Economic Loss - Relationship of accountant to client and whether sufficient proximity - Silence in the face of misleading statements - Whether inferences can be drawn - Case turns on own facts - No new principles

Blyth v Birmingham Waterworks Co [1856] EngR 223; (1856) 11 Ex 781

Bennett v Minister for Community Welfare [1992] HCA 27; (1992) 176 CLR 408

Burnie Port Authority v General Jones Pty Ltd [1994] HCA 13; (1994) 179 CLR 520

Craig v Troy (1997) 16 WAR 96

Glasgow Corporation v Muir [1943] UKHL 2; [1943] AC 448

Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd [1988] FCA 40; (1988) 39 FCR 546

Hill v Van Earp (1997) 188 CLR 159

Hogan v Pacific Dunlop Ltd (1988) 83 ALR 403

March v E & M M Stramere Pty Ltd [1991] HCA 12; (1991) 171 CLR 506

McHale v Watson [1966] HCA 13; (1966) 115 CLR 199

Mutual Life & Citizen's Assurance Co Ltd v Evatt [1968] HCA 74; (1968) 122 CLR 556

Overseas Tankship (UK) Ltd v Miller Steamship Co Pty Ltd (The Wagon Mound (No 2)) (1966) 40 ALJR 165

Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191

Sadler v Whiteman [1910] 1 KB 868

San Sebastian Pty Ltd v Minister Administering the Environmental Planning Assessment Act 1979 [1986] HCA 68; (1986) 162 CLR 340

Sutherland Shire Council v Heyman [1985] HCA 41; (1985) 157 CLR 424

Taco Co of Australia Inc v Taco Bell Pty Ltd [1982] FCA 136; (1982) ATPR 40-303

1 In 1994 for the first time in his life, Mr Carruthers had a significant amount of money to invest. He wanted to invest it for one year because he was building a unit and would need it after that time. He and his wife were introduced to Mr La Rosa who told him about a scheme for making money. He would make 24 per cent interest per annum on currency trades. There would be no risk to his money. Mr and Mrs Carruthers thought it over and decided to invest.

2 For a time all appeared to be well. They received interest payments. But all was not well. Sadly, as often happens, the scheme was a scam. There was no safe investment. Mr and Mrs Carruthers lost much of their money. Mr La Rosa went to jail. The Australian Securities and Investment Commission extensively investigated the matter but to no avail for Mr and Mrs Carruthers.

3 Mr Carruthers said that he was introduced to Mr La Rosa by Mr Osborne who had been his accountant for many years. He used to prepare Mr and Mrs Carruthers' income tax returns each year. Mr and Mrs Carruthers say that Mr Osborne was their adviser. They relied on him heavily for advice. He offered to check out the scheme and the people behind it. At crucial times he stayed silent. He did not give them advice when he should have. In particular, he did not warn them to sight a bank guarantee which supposedly had been given by the Bank of America. He did not advise them that the Australian law required a venture of this kind to issue a prospectus. His conduct in remaining silent was deceptive. They seek to recover from him that which, through their ill judgment, they lost when investing in the scam.

4 This action has been brought to determine whether Mr Osborne is liable for the damage suffered by Mr and Mrs Carruthers.

5 The essence of the plaintiffs' claim against the defendant is in negligence. Thirty years ago the law relating to damages for economic loss consequent upon negligent advice was of consuming interest to academics and others concerned with this developing area of tort.

6 The principles are now largely settled although it is fair to say some aspects are still being worked out.

7 For the resolution of this case it is sufficient to refer and follow only a few cases.

8 The relevant authorities were gathered together in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords [1997] HCA 8; (1997) 188 CLR 241, per Brennan CJ; at 249 - 250; McHugh J, at 271.

"... for a duty of care to arise in cases of pure economic loss, the law requires, in addition to the foreseeability of harm, a special relationship between the parties which is described as a relationship of proximity."

10 Perhaps the clearest exposition of the proximity required is by Deane J in Hawkins v Clayton (1987-1988) 164 CLR 539, at 576, where he says:

"In the more settled areas of the law of negligence involving direct physical entry or damage caused by negligent act, the reasonable foreseeability of such injury or damage is, of itself, commonly an adequate indication that the relationship between the parties possesses the requisite element of proximity: see eg Wyong Shire Council v Shirt [1980] HCA 12; (1980) 146 CLR 40; Jaensch v Coffey [1984] HCA 52; (1984) 155 CLR 549. That cannot, however, be said of cases in the area where the plaintiff's claim is for pure economic loss. In that area, the categories of case in which the requisite relationship of proximity is to be found are properly to be seen as special in that they will be characterized by some additional element or elements which will commonly (but not necessarily) consist of known reliance (or dependence) or the assumption of responsibility or combination of the two: see, generally, Sutherland Shire Council v Heyman [1985] HCA 41; (1985) 157 CLR 424."

11 The plaintiffs' claim against the defendant alleges sins of commission and of omission. It is said that the defendant failed to make proper enquiries when he indicated that he would do so.

12 It is also said that he remained silent when in the circumstances he ought to have advanced advice as to certain matters, namely whether a prospectus may be required.

13 There is no doubt on occasions where a person stands in such proximity to another person as to give rise to a duty of care, keeping silent when there is a duty to speak may be negligent.

14 The same facts may also give rise to a claim under the Corporations Law s 995 for misleading and deceptive conduct. In the circumstances of this case I would regard the factual circumstances as one and the same.

15 This case however turns not upon the legal principles but upon the facts.

16 Mr Carruthers is 64. He has been retired since the end of 1991. He emigrated to Australia in 1968 from the UK where he had been a police constable for eight years with the Bedfordshire Constabulary.

17 In Australia he joined the National Mutual Group of companies as a salesperson and was promoted to divisional manager. He was then promoted to regional manager and in the next capacity transferred to New South Wales for 2-1/2 years. From 1979 to 1991 he was State agency manager for National Mutual in Western Australia, responsible for all the agents of National Mutual in the State.

18 He explained that his job was not to give advice to agents, but rather he worked through four senior managers and about 32 middle level managers who directly communicated with the agents.

19 He was generally familiar with investment contracts so far as they related to insurance. In my assessment, Mr Carruthers is an intelligent man who had long experience in management.

20 Mrs Carruthers has been married to Mr Carruthers for 41 years. She herself had worked and had an understanding of financial concepts but her background did not, in my view, equip her to make investment decisions without assistance.

21 She attended a meeting with Mr Osborne during which the proposed investment was discussed. She only attended one meeting with Mr La Rosa.

22 Mr Osborne is a certified practising accountant. He has been practising since 1963. He has been the accountant for Mr and Mrs Carruthers from 1981, first at 108 Churchill Avenue, Subiaco, in the firm of A G Cahill & Co, and from about March 1994 at Suite 7, 443 Albany Highway, Victoria Park, when he took over the business of McMillan Partners.

23 Mr Osborne rendered accounts to the Carruthers over the years. The account for 1995 was admitted into evidence. The invoice was for the preparation of tax return (form 1) for both Mr and Mrs Carruthers. The invoice for Mr Carruthers was for $475 and for Mrs Carruthers for $100. There was no charge for advice. Contrary to an assertion in a letter before action, Mr Carruthers did not ask for an invoice to cover investment advice and did not receive one.

24 Mr Carruthers testified that prior to 1994 Mr Osborne had advised on various financial matters.

25 The first occasion was in June 1994 when Mr Carruthers asked Mr Osborne "whether in his opinion we could negative gear against a house we proposed to purchase in Kinross and lease back to our son". Mr Osborne advised that they could purchase the property and negative gear against it.

26 It is to be observed that this advice was not in relation to the actual property and whether it was a good investment but simply in relation to the tax implications of a course of conduct which the Carruthers wished to embark upon.

27 Mr Carruthers also testified that he and his wife obtained advice in relation to an investment scheme involving pine forests. He said he was told by Mr Osborne that he did not recommend the pine forest investment, that it was far too long term an investment.

28 On the third occasion he says he sought advice in relation to an investment known as the Hambro-Grantham investment, which he described as investing capital over four years for a complete tax refund. He had received a recommendation about this scheme from Mr Killen, his long time investment adviser.

29 In relation to this investment, both Mr Carruthers and Mrs Carruthers say that they attended Mr Osborne's office in Albany Highway, Victoria Park, in about 1989. However, that cannot be right. In 1989 Mr Osborne was carrying on practice in Subiaco. This is a small example of the problem of recollection, which is a troubling aspect of the plaintiffs' case.

30 Mr Carruthers testified that on each of these occasions he relied upon Mr Osborne's advice and followed it.

31 Two of the matters related specifically to tax implications and in those circumstances there was clearly a relationship of proximity between the parties at least as to tax matters.

32 Mr and Mrs Carruthers have long retained Mr Warren Killen as their investment adviser. He worked for a firm Godfrey Pembroke and handled their superannuation investments. Mr Carruthers says he discussed the currency trades investment with Mr Killen noting that it was an offer to a restricted group of people and possibly very confidential. It is clear that Mr Carruthers relied heavily on Mr Killen for investment advice. He had given Mr Killen carte blanche authority to do what he thought was appropriate with the funds put with him.

33 I found Mr Carruthers' explanation as to why he did not seek Mr Killen's advice in this matter unconvincing. He said that it was not an investment.

34 Mr Osborne knew that Mr Killen was an investment adviser to Mr and Mrs Carruthers.

35 In deciding whether there was a relationship of proximity between the Carruthers and Mr Osborne, I consider the fact that Mr and Mrs Carruthers had an investment adviser on whom they relied heavily to be a significant fact.

36 The evidence does not establish to my satisfaction that the past relationship was such as to give rise to a relationship of proximity between the parties in respect of investment advice. On the occasions when Mr Osborne had been consulted, he had not been consulted as to the nature of the investment. For example, on the request to negatively gear the house, his advice was not sought as to what sort of house and to whether it was a sound investment. Indeed, it appears that the house had been purchased. What was sought was taxation advice. I find that the Carruthers relied upon Mr Osborne for taxation advice, not investment advice. This finding is reinforced by the lack of an invoice for investment advice and the fact that Mr and Mrs Carruthers had a separate investment adviser in Mr Killen.

37 The fact that there was no previous relationship as to investment advice does not dispose of the question of proximity however. Mr Osborne was the conduit by which the principals of the scheme and Mr and Mrs Carruthers came into contact. The meetings were held at his office and in his presence. He was their tax adviser. It will be necessary to examine closely what happened to determine whether Mr Osborne is liable in negligence either for what he did or for what he did not.

38 In mid-1994, Mr and Mrs Carruthers sold their family home and travelled to England for two months. They had decided to invest in a unit which was being built. They would live there when it was finished. Consequently, they had approximately $200,000 in the bank which they did not require for a 12 month period. After that period they would require the money to pay for the unit being built.

39 Mr Carruthers testified that around about 10 September 1994 he and Mrs Carruthers met with Mr Osborne at his offices at 443 Albany Highway, Victoria Park. He told Mr Osborne that he had sold his house and that he required an investment, emphasising that it was paramount that any investment was totally secure as the funds would be required and represented part of their life savings.

40 He says that Mr Osborne told him that he knew Stephen La Rosa and would make an introduction. There is a difference in the evidence as to how and who made the introductions. Mr Osborne's recollection was that Mr Diedler had been present and had introduced Mr and Mrs Carruthers to Mr La Rosa. Whether or not that is so is immaterial. Mr Osborne was a conduit. All meetings were held in his office and his presence.

41 Accordingly, on or about 17 September 1994, as Mr Carruthers testified, he and Mrs Carruthers met with Mr La Rosa at Mr Osborne's office.

42 Whatever occurred then occurred in the hearing of Mr Osborne.

43 According to Mr Carruthers, Mr La Rosa told Mr and Mrs Carruthers:

"(a) that an opportunity existed for my wife and I to invest in an investment scheme;

(b) the scheme involved the investment of funds supplied by participants in the scheme and sent through the National Australia Bank to the Bank of America;

(c) the investment would generate a net return to each participant of 0.6% of the amount invested by that participant each time the Bank of America engaged in a currency transaction;

(d) the Bank of America guaranteed that it would engage in not less than 40 transactions each year

(e) the minimum investment that an investor could make should they wish to participate in the scheme was USD $50,000.00;

(f) there was no risk whatsoever of losing any money invested in the scheme; and

(g) the Bank of America provided a written guarantee that any money invested in the scheme would be repaid at the end of a 12 month period."

44 There was further discussion. Mr Carruthers said he asked whether there was a prospectus and told there was no need, the scheme was just kept to a few people. He was told that Mr Andrew Bell was in control of the scheme and that La Rosa was acting as Bell's agent and that Bell's finance company, Charter Finance, had the requisite licence and that both Bell and La Rosa were acting under the licence.

45 The contents of this meeting are crucial because it is at this meeting that the defendant's liability is said to accrue. This is the only meeting attended by Mrs Carruthers.

46 I will make some general observations about Mr Carruthers. He was vague as to dates which is perhaps not surprising in view of the passage of time, together with the trauma of subsequently losing his money. He does not have available to him diary entries or notes of the conversation. He says that he asked Mr Osborne to keep minutes but he has never seen any. No minutes have been produced. His recollection of the date is wrong. This assumes some significance because if the meeting was held when Mr Osborne testified, through reference to his diary, there was very little time for the other meetings to be held and for the requisite checks which Mr Osborne was said to have undertaken to be performed.

47 The bank cheque drawn on the Carruthers' account was paid to Paratoo Pty Ltd on 10 October 1994.

48 Mr Carruthers insisted throughout his evidence that he proceeded on reliance of Mr Osborne's advice and counsel.

49 Yet it is odd that Mr Carruthers, on his evidence, performed only the most elementary check. He was given two names in the National Australia Bank, one of whom he rang to reassure himself that Mr La Rosa was in fact a bank customer with an account. He was prepared to go into the agreement without any documentation. The documentation came only after the money had been invested - in fact the cheque had been collected by Mr La Rosa from Home Building Society. The fact that he was to make these checks surfaced for the first time in cross-examination. It was not mentioned in his statement or earlier affidavits.

50 Mr Carruthers was insistent that part of what was discussed at that first meeting was the written guarantee by the Bank of America. Yet he did not ask to see it. Furthermore, the documents which he did receive on 12 October 1994, and subsequently, did not speak of a bank guarantee at all. The documents said that the money would be held in an account free from liens and encumbrances. They also said that the Bank of America would guarantee a minimum of 40 trades per annum. Mr Carruthers did not refer to the bank guarantee in correspondence to Mr Bell when he became increasingly concerned as to the fate of his money. Nor was it referred to in the original statement of claim filed in the action or in two affidavits filed in support of the summary judgment application. In the affidavit of 2 November 1998, he swears that what was discussed (para 12(f)) was "at the end of the 12 month period the return of the capital investment was guaranteed".

51 I note however that on 4 June 1997 Mr Carruthers' solicitors, writing to the defendant a letter of demand, did raise the question of an enforceable guarantee from the Bank of America.

52 In all the circumstances, I am not persuaded that at any of the meetings attended by Mr Osborne the question of a bank guarantee was discussed. Such documents as were produced in relation to the scheme did not refer to it.

Reliance upon Mr Osborne: Mr Carruthers' recollection

53 Mr Carruthers maintained throughout his evidence that he was heavily reliant upon the advice given to him by Mr Osborne. Specifically after the second meeting between La Rosa, Bell, Mr Carruthers and Mr Osborne, he separately discussed with Mr Osborne all the matters raised at the two meetings and asked Mr Osborne for his advice in the investment scheme, to which Mr Osborne replied "the investment sounded attractive". At a later date, which he puts as 24 September 1994 (a date which is unlikely to be correct), he asserts that he asked Mr Osborne for advice as their accountant on whether:

(b) if there was anything raised at the meetings with La Rosa and Bell that required investigation or caused him (Osborne) concern;

(c) if any checks should be done on the promoters of the scheme; and ..."

54 At the end of that meeting, Mr Osborne told him words to the effect that he would make the necessary enquiries concerning the scheme but it appeared a sound investment scheme; that he had friends in the CIB who would carry out checks on the investment scheme for him. Subsequently, Mr Osborne advised him that he had made the necessary inquiries and searches concerning the scheme and could see nothing wrong with the scheme. He asked Mr Osborne whether he had done all the checks he could think of and if there was anything to cause him any concern "or that my wife and I needed to check", to which Mr Osborne replied:

"As far as he was concerned the scheme was a sound investment scheme, that he could see nothing wrong with the scheme and he could think of nothing more that my wife and I should do to investigate the scheme".

56 In cross-examination, Mr Carruthers was asked what he expected Mr Osborne to check. His reply was: "I assumed he had more knowledge of the situation than I did and the things I could remember with proper checking on the company being a bona fide company". He was referring to Charter Finance. He did not know what else he wanted Mr Osborne to check because he was not qualified and was relying upon Mr Osborne.

57 In the two affidavits filed in support of the summary judgment application, Mr Carruthers nowhere mentioned that checks would be made with the CIB by Mr Osborne.

58 Nor did he refer to the checks he himself had made with the bank and these were also not referred to in his proof of evidence.

59 There are several other matters which impinge adversely on Mr Carruthers' credibility as to the extent to which Mr Osborne was going to check matters.

60 Mr Carruthers received some documentation from Bell in the form of a letter.

61 In cross-examination he said that he asked for and received the written correspondence because he wanted to be reassured that he had something more than verbal confirmation. His precise evidence was as follows:

"Mr McCusker: That was because you weren't prepared to invest was it not? You weren't prepared to invest your money unless you got something in writing from La Rosa?---Yes, I needed something in writing to give me the confidence to proceed with the investment."

In re-examination, Mr Carruthers contradicted that answer where he said:

"Receiving the letters were not contributory to the decision to invest. They were confirmation the investment had taken place ...

Mr Brickhill: ... Unless you got something from Mr La Rosa you would not have invested?---No, I think I relied upon Mr Osborne's advice to make the investment.

Yes?---I was happy to make the investment but then having made that decision I wanted something to show I had done so."

62 Whichever version is correct, one thing is clear - Mr Carruthers did receive a letter from Bell. On 12 October 1994 Bell, on behalf of Paratoo Pty Ltd, wrote to Mr Osborne as follows:

1. The funds are now invested with Bank Of America (BOA).

2. Bank Of America funds are in my control & therefore are totally secured.

No Liens or Encumbrances can be placed on funds without my approval.

3. A contract has been signed guaranteeing a minimum of 40 trades per annum.

However incorporated in the contract is a Non- Disclosure Clause which restricts the amount of information I can pass on to You.

4. Should anything happen to Me the Funds after the contract has completed (1st August 1995) will automatically return to Paratoo Pty Ltd account at the National Bank Perth.

This account is a trust account and funds will be dispersed to each investor on receipt of funds by National Bank.

63 This information, which appears to be the only information in writing provided around the time, does not mention a Bank of America guarantee in terms that the money in the account was guaranteed.

64 Mr Carruthers claims total reliance upon Mr Osborne's advice. Yet he never showed this documentation to Mr Osborne or sought his advice upon it.

65 A further investment was made by Mr Carruthers of $34,500 on 25 October 1994. This resulted in a similar letter being sent to him on the same date. Again this letter was never shown to Mr Osborne.

66 In 1995 Mr Carruthers received another letter from Lameeka Pty Ltd.

67 This letter is also important and I set out in full its terms:

68 Mr Carruthers considered that this was part of the same arrangement and therefore did not regard it as necessary to show the document to Mr Osborne.

69 This is difficult to accept. Mr Carruthers regarded the repayment of the monies after 12 months as very important because of the need to utilise them in order to build the unit. Yet the arrangement with Lameeka Pty Ltd replaced all previous correspondence and would appear to operate from 16 February 1995, some four months after the initial payment.

70 Mr Carruthers never informed Mr Osborne of this change. He did not ask for enquiries to be made as to Lameeka Pty Ltd.

71 From a letter written by Mr Carruthers on 8 April 1996 to Mr Bell it seems clear that he regarded the Lameeka agreement as the operative agreement.

"At the time we entered into the agreement with you the period of investment was twelve months as from the date of your letter being the 21st of February 1995. You will remember the emphasis put to you by my accountant and I in the presence of Steve La Rosa regarding the term of investment and the security and nature of capital."

73 On the one hand this letter gives some support to Mr Carruthers' view that the arrangement was merely a continuation of an earlier arrangement. On the other hand it raises questions as to the nature of the terms of the agreement because the meetings with Mr Osborne had taken place four months earlier.

74 In April 1995 Mr Carruthers received a letter from the ASC effectively warning him about the scheme. He took no steps in response to this letter. In particular, he neither brought to the attention of Mr Osborne to seek his advice about it nor challenge him as to the efficacy of the enquiries he was said to have made.

75 Mrs Carruthers tendered in examination-in-chief a proof of evidence which was in all material respects identical with that of her husband, including errors such as the address at which they attended for advice in respect of the Hambro-Grantham matter.

76 Her statement was prepared by her solicitor and given to her. Her husband had been dealing with the solicitors much more than she had. Her statement was produced by the solicitors. She read it and agreed with it because she said it was the truth. She did not however sit down with her solicitor and compose the statement.

77 Mrs Carruthers attended only one meeting between Mr Carruthers and Mr La Rosa in the presence of Mr Osborne. I find her recollection of that meeting to be so patchy as to be unreliable. It has all the hallmarks of reconstruction. She was extremely vague about dates and in view of the time which has passed and the trauma which the loss of the money has caused this is unsurprising.

78 When it was finally put to Mrs Carruthers that she did not really have any independent recollection - (that is independent of what people actually told her), of her husband back in 1994 saying: "Mr Osborne advised that this is a good investment", her reply was:

"We wouldn't have done it if he hadn't had said it."

79 When it was put that she was not really answering the question, she said:

"Yes. He would have told me and I would have to - I can't give you in the afternoon or the morning but we would not have gone ahead with it if Jim had not told me that that was the truth ... Well, we would have talked about it and if we had been worried about it we wouldn't have done it. It was a lot of money and it was our future ... I can't remember him actually coming to me and saying those words but they would have been what he told me or we wouldn't not (sic) of gone ahead with it."

80 A lot of her evidence was given on the basis that she would have done things or that things may have happened. Typical of her recollection is an answer in cross-examination to the question:

"Mr McCusker: I'm sorry to interrupt you, Mrs Carruthers, but you are answering my questions by saying 'I suppose' or 'I would have'. If you can't remember, just say, I can't remember?---I possible (sic) can't remember that I thought that was important but I can only reiterate that everything that was in context of that money we would have thought was important at that time."

81 Observing the way in which she gave evidence, together with the answers she gave, I am of the view that Mrs Carruthers' evidence of the meeting which she attended is so intertwined with the recollections of her husband and the numerous discussions which must have occurred since, that I can place no weight upon it. She said in cross-examination that she was trying to think of something five years ago and "it's becoming increasingly difficult". I am sure that is the case.

82 In relation to the Hambro-Grantham scheme, she agreed she had made the same mistake as her husband as to the address where the advice had been given. She was quite unable to recall anything about the Hambro-Grantham investment at all.

The credibility of Mr Osborne as to the reliance of the Carruthers upon him

83 The original defence filed on behalf of the defendant and on his instructions was particularly terse. In relation to the first and second meetings, both of which were fully particularised within the statement of claim, the defence said:

"9. As to paragraphs 9, 10, 11 and 12 of the Statement of Claim, save to admit that La Rosa spoke of an investment scheme, Osborne cannot recall and therefore cannot admit the balance of those paragraphs."

84 This non-recollection is in stark contrast with the amended defence and Mr Osborne's proof of evidence. It also is in some contrast to the affidavit filed in opposition to the application for summary judgment.

85 Mr Osborne sought to explain this difference by saying that with the benefit of the documents disclosed on discovery he was now able to recollect in far greater detail than he was earlier. He denied that his affidavit was false saying it was true at the time.

86 Such an explanation is not particularly convincing, especially when it descends to matters as particular as to whether a bank guarantee was ever mentioned or as to who was to check out the scheme.

87 I consider there is also an element of reconstruction in Mr Osborne's evidence.

88 The evidence of none of the witnesses carried particular persuasion. This is due chiefly to the effluxion of time and the enormity of the events that have overwhelmed some of them.

89 There are some aspects of Mr Osborne's evidence, however, which I am able to accept. It appears that Mr Osborne's accountancy practice was as taxation and general accountants. It was not part of his usual business to tender investment advice.

90 While counsel for the plaintiff set some store upon Mr Osborne's role in Derin Pty Ltd, I do not regard that company as particularly relevant. It was a company apparently run by Mr Barker as a sub-agent of National Mutual Life. While it may have been involved in some form of investment, particularly superannuation investments, there is no evidence that McMillan Partners was involved in investment advice. They did not carry specific insurance for it.

91 Significantly, some accounts rendered to Mr and Mrs Carruthers over the period, particularly for the relevant period, were tendered. These do not show that there was any billing for investment advice.

92 Furthermore, it appears common ground that Mr Osborne did not undertake any checks. Mr and Mrs Carruthers were long term clients of his practice. There is no evidence that he was in any way connected with Mr Bell or Mr La Rosa or any of the principals of the scheme, nor is there any evidence that he received commission or introduction fees.

93 There is no reason why, if he had undertaken to make the necessary checks, he would have lied to Mr Carruthers in saying that he had checked the scheme out. I accept that Mr Osborne is credible when he says that he did not undertake to make enquiries.

Conclusion: Did Mr Osborne act negligently in failing to make enquiries?

94 In all the circumstances, I am not persuaded that Mr Osborne gave affirmative advice to the Carruthers upon which they acted.

95 Notwithstanding some difficulties in Mr Osborne's evidence, I do not accept the evidence of Mr Carruthers on the point. Mrs Carruthers is unable to add anything to the evidence of Mr Carruthers and her evidence suffers from considerable reconstruction.

96 In all probability at the meetings, apart from being the conduit for the introduction, Mr Osborne was simply present as an observer. Therefore, the plaintiffs have been unable to persuade me that Mr Osborne failed negligently to undertake enquiries which he had said he would.

97 I turn now to consider the significance of Mr Osborne's presence at the meetings between Mr Carruthers, La Rosa and Bell.

98 I have rejected the proposition that Mr Osborne played an active part in the arrangements to be made by offering to check out the bona fides of the scheme and its proponents.

99 Questions remain, however, whether he owed a duty to Mr Carruthers to warn him of the potential problems with the scheme. If he did have such a duty, did he breach it? Did his silence cause any damage?

100 The parties were vague as to the dates of meetings and contradictory as to who was present and how the meetings came about.

101 It is more probable that the meetings occurred close to the date of the first payment on 12 October 1994.

102 This generally accords with Mr Osborne's diary entry.

103 The first relevant entry is for 28 September 1994. The purpose of this meeting was for Mr and Mrs Carruthers to sign their tax returns.

104 From all the evidence it is likely that at this meeting, at which Mrs Carruthers was also present, Mr Osborne introduced La Rosa who outlined the scheme. The diary notes "11.30 Steve La Rosa confirmed", the same time as "Jim and Pat Carruthers - sign Taxation Returns".

105 The diary then shows a 4 October 1994 meeting "2.30 Jochen Diedler/Jim Carruthers La Rosa confirmed". Mr Osborne was vague about Diedler's presence. Mr Carruthers did not recall him. I do not think he had any part to play.

106 On 5 October, 1994, the diary records "11.00 am Andrew Bell/Jim Carruthers".

107 Mr Carruthers' evidence is that there was the initial meeting as outlined. There was a second meeting between he, Mr Osborne, La Rosa and Bell.

108 He then asserts there were two other meetings involving just he and Mr Osborne. Mr Osborne recollects the meeting with La Rosa, though he says that Mr Diedler was present. He also recollects the further meeting at which Bell was present.

109 The diary would suggest the following meetings:

I do not find that there was a third or fourth meeting as alleged in the statement of claim. The payment was made on 10 October 1994. There is no diary entry and Mr Carruthers' general unreliability about dates fails to persuade me that there were such meetings.

110 At the meetings which were held, it is common ground that Mr Carruthers stressed the importance of security, saying the security of their investment was paramount. Furthermore, the funds were to be returned after 12 months. It is common ground that Mr Carruthers asked about a prospectus and was told by La Rosa that there was no need as the scheme was limited to a few people.

111 It is common ground that Mr Carruthers was told that Bell's company, Charter Finance, had the requisite licence and that Bell and La Rosa were acting under that licence.

112 In weighing the question of the nature of the relationship and whether the proximity of the parties to each other was such as to give Mr Osborne a duty to speak out, the following factors are relevant -

1. Mr Osborne introduced Mr Carruthers to the scheme through La Rosa.

2. All the meetings were held in Mr Osborne's office and he was present.

3. Mr Osborne knew Mr Carruthers' need for security and the return of the money after 12 months.

4. Mr and Mrs Carruthers had, to Mr Osborne's knowledge, a long term investment adviser, Mr Killen.

5. Mr Osborne had no interest in the scheme and was not a promoter of it.

6. Mr Osborne was only the tax accountant for Mr and Mrs Carruthers.

7. Mr Osborne had not previously acted as business or investment adviser to Mr and Mrs Carruthers.

9. Mr Osborne did not make any representations about the scheme.

113 Notwithstanding some circumstances which may by themselves point to a relationship of proximity, on the whole of the evidence I have reached the view that such a relationship did not exist between the Carruthers and Mr Osborne in respect of the investment scheme.

114 In the circumstances of the case, I do not find that Mr Osborne owed a duty to Mr and Mrs Carruthers to point out the pitfalls and possible illegalities of the transaction.

115 Conscious though I am as to his occupation and relationship of tax accountant to the Carruthers, when it came to this investment I am of the opinion that he was no more than a bystander whose advice, or non advice, was irrelevant to the Carruthers' disastrous decision to invest in the scheme. Even if I am wrong about this, I do not consider that Mr Osborne's silence was a causative factor.

116 Although Mr and Mrs Carruthers repeatedly said that they would not have gone into the scheme if Mr Osborne had raised any objection to it, I do not accept their evidence. The history of their dealings strongly suggests to the contrary. This appeared to be a good scheme whereby they would receive a significant return on their investment.

117 Such was their trust in Mr La Rosa that they handed him a bank cheque for USD$100,000 (AUD$130,000) on 10 October 1994 without anything in writing whatever. The letters referred to earlier in this judgment were not received until 18 October 1994. They also paid $6,000 to Paratoo Pty Ltd.

118 For reasons which no doubt Mr Carruthers cannot now explain, he fell under the mesmeric influence of Mr La Rosa and Mr Bell. Despite being a mature man of business he was blinded by the prospect of a significant return on his money without apparent risk. Normal prudence would dictate that there is no such thing as a high return without risk. While he now asserts that if Mr Osborne had spoken against the scheme he would not have proceeded with it, I consider this evidence to be no more than speculative reconstruction.

119 Why a sober man of business like Mr Carruthers would invest in such a scheme, which he ought to have recognised as dubious, is now no doubt a mystery to him. He has persuaded himself that it is because Mr Osborne did not caution against it. However, the more probable explanation is that he became infected with enthusiasm for the scheme. He was the proposed investor. He was the one negotiating the terms and conditions. At the time of the transactions, Mr Osborne's silence was irrelevant to him. He was mesmerised and Mr Osborne's silence did not influence him to proceed.

120 Without further reference to Mr Osborne, on 25 October 1994 Mr Carruthers paid a further USD$25,000 (AUD$34,500) to La Rosa. He did not receive a receipt for this payment until 3 November 1994.

121 The conclusion that Mr Osborne's silence was irrelevant is illustrated by the events of 1995. In February of that year, Bell persuaded Mr Carruthers that there was nothing whatever wrong in the transfer of the whole transaction to Lameeka Pty Ltd. Then, when the ASC letter arrived, Mr Carruthers made no attempt to heed its warning. Nor did he seek out Mr Osborne either for advice or complaint.

Misleading and deceptive conduct: Corporations Law s 995, s 1005

122 Counsel for the plaintiffs relied upon Henderson v Amadio [1995] FCA 1300; (1995) 62 FCR 1 for the proposition that investment advice is work done in the ordinary course of carrying on the profession of accountancy. Several duties are said to flow from this conclusion. However, in that case the accountants did not dispute that they owed a duty in giving investment advice, it not being in dispute that such advice was given (at 133). Therefore, comments about the duty of accountants' ordinary course of business (at 205) have limited application to a business where, as I find, Mr Osborne did not give general investment advice or hold himself out as so doing.

123 Counsel also mounted an argument that Mr Osborne, by remaining silent in the face of Mr La Rosa and Mr Bell's misleading or false comments, was himself guilty of misleading and deceptive conduct, in contravention of Corporations Law, s 995.

124 There is no evidence that Mr Osborne knew that Mr Bell and Mr La Rosa were misleading Mr Carruthers.

125 The Corporations Law, s 1005, provides that a person may recover loss and damage sustained by a contravention of Part 7.12 against any person involved in the contravention.

126 A similar provision in the Trade Practices Act 1974 (Cth) was examined by the High Court in Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661. That case affirmed the applicability of general principles of accessorial liability, including knowledge. In this case, there is no evidence that Mr Osborne had the requisite knowledge of the representations or that they were misleading or deceptive. He listened to the representations, as did Mr Carruthers.

127 Silence is a fact. As a fact, inferences may be drawn from it. There are many cases when silence, following a representation, may lead to the inference that the representation is true, or is adopted by the hearer. Thus, an accountant who remains silent while his client makes representations which he knows to be false may be an accessory to misleading and deceptive conduct : Sutton v A J Thompson Pty Ltd (1987) ATPR 40-789.

128 In the issue of a prospectus where there is a reasonable expectation that silence would be broken if certain facts exist, a company may engage in misleading and deceptive conduct : Fraser v NRMA (1995) 127 ALR 543.

129 Silence as to the need for a road access licence, coupled with a plan of a development, may constitute misleading and deceptive conduct by a building developer : Demagogue Pty Ltd v Ramensky [1992] FCA 557; (1992) 39 FCR 31.

130 These cases all concerned the fact of silence in circumstances where there was knowledge of the true circumstances and a failure to correct or inform the listener in the light of that knowledge.

131 In the present case, Mr Osborne was in no better position than Mr Carruthers vis-à-vis the scheme. He heard about it at the same time as Mr Carruthers. While silence is a fact from which an inference may be drawn, there is no inference capable of being drawn from the silence of Mr Osborne in this circumstances of this case.

132 I do not uphold the claim under the Corporations Law for misleading and deceptive conduct.

133 This case is a sad reminder of the need for people to deal cautiously when trusting large sums of money to eloquent strangers.

134 There is no doubt that Mr and Mrs Carruthers have been defrauded. However, I do not find that Mr Osborne negligently advised them as to enquiries he had made about the scheme - nor do I consider that the evidence discloses he was in such a special relationship with them that he was under a duty to speak out in order to prevent them from suffering economic loss. Finally, I do not consider that any act or omission by Mr Osborne caused Mr and Mrs Carruthers to lose their money. In consequence the plaintiff's claim is dismissed.