King and McDonald; but the trial Judge found he knew the prices at which the horses of King (and Natalma) were to be sold to the syndicate. That being so, it must have been obvious to him that Bester had merely adopted those prices; and, given the coincidence in totals, the same was probably true of ABCOS. Although we are conscious of the need for restraint in interfering with a trial Judge's apportionment of culpability, in the light of our analysis of the evidence concerning Done's subsequent actions, we think justice requires us to consider that issue for ourselves. On that basis, it seems to us that Done's degree of culpability should not be ranked below that of King, Bester and ABCOS. Done was an accountant, experienced in ventures such as this. He knew he had a fiduciary duty to future syndicate members, although he did not appreciate its extent. Had he fulfilled his duty, the venture would never have come to pass, the losses would never have been suffered. Notwithstanding the matters put to us by Ms Housego, we do not think Davies J erred in his assessment of King's degree of culpability. We agree with his Honour that Beattie McDonald's share of culpability exceeds that of all other respondents, since McDonald was the principal promoter of the venture and the principal author of the POM. We think the appropriate apportionment is Beattie McDonald 28%, King 18%, Bester 18%, ABCOS 18% and Done 18%.

DONE'S CONTRIBUTION CLAIM Counsel for ABCOS argue that Done is not entitled to recover contribution against their client pursuant to s 5(1)(c) of the LR(MP) Act. It will be recalled that this paragraph provides that "any tort-feasor liable in respect of that damage" may recover contribution from any other tort-feasor liable in respect of the same damage. Counsel say the only liability established against Done by the Investors is in equity; consequently, he is not a "tort-feasor" able to effect recovery of contribution under s 5(1)(c). They refer to Genders v Government Insurance Office of New South Wales (1959) 102 CLR 363 where (at 382) Dixon CJ, McTiernan J, Taylor J and Windeyer J said of s 5(1)(c): "The word 'tort-feasor' is used to describe the character of the legal liability: not to connote the moral culpability of the party. It comprises for example a person vicariously responsible for the acts of servants of which he knew nothing. It is used, in other words, to confine the operations of the provisions to cases where a tort has been committed on the side of the person making contribution as well as on the side of the person seeking it and the same damage flows therefrom." Counsel for Done put several submissions on this point. It is enough to mention one of them. For the purposes of considering whether s 5(1)(c) applied to Done's contribution claim, Davies J considered whether he was a "tort-feasor" in relation to the Investors, notwithstanding that he had been exculpated from the particular claim of negligence, relating to the POM, alleged against him by them. His Honour held that Done came under a duty of care to the Investors, though not the duty in respect of which he had been sued, and had breached that duty. It follows that he was a "tort-feasor", in relation to the Investors, within the meaning of s 5(1)(c), notwithstanding that he was not sued successfully in respect of his tortious liability. The authorities in the Supreme Court of New South Wales are clear that the application of s 5(1)(c) does not depend upon a successful action in tort against the alleged tort-feasor by the person suffering damage: see Employers' Corporate Investments Pty Ltd v Cameron (1977) 3 ACLR 120 (Sheppard J), Rap Industries Pty Ltd v Royal Insurance Australia Ltd (1988) 5 ANZ Ins Cas II 60-876 (Brownie J), R W Miller & Co Pty Ltd v Krupp (Australia) (Giles J, unreported, 9 June 1992) and AWA Ltd v Daniels (1992) 7 ACSR 759 (Rogers J). Giles J expressed the reason for this approach in R W Miller: "It is enough that [the defendant] is a tortfeasor in respect of the plaintiff's loss (although not held liable in tort at the suit of the plaintiff) and liable in respect of the plaintiff's loss (although held liable in contract at the suit of the plaintiff). ... I do not think that a defendant's rights should depend on how the plaintiff chooses to proceed and I do not see why the legislation should not extend to Krupp being a 'tortfeasor liable' for the purposes of s5(1) although sued by Miller only in contract." There was ample evidence to justify Davies J's conclusion that Done was under a common law duty of care to the Investors and breached that duty. Accordingly, there is nothing in this point.

The exclusions At the trial it was not in dispute that, at all material times, Beattie McDonald held a contract of insurance with Heath that contained an insuring clause sufficiently wide to cover the Investors' claims against McDonald and Farrow, and also the claims for contribution made against them by other respondents. The insuring clause indemnified "the Insured firm" against stipulated claims. The preamble to the policy defined "the Insured firm" as "the person or persons firm or company carrying on business under the name as stated in the schedule herein" - that name was "Beattie, McDonald & Co" - and to "include any person or persons who may at any time and from time to time during the period of this Certificate be a partner in the Insured firm or any one or more of them". However, Davies J held Heath was not liable to indemnify Beattie McDonald against the Investors' claims, by reason of an exclusion in the relevant policy. This was exclusion (c). Exclusions (b) and (e) are also relevant. We set out all three exclusions: "This Certificate shall not indemnify the Insured firm against Claims made upon it: (a) ... (b) ... by or on behalf of any person operated or controlled by the Insured firm or by any partners, employees, nominees or trustees of the Insured firm and in which the Insured firm or any of its partners or any member of their respective families has a direct or indirect financial interest; (c) by any person advised or induced by the Insured firm or partners or employees of the Insured firm or of its predecessors in business at the time of the advice or inducement to invest in or lend money to any person being a person referred to in the preceding sub-clause or to any person named as the Insured firm under this Policy; (d) ... (e) ... arising out of the provision by the Insured firm of any advice, inducement, recommendation, endorsement or opinion regarding the investment of any interest, capital or personal endeavour in an investment facility or service in which the Insured firm or its predecessors in business or any of its partners or any member of their family has a direct or indirect control or financial interest (f) ... For the purpose of these general exclusions, the following words or expressions shall have the following meanings: 'Family' shall mean the spouse or any of the children of any partner of the Insured firm. 'Financial interest' shall exclude any financial interest of less than 10% of the issued capital in a company or less than 10% of the value of any other enterprise." (Emphasis added.) The word "person" was defined in the Policy to include an unincorporated entity.

Exclusion (c) Davies J held the Investors' claims were made by persons advised or induced by Beattie McDonald or its employees to invest in the unincorporated entity, the First Trinity Park Stud Breeding Venture, which was a person (an unincorporated entity) operated or controlled by Beattie McDonald and in which Beattie McDonald had a direct or indirect financial interest. In dealing with exclusions (b) and (c), his Honour said: "Liability was denied under these exclusions. It was alleged on behalf of Heath Insurance that exclusion (b) applied because the claim is made by the unincorporated entity, the First Trinity Park Stud Venture, in which Mr McDonald and Mr Farrow both had a direct financial interest as participating members and in which Mr McDonald had an indirect financial interest by virtue of his interest in Jarpan, which was to manage the operations of the venture. The claims of the applicants are not made, however, by the members of the venture as a whole or by the members of the venture jointly or jointly and severally. No claim is made with respect to the operations of the venture but only with respect to the actions of Beattie McDonald in its establishment. It was alleged on behalf of Heath Insurance that exclusion (c) applied because the claims are made by persons advised or induced by Beattie McDonald or its employees to invest in the unincorporated entity, the First Trinity Park Breeding Venture, being a person operated or controlled by the insured and in which the insured had a direct or indirect financial interest. The concept of 'control' is not an easy one. The traditional view of the common law was that the control of a company vested in its shareholders. As Bowen CJ, with whom Lockhart and Beaumont JJ agreed, said in Re The News Corporation Ltd (1987) 70 ALR 419 at 429: 'In a series of English and Australian decisions it has been established that 'control of a company' under the general law means control of a majority of votes at a general meeting on all matters able to be dealt with at such a meeting (see WP Keighery Pty Ltd v FCT (1957) 100 CLR 66 at 84-9; and Mendes v Commissioner of Probate Duties (Vic) (1967) 122 CLR 152 at 161-4)." However, increasingly in statutory provisions, the term 'control' is being used to refer to 'de facto control' rather than to the power to control. Re The News Corporation is illustrative of this point." His Honour referred to Commissioner of Taxation v Commonwealth Aluminium Corporation Ltd (1980) 143 CLR 646 and went on: "The term 'operated or controlled' in exclusion (c) therefore encompasses control of the management and control of the operations of the entity in which the investment is made. Mr McDonald was a member of the venture and had an ongoing role as a shareholder in and as one of two directors of Jarpan. The Thoroughbred Owner Management Agreement recited, inter alia:- 'D. The Owner [being each of the syndicate members] has requested the Manager [Jarpan] and the Manager agrees subject to the terms hereof to care for and agist and generally manage the Horses with a view to maximising the commercial return therefor.' The Manager was Jarpan. It had the management of the operation of the venture. There was no provision in the management agreement or elsewhere for the holding of meetings of the members of the syndicate or for the giving of directions by the syndicate members to Jarpan. I think it is likely that Mr McDonald had the guiding role in Jarpan. The venture was established by Mr McDonald, not by Mr Marshall, who had his own syndicate to look after. Mr Marshall put no money into the venture and the work that he was to do in relation to the venture was work for which he was to be remunerated by Jarpan. The budgeted cash flow of the venture provided for the payment of fees for stud management and for the stallion service. It was proposed that most of these payments would be made to the Trinity Park Stud. As Mr Marshall was to be a recipient of remuneration, I think he would have left the overriding control of the venture to Mr McDonald." Davies J referred to a comment of Bowen CJ in News Corporation that "[a] power to veto is a power to restrain, and hence to control". He commented: "As Mr McDonald was one of the two directors of Jarpan, he had, in the sense in which Bowen CJ used the term, a power of veto over resolutions of the Board of Jarpan. In my opinion, Mr McDonald managed the affairs of the venture. There is very little evidence about what actually happened. However, Mr McDonald was a shareholder and director of Jarpan and Mr Farrow was to be the secretary. Mr Farrow in fact signed the letters that went to the investors. The financial information which went to the investors as to the deductions which they could put into their income tax returns also necessarily came from Beattie McDonald." The trial Judge then dealt with an argument that exclusion (c) could not operate because, when the advice was given, the deemed "person" had not been established. He responded: "However, I read exclusion (c) as encompassing investment in an entity which is being formed and which is to be operated or controlled by the insured, at least where the establishment of the entity is in control of the insured. Mr McDonald had such control. He finalised the membership of the syndicate, arranged settlement and signed the agreements on behalf of all but one of the syndicate members. Mr McDonald even agreed to an increase in the interest rate sought by MANL without referring the matter back to the investors. The committal by each of the members of funds to the venture in the expectation of profit and tax benefits constituted an investment, as that term is commonly understood, and the promotion by Beattie McDonald of the venture included advice and inducement to invest. It follows that the criteria of exclusion (c) were satisfied." Done, ABCOS and the Investors all challenge the trial Judge's ruling concerning exclusion (c). In their written submissions, counsel for Done set out an analysis of the elements in the exclusion. They say it relates to claims made upon Beattie McDonald: "by persons who have been: (a) advised or induced; (b) by the Insured firm (or partners or employees or predecessors in business); (c) to 'invest in' or 'lend money to'; (d) either:- (i) a person referred to in Exclusion (b); or (ii) any person named as the Insured firm." Counsel accept the finding of Davies J that each of the Investors, ABCOS and Done had a claim against McDonald and Farrow, the partners in the insured firm, Beattie McDonald. But they say that, while the element ("by persons who have been advised or induced by the insured firm") might apply to the Investors' claims, it could not apply to the claims for contribution by Done and ABCOS. This proposition was not disputed by counsel for Heath, Mr P Garling SC and Mr L E Aitken. It seems irrefutable. Turning to the next element, counsel submit, rightly in our view, that there was no advice or inducement to the syndicate members to "lend money" to a relevant person, or to "invest in" the insured firm; the question therefore is whether there was advice or inducement to invest in a "person" referred to in exclusion (b). They say Davies J decided that issue on the basis that the "person" in which the syndicate members invested was First Trinity Park Breeding Venture, of which McDonald had control through his role in Jarpan. However, the syndicate was not a "person" at all; it was not a body corporate or even a partnership. In that regard they refer to a statement in the POM: "The Participants will enter into the Venture in terms of separate Agreements, which should have the following effects: 1. A partnership at general law will not exist. 2. The arrangement will not constitute an association of persons requiring incorporation pursuant to Section 33(3) of the Companies Code. 3. A partnership for income tax purposes will exist.". Reference may also be made to clause 3.1 of the management agreement entered into by Jarpan with each syndicate member: "3.1 Nothing herein contained either read alone or in conjunction with any other agreement shall constitute or be deemed to constitute a partnership of any kind between the Owner and the Manager nor shall it constitute a partnership or other agreement or arrangement of any kind between the Owner and other Venturers collectively or individually nor shall this agreement or any implementation thereof be construed as giving rise to a trust estate in respect of any property or assets including the Ownership Share of the Owner." Counsel argue: "65. The essence of the Venture as it was proposed, and in fact operated, was rather that there be a series of separate parallel agreements entered into between the Syndicate Members, MANL and Jarpan. The several nature of these arrangements explains why there was no provision in the Management Agreement or elsewhere for the holding of meetings of Members of the Syndicate or for the giving of directions by the Syndicate Members to Jarpan ... The Venture itself had no rights and duties before the law, and was not in any way identifiable as having a separate existence. 66. The case on behalf of Heath relies, as it must, on the definition clause in Section 1 of the Policy ... that 'person' shall include any incorporated or unincorporated entity'. The application of such a notion is intelligible enough in circumstances when the members of the Insured firm (or the other persons referred to in Exclusion (b)) conduct a partnership by themselves or with other persons. ... 67. It is submitted, however, that the relationship between Syndicate Members did not give rise to any unincorporated entity. Further, so far as the involvement of Jarpan was concerned, the relationship between the Syndicate Members and Jarpan is concisely stated in Recital D of the Thoroughbred Owner Management Agreement, quoted by His Honour. That is, Jarpan was engaged as agent by each of the Syndicate Members to agist and care for the Syndicate horses. The horses were at all relevant times to be owned by MANL; Syndicate Members leasing a share. Done submits that a series of parallel agreements pursuant to which a third party, Jarpan, agreed to look after horses does not give rise to a 'person' for the purposes of Exclusions (b) and (c)." Counsel for Done say the participation by the syndicate members did not satisfy the words "to invest in" any person; the members did not "invest in" anybody else, they incurred individual expenditure obligations in order to obtain particular benefits. Counsel also contest Davies J's conclusions concerning control and the venture being a person in which McDonald and Farrow had a direct or indirect financial interest. In relation to control, they say: "Whilst it may be conceded for the purpose of argument that McDonald controlled Jarpan, Jarpan's only role was to look after the horses. It had a series of parallel rights and obligations with each of the Syndicate Members. However, none of those rights or obligations created any dealings or the right to create any dealings between the Syndicate Members inter se. In fact, the legal rights and obligations of each of the Syndicate Members both to Jarpan and to MANL were completely independent of the rights and obligations of each other Syndicate Member. If the Venture was a 'person', Done submits that it was not operated or controlled by Jarpan. No doubt it is not necessary for Done, or any other party seeking to rely upon the policy, to prove whether the Venture was operated or controlled by anybody, or if so by whom, but in any event Done submits that the Venture (if it was a 'person') was not operated or controlled by McDonald, Farrow or Beattie and McDonald.(sic)" Counsel's argument in relation to direct or indirect financial interest is that the exclusion must be applied as at the time the advice or inducement occurred; at that stage the venture had not been formed and neither McDonald nor Farrow had undertaken the obligations by virtue of which they became syndicate members. These submissions are adopted and repeated, with some elaboration, by counsel for ABCOS and counsel for the Investors. Counsel for Heath say it was accurate for the trial Judge to categorise the Investors' payments as investments in the venture, and that "the conduct of the applicants in surrendering control of their ownership share in the various mares and weanlings should also be regarded as the making of investments in the Venture". After detailing the arrangements made by the documents, they say the practical reality of the payment structure was that the syndicate members caused Jarpan to receive $528,000 (the net proceeds of the MANL loan) plus initial contributions of about $206,000. As "Jarpan was obliged to deal with those funds in accordance with the Management Agreement ... [the] making of these funds available to Jarpan, could only be described as an investment in the Venture". In relation to the question whether there was an investment "in [a] person", they rely on the definition of the word "person" in the policy, viz "'Person' shall include any incorporated or unincorporated entity". They say this definition indicates that, where used in exclusion (c), the word "person" does not require the investment target to have legal personality. No definition would have been required to produce the result that "person" covered both natural persons and corporations; if legal personality was required, an inclusive definition that indicated the word applied to both natural and incorporated persons would have been used. Counsel submit that, in the circumstances, the word "entity" is significant; it indicates an intention to enlarge the meaning of "person" beyond the concept of legal personality and to cover unincorporated investment vehicles available for use by investors, such as partnerships, trust and joint ventures. Looking at the purpose behind the definition, counsel for Heath argue that an interpretation of it that includes unincorporated investment targets "is consistent with the apparent purpose of the Exclusion to remove investments controlled by the Insured from the scope of the policy indemnity." We have not found these competing submissions easy to resolve but our conclusion is that exclusion (c) does not apply. Contrary to the submission of counsel for Done, ABCOS and the Investors, we think it is accurate to speak of the venture as an "entity", within the definition of "person" in the policy. "Entity" is a word of wide application, apt to refer to something that has an existence, albeit falling short of legal personality. The venture was not an incorporated body but it had an existence transcending that of the individual investors. Although clause 3.1 of the management agreement provided that neither the relationships between the individual investors nor their relationship with Jarpan should constitute a partnership, there was an association of persons for joint commercial ends. Clause 4.1 provided that, "notwithstanding the provisions of Clause 3.1, the Ventures will receive the income jointly" and the Manager will "have prepared and lodged an income tax partnership return in the name of the Venture with the Commissioner of Taxation for each Financial Year" (emphasis added). No doubt this is what the POM envisaged by its reference to a partnership tax return. Light is cast on the meaning of the word "Venture" by recital B of the agreement: "The Owner proposes to enter into a venture to be known as the First Trinity Park Study Breeding Venture ('the Venture') the aim of which is the breeding of thoroughbred horses ... for commercial profit by sale at Thoroughbred Yearling Markets." While we think it is correct to say that the payments made by, or on behalf of, each Investor constituted an investment in a "person", namely the horse breeding venture, we respectfully disagree with Davies J that this was a person "controlled" by McDonald. In this respect we adopt the submission of counsel for Done. It is not accurate to say that "Jarpan's only role was to look after the horses"; the management agreement conferred on Jarpan several other functions, such as maintaining a register of ownership shares (cl 1.3), appointing and removing an auditor (cl 1.4), preparing and lodging a partnership income tax return ( cl 4.1), reporting to each investor the amount of each year's Running Expenses and collecting contributions (cl 5), and effecting insurance (cl 6). Also, in carrying out its functions, Jarpan had some discretions. It had a discretion whether to sell particular yearlings or retain them for racing (cl 1.2). It could postpone sale of the remaining horses for up to six months on termination of the venture (cl 7.3), but it had no ability to terminate the venture before the agreed date, 30 June 1993, nor to extend it beyond that date. Any extension required the unanimous consent of all investors (cl 7.1). Nor was Jarpan able to change the nature of the venture or the manner of its operation. We respectfully think it is simplistic to say that, because McDonald controlled Jarpan (if he did), he also controlled the venture. Jarpan managed the horses pursuant to parallel agreements with each of the owners. Taken together, those agreements controlled the venture. We are of the opinion that exclusion (c) does not apply to the claims against McDonald and Farrow, whether made by the Investors or the cross-claimants.

Exclusion (e) That conclusion makes it necessary for us to resolve the issue raised by Heath's notice of contention concerning exclusion (e). Unlike exclusion (c), exclusion (e) is not limited to claims made by particular persons; it excludes claims upon Beattie McDonald by any person "arising out of the provision by the insured firm of advice, inducement, recommendation, endorsement or opinion regarding the investment of ... capital ... in an investment facility or service in which the insured firm ... or any of its partners ... has a ... financial interest". The term "financial interest" is defined so as to exclude "any financial interest of ... less than 10% of the value of [the relevant] enterprise". Counsel for Heath argue that the claims made against McDonald and Farrow, whether by the Investors or the cross-claimants, all arise out of their provision of advice, inducement, recommendation, endorsement or opinion regarding investment in the venture. This proposition is not contested by Done, ABCOS or the Investors. Their answer to Heath's reliance on exclusion (e) is that given by Davies J: the venture was not "an investment facility or service". His Honour said: "The crucial issue is whether the venture was 'an investment facility or service', words which are not technical terms. They refer to a structure or service which facilitates or assists investment and therefore to a structure or service of an ongoing nature. An investment broker would be one example. An investment trust in which units could be taken up and sold from time to time may be another. There are many possibilities. But the First Trinity Park Stud Breeding Venture did not facilitate or assist investment. Its sole concern was taxation and the purchase, breeding and sale of bloodstock. The venture was a one-off tax avoidance and profit-making scheme, not an on-going structure or service which facilitated investment. It follows that exclusion (e) did not apply." Counsel for Heath accept that one construction of the exclusion treats "investment" as an adjective describing the nouns "facility and service"; even so, they say, it is a word of wide connotation. Counsel point out that exclusion (e) refers to a wide range of investments, financial and non-financial. They say there is nothing to indicate the "target" of the investment must have legal personality; on the contrary, three considerations are inconsistent with such a requirement. Those considerations are: first, the criterion of purpose that characterises the expression; second, investment by use of assets, which suggests merely a common enterprise; and third, investment by personal endeavour, which again suggests common enterprise. According to counsel for Heath, the term "investment facility or service" extends to "any enterprise, concept, activity, relationships or transactions that had a substantial use or purpose in promoting, co-ordinating, carrying out or managing investment transactions or activities". The primary consideration, they say, is a factual inquiry as to "the purpose for which the particular transaction, activity or structure has been established". They go on: "That factual inquiry admits of only one answer: the Venture was established to maximise the commercial value of the horses and have as its prime objective the derivation of profits from the sale of yearlings: Management Agreement clauses 1.1 and 1.2 ... It sought to achieve this by 'locking' the investors into a scheme whereby they were bound to have their ownership shares in the horses subject to a common manager ... But they were able to transfer their shares and the Manager could not refuse to register the new shareholder." Clauses 1.1 and 1.2 of the management agreement provide: "1.1 The Manager agrees to arrange for and provide in a proper and skilful way to a standard normally expected in the thoroughbred industry for thoroughbreds of the quality of the Horses, all necessary agistment, stabling, breeding and racing programs, veterinary services, preparation of yearlings for sale, service rights and payment of fees, lodging of appropriate breeding returns, preparation of accounts and management generally with a view to maximising the commercial value of the Horses. 1.2 The Manager shall have as its prime objective the derivation of profits from the sale of yearlings at major sales. However the Manager is authorised to retain on behalf of the Venture full ownership or part thereof in any of the Horses for the purpose of racing where in the Manager's opinion, such retention for racing purposes would, having regard to all the circumstances, be in the best interest of the Owner by seeking to maximise the value of the Horse." Counsel for Heath say the venture was intended to provide a mechanism by which individual investors: "a. could obtain a spread of property rights across a range of horses; b. by so doing, could minimise the risks associated with sole ownership of any particular horse; c. could obtain a property interest in horses more valuable than any of them could have obtained by their own individual investment; d. could obtain the prospect of a greater return by obtaining the services of full time, and supposedly competent, management; e. obtained freedom from the effort that would otherwise be involved in the management of the horses. At a practical level, therefore, the Venture offered the prospect of facilitating the Applicants' individual investments, providing them with a service in relation to the management of the property that they acquired, and providing them with expertise in relation to the breeding and sales activities that were essential to the common enterprise that the Venture contemplated." As we have said, the response of opposing counsel to this submission was essentially that made by Davies J: the venture was not of an ongoing nature, it did not facilitate or assist investment because its "sole concern was taxation and the purchase, breeding and sale of bloodstock. The venture was a one-off tax avoidance and profit-making scheme, not an on-going structure or service which facilitated investment". However, with respect, we find this reasoning unpersuasive. Neither "facility" nor "service" implies permanency; some facilities and services are extremely short-term. The venture was to be "on-going" for a period of five years; many an investment broker or investment trust does not survive as long. More centrally, Davies J thought the venture "did not facilitate or assist investment" because its "sole concern was taxation and the purchase, breeding and sale of bloodstock". However, a bloodstock breeding venture is a form of investment; perhaps more risky than some, but an investment nonetheless. It is true this particular venture was tax-driven, in the sense that investors would not have been likely to enter the syndicate if it had not offered substantial taxation advantages. But that is not unusual; taxation advantages are a major consideration in many contemporary investment decisions. Counsel for ABCOS quote dictionary definitions of "facility". They take from the Macquarie dictionary "something that makes possible the easier performance of any action" and from the Shorter Oxford Dictionary "the fact or condition of being easy or easily performed". They say "(t)he venture here did not make investment easier or more easily performed for the Investors". We disagree. It would have been difficult, if not impossible, for the Investors to have gone into the horse breeding business as individuals; most, if not all, would have lacked the necessary combination of capital, expertise and time. There were advantages to them in pooling their resources and engaging a knowledgeable manager. Moreover, there was an advantage in pooling horses, and so averaging risk. The venture made this form of investment easier than it would otherwise have been. However, what we have said does not resolve the construction of exclusion (e). At least the following further questions arise: (i) whether the definition of the expression "the Insured firm" contained in the preamble applies where that expression occurs in either place or both places in exclusion (e); (ii) whether the expression "any of its partners" refers back to "the Insured firm" or to "its predecessors in business" or both; (iii) whether the expression "any of its partners" means "any one of its partners" or "any one or more of its partners"; (iv) whether the word "has" speaks as at the time of the provision of the advice, inducement, recommendation, endorsement or opinion (for convenience we will refer to all compendiously as "the advice"), the time of the making of the investment (or both of those times) or the times of the making of the claim; (v) whether the financial interests of partners may be aggregated for the purpose of determining whether the 10% level is reached. With the exception of issue (iv), these questions were not debated, or were scarcely debated, before us. In relation to issue (iv), the competing submissions were that the word "has" means "had at the time of the provision of the advice" on the one hand, and "had at the time of the making of the investment" on the other. It was put that, if the former is correct, exclusion (e) does not apply here because neither McDonald nor Farrow had any interest in the enterprise at the time McDonald spoke: the enterprise had not then been established. On the other hand, it was put that if the word "has" means "had at the time of the making of the investment", both McDonald and Farrow had interests as at that time, since all investments were made simultaneously. We are of the view that the word "has" means "had at the time when there was an effective or operative giving of the advice". This view is supported by a purposive construction and by the presence of the word "inducement". In the present case, what McDonald said was never withdrawn and continued to be effective down to 30 June 1989 when the investments were made. Because they were not explored in submissions, we do not think it necessary to recount the detailed consideration we have given to the other issues of construction. It seems appropriate, however, to give the following outline. The preamble defines the expression "the Insured firm" to "include any person or persons who may at any time and from time to time during the period of [the] Certificate be a partner in the Insured firm or any one or more of them." We will refer to the persons mentioned in the definition as "the current partners" (by reference to the currency of the Certificate). In exclusion (e), "the Insured firm" has its defined meaning, in our view. That meaning does not include predecessors in business or their partners. Predecessors and their partners are dealt with separately in exclusion (e). A firm may have successive predecessors but ordinarily only one will have given the advice. The expression "or any of its partners" represents an attempt to assimilate the treatment of that predecessor with the treatment of the current firm in the definition in the preamble. The word "any" does not necessarily signify the singular ("any one") and having regard to purpose and context, we think it does not do so in the expression "any of its partners" in exclusion (e). The words "the Insured firm or its predecessors in business or any of its partners" means "the Insured firm or any one or more of its current partners or any of its predecessors in business or any one or more of the partners of the predecessor in question." The expression "or any member of their family" is problematical. We choose not to discuss its meaning, beyond saying that even if it signifies "any one member ..." this would not require that earlier wording be limited to refer to "any one partner". The purpose of exclusion (e) is to guard against the danger that advice may be compromised. The drafter has made the exclusion apply even where the giver of the advice is unaware of the existence of the disqualifying interest. This suggests one should not be surprised to find that the clause requires aggregation of interests. The view that aggregation is not permissible leads to an extraordinary result: the exclusion would not apply where the enterprise was wholly owned by some or even all partners and the giver of the advice knew this, provided only the interest of each partner was less than 10% of the value of the enterprise. Although exclusion (e) is poorly expressed, we think it clearly operates where "Beattie McDonald" or any one or more of that firm's current partners (McDonald and Farrow), were financially interested in the enterprise to an extent of not less than 10% of its value when the advice provided was effective. That was the situation here because McDonald (one partner) was interested to the extent of 7.5% and Farrow (another partner) was interested to the extent of 2.5%. In the result, in our opinion, the claims made against McDonald and Farrow fell within exclusion clause (e). We note, but have not relied on, another possible argument supportive of this result: that McDonald alone had a 10% interest, his joint legal interest being itself treated as a 5% interest for present purposes. Davies J was correct in dismissing the Investors' suit against Heath (NG491 of 1994), and the claims brought against Heath in NG711 of 1991.

Appeal by ABCOS - NG317 of 1996 This appeal raised four issues: ABCOS' liability to the Investors, in negligence or under s 52 of the Trade Practices Act; whether there was contributory negligence by the Investors; apportionment; and s 169 of the Code. In the view we take, ABCOS fails completely on the first two points; it succeeds on the third only to the extent that its contribution is reduced from 20% to 18%, to accommodate the increase in Done's proportion. On the final point it is successful. However, to the extent MANL succeeds in obtaining restitution orders against the Investors, the effect will be to reduce, rather than to eliminate, its liability to the Investors. Having regard to the fact that the matter of restitution is to be remitted to the trial Judge, it will be necessary also to remit to him the final disposition of this appeal. Otherwise, ABCOS' appeal should be dismissed. Having regard to ABCOS' mixed results, no order should be made in its favour in respect of the costs of the appeal.

Appeal by Done - NG319 of 1996 As mentioned earlier, Done raised three points in his appeal: the correctness of the trial Judge's finding that he was in breach of fiduciary duty; the trial Judge's rejection of his claim for indemnity from Heath pursuant to s 6 of the LR(MP) Act in relation to contribution payable by McDonald and Farrow; and the trial Judge's rejection of his claim that the Investors' acquisition of interests in the venture involved a contravention of s 169 of the Code. As will be apparent, the first two points fail totally, although our reason for excluding Heath's indemnity is different from that of the trial Judge. The third ground of appeal partly succeeds. We agree there was a breach of s 169 and this renders all the relevant transactions unenforceable, but this is a subject to MANL's claim for restitution. To the extent MANL's restitution order (if any) is less than its amount of recovery, as assessed by the trial Judge, there will be a reduction in the total amount of damages awarded to the Investors against the five respondents held liable at trial: Done, Bester, McDonald, King and ABCOS. However, as a result of our view on apportionment, Done will bear a greater proportion of that total sum than under Davies J's orders. Those changes will need to be accommodated by an amendment to the order previously made The cross-appeal by Bester, which was filed in NG319 of 1996, will be dismissed. Except in relation to Heath (see below), no order for costs should be made in respect of either the appeal or cross-appeal.

Appeal by King - NG321 of 1996 This appeal succeeds to the extent that King's contribution to the Investors' damages is reduced by two factors: the diminution in their total damages by reason of the reduction in their liability (if any) to MANL, and the apportionment reduction, from 20% to 18%. Once again, the matter should be remitted to the trial Judge for the purpose of making the orders. There should be no order for costs in respect of this appeal.

Appeal by the Investors against MANL - NG323 of 1993 As recounted earlier, the Investors raised two substantive points: breach of s 169 of the Code, and penalty. They succeed on the first point; therefore it is unnecessary for us to deal with the second. However, the Investors' success is subject to the matter of restitution. Once again it will be necessary for Davies J to make the appropriate orders, in variation of those made by him on 18 December 1995. In relation to costs of the appeal, each party has had some success. At the end of the day, the balance lies with the Investors. We think a fair order would be that MANL pay one-half of the Investors' costs of this appeal. Those costs should be assessed or taxed on the basis that this appeal occupied one hearing day.

Appeal by the Investors against Heath - NG324 of 1996 This appeal raises the correctness of Davies J's decision regarding exclusion (c). The Investors succeed in their argument on that matter but their success is nullified by Heath's success on its Notice of Contention concerning exclusion (e). His Honour's order dismissing proceeding NG324 of 1996 was correct, although for a different reason. It follows that the appeal should be dismissed. Heath should have a costs order in its favour. However, as both Done and ABCOS also challenged Davies J's order dismissing the case against Heath, they should share the burden of its costs. The appropriate course is to order the appellants in this appeal (the Investors) to pay one-third of Heath's costs and to make similar orders in appeal NG317 of 1996 against ABCOS, and appeal NG319 of 1996 against Done. For the purpose of assessment or taxation of costs, it should be assumed that the appeals involving Heath would have been completed in one hearing day. I certify that this and the preceding eighty eight (88) pages are a true copy of the Reasons for Judgment of Justices Wilcox and Lindgren. Associate: Dated: 12 December 1997 Appearances Mr S D Rares SC and Mr M Dicker of counsel instructed by Minter Ellison appeared for ABCOS. Mr D F Jackson QC and Mr T D Castle of counsel instructed by Allen Allen & Hemsley appeared for Done. Mr M G Skinner of counsel instructed by R B Monteith & Co appeared for MANL. Mr P R Garling SC and Mr L J W Aitken instructed by Phillips Fox appeared for Heath. Ms J M Housego of counsel instructed by Foulsham & Geddes appeared for King. Mr R B S McFarlan QC, Mr L S Einstein and Mr L Grant of counsel instructed by Gadens Ridgeway appeared for the Investors other than Mesh. Mr R Weaver, solicitor, appeared for Mesh. Dates of hearing 23, 24, 25 and 26 September 1996

IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 317 of 1996 GENERAL DIVISION ) On appeal from a Judge of the Federal Court of Australia BETWEEN: AUSTRALIAN BREEDERS CO-OPERATIVE SOCIETY LIMITED Appellant AND: GRIFFITH MORGAN JONES, FREDERICK LANCE MESH, EARLE WILFRED BAILEY, THOMAS ALFRED INGLIS BRAYE, JEFFREY WALL, BRIAN DAVID THORNTON, KEVIN IAN PERKINS, PAUL EDWARD NEILSON, ANTHONY MARMADUKE CARMICHAEL, GLEN WILLIAM GREEDY, PAUL STENBERG, GORDON FRASER, JOHN HOPE GIBSON, EDWARD JAMES AIRD (JNR), DONALD LEVICK, NOLA LEVICK, JEFFREY CECIL FOSTER AND MARK THOMAS SEALES First Respondents RODERICK STUART McDONALD Second Respondent GREGORY ALFRED FARROW Third Respondent PETER DONE Fourth Respondent BRIAN KING Fifth Respondent JAMES BESTER Sixth Respondent C E HEATH CASUALTY & GENERAL INSURANCE LIMITED Seventh Respondent IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 319 of 1996 GENERAL DIVISION ) On appeal from a Judge of the Federal Court of Australia BETWEEN: PETER DONE Appellant/Fourth Cross Respondent AND: GRIFFITH MORGAN JONES, FREDERICK LANCE MESH, EARLE WILFRED BAILEY, THOMAS ALFRED INGLIS BRAYE, JEFFREY WALL, BRIAN DAVID THORNTON, KEVIN IAN PERKINS, PAUL EDWARD NEILSON, ANTHONY MARMADUKE CARMICHAEL, GLEN WILLIAM GREEDY, PAUL STENBERG, GORDON FRASER, JOHN HOPE GIBSON, EDWARD JAMES AIRD (JNR), DONALD LEVICK, NOLA LEVICK, JEFFREY CECIL FOSTER AND MARK THOMAS SEALES First Respondents/First Cross Respondents MORTGAGE ACCEPTANCE NOMINEES LIMITED & ORS Second Respondent RODERICK STUART McDONALD Third Respondent/Second Cross Respondent GREGORY ALFRED FARROW Fourth Respondent/Third Cross Respondent JARPAN MANAGEMENT SERVICES PTY LIMITED Fifth Respondent BRIAN KING Sixth Respondent/Fifth Cross Respondent JAMES BESTER Seventh Respondent/Cross Appellant

AUSTRALIAN BREEDERS CO-OPERATIVE SOCIETY LIMITED Eighth Respondent/Sixth Cross Respondent C E HEATH CASUALTY & GENERAL INSURANCE LIMITED Ninth Respondent/Seventh Cross Respondent PETER DONE Fourth Cross Respondent IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 321 of 1996 GENERAL DIVISION ) On appeal from a Judge of the Federal Court of Australia BETWEEN: BRIAN KING Appellant AND: GRIFFITH MORGAN JONES, FREDERICK LANCE MESH, EARLE WILFRED BAILEY, THOMAS ALFRED INGLIS BRAYE, JEFFREY WALL, BRIAN DAVID THORNTON, KEVIN IAN PERKINS, PAUL EDWARD NEILSON, ANTHONY MARMADUKE CARMICHAEL, GLEN WILLIAM GREEDY, PAUL STENBERG, GORDON FRASER, JOHN HOPE GIBSON, EDWARD JAMES AIRD (JNR), DONALD LEVICK, NOLA LEVICK, JEFFREY CECIL FOSTER AND MARK THOMAS SEALES First Respondents MORTGAGE ACCEPTANCE NOMINEES LIMITED & ORS Second Respondent RODERICK STUART McDONALD Third Respondent

GREGORY ALFRED FARROW Fourth Respondent PETER DONE Fifth Respondent JAMES BESTER Sixth Respondent AUSTRALIAN BREEDERS CO-OPERATIVE SOCIETY LIMITED Seventh Respondent IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 323 of 1996 GENERAL DIVISION ) On appeal from a Judge of the Federal Court of Australia BETWEEN: GRIFFITH MORGAN JONES, FREDERICK LANCE MESH, EARLE WILFRED BAILEY, THOMAS ALFRED INGLIS BRAYE, JEFFREY WALL, BRIAN DAVID THORNTON, KEVIN IAN PERKINS, PAUL EDWARD NEILSON, ANTHONY MARMADUKE CARMICHAEL, GLEN WILLIAM GREEDY, PAUL STENBERG, GORDON FRASER, JOHN HOPE GIBSON, EDWARD JAMES AIRD (JNR), DONALD LEVICK, NOLA LEVICK, JEFFREY CECIL FOSTER AND MARK THOMAS SEALES Appellants/First Cross Respondents AND: MORTGAGE ACCEPTANCE NOMINEES LIMITED Respondent/Cross Appellant RODERICK STUART McDONALD Second Cross Respondent GREGORY ALFRED FARROW Third Cross Respondent PETER DONE Fourth Cross Respondent BRIAN KING Fifth Cross Respondent JAMES BESTER Sixth Cross Respondent AUSTRALIAN BREEDERS CO-OPERATIVE SOCIETY LIMITED Seventh Respondent IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 324 of 1996 GENERAL DIVISION ) On appeal from a Judge of the Federal Court of Australia BETWEEN: GRIFFITH MORGAN JONES, FREDERICK LANCE MESH, EARLE WILFRED BAILEY, THOMAS ALFRED INGLIS BRAYE, JEFFREY WALL, BRIAN DAVID THORNTON, KEVIN IAN PERKINS, PAUL EDWARD NEILSON, ANTHONY MARMADUKE CARMICHAEL, GLEN WILLIAM GREEDY, PAUL STENBERG, GORDON FRASER, JOHN HOPE GIBSON, EDWARD JAMES AIRD (JNR), DONALD LEVICK, NOLA LEVICK, JEFFREY CECIL FOSTER AND MARK THOMAS SEALES Appellants AND: C E HEATH CASUALTY & GENERAL INSURANCE LIMITED Respondent CORAM: Wilcox, Lee, Lindgren JJ PLACE: Sydney DATE: 12 December 1997

REASONS FOR JUDGMENT LEE J: I have had the advantage of reading the reasons prepared by Wilcox and Lindgren JJ and agree with those reasons except for the conclusion that par (e) of the exclusion clause of the Accountants' Professional Indemnity Insurance policy ("the policy") issued by C E Heath Casualty and General Insurance Limited ("Heath") to Beattie McDonald & Co ("Beattie McDonald") relieved Heath of liability to indemnify Beattie McDonald under that policy. The relevant clause is as follows: "This Certificate shall not indemnify the Insured firm against Claims made upon it: (a) by or on behalf of any person named in this Policy as a co-insured; (b) by or on behalf of any person operated or controlled by the Insured firm or by any partners, employees, nominees or trustees of the Insured firm and in which the Insured firm or any of its partners or any member of their respective families has a direct or indirect financial interest; (c) by any person advised or induced by the Insured firm or partners or employees of the Insured firm or of its predecessors in business at the time of the advice or inducement to invest in or lend money to any person being a person referred to in the preceding sub-clause or to any person named as the Insured firm under this Policy; (d) by any member of the family of any partner of the insured firm; (e) arising out of the provision by the Insured firm of any advice, inducement, recommendation, endorsement or opinion regarding the investment of any interest, capital or personal endeavour in an investment facility or service in which the Insured firm or its predecessors in business or any of its partners or any member of their family has a direct or indirect control or financial interest; (f) ... For the purpose of these general exclusions, the following words or expressions shall have the following meanings: 'Family' shall mean the spouse or any of the children of any partner of the Insured firm. 'Financial interest' shall exclude any financial interest of less than 10% of the issued capital in a company or less than 10% of the value of any other enterprise." The exclusion clause must be construed in the context of the entire policy to ascertain the extent to which the contract of insurance has limited the insurer's liability to indemnify the insured firm under the policy. Pursuant to SECTION 1 - LEGAL LIABILITY the policy states that Beattie McDonald is indemnified against, inter alia, claims made in the period of insurance "by reason of any act error or omission or breach of contract between the Insured firm and its clients in or about the conduct of any professional business conducted by, or on behalf of the Insured firm or its predecessors in business". The policy goes on to say that "This Section shall cover the liability", inter alia,of any "service, administrative or trustee company or trust insofar as its activities are carried out solely in connection with the professional business but not including any company which accepts money for investment otherwise than as a trustee." Under the heading "Extensions" the policy provides that Beattie McDonald is "protected...for any claim upon which suit may be brought by reason of any alleged dishonesty, misstatement or fraud on the part of the Insured firm or its partners or its employees" unless a judgment adverse to the insured establishes that acts of "active and deliberate fraud or dishonesty" were committed by a partner or partners of the insured with actual fraudulent or dishonest purpose and intent, being conduct material to the cause of action adjudicated upon in the judgment. Under the same heading it is stated that Beattie McDonald is indemnified against any claim upon which suit may be brought by reason of any alleged guarantee regarding the financial return of any investment unless a judgment adverse to the insured establishes that such a guarantee was provided by the insured. The exclusion clause appears to be an amalgam of the work of more than one draftsperson in that there is a lack of consistency in expression and coherence between par (e) and the preceding paragraphs of the clause giving rise to substantial uncertainty as to the intended scope of par (e). In par (a) it is stated that Beattie McDonald is not indemnified against claims made upon it by a person named in the policy as a "co-insured". The term "co-insured" is not defined and no person is so named in the policy. Where the policy states under the heading LEGAL LIABILITY that partners of the insured firm are "covered" against any claim made during the period of insurance "arising from the conduct of any business by such partners in their professional capacity as accountants before they joined the Insured firm", it may be that such a partner could be regarded as separately insured under the policy, the liability referred to not being a liability of the insured firm. Also, the policy provides that a company for which the insured firm "carries on the business of Secretary, Manager or Registrar" is indemnified by the insurer for losses caused by the loss, destruction or forging of company documents, fraudulent entries in share registers, loss of cash received in the insured firm's "share department" caused by theft, burglary, larceny or pilferage. Notwithstanding that the loss suffered by the company may be by an act of the insured firm in the conduct of its professional business the company is separately indemnified under the policy and not derivatively under the indemnity of the insured in respect of a claim on the firm. In par (b) two circumstances must exist before no indemnity will apply under the policy. Unless the insured firm, or persons who owe allegiance to the insured firm as partners, employees, nominees or trustees of the firm operate or control the person making a claim on the firm and the insured firm, or any of its partners, or any members of their respective families, has a direct or indirect financial interest in the claimant the clause will not apply. Such a claimant would be, for example, a "service, administrative or trustee company or trust" carrying out activities solely in connection with the professional business of the insured firm referred to earlier in the policy as an entity the liability of which is "covered" under the policy. The effect of the paragraph is that the insurer will not indemnify the insured firm against a claim made upon the firm by an "alter ego" of the firm. Paragraph (d) of the clause is to the same effect and the insured firm will not be indemnified where the claimant is a member of a family of a partner. Another provision to like effect is to be found in the terms of the policy which precede the exclusion clause, where in the case of an insured firm that operates as an incorporated practice, indemnity of the firm against claims is also an indemnity for the benefit of directors and shareholders of the incorporated practice but is not an indemnity of a director for a claim made by shareholders "in their capacity as shareholders". (Emphasis added) "Shareholders" are defined in the policy as being included in the word "partners" where applicable. With regard to the second disqualifying circumstance of par (b), namely, the holding of a direct or indirect financial interest in a claimant, the meaning of the paragraph is not clear. Putting to one side the question what would constitute an "indirect financial interest" and the question how the "value" of "any other enterprise" would be ascertained, the qualification is not met unless the insured firm, any of its partners or any member of their respective families has the direct or indirect financial interest. Although the words "any of its partners", "any member of their respective families" may include more than one, the use of the verb "has" is of importance in deciding how the paragraph is to be read in the context of the policy. The interest of an insured firm, by operation of the definition of insured firm in the policy, would include the interests of partners held for the use of the partnership business. Aggregation of those interests would follow to ascertain the interest the insured firm has. However, where the clause goes on to refer to the interests that any of the partners or any member of their respective families has, it is likely to be speaking of the separate personal property of a partner or of a member of the family of a partner, the disqualifying element not being satisfied unless the property of the partner or family member is, on its own, the "financial interest". It is less likely that the alternative meaning to be attributed to that limb of the clause is that it is speaking of aggregated property of partners or family members. In par (c) of the exclusion clause an indemnity under the policy will not extend to a claim made upon the insured firm by a person who has been advised or induced by the insured firm or by partners or employees of the insured firm who were partners or employees of its predecessors in business at the time of the advice or inducement to invest in, or lend money to, the insured firm or to a person described in par (b) as a person in respect of whose claim against the firm the firm will not be indemnified. The comments made in relation to par (b), therefore, also apply to par (c). Given that the preceding terms of the policy, by providing "cover" for such an activity, contemplate that the professional business conducted by the insured firm may include the operation of a company which accepts money for investment as a trustee, if such an activity is carried out solely "in connection with" the business of the firm, it is unlikely that par (c) excludes indemnity for claims made by a client in respect of advice to invest in, or lend to, such an entity. In par (e) indemnity is not provided to the firm against a claim by a person who has acted on, inter alia, advice, inducement or opinion regarding investment (not limited to an investment of money) in an "investment facility or service" with which the insured firm has a particular connection. Having regard to the potential width of operation of the exclusion, any ambiguity in the words used therein must be resolved by applying the construction least advantageous to the insurer where it seeks to rely on that clause to deny liability under the policy. An exclusion clause inserted by an insurer which has the effect of removing the right of indemnity the insured would otherwise obtain but for the exception, is to be construed strictly against the interests of the insurer and the burden of showing that the facts of a case attract the operation of such a clause rests on the insurer. (See: Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 510; Trickett v Queensland Insurance Co Ltd [1932] NZLR 1727 at 1745; K Sutton, Insurance Law in Australia, (2nd Ed), (Sydney: The Law Book Company Limited, 1995), 553 et seq.) It was submitted by counsel for Heath that "policy considerations" supported the application of a broad construction of the exclusion clause given that it was a professional indemnity policy intended to cover primarily the members of the firm of Beattie McDonald in relation to claims against them for things done in their professional capacity. I am not sure what the "policy considerations" were to which counsel alluded but it is well settled that if the terms of such an exclusion clause lack clarity, or are ambiguous, only the meaning least advantageous to the insurer is the construction to be applied to the clause and consideration of questions of public policy in this instance may reinforce that approach. The apparent purpose of par (e) is to permit the insurer to limit its exposure under the policy by denying the insured an indemnity against claims where the competent conduct of the business of the insured firm, or the observance of fiduciary duties, may be compromised by the preferment of personal interests above those of a client, the risk of claims against the firm being increased thereby. However, it is to be remembered that under the policy the insured firm is indemnified for claims arising out of conduct that would involve a gross breach of professional standards unless it is established that "active and deliberate fraud or dishonesty" has been committed by a partner or partners of the insured firm. The insured firm continues to be indemnified against any claim arising out of "active or deliberate fraud or dishonesty" by an employee of the firm. The "active or deliberate fraud or dishonesty" of a partner may be regarded as an act so far removed from the conduct by the partners of the professional business insured as to be beyond the scope of the policy. Similarly, where the policy states that indemnity against suit is provided under the policy unless it is established that the insured firm has provided a guarantee regarding the "financial return of any investment", the act of the insured firm in assuming the liability of a guarantor may be regarded as an act beyond the conduct of the "professional business" of the insured firm and beyond the scope of the policy. It is a matter of public concern that rules which govern the practise of a professional business such as that engaged in by Beattie McDonald be sufficient to require the practitioners to obtain insurance indemnifying them against liability arising out of the practise of their profession. Such insurance is a professional obligation to be undertaken to safeguard the interests of clients. Beattie McDonald met that obligation in applying for insurance under the Australian Accountants' Professional Indemnity Insurance Facility. Having regard to the foregoing, it is to be expected that any limitation of the indemnity provided by the policy will be expressed in words of clear meaning and will apply only to events for which the denial of insurance is appropriate. It is to be observed that on the face of the paragraph the circumstances to which par (e) will apply are likely to involve a claim against the insured firm by a client where the act, error or omission giving rise to the claim has occurred in the course of the conduct of the professional business and that the claim would be one for which it would be expected that the insured would be indemnified under the policy. It must have been the intention of the parties that par (e) would apply to events likely to cause a marked increase in the risk the insurer had accepted under the policy being a circumstance sufficient to deny any public interest in a client of the insured firm having recourse to the insured's indemnity in respect of a claim for loss arising out of the conduct of the professional business of the insured firm. The plain meaning of the words "has a direct or indirect control or financial interest", is governed by the use of the verb "has". The word denotes a temporal connection between the relevant control or interest and the provision of advice, inducement, recommendation, endorsement or opinion regarding investment in an "investment facility or service" and indentifies the relevant subject as singular and not plural. That is to say the "direct or indirect control" must be that which the firm, a partner or a member of the family of a partner has at the relevant time. Given that a partner or employee providing the advice or inducement on behalf of the firm may be unaware of minor personal interests that partners, shareholders or members of partners' or shareholders' families may have in the "investment facility or service" in respect of which the advice or inducement occurred and that the exclusion of indemnity is predicated upon the furthering of personal interests of the firm at the expense of the observance of professional standards in the conduct of the business of the firm, perhaps it is more consistent with the application of a concept of deemed or constructive knowledge that the interest in the "investment facility or service" be a significant interest held by the firm, a partner, a shareholder or a member of a partner's or shareholder's family. The several minor interests in an "investment facility or service" held as the personal property of each of one or more partners, shareholders or members of the families of partners or shareholders is not a circumstance which suggests that the conduct of the business of the insured firm may fall so far short of professional standards as to materially increase the risk of the insurer under the policy. It would be a strange result if honest but misguided advice or opinion by an employee of the insured firm given without knowledge of the personal interests that partners, shareholders or members of families of partners or shareholders may have in an "investment facility or service" would entitle an insurer to decline to indemnify the insured firm whilst "active or deliberate fraud or dishonesty" by the employee, perhaps due to inadequate supervision by the firm in the course of the employee's employment, would not. I am of the opinion that the proper construction of par (e) is that the "financial interest" in an "investment facility or service" is the "financial interest" held by a firm, a partner, a shareholder or a member of the family of a partner or shareholder and not an aggregation of the separate personal interests of partners, shareholders and members of their families in such a facility or service. On the facts of this case neither Beattie McDonald, McDonald or Farrow had a "financial interest" and the claims of the Investors, ABCOS and Done for orders against Heath should have succeeded to that extent. With the exception of the orders relating to the disposal of the appeals of the Investors, ABCOS and Done against Heath and costs thereon I agree with the orders proposed by their Honours. I certify that this and the preceding twelve (12) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee