CAUSATION ISSUES
410 No causation issues would arise on the conclusions I have reached with respect to the Carey parties' case. It may nonetheless be helpful to sketch the conclusions I would reach with respect to them.
411 Section 82 of the TPA requires consideration of whether the claimant has suffered loss or damage "by conduct of another person" done in the contravention of an identified provision of the TPA (in this case, s 52). In Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 ('Wardley') at 525, Mason CJ and Dawson, Gaudron and McHugh JJ said that the word "by" "clearly expresses the notion of causation" and that 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 & MH) Pty Ltd (1991) 171 CLR 506 ('March v Stramare'), except in so far as that concept is modified or supplemented expressly or impliedly by the provisions of the Act". In order, therefore, to be compensated for any loss and damage under s 82(1) of the TPA, the Carey parties needed to establish a causal connection between the alleged misrepresentations and the loss for which they seek compensation: see further Wardley at 525-526 and Henville v Walker (2001) 206 CLR 459 ('Henville v Walker') at 469-470 (Gleeson CJ), 480 (Gaudron J), 489 (McHugh J) and 508-509 (Hayne J).
412 In Wardley at 525, their Honours said that where the Court is "concerned with contraventions of s 52(1) in the form of misleading conduct constituted by misrepresentations … acts done by the representee in reliance upon the misrepresentation constitute a sufficient connexion to satisfy the concept of causation". If a material representation has contributed to the loss or damage in some way, "despite other factors or conditions having played an even more significant role in producing the loss or damage", it will be regarded as a cause of the loss or damage: see Henville v Walker at 493 [106] (McHugh J, with whom Gummow J agreed), 509 [163] (Hayne J, with whom Gummow J also agreed). A loss may be a loss of opportunity foregone: Henville v Walker 502-503 [133]. A material representation is calculated in the sense of being "objectively likely" to act as an inducement to act in some particular way: see Henderson v Amadio Pty Ltd (No 1) (1995) 62 FCR 1 at 166. As Lockhart, Gummow and French JJ observed in Ricochet Pty Ltd v Equity Trustees Executors & Agency Co Ltd (1993) 41 FCR 229 at 235:
Ultimately, the "causative threshold" beyond which liability attaches to a misrepresentation which is one of a number of factors inducing a decision that produces loss, will be a question of judgment. ... But the mere possibility that a misrepresentation might have induced a course of action by the representee can never of itself attach liability under s 82 to the making of it.
413 The insuperable difficulty for the Carey parties is that I am not satisfied on the balance of probabilities that the Promissory Note Advice (in which the alleged representations were said to be made) were material in the sense of playing some part in any decision within the Westpoint Group, whether by Mr Shearwood's client or, in some relevant capacity, Mr Carey (or any of the other Carey parties) to issue promissory notes in accordance with the arrangements made within the Group.
414 The Carey parties have not established that, on the balance of probabilities, a company in the Westpoint Group or any of the Carey parties relied on the supposed Promissory Note Advice itself. The Carey parties argued that they did not need to show "who it was that relied on Freehills' advice and how it was relied upon". Rather, it was sufficient that "[t]he use of promissory notes by the Westpoint Group was embarked upon in accordance with the advice given by Freehills", because "the inference arises that the persons and entities who decided to embark on the course of conduct did so because of Freehills' advice". As stated below, I would reject this submission. Even if there was any evidence for such an inference, the inference is not sustainable when the evidence as a whole is considered.
415 There was no direct evidence that anyone within the Westpoint Group had relied on the Promissory Note Advice in making a decision to issue promissory notes as companies in the Group did. The letters of 17 January 2000 and 9 February 2000 were both prepared to be provided to financial planners and were not used for any other purpose. In cross-examination, Mr Bell said that the letters were included in "a due diligence pack for all financial planners to use as part of their compliance regime" and that was the extent of their use. His evidence was that the letters did not lead to the decision to use promissory notes.
416 The letter of 2 June 2000 was provided to ASIC as a response to ASIC's letter of 29 May 2000. In the circumstances as found, the Westpoint Group and the Carey parties understood that they were prepared as a defensive submission to dissuade ASIC from taking its enquiries further. Similarly, whilst the letter of 5 February 2003 was sent to Mr Carey, it was sought and prepared for the purpose of being shown, if needed, to banks or financial planners, in circumstances where Mr Shearwood's concerns about the Westpoint Group's use of promissory notes had been clearly conveyed to Westpoint Group personnel and to Mr Carey. As noted already, Mr Shearwood had warned about their use as early as April 2000, in a conversation with Mr Bell. Subsequently, he warned about the use of promissory notes in an email to Mr Thomas on 2 June 2000, a letter to Mr Rundle and Mr Thomas on 24 August 2000, emails to Ms Pham on 27 and 28 September 2000 and 3 October 2000, an email to Mr Thomas on 22 December 2000, a conversation with Mr Beck on 15 August 2001, a letter to Mr Beck on 17 August 2001, an email to Mr Millmore on 23 November 2001; and in an email to Mr Bell on 28 May 2002.
417 There is evidence and I accept that Mr Carey was made aware of Mr Shearwood's concerns. For example, as appeared in the fax to Mr Carey of 28 September 2000, within the Westpoint Group it was known that Mr Shearwood was "a bit nervous on this issue". Mr Bell agreed in cross-examination that he would have told Mr Carey about the concerns expressed by Mr Shearwood to him in March or April 2000. Furthermore, no-one within the Westpoint Group said at the time that he or she had acted on the basis that Mr Shearwood had given unqualified advice as to the use of the promissory notes and expressed dismay at a change of heart. One may infer from this that no-one within the Westpoint Group ever proceeded on the basis that Mr Shearwood had given any such unqualified advice.
418 There is a further difficulty so far as the Carey parties' case on reliance is concerned. The following circumstances lead one to conclude that it is more probable than not that the decision to use promissory notes for mezzanine fundraising was made before the letter of 17 January 2000 and therefore the other letters (and the alleged 2 September 2003 advice: but see above). The evidence established that Mr Bell began to prepare an information memorandum for the Bayview Project in December 1999, Bayview Mezzanine being incorporated the following January. It would follow from this that a decision of some kind had already been made by December 1999 - by someone in the Westpoint Group - to proceed to raise mezzanine funding by way of promissory notes. Consistently with this, Mr Bell's evidence was that it was not long after this that he began preparing information memoranda for the York Street and the Market Street Projects as well. It is also worth noting that York Street Mezzanine was in fact incorporated in November 1999, although Bayview Mezzanine was the first of the mezzanine companies to issue promissory notes.
419 The decision to issue promissory notes had clearly been made by February 2000. Promissory notes had been issued by 4 February 2000. The final versions of the information memoranda for the Bayview and York Street Projects were both published to financial planners in February 2000. Market Street Mezzanine was incorporated by late January 2000, although its information memorandum was not finally published until December 2000 based, however, on that for the York Street promissory note issue.
420 Further, by the time of the 5 February 2003 letter, there were yet further mezzanine companies with published information memoranda, including Bayshore Mezzanine (incorporated in August 2001, with an information memorandum in September 2001); Ann Street Mezzanine (incorporated in November 2002, with an information memorandum in December 2002).
421 It is also worth bearing in mind that, whilst Mr Carey and Mr Bell may not have had direct experience of funds management, Mr Rundle, to whom Mr Bell reported, did in fact have such experience. Mr Carey asserted on more than one occasion that he relied on Freehills' expertise in funds management since he had insufficient knowledge and experience. Whether or not Mr Carey was more knowledgeable than he claimed, Mr Rundle, who commenced his role as Chief Financial Controller ('CFC') in 1997 clearly had relevant, translatable, experience. Prior to joining the Westpoint Group, Mr Rundle was employed by the Challenge Bank, where so he said:
From 1990 to 1996 I spent time as a senior manager within the commercial banking division where I became experienced in providing senior debt funding for property development projects.
422 According to Mr Rundle, "[t]his experience proved valuable in my later position at Westpoint where I was responsible for arranging and managing all senior debt funding for projects". Mr Rundle as Mr Carey's CFC was, in Mr Carey's words "responsible for all aspects of the accounting/administration/finance of the Westpoint Group".
423 Furthermore, even if Mr Bell lacked funds management experience in mid 1997 when he first entered into a contract with a Westpoint Group company, he certainly had experience in stocks and securities as well as in accounting.
424 Finally, as already stated, Mr Carey was not in my view an honest and reliable witness. I reject his evidence that he would not have proceeded if he had known that the use of promissory notes arguably contravened the Corporations Act. This evidence was inconsistent with the fact that Mr Shearwood had communicated to Westpoint Group personnel as early as April 2000 that the position with respect to promissory notes was "not without doubt" and at best arguable - a fact clearly communicated to Mr Carey at the end of September 2000, if not earlier.
425 The companies in the Westpoint Group took known risks. They continued to use promissory notes for fundraising even after Mr Shearwood had specifically warned that it was only "arguable" that the promissory notes did not constitute interests in a MIS. Mr Carey conceded that he had received Mr Shearwood's 3 October 2000 email in which Mr Shearwood had said as much. Notwithstanding this, promissory notes continued to be issued. The Westpoint Group had also proceeded with the earlier Murray Street Project notwithstanding Mr Shearwood's advice (in his 1 December 2000 letter) that there was only "limited" scope to argue that the scheme was not a MIS. Mr Carey acknowledged in cross-examination that he knew of Mr Shearwood's advice and its qualification, but determined that the Project should proceed.
426 At one stage, Mr Carey agreed, in cross-examination, that 95% of the promissory notes were issued as a result of the decision of the independent directors of the mezzanine companies and that "to the extent that those decisions were influenced by Mr Shearwood's advice … one would need to ask the independent directors". As Freehills submitted, if this evidence were accepted, the Carey parties' case might well fail for want of evidence from the relevant decision-makers as to their reliance on Mr Shearwood's evidence. I would, however, reject Mr Carey's evidence that the decision to issue promissory notes after 3 October 2000 was really that of the directors of the mezzanine companies. Mr Carey gave this untrue evidence in an attempt to explain the Group's continued use of promissory notes after 3 October 2000, when he had to accept that he knew that Mr Shearwood's advice was that the legality of fundraising by way of promissory notes was only "arguable".
427 Having regard to the whole of the evidence, the Carey parties have failed to establish that, on the balance of probabilities, Mr Sharewood's client, let alone Mr Carey or any of the Carey parties, relied on the Promissory Note Advice.
428 I note that, by their written submissions, the Carey parties raised the prospect that it was not necessary for them to prove their reliance on the misrepresentations, citing in this regard Janssen-Gilag Pty Limited v Pfizer Pty Limited (1992) 37 FCR 526 ('Janssen-Gilag') at 528-529. The situation, however, with respect to third parties in the context of passing off or comparative advertising cases is different from and ill suited to the present case and cannot support the Carey parties in their cross-claim. In such a case as this, reliance is critical to their claim under the TPA. I do not accept that Lockhart J's statements in Janssen-Gilag at 528-529 are applicable here, for much the same reasons as Stone J gave in De Bertoli Wines Pty Ltd v HIH Insurance Ltd (in liq) and Ors (2011) 200 FCR 253 at [63] and [64] (affirmed on appeal in De Bertoli Wines Pty Ltd v HIH Insurance (in liq) [2012] FCAFC 28). As her Honour held (at 269 [63]):
To succeed in its claim in respect of each share purchase transaction DBW must show that it was induced to enter into the transaction by the impunged conduct of HIH. Insofar as it claims to have relied on analysts' reports it must show that the misleading or deceptive in those reports emanated from HIH. This case must be distinguished from that in the example given by Lockhart J in Janssen. It is not a case where the innocent party's act by its very nature causes the applicant's loss. Here reliance is critical to the applicant's claim; DBW must show that it relied on the misleading information and that that information emanated from HIH.
429 Having regard to the whole of the evidence, the Carey parties have failed to establish, on the balance of probabilities, that they sufferred loss and damage by the alleged contravening conduct of Mr Shearwood.
430 For much the same reasons, so far as the Carey parties' negligence claim is concerned, I am not satisfied on the balance of probabilities that any representation was "a necessary condition of the occurrence of harm" within s 5C(1)(a) of the Civil Liability Act 2002 (WA) or that "factual causation" within s 5C(2) is otherwise established.
431 So far as the negligence claim is concerned, both parties proceeded on the assumption that the Civil Liability Act 2002 (WA) ('Western Australian Civil Liability Act') provided the primary legal framework for the purposes of the causation question, which meant that, on their analysis, the issue of causation was governed by s 5C of that Act.
432 The relevant division (Division 3) of the Western Australian Civil Liability Act came into operation on 1 December 2003. No party drew my attention, however, to s 5A(3) of that Act, which provides that Division 3 does "not apply unless the harm giving rise to the claim for damages arises out of an incident happening on or after 1 December 2003". Since no argument was addressed to the point, I assume that the relevant incident for the purposes of s 5A(3) is the incident broadly described as the Westpoint Group collapse, and not the Promissory Note Advice.
433 At the same time, the application of the Wrongs Act 1958 (Vic) remained doubtful. I note that no party was able to articulate whether and, if so to what extent, the Victorian Wrongs Act 1958 applied. Mr Riordan SC stated that he "suspect[ed] that different parts of the [Promissory Note Advice] could be said to be given in Victoria; acted upon elsewhere", but that there was "no material difference" between s 5C of the Western Australian Civil Liability Act and the equivalent provision - which was s 51 in the Victorian legislation. For present purposes, it may be accepted that there is no material difference between s 51 of the Victorian legislation and s 5C of the Western Australian Civil Liability Act. There was, as indicated, no argument to the contrary. As a result, I propose to deal with the question through the lens of s 5C, acknowledging that what I say in relation to causation on its terms would apply equally to the question of causation under the Victorian Act. This course is an appropriate one in the current circumstances, where I have already found that the Carey parties' claims against Freehills have failed.
434 Section 5C of the Western Australian Civil Liability Act provides a statutory basis for determining the questions of causality between the negligent act and the harm suffered, and the scope of the defendant's liability. Section 5C relevantly provides:
(1) A determination that the fault of a person (the tortfeasor) caused particular harm comprises the following elements -
(a) that the fault was a necessary condition of the occurrence of the harm (factual causation); and
(b) that it is appropriate for the scope of the tortfeasor's liability to extend to the harm so caused (scope of liability).
(2) In determining in an appropriate case, in accordance with established principles, whether a fault that cannot be established as a necessary condition of the occurrence of harm should be taken to establish factual causation, the court is to consider (amongst other relevant things) -
(a) whether and why responsibility for the harm should, or should not, be imposed on the tortfeasor; and
(b) whether and why the harm should be left to lie where it fell.
Section 5D provides:
In determining liability for damages for harm caused by the fault of a person, the plaintiff always bears the onus of proving, on the balance of probabilities, any fact relevant to the issue of causation.
435 In considering the equivalent provision in the Civil Liability Act 2002 (NSW), the High Court noted in Adeels Palace Pty Ltd v Moubarak (2009) 239 CLR 420 ('Moubarak') at 440 [42] that the provision "divides the determination of whether negligence caused particular harm into two elements: factual causation and scope of liability". The Court continued (at 440-443 [43]-[44], [52]-[56]):
Dividing the issue of causation in this way expresses the relevant questions in a way that may differ from what was said by Mason CJ, in March v E and MH Stramare Pty Ltd [(1991) 171 CLR 506 at 515] to be the common law's approach to causation. The references in March v Stramare to causation being "ultimately a matter of common sense" were evidently intended to disapprove the proposition "that value judgment has, or should have, no part to play in resolving causation as an issue of fact". By contrast, s 5D(1) treats factual causation and scope of liability as separate and distinct issues.
It is not necessary to examine whether or to what extent the approach to causation described in March v Stramare might lead to a conclusion about factual causation different from the conclusion that should be reached by applying s 5D(1). It is sufficient to observe that, in cases where the Civil Liability Act or equivalent statutes are engaged, it is the applicable statutory provision that must be applied.
…
Counsel for the plaintiffs, in this court, relied upon passages in Chappel v Hart [(1998) 195 CLR 232]. But in that case the majority proceeded on the basis that but for the failure to warn the event would not have happened; the question then was whether certain additional factors, combined with the satisfaction of the "but for" test, were sufficient to establish causation.
In the present case, in contrast, the "but for" test of factual causation was not established. It was not shown to be more probable than not that, but for the absence of security personnel (whether at the door or even on the floor of the restaurant), the shootings would not have taken place. That is, the absence of security personnel at Adeels Palace on the night the plaintiffs were shot was not a necessary condition of their being shot. Because the absence of security personnel was not a necessary condition of the occurrence of the harm to either plaintiff, s 5D(1) was not satisfied. Did s 5D(2) apply?
Section 5D(2) makes provision for what it describes as "an exceptional case". But the Act does not expressly give content to the phrase "an exceptional case". All that is plain is that it is a case where negligence cannot be established as a necessary condition of the harm; the "but for" test of causation is not met. In such a case the court is commanded "to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party". But beyond the statement that this is to be done "in accordance with established principles", the provision offers no further guidance about how the task is to be performed. Whether, or when, s 5D(2) is engaged must depend, then, upon whether and to what extent "established principles" countenance departure from the "but for" test of causation.
At once it must be recognised that the legal concept of causation differs from philosophical and scientific notions of causation. It must also be recognised that before the Civil Liability Act and equivalent provisions were enacted, it had been recognised that the "but for" test was not always a sufficient test of causation. But as s 5D(1) shows, the "but for" test is now to be (and has hitherto been seen to be) a necessary test of causation in all but the undefined group of exceptional cases contemplated by s 5D(2).
Even if the presence of security personnel at the door of the restaurant might have deterred or prevented the person who shot the plaintiffs from returning to the restaurant, and even if security personnel on the floor of the restaurant might have been able to intervene in the incident that broke into fighting in time to prevent injury to anyone, neither is reason enough to conclude that this is an "exceptional case" where responsibility for the harm suffered by the plaintiffs should be imposed on Adeels Palace. To impose that responsibility would not accord with established principles.
(Emphasis in original)
I note that, instead of the expression "an exceptional case" in s 5D(2) of the NSW legislation, the equivalent provision in the Western Australian Civil Liability Act - s 5C(2) - uses the expression "an appropriate case".
436 In the present case, having regard to paragraphs [414]-[427] above, the Carey parties have not shown that, on the balance of probabilities, the "but for" test of factual causation was satisfied. It was not shown to be more probable than not that, but for the Promissory Note Advice, the Westpoint Group companies would not have proceeded to issue promissory notes under the arrangements in place at the relevant time. That is, the existence of the Promissory Note Advice was not shown to be a necessary condition of the promissory notes being issued.
437 In their causation argument, the Carey parties submitted that "[b]ecause [this] case is about advice it is essential to ask what would have occurred had Freehills given the advice without negligence". They contended that this was "not stating a 'but for' test of causation"; rather, so they said, "it [was] asking whether the advice was still operating causally". In this connection, the Carey parties relied on Bennett v Minister of Community Welfare (1992) 176 CLR 408 at 414 and 420-421 in support of the proposition that the advice would only cease to operate as a cause "if it can be said that the events which have occurred would have occurred even if the correct advice and proper warnings had been given". In the context of this case and the facts as found, I reject the Carey parties' submission. This is because I have found that the Promissory Note Advice was not operating causally at any relevant time on the events: see above paragraphs [414] and following. Therefore, any consideration, hypothetical as it already is, of what would have occurred if the advice was different is wholly misplaced. This is also because there is simply no factual foundation for the Carey parties' argument that it was some supposed failure to warn about the use of promissory notes that was a cause of their loss. I have already referred to Mr Shearwood's repeated warnings to Westpoint Group personnel about the use of promissory notes, including his express statements that uncertainty attended the legal position with respect to this use and that there was a risk that the promissory notes would be considered an interest in a MIS: see above paragraphs, including [352] and [379]-[387] and [416]. This is, therefore, not a case in which it is appropriate to enquire what would have happened had a positive duty been performed because it has not been shown that such a duty was not performed.
438 Further, this is not a case in which, in accordance with established principles, causation should be taken to be established even though the 'but for' test is not satisfied. It is not an "appropriate case" with the meaning of s 5C(2) of the Western Australian Civil Liability Act. Rather, to impose that responsibility would be contrary to established principles. Section 5C(2) of that Act is therefore inapplicable.
439 That is, causation, considered according to established principles and as a question of fact, has not been established. Causation within the established principles is not "susceptible of reduction to any one philosophical or scientific formula such as the 'but for' test, but rather to be resolved as a matter of common sense and experience": RP Balkin and JLR Davis, The Law of Torts (5th edition, Lexis Nexis Butterworths, 2013) ('Balkin & Davis') pp 318-319, citing March v Stramere at 509 and Chappel v Hart (1998) 195 CLR 232 ('Chappel v Hart') at 242-243 [23] (McHugh J) and [62] (Gummow J), even if, as the Carey parties urged, causality is not determined by reference to commonsense alone. Given my findings at paragraphs [414]-[427] above, it simply cannot be said here that the Carey parties have shown that, in any relevant sense in accordance with established principles, the supposed representations, assuming they were made, 'resulted in', 'led to', 'operated as a cause of' or was 'a factor in bringing about' the harm suffered; alternatively they were not a 'substantial', 'material' or 'real' cause of the injury: see Balkin & Davis at pp 317-318 citing Fitzgerald v Penn (1954) 91 CLR 268 at 274; and I & L Securities Pty Limited v HTW Valuers (Brisbane) Pty Limited (2002) 210 CLR 109 at 128 [56]- [58] (Gaudron, Gummow and Hayne JJ).
440 Having regard to the whole of the evidence, the Carey parties have failed to establish, on the balance of probabilities, the factual causation required to succeed in their negligence claim.
441 In these circumstances it is unnecessary to consider the Carey parties' submissions that:
Freehills' advice exposed the Westpoint Group to the risk of investigation and enforcement action being taken by ASIC because of the use being made of promissory notes to exploit a loophole in the law to raise millions of dollars from retail investors without the protection of prospectus standard disclosure and without the protection of a registered managed investment scheme.
For the reasons set out already, the factual foundation for this argument was not established by the Carey parties.
442 In the same way, it is unnecessary to consider Freehills' alternative submissions in support of the proposition that the Westpoint Group's use of promissory notes was not the cause of the collapse of the Westpoint Group. In these submissions, Freehills contended that the Group collapsed because of: (1) the insolvency of the Group; (2) the orders made by French J winding up York Street Mezzanine and Ann Street Mezzanine in insolvency; (3) ASIC's applications for the winding up of York Street and Ann Street Mezzanine, which were based on the insolvency and misleading conduct of the companies and unrelated to the use of promissory notes as the method of fundraising; and (4) ASIC's issuing of an Initial Stop Order on the Westpoint Income Fund on 25 October 2005 and a Final Stop Order on 23 November 2005. These submissions would only have been necessary to explore on the causation issue if the Carey parties had established there was the relevant reliance on the Promissory Note Advice. Since it is unnecessary to explore the solvency issue raised by these submissions, it is also unnecessary to rule on the admissibility of what the parties referred to in submissions as the 'Read report'.