81. The trial judge expressed the view that NWP owed Kia Ora a duty of care in tort, coextensive with an obligation in contract, to be independent and to undertake the preparation of the report in a competent manner. He observed that independence on the part of NWP in the circumstances of the present case was crucial to the efficacy of the process, the protection of the public generally and the protection of Kia Ora and its members in particular. The observations were made after his Honour had alluded to the requirement under Listing r3J(3) that the opinion as to the fairness of the purchase price be given by "independent qualified persons". Although the trial judge rejected Kia Ora's submissions that the circumstances gave rise to a fiduciary duty owed by NWP to Kia Ora, the plaintiff sought a finding from this Court that such a duty was owed and that it was breached. The question of independence in the sense identified is also relevant to that argument.

82. After reviewing the evidence, the trial judge posed the question as to whether NWP had breached its duty to be independent. He answered the question as follows (J313):

"They [NWP] were not associated in the sense that they held shares in Kia Ora or Western United although Stokes had an indirect shareholding of an unspecific nature in Western United through Muscoda. However, I think they were in breach of this duty in three respects; first, by reason of many of the associations which have been discussed; secondly, by reason of the knowledge which members of Nelson Wheeler Perth had as to the method of operation of Western United which was not brought to account when undertaking the valuation and the Nelson Wheeler report or disclosed to Kia Ora and the shareholders, and thirdly by reason of the influence which Green had upon Pilmer and Newman as to the contents of the Nelson Wheeler report which has also been mentioned. There were close relationships between partners of Nelson Wheeler Perth with Harold Abbott, Kia Ora and Western United, directly and through Mawson Pacific, Kia Pacific, Wattle Gully and other companies which have been mentioned.

The friendly relations between Stokes, Munachen, Pilmer and, to a lesser extent, Martino [who was a partner in Nelson Wheeler at all relevant times] and Harold Abbott and Kia Ora and Western United, have the consequence that Nelson Wheeler Perth were not independent in fact. Loans had been made and, I think it is fair to say, favours had been granted by Harold Abbott in the granting of loans personally and to companies with which these men were involved and to friends which destroyed any notion of independence. The assistance given in the AIMS matter is an example of another type of benefit. These matters are capable of creating a sense of obligation on the part of those who benefited.

The knowledge of the back to back loans was also sufficient to destroy independence unless brought to account in the valuation process and disclosed. It is enough that Pilmer knew of some of these loans which he disregarded in the valuation process.

The retainer should not have been accepted as was correctly acknowledged by Messer.

The manner in which Pilmer conducted himself with Harold Abbott and Green suggests subservience and lack of objectivity and impartiality. He did not reject improper suggestion and influence. It is possible that because of matters previously discussed, he and others at Nelson Wheeler Perth had a sense of obligation to Harold Abbott, Kia Ora and Western United. That is a serious suggestion but Harold Abbott, Pilmer and Munachen have chosen not to give evidence and explain the true nature of the relationship and Stokes did not complete his evidence. At time Pilmer did as he was told rather than exercise a truly independent professional judgment.

In my view, Nelson Wheeler Perth was in breach of their duty to be independent and to act independently when undertaking the valuation and the Nelson Wheeler report."

83. Although there is a need to examine the evidence upon which these findings are based, the matter is canvassed in considerable detail in the judgment and it is unnecessary for present purposes to do more than summarise some of the more important transactions referred to by the trial judge. Much of the evidence is concerned with commercial transactions disclosing links between partners of NWP and other persons or entities connected with Kia Ora and Western United. The evidence is discussed by the trial judge under the heading of "Associations". Mention will also be made of loans said to have been made with the help of Harold Abbott's influence to companies in which some partners of NWP had an interest. And although the trial judge does not refer specifically to the matter in the passage set out above, there is the suggested financial advantage held out to NWP in the event of a successful takeover of Kia Ora, namely, the awarding to the firm of the administration of the Kia Ora share registry. This issue was also discussed by the trial judge under the heading of "Associations".

84. In exploring the links between relevant parties the trial judge found particular significance in transactions involving three companies, Mawson Pacific, Wattle Gully and Cullimore Inve stments Pty Ltd.

85. We have already referred to the fact that Mawson Pacific purchased a 50% interest in the Marvel Loch mine for $26m in April 1987 and that Stokes was managing director of Mawson Pacific at the time. Stokes had joined NWP in 1984 and he and Munachen were interested in the mining industry. The Marvel Loch venture brought Stokes into a close working relationship with Harold Abbott. This relationship arose from the companies in which they were involved, namely, Mawson Pacific, Kia Ora and Western United.

86. The trial judge said it was likely that Stokes and Harold Abbott discussed Stokes' intention to make Mawson Pacific a gold producer and the fact that Kia Ora wanted a joint venture partner. Kia Ora and Mawson Pacific operated the Marvel Loch mine in partnership for a time. Then, in late 1987, Mawson Pacific purchased the remaining 50% interest for $40m. The offer was contained in a letter written by Stokes to Harold Abbott in the latter's capacity as managing director of Kia Ora. Harold Abbott recommended acceptance of the offer to the directors of Kia Ora in a report which contained the following comments:

"Mawson Pacific Limited is a company controlled by Geoff Stokes who is a well known Kalgoorlie identity and mining entrepreneur and with whom we have enjoyed an extremely good relationship over the years. . . . I believe that the Mawson Pacific Limited offer is to be far the most attractive offer and would present us with a partner with whom we can have faith and with whom we can work successfully."

87. After tracing the history of the involvement of Stokes in Mawson Pacific, the trial judge found that there was a close relationship between Stokes, Harold Abbott, Mawson Pacific, Kia Ora and Western United in the context of commercial transactions which were mutually advantageous to all of them.

88. When Stokes became managing director of Mawson Pacific on 1st December 1986 he ceased to have an office at NWP. However, the trial judge found that he remained a partner of NWP. He worked from Mawson Pacific's office which was in a Perth building on the same floor as the offices occupied by Kia Ora and Western United. From mid-1986 into 1987 Mawson Pacific directors' meetings were held at NWP's offices. Munachen was appointed secretary of Mawson Pacific on 5th January 1987. Martino was appointed a secretary on 31st August 1987. When Kia Ora and Mawson Pacific commenced operating the Marvel Loch mine in partnership, Harold Abbott and Stokes represented their respective companies on the joint management committee of the mine. Mawson Pacific used Western United as a banker and NWP continued to provide accounting and administrative services to Western United. Stokes became a director of Kia Pacific at the time of the Autocure transactions.

89. The trial judge accepted Kia Ora's argument that the timing of the general meetings of Kia Ora and Mawson Pacific which dealt with the sale of the second half of the Marvel Loch mine was a matter of some significance. The offer to purchase this interest in the mine was made by Mawson Pacific to Kia Ora on 19th August 1987. The trial judge compiled a chronology of the events surrounding this transaction, incorporating in it some of the events leading to the takeover. He said (J277):

"Mention has been made earlier of the extra-ordinary general meeting of Kia Ora on 21st September 1987 at which the shareholders approved the sale to Mawson Pacific of the second half of the Marvel Loch mine for $40m. This meeting occurred well after Kia Ora had put in train the process of the takeover of Western United. The extra-ordinary general meeting of shareholders of Kia Ora approved the takeover of Western United on 26th October 1987. As has been mentioned, it is not clear when the shareholders of Mawson Pacific approved the purchase of the second half of the mine but it was on or after 30th October 1987, however, on the 30th October 1987 the directors of Mawson Pacific resolved to execute documentation to enable the company to draw on $32m of a loan from Elders Resources for the purchase of the mine. The minutes of the adjourned meeting on 2nd November 1987 do not contain any mention of the matter. However, settlement was effected on 3rd November 1987. It may be accepted for present purposes that the approval was given by the shareholders at around this time. The significance of those dates is readily apparent. The takeover of Western United by Kia Ora could only occur with the proceeds of the sale of the second half of the mine. Harold Abbott arranged the extra-ordinary general meeting of Kia Ora to approve the sale of the second half of the Marvel Loch mine before the shareholders of Mawson Pacific had even considered the matter in general meeting. Furthermore, Kia Ora embarked upon the takeover process including the calling and holding of the general meeting on 26th October 1987 again before the shareholders of Mawson Pacific had considered the matter in the general meeting. Those controlling Kia Ora would not have embarked upon those processes unless they were certain, or at least very confident, that the shareholders of Mawson Pacific would approve. Mawson Pacific would not have to go to the trouble of raising substantial finance and committing itself to the proposal unless it was certain that Kia Ora would sell. It is submitted by the plaintiff that these matters indicate that there was cooperation between those controlling Kia Ora, including Harold Abbott, and those controlling Mawson Pacific, including Stokes and it was likely that they agreed to arrange the meetings in that order to suit themselves. In my view there is some merit in that submission. The only possible uncertainty was whether the shareholders of Kia Ora would agree to the sale and the takeover. The shareholding of Kia Ora was diverse which was not the case with Mawson Pacific. It is likely that Stokes could deliver the necessary resolution of shareholders of Mawson Pacific but Harold Abbott could not be so sure. The Autocure transaction supports this view. In the absence of evidence from Harold Abbott and others involved at the time, there is no reason not to accept this submission and I do so. This matter illustrates a feature of the association between Stokes and Kia Ora and Harold Abbott."

90. At the trial Kia Ora sought to make more of the Mawson Pacific involvement in Marvel Loch. However, whilst acknowledging that the sale of the second half of the Marvel Loch mine was essential to Harold Abbott's takeover plans, the trial judge was not prepared to find that NWP acted dishonestly by providing a favourable report so as to aid those plans. Nevertheless he did conclude that the relationships which we have summarised explain why Kia Ora could rely on Mawson Pacific to complete the purchase of the mine. He added that "they are very likely the reason for Kia Ora selecting Nelson Wheeler Perth to undertake the work with respect to the takeover". It was the view of the trial judge that, by reason of this association involving Mawson Pacific alone, it was inappropriate for NWP to undertake the report required in connection with the takeover of Western United.

91. In early 1987 Stokes and Munachen acquired interests in Wattle Gully using funds lent by Western United. Western United took a pledge over the 2m shares in Wattle Gully which were purchased by interests associated with Stokes and Munachen and these two men also gave personal guarantees to Western United in order to obtain the loan. Kia Ora became the largest shareholder in Wattle Gully and both companies took over Mt Pleasant Management Ltd (Mt Pleasant) the manager of Mt Pleasant Gold Trust which owned mining tenements said to be worth approximately $20m.

92. Munachen represented Wattle Gully in applying for and obtaining a loan of $22m from Western United in May 1997. This was to enable Wattle Gully to acquire its interests in Mt Pleasant Gold Trust and Mt Pleasant Management. This was the largest loan transaction ever undertaken by Western United. Kia Ora became the largest shareholder in Wattle Gully. Stokes and Munachen were directors of Wattle Gully and Munachen was the chairman. Harold Abbott, Lee-Steere, Somes and Gary Abbott participated in the decision to grant the loan of $22m. NWP acted for both Mawson Pacific and Wattle Gully. The loan remained in existence at the time of the writing of the Nelson Wheeler report.

93. The trial judge referred to other transactions in which Wattle Gully was involved and concluded that the evidence revealed a close relationship between Stokes, Munachen and Harold Abbott in particular and that Wattle Gully was financially dependent upon Western United. Stokes and Munachen were heavily involved in Wattle Gully and Harold Abbott was at the centre of control of Western United. It was his Honour's view that, by reason of the foregoing, Stokes and Munachen were financially dependent upon Harold Abbott. He stated in his judgment that NWP could not be regarded as being independent of Kia Ora or Western United having regard to the fact that two of its partners had close business connections with Harold Abbott and that there was a mutual dependence on each other and Western United.

94. Cullimore Investments Pty Ltd (Cullimore Investments) was the trustee of a trust for the Stokes family. On 10th September 1987 Stokes applied to Western United on behalf of Cullimore Investments for a loan of $1m. It was stated in the application that he was a partner of NWP and was well known to Western United. A loan of $950,000 was approved by directors of Western United including Harold Abbott. At the time that the application was made and granted NWP were in the process of preparing the Nelson Wheeler report. The loan was obtained at short notice and while Stokes was either a partner of NWP or being held out as such. The trial judge agreed with the assessment of Messer, a former partner in NWP, that if he had known of this transaction he would have hesitated to provide a report. At the very least he would have disclosed the matter in the report. Whilst observing that the transaction demonstrates the closeness of the relationship between Stokes and Harold Abbott, the trial judge was not prepared to find that the loan was in return for assistance given by Stokes in the takeover of Western United.

95. Evidence was led of a series of these transactions. They involved loans by Western United to borrowers who then deposited most of the funds thus obtained with Western United. The assets and income of Western United were thereby inflated which tended to provide a misleading picture of the company's financial position. These arrangements were relevant to the assessment of the financial position of Western United immediately prior to the takeover in that they gave an artificial appearance to the size of the business conducted by the merchant banking arm of the company. It was alleged that NWP knew of most of these transactions because of their participation in them in various capacities. The trial judge accepted that back-to-back loans took place with the creation of the appearance just referred to and that Pilmer, Stokes, Munachen and Martino were aware of the purpose of certain of these transactions.

96. One of these loans which took place in early 1994 was to Ablyt Pty Ltd, a company used as a vehicle for the purchase of certain shares and options by Stokes, Munachen and others. The money advanced, $180,000, had been deposited with Western United by a company of which Munachen was secretary and he had advised that it could be used to advance to third parties. The trial judge also found that Stokes and Munachen were involved in back-to-back loan arrangements involving Acorn Securities Ltd (Acorn) and Palmvale Nominees Pty Ltd in January 1987.

97. Another transaction referred to by the trial judge involved a loan to Domenal Enterprises Pty Ltd, the trustee of Martino's Family Trust in circumstances which indicate that Martino was aware of its back-to-back nature. This loan occurred in early 1988 after the preparation of the Nelson Wheeler report, but because of the manner in which the transaction took place, the trial judge concluded that it was unlikely that Martino had no prior knowledge of Western United doing business by way of back-to-back loans.

98. The Parry Corporation, a long standing client of NWP, was involved with Western United as both an "investor" and "borrower" thus inflating the value of Western United. Clearly this was a matter which was relevant in valuing Western United. The trial judge found that Pilmer was, or should have been, aware of this fact. He was the partner in NWP in charge of the work for the Parry Corporation from a time before that company acquired the interest in Western United until after the Nelson Wheeler report was completed.

99. Finally, the trial judge referred to a transaction involving a loan of $1.5m to Questenberg Pty Ltd, a company in which Stokes, Munachen and Martino were directors and the legal owners of the issued shares. The loan was approved in October 1987. The trial judge accepted that Stokes and Munachen were aware of the b ack-to-back nature of the loan.

100. The associations thus revealed were considered in conjunction with one other matter of suggested relevance. We have referred to the fact that NWP operated a share registry. One of the companies which availed itself of this service was Western United and the annual fee to provide this service to Western United was approximately $7,000. On 15th October 1987 Munachen wrote to Di Lucia, who was employed by NWP as the manager of the NWP share registry, in the following terms:

"Re: Kia Ora Gold Corporation N.L. Western United Holdings Ltd

Kia Ora Gold has announced a takeover bid for Western United, which if successful will result in Kia Ora controlling Western United, at which stage, Kia Ora will change its name to Western United. Harold Abbott is adamant that we take over the register when this is effected, which in effect will be the old Kia Ora register, but with a new name and having some 20,000 shareholders. This time we won't refuse. It should be ready early 1988, so I suggest we plan for a January, 1988 takeover. With all of the other changes and new floats, we should plan to recruit sufficient new staff to handle this extra work. We should also plan for additional computer facilities etc. These matters should be given priority when our newest staff member joins."

101. If NWP had administered the share register for Western United, it is estimated that the annual fee would have been $53,620. However the transfer of this work to NWP did not eventuate.

102. There is no evidence to establish when Harold Abbott mentioned the matter of the share registry to Munachen and, in particular, whether it was before the signing of the Nelson Wheeler report on 9th October. The trial judge pointed out, the communication took place well before the meeting for which the Nelson Wheeler report was prepared and there was no disclosure of this interest prior to that meeting. However, as we point out later in these reasons, the evidence does not enable us to conclude that this was a financial interest apparent before the writing of the report and which, therefore, required disclosure. It is our view that this evidence does not go beyond revealing the extent of the relationship betw een Munachen and Harold Abbott.

103. There were other matters which indicated a relationship between NWP and the companies and persons involved in the takeover, but those to which we have referred are the most prominent. In summarising their effect the trial judge referred to the back-to-back arrangements and the fact that NWP, including Pilmer, were aware of them. He underlined the close relationship between Stokes, Munachen and Harold Abbott and Western United involving large loans sometimes granted in urgent circumstances. He said NWP benefited from many of the associations through their professional work and Stokes benefited from the loan of nearly $1m from Western United through Harold Abbott. These were past transactions which could well have led to Stokes and Munachen feeling obligated to Harold Abbott at the time of the shareholders' meeting. The trial judge drew attention to information relevant to the Nelson Wheeler report which NWP was aware of through its professional relationship with the Parry Corporation, the company which sold a large parcel of shares not long before the takeover plans were unveiled. Additional information relevant to the takeover was available to NWP through the share registry which NWP maintained and which included the share details of Western United. His Honour took the view that by reason of the proposal for NWP to administer the Kia Ora share registry, NWP had an interest in the success of the takeover and, as a result, could not be regarded as independent of Kia Ora. He concluded that all the matters to which we have referred and other association evidence which we have not summarised, established that NWP were not independent of Kia Ora and Western United and should not have accepted the retainer. We will return to these matters when discussing the claim that NWP owed a fiduciary duty to Kia Ora .

1. .17 Sales of shares by Parry Corporation and Autocure Ltd

104. There were two share transactions prior to the takeover which are of relevance to a number of issues raised in the case. These transactions are pertinent to the assessment of the appropriateness of Kia Ora embarking on the takeover and the machinations of some of the directors of Kia Ora as they advanced towards their obje ct of acquiring Western United.

105. In August 1987 the Parry Corporation owned over 6m shares in Western United. These shares were sold on 14th August 1987 at $1.30 each. The parcel represented almost 25% of the issued capital of the company. A parcel of 3.8m of these shares was purchased by National Nominees on behalf of Rahn and Bodmer, a Swiss bank. Although National Nominees was the legal owner of the shares, International and Irish Securities Ltd, the London financial adviser to Kia Ora, gave notice on 18th August 1987 that it had become a substantial shareholder in the company by way of a "relevant interest" in the parcel of 3.8m shares. Another 2.2m shares owned by Parry Corporation were sold at the same time to Bowyang Nominees Pty Ltd, a nominee company of the sharebroker who negotiated the sale of the Parry Corporation shares. The trial judge found that Harold Abbott, alone or with others, held a beneficial interest in those shares. By reference to other evidence summarised by the trial judge, he was able to reach the following conclusions about these transactions:

"The sale and acquisition of the shares in Western United owned by Parry Corporation is of considerable importance for a number of reasons. First, Harold Abbott, and perhaps others closely associated with him, acquired those shares or most of them secretly through nominee arrangements without disclosure to the other directors. I am satisfied that neither Lee-Steere nor Somes was aware of Harold Abbott's involvement. He, or they, did so at a price of $1.30 per share, a short time before Kia Ora agreed to pay the price of $3.90 and $4.40 per share. Secondly, as Harold Abbott knew what he had paid for them at that time, which also accorded approximately with the market price, he could hardly have believed the valuation of Nelson Wheeler at $3.22 to have been realistic. Thirdly, he preferred his own position to that of Kia Ora. Once he became aware of the availability of the shares, he could have caused Kia Ora to acquire nearly most of them at that price rather than the price it eventually had to pay. As has been seen, at the time Kia Ora owned about 3% of the issued capital of Western United. It could have acquired up to a little under another 17% without attracting the obligation to proceed to a takeover of the balance in the market and before embarking upon the takeover. Had it done so, that 17% or so could have been acquired at $1.30 per share. 17% of the issued capital, which was 25,671,057 shares is 4,364,080 shares which at $1.30 each would have cost Kia Ora $5,673,303. Assuming that upon the takeover Kia Ora actually paid $3.90 or $4.40 for Western United shares, 17% of the issued capital cost Kia Ora $17,019,912 or $19,201,952. This exercise is undertaken to underscore the consequence to Kia Ora of the surreptitious acquisition of the Parry Corporation parcel of shares for the personal advantage of Harold Abbott and possibly others.

Those matters concerning the sale and purchase of the shares owned by Parry Corporation also establish that Harold Abbott, and possibly Gary Abbott and Gardiner, had the takeover of Western United in mind earlier than 14th August 1987. It is likely that the plans to acquire the shares would have been developed over a period of time."

106. The trial judge also accepted that NWP, through Pilmer, were aware at the time the Nelson Wheeler report was prepared, of Parry Corporation's association with Western United, including the sale of shares. It was, of course, a matter of significance to the proper valuation of W estern United.

107. Autocure Limited (Autocure) was a company controlled by a London company, Crowthers, at the time of the takeover. Hambros Securities Ltd (Hambros), a merchant bank, was a financial adviser to Autocure. In October 1987 Autocure owned 2.9m shares in Kia Ora and Somes gave evidence that it was the largest shareholding in the company without board representation.

108. Mr Ewart-Jones, a director of Hambros, became aware of the takeover proposal on 16th October 1987. He formed the view that Western United was being valued at an excessively high price and he made his views known to Kia Ora and to Harold Abbott in particular. He warned Harold Abbott that Autocure would oppose the takeover publicly because of concern that it would dilute the value of Autocure's shares in Kia Ora. A dispute concerning Autocure's stance developed between Ewart-Jones and Harold Abbott. However, on 21st October 1987 Harold Abbott contacted Hambros and advised that a European purchaser had been located for Autocure's shares. As a result of this contact the shares were sold for $1.40 per share. The share market price of Kia Ora shares on 22nd October was 95 cents and on the following day it was 75 cents per share.

109. International and Irish purchased the shares and the trial judge drew the inference from the evidence that they had been acquired through International and Irish using National Nominees and Rahn and Bodmer in order to conceal the involvement of Schneider-Paas in the transaction. The purchasers of the shares were difficult to determine but a parcel of 1m shares was acquired for Kia Pacific, a company in which Harold Abbott and Schneider-Paas were directors.

110. In the view of the trial judge these circumstances indicated that those controlling Kia Ora were prepared to go to any lengths to ensure that the takeover proceeded. In doing so they caused Kia Pacific, a public company, to incur a substantial loss. It was a condition of the Autocure transaction that while Autocure still held the shares it would vote for the takeover.

111. It is a matter of some significance that on 21st October 1987 Stokes was appointed a director of Kia Pacific and the resignation of Schneider-Paas and Harold Abbott from the board of the company were accepted. In due course, Stokes signed the necessary documentation in order to effect payment for the Autocure shares. The trial judge concluded that Harold Abbott and Schneider-Paas wanted to distance themselves from Kia Pacific at a time when it was taking a very large parcel of the Autocure shares. The evidence concerning Stokes' appointment and role in this matter led his Honour to make the following findings:

"The relationship between Harold Abbott and Stokes, the urgency of the problem caused by Autocure from the point of view of Harold Abbott, the appointment of Stokes and the haste in making the changes to the Board of Kia Pacific and in the calling of the meeting on 21st October 1987, the signing of the documents for the bank draft by Stokes without sufficient enquiry point to the conclusion that Stokes was selected by those controlling Kia Ora because he would be compliant to their wishes and I make that finding. I find that those expectations were f ulfilled and he was compliant." 1.18 Duty of care

112. NWP complained that the trial judge erred in holding that they owed a duty of care to Kia Ora in both contract and tort. It was argued that the plaintiff's case based on tortious liability was properly categorised as a claim for pure economic loss arising from negligent misstatement and that it had to be determined by reference to the requirements for establishing that tort which were discussed in Mutual Life & Citizens Assurance Co Ltd v Evatt [1968] HCA 74; (1968) 122 CLR 556, San Sebastian Pty Ltd v The Minister [1986] HCA 68; (1986) 162 CLR 340 and Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241. Mr Myers QC emphasised the basis necessary to establish a duty of care in such circumstances. He referred to the elements identified by Brennan CJ in Esanda, namely, foresight that the information or advice would be communicated to the plaintiff, that it would be very likely to lead the plaintiff into a transaction of the kind that the plaintiff did enter into, and that it would be very likely that the plaintiff would pursue this course by reason of reliance on the information and advice. Mr Myers QC also stressed the need for actual reliance as a further requirement for liability.

113. According to the argument before this court, the trial judge failed to apply these principles correctly. Furthermore it was put that the facts established in the present case do not provide a sufficient foundation for tortious liability of the type pleaded. At the trial Nelson Wheeler conceded that it owed a duty of care to Kia Ora's unassociated shareholders, but they denied that any duty was owed to Kia Ora itself. It was also argued that reliance of the type discussed in the authorities had not been established.

114. In the course of final addresses before the trial judge Mr Myers QC conceded that NWP were negligent in the preparation of the 3J(3) report. He agreed that the price earnings multiples chosen for the financial services and mining services arms of Western United were too high; that NWP did not test sufficiently the achievability of the forecast earnings of the group; that the value accorded to the premium for control was too high and that the forecast of $96m funds on deposit to be held by the company for 1987/88 was unrealistically high. In addition, Mr Myers said that those responsible for preparing the report did not stand back from the final result and test it by reference to common sense criteria in order to determine whether it was reasonable. The trial judge also made his own findings as to negligence which are summarised below.

115. The trial judge purported to apply the principles set out in Esanda. He rejected the suggestion that only the unassociated shareholders were owed a duty of care and concluded that a duty was owed to Kia Ora. He expressed the view that foreseeability of reliance had been proved. He said:

"Nelson Wheeler Perth knew, or ought to have known, that both organs of Kia Ora would rely upon the valuation and the Nelson Wheeler report in these respects. The directors would rely upon the valuation to fix the takeover price in the sense previously mentioned and as an essential requirement of the takeover process and the shareholders, associated and unassociated, present at the extra-ordinary general meeting or absent, would very likely rely on the valuation and the Nelson Wheeler report to make important decisions about the takeover proposal. These decisions include whether to attend the meeting or not, whether to vote or not personally or by proxy and above all to vote in a particular way, namely in favour of the takeover proposal. Nelson Wheeler knew that both organs of the plaintiff would very likely to (sic) decide to enter into the takeover transactions in reliance upon the valuation and the Nelson Wheeler report and would suffer economic loss if they were unsound."

116. In assessing whether there was a sufficient relationship of proximity to support a duty of care to Kia Ora, the trial judge observed that NWP were requested to provide an opinion and that, accordingly, the relationship of expert and client existed. There was a contractual relationship and it was formed with a specific purpose in mind, namely, the preparation of the 3J(3) report and the tendering of the opinion which was the core of the report.

117. After considering all these factors the trial judge concluded that the proved circumstances justified the finding that the required relationship of proximity between NWP and Kia Ora had been established and that a duty of care was owed to Kia Ora. He made specific findings of negligence in relation to the preparation of the report and then went on to find that the shareholders and the directors had relied on the report. No shareholders were called to give evidence on the issue of reliance, but in the opinion of the trial judge this was not fatal to the plaintiff's case. He was prepared to infer reliance by the shareholders on the basis that the statements in the report were of such a nature as to be very likely to induce the shareholders to act upon them.

118. The trial judge also found that all of the directors relied upon the report in a relevant sense. He said that Harold Abbott relied upon the valuation in the report to aid his purpose, as without the opinion in relation to the fairness of the price the takeover could not proceed. Although he found that Lee-Steere and Somes knew the report was wrong, the trial judge found that they "accepted the valuation and Nelson Wheeler report as being sufficient to justify the takeover at the price which Harold Abbott wished to fix". As for Quilty and Singleton, the trial judge accepted that they did not have knowledge about Western United and its subsidiaries sufficient to enable them to conclude that the proposed price was grossly inflated, although he decided that they should have suspected something was wrong. They accepted NWP as sufficiently competent and expert to provide the report and so relied upon it in a relevant sense. When these matters were added to the remainder of the findings, the trial judge concluded that the requirements of duty of care a nd breach had been established.

1. .19 Were fiduciary obligations owed by Nelson Wheeler to Kia Ora?

At the trial Kia Ora placed considerable reliance on its assertion that NWP were liable for breach of fiduciary duty. The trial judge rejected the submission, thus obviating the need to consider NWP's objection that this cause of action had not been pleaded sufficiently. Kia Ora's case at trial in relation to this issue began with the assertion that the relationship between NWP and Kia Ora was that of financial adviser and client. It was said that this conclusion was justified by reason of the nature of the retainer involving, as the plaintiff claimed it did, the two tasks of valuing Western United and providing a report for the purpose of the Listing Rule. According to the argument, the retainer was accepted by NWP when they were associated with Kia Ora and Western United in the manner already discussed. The role undertaken by them involved trust and confidence; requirements which conflicted with their own interests in the matter and their involvement with the two companies involved in the takeover.

The trial judge reviewed a number of authorities on fiduciary relationships including Breen v Williams (1996) 186 CLR 71 and cited a passage from the judgment of Brennan CJ in that case which identified the two sources of fiduciary duties; agency and relationships of ascendancy or dependency at 82. The trial judge also referred to the necessity of examining the actual circumstances of a particular relationship in order to ascertain whether it gave rise to fiduciary obligations and the further need to ascertain the extent of the fiduciary obligations in each case.

In argument before the trial judge Kia Ora placed reliance on Commonwealth Bank v Smith [1991] FCA 375; (1991) 102 ALR 453 and Daly v Sydney Stock Exchange [1986] HCA 25; (1986) 160 CLR 371. However he pointed out that it was insufficient to establish no more than the fact that a relationship of financial adviser and client existed. In Commonwealth Bank v Smith regard was had to the particular circumstances of the relationship and Daly v Sydney Stock Exchange involved the relationship of stock broker and customer which was an established fiduciary relationship.

After examining NWP's role, the trial judge observed that this was not a relationship of agency, nor one in which there were aspects of ascendancy, influence, dependence or trust. He said that, although NWP acted as financial advisers from time to time, they were not acting in that capacity for Kia Ora. They provided a valuation and expressed an opinion as to the fairness of the transaction, but they gave no advice concerning the efficacy or advisability of the takeover. In the trial judge's view there were no other features of the relationship which justified the conclusion that it gave rise to fiduciary obligations.

The trial judge made the observation in his judgment that the existence of the contract of retainer between Kia Ora and NWP was not in dispute; the contentious issue was as to its scope. It was argued before us, however, that if the trial judge's findings on attribution were correct and the actions of Kia Ora's directors cannot be attributed to the company, then no contract with Kia Ora could have been formed. This argument is dealt with below.

Assuming the existence of a contract, the question of scope remains. Kia Ora argued that NWP undertook first to provide a valuation of Western United so that the precise terms of the offer could be formulated and, second, to prepare the 3J(3) report. NWP denied that it was any part of their role to perform the first mentioned task.

It has been pointed out that no written record of the retainer was tendered at the trial. However the trial judge reached the following conclusions as to the scope of the retainer:

"Having considered the pleadings and the evidence about the various drafts of the Nelson Wheeler report, having reached the conclusion that the directors of Kia Ora considered the third draft and that Pilmer and Newman were subsequently informed of the terms of the offer, I am satisfied that the scope of the retainer was that Nelson Wheeler Perth was to undertake a valuation of Western United for Kia Ora in the context of a proposed takeover and then, if required, to prepare a report pursuant to Listing Rule 3J(3), which is what in fact occurred.

The valuation was required to see if the general level of the takeover price already determined was feasible. This is a reasonable inference from the evidence, particularly in the absence from the witness box of Harold Abbott and Pilmer. If it was, then the precise takeover price could be fixed. It is not known what those controlling Kia Ora would have done if the valuation had indicated to the contrary.

Nelson Wheeler undertook both of those tasks and reported to the Directors of Nelson Wheeler on the clear understanding that the final report would be sent to shareholders of Kia Ora.

Pursuant to the terms of the retainer, the first defendants owed a duty of care to Kia Ora to act independently, carry out their instructions with all reasonable and proper care, skill and diligence and to provide Kia Ora with a valuation of Western United and a report which complied with the requirements of Listing Rule 3J(3)."

According to his Honour's findings, the scope of the duty was the same in both contract and tort.

The trial judge recorded a finding that NWP breached the requirements of independence and competence which he said arose out of the retainer. The extent of that finding is recorded elsewhere in our judgment. As a consequence, NWP were found liable to Kia Ora in damages for breach of contract. In the judge's view the duty to act independently added nothing of practical relevance to the result, bearing in mind that there was a breach of the duty to act competently. Furthermore, his Honour found that liability for damages for breach of contract was coextensive with liability for damages in tort. As for causation, the trial judge acknowledged that the approach to be followed did not differ as between contract and tort. He proceeded on the basis that there could be no causal link between the breach of contract and damage suffered unless there had been reliance by Kia Ora on the valuation and the 3J(3) report. This gave rise to consideration by the trial judge as to whether the shareholders and the directors relied upon the valuation and the report in a relevant sense. The affirmative findings made by the trial judge in this respect enabled him to find that NWP was liable to Kia Ora for damages for brea ch of the contract of retainer.

It has been pointed out that Harold Abbott, Quilty, Singleton, Lee-Steere and Somes, who were directors of Kia Ora at the time of the takeover, were all found to be in breach of their fiduciary and statutory duties to Kia Ora. Quilty and Singleton abandoned their appeals against these findings, but it is necessary to consider the appeals of Somes and Lee-Steere. In addition to the findings of breach of fiduciary duty there were findings that these two directors did not act honestly as required by the Companies Code s229(1) and that their conduct was fraudulent and within s229(1)(b). They were also found to have made improper use of their position as officers of the company so as to gain an advantage for themselves contrary to s229(4).

Kia Ora and NWP put forward the same case against the directors, with the exception that NWP's third party claim against Harold Abbott, Lee-Steere and Somes also included a claim for breach of duty in tort. This additional claim was upheld by the court. In brief terms, the case against Lee-Steere and Somes was that they took part in the dishonest removal of most of the cash from Kia Ora and that they benefited substantially as a result. The conduct complained of encompassed their involvement in the decision to proceed with the takeover, providing information to the shareholders through the Quilty letter, forwarding the Nelson Wheeler report to the shareholders, continuing with the takeover after the share market crash, failing to take steps to avoid the takeover at the extra-ordinary general meeting and thereafter and generally pursuing the takeover until it succeeded.

It was not established that Lee-Steere and Somes were involved in the original approach to Hayward and the instructions to NWP to prepare the report. However the starting point of the case against them was their perusal of the Nelson Wheeler report. The trial judge rejected the evidence of both directors that they believed the views expressed in the report were sustainable and that it was to the benefit of Kia Ora to proceed with the takeover. In the light of their knowledge of Western United it was held that they must have realised the report could not be relied upon by the shareholders and that it was not in the interest of Kia Ora to proceed with the takeover. His Honour took the view that they should have opposed the takeover and that their failure to do so was motivated by self interests as well as support for Harold Abbott and Schneider-Paas.

The trial judge was not prepared to find that Lee-Steere and Somes were aware of the Quilty letter before it was sent to the shareholders. However they knew of the letter at the time of the extra-ordinary general meeting and should have corrected it by giving advice to the shareholders. The claim made before the trial judge that they were under no duty to do so by reason of a conflicting duty to Western United was rejected. They participated in the meeting of directors which decided to put the proposal to the extra-ordinary general meeting, the extra-ordinary general meeting itself and the decision to proceed with the takeover after that meeting. The trial judge held that, in these circumstances, they could not remain silent as to the inappropriateness of the proposal and the incorrect assessment in the Nelson Wheeler report. Their disregard of their duties as directors continued with their decision to proceed with the takeover after the share market collapse and again after receiving the Horwath and Horwath report. Furthermore Somes participated in the decision to make the offer unconditional and extend it. In the view of the trial judge these breaches were causative of Kia Ora's loss and, by reason of the findings of dishonesty, it was inappropriate to relieve them from liability by resorting to s535 of the Companies Code.

These findings required an assessment to be made of the business experience of Lee-Steere and Somes, their knowledge of both Kia Ora and Western United and their awareness of the financial implications of the takeover proposal. His Honour found that they were both astute business men. As the owners of substantial shareholdings in Western United they would have been aware generally of the share market history of the company. They were also familiar with problems associated with some of Western United's subsidiaries. They had intimate knowledge of the monthly accounts of Western United and its subsidiaries. There was no doubt in the trial judge's mind that they were well equipped with information and possessed of sufficient acumen to appreciate the unsoundness of the Nelson Wheeler report.

Kia Ora submitted to the trial judge that he should make an order which would have the effect of entitling Kia Ora to recover from the defendants an amount equivalent to any capital gains tax which Kia Ora might have to pay by reason of the award of damages. It is by no means certain that Kia Ora will have to pay capital gains tax. No evidence was called to establish the amount which might be payable if the tax is applicable. Nevertheless the trial judge considered that it was a real possibility that the tax would be exacted and it was his view that, in the event that it was, it would be a loss for which the defendants should be held responsible. In these circumstances he made an order requiring the defendants to pay any capital gains tax imposed by reason of the award of damages and stipulating that the plaintiff was to use its best endeavours to reasonably defend the claim for tax if requested to do so by any of the defendants.

The Nelson Wheeler defendants h ave appealed against the order.

NWP while admitting their retainer by Kia Ora, and a contract with Kia Ora , (subject to an issue to be referred to later) denied that they owed a duty of care in tort to Kia Ora to protect Kia Ora against the loss that it suffered, that is to protect Kia Ora against the payment of an excessive price for the shares in Western United that Kia Ora proposed to acquire.

NWP admitted that their contract with Kia Ora imposed upon NWP a contractual duty to act independently of Kia Ora and to provide a competently prepared report and opinion on the fairness of the proposed acquisition price.

NWP accepted that they might have owed a duty of care in tort to the shareholders of Kia Ora who were eligible to vote at the extra-ordinary general meeting. The duty that might have been owed was a duty to protect the shareholders against loss, in the form of a diminution in the value of their shares, resulting from Kia Ora paying an excessive price for the Western United shares. But NWP denied that they owed any duty in tort to Kia Ora in relation to the acquisition of the shares.

There are a number of facets to this submission. Some of these facets re-appear when considering other issues in the case. They re-appear, for example, when considering whether the share market crash or the decision of the directors, made after the crash, to proceed with the takeover of Western United, are events that overtook any breach of duty by NWP and deprived it of any relevant causative effect in relation to the loss suffered by Kia Ora. Some of these facets are relevant to the question of contributory negligence.

Because of the importance of this issue, it is convenient to spend some time considering the submission made on the question of a duty of care in tort.

One might wonder why this issue received so much attention at the trial and on appeal. We say that because of the conditional concession that there was a contract between Kia Ora and NWP, a contractual duty to exercise reasonable care and skill, and a breach of that duty in certain limited respects. The reason for the attention given to this issue is twofold. First, Mr Myers QC submits that in view of the judge's decision that certain conduct of the directors and management of Kia Ora was not to be attributed to Kia Ora, there cannot, consistently with that, be a finding that there was a contract between NWP and Kia Ora. The submission is that the matters that would be required for a finding of a contract cannot be established, because relevant events cannot be attributed to Kia Ora. The second reason is a submission by Mr Myers QC that in contract the test for reasonable foreseeability of loss is narrower than in tort, and so it is submitted that Kia Ora cannot meet the contractual test, and to recover damages must meet the tortious test. We will deal with these points later. At this stage we content ourselves with the observation that we do not consider that the tortious and contractual tests for remoteness of damage would produce different results in the present case.

Reduced to its essentials, the submission made by Mr Myers QC is, as we understand it, as follows.

The submission is founded upon the decision of the High Court in Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR 241.

That was an action in which Esanda claimed damages for what was described as pure economic loss resulting from negligence by Peat Marwick Hungerfords ("PMH") in auditing the accounts of a company, Excel. Esanda had lent money to Excel. Esanda alleged that it was a member of a class of persons, namely creditors and financiers of Excel, whom PMH foresaw or should reasonably have foreseen might reasonably rely upon Excel's published accounts and PMH's audit report, in deciding whether to lend money to Excel. Esanda further alleged that but for the audited accounts and report by PMH, it would not have entered into the relevant transactions with Excel and would not have suffered the relevant loss.

The issue in Esanda was whether the Statement of Claim adequately pleaded a cause of action against PMH.

The issue thrown up by the Statement of Claim was whether, in an action for pure economic loss, it was sufficient to plead that it was reasonably foreseeable by PMH that creditors and financiers of Excel might reasonably and relevantly rely on the audited accounts, and on the audit report on those accounts, in lending money to Excel. Or, was something more required to give rise to a duty of care on the part of PMH to Esanda?

The High Court held that the pleading as it stood, (or had been at the time of the decision under appeal), did not disclose a cause of action in negligence.

In so deciding the High Court determined authoritatively the circumstances in which a duty of care arises in relation to a statement made or given by A to B, which might be communicated to a class of which C is a member, and which statement or advice might result in C entering into a transaction and suffering financial loss. That summary of the circumstances under consideration by the Court is drawn from the judgment of Brennan CJ in Esanda at 252.

In Esanda (at 252) Brennan CJ summarised the requirements for the existence of a duty of care in the relevant circumstances. He began by making the point 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 a transaction as the result thereof and suffer financial loss, was 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. He then said:

"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." [Footnote omitted.]

In his judgment he also referred with approval to the following passage from the judgment of Barwick CJ in Mutual Life and Citizens Assurance Co Limited v Evatt [1968] HCA 74; (1968) 122 CLR 556 at 571:

"... the speaker must realize or the circumstances be such that he ought to have realized that the recipient intends to act upon the information or advice in respect of his property or of himself in connexion with some matter of business or serious consequence."

It is clear from the judgment of Brennan CJ that it is not sufficient to give rise to a duty of care that A foresaw, or should reasonably have foreseen, that a statement or advice that A gave to B might be communicated to C, as one of a class of persons who might rely upon A's statement or advice.

Dawson J took the same approach in Esanda. He approved the statement of the law by Barwick CJ in Evatt (at 255). He said, drawing on that statement (at 255):

"... whenever a person gives information or advice to another upon a serious matter (not merely social intercourse) where that person realises, or ought to realise, that he is being trusted to give the best of his information or advice as a basis for action on the part of the other, and it is reasonable for that other to act on the information or advice, the person giving it is under a duty to exercise reasonable care in so doing. In putting it that way, Barwick CJ had in the forefront of his mind information or advice proffered in response to a request, although he recognised that there may be 'relatively rare' occasions when information or advice which is volunteered might give rise to a cause of action." [Footnotes omitted.]

He said it was not essential for the existence of a duty of care that there be "... an antecedent request for information or advice ..." (at 255-256) although that might assist in demonstrating reasonable reliance on the part of the person making the request. The emphasis in the judgment of Dawson J was upon the need, in establishing a duty of care, to demonstrate reasonable reliance by the person who in fact relied upon the statement or advice. There were various ways in which reasonable reliance might be demonstrated, but in one way or another it must be demonstrated. And that reliance had to be reasonable in all the circumstances.

Toohey and Gaudron JJ also approved the same statement of law by Barwick CJ in Evatt: Esanda at 260-261. Their approach was that there had to be a special relationship of proximity to give rise to a duty to take reasonable care in the provision of information and advice (at 263). They discussed a number of matters relevant to the existence of that special relationship of proximity. They referred to an assumption of responsibility by the maker of the statement, and reliance by the recipient, as indicators of a special relationship of proximity, although they noted that these matters were not "free of difficulty" (at 263). In relation to reliance they said (at 264):

"In the context of liability for negligent statements, it seems to us that reliance is better expressed in terms similar to those used by Mason J in Kondis. Thus, reliance is to be understood, in the context of the provision of information or advice, as an expectation, which is reasonable in the circumstances, that due care will be exercised in relation to that provision. Similarly, we consider that, in that same context, assumption of responsibility should be understood in the way explained by Barwick CJ in Evatt. More precisely, it should be understood as the assumption of responsibility for providing information or advice in circumstances where it is known, or ought reasonably be known, that it will or may be acted upon for a serious purpose, and loss may be suffered if it proves to be inaccurate."

Their conclusion was a rather cautious one. It was expressed as follows (at 265):

"The decided cases do not identify precisely what it is that results in liability for economic loss suffered in consequence of the voluntary provision of information or advice. However, commonsense requires the conclusion that a special relationship of proximity marked either by reliance or by the assumption of responsibility does not arise unless the person providing the information or advice has some special expertise or knowledge, or some special means of acquiring information which is not available to the recipient. Moreover, ordinary principles require that the relationship does not arise unless it is reasonable for the recipient to act on that information or advice without further inquiry. Similarly, ordinary principles require that it be reasonable for the recipient to act upon it for the purpose for which it is used. That is not to say that a special relationship of proximity exists if these conditions are satisfied. Rather, it is to say that the relationship does not arise unless they are."

They said (at 266) that the Statement of Claim did not plead that PMH intended or encouraged Esanda to rely upon the audit of Excel's accounts. There was no relationship of proximity marked by reliance or by the assumption of responsibility for information or advice. There was nothing to suggest that it was reasonable for Esanda to act on the audited reports without further enquiry.

McHugh J summarised the law in Australia as it stood at the time as follows (at 275):

"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."

Having considered the state of law in other jurisdictions, he found that there was no good reason to extend the law beyond that statement (at 281). In particular, the role of the auditor of a public company, and the public trust and responsibility that went with that, and knowledge that lenders would or might rely upon the skill of the auditor, were not a sufficient reason to impose a duty of care in more wide ranging circumstances.

Gummow J took a more limited approach. He said that the Statement of Claim as it stood did not disclose a cause of action and accordingly he found it unnecessary to consider more generally the circumstances in which a duty of care might arise.

The submission by Mr Myers QC, quite properly, treats Esanda as an authoritative statement of the circumstances in which a duty of care arises in respect of a statement or advice which causes or results in pure economic loss to a person, other than the immediate recipient of the statement or advice, who relies upon the statement or advice.

The submission by NWP was that reasonable reliance on the truth or accuracy of the statement or advice was the cornerstone upon which was erected a finding of a duty of care.

We mention that reasonable reliance was not referred to in terms by Brennan CJ, but it is clear enough that that is a convenient way of expressing succinctly an aspect of his statement of the law.

The submission is that in the present case NWP provided their report to Kia Ora for the purposes of r3J(3). The report was provided to Kia Ora specifically and solely for the purposes of the report being provided to the shareholders for their consideration at the extra-ordinary general meeting of the shareholders of Kia Ora.

It is submitted that his Honour did not find that NWP knew or should have known that the directors of Kia Ora would rely upon the Nelson Wheeler report in deciding that Kia Ora should make the offer that it made to the shareholders of Western United. Nor did his Honour find, nor could his Honour properly have found, that it was reasonable for the directors to rely upon the Nelson Wheeler report. On the judge's findings the directors knew that the opinion that the Nelson Wheeler report expressed about the value of the shares of Western United and the fairness of the proposed price was unsustainable (J22). Moreover, and this is to express the same point in a different manner, there was no reason for NWP to think that their report was provided to Kia Ora for use by Kia Ora's directors in deciding whether to make an offer to the shareholders of Western United, or for the purpose of deciding the amount to be paid for shares in Western United.

It is submitted that the decision to make the offer was made by Kia Ora by its directors. For a duty of care to Kia Ora to arise, it was submitted that one would have to find that NWP knew or ought reasonably have known that the directors would rely upon the Nelson Wheeler report. As we have already said, it was submitted that no such finding was made by or open to the trial judge. Nor could the directors in any event reasonably have relied upon the Nelson Wheeler report, knowing what they did.

It is submitted that in an action by Kia Ora as plaintiff, the fact that NWP could foresee that the shareholders at the extra-ordinary general meeting would rely upon the Nelson Wheeler report, and the fact (if established) that they did so, in approving the proposed acquisition of shares in Western United, was irrelevant. The meeting of the shareholders was not an organ of Kia Ora. It was not a general meeting of shareholders (if that be relevant). It was simply a meeting of those shareholders eligible to vote. Nor did the meeting of shareholders decide whether to make the offer to the shareholders of Western United. The resolution of the meeting merely empowered and authorised the directors to do so if they saw fit.

In short, it is submitted that Kia Ora had suffered a loss as a result of a decision by its directors. NWP did not advise the directors on the fairness of the proposed price. NWP had no reason to think that the directors would rely upon the opinion that NWP provided to the meeting of shareholders. In any event, on his Honour's findings, the directors did not rely upon, and could not reasonably have relied upon, the opinion expressed by NWP. The directors knew that it was unsound. Any reliance upon the Nelson Wheeler report by the meeting of shareholders was irrelevant. Kia Ora is the plaintiff, not the shareholders, and the shareholders did not make the relevant decision. The decision by the shareholders caused no loss to Kia Ora.

The submission emphasises the need for reasonable reliance by Kia Ora upon the advice of NWP. It emphasises the fact that the report did not constitute advice to Kia Ora by its directors, but advice to the shareholders eligible to vote at the extra-ordinary general meeting. It emphasises the fact that the directors (acting for Kia Ora) did not rely upon the report, in the sense of putting their faith in it, but merely used the report to further their own ends. Thus, there was no reliance by Kia Ora (through its directors) on the report, and any reliance by the shareholders who voted at the extra-ordinary general meeting was not reliance by Kia Ora .

Before considering the submission we summarise the situation by reference to a number of the points made in Esanda. In the present case Kia Ora requested advice from NWP. NWP must have expected that the shareholders of Kia Ora would rely on that advice. NWP must have expected that the directors of Kia Ora would use the advice in the sense of submitting it to the shareholders in support of the directors' recommendation. The advice was sought for use in connection with an acquisition of assets by Kia Ora, of which acquisition NWP was aware. NWP must have expected that if its advice was favourable, the shareholders were likely to approve the transaction and that Kia Ora was likely to enter into the transaction. NWP must have known that there was a risk, if its advice was unsound, that Kia Ora would suffer a loss as a result of entering into the transaction.

The case differs from Esanda in the sense that it is a claim by the person who requested the advice, and not by a third party to whom the advice was communicated. In that sense the case for imposing a duty is stronger. The case differs from Esanda in that the advice was intended for use by the directors, but not intended to be relied upon by the directors. The persons who would or might rely upon the advice, the shareholders of Kia Ora, did not make the decision that Kia Ora would proceed with the acquisition, although their approval was essential. Nor were the shareholders, if another submission by Mr Myers QC is correct, an organ of the company for the relevant purposes, and so their decision was not a decision of Kia Ora.

We summarise the matter this way to highlight a number of factors that would argue for imposition of a duty of care.

We now proceed to consider the submission of Mr Myers QC in more detail.

We agree that the use made by the directors of the Nelson Wheeler report is not reliance upon the report in the sense in which that term was used by the High Court in Esanda. It seems to us that, rather than consider whether the principles stated in Esanda embrace reliance upon or use of the report in the sense in which that occurred here, it is simpler to approach the matter more directly by considering whether, in the circumstances of this case, NWP owed a relevant duty of care to Kia Ora to protect it against loss of the type which occurred and in the circumstances in which that loss occurred.

Our view is that NWP did owe a duty to Kia Ora in providing advice to Kia Ora. That duty was a duty to exercise reasonable care and skill in providing advice on the fairness of the proposed price, to Kia Ora for use in connection with the proposed acquisition of shares.

171. NWP were retained by Kia Ora, and knew that they were retained by Kia Ora, to provide a report or valuation for the purposes of r3J(3). That is, a report for presentation to the shareholders of Kia Ora, sufficient to establish that the proposed purchase price for the Western United shares was a fair price.

172. The report was required pursuant to the provisions of r3J(3)(a)(i) and (iii). The proposal by the directors of Kia Ora to acquire Western United shares involved the acquisition of such shares from, among others, the directors of Kia Ora. Those directors of Kia Ora were also persons who, for the purposes of s9 of the Companies Code, were associated with Kia Ora. The relevant directors in each case are Lee-Steere, Harold Abbott, Schneider-Paas, and Somes.

173. The proposed acquisition of shares by Kia Ora was a transaction in which, to the knowledge of NWP those directors of Kia Ora had a substantial personal interest.

174. The relevant members of NWP understood the requirement for a report from an independent expert, and the importance of that expert being truly independent.

175. The proposed acquisition was a substantial transaction by Kia Ora. The other circumstance which brought r3J(3) into operation was the fact that the directors of Kia Ora had a conflict of interest because, if the transaction were to proceed, they would be selling shares to Kia Ora. In the circumstances, it was foreseeable that, because of that conflict of interest and duty, they might act in their own interests as sellers of shares rather than in the interests of Kia Ora. The conflict of interest and duty was no mere technical conflict.

176. NWP agreed to provide a report in those circumstances.

177. In the circumstances that existed, the requirement of r3J(3) that a report be obtained, and that the report be submitted to a meeting of the shareholders of Kia Ora, provided an important and significant protection for Kia Ora against the possibility of an unwise proposal initiated by self-interested directors.

178. Of course, the appointment of independent directors, Quilty and Singleton, was another means of protecting Kia Ora. As it happens, that protective measure did not achieve its purposes. But the use of independent directors does not detract from the importance of the requirement that the shareholders be provided with an independent and competent opinion as to the fairness of the price, nor from the importance of the requirement that the shareholders have the opportunity to consider that advice at a general meeting. In the ordinary course of things the proposal would not come to the shareholders unless put forward by the directors. The fact that independent directors might have decided to put the proposal before the shareholders did not remove the evident risk of the price being unfair as the result of the proposal having been conceived by directors with an interest that conflicted with their duty as directors.

179. NWP were not under a duty to protect Kia Ora against decisions made by self-interested directors. Nor could they. Their duty was to provide a competent opinion on the fairness of the proposed price, and to do no more than that. But NWP undertook that duty in relation to a proposal conceived by directors who had a substantial interest in its execution. Their report was meant to provide independent and competent advice on that proposal. A failure to provide such advice might result in the shareholders approving the proposal. If they did so , the directors might implement the proposal.

180. In our opinion it was foreseeable that if the shareholders approved the proposal, it might then be carried through and result in loss to Kia Ora. It would be surprising if the directors, having put the proposal to the shareholders in general meeting, then determined not to proceed. This does not mean that NWP had to anticipate fraudulent conduct by the directors. The directors might simply be mistaken. But commonsense suggests that if the directors put the proposal to the shareholders, they are likely to proceed with it if the shareholders approve.

181. This all highlights the fact that as the involvement of directors of Kia Ora gave rise to a need for a report and meeting pursuant to r3J(3), there was every reason to regard the provision of an independent and competent report as a vital protection for Kia Ora against the risk that the proposal might be motivated by the self-interest of the directors of Kia Ora; might involve the payment of a price that was not fair in the interests of Kia Ora, and might be implemented if the shareholders approved it.

182. In the light of those circumstances, in our opinion there are a number of matters that, in combination, lead to the conclusion that NWP owed a duty of care to Kia Ora in providing its report on the fairness of the price proposed to be paid for the shares in Western United. These circumstances are drawn from the reasons of the members of the High Court in Hill v Van Erp (1997) 188 CLR 159 and in Esanda.

183. It was foreseeable that if the report was not competently prepared, that might result in the shareholders approving a purchase of Western United shares at an excessive price. It was foreseeable, although not certain, that having obtained the approval of the shareholders to their proposal, the directors would then proceed to implement it. We have already explained why that is so.

184. In other words, it was readily foreseeable that loss would or at least might result to Kia Ora if the report was prepared carelessly. And, as Brennan CJ said in Hill v Van Erp (1997) 188 CLR 159 at 166:

"The necessary, but not always sufficient, foundation for a duty of care in tort is reasonable foreseeability of damage to another if the task in hand is carelessly performed."

The fact that more than that is required to justify the imposition of a duty of care in respect of pure economic loss is clear. We have already referred to the decision of the High Court in Esanda, which makes that clear. In this area, foreseeability of harm is not itself enough to give rise to a duty of care.

185. Next, the report was provided by NWP to Kia Ora pursuant to a contract between Kia Ora and NWP. Kia Ora paid a fee to NWP. (We put to one side for the moment the submission by NWP that the conduct of the directors in retaining NWP cannot be attributed to Kia Ora because, on his Honour's findings, the directors or director concerned were acting in fraud of Kia Ora. The submission by NWP was that, consistently with his Honour's findings, there could be no contract between NWP and Kia Ora. As will appear later, we reject that submission.)

186. The contract was one which called for NWP to exercise their professional skill and judgment. NWP were under a contractual duty to Kia Ora to take care in expressing their opinion.

187. The existence of a contract calling for the exercise of professional skill and judgment, in the provision of an opinion or advice, is a circumstance which has been accepted as assisting a conclusion that a duty of care in tort is owed by the provider of the advice to the recipient of the advice: see Sutherland Shire Council v Heyman [1985] HCA 41; (1985) 157 CLR 424 at 497-8 and 502 Deane J. Such a factor remains a relevant consideration whether or not one embraces the concept of proximity: Hill v Van Erp at 178-179 Dawson J.

188. The existence of a contractual relationship between Kia Ora and NWP means that imposing a duty of care does not deny NWP the protection of any relevant contractual provisions: see Hill v Van Erp at 196 Gaudron J; Bryan v Maloney (1995) 182 CLR 609 at 620-622 Mason CJ, Deane and Gaudron JJ.

189. To impose a duty of care, with liability for pure economic loss, in the present circumstances does not raise the prospect of indeterminate liability. The duty, if any, is owed to Kia Ora which is the client which commissioned the report from NWP for use by its shareholders.

190. To impose a duty of care with consequent liability is not to impose liability at large or liability for an indeterminate amount. As the present case illustrates, the damages in such a case can be sizeable. However, if there is liability, the liability is for the loss sustained by Kia Ora in paying an excessive price for the shares that it was proposing to purchase. Difficulties in quantifying that loss, and the possible size of the loss, have to be acknowledged. But the nature of the liability imposed is clear, and in a rough and ready way, subject to questions of interest, the likely loss is readily determinable.

191. We also regard it as relevant that the Nelson Wheeler report was required, sought and obtained because of the personal interest that the directors of Kia Ora had in the proposal. NWP were aware of their interest as sellers of Western United shares to Kia Ora, and were aware of the conflict between their fiduciary duty to Kia Ora as directors and their interest as vendors of shares in Western United.

192. The report was therefore called for and provided in circumstances in which it was known to NWP that the conflict of interest and duty existed. It was known to NWP that there was a risk of the purchase price proposed not being in the interests of Kia Ora. The circumstances that gave rise to the risk of the proposed price being excessive, or not a fair price, were known to NWP. The risk against which protection was required was known to NWP.

193. The significance of this is that the provision of the report by NWP was not a mere matter of form. It was required and provided because, in the circumstances, the protection of Kia Ora's interests called for a check on, or scrutiny of, a vital aspect of the directors' proposal. That is, the fairness of the proposed price. NWP knew that their report was vital to the exercise of the check or scrutiny for which r3J(3) provided.

194. At the risk of unduly labouring the point, we emphasise that NWP knew that there was a risk that the directors might be proposing a price that was not fair or in Kia Ora's interests, and that NWP's function was to provide a report that informed shareholders whether that had occurred. To impose a duty of care to guard against that risk is not to impose upon NWP an obligation in respect of a risk that it could not reasonably have foreseen.

195. To impose a duty of care in the present case would not, as Dawson J said in Hill v Van Erp at 180:

"... supplant or supplement remedies available in other areas and would not disturb any general body of rules constituting a coherent body of law."

We do not consider that the imposition of such a duty would impact upon other areas of the law.

196. In relation to the point now under consideration, we would also make the point that, in our firm opinion, in the present case it could come as no surprise to NWP to find that it was obliged to take due care. It could come as no surprise to NWP to know that lack of care on its part might result in substantial loss to Kia Ora. The imposition of a duty in the present circumstances is not to impose upon NWP an obligation of care which they would not have anticipated, and an obligation in respect of a loss that was not a foreseeable result of their conduct.

197. In our opinion there are practical considerations which favour imposing a duty in favour of Kia Ora rather than in favour of the shareholders.

198. If the duty is owed exclusively to the shareholders, the remedy is a series of individual claims by shareholders for their individual loss. Some of the difficulties facing a claim of this sort are referred to in Caparo Industries PLC v Dickman [1990] UKHL 2; [1990] 2 AC 605 at 626-627 Lord Bridge. A duty owed to shareholders would or could lead to a multiplicity of actions. Presumably, only those shareholders who were not involved in promoting the proposal could bring an action. That might seem just, but it would mean that the whole loss sustained by Kia Ora would never be recovered. Imposing a duty of care in favour of Kia Ora enables Kia Ora to make a single claim for the loss suffered by it. Admittedly, as was pointed out by Mr Myers QC, recovery by Kia Ora may give rise to some other difficulties. Persons who were shareholders at the time of the takeover, but who subsequently sold their shares in Kia Ora, would not recover their loss, because the benefit to Kia Ora when it recovers damages would not benefit them. Persons who have acquired shares in Kia Ora since the takeover would benefit as a result of Kia Ora recovering damages, although they had suffered no loss. But, as it seems to us, these are features of the fact that when a corporation sustains a loss, that loss, if substantial enough, will usually affect the value of shares in the corporation. The recovery of damages by a corporation for loss suffered by it will, inevitably, have the result that persons who were shareholders at the time of the loss, but no longer are, will not recover for their loss, and persons who have subsequently become shareholders will receive a benefit that might be regarded as a windfall. We do not discount this factor altogether. But, in our opinion, to the extent that it is relevant, the balance of convenience comes down in favour of providing a remedy to the company rather than to individual shareholders: see the discussion of policy considerations in Hercules Management Ltd v Ernst & Young (1997) 146 DLR (4th) 577 at 606-607.

199. It is also relevant that to impose a duty in favour of Kia Ora will provide protection for creditors of Kia Ora.

200. In relation to shareholders who promoted the takeover in breach of their duty as directors of Kia Ora, justice can still be done. If, as here, they have been sued and judgment has been recovered, any benefit that flows to them through shares that they might still have in Kia Ora can be recovered when the judgment is enforced. If they are no longer shareholders in Kia Ora, then they will not benefit from the recovery of the damages.

201. If Kia Ora sues, its loss is clearly identifiable. While there may be problems of quantification, in essence the loss is the difference between the value of the shares acquired and the price paid. In an action by a shareholder the measure of the loss is the impact of the improvident transaction upon the value of the shareholder's shares. The assessment of loss in such a case is likely to be far more complex.

202. There is no perfect solution here. But, in our opinion, requiring individual shareholders to sue is an unattractive means of remedying the injustice, if one acknowledges that there is one.

203. To impose a duty of care in the present case is not to award damages for the failure of Kia Ora to secure a benefit. It is to award damages to Kia Ora for damage to its existing rights, in the sense of financial loss inflicted upon it. In Hill v Van Erp McHugh J said at 211-212:

"Speaking generally, damages for expectation losses are the province of contract law where an award of damages for the failure to secure a benefit results from the agreement of the defendant to subject himself or herself to an obligation to secure that benefit. ... Tort law, on the other hand, typically imposes an obligation on a defendant independently of his or her agreement or wishes. But ordinarily in negligence cases, it imposes that obligation only in respect of some existing interest of the plaintiff ."

In the present case, a duty of care does not result in compensation for an expectation loss.

204. To impose a duty of care to Kia Ora does not require NWP to undertake duties or responsibilities to a person or entity other than the client with which NWP dealt. We mention this because in Hill v Van Erp (at 212), that was a factor regarded by McHugh J as a reason not to impose a duty of care on a solicitor in favour of a beneficiary under the will that the solicitor was preparing.

205. Reliance was, as we have already said, central to the submissions for NWP. In that respect considerable emphasis was placed upon what was said by the High Court in Esanda. Emphasis was also placed upon the insistence upon proof of an inducement, that appears in the reasons of Brennan J in San Sebastian Pty Ltd v The Minister [1986] HCA 68; (1986) 162 CLR 340 at 366-367. But we do not take the remarks of the High Court in Esanda to be determining the outer boundaries of liability for negligent advice that causes pure economic loss. Esanda, and most of the cases to which the High Court referred, are cases in which a claim was made by a person who relied upon the advice in the sense of putting faith in it.

206. In the present case the directors used the advice that they obtained from NWP to obtain the approval of the shareholders to the proposed acquisition of shares. We are content to assume for present purposes that the directors of Kia Ora knew that the advice of NWP was unsound. This is not reliance of the type under consideration by the High Court in Esanda. But, in our opinion, that is not the end of the matter.

207. For the reasons that we have already explained, at perhaps excessive length, the use made by the directors of the advice of NWP was foreseeable. It was foreseeable that the directors, honestly but incompetently, or dishonestly, might use a favourable opinion to support a course of action that they were proposing. It was foreseeable that that might result in loss to Kia Ora, if the shareholders gave their approval and the directors remained of the same mind.

208. While the present case is not a case of reliance in the sense that that term was used in Esanda, we see no reason not to take a similar approach to the use of the report, as distinct from reliance upon it in the sense of putting faith in it.

209. The underlying rationale in this respect is, we suggest, that NWP undertook to exercise due care and to provide to Kia Ora competent advice on the fairness of the proposed price. NWP knew that a failure to exercise due care could result in loss to Kia Ora, although that would occur only if the directors pressed on after getting the approval of the shareholders. To impose a duty of care on Kia Ora that extends to the use (or misuse) of its advice, is not to transform the undertaking of NWP. To impose a duty of care and a liability for resulting loss is not to transform the liability that NWP might have contemplated could result from an incompetent report.

210. In our opinion, in the particular circumstances of this case, to impose a duty and a liability in respect of the use of the report, as distinct from reliance upon it, is consistent with the rationale that underlies the principle expounded by the High Court in Esanda.

211. We now turn to consider some particular matters considered by McHugh J in Esanda as relevant to the question of whether it is appropriate to impose a duty of care, in a case of pure economic loss resulting from earlier advice, and not covered by existing authority.

212. The first (Esanda at 282) is whether imposing liability will reduce the supply of the relevant services. In this context McHugh J considered the availability of insurance, the consequential increase in fees if insurance is available, and a possible reduction of demand for the relevant services. The Court is not in a position to make an informed assessment of these matters. However, in the present case, unlike Esanda, the issue is not one of imposing liability in favour of the third parties whose interests and likely losses are difficult to quantify. The issue here is the question of liability to the entity that retains the adviser and to which the advice is provided. We do not assume that imposing a duty of care in the present circumstances would bring about a significant increase in the cost of the services that were provided in the present case, or a reduction in the availability of those services.

213. The next matter that McHugh J considered (Esanda at 283) was the impact on the efficient administration of the court system of imposing liability. In Esanda he referred to the fact that cases in which the duty of care was enforced were likely to be lengthy and time consuming. That is certainly true of the present case. A case of the length of this case imposes a very real burden upon the Courts of the State. However, there are some features of this case which are unusual. The case raised some issues which would not usually be raised. A lot of time has been occupied on the issue of whether there was a national partnership. In principle, a complaint of a negligent valuation of assets to be acquired by a company in circumstances to which r3J(3) applies, should not be a major burden to the Courts of the State.

214. In this context McHugh J said (Esanda at 284-285):

"If the liability of auditors was extended to third parties in circumstances such as those alleged here, the common law would be conferring rights on a sophisticated group who have the means in most cases to take steps to avoid the risk of loss. ...

Creditors and investors on the other hand are likely to be in a better position than auditors to know the likely extent of their losses ... But the question is whether investors and creditors, as one class, or auditors as the other can most efficiently absorb the losses which flow from the conduct of the clients of auditors."

In the present case the imposition of a duty of care will confer a right on the company which seeks the services of a skilled professional. Bearing in mind that what is in issue is the valuation of an asset the subject of a proposed acquisition, there is no particular reason to say that the company is better placed than the valuer to avoid the risk of loss. It is pertinent to bear in mind that the duty is imposed in circumstances in which persons in a position of influence in the company have an interest in the proposed acquisition that conflicts with their duty to the company. It is a situation in which the company is vulnerable to exploitation. To the extent that it is relevant, the other persons being protected are the shareholders of the company. Once again, there is no reason to say that they are better placed than the valuer to take steps to avoid the risk of loss. We do not consider that this factor argues against the imposition of a duty.

"Third, creditors and shareholders already have an indirect remedy against the auditors in many cases. The liquidator or receiver can bring an action on behalf of the audited client."

The argument used by McHugh J was that the ability of the client to sue was an argument against the imposition of a duty in favour of creditors and shareholders. To the extent that it is relevant in the present case, that matter favours the imposition of a duty of care to Kia Ora.

216. The next matter that McHugh J considered (Esanda at 286-287) was the fact that it was the conduct of the client that was the primary cause of the loss, the auditor's role being a secondary cause. In the present case it is fair to say that the conduct of the directors was the primary cause for the loss, in the sense that they initiated and then carried through the proposal. However, as against that it is relevant to point out that the very reason for the requirement to obtain the report from NWP was the presence of the risk that the directors would propose an acquisition that was not in the interests of Kia Ora. We do not consider that in the present case this factor argues strongly against the imposition of a duty of care.

217. McHugh J next observed (Esanda at 287-288) that the imposition of a duty of care would raise the issue of reliance on the auditor's report, and that proof of that reliance would be problematical. In the present case, while reliance is hotly contested, we do not consider that the problem of reliance is similar to the problem of reliance in a case in which, some time after audit reports are provided, persons to whom those reports were not provided make decisions likely to be influenced by a range of factors apart from the audit report.

218. The last matter considered by McHugh J (Esanda at 288) was the fact that the factual issues that arise in an auditor's liability case will almost always have to go to trial, making it impossible for an auditor to avoid a trial or settlement. In such a case summary judgment would rarely be available. That observation applies to the present case. However, with all respect to McHugh J, we do not consider that such a matter is entitled to much weight if there are substantial reasons for imposing a duty of care.

219. Finally, we consider the issue of whether to impose liability is to extend the existing scope of the law incrementally and by analogy to existing situations in which a duty of care is imposed.

220. If NWP had been asked to prepare a report advising the directors on the value of the shares in Western United, to enable the directors to decide upon a proper price for the proposed acquisition, and assuming that in considering the report the directors were acting genuinely in the interests of Kia Ora, we have no doubt that NWP would be under a duty of care to Kia Ora in relation to their opinion as to a fair or appropriate price for the shares. Such a situation would be a routine application of existing principles giving rise to the imposition of a duty of care. In our opinion the present case, while raising different issues, is not greatly dissimilar from the situation just considered. In the present case the company has sought a report from NWP on the fairness of the proposed price. The report is required for the consideration of the shareholders, not for the consideration of the directors. It is required not to enable the directors to determine the price that they should pay, but to enable the shareholders to consider whether the price proposed by the directors is a fair price. It is required because, in the circumstances of the case, the directors have a personal interest in the proposed transaction. The differences between what we call the routine case and the present case are obvious, but in the end NWP are being asked to provide the company with a report on the fairness of the proposed price, for consideration by a group of persons who have the power to decide that the proposed acquisition will not proceed. We consider that the two situations are analogous, and that if anything the closeness of the analogy argues in favour of the imposition of a duty of care.

221. With reference to the relevance of that process of reasoning by analogy, we refer to what Dawson J said in Hill v Van Erp (at 177):

"Reasoning by analogy from decided cases by the processes of induction and deduction, informed by rather than divorced from policy considerations, is not, in my view, dependent for its validity on those cases sharing an underlying conceptual consistency. It is really only dependent upon the fact that something more than reasonable foreseeability is required to establish a duty of care and that what is sufficient or necessary in one case is a guide to what is sufficient or necessary in another."

222. In summary, to impose a duty of care in the present case is to extend the existing law, in the sense that there appears to be no authority covering the present situation. However, we do not regard the extension as a significant one, and the situation now before the Court bears a reasonably close analogy to a situation in which a duty of care would be routinely imposed. The duty of care is imposed on NWP in favour of the entity that sought its advice, being the entity with which it had a contract to provide professional services. The imposition of a duty of care does not impose liability to an indeterminate range of persons nor in respect of an indeterminate range of matters. The liability is in respect of the very matter upon which NWP agreed to advise. The liability is imposed in respect of a risk that was or should have been foreseen by NWP in the circumstances in which it undertook to advise. That is, the risk of an excessive price being proposed as a result of the self-interest of persons involved in the management of Kia Ora.

223. We consider that there are a number of practical and policy factors, which we have endeavoured to identify, which support the imposition of a duty of care. We do not consider that there are any such matters that argue strongly against the imposition of a duty of care. For all those reasons we conclude that a duty of care should be imposed, and that the judge was right to so conclude.

224. The submission advanced by NWP that there is no duty of care in tort finds its origin in the fact that Kia Ora as a corporation is a legal entity which must act through relevant organs or agents. The organ or agent might be the board of directors, the shareholders in general meeting, individual directors, employees, agents and so on. In the present case the decision to make the offer to the shareholders of Western United was made by Kia Ora by the board of directors. The board of directors did not rely upon the Nelson Wheeler report in the usual sense of that term. As well, NWP argue that the meeting of shareholders that approved the offer was not an organ of Kia Ora, because it was not a meeting at which all of the shareholders were eligible to vote.

225. Thus, it is submitted, reliance by Kia Ora upon the report of NWP cannot be established.

226. We do not accept that in Esanda the High Court intended to exclude recovery of damages for pure economic loss resulting from the use of professional advice in the manner in which the professional advice of NWP was used in this case. The High Court, while identifying a general principle of liability for pure economic loss, was dealing with a case of reliance in the true sense. It did not have to consider other ways in which careless advice might cause loss. We do not regard Esanda as an obstacle to our conclusion.

227. We also consider that, if the focus is to be on the process whereby Kia Ora decided to make its offer to the shareholders of Western United, the present case is sufficiently close to the principles established by Evatt and by Esanda to support our conclusion, taking into account as well the other considerations that we have identified.

228. To demonstrate our point, and at the risk of unduly lengthening our reasons, we now summarise the facts of the case in a manner that draws on those principles.

229. First, NWP expressed their opinion on a matter that required the exercise of their professional skill.

230. Second, NWP expressed that opinion in a context in which their advice or opinion was sought and given on a serious matter. They knew that the proposed meeting of shareholders and proposed acquisition could not proceed unless their advice was that the price was fair.

231. Third, NWP knew or should have known that the shareholders of Kia Ora would rely upon NWP's competence to give that advice or opinion, and NWP knew that their report, if it indicated that the proposed price was fair, would be communicated to the shareholders.

232. Fourth, it was reasonable for the shareholders to rely upon NWP's advice and opinion.

233. Fifth, it was foreseeable that if the shareholders approved of the proposed acquisition of shares, the directors would then cause Kia Ora to acquire them, and that if the NWP advice was unsound, Kia Ora would suffer loss.

234. Sixth, the report was provided to Kia Ora for use as described above by Kia Ora, and Kia Ora is the claimant in the action.

235. Seventh, NWP provided their report to Kia Ora to enable an identified group of persons to decide whether to permit the directors to implement their proposal. That, in our opinion, is closely analogous to giving the report to Kia Ora to assist it, by its directors, to decide whether to acquire the shares.

236. Eighth, NWP knew that their report would be relied upon for that very purpose. It would not of course be the sole basis upon which shareholders would vote, but it would be a very important factor.

237. Ninth, NWP knew that if the shareholders gave their approval, Kia Ora might well then enter into the specific transaction in relation to which it had expressed an opinion on price.

238. Considered in that way, and against the principles established in Evatt and Esanda, imposing a duty of care seems to us to be consistent with those principles.

239. Our approach to the issue is somewhat different from that of the trial judge, but in substance is the same. There are some matters of difference upon which it is appropriate to comment briefly.

240. His Honour rejected the contention advanced by NWP that the purpose of r3J(3) was to protect the unassociated shareholders, and not to protect Kia Ora. His Honour concluded that the purpose of the rule was to protect the company. We agree. We would merely add that its purpose might be as well to protect the unassociated shareholders. But to acknowledge that is not, in our opinion, a reason not to impose a duty of care in favour of the company.

241. His Honour said, referring to the rule in Foss v Harbottle [1843] EngR 478; (1843) 2 Hare 461; 67 ER 189, that it was doubtful whether the shareholders would have a remedy even if a duty of care was owed to them. By reason of that rule the relevant remedy might be available to Kia Ora only, and not to the individual shareholders. We respectfully disagree. If a duty is owed to the shareholders, and not to the company, then it must follow that damages are claimable by the shareholders for a breach of that duty. Although we disagree with his Honour on this point, we do not consider that it is of any significance in the overall scheme of things.

242. In reaching the conclusion that he reached his Honour relied upon his finding that the directors or some of them relied upon the Nelson Wheeler report for the purpose of fixing the price to be paid for the shares in Western United. We have not found it necessary to rely upon that finding.

243. If the finding is correct, and if it means that the directors of Kia Ora genuinely relied upon the Nelson Wheeler report when fixing the price to be paid for the shares, that would be a sufficient reason of itself to impose a duty of care upon NWP. That is, of course, assuming that NWP agreed to provide a report for that purpose. In that situation it would be a straightforward case of the directors having sought the advice of NWP to enable them to fix the price to be paid. There could be no question that a duty of care would be owed to Kia Ora in that situation.

244. Our impression is, however, that his Honour's finding really amounts to a finding that the directors, having more or less decided upon the proposed price, wanted to be sure that the report to be provided by NWP would confirm that that was a fair price to be paid, before the proposal was finalised and put to the shareholders. If that is so, then the directors did not really rely upon the Nelson Wheeler report to fix the price. They determined upon the price to be paid, give or take a few cents, and merely wanted to be sure that the report to be presented to the shareholders would support the fairness of that price, before committing themselves to the proposal in the sense of putting it to the shareholders. If that is what his Honour's finding means, then in our opinion it is not an added reason for finding that a duty of care exists. It merely demonstrates that the directors intended to use the Nelson Wheeler report to support their proposal, and did not finally commit themselves to the proposal until they knew that the report would be in a favourable form. That is not reliance in the sense in which it was used in Esanda, nor does such a finding lead to the conclusion that the proposed price was fixed by the directors in reliance on, in the sense of placing their faith in, the report provided by NWP.

245. We do not consider that the plaintiff's case is strengthened by a claim that NWP provided a valuation to the directors as well as an opinion to the shareholders. Such a claim does not seem to lead anywhere. It was the opinion or advice to the shareholders that was significant in this case.

246. It is convenient to mention here a separate argument advanced by Mr Gray QC. The argument is that NWP, by referring in its report to the proposed purchase price for Western United shares as "fair and reasonable in all the circumstances", went beyond the expression of an opinion on the fairness of the price, and offered advice on the proposal more generally. We do not agree. In context, we do not consider that NWP's advice was to be understood as anything other than an opinion on the fairness of the price. In our opinion there is no reason to think that any of the shareholders would have read the report in any other way. That is how we read the report. We note that in Policy Statement 75 the Australian Securities Commission has drawn a distinction between an offer that is reasonable and an offer that is fair. Some doubts about the validity of that distinction were expressed by Hayne J in Re Rancoo Ltd (1995) 17 ACSR 206 at 208. We share his doubts. But that is by the by. We do not consider that the report provided by NWP would have been read as dealing with anything other than the fairness of the price. We do not accept this submission.

247. The judge appears to have relied in part upon his conclusion that the meeting of shareholders for the purposes of r3J(3) constituted a meeting of the shareholders in general meeting for the purposes of the Articles of Kia Ora, and accordingly its decision was a decision of Kia Ora (J392). On that basis his Honour appears to have reasoned that Kia Ora did enter into the takeover transaction in reliance upon the opinion expressed by NWP. We consider that it is unnecessary to decide whether or not the meeting of shareholders can, for the purposes of company law, be regarded as an organ of Kia Ora. In our reasoning it has been sufficient to identify the part played by the shareholders in general meeting in the decision making process. Our reliance upon the role of the shareholders at that meeting is not in any way affected by the question of whether or not the meeting can be regarded as an organ of the company. We are also of the view that his Honour may have gone too far in saying that by virtue of the decision of the shareholders Kia Ora entered into the transaction in reliance upon the report provided by NWP. While we by no means under-estimate the significance of the decision at the meeting, in the end the decision was to authorise and empower the directors to cause Kia Ora to offer to purchase the shares in Western United. The decision of the shareholders did not commit Kia Ora to that course of action.

248. Subject to those comments we agree in general terms with the approach taken by his Honour.

249. Before leaving this topic we should refer to the decision of the Full Court of the Supreme Court of Western Australia in Strategic Minerals Corporation NL v Basham & Ors (1997) 25 ACSR 470. Strategic Minerals Corporation NL ("Strategic") was a listed mining corporation. Its directors resolved to offer to acquire from Asha Capital Corporation Limited ("ACC") the entire issued capital of Asha Mining Finance Pty Ltd ("AMF"). The circumstances were such that r3J(3) applied. Strategic engaged a firm of chartered accountants, Hendry Rae & Court ("HRC") to prepare a report to be placed before the shareholders of Strategic to enable them to determine the fairness of the price to be paid. AMF had three major assets. One of them was a gold mining project. In relation to that asset the report stated specifically that the writer had been unable to confirm data relating to the ore reserves and operating costs. This material was obviously vital to the determination of the projected cash flow from the investment. In due course Strategic claimed that the price paid for the shares in AMF was not fair or reasonable. It claimed that HRC was negligent in furnishing its report and that the negligence had resulted in loss and damage to Strategic.

251. The first difficulty that confronted the plaintiff was the finding that the statement in the report by HRC, that it had been unable to confirm the data referred to, meant that the report was not capable of misleading anyone who read it into thinking that HRC had confirmed the data (at 486).

252. The next difficulty was a finding that the directors of Strategic had not relied upon the report. The finding was that they saw it as no more than a formality to comply with the requirements of the law (at 493).

253. However, the report had been placed before the shareholders of Strategic at a meeting called for that purpose. Had the report of HRC not expressed the opinion that the transaction was fair and reasonable, it would not have been put before the shareholders. It does not appear to have been argued (see at 492) that the shareholders had relied upon the HRC report. The argument seems to have been that, but for the HRC report, the transaction could not have proceeded, and that was sufficient to establish liability. That argument was not accepted by the Court. It was in that context that White J, with whose reasons the other members of the Court agreed, said (at 491):

"In my opinion, reliance is an essential element of any claim for damages arising from negligent misstatement. In the instant case, it must be the reliance of the appellant which is to say, the reliance of its board of directors. Reliance by shareholders would not, in my opinion, be relevant to the case now before us and, in any event, the appellant has ... expressly disavowed any dependence on reliance by shareholders."

254. There was the further difficulty, referred to by White J at 499, that if reliance of the shareholders were to be used to support the claim, an inference that the shareholders had relied upon the HRC report would have to include an inference that the shareholders were aware that in its report HRC stated that it had been unable to confirm the data upon which the report was based. White J said that no shareholders having been called to give evidence, the Court could not draw an inference favourable to Strategic's case and ignore the other inference that was unfavourable to that case.

255. While the statement by White J that reliance by the shareholders would not be relevant is contrary to the view that we have taken, in the circumstances of the case it was unnecessary for White J to express that view. And, as the facts of the case indicate, the case is clearly distinguishable from the present case. We do not regard Strategic Minerals as contrary to the approach that we have taken. If we are wrong in that, we would respectfully disagree with the reasoning of the Full Court to the extent that it was that reliance by the shareholders is not relevant reliance, and that use by the directors of a r3J(3) report cann ot give rise to a duty of care.

256. The existence of a contract between Kia Ora and NWP for the provision of a report for the purposes of r3J(3) was not disputed by NWP. That concession was, however, subject to the submission that his Honour's conclusions on the matter of attribution meant, if he were consistent, that there could be no contract at all between Kia Ora and NWP, because the conduct of Mr Abbott in retaining NWP could not be attributed to Kia Ora.

257. We deal in detail with the issue of attribution later in our reasons.

258. The cases to which we there refer indicate that there is a principle pursuant to which the law requires a court to insulate a company from knowledge or information possessed by a person, such as a director, even though that knowledge would otherwise be imputed to the company.

259. However the principle, whatever its precise scope may be, does not extinguish, as it were, the facts or events that have occurred, or deprive them of legal significance. In Belmont Finance Corporation v Williams Furniture Ltd [1979] Ch 250, the knowledge of illegality and other wrongdoing possessed by directors of Belmont was not attributed to Belmont. We refer to our later consideration of the case for the circumstances under which the court so concluded. Nevertheless, as Belmont Finance Corporation v Williams Furniture Ltd (No.2) [1980] 1 All ER 393 shows, agreements that those directors had caused Belmont to enter into, in the course of their wrongdoing, were still treated as operative. Their effect was not extinguished by the process of declining to impute knowledge of the directors, relating to the agreements, to the company. We are by no means satisfied that the principle ever operates to deny that an event has occurred, or to extinguish or nullify a legal relationship that has been entered into. It appears to us to be confined to insulating a company from knowledge. But we do not need to decide that. We do not make any use of that principle in concluding that the defendants were in breach of their duty of care, and are liable for the loss that ensued. Indeed, we later conclude, unlike the trial judge, that the principle does not protect Kia Ora from a finding of contributory negligence. On our approach to the matter of attribution, there is nothing in this point advanced by Mr Myers QC.

260. The trial judge did conclude (J413) that "certain acts and knowledge cannot be attributed to Kia Ora." However, with all respect to the judge, even if one takes the approach to the principle that he took, it is not necessary to do any more than to decline to impute knowledge of certain matters to Kia Ora. It is not necessary to decide that acts in fact performed by the directors, in that capacity, cannot be regarded as acts performed by Kia Ora. It follows that even if we were to take the same approach as the trial judge took to attribution, we would not accept that we were required to conclude that there was no contract between NWP and Kia Ora. There clearly was such a contract, and refusing to impute to Kia Ora knowledge that the directors had about the imprudence of the proposed takeover, and the unreliability of the advice provided by NWP, does not lead to a conclusion that there was no contract for the provision of advice.

NWP appear to acknowledge that their contract with Kia Ora gave rise to an express or implied obligation to act independently of Kia Ora in the preparation of their report, and to exercise an appropriate level of care and skill in expressing their opinion on the fairness of the price to be paid.

For Kia Ora's damages claim to succeed, it had to prove a breach of that duty and that the breach caused the loss claimed. We deal later with those matters.

It is convenient to mention at this stage the suggested obligation to act independently of Kia Ora. When dealing later with contributory negligence, we explain why we doubt that there was such a contractual duty. However, the question of NWP's independence assumes some importance on the issue of the existence of a fiduciary duty which we will deal with later.

For reasons which we develop in due course we consider that, even if there were a contractual duty to act independently, by itself a breach of that duty could produce no material loss. There had to be something more, and that was a failure to exercise an appropriate level of care and skill. In the light of that, attention can be concentrated on the duty to exercise reasonable care and skill.

There is an issue of whether the test of what loss is reasonably foreseeable is narrower in contract than it is in tort. That, no doubt, is why his Honour considered with such care the question of whether a duty of care was owed to Kia Ora in tort.

Foreseeability of loss, or remoteness, for the purposes of the law of contract, is governed by the principles laid down in Hadley v Baxendale [1854] EngR 296; (1854) 9 Ex 341; 156 ER 145. We later explain why, in our view, the damages claimed by Kia Ora are not too remote to be recovered as damages for a tortious breach of the duty of care.

As to the contractual duty, we have reached the same conclusion. It is convenient to mention it here because we do not consider that the contractual aspects of the matter require any separate consideration.

NWP provided its advice to Kia Ora for use in connection with a proposed acquisition of shares by Kia Ora. It was obvious that if NWP's advice was not sound, Kia Ora might acquire the shares, pay too much, and suffer loss. In our opinion there can be no doubt that, applying accepted principles of the law of contract, such loss is not too remote.

There is a real issue of causation, but there is no reason to think, at least in this case, that the approach to causation will differ in contract and in tort.

The suggestion that NWP agreed to provide a valuation to Kia Ora needs no separate consideration, for the reasons that we have already explained.

For those reasons, hereafter we will concentrate on the tort aspects of the case, although we will return later to the breach of the contractual duty.

His Honour notes (J314) that during the closing addresses Mr Myers QC conceded that the valuation of Western United was carried out incompetently, and that the opinion that NWP expressed on the fairness of the price was expressed incompetently and in breach of the duty of care that NWP owed to Kia Ora. Counsel identified four aspects of the valuation in respect of which NWP erred. His Honour says in relation to the concession:

"In my view, the evidence is clear and overwhelming. The concession is properly made albeit at a very late stage of the trial."

His Honour nevertheless went on to make findings on the matter. They were not limited to the concession made. It was appropriate for him to do so. It suffices to summarise those findings, without picking up all of the points that his Honour made.

His Honour found (J328) that in determining future maintainable earnings, an important aspect of the valuation, NWP "fell into serious error". NWP acted upon an unsustainable estimate of future earnings. His Honour found (J334) that a plainly inappropriate price earnings multiple was selected by NWP. His Honour said that there were various factors that could have been used as checks by NWP on the initial value at which it arrived. If these had been used, they would have indicated a need to reconsider fundamentally the approach taken and the result that it had produced. These checks were not carried out. As well, it was implicit in the opinion expressed by NWP that a large amount had been attributed to goodwill. The amount was of the order of $100m. As to that, his Honour said (J343):

"Consideration of this matter should have demonstrated to Nelson Wheeler that their valuation was obviously wrong and grossly excessive."

His Honour found that the allowance by way of a premium for the gaining of control of Western United was excessive (J341). His Honour's overall conclusion in relation to the opinion expressed by NWP was as follows (J345):

"It is fair to say that the extent of the incompetence is a very substantial departure from the standards which they were required to observe."

His Honour also found that NWP owed a duty to Kia Ora in tort to be independent of and to act independently of Kia Ora. We are not satisfied that any such duty was owed in tort. The duty in tort was to avoid causing loss to Kia Ora through a failure to take reasonable care in the preparation of the report and in expressing the opinion that was expressed. While it is of no importance in the end, we do not consider that there was a separate duty in tort to be independent. Lack of independence may have caused NWP to rely upon information that it should not have relied upon, and to fail to make checks that should have been made. To the extent that that occurred, it becomes significant as a failure to take reasonable care in preparing their report.

The end result is that there was a clear and substantial breach of the duty of NWP to exercise reasonable care and skill in expressing the opinion that it did express.

There is a question of whether NWP was in breach of a continuing duty to advise Kia Ora of any material event, occurring between the time when NWP completed their report and the time of the extra-ordinary general meeting, which materially affected the advice that NWP had provided.

It has been held that an adviser who gives advice which has continuing effect is under an obligation to modify that advice if later events make the advice no longer reliable. In Richard Ellis (WA) Pty Ltd v Mullins Investments Pty Ltd (In liq) (1995) 124 FLR 157 an estate agent gave a tenant, considering moving to new premises, advice about how long it was likely to take to secure a replacement tenant for the tenant's existing premises. After the advice was given the stock market crash, referred to in this case, occurred, and demand for office accommodation declined suddenly. The tenant suffered loss and claimed damages. On appeal, a judgment in favour of the tenant was set aside and the tenant's action was dismissed. It was dismissed on the basis that the tenant had not relied upon the representation when entering into an agreement to occupy new premises. But in the course of its judgment the Full Court of the Supreme Court of Western Australia held that in a case like the case before it, where a prediction was made but circumstances changed so that the prediction was falsified, the maker of the prediction would be under a duty of care to correct the position (at 171).

We accept that there may be circumstances in which an adviser comes under such an obligation. In our view a court should be slow to so conclude. Most advice is given and received, expressly or by implication, on the basis of circumstances as they are at the time the advice is given. The person who receives the advice does or should know that. It would impose an impossible burden on those who give advice regularly if the law were to impose an obligation on them to update their advice in the light of changing circumstances. The circumstances in which there is such an obligation must be, in our opinion, unusual.

In the present case we do not consider that NWP was under an obligation to update its report, in the light of changing share prices on the stock exchange, up to the day of the extra-ordinary general meeting. It would not have been practical to do so. In our opinion readers of the Nelson Wheeler report could reasonably be expected to consider and assess movements on the stock exchange for themselves.

The same applies to the share market crash, to which we refer later in more detail. Treating that simply as a relevant event, in our opinion NWP were not under an obligation to bring to the attention of shareholders the fact that the crash might affect the value of shares in Kia Ora and shares in Western United, and thus affect the opinion expressed.

But the crash had an effect on the report of NWP that an ordinary reader would miss. The crash seriously undermined the already unrealistic estimate of future earnings that NWP had used, and the unrealistically optimistic price earnings multiples that NWP had used. We refer to this later in more detail. NWP must have realised that, and should have known that to the ordinary reader those matters would not be apparent. In our opinion NWP were under an obligation to inform Kia Ora of those matters. That is, NWP were under an obligation to inform Kia Ora that the crash had undermined important elements upon which their report was based, in a manner not readily discernible by the ordinary reader. NWP were under that obligation because they knew that their report was not to be used until the time of the extra-ordinary general meeting, and knew that that had not yet arrived, and knew that they had adequate time to communicate the relevant advice to Kia Ora. It is not to the point that it would have been impossible to inform all shareholders in time. The obligation on NWP in this respect was to inform Kia Ora, and it was then up to Kia Ora to do what it could to inform its shareholders.

In that respect also we consider that NWP were in breach of their duty of care.

As we have elsewhere concluded that NWP are liable for the loss sustained by Kia Ora, we do not need to consider this point any further. We merely add the point that had we concluded that NWP were not liable in any event, it would have been necessary to consider the breach of this duty more closely in relation to the argument that the share market crash was an event that brought to an end the causative effect of any breach of duty by NWP. In our opinion that argument is particularly difficult to sustain if NWP's failure to advise Kia Ora of the effect of the crash on its report was itself a breach of duty.

There is one further point. Mr Myers QC submitted, at one stage of his argument, that a case along these lines had never been pleaded or put. Our attention has been directed to a number of paragraphs of the Statement of Claim which, in our opinion, sufficiently plead a failure by NWP to qualify or withdraw their report. By way of example we refer to par 86 of the Statement of Clai m and to par 15.8 of the Reply.

The loss for which Kia Ora sued is the loss sustained as a result of Kia Ora acquiring the share capital of Western United from its shareholders. The loss claimed is, broadly, the difference between the value of the consideration provided (in cash and shares) and the value of the shares acquired. There is also a substantial claim for interest.

The trial judge award ed damages under both headings.

We will come a little later to the authorities which establish the principles in accordance with which causation of loss is to be decided. At this stage it suffices to refer to the following short passage from the joint judgment of Mason CJ, Deane J and Toohey J in Bennett v Minister of Community Welfare [1992] HCA 27; (1992) 176 CLR 408 at 412-413:

"In the realm of negligence, causation is essentially a question of fact, to be resolved as a matter of commonsense. In resolving that question, the 'but for' test, applied as a negative criterion of causation, has an important role to play but it is not a comprehensive and exclusive test of causation; value judgments and policy considerations necessarily intrude." [Footnotes omitted.]

It is also helpful to bear in mind the following observation made by Kirby J in Chappel v Hart (1998) 72 ALJR 1344 at [93]:

"It is a mistake to read this Court's cautionary words about the 'but for' test as an expulsion of that notion from consideration where the question of causation is in contest. On the contrary, a sufficient causal connection will, generally speaking, be established if it appears that the plaintiff would not have suffered the damage complained of but for the defendant's breach of duty. The Court has simply added the warning that it is necessary to temper the results thereby produced with 'value judgments' and 'policy considerations'. This qualification has been expressed lest a party, shown to have been in breach of duty, is forever thereafter to be liable for every misfortune that follows in time whatever the breach demonstrated and however irrelevant it may appear to the damage which ensued." [Footnotes omitted.]

There are a number of matters of fact with which we propose to deal before stating the relevant law and stating our view about the application of the law to the facts.

Before we turn to them, it may be helpful if first we state the questions to be answered when considering the question of causation, that is of legal responsibility for the loss in respect of which Kia Ora claims damages. This will help to put the factual matters in context.

The ultimate question is whether the negligence of NWP in preparing their report and in expressing their opinion on the fairness of the proposed price for the shares in Western United is in law the cause of the loss that Kia Ora suffered.

As we see it, the issue is whether the necessary causative link is to be found in one or other or a combination of the following matters. First, the fact that the provision of the report by NWP enabled the directors of Kia Ora to call the meeting that was required by r3J(3) before the proposal could proceed. Secondly, the fact that the report advised that the price was fair, was placed before the shareholders at the meeting called, and was relied upon (if the judge's finding was correct) when the shareholders approved the transaction. Thirdly, the fact that the directors, having secured the approval of the shareholders, then caused Kia Ora to offer to acquire the shares in Western United and to effect the acquisition.

Even if an affirmative answer is given to those questions, and it is concluded that prima facie the breach of duty by NWP caused the loss that Kia Ora sustained, there is a further question. That is whether the share market crash and the consequent decline in share values is to be seen as a matter of law as the cause of the loss sustained by Kia Ora, bringing to an end any causative effect resulting from the breach of duty by NWP. Alternatively, the question is whether the decision by the shareholders to approve the acquisition despite their knowledge of the crash, or the decision by the directors to cause Kia Ora to offer to acquire the shares in Western United despite their knowledge of the crash, are intervening events that displace any causative effect of the breach of duty by NWP, or that break the causative link that would otherwise exist.

We now return to the facts. We deal with them relatively briefly, because they are referred to earlier in this judgment. By and large it suffices to state our conclusions.

The report prepared by NWP, which accompanies the notice of an extra-ordinary general meeting sent to shareholders, is dated 22 September 1987. The covering letter signed by Mr Quilty is dated 9 October 1987. His Honour's finding (J82) is that the report was not finalised until about 2 October 1987, although it appears that only minor variations were made between 22 September 1987 and 2 October 1987. The report in its final form was considered at a meeting of the directors of Kia Ora on 2 October, when it appears that they resolved to proceed with the proposed offer for the shares in Western United (J81-82).

The report by NWP that was sent to the shareholders was expressed to be

"... prepared for the Directors of Kia Ora Gold Corporation N.L. for use in connection with a Stock Exchange Section 3J(3) notice to shareholders for approval to acquire all of the issued capital of Western United Limited."

The first page of the report sets out the terms and conditions of the offer. The second page contains a "summary of our opinion". In essence, that summary states that the valuation of the issued capital of Western United "... equates to $3.22 per share." The report goes on to refer to the "current market price" for Kia Ora shares and for Western United shares. The report then states:

"In our opinion it is reasonable for Kia Ora to pay a premium to acquire all of the shares in Western United. Further, we are of the opinion that, from the point of view of Kia Ora, the price proposed to be offered is fair and reasonable in all of the circumstances."

The report then continues for another nine pages, which material includes a more detailed explanation of the approach taken by NWP.

Although the report refers to the current market price for the shares, there is no reference in the report to a need to qualify the opinion expressed by NWP in the light of a decline in the price of the shares, should that occur.

As we have already said, on 9 October 1987 notice of the extra-ordinary general meeting and the accompanying documents were sent to shareholders. There were approximately 18,000 shareholders in all. Evidence established that about 47% of the shareholders resided outside Australia. About 47% of the shareholders resided in Australia but outside Western Australia. It appears that a fair number of the shareholders resided in the United Kingdom.

On 9 October 1987 Gardiner made public the fact that the notice of the extra-ordinary general meeting was being dispatched, and gave information about the proposal. As his Honour appears to have found (J376), that statement could not have been a public announcement of the takeover for the purposes of s52 of the Acquisition of Shares Code. At the stage of the announcement Kia Ora had not made any decision to proceed.

It is convenient in this context to mention that, if it was the case that after the shareholders' meeting Kia Ora became obliged to proceed with the offer, or obliged to proceed unless the consent in writing of the NCSC was obtained, we do not regard that as of any particular significance on the question of causation. If there was an obligation to proceed, that obligation arose as a result of the meeting of the shareholders and of the subsequent decision by the directors to proceed to make the offer. It was not a new and extraneous factor that intruded into the situation.

The judge found that Abbott, Lee-Steere, and Somes knew that the opinion expressed by NWP was unsound (J431). The judge found that these directors were content to use the Nelson Wheeler report to advance the proposed acquisition of the Western United shares despite that. In relation to Abbott, the judge made the following finding (J431):

"Because the valuation was favourable, he was able to fix the takeover price consistent with the general level he had in mind. If it had been unfavourable, he would not have been able to proceed. He relied upon the valuation and the Nelson Wheeler report to advance his own purpose and, in my view, that is relevant reliance. He participated in sending it to the shareholders. In that sense he relied upon the valuation and the Nelson Wheeler report."

He made a similar finding relating to Lee-Steere and Somes (J431).

His Honour found that Quilty and Singleton did rely upon the Nelson Wheeler report, in the sense of accepting it as sound. He said (J431):

"Unlike the other directors, it has not been established that they had sufficient knowledge of Western United and its subsidiaries to know that the proposed price was grossly inflated and that the Nelson Wheeler report was wrong, although they must have suspected as much in view of the share market price history of Western United shares. Certainly, simple enquiry would have revealed the true position to them. I find that they did rely upon the valuation and the Nelson Wheeler report."

We accept the findings made by his Honour relating to the directors.

It follows that in proposing the acquisition to the shareholders of Kia Ora, and in calling the extra-ordinary general meeting, the directors either used or relied upon the report prepared by NWP.

The share market crash occurred on 19 October and 20 October 1987. The judge found that a drop in share prices of the magnitude that did occur "... had not been encountered for several decades" (J103). However, his Honour made other significant findings relating to this event, which findings were open to his Honour on the evidence before him.

Referring to the impact of the crash, his Honour said (J104):

"However, all of these consequences were not immediate. There was a wait and see approach in the days and week or so following the initial fall by those involved in the share market and the economy generally."

He went on to say that although the price of Kia Ora shares dropped from $1.08 to 75cents almost immediately, the price of Western United shares fell more slowly. The highest price had been $2.90 on 19 October. The price fell to $2.40 by 23 October 1987 and to $1.70 by 30 October 1987.

In this context it is relevant to note that his Honour accepted that these events were not such that a reasonable person should have considered that the report provided by NWP was of no further relevance. He found (J373):

"I do not think that Quilty and Singleton were in breach of duty in continuing to rely upon the Nelson Wheeler report after the share market crash if that is what they did. By the time of the meeting on 26 October 1987, which was five days or so after the share market crash, the state of the market, on the evidence, was uncertain. There had been a brief rally of share prices and subsequent falls. Advice at the time was for caution."

However, his Honour went on to find that Quilty and Singleton should have obtained and considered suitable advice relating to the impact of the crash. A little later (J383) he found that the directors should have suggested to the shareholders that the meeting be adjourned.

The significance of this is that the drop in share prices which occurred, severe as it was, was not sufficient of itself to cause the average person to discard immediately the Nelson Wheeler report. The average person might still think that the opinion expressed by NWP was applicable, that is the average person at the time of the extra-ordinary general meeting on 26 October. His Honour made an express finding to this effect (J434):

"For the reasons clearly expressed, that stock market crash did not render the Nelson Wheeler report obsolete by the time of the extra-ordinary general meeting and it was reasonable for the shareholders to rely upon it during that short time after the share market crash."

A little earlier, when dealing with events at the extra-ordinary general meeting, he made the following finding (J432):

"Given the perception of the share market crash at the time, as has been mentioned, I do not think the crash negated the Nelson Wheeler report and is a reason for concluding there was no reliance upon it. Also, it must be remembered that Nelson Wheeler Perth had not withdrawn the report after the share market crash."

They are clear findings which we see no reason to disturb. While the directors should have realised, and some of them did realise, that the market decline required further advice to be taken, that would not have been realised by the average shareholder. We mention that Mr Gray QC provided us with an analysis of the cost to Kia Ora of the acquisition, using Kia Ora share prices in the week after the crash. That appears to demonstrate that the cost to Kia Ora declined quite significantly. That, of course, is only one side of the transaction, but it helps one understand why the average shareholder might have thought that the report could still be used.

It should also be pointed out that his Honour found that the directors realised, or should have realised, that the decline in the market must affect the value of Western United at the least by rendering estimates by NWP of future maintainable earnings unsound, and by making the price earnings multiple selected by NWP inapplicable. The impact of the decline in share prices upon the reasoning used by NWP in arriving at its opinion is not something that the average shareholder would perceive.

As his Honour mentioned in the passage just referred to, NWP made no attempt to inform Kia Ora or its shareholders that at least two significant elements underlying its valuation of Western United had been undermined by the decline in the share market.

His Honour found that in September 1987, when NWP was preparing its report, most informed commentators were predicting a fall in the market, but not as soon as it occurred: (J103). His Honour also found that a fall in the market was clearly foreseeable (J469). He repeated this finding at J473. He said:

"The fall in the share market was reasonably foreseeable and any loss caused to Kia Ora by the share market crash is not too remote and must form part of the damages to be awarded."

"It has been accepted that a fall in the market is foreseeable as a matter of common knowledge. However, evidence at the trial establishes as much and that this was also the state of knowledge of the first defendants."

He referred to evidence given by partners of NWP that a downward correction had been foreseen as likely (J315).

His Honour's findings in relation to NWP in this respect are not completely clear, but he appears to have found that when preparing its report NWP did foresee a fall in the market in the relatively near future, although probably not as great as the fall that occurred nor its precise timing.

Relevantly, these findings establish that a significant downward movement in the market was foreseeable, and was foreseen by NWP. The effect of his Honour's findings appears to be that the downward correction was foreseeable as occurring somewhere between late 1987 and early 1988.

His Honour made a number of findings about the extra-ordinary general meeting on 26 October. These were challenged by NWP. We reject the challenges.

His Honour proceeded on the basis that the shareholders of Kia Ora received the booklet that included the notice of the extra-ordinary general meeting, the report prepared by NWP, the letter signed by Quilty and a proxy form. We have difficulty understanding the basis of the challenge to that finding. We reject it.

His Honour found (J432) that many of the votes in favour of the takeover were cast by proxy. That finding seems to us to be obviously correct, having regard to the number of votes in favour of the resolution and the number of shareholders who attended the meeting. We reject the challenge to that finding.

His Honour found that it was likely that some proxy forms were completed and dispatched before the crash occurred (J432). Having regard to the large number of overseas shareholders (about 8,500 of a total of about 18,000 shareholders), and other evidence about the timing of events, we consider that that finding is obviously correct.

His Honour rejected a submission that the majority in favour of the resolution proposed by the directors was procured by the use of proxies from shareholders who were disqualified by r3J(3) from voting (J106). Once again, we can find no reason to reject that finding.

Mr Myers QC strongly challenges the finding that the shareholders who voted in favour of the resolution relied upon the Nelson Wheeler report. No shareholders who attended the meeting, and no shareholders who voted by proxy, were called as witnesses. The finding made by his Honour (J430) was as follows:

"In my view, this is a clear case where the inference of reliance by the shareholders should be drawn. I find that the shareholders of Kia Ora and in particular those unassociated shareholders who voted, in person and by proxy, in favour of the proposed takeover, relied upon the Nelson Wheeler report at least in part."

In relation to the drawing of the inference his Honour said (J429):

"As with the drawing of any inference, an appropriate factual foundation must exist in the evidence. In my view, that foundation has clearly been established. Each shareholder received the Nelson Wheeler report. Its importance was highlighted in Quilty's letter. Its purpose and importance was correctly understood by Nelson Wheeler Perth. It was fundamental to the calling of the meeting and the resolution. It contained the opinions necessary to justify a price far above the current market price of Western United shares."

We do not consider that in drawing that inference his Honour erred.

His Honour, and this Court on appeal, were referred to a number of authorities bearing on the matter. They are referred to in his Honour's judgment. We accept the submission advanced by Mr Myers QC that the judgment of Lord Halsbury LC in Arnison v Smith (1889) 41 Ch D 348 rather tends against the conclusion of his Honour, than to support it. We say that because the well known words of Lord Halsbury, referring to the ease with which an inference of reliance can be drawn in relation to a statement of its nature likely to induce reliance, were made with reference to plaintiffs who were in fact called as witnesses in the case. When Lord Halsbury came to deal with the plaintiffs who had not been called he rejected a submission that an inference of reliance by those person should have been drawn. He said (at 374):

"It is certainly in the highest degree improbable that these Plaintiffs did not see the prospectus, or that they were not influenced by the representation contained in it; but we are all of the opinion that there is no evidence of those facts upon which a Court of Justice can act."

The decision of the Court was that in relation to those plaintiffs the judgment in favour of the defendant should be varied to make it equivalent to a non-suit, to enable the plaintiffs to bring a fresh action.

Despite all that, at the end of the day the matter is one of fact, to be determined in the light of relevant legal principles. The matter for proof in the present case was the reason for the making of a decision by a majority of shareholders. There was an overwhelming majority of shareholders in favour of the resolution. Many of the shareholders lived outside Australia. The difficulty of proof confronting the plaintiff in the present case is obvious, although difficulty of proof cannot excuse failure of proof. But, in our opinion, the inference of reliance could be drawn relatively easily. Reliance upon the Nelson Wheeler report did not have to be the only basis for the decision. In our opinion it is inherently likely that a majority of those voting in favour of the resolution relied upon the report. It was provided to them for that very purpose. Indeed, without a report establishing that the proposed price was fair, there could be no meeting of shareholders. We are satisfied that it was received by the shareholders. There is no evidence to suggest that anything was put before the shareholders other than the Nelson Wheeler report and the letter from Mr Quilty. Of course, we do not overlook the fact that shareholders may have received information from other sources. We consider that the matter is one of commonsense. We consider that it was open to his Honour to draw the inference that he drew, and that commonsense supported the drawing of the inference. To the complaint that not a single shareholder was called, we would respond that if one or a hand-full of shareholders had been called, and had said that they relied upon the Nelson Wheeler report, it could equally have been said that they do not constitute the majority. The significant thing is that in the present case there is no reason to think that the shareholders would not have relied upon the Nelson Wheeler report. Nothing has been identified which is likely to have displaced the favourable effect of the Nelson Wheeler report. We consider that the facts speak for themselves, and that his Honour was entitled to draw the inference that he drew. This is a matter upon which citation of authority is hardly necessary. For what it is worth, we refer to In re London v General Bank (No.2) [1895] 2 Ch 673 and in particular the judgment of Lindley LJ at 688, and to the remarks of Brooking J in Ansett Transport Industries (Operations) Pty Ltd v Australian Federation of Air Pilots (1989) 95 ALR 211 at 271-272 as supporting the approach that his Honour took.

Immediately after the meeting of shareholders, the directors of Kia Ora met and resolved to proceed with the takeover (J106). They were not, in our opinion, obliged to do so. They had been authorised to proceed with the proposed takeover, but not required to do so. It may be, as was submitted by Ms Powell QC, that the effect of the resolution was to absolve the relevant directors from any disqualifying personal interest in the proposal, and to permit them to participate in subsequent decision making by the directors of Kia Ora. As to that, the fact remains that this and later decisions were not in the interests of Kia Ora.

We referred a little earlier to a submission to the effect that the directors were bound to proceed by reason of the making of a public announcement or by reason of the dispatch of the formal offer. As we said, to the extent that they were so obliged, they were obliged because of their own conduct in taking the decision to proceed (J376).

Later still, in December 1997, the directors resolved to declare the offer free from conditions and to extend the terms of t he offer until 25 January 1998.

The judge referred to a number of relevant decisions of the High Court. We will refer to them shortly. There is no reason to think that he misdirected himself as a matter of law. He recognised the proper role of the "but for" test. He acknowledged that, but for the breaches of duty by the directors, Kia Ora would not have sustained its loss. But he concluded (J433):

"However, what must not be overlooked is that without the Nelson Wheeler report in its favourable terms, there would have been no takeover. But for the incompetence of Nelson Wheeler Perth, the takeover process would have stopped dead in its tracks. The breach of duty of Nelson Wheeler was a cause of, and materially contributed to, the loss."

As to the impact of the share market crash his Honour referred to his finding, to which we have already referred, that the crash did not render NWP's report "obsolete" and that it was "reasonable for the shareholders to rely upon it during that short time after the share market crash". He said that the crash did not "constitute a breach in the chain of causation". He referred to the decisions made by the directors of Kia Ora after the crash. He said (J434):

"These acts and omissions of the directors may not be attributed to Kia Ora as it was a victim for the reasons already expressed."

But he went on to say that the loss that they caused could not have been caused without the Nelson Wheeler report. He referred to the importance of the Nelson Wheeler report, the fact that NWP were aware of its importance, were aware of the use to which it would be put, and were aware of the circumstances giving rise to the need for the report. After referring to the judgment of Mason CJ in March v Stramare [1991] HCA 12; (1991) 171 CLR 506 at 517-518 he concluded that the conduct of the directors did not break the chain of causation.

We agree with the general approach taken by his Honour. The only reservation that we have relates to the possible reliance by his Honour upon his conclusion that the acts of the directors were not to be attributed to Kia Ora. In our respectful opinion, when considering causation and a possible break in the chain of causation, the acts of the directors cannot be put to one side, even if for certain purposes they are not to be attributed to Kia Ora. However, despite his Honour's reference to the question of attribution, he went on to consider the question of a break in the chain of causation in an appropriate fashion and, taking his reasoning as a whole, we do not agree that he decided the question of causation by placing erroneous reliance upon th e principle of non-attribution.

The correct approach to the issue of causation has been considered by the High Court in a number of recent decisions. In particular, in March v Stramare the High Court reviewed the then state of the law. In the judgments in that case are to be found statements of the principles that have received approval from the High Court in later decisions.

For present purposes it is not necessary to refer to the relevant decisions at length. However, we propose to refer to the recent High Court decisions to identify the key principles to be applied.

As Mason CJ said in March v Stramare [1991] HCA 12; (1991) 171 CLR 506 at 512, the approach these days is not to look for a single cause for a consequence or to seek one "effective cause". He went on to say (at 514):

"Nonetheless, 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 ..."

The approach to be taken in Australia is conveniently summarised in Bennett v Minister of Community Welfare [1992] HCA 27; (1992) 176 CLR 408 in the judgment of Mason CJ, Deane and Toohey JJ at 412-413:

"In the realm of negligence, causation is essentially a question of fact, to be resolved as a matter of common sense. In resolving that question, the 'but for' test, applied as a negative criterion of causation, has an important role to play but it is not a comprehensive and exclusive test of causation; value judgments and policy considerations necessarily intrude. The inadequacy of the 'but for' test has emerged in cases in which a superseding cause, amounting to a novus actus interveniens, has been held to break the chain of causation which would have otherwise resulted from an earlier wrongful act or omission. In those cases, though the earlier wrongful act or omission may have amounted to an essential condition of the occurrence of the ultimate harm, it was not the true cause or a true cause of that harm." [Footnotes omitted.]

That statement of the law draws on the judgments of Mason CJ and Deane J in March v Stramare. While noting that, it is convenient here to refer to the helpful discussion by McHugh J in that same case of the place to be given to policy choices in deciding the question of causation: March v Stramare at 530-531.

In Bennett, Gaudron J referred to the approach to be taken to the question of causation when what is in issue is a breach of duty based on an omission or failure to act, rather than on the doing of some positive act or something which could be regarded as a positive act. We consider that her observations are relevant to the present case. She said (at 420-421):

"And although it is sometimes necessary for a plaintiff to lead evidence as to what would or would not have happened if a particular common law duty had been performed, generally speaking, if an injury occurs within an area of foreseeable risk, then, in the absence of evidence that the breach had no effect, or that the injury would have occurred even if the duty had been performed, it will be taken that the breach of the common law duty caused or materially contributed to the injury. However, the question whether some supervening event broke a chain of causation which began with or which relates back to an omission or a failure to perform a positive duty, is one that can only be answered by having regard to what would or would not have happened if the duty had been performed. It is only by undertaking that exercise that it is possible to say whether the breach was 'still operating', or, continued to be causally significant when the harm was suffered." [Footnotes omitted.]

The High Court returned to the issue of causation in Chappel v Hart (1998) 72 ALJR 1344. That again was the case of a breach of duty by omission, the breach of duty being a failure to warn a patient of a risk of injury that attended an operation that the respondent was to perform upon the appellant. Although the issues that arose in that case were, of necessity, linked to the facts of the case, relevant statements of principle are to be found in the case. Gaudron J made the point that questions of causation, when they arise within the law of negligence, arise within a framework in which the law assigns "... a duty to take reasonable steps to prevent a foreseeable risk of harm of the kind in issue". She went on to say (at [8]-[9]):

"The duty [to warn] was called into existence because of the foreseeability of that very risk. The duty was not performed and the risk eventuated. Subject to a further question in the case of a duty to provide information, that is often the beginning and the end of the enquiry whether breach of duty materially caused or contributed to the harm suffered. ... Where there is a duty to inform it is, of course, necessary for a plaintiff to give evidence as to what would or would not have happened if the information in question had been provided." [Footnotes omitted.]

In the course of his judgment McHugh J said (at [27]):

"If a wrongful act or omission results in an increased risk of injury to the plaintiff and that risk eventuates, the defendant's conduct has materially contributed to the injury that the plaintiff suffers whether or not other factors also contributed to that injury occurring. If, however, the defendant's conduct does not increase the risk of injury to the plaintiff, the defendant cannot be said to have materially contributed to the injury suffered by the plaintiff."

In the course of his judgment, Gummow J referred the need to temper the application of the "but for" test by the making of value judgments and the infusion of policy considerations (at [62]). He went on to place particular emphasis upon the fact that the very risk of which the plaintiff should have been warned was the risk that materialised (at [67]).

In relation to the question of whether an event breaks a chain of causation that would otherwise have resulted, Mason CJ said in March v Stramare (at 517-518):

"In similar fashion, the 'but for' test does not provide a satisfactory answer in those cases in which a superseding cause, described as a novus actus interveniens, is said to break the chain of causation which would otherwise have resulted from an earlier wrongful act. ... The fact that the intervening action is deliberate or voluntary does not necessarily mean that the plaintiff's injuries are not a consequence of the defendant's negligent conduct. In some situations a defendant may come under a duty of care not to expose the plaintiff to a risk of injury arising from deliberate or voluntary conduct or even to guard against that risk .... To deny recovery in these situations because the intervening action is deliberate or voluntary would be to deprive the duty of any content.

It has been said that the fact that the intervening action was foreseeable does not mean that the negligent defendant is liable for damage which results from the intervening action ... but it is otherwise if the intervening action was in the ordinary course of things the very kind of thing likely to happen as a result of the defendant's negligence."

"As a matter of both logic and common sense, it makes no sense to regard the negligence of the plaintiff or a third party as a superseding cause or novus actus interveniens when the defendant's wrongful conduct has generated the very risk of injury resulting from the negligence of the plaintiff or a third party and that injury occurs in the ordinary course of things."

In Medlin v State Government Insurance Commission [1995] HCA 5; (1995) 182 CLR 1 the High Court returned to a consideration of these issues. In a joint judgment, Deane, Dawson, Toohey and Gaudron JJ stated the relevant principle as follows (at 6-7):

"The ultimate question must, however, always be whether, notwithstanding the intervention of the subsequent decision, the defendant's wrongful act or omission is, as between the plaintiff and the defendant and as a matter of common sense and experience, properly to be seen as having caused the relevant loss or damage. Indeed, in some cases, it may be potentially misleading to pose the question of causation in terms of whether an intervening act or decision has interrupted or broken a chain of causation which would otherwise have existed. An example of such a case is where the negligent act or omission was itself a direct or indirect contributing cause of the intervening act or decision."

We refer also to the following passage from the judgment of McHugh JA in Alexander v Cambridge Credit Corporation Limited (1987) 9 NSWLR 310 at 361-362:

"It is well-established that, in contract as in tort, the intervening act, sufficient to constitute a novus actus interveniens and break the chain of causation, can be the act of a third party ... However, the intervening act of a third party will not operate as a novus actus interveniens if the contractual duty of which the defendant is in breach was to guard against the very act of the intervener or that class of act .... Further, an abnormal intervening event, which combines with the defendant's breach of contract to cause damage to the plaintiff, will generally break the chain of causation unless the intervening event was of a kind which was to be reasonably anticipated."

Finally, we mention that the approach of the House of Lords appears to be the same as that of the High Court. The matter was recently considered by the House of Lords in Environment Agency v Empress Car Co (Abertillery) Ltd [1998] UKHL 5; (1998) 2 WLR 350. In reasons with which all but one of their Lordships agreed, Lord Hoffmann addressed the issue of causation. He said (at 358):

"These examples show that one cannot give a common sense answer to the question of causation for the purpose of attributing responsibility under some rule without knowing the purpose and scope of the rule. Does the rule impose a duty which requires one to guard against, or makes one responsible for, the deliberate acts of third persons? If so, it will be correct to say, when loss is caused by the act of such a third person, that it was caused by the breach of duty ...

Before answering questions about causation, it is therefore first necessary to identify the scope of the relevant rule. This is not a question of common sense fact; it is a question of law."

There is just one comment which we would make on what Lord Hoffmann said. The question which has to be asked, or the answer that has to be given, may not be entirely a question or answer of law. As the passages that we have cited from recent decisions of the High Court demonstrate, the fact that certain intervening events are reasonably foreseeable may suffice to impose liability upon a defendant in respect of the consequences of those intervening events. Or, to put it a little differently, in those circumstances the occurrence of those intervening events may not terminate the causative effect of the defendant's breach of duty. The point is simply that we do not agree that in such cases the issue of causation is necessarily determined entirely by the terms in which the relevant duty is expressed.

These citations from the authorities are necessarily selective. Nevertheless, we consider that they contain the relevant principles to be applied in the present case. We emphasise, however, that it remains important to play close attention to the particular facts of the case, to the scope of the duty, tortious or contractual, which is in questi on, and to questions of policy.

NWP owed a duty of care to Kia Ora to exercise reasonable care and skill in expressing their opinion as to the fairness of the price for the proposed acquisition of the shares in Western United. Had they acted competently their opinion would have been that the price was not fair. If that had been their opinion, the acquisition of the shares in Western United could not have proceeded, because under r3J(3) the necessary meeting could not have been called without a report from an expert to the effect that the price was fair. If NWP had not provided their report, the directors' proposal could not have been advanced. Clearly enough, even if a meeting had been called on the basis of a competent report (advising that the price was not fair) it is unlikely that the shareholders would have voted to approve the proposed acquisition, in the face of a report advising that the price was not fair. NWP, on his Honour's findings, knew all this. NWP knew that the report would be sent to the shareholders.

It was reasonably foreseeable that if NWP were in breach of the duty to provide a competent opinion, the directors would recommend the takeover to the shareholders; that the directors would submit the Nelson Wheeler report to the shareholders in support of the recommendation; that the shareholders would approve the takeover; that the directors would proceed with the takeover and Kia Ora would suffer loss. NWP knew of the circumstances giving rise to the need for their report, and in particular to the self-interest of the directors in the outcome of the proposal.

But for the breach of duty by NWP, Kia Ora would not have suffered the loss that it suffered. It would not have suffered that loss because, but for NWP's breach of duty, the directors could not have called the meeting of shareholders, the shareholders would not have voted to approve the proposed acquisition, and the directors could not have resolved to proceed with it. In short, the breach of duty by NWP enabled the directors to secure a favourable resolution from the shareholders and thus to implement the proposed acquisition of shares. If NWP had acted competently, the loss would not have occurred.

The loss that was suffered was foreseeable. Loss to Kia Ora resulting from an imprudent proposal was a foreseeable risk against which it was the duty of NWP to protect Kia Ora. The manner in which the loss was suffered was foreseeable. It was foreseeable that the directors would make use of the Nelson Wheeler report in the manner in which they did, and that the shareholders would rely upon the Nelson Wheeler report in the manner in which they did, and that the directors would thereafter proceed to implement the proposed acquisition with the approval of the shareholders.

In relation to the conduct of the directors, although their conduct was deliberate and voluntary, NWP were under a duty of care to guard against the risk of the directors proposing to the shareholders a purchase at a price that was not fair, because of self-interest. Putting it a little differently, it was the foreseeability of the risk of the directors acting in the manner in which they did, which contributes to the conclusion that NWP owed a duty of care in that respect to Kia Ora. That duty was not performed and the relevant risk eventuated. It cannot be said that NWP's breach of duty did not increase the risk of injury to Kia Ora. NWP's breach of duty did more than merely set the scene for an independent breach of duty by the directors.

In our opinion, the provisional conclusion must be that the breach of duty by NWP was a material cause of the loss that Kia Ora suffered. The fact that decisions by the directors played a part in the suffering of that loss does not detract from that conclusion. Those decisions, and the manner in which they contributed to the loss, were foreseeable by NWP. The reason, or a reason, for imposing a duty of care on NWP is to protect Kia Ora against a purchase at a price that is not fair. The risk of the directors causing Kia Ora to make such a purchase was something that NWP had a duty (not the sole duty) to guard against: cf Environment Agency v Empress Car Co (Abertillery) Ltd [1988] 2 WLR 350 at 358. But for the breach of duty by NWP, those decisions (and breaches of duty) by the directors could not have caused loss to Kia Ora.

It will be noted that in what we have just said, we have spoken of a duty imposed on NWP to exercise reasonable care and skill to guard against the risk of the directors proposing to the shareholders a price that was not fair.

It might be objected that such a duty was not undertaken by NWP, and that its only duty was to exercise reasonable care and skill to provide a competent opinion as to the fairness of the price to be paid.

We consider that in the particular circumstances of the case, it is appropriate to express the duty as we have. To so express it is merely to express, in terms appropriate to the particular circumstances of the case, the duty of care imposed on NWP.

But even if the duty is expressed simply as a duty to exercise reasonable care and skill to provide a competent opinion, it was foreseeable in the circumstances of the case that if that duty was breached the directors might use the report provided to propose the acquisition to the shareholders, and might then proceed with the acquisition.

In our opinion it was further foreseeable, in the particular circumstances of this case, that the directors might act out of self-interest.

Quite apart from knowledge of the directors' self-interest, and its significance, the directors having put the proposal forward, it was to be assumed that the directors considered it to be sound. Any expert advising on the proposal could be expected to foresee as a reasonable possibility that favourable advice on the proposal would be used to support the proposal, and that if the shareholders approved of the proposal those who had conceived it would proceed with it.

Our conclusion does not rest upon a finding that NWP should have foreseen the possibility of, and was under a duty to protect Kia Ora against, fraudulent conduct by the directors. It rests upon the conclusion that it was foreseeable that an erroneous but favourable opinion would be used to support the proposal that the directors had already conceived. That is what occurred. The very risk that NWP's negligence generated was what eventuated.

In our opinion it matters not that the directors were not merely incompetent, but fraudulent as well. The foreseeable risk eventuated.

If that is not sufficient, we would respond that NWP were aware of the self-interest of the directors in the proposal, and that pursuit of the proposal by the directors for reasons of self-interest was foreseeable.

In our opinion these circumstances make the present case distinguishable from the decision of the Court of Appeal of the Supreme Court of Victoria in Mallesons Stephen Jaques v Trenorth Ltd (unreported 18 August 1998). The issue there was whether negligence by a solicitor in the preparation of certain documents was, in law, the cause of the fraudulent use by the client of those documents. The client, Trenorth, had been found liable to the person who suffered loss as a result of the client's fraud. Rather boldly, we would have thought, Trenorth claimed contribution or an indemnity from the solicitors on the basis that the solicitors' negligence was the cause of the client's fraud. It was clear, as a matter of fact, that the client could not have perpetrated the relevant fraud but for the negligent omission by the solicitors of certain important information from the documents that the solicitors had prepared. There was no finding of fraud against the solicitor in question. The solicitor was dealt with on the basis of negligence alone. The argument for the solicitors was that the fraud of the client in using the documents broke any chain of causation that might have flowed from the negligence of the solicitors. In our opinion, with respect, it is difficult to see how a wrongdoer such as Trenorth could expect to succeed on such a claim. We fully agree with what Kenny JA said at [28]:

"I do not think it can be said, as a matter of common sense and experience, that the perpetration of a fraud by Trenorth was something which 'in the ordinary course of things' was likely to occur if Mallesons was negligent in advising its client on the sale of the Preston premises. The supervening act, namely the fraud, was so irregular as to break the chain of causation."

Kenny JA went on to explain that it was not sufficient to say that the solicitor would have prevented the fraud had she given correct advice.

In the present case the consummation of the takeover was a foreseeable consequence of negligent advice by NWP. That is what occurred. And, if it be necessary, in our opinion it was all the more foreseeable because the takeover proposal had already been formulated by the directors.

We do not accept the submission by Mr Myers QC that, absent genuine reliance by the directors on the Nelson Wheeler report, causation cannot be made out. The report was provided to Kia Ora for use by its directors in securing the shareholders' approval. Having got that approval, the directors were able to, and did resolve, to effect the takeover. That was a readily foreseeable sequence of events. The report was used in a foreseeable manner, and did enable the takeover to proceed.

It is no answer for NWP to argue that the directors who had an interest in the outcome were, as a matter of law, disqualified from participating in the making of the relevant decision, and that for that reason NWP had no reason to anticipate that if their advice were negligent the takeover would be effected.

In our opinion NWP should have expected that, the proposal having come to them from the directors, after independent directors had been involved, the independent directors would continue to support the proposal if the Nelson Wheeler report was favourable. We also doubt whether NWP are entitled to argue that, from their point of view, there was no reason to expect any involvement by self-interested directors, and no reason, as it seemed to be submitted, to think that a breach of duty on NWP's part would result in the takeover being effected.

It is convenient to deal here with a further submission by Mr Myers QC, to the effect that the later decisions by the directors (in December 1987) to make the offer unconditional and to extend the period of the offer, broke the chain of causation. We do not accept that submission. Those decisions, in our opinion, do not alter the fact that a foreseeable consequence of NWP's breach of duty was that the directors would decide to proceed with the takeover. The precise manner in which they did so, and the extent to which they went to do so, are not of any particular importance.

We conclude, subject to the question of the impact of the share market crash, that NWP's breach of duty was a material cause of the loss that Kia Ora suffered. That conclusion is supported by the authorities to which we have referred. It is supported, we consider, by considerations of policy and by considerations of commonsense.

We return to the question of whether the share market crash, or the fact that the shareholders resolved to approve the proposed offer despite the crash, or the fact that the directors resolved to proceed to make the offer despite their knowledge of the crash, constitutes an event that breaks the chain of causation that would otherwise exist.

In our opinion the question here posed is really one of causation, and not one of remoteness. We say that because the crash occurred before the vital decisions were made by the shareholders at the extra-ordinary general meeting, and by the directors immediately after that meeting. The crash occurred before the loss was suffered. Although questions of causation and questions of remoteness raise issues that overlap, and much of the reasoning in relation to each is similar, we nevertheless consider that the issue is properly to be classified as one of causation. We do not find it necessary to resolve the question of whether we should prefer the reasoning of the Full Court of the Federal Court of Australia in Kenny & Good Pty Ltd v MGICA (1992) Ltd (1997) 147 ALR 568, or the reasoning of the House of Lords in Banque Bruxelles Lambert SA v Eagle Star Insurance Co Limited [1996] UKHL 10; [1997] AC 191. In those cases it appears to us that the issue was one of remoteness, rather than of causation, although of course the question of remoteness could not arise until the question of causation was resolved: see Kenny & Good at 581-582 for a helpful discussion of the two issues. But that was a case in which the loss resulted from or was contributed to by a general downturn in the property market after the insurer had entered into the insurance arrangement in reliance upon the negligent valuation.

We return to the present case. We have already referred to the relevant facts and to his Honour's findings. The share market crash was a severe downturn in the value of shares quoted on the Australian share market. But it was an event of a type that was foreseeable, in the sense that a significant market correction was foreseeable and was foreseen by NWP. A downturn in values of the magnitude experienced was not foreseeable or foreseen, as we understand his Honour's findings, but a significant fall in values was foreseeable and was foreseen. It follows that the event that occurred was not an event of an unforeseeable type. Nor, we should add, was it something that was likely to happen as a result of the negligence of NWP. However, we think it relevant that the fall was, in the words of McHugh JA in Alexander v Cambridge Credit Co-operation Limited (1987) 9 NSWLR 310 at 362, an event "... of a kind which was to be reasonably anticipated."

As we have already noted, the judge found that reliance by the shareholders on the Nelson Wheeler report was reasonable, despite the occurrence of the crash. The directors, on his findings, should not have continued to rely upon the report, but their breach of duty, motivated by self-interest, remained a foreseeable event and something against which NWP had a duty to protect Kia Ora. In other words, the share market crash did not give rise to a decision by the shareholders that could be regarded as unforeseeable. It did not give rise to a decision that was unrelated to the breach of duty by NWP in preparing its report. The directors' breach of duty was able to cause loss only because of the continuing effect of the Nelson Wheeler report. In relation to the shareholders, the crash did not displace the effect of the report upon the decision of the shareholders. Likewise, in relation to the directors, the Nelson Wheeler report remained something of which the directors were able to make use.

The crash was not an event that, in the words of Mason CJ in March v Stramare (at 517) transformed:

"... the outcome of [Nelson Wheeler's] conduct into something of far greater consequence, a consequence not readily foreseeable by [Nelson Wheeler]."

NWP valued Western United at about $112m (when one allows for the premium for control). Easton valued Western United as at 9 October 1987 at between $14,198,819 and $15,545,728 (J465). As at 31 December 1987 he valued Western United at between $4,649,293 and $6,439,339 (J465). On these figures, before the crash occurred, there was an over-valuation to the extent of about $98m. After the crash, the over-valuation increased to about $107m.

Despite the crash, the loss sustained by Kia Ora remained a loss of the same type, although its magnitude was somewhat increased.

But for the breach of duty by NWP, there would have been no acquisition of the shares in Western United , and no opportunity for the crash to increase the loss sustained by Kia Ora.

For those reasons we consider that the share market crash was not an intervening event that displaced the causative effect of NWP's breach of duty, considered by itself or in conjunction with decisions made by the shareholders or by the directors. The crash was an event of a type that was foreseeable and was foreseen. It merely increased the loss suffered by Kia Ora, and did not change the nature of that loss. The increase in the loss was not of such magnitude that one would say that it transformed the loss. The reliance by the shareholders upon the Nelson Wheeler report remained reasonable under the circumstances and the use made by the directors remained foreseeable under the circumstances.

Once again, to the extent that questions of commonsense and of policy are relevant, we see no reason to conclude that the chain of causation was broken.

There is a further matter to which his Honour did not refer directly, but which we would regard as supporting this conclusion. His Honour refers to the fact that NWP made no attempt to withdraw its report after the crash. We are not satisfied that it was open to NWP to withdraw its report, or that it was obliged to do so. However, we do consider that an expert who provides a report should inform the recipient of that report if the expert later learns of something that undermines a basis upon which the expert has expressed an opinion. We refer to our earlier remarks on this matter. In this case the share market crash undermined, as we have already explained, the figure used by NWP for future maintainable earnings and undermined the price earnings ratio selected. These were matters that would not have been apparent to the ordinary reader. The original selection was made carelessly, but the share market crash in any event gave rise to a further need to bring to the attention of Kia Ora the fact that the figures originally selected were inappropriate. If that information had been provided to Kia Ora, it would have been incumbent upon the directors to bring it to the attention of the shareholders at the extra-ordinary general meeting, even if it was not possible to communicate the information to all shareholders who had received the Nelson Wheeler report. It would have been incumbent upon the directors to take the information into account, in any event, in deciding upon the action to be taken after the shareholders' meeting. If NWP had taken reasonable steps to inform Kia Ora that, as a result of the share market crash, its opinion should be given no weight, it may be that NWP would not be responsible for the consequences of a decision to proceed. The failure to take such action was a further breach of duty by NWP that could be said to have arisen in relation to the crash, and to provide a further reason for concluding that the cha in of causation was not broken.

The loss suffered by Kia Ora, and for which it claimed damages, is the difference between the price paid for the Western United shares and the value of those shares. The judge proceeded on that basis.

The judge awarded damages and interest as follows:

Kia Ora and the defendants appeal against the assessment of damages.

Some relevant aspects of the manner in which his Honour assessed the damages are as follows. He adopted a valuation of Western United as at 31 December 1987 of $6,439,339.00. In so doing he accepted the opinion of Mr Easton, in preference to that of Mr Hall. Both Mr Easton and Mr Hall were expert witnesses called by Kia Ora.

His Honour held that NWP and the other defendants were liable to Kia Ora for the diminution in the value of the shares of Western United as a result of the stock market crash.

He held that Kia Ora suffered a loss as a result of the issue and allotment of its shares as part of the consideration for the takeover of Western United. He held that that loss was to be measured by having regard to the value of the shares at the time they were allotted, which he determined to be 45cents per share.

His Honour held that Kia Ora was entitled to damages for loss of use of the money that it paid out, but only from 31 December 1987 to June 1988.

The amount allowed for interest was an award of interest pursuant to s30C of the Supreme Court Act 1935 (SA). His Honour awarded interest from 1 July 1988, which was before the proceedings were commenced on 19 August 1992, to the date of judgment.

It is convenient to summarise the issues that arise having regard to the notices of appeal. We propose to deal with most of these issues in the sequence in which we summarise them here. Some issues will be dealt with, for convenience, when we deal with a related issue.

The defendants argue that Kia Ora suffered no loss as a result of allotting its shares to sellers of shares in Western United as part of the consideration for the purchase of those shares. They argue that there should have been no award of damages under this head.

On the other hand, Mr Gray QC submits that the amount allowed in respect of the share issue and allocation was inadequate. As we have mentioned, the judge valued each share in Kia Ora at 45cents. Mr Gray QC submits that each share should have been valued at 82cents. He submits that his Honour erred in his approach. Alternatively, he submits that the judge made an arithmetical error and the correct figure, on his approach, should be 46cents. He submits that if that lower figure is appropriate, the judge should have included an allowance for the lost opportunity to raise further capital.

The defendants submit that no award should have been made for loss of use of Kia Ora's money as a result of the payment by Kia Ora of an excessive consideration. The judge made such an award, but limited it to the period from 31 December 1987 to 30 June 1988.

Mr Gray QC, on the other hand, complains that the award under this head was inadequate. He argues that the award for loss of use should in any event have been based not only on the cash component of the price paid, but also on the component constituted by the share issue. He further submits that damages for loss of use should have been calculated from 1 January 1988 to the date of judgment (30 January 1998), and not merely to 30 June 1988. He also submits that the interest rate used to determine the amount under this head should have been the commercial lending rate plus 1%, compounding monthly. He submits that his Honour made an arithmetical error and that the amount awarded under this head, even if his Honour's approach was otherwise entirely correct, should have been $1,261,618.00.

The judge, as is indicated above, set off against the damages his assessment of the value of the shares in Western United.

The defendants submit that for the purposes of calculating the value of those shares, the relevant date was 9 October 1987 (before the crash) and not 31 December 1987, the date selected by his Honour.

The defendants submit that even if that later date is correct, the judge should not have allowed damages for that part of the diminution in value of the Western United shares resulting from the share market crash.

The defendants submit that his Honour erred in preferring the opinion of Mr Easton to that of Mr Hall in arriving at the valuation of the Western United shares.

Kia Ora complains that his Honour should have held that the shares in Western United had no value, or should have arrived at a lower figure for their value, being $4,649,293.00.

The defendants complain on various grounds of the award of statutory interest from 30 June 1988 to the date of judgment. They attack the rate of interest used; the awarding of interest in respect of the period before the commencement of proceedings; the awarding of interest despite the fact that Kia Ora later became insolvent, and they attack as erroneous a suggested reliance by the judge upon the fact that the director defendants had the use of money received by them.

NWP complain of the order made by the judge in respect of a possible capital gains tax liability on the part of Kia Ora.

The final outcome, if the submissions of Kia Ora are accepted, would depend upon which particular submissions were accepted. On the most favourable approach Kia Ora would receive an award of damages and interest in excess of $224,000,000.00. The defendants contend that the correct approach, subject to the question of contributory negligence, is as follows:

The fundamental principles to be applied are not in doubt. In Haines v Bendall [1991] HCA 15; (1991) 172 CLR 60 Mason CJ, Dawson, Toohey and Gaudron JJ said (at 63):

"The settled principle governing the assessment of compensatory damages, whether in actions of tort or contract, is that the injured party should receive compensation in a sum which, so far as money can do, will put that party in the same position as he or she would have been in if the contract had been performed or the tort had not been committed ... Compensation is the cardinal concept. It is the 'one principle that is absolutely firm, and which must control all else' ... Cognate with this concept is the rule, described by Lord Reid ... as universal, that a plaintiff cannot recover more than he or she has lost." [Footnotes omitted.]

In the present case the approach to the assessment of damages is the same, whether that assessment is made on the basis of a breach of contract or on the basis of a breach of a duty of care. In either case, if the relevant duty had been performed, Kia Ora would not have acquired the shares in Western United.

The liability in contract differs from the liability in tort. In contract, the wrong consists in the breaking of the contract. Kia Ora is entitled to be put into the position in which it would have been if the contract had been performed. In tort, the liability is to pay damages to Kia Ora with a view to placing Kia Ora in the position in which it would have been if the tort had not been committed: Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 11-12 Mason, Wilson and Dawson JJ; Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 73 ALJR 12 at [11]- [14] Gaudron J.

Nevertheless, in the present case the damage or loss suffered as a result of the breach of contract and as a result of the tort is one and the same. The loss is the difference between the price paid for the shares in Western United and their true value, together with certain other consequential losses.

In our opinion it follows that the approach to be taken is to award to Kia Ora the difference between the price paid for the shares in Western United and the value of the shares acquired. That is, subject to the claim for damages for loss of use of money.

We have already found that his Honour was correct in holding that the breach of contract and breach of duty of care by NWP caused Kia Ora to acquire the shares in Western United.

The question of principle that remains is whether that part of the loss suffered by Kia Ora, that is attributable to the impact of the crash on the value of the shares in Western United, is too remote to be recovered.

We have already indicated our agreement with his Honour's finding that the share market crash, and the decisions made by the shareholders and by the directors despite the crash, do not put an end to the causative effect of NWP's breach of duty.

We have also indicated our agreement with his Honour's finding that when NWP was preparing its report a significant fall in share prices in the relatively near future was foreseeable and was foreseen by NWP. The crash that occurred may have been greater in magnitude than the decline that NWP foresaw. We have already commented that his Honour's finding was not entirely clear in this respect (J473). But, if the finding is as stated above, the loss that Kia Ora suffered was loss of a type that could be and was foreseen, including loss attributable to a downturn in the market, although the actual downturn was greater than was foreseeable or was foreseen.

It follows from what we have already said that, in our opinion, that part of the loss sustained by Kia Ora which was attributable to the decline in the share market is not too remote to be recovered by Kia Ora. In this context we emphasise the fact that when the vital decisions were made by the shareholders at the extra-ordinary general meeting, and by the directors immediately after the extra-ordinary general meeting, a decline in value had already occurred. It follows that the breach of duty by NWP caused Kia Ora to acquire the shares with their already diminished value. Under those circumstances we consider that it is difficult indeed to argue that the relevant part of the loss is too remote.

We regard the present case as distinguishable from Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1996] UKHL 10; [1997] AC 191. In that case the decline in the property market occurred after the plaintiff had advanced money on the security of the relevant property relying upon a negligent over-valuation. In the present case the decline occurred before the shares were acquired, and before the decision was made to acquire them. Further, it is not by any means clear that the decline in the share market in the present case had any significant effect upon the loss suffered by Kia Ora. We say this because the crash caused a decline in value of the shares in Kia Ora and of the shares in Western United. Thus, the value of what was being given in exchange for the Western United shares declined when the value of the Western United shares declined. Of course, part of the consideration was paid in cash. That does not alter the basic point that the loss to Kia Ora as a result of the crash is not to be measured solely by the impact of the crash upon the value of the shares in Western United.

We refer again to some of the facts, to make this last point clearer.

NWP valued Western United as at 9 October at approximately $112.9m, when allowance is made for the premium for control. As at that date, Mr Easton valued Western United at approximately $15m. On those figures, there was an over-valuation of about $98m.

On 9 October 1987 the market price of shares in Kia Ora was $1.10 per share. Using that price, the price paid per share in Western United as at 9 October 1987 would have been between $4.40 per share and $3.95 per share, depending upon whether the price is calculated by reference to the share option or the cash and share option. Taking, for convenience, an approximate mid point of $4.20 per share, and rounding out the number of shares acquired at 25m, on the values applicable at 9 October, Kia Ora would have paid about $105m for Western United. After allowing for the actual value of Western United, its loss would have been about $90m.

As will appear later, we have assessed the loss as at 31 December 1987. Assessing it at that date, the price paid is about $82m, and the value of Western United is about $6.5m. The loss, putting aside questions of interest, is about $75.5m.

We have made these calculations simply to illustrate the point that the impact of the crash upon the loss suffered by Kia Ora is by no means obvious.

There is another relevant point to be made here. The approach of the House of Lords in Banque Bruxelles was to exclude liability for that part of the loss which would have occurred even if the advice given had been correct. Lord Hoffmann said ([1997] AC 191 at 214):

"A duty of care which imposes upon the informant responsibility for losses which would have occurred even if the information which he gave had been correct is not in my view fair and reasonable as between the parties. It is therefore inappropriate either as an implied term of a contract or as a tortious duty arising from the relationship between them."

As is well known, his approach was to focus upon the scope of the duty of care, in the sense of the consequences for which the defendant is responsible. The recoverable damages were to be determined in that manner. In the present case, if the advice given by NWP had been correct, (that is, if Western United had been worth about $113m) it is difficult to say what loss would have ensued as a result of the take-over. The stock exchange crash would still have occurred. Presumably, Kia Ora would have had to write down the value of the assets, being shares in Western United, that it had acquired. But the value of the shares that it had issued in itself would also have declined. We are not at all clear about the approach to be taken, on the House of Lords approach, in a case like this. But, in any event, it is interesting to examine the approach taken by Lord Hoffmann when he came to the facts of the particular cases before him.

In the first of the cases that he considered, the lender had advanced £11m on a property valued at £15m. The actual value at the time was £5m. Later, after the market had fallen, the property was sold for a little less than half that. The loss, as found by the trial judge, was £9,753,927.99, less 25% for the plaintiffs' contributory negligence. Lord Hoffmann said (at 222):

"The consequence of the valuation being wrong was that the plaintiffs had £10m less security than they thought. If they had had this margin, they would have suffered no loss. The whole loss was therefore within the scope of the defendants' duty."

Accordingly, the full amount of the loss was recovered. At the time the actual advance was made, the lender was unsecured only to the extent of some £6m. It is clear that part of the loss that was recovered in this instance was a decline in value which resulted from a collapse of the property market.

In the present case, testing things by reference to valuations and values before the crash occurred, the loss is greater than is the loss as at the date that the trial judge selected. It may be that the approach taken in Banque Bruxelles would allow recovery in the present case.

Under the circumstances, we do not consider that it is necessary to choose between the reasoning of the House of Lords in Banque Bruxelles and the reasoning of the Full Court of the Federal Court of Australia in Kenny & Good Pty Ltd v MGICA (1992) Ltd (1997) 147 ALR 568. If it were necessary to make a choice we would respectfully prefer the reasoning of the Full Court of the Federal Court. In our opinion there is considerable force in the criticisms made by the Full Court of the approach of the House of Lords in Banque Bruxelles. We would, in any event, in the interests of a uniform approach in Australia, follow that reasoning unless we were persuaded that it was erroneous.

For those reasons we proceed hereafter on the basis that none of the loss claimed by Kia Ora is too remote.

6. .3 The share issue - relevance in determining the price paid

To assess the damages recoverable by Kia Ora it is necessary to determine the difference between the price paid for the shares in Western United, and the value of those shares. The defendants contend that the judge erred when doing this. It is submitted that it was an error to allow anything in respect of the value of the shares allotted by Kia Ora, as part of the consideration paid for shares in Western United, when arriving at the price paid for the shares in Western United.

The submission begins with the uncontentious proposition that a distinction is to be drawn between expectation damages and reliance damages. Expectation damages, the usual measure in contract, are intended to place the plaintiff in the position in which he or she would have been had the defendant performed the obligation breached. Reliance damages, the usual measure in tort, are intended to place the plaintiff in the position in which he or she would have been but for the wrong committed by the defendant. This usually involves restoring the plaintiff to his or her former position. If shares are acquired under a contract in which their value is warranted, and the actual value is less than that warranted, the purchaser would be entitled to recover the difference, if any, between the value of the shares as warranted and their actual value. If shares are acquired as a result of a negligent valuation, with no warranty as to their value, and the shares are worth less than the amount at which they were valued, the reliance damages will be measured by the difference between the price paid and the actual value of the shares acquired. Expectation damages will enable a plaintiff to recover the amount of an expected gain. Reliance damages will merely restore to the plaintiff the amount that would otherwise be lost.

Mr Myers QC submits that to treat Kia Ora as having paid an amount equal to the value of the shares that Kia Ora allotted, is to award it expectation damages.

We accept the starting point of his submission, the distinction between damages in tort and in contract, but not the conclusion. In the present case the damages to be awarded are reliance damages. But if the shares allotted by Kia Ora have a monetary value, and are properly to be regarded as constituting consideration paid represented by that value, principle requires that that value be taken into account in determining the price paid.

In our opinion the starting point of the submission can be put to one side. But to do so is not to dispose of the contention advanced by the defendants.

The defendants then submit that an unissued share is not an asset of a company. As well, the issue of a share by a company is not the disposal of an asset by the company. When it allots a share a company does not lose or part with an amount equal to the value of the share. An issue of shares, except an issue pro rata to existing shareholders, affects the entitlements of existing shareholders. It does not, as already noted, amount to a disposal of an asset by the company. When the company issues shares the company confers an advantage on the allottee, but suffers no corresponding detriment. The company can always issue more shares. It is submitted that the obligations to the new shareholders are not a loss or relevant detriment to the company, and in any event that the amount of any loss or detriment is not measured by the market value or transaction value of the shares. The new shareholders do not acquire, as against the company, an entitlement to demand the market value or transaction value of the shares allotted. The right as against the allotting company is only to a proportionate share of the assets of the company on a winding up, and to the exercise of those rights that attach to the relevant shares while the company continues to operate.

It is also submitted that Kia Ora did not mount or establish a case that it had, by allotting the shares to the shareholders of Western United, lost the opportunity to allot the shares to some other person, and thus receive their transaction value or market value. There was no evidence of any opportunity to allot such a large parcel of shares at the relevant time. In any event, Kia Ora could have allotted further shares at the time if it had so wished, and if there was a market for them.

The submission is supported by arguments advanced by Oditah in "Takeovers, Share Exchanges and the Meaning of Loss" (1996) 112 Law Quarterly Review 424. Oditah challenges the view that in a case like the present the loss suffered is the difference between the value of the shares issued in exchange (plus any cash paid) and the fair value of the target's shares acquired. A closely reasoned argument is advanced. For that reason, and because the argument advanced by Mr Myers QC is very similar, it is convenient to set out some extracts from the article that convey the essence of the argument. Oditah states the thesis to be advanced as follows (at 424-425):

"An analysis of the 'loss' suffered by the bidder when it issues shares in itself to the target's shareholders should focus on the nature of the reliance loss suffered by the bidder. The problem is not simply one of valuation; it is a matter of looking at the detriment which the bidder suffers, rather than the loss which the bidder would have suffered had it paid cash for the target's shares. The bidder's reliance loss on an exchange of its shares for the target's shares is not necessarily the cash equivalent of the issued shares because, to a large extent, unissued shares are not an asset of the bidder in the same way that money standing in its bank account is. To put the point differently, unissued shares are not scarce resources in the way that money is. Furthermore, a company which issues shares does not create an enforceable liability against itself in the same way that it does when it issues debt securities. It is of course true that for technical reasons and accounting purposes issued shares are treated as liabilities: a company is not a debtor to share capital, however."

Oditah considers the nature of shares. The point is made that shares are not an asset of the company that issues them. Shares are described as a bundle of intangible property rights, including a right to income produced by the company's assets, and a right to capital if there is a return of capital. The point is made (at 428) that when the bidder issues shares in itself to the target's shareholders, they acquire these rights, but;

"These rights are not acquired at the expense of the bidder: the bidder has never been entitled to income, capital and voting rights in itself. Nor are they liabilities: the bidder is not a debtor to share capital ..."

Oditah then argues that if the shares acquired in the target prove to be worthless, the bidder will be entitled to recover reliance damages from the negligent adviser. It cannot recover for loss of expectation or bargain. The question is (at 433) how much worse off is the bidder after the acquisition. Oditah argues that prima facie the loss is the number of shares issued by the bidder and (at 434) that those shares "... apart from the administrative cost of the bid, cost the bidder nothing." This part of the argument is captured in the following passage (at 434):

"Prior to issuing the shares to the target shareholders, the bidder did not own or enjoy the contingent income and capital rights or the control rights transferred to the target's shareholders. In no true sense are the shares in the bidder issued to the target's shareholders issued at the bidder's expense. The bundle of intangible rights contained in the shares issued to the target's shareholders involve neither a transfer of money from the bidder to the target nor the creation of true and enforceable liabilities against the bidder. Accordingly, if, for whatever reason, it transpires that the income, capital and control rights acquired by the bidder from the target's shareholders are less valuable than the bidder expected or are even worthless, the bidder suffers no substantial recoverable pecuniary loss unless in the circumstances the court awards the hypothetical cash sum which it would have obtained from the shares had it disposed of them on the market."

Oditah then deals with an argument which is, in substance, the argument advanced by Kia Ora in the present case. As to that, Oditah's answer is as follows (at 437):

"However, it may be argued that issued shares are assets and that it is allotment and issue which gives value to the shares which, prior to the allotment and issue, they lacked. To the extent that this value is not received, the company allotting and issuing the shares arguably suffers loss. The question, however, is whether this loss is the cash value of the shares as at the date of their allotment. One difficulty with using the cash value to measure the bidder's loss is that it has parted with no cash. Giving it the cash value would merely fulfil its expectation regarding the value of the target shares - a measure of loss allowable only where the adviser gave the bidder a warranty of the value of the target's shares. Where no such warranty was given, it is impermissible to give the bidder the cash value, for that would give it expectation damages to which it is not entitled. Another is that the income, capital and control rights which are given to the target's shareholders when the shares are allotted did not belong to the bidder prior to the allotment. The bidder's capacity to issue the shares is not an asset in any meaningful sense. In issuing shares, therefore, a bidder does not suffer substantial pecuniary loss in the same way that a shareholder does when he sells his shares at an undervalue because of a negligent valuation."

Oditah then refers to the decision of the House of Lords in Banco de Portugal v Waterlow & Sons Ltd [1932] UKHL 1; [1932] AC 452. We will deal with that case later. Oditah prefers the reasoning of the minority to that of the majority, describing the reasoning of the majority (at 440) as "highly dubious".

Oditah also rejects the argument that the diminution of the bidder's net assets are the measure of the loss. Oditah makes the point that the issue of shares has no effect on the net assets of the bidder. Oditah accepts that there might be a claim based on a lost opportunity to allot the shares elsewhere. That would depend upon the facts. But even then, the bidder is still in a position to issue those further shares if that opportunity is there.

We accept what Mr Myers QC put to us, and what is said by Oditah, as to the nature of shares.

However, the bundle of rights represented by a share, once it is issued, has a monetary value that the allotting company can realise. Everyday experience demonstrates that. That monetary value can be expressed in various ways. It can be expressed, for example, in terms of the net assets available to back each share issued, or in terms of the market price of the shares, if the shares are quoted on a market. The nature of a share does not detract from the fact that upon its issue a share acquires a monetary value that can be realised by the issuing company.

In our opinion the submission advanced by Mr Myers QC does not sufficiently acknowledge this basic fact. As the facts of the present case demonstrate, Kia Ora had the ability to exchange newly allotted shares in itself for valuable consideration. In the present case each vendor of shares in Western United treated the shares in Kia Ora allotted to it as having a certain worth or value. By allotting those shares Kia Ora has now, irretrievably, expended the worth or value that attach to the shares that it allotted in itself.

Once Kia Ora agreed to allot shares in itself, those shares acquired a value that could be exploited by Kia Ora. That is so even though prior to the allotment there was no matching asset, and even though the issue and allotment of the shares did not involve Kia Ora parting with an asset. What we have said is true even though the acquisition of value by the allotted share does not involve Kia Ora in incurring an expense, other than the administrative expenses involved. In our opinion it cannot be said that Kia Ora has lost nothing. In our opinion it has lost the value that the relevant shares acquired upon their issue.

The point is emphasised by considering the position if Kia Ora had allotted shares in itself to the shareholders of Western United in return for cash, and after receiving the cash had purchased the shares in Western United for a consideration paid wholly in cash. The present argument would then not arise. This illustration does not dispose of the argument. Mr Myers QC correctly said that if the transaction had been structured in that manner, it would have been a different transaction. But the illustration serves to emphasise the importance put by the submission upon the form of the transaction, as distinct from its substance. We are cautious about accepting such an argument.

Another way of expressing the same point is to say that in the events that happened Kia Ora lost the opportunity to exploit or to receive the value of the shares that it allotted in itself. That was certainly an opportunity that it had. The ability to exploit or receive that value from the shareholders in Western United has now been irretrievably lost.

We come later to the cases, although there are none really in point. We do not think it wise to rely upon decisions reached in the course of deciding questions of liability to pay income tax. But we do regard as relevant and helpful the remarks of Lord Greene MR when rejecting an argument that if a company acquires stock in consideration of the issue of fully paid shares to the vendor, that stock, for the purpose of ascertaining the company's profits, is to be treated as having been acquired for nothing. The point arose in Osborne v Steel Barrel Co Ltd [1942] 1 All ER 634. At 637-638 Lord Greene said:

"The argument really rests upon a misconception as to what happens when a company issues shares credited as fully paid for a consideration other than cash. The primary liability of an allottee of shares is to pay for them in cash; but, when shares are allotted credited as fully paid, this primary liability is satisfied by a consideration other than cash passing from the allottee. A company, therefore, when, in pursuance of such a transaction, it agrees to credit the shares as fully paid, is giving up what it would otherwise have had - namely, the right to call on the allottee for payment of the par value in cash....Accordingly, when fully paid shares are properly issued for a consideration other than cash, the consideration moving from the company must be at least equal in value to the par value of the shares and must be based on an honest estimate by the directors of the value of the assets acquired."

The point that we have just been making about what Kia Ora lost or gave up, is the same point as that made by Lord Greene MR.

In our opinion this is, in substance, the answer to the submission advanced by Mr Myers QC. It is true that the shares in Kia Ora are not issued at Kia Ora's expense, and that the allotment of them does not involve Kia Ora in parting with an asset that it previously had. It is true that the process does not involve the creation of a liability on the part of Kia Ora, that is to be measured in monetary terms by the transaction value of the allotted shares.

But, as we have attempted to demonstrate, in allotting shares in itself Kia Ora has exercised a power that has an ascertainable value to Kia Ora. Kia Ora has given up the right to call on the allottee of the shares for payment of the transaction value of the shares allotted. Kia Ora has irretrievably expended the worth or value that attaches to the shares allotted. That point is not answered by saying that Kia Ora can allot further shares. Of course it could, in theory, but in theory it could have done that for value even if it had not lost the transaction value of the shares allotted to the shareholders of Western United.

In the passage cited above from Oditah's article at 434, and in the second part of the passage cited from 437, Oditah addresses this point. In our opinion the argument there advanced fails to pay sufficient attention to the fact that, upon allotment of the shares, a consideration moved from Kia Ora that was equal to the transaction value of the shares, and that this consideration was irretrievably lost. We do not find that part of Oditah's reasoning, nor that part of the submission advanced by Mr Myers QC, to be convincing.

In the second of the passages just referred to Oditah advances what appears to be the other fundamental objection to the submission advanced by Kia Ora. The objection is that to treat the value not received for the shares allotted as a loss, is to award an expectation loss rather than a reliance loss.

We disagree. Assume that a share in A, valued at $1, is allotted for two shares in B, negligently valued as each being worth 50cents. Assume that the true value of the shares in B is 25cents each. In such a case the reliance loss is the price paid less the true value. Assuming that it is permissible to have regard to the transaction value of the share that A allotted, it is not wrong to award to A damages of 50cents, being the difference between the price paid by A and the true value of the two shares acquired. As it happens, if the negligent valuer had also warranted to A the value of each share in B, the measure of the reliance loss and of the expectation loss would be the same. It would be 50cents in each case. In our opinion that illustration demonstrates that it cannot be advanced, as a further objection, that the approach that we favour involves assessing damages on the contractual basis rather than on the tortious basis. There is, in reality, only one objection to the approach that we favour, and that is the objection that the unissued share is not an asset of the bidder in the same way that money in its bank account is.

We are therefore unpersuaded by the submission advanced by Mr Myers QC. We consider that Kia Ora gave up something of value in exchange for the shares of Western United, and that what it gave up is the monetary value attributed to the allotted shares. We consider that there is no objection in principle to the award of damages on this basis.

As far as we are aware, there is no decision in point which binds us.

But we consider that the decision of the House of Lords in Banco de Portugal is of some assistance to Kia Ora. In that case Waterlow and Sons Limited ("Waterlow") printed 600,000 banknotes for the Bank of Portugal. The Bank put them into circulation. Later, mistakenly but in breach of its contract, Waterlow delivered 580,000 notes of the same type to a band of criminals. The criminals put the notes into circulation. The good notes and the bad notes were indistinguishable. The Bank had no choice but to withdraw the whole issue, on an undertaking to exchange all notes, good and bad, for other notes issued by the Bank. The Bank had an exclusive licence to issue banknotes as legal tender in Portugal. The amount of notes to be issued was controlled by law. The notes were not convertible for gold.

The Bank sued Waterlow for damages. The Bank claimed the face value of the new notes issued in exchange for the bad notes. That is, the Bank claimed the face value of the notes that it agreed to exchange for the bad notes. Waterlow argued that as the Bank had the ability to print banknotes, its loss was limited to the cost of printing the replacement notes.

The analogy to the present case is obvious. The Bank's ability to print the replacement notes at no cost to itself (other than printing costs) is equivalent to Kia Ora's ability to issue further shares in itself. The difference between the cases is also obvious. Once the Bank issued a banknote, the holder was entitled to demand from the Bank a note of equivalent value (albeit a note that the Bank could print for itself). On the other hand, a shareholder has no right to demand from Kia Ora payment of a fixed amount, or indeed any amount prior to the winding up of Kia Ora, other than the amount of dividends properly payable. Nor are shares legal tender like money. Nevertheless, we consider that it is helpful to consider how the majority disposed of the argument advanced by Waterlow.

Viscount Sankey LC made the point that if a person negligently destroyed unissued banknotes held in storage by the bank, the person's liability would be no more than the cost of printing replacement notes. He emphasised the point (at 478) that until the notes were put into circulation, they had no value. But once they were put into circulation their value was entirely changed. The view of the Lord Chancellor is sufficiently expressed by the following passage from his speech, in which he is dealing with the case of a bank exchanging a good note for a worthless forged note. He refers to this as "the second case". He said (at 478):

"It is not possible to say that in the second case the Bank has suffered no damage because it could print and issued a third 500 escudos note should it desire to do. For that note it could also have obtained value. In truth it has lost the face value of the second note by reason of the fact that it has only got a worthless note in exchange."

Lord Warrington was one of the two dissenters. The minority view is a view taken up by Mr Myers QC in his submission. Lord Warrington said (at 484):

"Where, therefore, the Bank elects, as it has done in the present case, to treat the spurious notes as on the same footing as genuine notes, all it does is to accept an obligation to pay the holders in currency, that is to say, in notes. To do so, all it has to do is to take so many pieces of printed paper from its existing stock or to have further notes created should the existing stock be insufficient. In either case, the loss to the Bank is, in my opinion, confined to the expense of procuring the necessary paper and of printing the necessary number of notes."

Lord Atkin was in the majority. In an often cited part of his speech he said (at 489-490):

"If a person is wrongfully induced to part with a valuable thing, whether it be goods or choses in action, his measure of damages is the value of the thing at the time he parted with it. The cost of replacement does not enter into the measure of damages at all. If a man is fraudulently induced to part with 500 standards of timber he recovers the value at the time; it is quite immaterial that he could have replaced the timber - say, from the Russian market - at a small portion of the value. If he manufactures for 1_d_. articles which can sell for 6_d_., the measure of damages against the wrongdoer is 6_d_., not 1_d_. So if he was by fraud induced to promise to deliver 500 of the 6_d_. articles so that the contract could be enforced by an innocent holder of the contract, it appears to me that on well established authority the damages would be 12_l_. 10_s_., not 2_l_. 1_s_. 8_d_. This means that, whether he parts with goods or parts with an obligation, the measure of damages is the market value of what he parts with, which means what it will exchange for; and this necessarily means in the case of an obligation expressed in currency of the country the face value of the obligation."

We consider that these extracts from the decision sufficiently capture the essence of the views being expressed.

We agree that Banco de Portugal is not directly applicable to the present case. A significant feature of that case is the fact that upon issue of a banknote, the Bank became liable to pay to a holder the face value of the issued note. As well, currency as a medium of exchange differs from shares. But the point of relevance, crisply expressed by Lord Atkin, is the principle that the measure of damages is the market value of the item parted with or used as a medium of exchange, and not the cost to the claimant of replacing or recreating the article.

That principle supports in part the approach that we prefer.

In Health and Life Care v Price Waterhouse (unreported S6240, 7 July 1997) a judge of this Court accepted a submission to the same effect as that advanced here by NWP. The judge also accepted the arguments advanced by Oditah. We have explained why we do not accept that reasoning. In our opinion the case in question must be taken to have been wrongly decided on this point.

There are some brief remarks in Strategic Minerals Corporation NL v Basham & Ors (1997) 25 ACSR 470 that support the approach that we have taken. But it appears that the point now under consideration was not considered in any detail. In Scott Group Ltd v McFarlane [1977] NZCA 8; [1978] 1 NZLR 553 the Court of Appeal proceeded on the basis that damages could be awarded by reference to the value of shares allotted to acquire assets, but once again it appears that the point now taken was not taken there. We have not placed any reliance upon these decisions.

The trial judge was referred to, and in turn referred to, a number of tax cases and to some American cases. We have not relied upon them in reaching our conclusion.

For the reasons that we have indicated, we reject the submission that the judge erred in awarding damages by reference, in part, to the value attributed to the shares that Kia Ora allotted to the shareholders of Western United.

We do not consider that this leads to unacceptable results. It is true that an award of damages to Kia Ora may produce the result that shareholders who suffered a loss at the time, through diminution in the value of their shares, will not be compensated if they have sold their shares. We accept also that persons who later acquired shares and have suffered no loss may be compensated. We touched on this issue earlier in our judgment. As we then said, that will always be the case when a company is compensated for a loss that is reflected in the value of its shares. And, as we said earlier, the shareholders are not the only persons whose interests are to be considered.

We mention also that as a no liability company Kia Ora was able to issue shares at a discount. The question of the approach to be taken if shares were issued at a nominal or par value does not arise in the present case.

6. .4 The value to be attributed to the shares issued by Kia Ora

The next issue is the value to be attributed to the shares that Kia Ora issued to vendors of shares in Western United.

Kia Ora acquired shares in Western United between 15 December 1987 and 10 February 1988. The judge decided (J458) that it was sufficient to achieve justice between the parties to take the value of the shares in Kia Ora as at 31 December 1987.

Mr Myers QC did not put a submission on this point. But in the course of his submissions relating to the value to be attributed to the shares in Western United, Mr Myers QC submitted that the date for the purpose of the valuation of those shares should be 9 October 1987. NWP delivered its report on about 5 October, and on about that date the directors resolved to call the extra-ordinary general meeting. Mr Myers QC submitted that the breach of contract occurred on about 9 October, and that the cause in action in tort arose then because that was when the directors acted on the report of NWP by dispatching it, or agreeing to dispatch it, to the shareholders of Kia Ora.

Mr Easton valued Western United as at 9 October at between $14,198,819 and $15,545,728. As at 31 December 1987 Mr Easton valued Western United at between $4,649,293 and $6,439,339. It seems to us that the same date should be taken for the purpose of valuing the shares in Kia Ora and the shares in Western United, and so it is convenient to deal at this stage with this point, although, as we have already mentioned, it arose at a later stage in the submissions for NWP.

The usual rule is that damages are assessed when the cause of action arises. But that rule is not invariable. In Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351 at 355-356 Mason CJ said:

"There is a general rule that damages for torts or breach of contract are assessed as at the date of breach or when the cause of action arises. But this rule is not universal; it must give way in particular cases to solutions best adapted to giving an injured plaintiff that amount in damages which will most fairly compensate him for the wrong he has suffered ..."

In a joint judgment, Wilson, Toohey and Gaudron JJ referred to the same general rule but said (at 367):

"The rule will yield if, in the particular circumstances, some other date is necessary to provide adequate compensation ..."

"The general rule as to the date at which damages are to be assessed is subject to the principle governing the measure of damages. A plaintiff who has suffered damage as a result of a defendant's tort or breach of contract is entitled to such a sum as will, so far as possible, put him in the same position as he would have been in but for the tort or breach of contract ... The time at which damages are assessed must be so fixed as to give effect to the governing principle... it is the governing principle rather than the temporal rule which determines what is to be taken into consideration and what is not."

The judgment of Dawson J is to much the same effect (at 386). On this point see also Hungerfords v Walker [1989] HCA 8; (1988) 171 CLR 125 at 146 Mason CJ and Wilson J.

The House of Lords has also recognised that the rule referred to is only a general rule, and that a different date of assessment can be selected when that is adequately necessary to compensate a plaintiff: Smith New Court Securities Ltd v Citibank NA [1996] UKHL 3; [1997] AC 254 at 265 Lord Browne-Wilkinson, at 284 Lord Steyn.

In our opinion Kia Ora's cause of action in tort was complete only when it sustained loss as a result of the acquisition of the shares in Western United. Kia Ora is entitled to elect to have its damages assessed on the tortious basis.

But even if we are wrong in that, and if the cause of action in contract and in tort arises at the earlier date suggested, in our opinion the "governing principle" of putting Kia Ora in the position in which it would have been but for the tort or breach of contract requires that damages be assessed and measured by reference to the position of Kia Ora at the date of the acquisition of the shares. We consider that only in this way will the amount of damages appropriately compensate Kia Ora for the wrong that it has suffered. That wrong was suffered when it acquired the shares in Western United, because that was when the loss was actually sustained.

In saying this we have not overlooked the fact that the date selected by his Honour means that the impact of the share market crash will be reflected in the amount of damages awarded. But we have already decided that NWP are liable for that loss.

In our opinion, the date of the acquisition of the shares being the date at which damages are to be assessed, it was open to his Honour to take the course that he took and to select a single date within that period as the date at which damages should be assessed.

The judge heard evidence from two expert witnesses as to the value of the shares in Kia Ora and as to the value of the shares in Western United . They were Mr Easton and Mr Hall. On each issue he preferred the evidence of Mr Easton. In particular, he accepted the evidence of Mr Easton that the value of the Kia Ora shares at 31 December 1987 was 82cents each (J458).

In the course of an attack upon the value attributed by the judge to the shares in Western United, Mr Myers QC submitted that his Honour erred in preferring the evidence of Mr Easton to that of Mr Hall. It is convenient to deal with that point here, because his Honour preferred the evidence of Mr Easton on both matters.

Both experts were called by Kia Ora. Both gave evidence at length. When considering their evidence as to the value of Western United, the judge said (J474):

"Both men were impressive witnesses and there is no reason to prefer one to the other because of a matter of credit."

"I make no criticism of Hall of any nature but I prefer the conclusions of Easton. He was more intimately aware of Western United and Kia Ora. He has greater experience. I was greatly impressed by him and his evidence. I am more inclined to rely on his judgment about the appropriate price earnings multiples and the assessment of maintainable earnings than that of Hall and I do so.

In effect, the judge found that each witness was well qualified, properly prepared, used an acceptable method, and made no discernible error.

Mr Myers QC submitted that, by so finding, the judge was bound to adopt the higher value attributed to Western United by Mr Hall, in preference to the lower value attributed by Mr Easton. He submitted that there was no proper basis upon which the judge could prefer Mr Easton to Mr Hall.

We mention in passing that applying the same principle, which we assume to be that the judge should accept the outcome most favourable to the defendant, it would presumably follow that in relation to the value of the shares in Kia Ora the judge should have accepted the evidence of Mr Easton, because on that matter the value attributed by him was lower than that attributed by Mr Hall.

A trial judge is entitled to make use of the judge's estimate or assessment of an expert witness, as much as with any other witness: Maynard v West Midlands Regional Health Authority [1985] 1 All ER 635 at 637 Lord Bridge; Abalos v Australian Postal Commission [1990] HCA 47; (1988) 171 CLR 167 at 178-179 McHugh J; Davids Holdings Pty Ltd v Attorney-General (Cth) (1994) 121 ALR 241 at 273-274. This does not mean that the judge is entitled to put aside other matters. The judge must weigh up the persuasiveness of an opinion by having regard to the underlying logic, to the process of reasoning, to the use made of recognised principles in the relevant field of expertise, and so on. But when, as here, neither expert has made any error of approach, and the difference between the two experts is a result of the exercise by each of them of expert judgment, the judge's assessment of the experts will be of particular importance and must be given due weight. In such a case, by choosing between the two experts on the basis of the impression that each made on the judge, the judge does not put aside "logic and likelihood" as the safer guide to a conclusion: Ahmedi v Ahmedi (1991) 23 NSWLR 288 at 291-292 Kirby P, cf Clarke JA at 299-300. We consider that there is no substance in the submission that the judge was obliged to prefer the evidence of the witness more favourable to the defendant.

Mr Myers QC also submitted that Mr Hall was the more objective of the two experts. The judge dealt with this issue in some detail (J474-476). He accepted that Mr Easton had had a considerable involvement with the solicitors for Kia Ora in preparing the case for trial. He said, and we agree, that this was a case in which the solicitors would have required considerable expert assistance in preparing for trial. He said that while ideally solicitors should retain one expert to advise, and another to give evidence, in a case like that before him it was to be expected that both would be called.

The judge gave specific consideration to the question of whether Mr Easton's involvement in the case had affected his objectivity. He said (J476):

"... I do not think any of the tasks undertaken by him were likely to influence him in any inappropriate way. Observation of Easton suggests strongly that he is not the type of person who would be deflected from his task by the influence of others. I find that he remained truly independent through his long association with this matter and there is no reason to reject his evidence for the reasons advanced by the first defendants."

That is a finding that was open to his Honour, and once made it is a finding not lightly to be set aside. We add that if the judge was satisfied that Mr Easton remained truly independent and objective in his approach, that objectivity might, despite his prior involvement, provide a further support for the judge's decision to prefer the evidence of Mr Easton.

There was no error in his Honour's approach. He was best placed to assess the weight to be given to the judgment of each of the experts. We reject the submission that the judge erred in preferring the evidence of Mr Easton.

We have already mentioned that the judge accepted Mr Easton's valuation of Kia Ora shares at 31 December 1987 as being 82cents each. When he came to consider the loss suffered by Kia Ora, he referred to the value as being 81cents each. That appears to be an error. He mentions that at this time the share market price for Kia Ora was 45¢. The judge clearly accepted the evidence of Mr Easton and of Mr Hall to the effect that at this time the market price was not a reliable indicator of the value of shares in Kia Ora. That was because, they said, the market had already factored in the adverse effect of the takeover of Western United.

Mr Easton valued the shares in Kia Ora as at 31 December 1987 by reference to the issued share capital of Kia Ora, before it issued further shares as part of the acquisition of the shares in Western United.

But in arriving at the loss suffered by Kia Ora, his Honour has acted upon the basis of the value of the shares of Kia Ora after the acquisition of the shares in Western United. The judge said that after the allocation of shares as part of the purchase of shares in Western United, the issued capital of Kia Ora had almost exactly doubled. He said that the further share issue by Kia Ora diminished the true value of its shares by nearly 50%. He said that a small upward adjustment had to be made for the true value of the issued capital of Western United which had been acquired, and that adjustment was about 5¢ per share. In this way he arrived at a value of 45¢ for each share in Kia Ora.

Mr Gray QC submits that this is an error by his Honour. He submits that the value of the shares in Kia Ora is to be assessed by reference to the value of those shares immediately before the issue of further shares. In particular, he submits that the value of the shares in Kia Ora is to be determined without taking into account the depreciating effect upon that value of the fact that the shares that Kia Ora acquired in Western United were worth only a fraction of the value attributed to them by NWP. If the shares in Western United had been worth what was paid for them, there would have been no change in the value of the shares of Kia Ora after the allotment of the further shares. The value of the shares in Kia Ora was almost halved only because nothing of significant value was received in exchange for the newly issued shares.

Mr Gray QC submits, as we have already mentioned, that his Honour has arrived at the value of the shares in Kia Ora using an approach which diminishes that value by reference to the depreciating effect of the fact that the shares in Western United had very little value. He points out that, on his Honour's approach, if the shares in Western United had been valueless, the value attributed to the shares in Kia Ora would have been about 40¢ instead of 45¢. It seems paradoxical that the value attributed to those shares declines as the value of the shares acquired declines.

We agree with the submission advanced by Mr Gray QC.

It has to be remembered that the purpose of the award of damages is to put Kia Ora in the position in which it would have been had the wrong not occurred. This requires the court to assess the difference between the price paid and the value of what was received. For present purposes the price paid has two components. They are the cash component of $26,178,135.81, and the shares allotted to the vendors of shares in Western United. A monetary value has to be attributed to those shares. The judge has found that the value of a share in Kia Ora, prior to the allotment of further shares, was 82¢. It seems to us that Kia Ora entered into the transaction on the basis that in return for the shares allotted, it would receive a consideration at least equivalent to the value of the existing shares in Kia Ora. Harking back to what Lord Greene MR said in Osborne v Steel Barrel Co Ltd, what Kia Ora gave up was the right to call on the allottees of shares for payment of an amount equal to the then value of a share in Kia Ora.

Arriving at the value of the shares allotted is complicated by the fact that the value of those shares, after the transaction is completed, is affected by and reflects the value of the assets acquired by Kia Ora. But, in our opinion, for the purposes of assessing damages it is proper to take the approach that we have taken. Indeed, unless such an approach is taken, the paradoxical result is reached that the consideration provided by Kia Ora diminishes with the value of the assets acquired.

It is for those reasons that we accept the submission made by Kia Ora.

On this approach, the consideration provided by Kia Ora is:

The submissions by Kia Ora identified two minor errors made by his Honour. As we understand it, these errors are not disputed by any other party.

As a result of what appears to be a typographical error, the value attributed by his Honour to the shares at 45¢ each was $30,055,000 instead of $30,550,000. Quite apart from that, if the value of the Kia Ora shares was 82¢ each, and not 81¢ each, then even on his Honour's approach the amount allowed for the share issue should have been $31,257,807.

If we are wrong in what we have said about the correct approach, and if his Honour's approach was the correct one, then that amount should be substituted for the figure allowed by his Honour.

On the approach that we have taken there is no need to consider the alternative argument advanced by Kia Ora that, if his Honour was correct, he should also have considered a claim by Kia Ora for the loss of the opportunity to issue further shares in itself to raise capital.

In our view that submission is in any event unsound. If the approach taken by the judge was correct then, subject to the minor errors identified, Kia Ora has recovered the appropriate loss. There is no basis for a further claim.

In any event, a claim based on a lost opportunity would require a finding that had this transaction not proceeded, Kia Ora would have raised capital in some other way. No such finding was made. For the claim to succeed it would require a further finding that Kia Ora would have deployed that capital profitably. As we understand the position, no loss flows to Kia Ora from the failure to raise capital in an alternative manner. Any relevant loss would flow only from the loss of an opportunity to deploy that capital in a profitable fashion. As we have mentioned, no such finding was made, and it has not been established that such a finding should have been made.

6.5 Damages for loss of use of money and of the value attributable to the share consideration provided by Kia Ora to Western United

Kia Ora submits that the trial judge should have awarded damages for the loss that it claims it suffered as a result of not having the use of the money and of the other valuable consideration that it provided to the shareholders of Western United.

Kia Ora claims interest at commercial rates on the whole amount of the cash paid out in the course of the takeover, and on the value of the shares allotted. Kia Ora submits that such interest should be compound interest at quarterly rests, and should be calculated to the date of judgment. This would, we were told, increase the damages to about $203m or $224m, depending upon the rate of interest chosen.

The judge awarded interest on the cash component of the purchase price, using the rates of interest being paid by Western United to Kia Ora for moneys on deposit. He awarded interest in respect of the period from 1 January 1988 to 30 June 1988. That interest was compounded at three monthly rests.

That calculation produced an amount of $1,303,802. Kia Ora submits that there is an arithmetical error in that calculation.

The judge recognised that in calculating the compound interest the value received by Kia Ora must be brought to account. He said that only portion of the value received by way of shares was referrable to the cash component paid. Accordingly, the value of the shares needed to be brought to account on a pro rata basis. He said that the proportion referrable to the cash component was 46%. That led the judge to a figure for interest rounded out at $600,000. Kia Ora submits that an error was made in arriving at this figure. The calculation is in any event affected by the fact that we have attributed a higher figure to the shares issued in Kia Ora than did the judge. Accordingly, the calculation will in any event have to be reconsidered.

NWP submit that the judge should have allowed nothing for loss of use of the money and other consideration used in the takeover.

The matters now under consideration involve an application of the principles established by the decision of the High Court in Hungerfords v Walker [1989] HCA 8; (1990) 171 CLR 125.

In Hungerfords, due to an error by accountants, Walker overpaid the amount of income tax due to the Commonwealth. Damages had been assessed on the basis of a finding by the trial judge that Walker would have used the money, had it not paid it away, to pay off loans taken out for the purpose of Walker's business. The finding was that the loans repaid would have been those bearing the highest interest rates. There was also a finding that some of the money might have been used in other ways in the business conducted by Walker. The business was profitable. The judgment under appeal had awarded damages that included interest on the moneys paid away, the interest being at a rate that reflected the highest rate of interest being paid on loans taken out by Walker. The interest was compounded.

The High Court had to decide whether damages for negligence or for breach of contract could, at common law, include a component that reflected interest that the plaintiff would have saved by reducing borrowings or by not borrowing, or interest that the plaintiff would have earned by investing the money paid away, but for the fact of money being paid away or withheld as a result of the defendant's breach of duty.

The High Court held that expenses incurred, and opportunity costs arising from money paid away or withheld, as a result of a breach of contract or negligence, were losses for which a plaintiff is entitled to be compensated by an award of damages. It held that such loss was reasonably foreseeable as a matter of law, and accordingly recoverable under the common law rules relating to damages.

In their joint judgment, Mason CJ and Wilson J said at 145-146:

"The cost of borrowing money to replace money paid away or withheld, in consequence of the defendant's breach of contract or negligence, is directly related to the wrong and is not too remote in the sense in which the common law regarded the loss attributable to late payment of damages as being too remote. ... Likewise, opportunity cost should not be considered as being too remote when money is paid away or withheld."

They treated such loss as reasonably foreseeable, and as recoverable in contract and in tort. A little earlier in their judgment they referred to the loss that is recoverable. They said (at 143):

"The loss may arise in the form of the investment cost of being deprived of money which could have been invested at interest or used to reduce an existing indebtedness. Or the loss may arise in the form of borrowing cost, i.e., interest payable on borrowed money or interest forgone because an existing investment is realized or reduced."

"There is, in our view, a critical distinction between an order that interest be paid upon an award of damages and an actual award of damages which represents compensation for a wrongfully caused loss of the use of money and which is assessed wholly or partly by reference to the interest which would have been earned by safe investment of the money or which was in fact paid upon borrowings which otherwise would have been unnecessary or retired."

There was no reason why, on ordinary principles, damages should not be awarded on the latter basis.

This decision establishes that such loss is, in the ordinary case, a foreseeable consequence of the wrongfully caused payment of money or the wrongful withholding of money.

But an award of damages under this head requires proof of loss, as well as reliance upon the now established rule that such loss is not too remote. The decision of the Full Court under appeal, Walker v Hungerfords (1987) 49 SASR 93, proceeds upon the basis of a finding that the money in question would have been used to pay off loans and would have been used in a profitable business.

There may, in a given case, be difficulties of proof. The Court must recognise such difficulties. It may be, as King CJ said in Walker v Hungerfords, a matter of judgment on relatively sparse material. But in the end appropriate findings of fact must be made before damages can be awarded under this head.

In Beach Petroleum NL v Johnson [1993] FCA 283; (1993) 43 FCR 1 von Doussa J considered an award of damages on this basis. The evidence for the applicant was that the money in question would have been invested in cash in some form of short term deposit. Interest rates were selected on that basis for the purpose of a claim for damages. The evidence for the respondent was that the applicant would have invested the funds in its business activities, and this would have been at a much lower rate of return. von Doussa J said that the assessment in question involves "elements of prophesy and speculation" (at 57). He then said:

"Unless it is clearly established by evidence that a particular plaintiff would not invest available capital and cash reserves in a way that would produce at least the market rates, market rates should be adopted."

If he meant that a plaintiff in such a case need not prove that the money in question would have been used profitably, and need not prove the appropriate rate of return, we respectfully disagree. We accept that the Court may have to engage in an element of speculation. We accept also that allowance must be made for difficulties of proof. But, in our opinion, justice requires that damages be awarded on this basis only if appropriate findings are able to be made: Pooraka Holdings Pty Ltd v Participation Nominees Pty Ltd (1991) 58 SASR 184 at 196 King CJ.

That was the approach taken by the trial judge. We agree with his approach.

The judge considered the history of Kia Ora. He said (J496):

"It will be remembered that up until the sale of the Marvel Loch mine, Kia Ora operated a gold mine and made speculative investments. It paid only modest, although increasing, dividends and there was a steady increase in the value of net tangible assets but the fundamental nature of the company did not change. Any cash reserves were channelled into Western United. Historically, Kia Ora had entered into a number of questionable transactions which benefited directors and, in particular, Harold Abbott and Schneider-Paas at the expense of the company."

The judge had earlier in his judgment dealt in some detail with those transactions. In considering those findings it has to be borne in mind that earlier in the judgment (J10-11) the judge had found that the fortunes of Kia Ora improved steadily during the 1985 financial year, and improved substantially in the 1986 financial year. The first half of the Marvel Loch mine was sold early in 1987 for $26m. The judge found that the proceeds of the sale of the first half were deposited with Western United, until needed in the operation of the mine, which was being operated by a joint venture. He found that by September 1987 the cash reserves of Kia Ora had reduced to about $8.5m. The cash from the sale of the second half of the mine, $40m, was also placed on deposit with Western United. This was the source of the cash for the payment of approximately $26m used to acquire shares in Western United. His Honour found that by 31 December the amount still on deposit with Western United was about $13.5m. This figure is somewhat lower than the figure shown on an exhibit provided to us during the appeal, but for present purposes we do not think that the difference matters.

We have earlier referred to the so-called reverse takeover, in which Kia Ora acquired assets of the Duke Group, for cash and for shares in Kia Ora, and in which certain directors and officers of Kia Ora sold their shares in Kia Ora to the Duke Group. The judge found that the reverse takeover was a "financial disaster" for Kia Ora.

The judge made a specific finding about what would have happened if the takeover of Western United had not occurred. He said (J497):

"The past history of the two companies suggests that Western United and its subsidiaries would have continued to operate as before but in the difficult climate following the share market crash, and received financial support to a substantial extent from Kia Ora. Kia Ora would not have made wise and successful investment of the proceeds from the sale of the Marvel Loch mine or its other assets. It would have remained as a speculative investor and eventually its cash reserves would have been dissipated."

"It is reasonable to conclude that the reverse takeover or something like it would have occurred in any event."

Presumably, his findings mean that even if the takeover of Western United had not taken place, the funds of Kia Ora would have been dissipated by a transaction similar to the reverse takeover or something along those lines.

The judge awarded Kia Ora compound interest on the cash paid out by Kia Ora in the course of the takeover, for the period from 1 January 1988 to 30 June 1988. He said that he was not prepared to proceed on the basis that sound management of Kia Ora should be assumed. Clearly enough, he proceeded on the basis already identified, namely, that the funds of Kia Ora would have been dissipated within about six months.

Kia Ora attacks this finding. It submits that for these purposes the judge should have assumed sound management of Kia Ora. It submits that the directors at least should not be able to rely upon a finding of a later breach of duty by themselves, in dissipating the funds of Kia Ora, to limit the damages that would be payable by them to Kia Ora.

In our opinion this is not an issue to be resolved by assumptions. As we have already explained, in our opinion the award of damages for loss of interest that would have been earned on the moneys paid away must be based upon appropriate factual findings.

On the evidence, the findings that the judge made were open to him. The events of 1987 and 1988 showed that the directors were capable of dissipating substantial amounts quite rapidly, as a result of unsound decisions. They did precisely that in the Western United takeover and in the reverse takeover. We consider that the judge was right not to proceed on the basis of assumptions, and that the findings that he made were open to him on the evidence before him.

It was further submitted that the directors could not have dissipated the money of Kia Ora. It was submitted that they would have done so only through a transaction that transferred the funds of Kia Ora to the directors. Such a transaction, as was illustrated by the takeover of Western United, would require a report under r3J(3) and there was no reason to assume that the transaction would be approved. But the takeover of Western United and the reverse takeover illustrate that that thesis cannot be sustained.

Nor, in our opinion, is it an answer to the judge's findings to say that if the directors had done what the judge contemplated, Kia Ora would in that event have had a claim against the wrongdoers, and would have recouped the funds dissipated in that manner. That may be so. But in our opinion that does not provide a basis for making an award of interest under the principles established by Hungerford.

In this context Mr Gray QC pointed to an apparent contradiction in the judge's findings. As we have mentioned, the judge rejected a submission that sound management should be assumed. He then said (J497-498):

"These judgments should not be made on the basis of fraudulent conduct on the part of those controlling the company, but it is unrealistic to inject into Kia Ora a standard and style of management which it had never previously experienced. Leaving aside breaches of fiduciary duty and fraud, assessments must be made on the basis that Kia Ora would have continued as a speculative company with an entrepreneurial and risky style. Management would have continued to operate as it had in the past."

Mr Gray QC submitted, first of all, that until 1987 Kia Ora had progressed reasonably well. His further submission was that the dissipation of Kia Ora's reserves contemplated by the judge would necessarily involve breach of fiduciary duty or fraud, and so there was a contradiction. He pointed to the fact that a little later the judge said (J498):

"That investment [of Kia Ora's cash on hand] would have continued until it was dissipated by propping up Western United and its subsidiary and in the reverse takeover or in similar speculative ventures."

There is some force in this submission. We are not sure what his Honour meant, but we consider it likely that he meant that, without going so far as to assume fraud or some other type of deliberate wrongdoing, his finding was that through unwise or inappropriate ventures the funds of Kia Ora would be dissipated. We agree with Mr Gray QC that it is not easy to see how the directors could have dissipated, within six months, all of the funds, an amount in excess of $40m, had the takeover of Western United not proceeded. But, in our opinion, that is not quite the point. The issue for present purposes is what would have happened to the $26m expended in the takeover of Western United. Events demonstrate that the directors were capable of disposing of an amount like that within six months, although it should be noted that the reverse takeover appears to have involved clear breaches of duty and possibly fraud.

There is a substantial element of speculation in all this. Recognising that, however, and recognising his Honour's familiarity with the facts of this case, we are not satisfied that his Honour's decision on the point is erroneous. Allowing a longer period before the money would have been dissipated has something to commend it, but we should interfere only if satisfied that his Honour was wrong. We are not satisfied of that.

We also consider that the interest rates selected by his Honour were appropriate.

There is a question of whether, as against the directors, it is right to limit the damages by reference to a finding that the directors through their own incompetence and breach of duty would have dissipated the funds of Kia Ora. At present we are dealing with the assessment of damages as against NWP in tort and in contract, and it is not necessary to deal with that point here.

A further submission advanced by Mr Gray QC was that on his Honour's findings the sale of the second half of Marvel Loch was contingent upon the takeover of Western United. If the takeover had not proceeded, the sale of the second half would not have proceeded. On that basis, he submitted, his Honour should have assessed the claim for loss of use of money on the basis that Kia Ora remained a half owner of Marvel Loch, which was being operated profitably, and on the basis that Kia Ora had not become a "cash box". This led to a debate about whether his Honour had found that the sale of the second half of Marvel Loch was contingent upon the takeover of Western United. On balance, we doubt whether he did. But in any event, Mr Gray QC acknowledged that his Honour had not been asked to proceed on this basis. That being so, it would not be appropriate for us on appeal to do so. If we were to proceed on that basis, it would become even more difficult to make a finding favourable to Kia Ora. That is so because on that basis, not only has money not been paid away in the takeover of Western United, but the money that was paid away has never been received, and any claim would have to be based on findings as to the profits that Kia Ora would have made by continuing to operate Marvel Loch as a joint venture. That does not appear to have been considered at all by the judge.

Kia Ora also claims that the judge should have awarded damages for loss of use of the component of the consideration represented by the allotment of shares in Kia Ora.

In our opinion this submission proceeds on the basis of a misconception. By allotting shares in itself, Kia Ora intended to acquire an asset, namely, shares in Western United. That asset was worth much less than expected. But to acquire that asset Kia Ora did not pay out money that might have been invested profitably. Nor, as a result of allotting the shares, was Kia Ora required to increase borrowings or incur other expenses.

The only basis, in our opinion, for an award under this head would be a finding that if the takeover of Western United had not proceeded, Kia Ora would have allotted shares for cash, and thus raised funds that would have been invested profitably, presumably by placing them on deposit with Western United or by acquiring some other profitable asset. We say that because, as we have already said, by allotting shares in itself for shares in Western United, Kia Ora lost no opportunity to make a gain. The loss of opportunity would arise only if, but for that, it would have allotted shares in a transaction that would have produced funds that could have been invested profitably.

The judge found that Kia Ora would not have made such an allotment. We agree. In the prevailing climate, we consider it unlikely that Kia Ora could or would have made an allotment of shares for cash. But, in any event, we are not satisfied that his Honour's finding on the point is wrong. We reject the submission advanced by Kia Ora.

We come now to the attack by NWP upon the value attributed by his Honour to the shares acquired in Western United. We have already dealt with the submission that the relevant date was 9 October 1987, and the submission that the judge should have accepted the evidence of Mr Hall in preference to that of Mr Easton. We have rejected both submissions.

No attack on other grounds was made upon the judge's finding as to the value of the shares in Western United. Accordingly, there is no need to say anything more on this point.

In its written submissions, Kia Ora identifies a suggested error of calculation by his Honour in calculating the compound interest. We assume that the complaint is correct, as it was not disputed. However, the amount must be recalculated in any event.

Kia Ora also identified in the written submissions an error of approach in arriving at the proportion of the value received (in the form of shares in Western United) attributable to the cash component of the consideration. Again, we assume that the criticism is sound, as it was not disputed.

On our approach, the consideration provided by Kia Ora by way of shares is $55,720,438.28. The cash component of $26,178,135.81 is near enough to 32% of the total consideration of $81,898,574.09.

The proportion of the value of Western United attributable to the cash consideration is, therefore, 32% of the value of the shares acquired. The shares were valued at $6,439,339. The relevant percentage of that is $2,060,588.48.

The cash amount that attracts compound interest is, therefore, the amount paid away less the proportion of the value of the shares in Western United attributable to the cash consideration. The amount which attracts compound interest is $24,117,547.33.

Compound interest is to be calculated at the rate of 10.25% for the first three months. The amount of interest for that period is $618,012.15.

Compound interest is to be calculated for the second three months on the new total of $24,735,559.48. It appears that in his calculations his Honour omitted to compound the amount. The rate is 11.2%. The interest for that period is $692,595.67.

The full amount of interest therefore becomes $1,310,607.82.

The plaintiff's damages are therefore to be assessed as follows:

Section 30C(1) of the Supreme Court Act 1935 (SA) provides as follows:

"Unless good cause is shown to the contrary, the court shall ... include in the judgment an award of interest in favour of the judgment creditor in accordance with the provisions of this section."

By s30C(2), the court is to fix the rate of interest, the period and the amount of the judgment in respect of which interest is to be paid. These provisions give the court a broad discretion which must, nevertheless, be exercised on a principled basis.

In M.B.P. (SA) Pty Ltd v Gogic [1991] HCA 3; (1991) 171 CLR 657 the High Court said (at 663):

"The function of an award of interest is to compensate a plaintiff for the loss or detriment which he or she has suffered by being kept out of his or her money during the relevant period ..."

Interest is not awarded on the basis that the defendant has had the use of the money. In Haines v Bendall [1991] HCA 15; (1991) 172 CLR 60, Mason CJ, Dawson, Toohey and Gaudron JJ said (at 66):

"An award of interest up to the date of judgment is an award of interest in the nature of damages ... This statement acknowledges that the award of interest is an integral element in the attainment of the object of damages, namely, to compensate a plaintiff for injury sustained. Hence the award of interest is compensatory in character. ... The award of interest for the period of delay in payment between the date of accrual of the cause of action and judgment affords the fair legal measure of compensation ..."

It follows that in awarding interest, the court must bear in mind the underlying principle that the object of the award is to restore the plaintiff to the situation, so far as money can, in which the plaintiff would have been but for the defendant's negligence. Another point to be borne in mind was made in Fire and All Risks Insurance Co Ltd v Callinan [1978] HCA 31; (1978) 140 CLR 427 where the High Court (at 433) endorsed statements to the effect that the award of interest was to be dealt with in a reasonably broad-brush fashion. But,

"... a proper exercise of discretion must necessarily involve the paying of due regard to the time of manifestation and to the duration of the various detriments in question."

We now summarise the relevant facts. Kia Ora had suffered the bulk of its loss by 31 December 1987. By then it had paid away the bulk of the money and had allotted the shares. The reverse takeover, in which the rest of its funds were dissipated, was in about June 1988. Kia Ora went into liquidation on 11 July 1989. Proceedings were brought by Duke Group Ltd, in respect of the reverse takeover, and were settled in early 1992. The present proceedings were instituted on 19 August 1992.

The judge awarded interest from 1 July 1988. He chose that date because the loss had been suffered before the proceedings were issued, and on the basis of a finding that the period between the date of the liquidation and the issue of proceedings was occupied by preparing for and conducting the case over the reverse takeover. He said (J503):

"It seems clear that those advising the liquidator decided to stand this matter aside until the case against Arthur Young was concluded. There is no reason to criticise the liquidator for taking that course. The case against Arthur Young was also very complex and occupied some eighteen months of hearing time."

He took the view that there could only be one period in respect of which interest was awarded and only one award. He did not consider it appropriate to award interest on the cash component prior to 1 July 1988, because he had awarded damages for loss of use of that money in respect of that period. Accordingly, he took the view that no interest could be awarded, in respect of the loss attributable to the allocation of shares, in respect of the period prior to 1 July 1988.

He considered interest rates over the relevant period. They had varied considerably. He said (J503):

"If the interest is to be allowed over the period from 1st July 1988, an appropriate rate would be 9%. If interest is only to be allowed since the commencement of the proceedings, an appropriate rate is 6%. The two calculations rounded off are $43,470,000 for the longer period and $16,380,000 for the shorter period."

His conclusions on the issue of interest were as follows (J504):

"I see no reason why the plaintiff should not have interest over the longer period. As has been mentioned, the total detriment occurred at much the same time and before 30th June 1988. The plaintiff has been kept out of all of its damages since that time. That, in itself, is sufficient reason. However, I think it is also appropriate to recognise that three of the defendants, Harold Abbott, Lee-Steere and Somes, have had the use of some of the money paid by Kia Ora in the takeover since that time. I do not regard that matter as a reason to award interest but in exercising the discretion to fix the period, this matter confirms the fairness of the course I have taken. I award $43,470,000 by way of interest on the judgment sum."

NWP submit that nothing should have been awarded under this head. NWP rely upon the finding, referred to earlier, that the funds of Kia Ora would have been dissipated by about the middle of 1988, or would not have been used profitably. NWP also submit that upon liquidation it was the duty of the liquidator to distribute any available funds, and so interest should not be awarded after the date of liquidation.

In our opinion there is no substance in those submissions. In awarding interest under s30C the court is not concerned with the use that the plaintiff would have made of the money or property for which the damages are awarded as compensation. The interest is awarded simply because the plaintiff has been kept out of the plaintiff's money. That is, because the plaintiff has not had the use of the money. Interest is the only means whereby the court can compensate the plaintiff for that. How the plaintiff would have used the money or property (for which the plaintiff has recovered damages) is irrelevant. The interest is not by way of compensation for the loss of the particular use that the plaintiff would have made of the money. It will, of course, help to compensate the plaintiff for such matters. But the award itself is made simply because the plaintiff has not had the use of the plaintiff's money during the relevant period. It does not matter whether the plaintiff would have invested the money and made a gain, squandered the money or expended the money in a sensible fashion. We reject the submission advanced by NWP.

Mr Myers QC also attacked the decision to award interest from a period beginning before proceedings were issued. To the extent that the submission implied that the period during which interest is awarded must as a matter of principle, or usually would be, the commencement of proceedings, it cannot be sustained. Section 30C neither states nor implies that interest should run only from the issue of proceedings. It is for the court to determine the period during which interest must run, and the most that can be said is that that determination must be made on a principled basis.

In Wheeler v Page (1982) 31 SASR 1 King CJ considered the section in an earlier form, when the section did provide that interest should be calculated from the commencement of proceedings in the case of a judgment upon an unliquidated claim, unless the court fixed some other period. But even in that context he said (at 5):

"Logically interest should run during the whole of the period for which a particular detriment is suffered."

We agree. The fact that the loss occurred before the issue of proceedings provides a basis for the order that the judge made.

However, Mr Myers QC submitted that the delay in issuing the proceedings was a matter that required the judge to choose the date of the commencement of the proceedings as the commencement of the period during which interest would run. Mr Myers QC also challenged the finding made by the judge, that we have set out above, as to the reason for the delay.

We do not accept the submission that it was not open to his Honour to make the finding that he made about the reasons for delay. There was material before the judge on which the finding could be made.

But that is not the end of the point. Bearing in mind that Kia Ora chose to pursue its other claim first, was it a proper exercise of the discretion to award interest in respect of the period during which it did so, or to ignore the delay that that caused? We express the issue this way because his Honour was exercising a discretion. We can interfere only if satisfied that, in this respect, the decision made by his Honour was not open to him.

In considering this matter there is no question of any criticism of the liquidator or of the plaintiff's solicitors. The question is simply whether the fact that the liquidator chose to bring the other proceedings first means that the defendants should not have to pay interest for the period during which those proceedings were being dealt with. The argument must be that although, during this time, Kia Ora did not have the use of the money, it was by reason of Kia Ora's choice that that occurred.

In Metro Meat Ltd v Werlick (1992) 167 LSJS 455; 1993 Aust Torts Reports 81-242 the plaintiff recovered damages for personal injury caused by the negligence of the defendant. On appeal the defendant challenged an award of interest in respect of damages for non-economic loss. The interest was computed from the date of the issue of the proceedings on 8 September 1988. But the defendant complained that the plaintiff had not served the proceedings until 17 May 1989, and argued that interest should run from that date rather than from the commencement of the proceedings. There was no satisfactory explanation for the delay. On appeal the Full Court upheld the submission. On the question of delay King CJ said (LSJS at 455; Aust Torts Reports at 62498):

"I agree that delay on the part of a plaintiff is a factor to be considered by the judge in exercising his discretion as to interest, for the reasons given by Olsson J. I consider, however, that it should not be given undue importance for two reasons. The first is that a defendant has remedies at his disposal for unwarranted delay on the part of a plaintiff. If he neglects to pursue his remedies, the plaintiff's delay becomes a less important consideration. That does not apply in the present case because the delay occurred in serving the proceedings and the defendant had no remedy for that. The second reason is purely practical. From the time of the introduction of the statutory interest provisions, the Courts have inclined strongly against allowing interest to become a new issue in litigation and a source of costly disputation. The statutes gave to the judges a broad discretion to be exercised on common sense lines. It would be totally contrary to the spirit of the legislation to allow the justification for delay to become an issue in the proceedings. I consider that delay should therefore be used as a discretionary basis for reducing the interest otherwise allowable only where the delay is considerable and plainly unjustifiable."

Olsson J said (LSJS 460-461; Aust Torts Reports at 62501):

"In so far as a plaintiff is dilatory in pursuing his remedy, he cannot be heard to say that, during the period of the delay, he has been kept out of moneys to which he is entitled by virtue of any action on the part of the defendant.

It is, in my view, upon such a footing that a proper exercise of judicial discretion will normally demand that interest be disallowed in respect of inexplicable periods of delay by a plaintiff in prosecuting the relevant claim."

Mullighan J said (LSJS 463-464; Aust Torts Reports at 62503):

"However, I do not subscribe to the view that delay, even unjustified delay, should be the dominant factor in the exercize of discretion with respect to an award of interest. It is but one matter to be brought to account along with all other matters which bear upon how that discretion is to be exercized. In many cases unjustified delay may be a matter of considerable importance. In others, it may be of less significance. Whilst it is often helpful to draw attention to factors which should be considered in the exercize of a judicial discretion, it is, in my view, contrary to principle, to determine that one factor must ordinarily be of greater importance than others. How the discretion is to be exercized in each case depends upon all of the relevant circumstances."

These passages indicate that delay on the part of a plaintiff is a relevant matter, because it may cause the court to conclude that the plaintiff cannot complain of being kept out of its money during the relevant period. However, undue emphasis is not to be placed upon delay.

In the present case the delay was in the commencement of proceedings. That was something for which NWP had no available remedy. The delay by the liquidator is understandable under the circumstances. It reflects a desire to pursue one action in preference to the other. We accept that it would have been difficult to conduct two cases of such complexity concurrently, but we do not think that it would be impossible to do so. We consider that we should approach the matter on the basis that the liquidator made an informed choice about the order in which the liquidator would enforce Kia Ora's claims.

We consider that in such circumstances it is reasonable to say that the defendant should not have to pay interest for the period during which the liquidator chose to pursue another remedy. If that matter stood alone we do not consider that we would be entitled to say that his Honour erred. It is a matter on which views might legitimately differ. But there is another matter. In his Honour's conclusion, which we set out above, he states that in fixing the period during which interest is to run he relied upon the fact that the three director defendants had had the use of money paid by Kia Ora since the time it was paid out. In our respectful opinion that is not a relevant matter as against NWP.

We are conscious of the point made by King CJ that the award of interest should not become a new issue in proceedings. We are also conscious of the fact that the discretion is a broad one. But there is a lot of money at stake here. On the judge's calculations, if interest were to run from the commencement of the proceedings the amount awarded for interest would be some $27m less than it was.

We consider that it was irrelevant, in fixing the period during which interest was to run, to have regard to the fact that three of the defendants had had the use of the money paid to them since late 1987 or early 1988. We therefore consider that the discretion should be exercised afresh.

In exercising the discretion we bear in mind that the loss was suffered by early 1988, and that that continues to provide a basis for an award of interest from about then. We also bear in mind that it would, with the best will in the world, have taken some time to assemble the material required to determine whether to institute the proceedings. We also bear in mind that the liquidator chose to pursue another claim first, and so to defer the commencement of these proceedings.

We consider that justice will be done if we award interest from 1 July 1990. We arrive at that result, in the exercise of our discretion, on the basis that about 2½ years should be attributed to delay as a result of the liquidator choosing to pursue the other proceedings first, and on the basis that we do not consider that NWP should have to pay interest in respect of that period, because it was the plaintiff's choice to elect to pursue the other proceedings first.

The choice of an appropriate rate is difficult. The parties appear to have accepted his Honour's broad-brush approach. Guided by what his Honour said in respect of that, the interest rate should be lower than 9%, because interest rates had fallen between July 1988 and July 1990. We consider that a rate of 7% is appropriate.

On that basis, judgment having been given on 30 January 1998, it is appropriate to award interest for 7½ years at that rate. We would round the amount of interest out at $40,304,000. The amount of the judgment therefore should be (subject to the question of a reduction for contributory negligence):

Kia Ora is to be compensated for its loss calculated by reference to the difference between the price which it paid for the Western United shares and the value of those shares. If this amount is subject to capital gains tax, then Kia Ora will receive less than full compensation by reason of a tax which arose solely because of the process involved in obtaining the damages award.

The question as to whether capital gains tax applies to the present circumstances gives rise to difficult questions of interpretation of PT III A of the Income Tax Assessment Act 1936 (Cth) ("the Act"), which Mason CJ has described as extraordinarily complex and obscure, if not bewildering, to those called upon to interpret it. (Hepples v Federal Commissioner of Taxation [1992] HCA 3; (1992) 173 CLR 492 at 497.) However the trial judge in the present case dealt with the problem in a practical manner. He satisfied himself that there was a real possibility that the tax was applicable and would be exacted and made an order which would come into effect if the taxation authorities sought to collect the taxes.

The trial judge did not embark on a detailed examination of PT III A and we are of the view that it is unnecessary for present purposes to do so. Mr Myers QC did not invite our attention to the relevant sections and present argument on them. NWP's written submissions were restricted to a broad comment that liability for capital gains could not arise in the case, that there was no evidence on the issue and that the order of the trial judge was without jurisdiction and would lead to difficulties of enforcement.

It is appropriate to consider the provisions briefly in order to evaluate the judge's assessment that there is a reasonable possibility that they apply and would be enforced in this case. The Act applies to assets acquired after 19 September 1985. An "asset" means any form of property and involves -

"(a) An option, a debt, a chose in action, any other right, goodwill and any other form of incorporeal property."

Kia Ora's concern is that the right to seek compensation in the circumstances of the present case is a chose in action which might well fall within the definition of "asset" in the Act. It was acquired after the Act was passed. Section 160M(3)(b) of the Act provides that a change in the ownership of an asset being "a chose in action or any other right" will be deemed to have taken place upon "the cancellation, release, discharge, satisfaction, surrender, forfeiture, expiry or abandonment, at law or in equity, of the asset." It was put by Kia Ora that the obtaining of the judgment in this matter may well be considered a disposal of the asset thus giving rise to liability for capital gains tax.

The trial judge's order was based on a similar order made by Rolfe J in Provan v HCL Real Estate Limited 92 ATC 4644. The defendants were estate agents found to be in breach of fiduciary duty to the plaintiff as a result of advice given in relation to the sale of the plaintiff's house. The effect of the order made by Rolfe J was that if the plaintiff was held liable to pay capital gains tax on the judgment he was entitled to an indemnity in the amount of the tax from the defendants.

There are arguments against the applicability of the tax in circumstances such as the present and a number of them are set out in the judgment of Harper J in Carborundum Realty Pty Ltd v RAIA Archicentre Pty Ltd (1993) Australian Torts Reports 62,359. The plaintiff in that case retained an architect to inspect and report on a house which it was considering purchasing. The report was negligently prepared in that it did not draw attention to defects in the premises. The plaintiff was awarded damages and, after judgment, the plaintiff obtained a ruling from the Deputy Commissioner of Taxation that the damages would be considered as an assessable capital gain under PT III A of the Act. The plaintiff then applied for leave to amend its statement of claim so as to seek an award to compensate for the potential imposition of the capital gains tax. Harper J refused to grant leave. He stated that the provisions were concerned with gain, not compensation. He continued:

"But compensation in the form of an award of damages may not (in any but an inappropriately restricted sense) result in a gain at all. This is so if, for example, the Court has been concerned to determine how much worse off the plaintiff is as the result of the commission of the wrong of which complaint is made. A judgment which does no more than award damages in a sum necessary to correct that position is not a judgment which results in any gain to the plaintiff."

Ordinarily it would be safe to apply such reasoning, but PT III A creates a number of highly artificial concepts and, as Toohey J pointed out in Hepples, the heading to PT III A "Capital gains and capital losses" is no guide to construction of this legislation. It is our view that there was a sufficient basis for the trial judge to reach the conclusion that the successful collection of the tax in the present case is a possibility.

The question remains as to whether, on the assumption that the tax is collected, Kia Ora should be compensated in this respect. It has already been pointed out that the imposition of the tax would result in a situation whereby less than full compensation would be made to Kia Ora. It was reasonably foreseeable by the various defendants that financial detriment to Kia Ora could have been caused by their conduct. It is unnecessary to foresee the precise instances of financial loss before damages can be awarded; it is enough that damage of this kind could have been foreseen in a general way (Provan at 4652). Furthermore, if the tax is payable there is a clear causal relationship between the breaches committed by the various defendants and this component of financial loss. These considerations lead us to the conclusion that the detriment occasioned by the imposition of capital gains tax in circumstances such as the present is compensable.

The final question is whether it was open to the trial judge to make the order which he did. Close consideration must be given to the suggestion that the order breaches the once and for all rule. However it is our view that the order does not offend against the principle behind that rule, namely, that there should be finality to litigation. The trial judge determined liability and assessed damages. In relation to this particular head of damages the quantum to be paid in respect of the tax was stated to be the amount of the tax, so that certainty was achieved to that extent. The trial judge simply identified the event upon which that component of damages would become payable. The order is an indemnity for an amount which will be precisely defined in the event of the collection of tax. The order might give rise to some practical problems but they are not such as to outweigh the central consideration of arriving at a just award of damages. On the other hand there is no scope for injustice to the defendants. If the tax is not payable that is an end to the matter; if it is payable it should be taken into account in the award of damages.

We have addressed the arguments that the parties put to us on the issue of damages.

Before leaving this topic we record, to avoid uncertainty, that the damages of $117,073,842.91 are award in tort for breach of a duty to exercise reasonable care and skill and in contract for the breach of a like contractual obligation. We have explained at various points along the way why we consider that, in the end, the quantification of damages is the same in contract and in tort. As will be apparent when we deal with contributory negligence, the fact that damages are awarded on both bases is important.

The judge dealt with this topic quite briefly.

He held that, as a matter of law, a plea of contributory negligence was available. In so holding, he followed his own earlier decision that a plea of contributory negligence was available in answer to a claim pleaded in both contract and in tort, provided that the contractual and tortious duty of care was the same in each case: Austrust Ltd v Astley & Ors [1993] SASC 3969; (1993) 60 SASR 354 at 380.

He referred to the matters relied upon by NWP as amounting to contributory negligence. He summarised those matters as the failure by directors and officers of Kia Ora to provide reliable information to NWP relevant to the value of Western United, to which information Kia Ora had access; the use by the directors of Kia Ora of the Nelson Wheeler report to promote the takeover to the shareholders of Kia Ora; the decision by the directors of Kia Ora to proceed with the takeover, knowing that the Nelson Wheeler report was unreliable and knowing of the share market crash.

This seems to us to be a fair summary of the acts relied upon by NWP, subject to one matter. NWP relied also upon decisions by the directors in late 1987 to waive compliance with the condition that 90% of acceptances be received by 24 December 1987, and the decision to extend the period of the offer to 25 January 1988, and the campaign to secure acceptance of the offer by the shareholders of Western United.

We should add that NWP identified the matters upon which it relied for the purposes of contributory negligence in great detail, but we consider that his Honour's summary fairly captures the thrust of the contention.

In an earlier part of his reasons, his Honour considered the extent to which the conduct (including acts done and knowledge) of the directors and senior management of Kia Ora were the acts of Kia Ora, or were to be attributed to Kia Ora. In the following portion of his reasons he identified the rival contentions (J397-398):

"In brief terms the plaintiff's case is that knowledge and certain actions of the directors and senior management should not be attributed to Kia Ora where the essence of the arrangement involving such knowledge or acts is to deprive Kia Ora of its assets. The knowledge and conduct of these persons who were deceiving it are not to be attributed to Kia Ora. This improper conduct includes dishonest conduct, recklessly indifferent conduct, conduct amounting to equitable fraud, illegal conduct, deceptive conduct and conduct amounting to breach of duty. The knowledge of directors who act irregularly cannot be imputed to the company. Consequently, the knowledge of the directors and senior management of the true financial state and value of Western United, the purpose of the takeover, that incorrect information had been given to Nelson Wheeler Perth and that the takeover was not in the interests of Kia Ora, cannot be attributed to Kia Ora.

The first defendant's case is that the knowledge and acts of the directors at relevant times must be attributed to Kia Ora. They were acting in the scope of their duty and they did so without fraud. At all events fraud on their part was not pleaded and could not be relied upon for any purpose: Banque Commerciale SA, En Liquidation v Akhil Holdings Limited (1990) 169 CLR 279."

The judge was of the view that fraud had been adequately pleaded, although the word "fraud" had not been used. The relevant facts had been pleaded in considerable detail, and on their face amounted clearly enough to fraud. In due course he decided, in any event, that the principle that we will mention in a moment applied to breach of fiduciary duty by the directors and other wrongful acts by the directors, falling short of fraud.

A number of cases were cited to the judge, and he considered them in his reasons. He foreshadowed his ultimate view before dealing with the cases. He said (J400):

"Having concluded that the directors acted in breach of fiduciary and statutory duty, that Gardiner acted contrary to the interests of Kia Ora probably motivated by personal gain as well as the desire to assist Harold Abbott and Gary Abbott and that Kia Ora was the victim in the sense mentioned, it is, to my mind, an affront to common sense to attribute, or impute, their knowledge and acts to Kia Ora. I have excluded Gary Abbott because he was only an alternate director of Kia Ora and held no executive position in the company, although I have no doubt that he encouraged and supported the others entirely.

This view is clearly established by abundant authority. When the company is the victim of the conduct of the particular officers or servants, their knowledge and conduct may not be imputed or attributed to the company."

He then considered the cases, with a view to supporting the view that he had expressed. But there were certain matters upon which Kia Ora itself relied, such as the calling of the extra-ordinary general meeting, distributing the Nelson Wheeler report to the shareholders, making the offer to the shareholders of Western United and so on. The judge dealt with this point as well. In the course of doing so he restated his conclusion about the question of attribution, and so it is convenient to set out this portion of his reasons. He said (J413):

"Of course, common sense must prevail. This result does not mean that all acts or all items of knowledge cannot be attributed to Kia Ora. Clearly, those procedural steps in the takeover, such as instructing Hayward and Nelson Wheeler Perth, calling the extra-ordinary general meeting, sending the Nelson Wheeler report to the shareholders, lodging and serving the Part A statement and making the offer are to be attributed to Kia Ora. They occurred and it would be nonsense to say that they did not, or that they were not, acts of Kia Ora. However, certain acts and knowledge cannot be attributed to Kia Ora, such as knowledge of the true financial position and value of Western United, the real purpose of the takeover, proceeding with the takeover and removing the condition and extending the offer in the knowledge that the price was inflated and contrary to the interests of Kia Ora. Similarly, the fixing of the takeover price, knowing it to be inflated and failing to take steps to bring the takeover to an end, cannot be attributed to Kia Ora."

We return now to his Honour's treatment of contributory negligence. Referring to the findings that we have just summarised, he said (J451):

"For the reasons already expressed, these acts and omissions were not those of Kia Ora because the conduct of Harold Abbott in particular, and the other directors regarding those matters, may not be attributed to Kia Ora.

Section 27A of the Wrongs Act 1936 governs the questions of contributory negligence. It permits reduction of damages where a person has suffered damage as the result partly of his own fault. Because the conduct of these men may not be attributed to Kia Ora, the company was not at fault and the question of contribution does not arise. The present case is to be distinguished from AWA v Daniels (supra). In that case the company was not the victim as was Kia Ora."

Thus, the claim that the damages should be reduced on account of contributory negligence failed.

7.1 Availability of the plea of contributory negligence

After we had reserved judgment, the High Court delivered its judgment in Astley v Austrust Limited [1999] HCA 6.

The High Court there held, by a majority decision, that s27A of the Wrongs Act has no application to a claim for damages for breach of contract, even though the breach of contract lies in a failure to comply with a contractual duty to exercise reasonable care which duty is co-extensive with and concurrent with a tortious duty of care. It so held in a case in which the plaintiff had sued in contract and in tort, had succeeded on both causes of action, but was liable to have the damages awarded in tort reduced by reason of the plaintiff's contributory negligence: see [1999] HCA 6 at [2] and [33].

In so deciding the High Court disapproved of the reasoning found in a number of earlier Australian decisions that had held that the principle of apportionment found in s27A of the Wrongs Act applies to cases in which there is a breach of a contractual duty of care when there is also a breach of a concurrent and co-extensive tortious duty of care. These are decisions on which the trial judge relied.

It follows that while the damages to be awarded to Kia Ora in tort are subject to reduction for contributory negligence, damages to be awarded to Kia Ora for breach of contract are not subject to reduction on that basis.

That being so, it is strictly unnecessary to consider the trial judge's decision that the damages for negligence should not be reduced for contributory negligence.

However, as will later appear, we consider that the damages that Kia Ora can recover for breach of fiduciary duty are subject to reduction on account of conduct of Kia Ora that contributed to its loss. Our reasoning on that point draws to some extent on the approach that we take to the question of the reduction of the damages awarded in tort. For that reason it is convenient, although strictly unnecessary, to consider the question of contributory negligence in relation to the claim for damages in tort. In other parts of our reasons we have referred to the approach taken by the trial judge to the issue of attribution. Because our approach to some aspects of the case rests or might be said to rest upon a different approach to that issue, it is also convenient, in the context of contributory negligence, to explain why we take a different approach to that of the trial judge on that issue.

Before we come to those matters, we deal with one other issue.

In submissions advanced before the High Court delivered its decision in Austrust v Astley, Mr Gray QC submitted that even if the damages awarded in tort and in contract, for breach of the duty to exercise reasonable care and skill, were subject to reduction for contributory negligence, Kia Ora could establish an entitlement to the same amount of damages for a breach of contract in relation to which there was no concurrent and co-extensive liability in tort. Accordingly, he argued, damages awarded for that breach of contract were not subject to reduction.

It is again strictly unnecessary to deal with this submission, as the damages for breach of the contractual duty to exercise reasonable care and skill are not to be reduced. But, in case the matter takes an unexpected turn, we propose now to deal with this submission.

The submission is that Kia Ora is entitled to damages because of and as a result of NWP's breach of its contractual duty to be independent or to act independently, as the trial judge put it (J310).

The learned trial judge found that by virtue of the terms of the retainer NWP (inter alia) "owed a duty of care to Kia Ora to act independently". His Honour seems to have considered the duty to act independently as part of the contractual duty of care. He said:

"...the scope of the duty in contract and tort was the same and was to be independent and undertake the valuation and the Nelson Wheeler report competently."

Later in his reasons he appears to treat the duty to act independently and the duty to act competently as independent duties (J311-314; 345).

In so far as his Honour may have considered that the duty to act independently was part of the tort duty of care owed to Kia Ora we respectfully disagree. If there was a breach of a contractual duty to be independent, it was not an act for which any concurrent tortious liability arose which would attract the operation of s27A(3) of the Wrongs Act.

We also have some difficulty in regarding the obligation of NWP as a contractual obligation to act independently in the preparation of the report. On the learned trial judge's findings NWP were not independent at the time when they accepted the retainer. No express or implied contractual term to act independently could have enabled them thereafter to act independently. Their independence was irrevocably tainted when they accepted the retainer. If they had properly accepted the retainer, but something arose in the course of carrying it out which meant that they were no longer in a position to provide independent advice and they continued to provide the advice, then there may have been a breach of such a contractual duty.

It may be that the case is really one in which there was an express or implied representation by NWP that they were and would remain independent of Kia Ora. However, the case was not pleaded or conducted in that manner. Had it been so pleaded and conducted, we can perceive a number of obstacles to its success, but in the circumstances it is not necessary to dwell on those. It is sufficient to say that however the lack of independence is correctly characterised as a matter of law, it did not itself result in any material loss recognised by the law of contract. The effect of the lack of independence on any possible breach of fiduciary duty is a matter which we consider later.

To the extent that there may have been a breach of a contractual duty to remain independent after acceptance of the retainer, that breach in itself did not result in the loss that Kia Ora suffered. That loss was caused by the provision of a report that was not competently prepared. If NWP had exercised reasonable care in the preparation of its report, it would not have expressed the opinion that the price to be paid for Western United shares was fair. NWP might have lacked independence, yet produced a competent report expressing the opinion that the price was not fair. We are not blind to the fact that the lack of independence on the part of NWP probably contributed to the lack of care in the preparation of the report. But the fact remains that the loss is attributable to the careless preparation of the report, and not the lack of independence.

In our opinion, if Kia Ora had pleaded and proved no more than a breach of a contractual duty to act independently, Kia Ora could not have made out its claim other than, perhaps, for merely nominal damages. In order to succeed in its claim for damages for breach of contract, Kia Ora had to prove that the report was not the result of an exercise of reasonable care and skill. The loss that Kia Ora suffered flowed from reliance, in the sense discussed earlier, upon the erroneous opinion that the price was fair.

As will be seen, we have held that the lack of independence coupled with other circumstances gave rise to a breach of fiduciary duty of loyalty to Kia Ora on the part of NWP, but even in those circumstances the lack of independence by itself was not causative of loss.

For these reasons, in our opinion proof that NWP lacked independence is not sufficient to enable Kia Ora to recover the damages that it claims for breach of contract.

We return now to the issue of whether Kia Ora was guilty of fault for the purposes of s27A of the Wrongs Act, confining our attention to the damages awarded in tort. If it was, it then has to be decided whether that is fault from which its loss resulted. These are largely questions of fact, although there are legal principles involved.

Contributory negligence consists of a failure by a plaintiff to take proper care for the plaintiff's own protection. In Daniels the Court of Appeal rejected a submission that conduct could not constitute contributory negligence if it did not involve a breach of a duty owed by a director to the plaintiff company. Clarke JA and Sheller JA said at 574:

"In our opinion this submission overlooks the difference between contributory negligence and liability in negligence to another party. As we have pointed out, in the latter case the court is concerned to determine whether B has breached a duty of care which it owes A, an exercise which involves the application of established principles of foreseeability and proximity. In the former case the court is concerned with an entirely different issue - whether A, the plaintiff, has failed to take reasonable care for its own protection. Fleming, The Law of Torts 8th ed (1992) at 242 cites the Restatement in support of the proposition that 'contributory negligence is a plaintiff's failure to meet the standard of care to which it is required to conform for its own protection and which is a legally contributing cause, together with the defendant's default, in bringing about its injury'. (Rogers J said the same thing.)"

We consider that the question whether Kia Ora failed to take reasonable care for its own protection is to be decided objectively. That was the approach taken by this Court in Austrust Ltd v Astley [1996] SASC 5681; (1996) 67 SASR 207 at 234. We also agree with the following remarks of Clarke JA and Sheller JA in Daniels relating to the approach to be taken in a case like the present at (575):

"In considering whether a company has failed to take reasonable care for its own protection the court is not concerned with the degrees of knowledge of the individual directors, except, perhaps, in an incidental way. It is solely concerned to determine whether the company failed to take reasonable care for its own welfare - and in considering that question the court will have regard to the acts and omissions of the directing mind of the company and, in general, of those persons for whose acts and omissions it is vicariously liable."

The conduct identified by NWP as amounting to contributory negligence is conduct that played a part in the preparation of expert advice for the shareholders as to the fairness of the price to be paid, and then the conduct of the directors after the Nelson Wheeler report was received and relating to its use. The central elements of this conduct are the provision of unreliable information relevant to the value of Western United, both affirmatively and by omission, that conduct contributing to the provision of an unreliable valuation, and acting on a valuation that the directors of Kia Ora knew was unrealistic and unreliable.

In Austrust v Astley [1996] SASC 5681; (1996) 67 SASR 207 this Court rejected a submission that there is a rule of law or principle that a plea of contributory negligence is not available to a professional adviser in respect of matters upon which advice has been given. Doyle CJ and Olsson J said (at 234):

"In so concluding we do not proceed on the basis that in an action for professional negligence there is a rule of law that a professional adviser may not claim contributory negligence by the client, even in respect of matters on which the adviser has given or should have given advice. We agree with what was said in this topic in Daniels v Anderson (1995) 37 NSWLR 438 by Clarke JA and by Sheller JA (at 563-568). In the end, each case has to be decided on its own facts."

7.4 Was Kia Ora guilty of fault and did it suffer damage as a result of that fault?

In the present case, Kia Ora by its directors provided some information that was unreliable, and did not provide relevant information that it had. Kia Ora was entitled to expect that NWP would assess for itself the information that Kia Ora provided to it. NWP was not entitled simply to take that information at face value. His Honour did not find that Kia Ora had information that could not have been ascertained by NWP, and his findings appear to be that the information that Kia Ora provided to NWP should have been checked and, if it had been checked, that the deficiencies in the information would have emerged (J320 and 451-452).

But, in the present case Kia Ora was providing information that it knew was unreliable, and the information that it was providing, or at least part of it, was not the sort of information that a client could expect an adviser to check in the same way as one would expect an accountant preparing a tax return to check calculations already made by the client: cf Walker v Hungerfords (1987) 49 SASR 93 at 96 King CJ. In our opinion, a client who has relevant knowledge and skill, and who provides information to an adviser for the purpose of evaluation, has a responsibility to take care with the information provided, and cannot reasonably expect that the adviser will check all of the information provided even though, in broad terms, the adviser should check all significant information.

Kia Ora well understood the importance of the information that it was providing to NWP, and well understood that if inaccurate information was used that was likely to result in an unreliable valuation. In our opinion, in a case like the present, a client who knowingly provides unreliable information, or who provides important information without giving proper consideration to its reliability, is guilty of fault, even though it is a duty of the expert to check information provided.

But even if we are wrong in that, in our opinion Kia Ora was at fault in making the use that it did make of the report provided by NWP. The valuation of the shares of a company, and the valuation of the company as an entity, is not a matter peculiarly the province of an expert valuer. Informed and experienced businessmen, such as the directors of Kia Ora, can be expected to be able to make a sound estimate of the worth of Western United, as a matter of business judgment, and not simply to accept and act upon expert advice without question. In our opinion the value of Western United and of its shares, was not a matter upon which the directors of Kia Ora were entitled to disregard their own knowledge (as Abbott and Somes and Lee-Steere did) or to suspend judgment, as it were, (as Quilty and Singleton did) and act entirely upon the advice of NWP, without regard to their own commercial judgment. On the findings made by his Honour, the directors of Kia Ora simply failed to apply a sound business judgment. If they had, they would undoubtedly have rejected the advice tendered, or at least questioned the advice and the basis upon which it was provided. The advice on the fairness of the price was not a matter upon which Kia Ora can claim that it was entitled to rely entirely upon its adviser. Kia Ora, through its directors, had the knowledge and experience to form its own view of the soundness of the advice, and failed to do so. In that respect it was guilty of a failure to take proper care for its own interests.

A purpose of the report was to protect Kia Ora against an unwise or self-interested decision promoted by the directors. But it cannot be said that the obtaining of that report absolved Kia Ora of the responsibility (by its directors) to consider the fairness of the price or the soundness of the takeover. Responsibility for the first issue did not rest solely with NWP, and responsibility for the second issue, the overall soundness of the proposal, did not rest at all with NWP. Moreover, in our opinion the directors of Kia Ora had a continuing duty to consider the soundness of any advice that NWP provided.

In our opinion it is clear that by its directors Kia Ora failed to give proper consideration to the fairness of the price, and to the soundness of the takeover, and to the reliability of the advice provided.

The breach of duty by NWP in providing its advice did not conceal from Kia Ora a risk of which it was unaware. The fairness of the price to be paid was a central issue. The case is one in which Kia Ora, being aware of the importance of the issue, has by its directors simply refused or failed to give it proper consideration.

Our conclusion is, therefore, that Kia Ora, by its directors, failed to take reasonable care for its own protection. It was guilty of fault.

In our opinion that fault was a cause of the damage that Kia Ora suffered. If the directors had done what they should have done, a report containing unreliable advice would not have been provided to the shareholders. Even if the report had been provided to the shareholders, if the directors had done what they should have done having regard to the interests of Kia Ora, the directors would have decided not to proceed with the takeover.

It is not necessary to deal separately with the conduct of senior management.

7.5 Is the conduct that constitutes fault to be attributed to Kia Ora?

In our opinion there is no doubt that, applying ordinary principles, the conduct of the directors referred to above would be regarded as the conduct of Kia Ora for the purpose of deciding whether Kia Ora was guilty of contributory negligence. First of all, the decisions by the directors of Kia Ora are, for present purposes, the decisions of Kia Ora. We refer here in particular to the decisions to convene the extra-ordinary general meeting, to submit the Nelson Wheeler report to the shareholders, and the decision to make the offer to shareholders of Western United. They are decisions made by Kia Ora because they are decisions made by the directors of Kia Ora acting within the scope of their powers to manage the affairs of Kia Ora conferred by Article 98 of Kia Ora's Articles.

As well, to the extent that the actions of the directors are to be considered independently, we consider that Kia Ora would be vicariously liable for tortious wrongs committed by the directors in the course of the takeover. We mean here tortious wrongs arising from the decisions to which we have just referred.

In our opinion, on ordinary principles, decisions by a company by its directors acting in the course of their apparent authority and decisions for which the company would be vicariously liable to a third person would be regarded as conduct of the company for the purpose of deciding whether the company was guilty of contributory negligence: see Daniels v Anderson (1995) 37 NSWLR 438 at 569-570 Clarke JA and Sheller JA:

"... the principal is identified with the wrongdoer in those cases in respect of which it would be held vicariously liable to a third party for the acts of that wrongdoer ..."

See also Fleming, The Law of Torts (9th ed, 1998) p323. It seems to us that the case for contributory negligence based upon the conduct of directors of a plaintiff company, acting in the course of the authority committed to them, is even stronger than the case for contributory negligence based upon the conduct of one for whom the plaintiff is vicariously liable.

But even the statement that we have just cited from Daniels is of uncertain scope. In the present case, does it mean that the issue is whether Kia Ora would be vicariously liable for conduct of the directors that caused harm to another person in the course of this transaction? If that is so, what sort of event causing harm is to be envisaged? Or does it merely mean that it suffices that the directors are persons for whose torts Kia Ora would usually be liable, if those torts were committed in the course of them discharging their duties as directors? Alternatively, does the principle require consideration of the very acts under consideration? If that is so, how is the issue of vicarious liability to be tested in a case like the present, when the court has not found that the conduct of the directors inflicted tortious harm upon anyone other than the plaintiff?

We proceed hereafter on the basis that it suffices that Kia Ora would be vicariously liable for tortious harm to an innocent third party caused by the directors in the course of the events in question, while noting that there is an element of uncertainty about this. But we also repeat that in the present case it is not necessary, in our opinion, to resort to principles of vicarious liability to make Kia Ora responsible for the conduct in question of the Board of Directors. As we have already pointed out, in our opinion their acts are, on ordinary principles, to be regarded as the acts of Kia Ora.

The judge, as our summary indicates, identified a principle or rule on the basis of which the conduct of the directors was not to be attributed to Kia Ora, or identified with Kia Ora, for the purposes of considering contributory negligence.

We agree with the judge that a helpful starting point is the advice of the Privy Council in Meridian Global Funds Management Asia Ltd v Securities Commission [1995] UKPC 5; [1995] 2 AC 500. That was a case in which the issue was the liability of Meridian for breach of a statutory provision requiring disclosure of the acquisition by it of a substantial interest in another company. Two senior employees of Meridian caused Meridian to acquire a substantial interest in another company, unknown to the directors and to the Managing Director. The issue was whether Meridian had breached the relevant statutory provision.

The advice of their Lordships was delivered by Lord Hoffmann. In the course of his advice he makes the point that because a corporation is a fictitious person, the law has had to develop rules which tell one what acts are to count as acts of the corporation. In the case of a company, many of those rules will be found in the company's Articles and, we would add, in the statute law that regulates companies. Most of these will be rules peculiar to companies. As well, a company makes use of what Lord Hoffmann described as "general rules of attribution" which are equally available to natural persons, and in particular the principles of agency (at 506). He said:

"The company therefore builds upon the primary rules of attribution by using general rules of attribution which are equally available to natural persons, namely, the principles of agency. It will appoint servants and agents whose acts, by a combination of the general principles of agency and the company's primary rules of attribution, count as the acts of the company. And having done so, it will also make itself subject to the general rules by which liability for the acts of others can be attributed to natural persons, such as estoppel or ostensible authority in contract and vicarious liability in tort."

He went on to say that there will be exceptional situations in which neither the primary nor general rules of attribution provide an answer. This is particularly likely to be so in the area of the criminal law and in applying statutes to companies. In such situations the law has had to develop particular rules of attribution to determine whether and when the relevant rule of the criminal law or particular statute applies to a company. In the case of statutes, as Lord Hoffmann pointed out, such an exercise is really one of interpreting the relevant statute. That was the issue that the Privy Council had to consider in Meridian. The Privy Council concluded that Meridian had breached the relevant statutory provision. The Privy Council attributed the conduct and knowledge of the employees to Meridian.

The present case is really the converse of Meridian. The primary rules of attribution, to use Lord Hoffmann's terms, attribute the relevant conduct of the directors to Kia Ora. So do the secondary rules, in the sense that the relevant conduct of the directors is conduct for which Kia Ora would be vicariously liable, if in the course of the conduct tortious harm were inflicted on an innocent third party.

The issue in the present case is whether there is a special rule that prevents the attribution to Kia Ora of the conduct (involving acts and knowledge) of the directors. Mr Gray QC submits that there is.

We are not aware of any principle of company law that would have this effect, and no such rule was identified in submissions to us. But there are decisions that draw on principles of the law of agency to deny attribution to a company of the conduct of its directors and agents in certain circumstances. The reach of those rules is not clear. The relevant principle is stated in Bowstead and Reynolds on Agency (16th ed, 1996) in Article 97 at p529. Sub-clause (1) of that article states:

"A notification given to an agent is effective as such if the agent receives it within the scope of his actual or apparent authority, whether or not it is subsequently transmitted to the principal, unless the person seeking to charge the principal with notice knew that the agent intended to conceal his knowledge from the principal." [Footnotes omitted.]

The comment on Article 97 begins with the following statement with which we fully agree (at p530):

"This Article gives an indication of the applicable rules, but the notion that the knowledge of an agent is that of the principal is (as is apparent from the Illustrations) frequently invoked in cases of varying types and its full applications are not clearly determined. 'When a question of notice, or knowledge, arises, we find ourselves overwhelmed in a sea of authorities, not altogether reconcilable with each other.' Taylor v Yorkshire Insurance Co Ltd [1913] 2 Ir. R 1, 21 per Palles CB."

The principle upon which Mr Gray QC draws appears from the following portion of the comment (at p533). This part of the comment indicates that the law is unclear, and that some of the cases go beyond the principle stated in Article 97(1):

"In knowledge cases, however, the presumption that information will be passed on may also be nullified by proof that the agent was defrauding the principal in that transaction, whether or not the third party knew this: it can, in such a case, be said that there was a moral certainty that the information would not be communicated, or that communication would require disclosure of the very fraud being practised upon the agent by the principal, or that the agent was not acting for the principal when he received the information. The mere suppression of a document is not sufficient fraud. 'It must be made out that distinct fraud was intended in the very transaction, so as to make it necessary for the [agent] to conceal the fact from his [principal] in order to defraud him.' But it is not clear that this old doctrine is entirely desirable; it seems out of accord with the approach of tort cases where employers are held responsible for the fraud of their employees." [Footnotes omitted, emphasis added.]

A number of the cases to which the trial judge refers, and upon which Mr Gray QC relies, appear as a footnote to the portion of the text that we have emphasised.

We accept that they provide authority for the proposition in the text, although we consider that it remains unclear just when the principle is to be applied.

In Re Hampshire Land Company [1896] 2 Ch 743 was a case in which a building society proved, as a lender, in the liquidation of the company, to which we will refer as HLC, for moneys lent by the building society to HLC. An objection was taken to the proof on the grounds that a resolution passed at a meeting of the shareholders of HLC, authorising the borrowing of the money, had not been regularly passed. Vaughan Williams J proceeded on the basis that the building society was entitled to assume that all matters of internal management had been carried out regularly, unless the building society had notice of the irregularity. The liquidator for HLC contended that this was the case, and pointed to the fact that HLC and the building society had a common Secretary, and the Secretary was aware of the irregularity. On this basis it was said that the required knowledge was to be imputed to the building society. Vaughan Williams J rejected that submission. He acknowledged that he was relying upon an exception to the general rule under which notice to an officer of a company, communicated to him in the course of his duties, would be imputed to the company. He stated the exception in the following terms (at 749-750):

"... if Wills [the Secretary] had been guilty of a fraud, the personal knowledge of Wills of the fraud that he had committed upon the company would not have been knowledge of the society of the facts constituting that fraud; because common sense at once leads one to the conclusion that it would be impossible to infer that the duty, either of giving or receiving notice, will be fulfilled where the common agent is himself guilty of fraud. It seems to me that if you assume here that Mr Wills was guilty of irregularity - a breach of duty in respect of these transactions - the same inference is to be drawn as if he had been guilty of fraud. I do not know, I am sure, whether he was guilty of actual fraud; but whether his conduct amounted to fraud or to breach of duty, I decline to hold that his knowledge of his own fraud or of his own breach of duty is, under the circumstances, the knowledge of the company."

While the founding principle is stated in terms of fraud, in our opinion it was not so limited. It was applied in a case of what was a mere irregularity or breach of duty.

This principle was emphatically approved by the House of Lords in J C Houghton & Co v Nothard Lowe & Wills Ltd [1928] AC 1. That was a case in which it was sought to estop a company from denying liability for certain advances made to it, on the basis that its directors had knowledge of the admittedly unauthorised arrangement under which the advances were made, and of the fact of the advances. The submission was rejected. Viscount Dunedin made the point that there could be no acquiescence by the company without knowledge of the relevant facts. He accepted that knowledge of the directors would ordinarily be knowledge of the company. He said (at 14):

"But what if the knowledge of the director is the knowledge of a director who is himself particeps criminis, that is, if the knowledge of an infringement of the right of the company is only brought home to the man who himself was the artificer of such infringement? Common sense suggests the answer, but authority is not wanting."

He then referred to Hampshire and concluded that as the only knowledge brought home to the company was the knowledge of persons who were parties to the arrangement, which was a fraud on the true interests of the company, the relevant knowledge was not established (at 15). That was the view taken by the majority of their Lordships.

It should be noted that in this case the lender and claimant was itself innocent of any wrongdoing. The application of the principle gave the company a defence against an innocent lender. But it also needs to be noted that the arrangement under which the moneys were advanced was not authorised by the Board of Directors.

We mention in passing that a similar principle was stated in even more emphatic terms by Lord Halsbury in Gluckstein v Barnes [1900] AC 240. In that case promoters had concealed from a company, of which they were directors, a profit that they had made in selling certain property to the company. Lord Halsbury rejected as "too absurd" the suggestion that the knowledge of the promoters was also a disclosure to the company through those same persons as its directors (at 247).

These were cases in which the outcome hinged on the question of whether knowledge of certain events could be attributed to a company.

In Belmont Finance Corporation v Williams Furniture Ltd [1979] Ch 250 the facts were rather complex. Somewhat simplified, the position was that Belmont, as we will call it, sued a number of persons for damages, alleging a conspiracy to injure Belmont. The case had been dismissed at the close of the case for the plaintiff, on the basis that there was no case to answer in relation to the alleged conspiracy, the judge deciding that Belmont was itself a party to the conspiracy, and therefore could not recover. The basis of this conclusion was that parties to the alleged conspiracy included persons who were directors of Belmont. The purpose of the alleged conspiracy had been to cause Belmont to acquire shares in another company at an inflated price, and under circumstances that made the purchase illegal, because its purpose was to provide assistance to certain other defendants in purchasing the shares of Belmont. The issue was whether knowledge of the directors of Belmont was to be imputed to Belmont, leading to the conclusion that Belmont was itself a party to the alleged conspiracy. At 261 Buckley LJ said:

"The plaintiff company was the party at which the conspiracy was aimed. It seems to me that it would be strange that it should also be one of the conspirators. The majority of the Board which committed the company to carry out the project consisted of two of the alleged conspirators."

He went on to say, in a passage cited in a number of later cases (at 261-262):

"But in my view such knowledge should not be imputed to the company, for the essence of the arrangement was to deprive the company improperly of a large part of its assets. As I have said, the company was a victim of the conspiracy. I think it would be irrational to treat the directors, who were allegedly parties to the conspiracy, notionally as having transmitted this knowledge to the company; and indeed it is a well-recognised exception from the general rule that a principal is affected by notice received by his agent that, if the agent is acting in fraud of his principal and the matter of which he has notice is relevant to the fraud, that knowledge is not to be imputed to the principal.

So in my opinion the plaintiff company should not be regarded as a party to the conspiracy, on the ground of lack of the necessary guilty knowledge."

The other members of the Court of Appeal agreed with that view.

It can be seen that Buckley LJ drew upon a principle of the law of agency. He applied it in the case of an action in which the tort of conspiracy was alleged. It was applied to insulate the plaintiff Belmont from knowledge of a director acting in fraud of Belmont. Belmont was the victim of the fraud. The court insulated Belmont from the knowledge of its directors even though those directors, with that knowledge, made relevant decisions at meetings of Belmont's directors, and caused it to affix its seal to relevant documents. It should also be noted that the principle was applied as against the directors of Belmont and others who were conspirators. That is, it was applied as against those who were acting to defraud Belmont.

This issue was not referred to when the final decision at the trial went on appeal: Belmont Finance Corporation v Williams Furniture Ltd (No.2) [1980] 1 All ER 393.

A similar concept, that is, insulating a company from knowledge held by a wrongdoing officer or agent, when the company is a victim of a fraud or crime, can be found in cases dealing with the prosecution of such persons for defrauding the company of its property. Generally, the fact that the relevant person was an officer or agent of the company does not mean that the company has consented to the relevant transaction with the result that the officer cannot be prosecuted for it. The principle upon which the courts have tended to proceed in criminal cases was stated as follows in R v Gomez [1992] UKHL 4; [1993] AC 442 by Lord Browne-Wilkinson at 496:

"Where a company is accused of a crime the acts and intentions of those who are the directing minds and will of the company are to be attributed to the company. That is not the law where the charge is that those who are the directing minds and will have themselves committed a crime against the company: see Attorney-General's Reference (No.2 of 1982) [1984] QB 624 applying Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] Ch 250."

A similar statement of principle is to be found in the judgment of Leggatt LJ in R v Rozeik [1996] 3 All ER 281 at 286:

"The company may be liable to third parties or be guilty of criminal offences even though that employee was acting dishonestly or against the interests of the company, or contrary to orders. But different considerations apply where the company is the victim and the employee's activities have caused or assisted the company to suffer loss. The company will not be fixed with knowledge where the employee or officer has been defrauding it."

We do not consider that much guidance is to be obtained from the cases involving application of the criminal law or the application of statutes. We refer to these passages because they conveniently illustrate the point that for one purpose the conduct of a wrongdoing director may be attributed to a company, while for another purpose and under other circumstances it will not. Each of the passages referred to makes that point.

But there is another line of authority that has to be accommodated. In Lloyd v Grace Smith & Co [1912] UKHL 1; [1912] AC 716 the House of Lords held that a firm of solicitors was vicariously liable for the tort of its employee who, in the course of his employment, defrauded a client of certain property. The employee was acting entirely for his own benefit. Since that case it has never been doubted that an employer is vicariously liable for the tort of a fraudulent employee, provided that the employee acts, subject to the issue of fraud, in the course of the employee's employment: see Koorangang Investments Pty Ltd v Richardson and Wrench Ltd [1981] UKPC 30; [1982] AC 462.

It is on this basis that we are able to conclude that in the present case Kia Ora would be vicariously liable for the relevant conduct of its directors and employees if the conduct was tortious and caused loss to another, even if that conduct was fraudulent and even if they were acting entirely for their own benefit. Although we are not aware of any case on point, we have no reason to think that the answer would be any different if the employee or director in question was, while defrauding the third party, also defrauding the employer. For example, if an individual shareholder of Kia Ora were to sue Kia Ora for loss suffered by that shareholder as a result of the diminution in the value of shares held in Kia Ora, and assuming that otherwise a cause of action could be made out, we consider that Kia Ora would be vicariously liable for the negligence or other breach of duty by the directors of Kia Ora, even though the wrong done to the shareholder was committed in the course of conduct which was in fraud of Kia Ora.

On the other hand, the other cases to which we have referred suggest that when Kia Ora sues NWP for a tortious wrong done to it, Kia Ora's claim will not be defeated by knowledge, possessed by Kia Ora's directors, of matters that establish that the relevant transaction was not in the interests of Kia Ora, and which establish that the advice provided by NWP is incompetent and hence tortious, at least when the knowledge is possessed by directors who are acting in fraud of Kia Ora. While the decision in Belmont suggests that it might also be necessary, for Kia Ora to be insulated from the relevant knowledge, that the directors and NWP are acting in combination, the application in other cases of the principle stated in Hampshire suggests that the same result will be reached even if the relevant defendant, in this case NWP, is innocent of fraud; see, for example, Kwei Tek Chao v British Traders and Shippers Ld [1954] 2 QB 459 at 471-472, but note also the suggested distinction (at 470) in this respect between a fraudulent employee and a fraudulent agent. See also the manner in which the principle is stated in Bowstead and Reynolds on Agency.

The relevant principles were considered at some length in Beach Petroleum NL v Johnson & Ors [1993] FCA 283; (1993) 43 FCR 1. It is convenient once again to simplify the facts. Beach Petroleum NL ("Beach") sued Spargos Mining NL ("Spargos"), Enterprise Goldmines NL ("Enterprise") and Jingellic Minerals NL ("Jingellic") and others for conspiracy to injure Beach by causing it to acquire assets at a gross over-value. Other respondents in the action included Fuller, Cummings, and Main who were directors of Beach. Fuller and Cummings were two of the four directors of Jingellic. Fuller, Cummings and Main were the majority of the directors of Spargos and Enterprise.

von Doussa J found that Beach was the victim of a conspiracy to which Fuller, Cummings and Main and another person were parties. The question then arose of whether the three companies sued, to whom the judge collectively referred as SEJ, were parties to that conspiracy on the basis that they were each to be fixed with the knowledge of Fuller, Cummings and Main. SEJ relied upon Hampshire and Belmont and other cases to argue that the knowledge of the directors referred to was not to be attributed to SEJ. SEJ argued that the relevant principle operated to prevent knowledge of a director being imputed to a company whenever the director is acting fraudulently or irregularly (at 26). After considering the cases in some detail, von Doussa J rejected that submission. He said (at 28) that the issues should be resolved by applying "... the wider notions of the principle of agency ... where the issue is civil responsibility arising under the general law." He expressed his conclusion as follows (at 31-32):

"Provided that the director is acting within the scope of his or her authority, in civil proceedings the state of mind of a director ordinarily will be attributed to the company where there is a duty on that director to communicate his or her knowledge to the company. The exception to this rule is where the director is acting totally in fraud of the company, that is, where all the director's activities are directed against the interests of the company, and not partly for the benefit of the company. If the director is guilty of fraudulent conduct which is not totally in fraud of the corporation, and by design or result the fraud partly benefits the company, the knowledge of the director in the transaction will be attributed to the company."

He went on to conclude that Spargos was also a victim of the relevant conspiracy, and did not benefit from it, and on that basis the knowledge of the relevant directors should not be imputed to Spargos (at 38). But he held (at 35) that the directors were not acting totally in fraud of Enterprise and Jingellic, and accordingly the knowledge of the directors was to be imputed to those companies. That meant that those companies were a party to the conspiracy, but Spargos was not.

Later in his judgment he explained why Beach was able to sue as a result of the relevant transactions, even though its own directors were involved in the fraud and had knowledge of the fraudulent aspects. He said (at 46):

"As a matter of law Beach had no knowledge of the fraud because, being the victim, it was not imputed with the knowledge of those acting on its behalf. Notice of the true position, if it were to be effective notice, would have to be given to someone other than the parties to the fraud."

So far, the approach of von Doussa J would explain why Kia Ora can sue, despite knowledge of its directors of facts indicating that the takeover was not in the interests of Kia Ora, and that the advice of NWP was unreliable. We have not found it necessary to reason that way, but consistently with the decision of von Doussa J in Beach we could have done so.

However, and importantly for present purposes, von Doussa J went on to hold that SEJ were liable vicariously for the torts of the directors, the torts being fraud and deceit, even though (in the case of Spargos) or even if the knowledge of the directors was not to be imputed to SEJ. He said (at 41):

"If the respondent directors were acting within the scope of their authority, SEJ are vicariously responsible, even if under the Houghton principle the companies did not have imputed knowledge of the relevant directors' fraudulent behaviour."

In so holding he relied upon the principles established in Lloyd v Grace Smith & Co. We respectfully agree with his approach.

We note, as having particular significance, that he held Spargos to be vicariously liable for the torts of its directors, even though Spargos was a victim of the fraud as well.

Finally, we mention that in this context he also rejected a submission by SEJ that Beach could not establish causation in law, because the Board of Beach was controlled by the directors who were guilty of the fraud and deceit (at 42). His reason for so concluding, which appears at 46, was that being a victim knowledge of the fraud was not to be imputed to Beach.

639. Kia Ora can recover against NWP, despite the part played by Kia Ora's directors in the loss it suffered. We have earlier explained why. We have indicated that a further reason can now be identified, and in that respect we refer to the reasons of von Doussa J. We note that in the present case there is no finding that NWP acted in fraud of Kia Ora, or that NWP were acting in combination with the directors of Kia Ora who were acting in fraud of Kia Ora. As we earlier said, that might be a relevant factor, although the authorities tend to suggest otherwise. We do not have to decide the point, because when we dealt with the relevant part of the case we did not rest our decision upon this line of reasoning.

640. In our opinion the cases to which we have referred also establish that Kia Ora would, if the issue arose, be vicariously liable for the relevant conduct of its directors. That also is consistent with the decision of von Doussa J in Beach. What they did was done, albeit in fraud of Kia Ora, in the apparent exercise of powers conferred upon them. As we have already said, there is no case deciding that a company is not vicariously liable when the relevant director or agent is acting to harm the company, as well as to harm the person who makes a claim against the company. But we do not consider that that is a relevant distinction.

641. We earlier noted that the relevant conduct by the directors of Kia Ora is conduct of Kia Ora under the so-called primary rules of attribution. However, as Belmont indicates, that does not prevent the application of a rule insulating Kia Ora from relevant knowledge.

642. The question then becomes whether, in these circumstances, the relevant conduct of the directors is to be regarded as conduct of Kia Ora for the purposes of determining whether Kia Ora is guilty of contributory negligence. We are not aware of any authority in point. In none of the cases to which we have referred, and in none of the cases to which we were referred in argument, did this precise point arise.

643. We note, as a matter of interest, that the difficulty in applying the Hampshire principle, which we now confront, has been identified in Deutsche Ruckversicherung Aktiengesellschaft v Walbrook Insurance Co Ltd & Ors [1995] 1 Lloyd's Rep 153. That was an application for an interlocutory injunction. One of the issues that fell to be considered, in deciding whether an injunction should be granted, was whether it was clear that a reinsurer had validly terminated a contract of reinsurance for non-disclosure and/or fraudulent misrepresentation by a broker acting for the insured. Phillips J referred to Hampshire, Belmont and other cases. He also referred to Fitzherbert v Mather [1811] EngR 551; (1785) 14 East 494, as establishing a rule that where an agent's fraud or wrong causes loss or prejudice to two parties, the loss or prejudice should fall on the party by whom the agent was trusted or employed. He then said, with reference to the question of whether the knowledge of the broker was to be attributed to the insured (at 165):

"I have found this area of the law one of great difficulty. Where a director or a broker commits a fraud on a company which has a direct impact on a risk which is placed on behalf of that company with insurers or reinsurers I can see the force of the argument that the rule in Hampshire Land should give way to the rule in Fitzherbert v Mather. Where, however, the materiality of the fraud is said to be no more than moral hazard I find it an affront to common sense that the cover of the insured or reinsured should be at risk because of failure to disclose a fraud committed on itself of which only the fraudster was aware. In such circumstances my inclination would be to apply the rule in Hampshire Land."

We refer to this passage because it indicates how relevant but conflicting principles can come into play, and how broader considerations of justice can be relevant to the outcome.

644. Our view is that the resolution of the issue does not depend, or at least wholly depend, upon the issue of what constitutes notice to Kia Ora.

645. The principles relevant to the attribution of knowledge and notice to a corporation are relevant in a wide range of situations. It is established that knowledge of an agent, acting in fraud of a company, will not be imputed to the company in a variety of situations. That may have the result of affecting the rights and liabilities of the company in contract and in tort.

646. But when considering the issue of contributory negligence, in our opinion it is relevant to consider whether the company would be vicariously responsible for the conduct or tort of the relevant agent. In our opinion it is not a matter of attributing knowledge or conduct to the company, and then deciding that the company is guilty of fault or is to be treated as having acted with certain knowledge. Lloyd v Grace Smith, is, we consider, an illustration of this point. The employee committed the tort, and the employer was liable. The employer was not liable on the basis that the knowledge and acts of the employee were attributed to the employer, and that the employer had therefore committed a wrong. The principle of vicarious liability proceeds upon the basis of attributing a wrong done by one person to another person.

647. On the other hand, in Belmont the company would have been a party to the conspiracy only if Belmont had relevant knowledge. For it to be a party to the conspiracy, it was necessary for the knowledge of the relevant directors to be attributed to Belmont, and for the reasons indicated the Court declined to do so. In contrast, in Beach SEJ were vicariously liable for the torts of their directors, even though or if the knowledge of the relevant directors was not to be imputed or attributed to each of SEJ. Once again, the point was that SEJ were vicariously liable for those torts, not that SEJ were tortfeasors on the basis of knowledge or conduct imputed or attributed to them.

648. Absent any authority on point, we have come to the conclusion that the matter is appropriately resolved on the basis that Kia Ora is vicariously liable for the conduct of its directors, and that the principles identified by his Honour are not an obstacle to us so concluding. Those principles will or may, in certain circumstances, mean that Kia Ora has certain rights, or can escape certain liabilities, on the basis that knowledge or conduct is not to be attributed to it. But they do not operate to prevent the tort of another being attributed to Kia Ora by way of vicarious liability.

649. Accordingly, we consider that the relevant conduct of the directors is to be treated as fault when considering the question of contributory negligence.

650. In our view this is the fairer and more appropriate outcome. We rely upon that in support of our conclusion.

651. NWP were not acting fraudulently. There is no finding that NWP were in any way a party to the fraud of the directors. NWP is liable for its failure to take proper care. It seems to us both fair and reasonable that Kia Ora should, for the purposes of contributory negligence, be responsible for the faults of its own directors, even though they were acting in fraud of Kia Ora. As Mr Myers QC submitted, Kia Ora would be responsible for the conduct of those directors if they were merely careless. It is not easy to see why, as between Kia Ora and NWP, the position should alter when the directors have also been found to be fraudulent and in breach of other duties. The fact is that Kia Ora entrusted its management to those directors. As between Kia Ora and NWP, we consider that it should not be said that the fault of the directors was not also a cause of the loss sustained. It is one thing to hold NWP liable despite the conduct of the directors. It is another thing altogether to exonerate Kia Ora from responsibility for the conduct of its own directors, when allocating responsibility as between Kia Ora and NWP for that loss.

652. For those reasons, to the extent that the matter is to be determined on more fundamental considerations of justice, we consider that the approach that we have taken is to be preferred.

653. The damages awarded to Kia Ora in tort are to be reduced "... to such extent as the Court thinks just and equitable having regard to [Kia Ora's] share in the responsibility for the damage."

654. The cases establish that the Court should have regard to the degree of departure from the standard of conduct to be expected of Kia Ora. This involves a comparison of culpability, but not moral blameworthiness: Pennington v Norris [1956] HCA 26; (1956) 96 CLR 10 at 16. It seems to us that the statutory formula also requires consideration, in a broad way, of the extent to which Kia Ora's fault was responsible for the damage that Kia Ora suffered.

655. In the present case both the directors and NWP have been found to have fallen far short of the degree of care required. We do not consider that there is any significant differentiation to be made between them in this respect. We also find it difficult to distinguish between them in terms of responsibility for the damage suffered.

656. Nevertheless, we consider that it is proper to regard Kia Ora's share of the responsibility for the damage as less than that of NWP. The advice of NWP was sought specifically as a protection against an unwise and self-interested proposal by the directors. NWP knew that. The damage would not have resulted but for NWP's negligence and Kia Ora's fault, but NWP, under the circumstances, undertook a responsibility to protect Kia Ora, by providing independent advice to it on the fairness of the price. NWP undertook a duty of care in circumstances in which it knew that the purpose of its report was to provide protection to Kia Ora against a breach of duty by the directors. This is not to say that that was the sole protection. But the report was provided in that context.

657. On that basis, we consider that NWP's responsibility for the damage is the greater.

658. There can be no precision in the apportionment of responsibility. Taking everything into account, we would reduce Kia Ora's damages in tort by 35% on account of its own fault.

659. A joint notice of appeal was filed on behalf of Somes and Lee-Steere. However they were separately represented at the hearing of the appeal and the argument presented by Mr Camp, for Lee-Steere, concentrated on Lee-Steere's state of knowledge at relevant times during the takeover process and at the trial. Although the actual grounds of appeal are common to both defendants it is convenient to deal with Somes' appeal first. A number of issues relevant to Lee-Steere's appeal will be considered in the discussion on Somes' appeal.

660. Reference has been made to the fact that Somes was appointed a non-executive director of Western United in August 1980 and of Kia Ora in October 1981. In 1986 he accepted 300,000 options in Kia Ora. By 25th May 1987 he held 284,000 shares in Western United. It has been pointed out that, as a result of the takeover, Somes and interests related to him received $554,356 in addition to a substantial increase in Somes' shareholding in Kia Ora.

661. Although the trial judge recognised that earlier events provided a context in which to consider the allegations of breach of fiduciary duty made against Somes and Lee-Steere, he based his essential findings on the later events which we have discussed. In short, his Honour found that both Somes and Lee-Steere took part in a series of events which contributed to the consummation of the takeover whilst being aware that it could not be justified on the basis of the 3J(3) report and the views expressed in the Quilty letter. He rejected the evidence of both men that they believed the takeover was in the best interests of Kia Ora. Crucial findings of fact leading to this conclusion and which were not challenged by counsel for Somes at the hearing of the appeal are set out in the following passage from the judgment. After pointing out that there was no evidence to establish that Somes and Lee-Steere were involved in the preparation of the Nelson Wheeler report, his Honour continued (J380):

"However, thereafter they were in breach of their duties and in a serious way. Both Lee-Steere and Somes read the Nelson Wheeler report. Like Harold Abbott, they were familiar with both Kia Ora and Western United. They were experienced in business and corporate affairs. They understood the various businesses of Western United and its dependency in large measure upon Kia Ora and its associates. They were not directors who were appointed to bring some limited, but important, expertise to the Board. They had both been around for a long time. They were on the finance committee. They considered and approved loans granted by Western United. They were aware of problems experienced by Porter Western and some of the other subsidiaries. They were aware of the price paid by Western United for the remaining half interest in Porter Western in April the same year. They were aware of the artificiality of assertions of growth of Western United in the 1987 annual report which could only be made by reason of the deposit of $26m by Mawson Pacific on the eve of the end of the financial year. They must have been aware of the various fees, commission and sales of shares which gave a false impression of the profits of Western United. As has been seen, Somes knew of some back to back loans. Given their intimate knowledge of the monthly accounts of Western United and its subsidiaries, they must have known that the revenue projections adopted by Nelson Wheeler could not be achieved. They must have known that the income projection for the merchant bank based in part on average deposits of $96m for the 1988 financial year could not possibly have been achieved.

Somes said he knew that Parry Corporation had owned 25% of the issued capital of Western United and that he was aware of the sale in August or September at $1.30 per share. Both Lee-Steere and Somes owned or controlled substantial shareholdings in Western United and were astute businessmen. They would have been aware of the share market price of those shares, at least in a general way, at any time. They must have known that the Nelson Wheeler Perth valuation at $3.22 per share was grossly inflated and unjustified. Somes' evidence that the sale by Parry Corporation in August 1987 at $1.30 and the valuation at $3.22 about five weeks later was consistent with current substantial fluctuations in share prices brought about by persons trying to buy into companies that were seen to be on the takeover trail is not only unsupported by the evidence but is plainly a nonsense. Western United shares did not reach a price of $3.22 on the share market.

I am satisfied that Lee-Steere and Somes, given their knowledge of Western United over the years, could not possibly have thought that the valuation and opinions of Nelson Wheeler Perth in the Nelson Wheeler report were justified. They well knew that this report was not fit to be relied upon by the shareholders. They knew that it could not possibly be in the best interests of Kia Ora to proceed with the takeover on that basis. The prices referred to in the report could only have been in the interests of Western United shareholders to their knowledge. In accordance with their duty to Kia Ora, having seen the report, even at the draft stage, they should have rejected the takeover on that general basis and opposed it. They should have opposed Harold Abbott and the others controlling Kia Ora and counselled the independent directors Quilty and Singleton to the same view."

662. In making these findings, the trial judge accepted that Somes and Lee-Steere preferred their own interests to the interests of Kia Ora. He identified the actions and omissions by the two men which he found constituted breaches of fiduciary duty. They included:

1 The abovementioned failure to reject the Nelson Wheeler report and oppose the takeover from the outset.

2 The failure to consider whether the takeover was in the best interests of Kia Ora and its shareholders, irrespective of the contents of the report.

3 The failure to do anything to correct information which they must have known was inaccurate and misleading in the Quilty letter when they received it.

4 Participation by both defendants in the decision to proceed with the takeover which was made at the Kia Ora Directors' meeting held immediately after the extra-ordinary general meeting.

5 Participation by Somes in the subsequent decisions of the directors of Kia Ora to make the offer unconditional and to extend it.

663. Before reaching these conclusions, the trial judge reviewed a number of authorities relating to the duties of directors. He referred to the duty of directors to exercise their powers bona fide for the benefit of the company as a whole; the duty of care which is owed to the company by the directors (Daniels v AWA Ltd (1995) 37 NSWLR 438 at 488_f_ ); and the statutory duties under the Companies Code which will be referred to in more detail shortly. The authorities refer to the directors being fiduciary agents and stress their responsibility to take reasonable steps to place themselves in a position to guide the management.

664. Whilst conceding the nature and extent of these duties, Ms Powell QC, for Somes, argued that special considerations applied in a case where there were conflicting fiduciary duties. It was argued that Somes owed fiduciary duties to both Kia Ora and Western United by reason of the fact that he was a director of both companies. According to the argument, Somes' duty required him to make disclosure of the conflict and refrain from taking part in discussions on the decision to proceed with the takeover. He was required to proceed in this manner, so it was said, because he could not prefer the interests of one beneficiary (Kia Ora) over another (Western United).

665. The requirements of the duty of a director faced with a conflict of interest will depend very much on the circumstances of the particular case. Ms Powell referred us to The State of South Australia v Marcus Clarke (1996) 185 LSJS 313. The defendant was the managing director and chief executive officer of the State Bank. The bank purchased a life insurance company. The headnote states that "the defendant did not disclose to the board of directors the fact that another company to which the life company was indebted in the sum of $27m, which debt was discharged by direct payment to the other company on settlement of the sale, was a wholly owned subsidiary of an investment and finance company itself in straitened financial circumstances, in which he held a substantial shareholding and of which he was a director". In addition to failing to disclose his interest to the board, the defendant did not take steps to obtain an independent valuation of the shares in the insurance company. It was held that he was guilty of negligence and in breach of his fiduciary duties. The trial judge held that the defendant's duty was to disclose his interest and refrain from voting on the issue. However the case cannot support the proposition advanced by Ms Powell that declaring the interest and refraining from taking part in board discussions is the full extent of a director's duty in a case such as the present. Indeed the trial judge in the State Bank case held that the defendant was negligent in not arranging for an independent valuation of the shares.

666. The requirement of disclosure by a director of an interest in a transaction under consideration by the company, whether imposed by statute or as a duty arising in equity, has as its purpose the prevention of undisclosed profit by a director. (Castlereagh Motels v Davies-Roe (1967) 67 SR NSW 279; Woolworths Limited v Kelly (1991) 22 NSWLR 189 at 211). It is a duty which requires full disclosure of the nature of the interest so as to ensure honesty and integrity. The requirement is not concerned predominantly with the prevention of loss to the company. (Castlereagh Motels Ltd v Davies-Roe at 287)

667. However, it is clearly recognised, that there will be cases which will require more than a disclosure of an interest and abstention from voting. In those cases the circumstances may necessitate the doing of something in performance of the positive duty to act in the best interests of the company. In Permanent Building Society v Wheeler (1994) 11 WAR 187 the appellant (PBS), a building society, took action against five former directors including one Hamilton, who was the chief executive and managing director, for breaches of their duties in relation to the purchase by PBS of a parcel of industrial land. PBS had never before embarked on such a transaction and had no expertise in a venture of this nature. Hamilton claimed that he had a conflict of interest in the matter and he did not vote on the proposal. On appeal Ipp J expressed the view that there was a heavy duty on Hamilton and the other directors to scrutinise the transaction with caution and thoroughness. The asserted conflict of interest could not stand in the way of this duty. He said:

"In my opinion that duty was not affected by the fact that Hamilton believed that he had a conflict of interest and accordingly did not vote when the resolutions in question were taken. It was manifest that the transaction was capable of causing PBS serious harm. In those circumstances, in my opinion, Hamilton could not avoid his duties as chief executive and managing director by asserting his perceived conflict of interest. It may be that, because of the conflict, he should not have spoken or voted in favour of the resolution. But as chief executive and managing director there was a responsibility on him to ensure that the other directors appreciated the potential harm inherent in the transaction, and to point out steps that could be taken to reduce the possibility of that harm. Hamilton could not avoid that duty by, metaphorically speaking, burying his head in the sand while his co-directors discussed whether PBS should enter into such a potentially detrimental transaction: see Joint Stock Discount Co v Brown (1869) LR 8 Eq 381 at 402-404; cf Re Southern Resources Ltd; Residues Treatment & Trading Co Ltd v Southern Resources Ltd (1989) 15 ACLR 770 at 784-785; Darvall v North Sydney Brick & Tile Co Ltd (1989) 16 NSWLR 260 at 270, 284."

668. The effect on the extent of a director's duty to one company by reason of a conflicting duty to another company was considered by the Western Australian Court of Criminal Appeal in Fitzsimmons v R (1997) 23 ACSR 355. The applicant was convicted of offences including failure to act honestly as a director in the aftermath of the takeover in the present case. He was a director of Duke Holdings Ltd and an employee of the Duke Group. The circumstances arose out of the reverse takeover. He knew that the Duke Group was in a precarious financial position when Kia Ora embarked upon the reverse takeover. He became a director of Kia Ora and participated in a board meeting of that company at which the directors resolved to enter into the transaction with the Duke Group. The essence of the charge of failing to act honestly as a director of Kia Ora was that he failed to disclose to the board his knowledge of the true financial position of Kia Ora. Owen J discussed the nature of the appellant's duty as a director (358):

"Each case will depend on its own facts. A director who is confronted with a possible conflict must assess his or her position. The minimum requirement will be disclosure of the interest. This is simply part of, or an extension of, the statutory obligation that a director who is in any way 'interested' in a contract or proposed contract with the company must declare the nature of the interest at a meeting of the directors: Code s 232(1) (now s 231 of the Corporations Law). What action, above and beyond mere disclosure, the director must take will vary from case to case depending on the subject matter, the state of knowledge of the adverse information, the degree to which the director has been involved in the transaction, whether the director has been promoting the cause, the gravity of the possible outcome, the exigencies and commercial reality of the situation and so on. It may not be enough for the director simply to refrain from voting or even to absent himself or herself from the meeting during discussion of the impugned business. The circumstances may require the director to take some positive action to identify clearly the perceived conflict and to suggest a course of action to limit the possible damage."

His Honour then quoted from the judgment of Ipp J in Permanent Building Society v Wheeler (1994) 11 WAR 187.

"When material conflict arises the circumstances will be important in determining what action is called for to discharge the duty of acting honestly. At the very least, and with respect to the submissions to the contrary, it seems to me the present circumstances would have required the applicant to disclose to the board that he was in a position of conflict in respect of the matter being considered by the Kia Ora board and that, as a consequence, he could neither participate in the deliberations nor vote. I have said 'at the very least' because I do not wish to be taken as suggesting that this would necessarily satisfy the duty of honesty created by s 229(1) in the circumstances that existed. The nature of this appeal was such that there was not an exhaustive consideration of the full implications of the duty to act honestly if it applied; attention was focused on the question whether the duty did apply or whether it had 'rolled-back'. For this reason it is preferable for present purposes that I do not attempt an exhaustive consideration of the nature and extent of the duty. It is enough to indicate that in my view the duty involved at the least a duty to disclose the conflicting interest and non-participation in the deliberations and the vote, and to reject the applicant's submission that there could have been no breach had the applicant merely remained silent or had he consciously absented himself from the meeting because of the conflict but without disclosure of his reason for absenting himself.

Indeed, it is my present view that more was required of the applicant to discharge the duty he owed to Kia Ora. The difficulty arose because the applicant had accepted appointment to the Kia Ora board; he could have avoided it entirely by refusing appointment when it must have been obvious that the conflict of interest loomed. Having accepted the appointment his duty to Kia Ora arose. It may well have required that he identify what he knew to be the risk to Kia Ora to the Kia Ora board. At the least it required the action by him which I have previously identified. He did not so act."

(See also Centofanti v Eekimitor Pty Ltd [1995] SASC 4924; (1995) 65 SASR 31 at 33; Darvall v North Sydney Brick & tile Co Ltd (1989) 16 NSWLR 260 at 270 and Permanent Building Society v McGee (1993) 11 ACSR 260 at 289-290).

According to the argument advanced on behalf of Somes, he faced two situations of conflict, the first arising by reason of the fact that he had a personal interest as a shareholder in Western United and the second which followed from what was alleged to be a conflict between his fiduciary duty to Kia Ora on the one hand and to Western United on the other. If there had been no suggestion of Kia Ora entering into an improvident transaction, we agree that the proper course for Somes and Lee-Steere would have been to declare their interest and take no further part in the implementation of the takeover. However we are of the view that different considerations apply by reason of the fact that the transaction was contrary to Kia Ora's interests as Somes and Lee-Steere well knew. We are of the view that in these circumstances Somes and Lee-Steere could not avoid their duty to Kia Ora and remain silent simply because Western United's shareholders might stand to profit by reason of Kia Ora's unwise offer.

However that may be, it is unnecessary for us to decide what would have been the requirements of Somes' and Lee-Steere's duties as directors of Kia Ora if they had decided to take no part at all in the takeover. Although Ms Powell argued that Somes' duty in the present case was restricted to declaring his interest and refraining from taking part in the decision-making process, that is not the course which he followed. On the uncontested findings of the trial judge, both Somes and Lee-Steere knew that the directors and, later the shareholders, were supplied with a misleading opinion which overvalued Western United to a considerable degree. They both realised that the takeover was not in the interests of Kia Ora and should have been rejected. Despite this, they participated in decisions which progressed the plans for the takeover. At a later stage Somes participated in the decisions to make the offer unconditional and extend the cut off date for acceptance of the offer, steps aimed at bringing about the ultimate success of the takeover.

According to the trial judge's findings Somes and Lee-Steere attended the meeting of Kia Ora directors on 2nd October at which a draft report prepared by NWP was discussed. There is no record of their declaring any conflict of interest and they and the other directors present decided to proceed with the takeover plans. This resolution was crucial in that it set the course for the takeover. In the light of the information possessed by Somes and Lee-Steere, they could hardly be said to be acting in Kia Ora's interest in taking part in this decision. We are of the view that their participation in this manner was a clear and serious breach of their duty as directors. And in the light of their involvement at this stage, they could not then sit back and keep to themselves their knowledge of the undesirability of the proposal as the consequences of their decision to proceed which was taken at the directors' meeting unfolded. We agree with the trial judge that they were given further reason to oppose the takeover in the interests of Kia Ora after the share market crash. We also agree with the trial judge's finding that Lee-Steere and Somes should have concluded at an early stage that it was not in the best interests of Kia Ora to proceed with the takeover and should have informed the shareholders of this at the extra-ordinary general meeting.

After the extra-ordinary general meeting the directors had to decide whether to continue with the takeover. There was no obligation on them to do so; they had received approval from the shareholders to proceed with the takeover, but not a direction to go ahead. Nevertheless Somes and Lee-Steere took part in the decision to proceed with the proposal which was made at the directors' meeting held immediately after the extra-ordinary general meeting. Somes' cooperation in progressing the takeover continued to the final stages when he voted in favour of making the offer unconditional and extending the time for acceptances. All of these actions were contrary to Kia Ora's interests and Somes and Lee-Steere (to the extent to which he was involved) were aware of the potential detriment to the company.

The trial judge attached some significance to the fact that Lee-Steere and Somes did not reconsider the proposal in the light of the Horwath and Horwath report. He found that this, in itself, amounted to a breach of their duties as directors of Kia Ora. It was argued on behalf of Somes that this conclusion was not open in that Somes received the report as a shareholder and director of Western United. We prefer to view the receipt of the report and the information to be gleaned from it as further confirmation of what Somes and Lee-Steere already knew concerning the undesirability of proceeding further with the takeover. We disagree with the submission that the contents of the report should not have influenced Somes and Lee-Steere to act in the matter because of their conflicting duties. We have already expressed our reasons for rejecting that line of argument. We also reject the suggestion that Somes and Lee-Steere could not take the report into account and act upon it because it was obtained by them in their capacities as shareholders and directors of Western United. As we have said the knowledge of what was in the report should have provided further confirmation of the undesirability of Kia Ora proceeding further. This would not have involved any breach of confidentiality. But, in any event, the report became a public document when it was forwarded to Kia Ora with the Part B statement. In our view, having participated in the progressing of the takeover and being required to act in the interests of Kia Ora in this respect, they could not ignore the Horwath and Horwath report as an added reason to oppose the takeover.

Ms Powell complained that the learned judge failed to have sufficient regard to the matters which were unknown to Somes. It is accepted that Somes' knowledge of the takeover plans was more limited than that of Harold Abbott, Gary Abbott and Schneider-Paas. His Honour was well aware of that consideration and referred to it in his judgment. However his findings were based on what Somes did know, namely, the circumstances which would have led him to the view that the takeover was not in Kia Ora's interest. In our view that level of knowledge provided a sufficient basis for the findings which were made in this respect and required performance of Somes' duty in the manner explained by the trial judge.

Ms Powell further suggested that the trial judge, when considering the arguments on breach of duty, overlooked the fact that Somes was a non-executive director of Western United. There are situations in which more will be expected of an executive director as compared with a non-executive director in investigating proposals under consideration by the board and taking part in discussions on the merits thereof. This arises from the degree of knowledge and familiarity with such matters which might be expected of an executive director. However, it goes without saying, that this does not absolve non-executive directors from acting in the best interests of the company according to the facts and circumstances within their knowledge. The knowledge and understanding of Somes and Lee-Steere in the present case justified the trial judge's finding that they should not have approved the takeover in the interests of Kia Ora or, at the very least, they should not have actively supported it.

It was put by counsel for Somes that the directors were bound to proceed with the takeover. The argument was based on s52 of the Companies (Acquisition of Shares) Act 1980. Section 52(3) of the Act provided that a person making a public announcement of the takeover must, within two months of the announcement or such further period as the Commission permits, make a takeover bid for the company nominated as the target company and the announcement. An offence was committed if this provision was contravened. A change in circumstances after the announcement such that the person could not reasonably be expected to make the takeover bid constituted one of the exceptions to the requirement.

We have stated our view that Gardiner's press release on 9th October 1987 could not be regarded as a public announcement of the takeover for these purposes. As we said, if there was an obligation it came as a result of the shareholders' meeting and the subsequent decision by the directors to proceed with the offer. Somes and Lee-Steere participated in that decision to proceed and, having done so, they cannot rely on the provisions of the Act as in some way justifying their subsequent involvement in the takeover.

It was further submitted that the trial judge failed to take into account two important considerations, namely, that independent directors had been appointed to the board of Kia Ora to assume the duties which the existing directors could not address because of their conflicts and that an independent 3J(3) report was in the course of preparation. We do not accept the significance claimed for these matters. The independent directors knew far less about the circumstances of the two companies than Somes and Lee-Steere and both Somes and Lee-Steere were aware that the independent directors did not raise the concerns which they themselves realised should have been raised. As for the second issue, despite the fact that a 3J(3) report had been commissioned and a draft prepared, Somes and Lee-Steere were aware that it contained quite unreliable information. Neither of these considerations could excuse Somes and Lee-Steere from performing their fiduciary and statutory duties to the extent found appropriate by the trial judge.

The submissions presented to us on behalf of Somes, particularly the written submissions, complained of the extent to which the trial judge probed the history of Kia Ora and Western United in relation to the transactions and events with which Somes was concerned and which, it was argued, reflected unfavourably on him. It was argued that it was unfair for Somes to be questioned about these events as they were too far removed in time; that they were not referred to in the pleadings; and that the trial judge erred in some of the findings of fact in relation to those matters. It was claimed that they were used as "similar fact evidence" and that they were used by the trial judge in an impermissible manner in determining Somes' motivation for his actions and his failure to act during the takeover process.

While it is true to say that the trial judge considered the allegations of breach of duty by the directors against the general background of the roles which they played in Kia Ora and Western United over the years, he acknowledged in his reasons that the evidence did not permit him to find that Somes and Lee-Steere were aware of the takeover proposal until after Hayward was instructed. He pointed out that they were not involved in the "ramping" of shares, they were not aware of the Parry transaction and they did not assist in supplying information to NWP. Their involvement in the takeover was considered from the time they were provided with the Nelson Wheeler report. Nevertheless, bearing in mind the uncontested evidence of the steps in which they were involved and the knowledge they possessed as to the undesirability of the takeover from Kia Ora's viewpoint, there was ample evidence for the trial judge to find the breaches of duty proved.

It was appropriate for the trial judge to use the evidence of earlier involvement in the two companies in assessing the level of knowledge of the financial and other circumstances of the companies possessed by Somes and Lee-Steere. Apart from that, the evidence to support the allegations of breach of duty against Somes and Lee-Steere is of such strength that there is no need for supporting evidence from earlier transactions involving the companies and, in our view, the trial judge did not make any improper use of evidence concerning their earlier involvement. Nor was there any unfairness in the raising of these topics and the questioning of Somes and Lee-Steere in relation to them.

Furthermore, after considering the arguments presented by counsel for Somes and Lee-Steere, we are of the view that the trial judge's conclusions are not vitiated by incorrect findings of fact made in respect of these earlier events. It is unnecessary to deal with every criticism of the trial judge's findings in relation to the history of the companies, but one finding which attracted particular criticism by Ms Powell requires some comment. After referring to the Western United bonus share issue which was announced in May 1987 the trial judge said that Lee-Steere and Somes exercised options which they had received in 1984. Somes and his associate Cooke also acquired 94,000 shares which they held in the name of Medif Pty Ltd, a company which they controlled. The trial judge continued (J34):

"Somes explained his reason for this purchase and the exercise of the options was that he and Cooke considered the investment to be worthwhile in view of the development of Western United and after considering the 1986 annual report. I reject that evidence. The reason for those activities was to acquire shares which would attract the free bonus issue with the consequence of a substantial increase in shareholding. Also Somes maintained in his evidence that the valuation given by his firm had "nothing to do with necessarily the issuing of the bonus shares". He said it was just a revaluation and half the companies in Australia revalued their shares and assets before the tax law changed. He maintained that the bonus issue had no impact on the share price or value. It is difficult to understand what Somes was trying to convey. The evidence clearly establishes that the bonus issue was made on the basis of his valuation and at a time when tax would not be payable by the shareholders. As will be seen, there was a consequential benefit to the shareholders upon the takeover. The more shares they held in Western United, the greater the benefits received from Kia Ora. The evidence clearly establishes that, in acquiring the additional shares, Somes was intending to maximise the benefit to himself."

Ms Powell argued that in the last few lines of this passage his Honour inferred that Somes acquired shares in Western United so as to maximise the benefit to him when the takeover took place. Mr Gray argued that the actions of Somes in this regard constituted insider trading. He acknowledged that the acquisition of shares could not have taken place with a takeover in mind, but he argued that the trial judge did not suggest otherwise.

We are of the view that the evidence referred to was not particularly relevant to the ultimate issues to be decided. We agree that the passage, taken by itself might be taken to infer that the benefits which Somes had in mind would be derived from the takeover. However there is no suggestion that a takeover was planned at the time of the acquisition of the shares. The main finding in the passage referred to above which is adverse to Somes is the rejection of his version that the acquisition of the shares took place because he considered the investment to be generally worthwhile. The trial judge found that the reason was to acquire shares which would attract the bonus issue so as to increase the shareholding. Whatever the purport of his Honour's remarks at this stage of his judgment, there is no suggestion that any inappropriate reasoning along the lines suggested was carried through to that part of the judgment where he considered whether there had been a breach of duty by Somes. As has been pointed out, he commenced his remarks at this latter stage of the judgment by observing that there was no evidence of any knowledge of the takeover by Somes until some time after Hayward was instructed in mid August 1987. For these reasons we reject the argument that the trial judge fell into error when considering the earlier involvement of Somes in the two companies.

After finding that Somes and Lee-Steere breached their fiduciary duties as directors, the trial judge considered the allegation that they had breached the statutory duties provided for in the Companies Code. He said (384):

"Both Lee-Steere and Somes were in breach of their fiduciary and statutory duties to Kia Ora. I do not think either of them acted honestly. Their self interest and the circumstances in which they participated in the takeover process prevents any finding that they acted bona fide in the interests of Kia Ora or that they believed they so acted. Furthermore, they did not act honestly in accordance with s229(1). In my view, their conduct was driven by the motive of self interest which was preferred to the interests of Kia Ora. I would categorise their conduct as falling within s229(1)(b). Also they acquiesced in the conduct of Harold Abbott, Gary Abbott and Gardiner in the takeover process without query, let alone objection. Vital steps were taken by Harold Abbott in the takeover process including, as has been mentioned, the instructions to Hayward and NWP Perth and the purported appointment of Quilty and Singleton were undertaken without any reference to them. That Harold Abbott, Gary Abbott and Gardiner would embark upon the takeover process without any mention of it at Board level, must have caused Lee-Steere and Somes grave concern if they were genuine. Careful analysis of the actions of Lee-Steere and Somes demonstrates that the preferment of self interest and this acquiescence amounts to fraud on Kia Ora. Also, they were clearly in breach of their obligations under s229(4) in that they made improper use of their positions as directors to gain an advantage for themselves. Obviously they were also in breach of their duties to exercise reasonable care and diligence in the exercise of their powers in the takeover process."

It was argued that the trial judge's earlier findings in relation to Somes' involvement in the bonus share issue and the suggestion that this was to increase his benefit arising out of the takeover, were taken into account by the trial judge in reaching the findings of fraud and dishonesty. We reject this argument. The motive of self interest loomed large at the time of the events upon which the findings of breach of fiduciary and statutory duties were made. These defendants stood to receive, and did receive, substantial profits from the takeover. The trial judge was entitled to ask why there was such a serious failure to act in the interests of Kia Ora. It was open to him to find that self interest was the answer and he was assisted in drawing this conclusion by his assessment of Somes and Lee-Steere as they gave evidence. He rejected their explanations for their conduct. The trial judge was justified in finding that Somes and Lee-Steere acted out of self interest and in conformity with the wishes of Harold Abbott and the finding that they acted contrary to s229(1) of the Companies Code should not be disturbed.

The trial judge considered that the conduct went further than a failure to act honestly. Section 229(1) of the Companies Code as at the time of the relevant events provided as follows:

"229(1) An officer of a corporation shall at all times act honestly in the exercise of his powers and the discharge of the duties of his office.

Penalty - (a) in a case to which paragraph (b) does not apply - $5,000; or (b) where the offence was committed with intent to deceive or defraud the company, members or creditors of the company or creditors of any other person or for any other fraudulent purpose - $20,000 or imprisonment for 5 years, or both."

His Honour found that the breach of s229 was accompanied by an intention to defraud within the meaning of para (b). We do not think it was necessary for the trial judge to make this further finding bearing in mind the nature of the proceedings. Such a finding would seem to be necessary only in those cases where the criminal offence created by the section was charged and it became necessary, for the purposes of the penalty, to decide whether the facts fell within para (a) or para (b). We do not agree with the suggestion made by counsel for Kia Ora that the matter is relevant to the claim for an award of compound interest or that the particular categorisation provided for in the section is relevant to the argument concerning attribution. However the structure of the section and the role played by these paragraphs, is of relevance in interpreting the meaning of the word "honestly" in subsection (1).

In Marchesi v Barnes and Keogh [1970] VicRp 56; [1970] VR 434 Gowans J considered the meaning of the requirement to "act honestly" in the observance of the duties of a director as required by s124 of the Companies Act, 1961. The term "fraud" was not used in the section. Gowans J said (438):

"... to 'act honestly' refers to acting bona fide in the interests of the company in the performance of the functions attaching to the office of director. A breach of the obligation to act bona fide in the interests of the company involves a consciousness that what is being done is not in the interests of the company, and deliberate conduct in disregard of that knowledge. This constitutes the element of mens rea in the criminal offence created by the statute. If the term 'fraud' is applicable in this situation, it is only so in the sense of a 'fraud on the power'. In effect, the common law obligation in respect of acting honestly, as with the common law obligation to act with due diligence has been made a statutory duty, and failure to perform it, provided there is the proper mental element, has been made a criminal offence."

The effect of s229(1) was considered by this court in Australian Growth Resources Corporation Pty Ltd v Van Reesema (1988) 13 ACLR 261. King CJ, in a judgment in which Cox J concurred, expressed the view that because the penalty section draws a distinction between acting dishonestly and acting fraudulently, the section embodies "a concept analogous to constructive fraud, a species of dishonesty which does not involve moral turpitude". He continued (272):

"I have no doubt that a director who exercises his powers for a purpose which the law deems to be improper, infringes this provision notwithstanding that according to his own lights he may be acting honestly."

This construction has been criticised by Dawson J in Chew v The Queen [1992] HCA 18; (1992) 173 CLR 626 at 642 and reluctantly followed by this court in Southern Resources Ltd v Residues Treatment and Trading Co Ltd (1991) 56 SASR 455 at 476. There was very little argument on the point in this case and we do not regard the case as an appropriate vehicle for determining whether Australian Growth Resources Corporation Pty Ltd v Van Reesema was correctly decided. None of the other cases cited to us offer any other explanation for distinguishing between dishonesty and acting fraudulently in the context of the section. If acting with intent to defraud within the section means intentionally acting in a manner contrary to the interests of the company in order to obtain personal financial gain then we are content to allow the finding to remain on the basis that the trial judge's conclusions on the evidence permit such a finding. However we consider that in the present civil proceedings it is sufficient to conclude that a breach of s229(1) has been established by the evidence. This finding would exclude the operation of s535(1) which provides relief from civil liability in certain circumstances but requires that the defendant acted honestly. Mr Myers QC complained that fraud was not pleaded. The word "fraud" was not used in the pleadings, but it is clear that a failure to act honestly was alleged against the director defendants. In the light of the approach which we take to the construction of the section and its application to the present case the pleadings are adequate and no injustice has been caused to these two defendants.

Mr Camp, for Lee-Steere, adopted the arguments presented by Ms Powell on issues common to both defendants. The trial judge acknowledged that Lee-Steere did not take part in the decisions of the directors to make the offer unconditional and to extend it. However he referred to the role of Lee-Steere in the making of the earlier decision to proceed with the takeover. He also stressed Lee-Steere's failure to oppose the takeover in the light of his knowledge that it was contrary to the interests of Kia Ora.

Lee-Steere had been a member of the board of directors of Kia Ora for nine years prior to the takeover. As appears from the findings quoted in the section dealing with Somes, the trial judge found that Lee-Steere had extensive knowledge of the two companies; that he must have realised the valuation and opinions in the Nelson Wheeler report was unjustified; and that he realised that the takeover was not in the interests of Kia Ora.

None of the matters raised by Ms Powell which are referable to the appeals of both of these defendants persuade us that we should interfere with the trial judge's findings that Lee-Steere was in breach of his statutory and fiduciary duties as a director. However Mr Camp made submissions on certain matters which relate solely to Lee-Steere's case. It was submitted that the trial judge was in error in not defining what Mr Camp called "the ambit of duty" which applied to his client. Furthermore he submitted that the principal conclusions reached by the trial judge as to Lee-Steere's involvement were not supported by the evidence and that insufficient regard was paid to the level of Lee-Steere's knowledge and capacity to analyse the events relevant to the takeover. According to the argument, the trial judge's findings assume that Lee-Steere had a reasonable level of knowledge and experience in matters related to the takeover, whereas this was not the case. Mr Camp submitted that not only did Lee-Steere not know or understand the facts or concepts necessary in order to assess the takeover or the 3J(3) report, but that he did not have sufficient insight to appreciate his shortcomings in this respect. It was said that when Lee-Steere was asked about a number of matters in evidence he gave the pretence of understanding them, rather than admitting that he did not have such understanding. This surprising submission was accompanied by an acknowledgment that the argument was not advanced to the trial judge.

In our view there is ample evidence to support the findings in the judgment that Lee-Steere was an experienced businessman and company director. His experience was gained over many years and in a large number of companies. He was on the finance committee of Western United and played an important role on the small boards of both companies. We have considered those passages in the evidence relied upon by Mr Camp as suggesting that Lee-Steere was under some misunderstanding as to the nature of the takeover; that he lacked astuteness in company matters; and that he would not have had a proper understanding of the Nelson Wheeler report. Mr Camp suggested that the manner in which Lee-Steere was cross-examined about documents may have had the tendency to acquaint him with the contents of the documents so as to lead to a greater understanding of them compared with his level of knowledge during the takeover. We reject these suggestions. He gave evidence over a period of seven days. No suggestion was made at trial that he had a defective understanding of the relevant matters. We are confident that if the matters referred to by Mr Camp were obvious, they would not have escaped the attention of the trial judge.

We are also of the view that there was no need for the trial judge to define in greater detail the fiduciary and statutory duties of Lee-Steere as a director of Kia Ora. His Honour examined the nature of these duties in considerable detail and then related them to the circumstances of the present case. The breaches of duty were brought about by Lee-Steere's participation in events leading up to the takeover which were essential to that aim and were carried out with an eye to personal gain and in the knowledge that his action and lack of action were not in the best interests of Kia Ora .

Elsewhere in these reasons we discuss causation in the context of breach of fiduciary duty. We agree there with Ipp J's observation in Permanent Building Society (In liquidation) v Wheeler (1994) 11 WAR 187 at 244 that there was a requirement for the beneficiary to prove that, but for the breach of duty, the loss would not have happened.

We accept that there would have been no loss in the present case if it had not been for the actions of the directors at the directors' meetings held on 2nd October and 26th October and at the extra-ordinary general meeting. We agree with the trial judge that, in this respect, it is inappropriate to separate out the individual actions of the directors so as to contemplate what the result would have been if they had been outvoted. Accordingly we reject the suggestion that the breaches of duty by Somes and Lee-Steere were not causative of Kia Ora's loss.

For these reasons we are of the view that the trial judge was correct in finding that Somes and Lee-Steere were in breach of their statutory and fiduciary duties and are liable to Kia Ora in damages for the loss sustained as a result of the takeover.

Kia Ora initially pleaded its case against NWP in negligence and breach of contract. As the learned trial judge observed, by the end of the trial Kia Ora had put its primary case against NWP as breach of fiduciary duty. NWP argued both before the trial judge and on appeal that this submission was not open to Kia Ora because it had not adequately pleaded the duty. Because of the view his Honour took of the circumstances, he found it unnecessary to rule on the adequacy of the pleading. For reasons to which we shall return, his Honour decided that there was no fiduciary relationship established between Kia Ora and NWP, and hence no fiduciary duty of which it could be said that NWP were in breach. He dismissed the claim for damages for breach of fiduciary duty.

Because of the view we take as to the existence of a fiduciary relationship it is necessary first to consider Nelson Wheeler's submission that the fiduciary relationship and breach of fiduciary duty were not adequately pleaded.

Some four months after the trial commenced the plaintiff was given leave to amend its statement of claim without opposition from Nelson Wheeler. That amendment was made by leave on 11 October 1994, and included the following:

"64A.1 Nelson Wheeler were not independent persons within the meaning of Listing Rule 3J(3)(b) and acted in conflict by reason of the following matters:" (Emphasis added)

There followed some 97 paragraphs of particulars of NWP's associations with transactions involving Kia Ora, Western United or their respective directors. They were followed by the following further paragraphs:

"64A.2 By reason of the matters referred to in paragraph 64A.1 above:

64A.2.1 Nelson Wheeler breached the express term of the retainer to be independent referred to in paragraph 18.3 of the statement of claim.

64A.2.2 Nelson Wheeler breached the implied term of the retainer and the duty of care to be independent referred to in paragraph 19.7 of the statement of claim and were in breach of fiduciary duty they owed to Kia Ora and its shareholders.

64A.2.3 The holding out by Nelson Wheeler as independent qualified persons within the meaning of Listing Rule 3J(3)(b) as referred to in paragraph 14.2 of the statement of claim was false.

64A.2.4 Nelson Wheeler failed to comply with paragraphs 8 to 10 of NCSC Release 102.

64A.2.5 Nelson Wheeler should not have accepted the retainer or undertaken the preparation of the 3J(3) report with the consequence that the takeover of Western United would not have proceeded." (Emphasis added)

Whilst NCSC Release 102 might be relevant to some situations involving the provider of a 3J(3) report, the view we take both of the pleadings and of the merits of Kia Ora's claim does not require further reference to that release.

On 31 January 1995 Kia Ora applied for leave to further amend paragraph 64A of the statement of claim. That application was opposed by Nelson Wheeler who also applied for the revocation of the order made on 11 October 1994 granting leave to insert paragraph 64A. Leave to amend was granted on 1 March 1995, his Honour indicating that reasons would be included in his final judgment, which they were. (J228-239) As amended paragraph 64A took the following form:

"64A.1 Nelson Wheeler were not independent persons within the meaning of Listing Rule 3J(3)(b) and NCSC Release 102 by reason of the associations between members of the firm of Nelson Wheeler on the one hand and companies in the Kia Ora and/or Western United group of companies and/or the directors of those companies on the other.

64A.2 Further, Nelson Wheeler acted in conflict of interest in and about the preparation of the 3J(3) report by reason of the associations and their coexisting obligation under the retainer to Kia Ora, through its unassociated shareholders, to be and to be seen to be independent in the preparation of the 3J(3) report." (Emphasis added)

Paragraph 64A.3 of the amended statement of claim pleaded what it described as a "series or web of events, transactions and circumstances" alleging the various associations to which reference has already been made and that each of the members of NWP had actual or constructive knowledge of those associations. These were particularised in some 453 further subparagraphs. Paragraph 64A.4 then relevantly read:

"64A.4 By reasons of the matters referred to in paragraphs 64A.1, 64A.2 and 64.3 above:

64A.4.1 Nelson Wheeler breached the express term of the retainer to be independent referred to in paragraph 18.3 of the statement of claim.

64A.4.2 Nelson Wheeler breached the implied term of the retainer and the duty of care to be independent referred to in paragraph 19.7 of the statement of claim and were in breach of fiduciary duty they owed to Kia Ora.

64A.4.3 The holding out by Nelson Wheeler as independent qualified persons within the meaning of Listing Rule 3J(3)(b) as referred to in paragraph 14.2 of the statement of claim was false

64A.4.4 Nelson Wheeler failed to comply with paragraphs 8 to 10 of NCSC release 102.

64A.4.5 Nelson Wheeler should not have accepted the retainer or undertaken the preparation of the 3J(3) report with the consequence that the takeover of Western United would not have proceeded." (Emphasis added)

Argument over the application for leave to amend and to revoke the previous order occupied several days, and a number of issues were canvassed. It was quite clear from his Honour's reasons that one of those issues involved what was described by his Honour (J236) as "the new cause of action of breach of fiduciary duty". It was contended by counsel for Nelson Wheeler at the trial that in the circumstances pleaded a fiduciary relationship could not exist, and in the alternative that if it did, there could be no consequence in damages but only a liability to account for benefits received in consequence of the breach. Reference was made during the course of argument to a number of relevant authorities concerning the circumstances in which fiduciary duties have or have not been found to exist as the case may be, but his Honour allowed the pleading to stand to enable the evidence to be led and a decision to be made on the evidence as to whether or not a fiduciary relationship existed, whether there was a relevant breach of duty and as to the consequences. His Honour concluded that part of his reasons for allowing the amendment by observing that he had left open to Nelson Wheeler "the right to argue that the claim for breach of fiduciary duty should not be considered due to the considerable delay in bringing that claim but, appropriately in my view, no such submission was made".

Nelson Wheeler's argument on appeal was in essence that the case of breach of fiduciary duty against NWP had not only not been properly pleaded but had never been put at trial other than in Kia Ora's final address. The argument, however, tended to be confused with an allegation that Kia Ora's case amounted to allegations of fraud against NWP which had never been pleaded. Paragraph 64A of the statement of claim pleaded a great many alleged associations and knowledge by NWP of those associations with the consequences pleaded in that paragraph. However, there was no express pleading of fraud, and counsel for Kia Ora at the trial on a number of occasions expressly disavowed any allegation of fraud against NWP.

Kia Ora's case as pleaded was that by virtue of the many associations alleged, when it came to the preparation of the 3J(3) report, NWP could not act independently, and there arose an inevitable conflict of interest when it came to prepare the 3J(3) report, such that in doing so NWP was in breach of its fiduciary duty to Kia Ora. Some of the allegations of associations between members of NWP and the directors of Kia Ora went as far as to suggest that some members of NWP had possibly benefited by virtue of their association with the Kia Ora directors, and had cooperated with some of the Kia Ora directors to the point of being commercially beholden to them, but those allegations did not suggest illegal or fraudulent conduct on the part of the partners of NWP. It will be necessary to refer to some of that evidence when dealing with whether or not there was a breach of fiduciary duty.

The Nelson Wheeler argument on appeal suggested that in substance the allegation against them was that they knowingly and intentionally acted in conflict of interest, and that that effectively constituted an allegation of fraud which had been inadequately pleaded. We disagree. Most breaches of fiduciary duty founded on an allegation of conflict of interest and duty will involve knowledge of the conflict. It does not follow that such an allegation constitutes an allegation of fraud.

We return to the pleading itself. It did not follow the time honoured formula of alleging facts which established a fiduciary relationship between the parties, the fiduciary obligations arising under that relationship, the manner in which NWP acted in breach of those obligations and the equitable relief to which Kia Ora was entitled by reason of any alleged breach of fiduciary duty. However, the factual elements from which appropriate inferences could be drawn and which gave rise to the relevant identifiable legal consequences if proved were, in our opinion, sufficiently pleaded. An alleged breach of fiduciary duty was specifically pleaded. It was clear enough that that had its foundation in the relationship between the parties created by the retainer, that the relevant duty was not to act in conflict of interest and that that duty had been breached. Certainly, counsel for Nelson Wheeler at the trial appeared to be under no misapprehension that a case of breach of fiduciary duty was pleaded against his clients. In our opinion, the pleadings stated with sufficient clarity the case that the Nelson Wheeler defendants had to meet. See Banque Commerciale S.A. v Akhil Holdings Ltd (1990) 169 CLR 279 per Mason CJ and Gaudron J at 286.

As to the alleged failure to lead evidence on the topic from the appropriate witnesses, there was no suggestion that those witnesses who were called and who could speak of the alleged associations (which were inferences largely drawn from documentary evidence) were not asked about them. Mr Stokes was obviously a key witness in that regard, but his indisposition prevented any relevant cross-examination. At least two of the NWP defendants who gave evidence were cross-examined as to some relevant aspects of the accountant/client relationship, resulting in an acknowledgment by them that it was a fiduciary relationship. However, the complaint, in our opinion, lacks substance. As will be seen, in relation to the claim for breach of fiduciary duty, the important and relevant facts were the nature of the retainer and the circumstances in which it was accepted by NWP. Those facts were investigated in great detail, and it is only from those facts that it can be determined as a matter of law whether a fiduciary relationship existed, what the relevant fiduciary duties were and whether they had been breached. It will not turn on the mere fact that the partners of NWP were accountants and whether that relationship by itself was sufficient to raise fiduciary obligations.

The learned trial judge first considered whether NWP owed fiduciary obligations to Kia Ora. He noted that it was not one of the well-established relationships which usually involved fiduciary obligations as noted by Mason J in Hospital Products Ltd v United States Surgical Corporation and Others [1984] HCA 64; (1984) 156 CLR 41 at 96: trustee and beneficiary, agent and principal, solicitor and client, director and company and partners. His Honour referred to a number of cases in an attempt to discern the criteria by which the existence of a fiduciary relationship will be determined. Kia Ora's argument at trial had been that the nature of the relationship established by r3J(3) properly placed it in the category of financial adviser which gave rise, by virtue of that relationship, to fiduciary obligations. Reliance had been placed on such cases as Commonwealth Bank of Australia and Anor v Smith and Anor [1991] FCA 375; (1991) 42 FCR 390 and Daly v Sydney Stock Exchange Ltd [1986] HCA 25; (1986) 160 CLR 371, both of which concerned the giving of financial advice where a fiduciary relationship existed. His Honour concluded, however, that "it is not the relationship of financial adviser and customer which necessarily gives rise to fiduciary obligation, but the particular circumstances of that relationship" (J443). With that we respectfully agree. His Honour went on to point out that in this case the relationship was contractual, with the consequence that NWP owed contractual duties to Kia Ora to act independently and competently, and that they also owed a duty of care to Kia Ora in tort. However, his Honour was not prepared to go so far as to say that they also owed fiduciary obligations to Kia Ora. He accepted that the evidence and indeed the qualifications to the 3J(3) report itself showed that NWP acted from time to time as financial advisers, but they were not advising Kia Ora in this case as to the efficacy or wisdom of the takeover. They were not acting in the capacity of financial adviser to Kia Ora. Rather, NWP were merely expressing an opinion as to the fairness of the takeover price. With regard to other criteria which his Honour had identified as sometimes giving rise to a fiduciary relationship, he found that NWP were not agents of Kia Ora; they were not in a relationship of ascendancy or influence over Kia Ora, neither was there any dependence or trust on the part of Kia Ora; they were not guiding or influencing Kia Ora in the sense discussed in the cases to which his Honour had referred. He likened their position to that of the doctor discussed by Dawson and Toohey JJ in Breen v Williams (1996) 186 CLR 71 at 93:

"A doctor is bound to exercise reasonable skill and care in treating and advising a patient, but in doing so is acting, not as a representative of the patient, but simply in the exercise of his or her professional responsibilities. No doubt the patient places trust and confidence in the doctor, but it is not because the doctor acts on behalf of the patient; it is because the patient is entitled to expect the observance of professional standards by the doctor in matters of treatment and advice and is afforded remedies in contract and tort if those standards are not observed and the patient suffers damage."

He did not consider this relationship exhibited the requirements of trust, confidence, discretion and power of the type referred to by Gaudron and McHugh JJ in Breen v Williams (1996) 186 CLR 71 at 107, such as to give rise to a fiduciary relationship. What remained was only their relationship in contract and tort.

It is against this finding that Kia Ora appeals.

One needs only consider the list of generally accepted fiduciary relationships: trustee and beneficiary, agent and principal, solicitor and client, director and company, partner and partner, life tenant and remainderman to realise the infinite variety of circumstances in which the duty has been held to arise within those relationships, and in order to realise the very different circumstances in which fiduciary duties will be owed by one person to another. Sometimes they arise by virtue of a relationship of agency or acting in a representative capacity; sometimes by virtue of a relationship of confidence; sometimes, one of trust or dependence; sometimes of ascendancy or influence. Any one of those circumstances alone may give rise to the duty. At other times those particular features will require other factual ingredients to be added before any relevant fiduciary duty arises.

Merely to say that a person is in a situation of conflict of interest or may obtain a benefit by entering into a particular transaction in conflict with a duty to someone else does not in itself give rise to a fiduciary relationship. The building tradesman who has an undisclosed interest in a building supplies company from which he purchases materials for use in a building, and through which he participates in the profit on sales, is not in breach of any duty in not disclosing that fact in submitting his tender for the building work to be performed.

As the cases indicate, there is no simple touchstone by which the need for the imposition of a fiduciary obligation can be identified. Gibbs CJ observed in Hospital Products Ltd v United States Surgical Corporation and Others [1984] HCA 64; (1984) 156 CLR 41 at 69:

"Fiduciary relations are of different types, carrying different obligations (see In re Coomber; Coomber v. Coomber [1911] 1 Ch. 723, at pp.728-729, Jenyns v. Public Curator (Q.) [1953] HCA 2; (1953) 90 C.L.R. 113, at pp.132-133 and Phipps v. Boardman [1967] 2 A.C., at pp.126-127) and a test which might seem appropriate to determine whether a fiduciary relationship existed for one purpose might be quite inappropriate for another purpose. For example, the relation of physician and patient, and priest and penitent, may be described as fiduciary when the question is whether there is a presumption of undue influence, but may be less likely to be relevant when an alleged conflict between duty and interest is in question. Moreover, different fiduciary relationships may entail different consequences, as is shown by the discussion of the respective positions of a trustee and a partner in relation to the renewal of a lease: see In re Biss; Biss v. Biss [1903] 2 Ch. 40, at pp.56-57, 61-62, Griffith v. Owen [1907] 1 Ch. 195, at pp.203-204, and Chan v. Zacharia [1984] HCA 36; (1984) 154 C.L.R. 178."

All that can be done is to identify what, at least in analogous situations, appear to be the recurring underlying features. When speaking of the generally recognised fiduciary relationships mentioned above, Mason J in Hospital Products Ltd v United States Surgical Corporation and Others [1984] HCA 64; (1984) 156 CLR 41 at 96-97 said:

"The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations (cf. Phipps v. Boardman [1966] UKHL 2; [1967] 2 A.C. 46, at p.127), viz., trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners. The critical features 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."

Dawson J at 142 made a similar observation to the effect that inherent in all cases of fiduciary obligation is a relationship where there 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".

It is quite clear that fiduciary obligations may be built on or become appended to a contractual relationship, and thus may become superimposed on other contractual and tortious duties, but as Mason J said in Hospital Products Ltd v United States Surgical Corporation and Others [1984] HCA 64; (1984) 156 CLR 41 at 97:

"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."

Brennan CJ in Breen v Williams (1996) 186 CLR 71 at 82 identified two recognised sources from which fiduciary duties may arise. One of those was agency and the other was a "relationship of ascendancy or influence by one party over another, or dependence or trust on the part of that other". Gaudron and McHugh JJ in the same case at 107, whilst recognising that the categories of fiduciary relationship are not closed, identified the more common circumstances in which a fiduciary relationship arose:

"These circumstances, which are not exhaustive and may overlap, have included: the existence of a relation of confidence; inequality of bargaining power; an undertaking by one party to perform a task or fulfil a duty in the interests of another party; the scope for one party to unilaterally exercise a discretion or power which may affect the rights or interests of another; and a dependency or vulnerability on the part of one party that causes that party to rely on another." (Footnotes omitted)

Gummow J at 133, quoting from the judgment of Dixon J in Johnson v Buttress [1936] HCA 41; (1936) 56 CLR 113 at 134-135, referred to the obligation arising "whenever one party occupies or assumes towards another a position naturally involving an ascendancy or influence over that other, or a dependence or trust on his part".

At the same time the cases make it clear that it is also necessary to identify the subject matter of the fiduciary obligation within the relationship. What is meant by that is well illustrated by examples referred to in Breen v Williams (1996) 186 CLR 71. The question at issue was whether a doctor bore a fiduciary relationship to his patient. The Court held that in that case fiduciary obligations were not necessarily created by the relationship itself. On the other hand, Brennan CJ (at 83) recognised that the relationship of dependence and trust "casts upon the doctor the onus of proving that any gift received from the patient was given free from the influence which the relationship produces". See also Johnson v Buttress [1936] HCA 41; (1936) 56 CLR 113 per Dixon J at 134. Dawson and Toohey JJ (at 93-94) postulated the possibility of a quite different fiduciary obligation arising where a doctor has a financial interest in a hospital or a pathology laboratory so as to place him in a potential conflict of his own interest with his duty to the patient. Just because fiduciary obligations may arise in respect of those two very different subject matters, the duties and obligations being quite different in the two situations, does not mean that in respect of all other activities involving the doctor and the patient fiduciary duties arise. The potential existence of those obligations does not necessarily convert a breach of the duty of care in prescribing a course of treatment into a breach of fiduciary duty.

Finally, the cases refer to the ever present duty of a fiduciary to act with loyalty "often of an uncompromising kind" (per Dawson and Toohey JJ in Breen v Williams (1996) 186 CLR 71 at 93. See also Gaudron and McHugh JJ at 108). As Dixon J said in Johnson v Buttress [1936] HCA 41; (1936) 56 CLR 113 at 135:

"It is his duty to use his position of influence in the interest of no one but the man who is governed by his judgment, gives him his dependence and entrusts him with his welfare."

There are many other authorities to which we could refer. To do so would be largely repetitive of particular indicia of the fiduciary relationship which we have described. At least in the case of the professional adviser, the indicia referred to in the cases include:

* In the interests of another whose interests can be adversely affected by the person concerned;

* Where there exists a situation of vulnerability, whether described as being by way of influence or ascendancy in the relationship on the one hand or dependency, trust or confidence by another on the other hand.

Above all, it seems that a fiduciary duty will arise where there is an obligation of loyalty to act only in the interests of the client. Like the Full Court of the Federal Court of Australia in News Limited v Australian Rugby Football League Ltd [1996] FCA 870; (1996) 64 FCR 410 at 541, we would respectfully adopt the views of Professor P D Finn (as he then was) expressed in "The Fiduciary Principle" in T G Youdan (ed), Equity, Fiduciaries and Trusts (1989) at p46 that the important question, if not the question, is whether:

"the actual circumstances of a relationship are such that one party is entitled to expect that the other will act in his interests in and for the purposes of the relationship. Ascendancy, influence, vulnerability, trust, confidence or dependence doubtless will be of importance in making this out, but they will be important only to the extent that they evidence a relationship suggesting that entitlement."

Stated in that manner, it does not mean that the fiduciary must act in the interests of another only when his own interests conflict with that of another. The duties will also arise when the fiduciary has conflicting duties or obligations to some other person. This can be illustrated by reference to Commonwealth Bank of Australia and Anor v Smith and Anor [1991] FCA 375; (1991) 42 FCR 390 where the customer of a bank informed the branch manager of his plan to buy a hotel. The manager was aware of another customer's interest in selling a hotel, and advised the first customer as to the value and financial viability of the hotel in question in circumstances where the customer plainly relied on his advice. The Full Court of the Federal Court said at 392:

"Not only must the fiduciary avoid, without informed consent, placing himself in a position of conflict between duty and personal interest, but he must eschew conflicting engagements. The reason is that by reason of the multiple engagements, the fiduciary may be unable to discharge adequately the one without conflicting with his obligation in the other. Thus, it has been said, after ample citation of authority, that where an adviser in a sale is also the undisclosed adviser of the purchaser, an actual conflict of duties arises: Finn, 'Fiduciary Obligations', pp253-254."

See also R v Byrnes [1995] HCA 1; (1995) 183 CLR 501 per Brennan, Deane, Toohey and Gaudron JJ at 517, in relation to the possibility that a director of more than one company may owe conflicting fiduciary duties to those companies.

How then does one identify the circumstances when this obligation to act only in the interest of another person arises? Once again we confine our consideration to that of the professional adviser. One must heed the warnings of the High Court in Breen v Williams (1996) 186 CLR 71 to which we have already referred that there must first be identified the particular subject matter giving rise to the fiduciary duty, for as in the case of Breen v Williams itself, the duty may not arise in respect of other subject matters. In the case of the professional adviser, the necessary subject matter and hence the nature of the duty will be defined largely by the particular terms of the retainer and the nature of the instructions given by the client, on the one hand, and the other relevant circumstances external to the client in which the adviser finds himself, on the other. As Mason J pointed out in Hospital Products Ltd v United States Surgical Corporation and Others [1984] HCA 64; (1984) 156 CLR 41 at 97, the relationship, if it is to exist at all, must accommodate itself to the terms of the contract, and (at 102) the scope of the duty will be moulded according to the nature of the relationship.

The point can perhaps be illustrated by the role of a professional valuer with his client - not one of the recognised fiduciary relationships. Assume that an investor in a shopping centre owns some adjacent vacant land for the purpose of future expansion. For the purpose of a periodic asset revaluation it instructs a valuer to value the vacant land. The valuer, besides being a qualified and expert valuer is also himself a speculator in vacant land, and owns the adjoining vacant allotment on the other side of the client's shopping centre. The retainer, to value the land for the stated purpose, is a purely professional assignment. There can arise no conflict of interest or any other feature of the relationship that can give rise to a fiduciary duty. There is no obligation to disclose the ownership of the other adjacent allotment. The valuer is called upon solely to exercise his professional expertise. Assume, however, that the brief from the investor is to value the same land, this time not owned by the investor but by a third party. The valuer is instructed that the valuation has been commissioned because the investor is interested in purchasing the land for expansion of the shopping centre. The valuer, being a speculator, also has an interest in selling his allotment to the investor for the same purpose. Immediately, by virtue both of the retainer itself and of the confidential information made known to the valuer, and by virtue of the valuer's own interest in the other adjoining allotment, the valuer is in a position of conflict between his duty to the client to value the allotment dispassionately, and his own self-interest in disposing of his own allotment to the client. The valuation exercise remains the same in each case, but the circumstances in which it is carried out impose quite different obligations. The reason for that is plain to see. In the first case the valuer has no interest in the outcome, and the fact of his ownership of the other allotment is of no concern or interest to the investor. In the second case, however, the valuer has an interest in the outcome of his valuation, especially if it means that the investor might be persuaded to buy the valuer's allotment, and the investor on his part has an interest in knowing of the valuer's interest in the other allotment before placing himself in a position where he must place some trust in and reliance on the professional expertise of the valuer. In the first instance the valuer's ownership of the land is benign. In the second instance, because of the circumstances of the retainer, it gives rise to fiduciary obligations.

The other feature of that example, when compared with the facts of a case like Commonwealth Bank of Australia and Anor v Smith and Anor [1991] FCA 375; (1991) 42 FCR 390 is that it illustrates the different times at which a fiduciary duty may arise. In the Commonwealth Bank Case, the bank manager had been giving financial advice to the plaintiff for some time, in circumstances where his only duty was to his employer, the bank. It was not until the circumstances arose where the nature of the advice conflicted with the bank's duty to another client that a fiduciary obligation arose. But for that particular conflict, the duty may never have arisen. In the example of the valuer above the conflict arises at the outset, from the very moment that the valuer is approached to undertake the retainer.

In our opinion the relationship between client and professional adviser is ordinarily one of trust by the client in the skill of the adviser, one in which the client reposes confidence in the advice of the adviser, one in which the client seeking advice is in a position of vulnerability in relation to the adviser because of the adviser's expertise and professional skills. This is known to the adviser. The relationship is not an ordinary arm's length commercial relationship in which a product or a skill is made available for sale or hire. Where these features occur, elements that are apt to give rise to fiduciary obligations are present, but the presence of those elements is not enough to give rise to the fiduciary duty. In many cases the advice can be given without any question of fiduciary obligations arising. Let us return to the example of the valuer. He gives advice to someone - the owner or a potential purchaser - as to the value of a particular house. In doing so, he exercises his professional skill and judgment, and his client trusts in and has confidence in that skill and his expertise. The client in that sense is vulnerable. There is nothing to prevent the same valuer from valuing the same house for someone else who may repose a similar trust and confidence in the same valuer. Where, in each case, he is asked merely to express his opinion as to the value of the property, the obligation to act with unflinching loyalty does not arise. Fiduciary obligations are not innate to the relationship. Contractual and tortious duties regulate the relationship, and usually one need look no further. However, the potential is there for fiduciary obligations to arise.

In the course of a particular client-valuer relationship, the particular facts may disclose elements apt to give rise to a fiduciary obligation. In other words, in the circumstances of a particular case, affecting both the reasons for and circumstances of the valuation, the fiduciary aspect of the relationship may come to the fore. The valuer may be asked for his advice as to the price below which it would be unwise to sell, given the client's commitment to some other investment, or the valuation may be sought for a particular stated purpose. There are now additional elements in the instructions which, besides indicating that the client reposes trust and confidence in the valuer, require that he act only in the best interests of the client. The duty of loyalty arises by virtue of the nature of the instructions. A fiduciary duty has then arisen, breach of which will occur if the adviser fails to act with complete loyalty to and solely in the interests of the client. Of course, no actual conflict with that duty may arise. But if it does, such as some other personal interest in or benefit to be had from the transaction in contemplation by the adviser himself, then his duty is clear.

Elements giving rise to a fiduciary obligation will arise in the case of most professional advisers. It so happens that it arises more frequently and perhaps constantly in some situations such as, for example, a solicitor. A solicitor is usually acting in a representative capacity for the client, in which case not only is the client vulnerable, but the duty to act with unswerving loyalty and commitment to the interests of the client continues while he is so acting. However, a solicitor may merely be instructed to give advice on a pure question of law or of the legality of a particular course of action. Without more, no fiduciary duty is likely to arise, although the elements which might give rise to the obligation (trust, confidence, vulnerability etc) are present.

Thus, in our opinion, it is not the mere conflict of interest which gives rise to the fiduciary obligation to act in the interests of a client. In the case of the professional adviser, it is a situation of dependence or vulnerability, coupled with circumstances surrounding the nature of the retainer which give rise to the duty of unswerving loyalty to the client.

The issue in the present case is whether those elements were present so that NWP were under such a duty of loyalty, and were required to act only in the best interests of Kia Ora. If so, the further question arises whether NWP acted in conflict with that duty.

NWP were in a position such that Kia Ora had trust and confidence in their expertise. In that sense it was vulnerable to and dependent upon NWP. The potential existed for a fiduciary duty to arise.

It can be seen that if NWP were merely instructed to value Western United for a purpose unrelated to any intended takeover, there would be very few circumstances (if any) which would give rise to a fiduciary duty on the part of NWP to the client giving the instructions - in this case Kia Ora. There would be nothing in the instructions requiring loyalty to Kia Ora. This seems to be the emphasis given to NWP's role by the learned trial judge, without particular reference to the context in which they were asked to value Western United. In his Honour's view, the requirement upon NWP was no more than the provision of a professional opinion as to the value of Western United and as to the fairness of an acquisition price. In his Honour's view, it did not involve the giving of financial advice, and therefore did not attract the fiduciary obligation which his Honour considered to be attendant upon a financial adviser. NWP's duty, in his view, did not extend beyond their contractual and tortious obligations. So to hold, however, is to fail to give full effect to the reasons for and circumstances of the retainer.

True it was, as his Honour held, that the initial instructions were purely to value Western United - as if in a vacuum, although the general nature of the purpose of the valuation had been disclosed. However, the retainer changed in a very significant way. It became a valuation for the purpose of expressing an opinion as to whether a proposed takeover price to be offered to the shareholders of Western United was fair. Most importantly, it was done in the context of the requirements of r3J(3) of the Australian Stock Exchange. Those requirements added a number of important dimensions to the valuation.

In the first place, it required NWP to express an opinion not only as to the value of Western United, but as to the fairness of the price proposed to be offered from the point of view of Kia Ora. What was fair to Kia Ora might not have been fair to shareholders of Western United, and as this case clearly shows, what was fair to shareholders of Western United might not be fair to Kia Ora.

Secondly, the opinion was sought in circumstances where, if NWP did not or could not express the opinion that the takeover price was fair, the takeover simply could not proceed. The r3J(3) meeting could not even be called unless some other independent expert were to express the necessary opinion.

Thirdly, the opinion was sought in circumstances where, as was known to NWP, the directors of Kia Ora, other than the newly appointed Quilty and Singleton, were shareholders in Western United. We say that that was known to NWP because, even if it was not disclosed to Pilmer by Harold Abbott when the instructions were given, NWP had access to the Western United share register which they managed for Western United, and as his Honour found (J71), Mr Newman inspected the register for the purposes of compiling the report. NWP knew that even if there were no other reason for the 3J(3) report, it was required by r3J(3)(a)(i), and that the directors of Kia Ora, other than Quilty and Singleton, had an interest in the outcome of the proposed takeover. They could not assume that that interest was the same as that of Kia Ora.

Fourthly, NWP knew, by the requirements of r3J(3) itself, that they were required to be independent.

Fifthly, NWP knew that because of the requirements of r3J(3), the takeover could not proceed unless the non-associated shareholders had seen their report and had then voted in favour of allowing the takeover to proceed.

The opinion required professional expertise and judgment. NWP were therefore in a position of great responsibility and of trust, going beyond the mere provision of a valuation. Both the company as an entity and the non-associated shareholders relied on NWP's expertise and independence in the sense that they knew that the takeover could not proceed without NWP expressing an opinion that the takeover price was fair. It was obvious to all concerned that the non-independent directors could well have an interest in the takeover proceeding, to their own personal advantage. Because the directors of Kia Ora had a fiduciary duty to the company to act only in the best interests of Kia Ora, NWP knew that, whatever might be the position of the non-independent directors, the circumstances were such that NWP were no longer merely undertaking a professional valuation, but a report, the circumstances giving rise to which made it perfectly obvious that there was a necessary expectation that NWP would act solely in the interests of Kia Ora as a whole in preparing the report. That immediately gave rise, in turn, to the duty to avoid acting in their own interests or in the interests of any party that would be in conflict with those of Kia Ora, including those of the non-independent directors of Kia Ora, should they have departed, wittingly or unwittingly, from their fiduciary obligations to Kia Ora.

If there arose any conflict between the interests of the directors and those of the company, the obligation of NWP was clear: it was to act solely in the interests of the company. Far from being excluded by the contract of retainer, that obligation, by virtue of the application of equitable principles to the contract, became the very essence of the relationship.

Whether circumstances of conflict existed at any time relevant to the provision of the 3J(3) report now requires to be examined.

We must be conscious of the need not to restrict unnecessarily legitimate commercial relationships by incorporating into them unduly inhibiting equitable principles. Wilson J provides an appropriate reminder of this in Hospital Products Ltd v United States Surgical Corporation and Others [1984] HCA 64; (1984) 156 CLR 41 at 118-119:

"The courts have often expressed a cautionary note against the extension of equitable principles into the domain of commercial relationships, so as 'not to strain [them] beyond [their] due and proper limits', to use the words of Lord Selborne L.C. in Barnes v. Addy (1874) 9 Ch. App. 244, at p.251. In New Zealand and Australian Land Co. v. Watson (1881) 7 Q.B.D. 374 the Court of Appeal held that the defendants, who had effected sales of wheat consigned by the plaintiffs for sale, did not stand in any fiduciary character towards the plaintiffs so as to entitle the latter to follow the proceeds of their property in the defendant's hands. Bramwell L.J. said (1881) 7 Q.B.D. at p.382:

'Now I do not desire to find fault with the various intricacies and doctrines connected with trusts, but I should be very sorry to see them introduced into commercial transactions and an agent in a commercial sense turned into a trustee with all the troubles that attend that relation. I think there is no ground for holding that these defendants have any fiduciary character towards the plaintiffs.'

These observations remain as pertinent today as they were one hundred years ago: Scandinavian Trading Tanker Co. A.B. v. Flota Petrolera Ecuatoriana [1983] 2 A.C. 694, at pp.703-704, per Lord Diplock; cf. Law Quarterly Review, vol. 100 (1984), pp.369-375. As the cases referred to by the Chief Justice in his judgment show, this Court has refused, on several occasions, to find a fiduciary relationship in circumstances where the parties contract with each other freely and more or less on an equal footing in a commercial dealing;..."

We refer also to a similar warning sounded by the Full Court of the Federal Court in News Limited v Australian Rugby Football League Ltd [1996] FCA 870; (1996) 64 FCR 410 at 538. On the other hand, where the conscience of equity so demands, because of the nature or circumstances of the relationship, when the parties may not be more or less on an equal footing, and where the duty to act only in and for the interests of a particular party plainly arises, the court should not shrink from imposing appropriate standards of commercial conduct in the pursuit of those commercial relationships.

We begin with a brief consideration of the ethical rules covering the accounting profession as they were in 1987 as they were in evidence before the learned trial judge. Of the role of professional ethical rules generally La Forest J said in Hodgkinson v Simms (1994) 117 DLR (4th) 161 at 187 and 188:

"[I]n many advisory relationships norms of loyalty and good faith are often indicated by the various codes of professional responsibility and behaviour set out by the relevant self-regulatory body. The raison d'etre of such codes is the protection of parties in situations where they cannot, despite their best efforts, protect themselves, because of the nature of the relationship. These codes exist to impose regulation on an activity that cannot be left entirely open to free market forces...

In sum, the rules set by the relevant professional body are of guiding importance in determining the nature of the duties flowing from a particular professional relationship: see MacDonald Estate v. Martin (1990), 77 D.L.R. (4th) 249, [1990] 3 S.C.R. 1235, 48 C.P.C. (2d) 113... It would be surprising indeed if the courts held the professional advisor to a lower standard of responsibility than that deemed necessary by the self-regulating body of the profession itself."

The Full Court of the Federal Court of Australia in Chamberlain v Law Society of the Australian Capital Territory [1993] FCA 527; (1993) 118 ALR 54 at 60 has recognised that professional ethical rules, while not binding on the court, are nevertheless a "reliable and important indicator of accepted opinion" of the members of the relevant branch of the legal profession, to which the court would ordinarily give careful consideration.

The Court of Appeal of New Zealand had occasion to consider the status of ethical rules in a case of breach of fiduciary duty by solicitors in Farrington v Rowe, McBride and Partners [1985] NZCA 21; [1985] 1 NZLR 83. Of such rules Richardson J said at 92:

"Now the ethical standard set by the professional body concerned is not to be taken as the measure of a practitioner's fiduciary obligation in equity to his client (Brown v Inland Revenue Commissioners [1965] AC 244). But that insistence [contained in the Code of Ethics] on obtaining the prior consent of both parties in every case before acting in the transaction reflects a peer recognition of the importance of disclosure. It is directly relevant to the first question that arises in the consideration of the application of the conflict of duty and duty rule in this case, namely whether the defendants were required to obtain the appellant's informed consent to the double employment."

That passage was quoted with approval in the joint judgment of Brennan CJ, Gaudron, McHugh and Gummow JJ in Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449 at 466.

Paragraph 5 of the Foreword to the Ethical Rulings of the Institute of Chartered Accountants in Australia (Exhibit P6409) provided that the Institute's Ethical Principles and Ethical Rulings were "mandatory and must be followed by members". The binding ethical principles include general statements of principle concerning integrity, objectivity, independence, confidentiality and professional competence and other matters.

Ethical Ruling 10 contains within it a statement of ethical principles relating to professional independence. Paragraph 6 of those principles stated:

"6. In each professional assignment he undertakes, a member in public practice shall both be and be seen to be free of any interest which is incompatible with objectivity. This is self evident in the exercise of the reporting function and also applies to all other professional work. In determining whether a member in public practice is or is not seen to be free of any interest which is incompatible with objectivity the criterion should be whether a reasonable person, having knowledge of the relevant facts and taking into account the conduct of the member and his behaviour under the circumstances, could conclude that the member has placed himself in a position where his objectivity would or could be impaired."

Paragraph 9 of the Ethical Rules contained in the same ethical ruling read:

"9. No person in a practice shall personally take part in the exercise of the reporting function in respect of a client if during the period in respect of which the report is to be made or at any time in the twelve months prior to the first day of the period in respect of which the report is to be made, the person or a near relative has been an officer (other than an auditor), partner or employee of the client or had any financial or commercial relationship with the client which might impair the person's professional independence."

"Reporting function" was elsewhere defined in the ruling as meaning "an opinion on financial information by a person in practice".

It is not necessary to set it out in full, but Rule 21 in the same ruling recognised possible conflicts of interest between the duty to a client and the personal interest of the practitioner on the one hand and the apparent conflict between the interests of two or more clients of a practice on the other. It required full and frank explanation and disclosure. In "severe cases of conflict of duty" it required that the practice not advise both clients on the matter.

Paragraph 28 contained one of a number of what the ruling described as "Ethical Guidelines". This one related to personal and business relationships:

"28. Personal and business relationships can affect objectivity. There is a particular need, therefore, for a practice to ensure that its objective approach to any assignment is not endangered as a consequence of any such relationship. By way of example, objectivity may be impaired where a person in a practice has a mutual business interest with an officer or employee of a client or has an interest in a joint venture with a client."

It is to be noted that the principles, rules and guidelines spoke not only of financial but of commercial and personal relationships with a client which might impair the accountant's professional independence and objectivity.

Thus the Ethical Rulings themselves recognise the need for professional independence, full and frank disclosure of possible conflicts of interest and the need to decline to act in appropriate circumstances. These requirements may be regarded as minimum requirements imposed by the accounting profession on itself. They do not necessarily represent the standard of fiduciary obligations to a client imposed by equity. As we have seen, the actual standard required will depend on the circumstances of the case. It is sufficient to say that the standard that we consider should have been imposed in this case is not inconsistent with those ethical rulings.

We have already referred to the learned trial judge's findings as to the extensive and close business and personal associations which had developed over a number of years between Harold Abbott, Kia Ora and Western United on the one hand and various members of NWP, especially Stokes, Munachen, Pilmer and to a lesser extent, Martino on the other. His Honour found that those associations gave rise to a breach of the contractual requirement of independence required of NWP. Whether such a contractual duty existed or not, his Honour found as a fact that NWP were not independent persons as required by r3J(3)(b). We have seen how his Honour found that those associations appear to have allowed Pilmer to do as he was told rather than exercise a truly independent judgment. We have also summarised some of the more important transactions disclosing those links.

Stokes at all material times had been a substantial shareholder in Mawson Pacific Ltd, and became its managing director as from 1 December 1986. Mawson Pacific Ltd had office premises in the same building and on the same floor as Kia Ora and Western United. NWP undertook a great deal of the administration of Mawson Pacific Ltd. One of the partners was its secretary, and NWP provided share registry services to Mawson Pacific. In February 1987 Mawson Pacific had negotiated to acquire a 50% interest in the Marvel Loch Mine operated by Kia Ora, for a sum of $26 million. Mawson Pacific and Kia Ora then operated the mine as a joint venture until the eventual sale of the second half of the mine, negotiations for which took place between August and October 1987. The trial judge had found that the sale of the second half of the Marvel Loch Mine was crucial for the takeover of Western United to proceed. Both sides of the transaction required meetings of shareholders in order to approve the transaction, and the r3J(3) meeting to approve the takeover was held before the meeting of Mawson Pacific to approve the purchase. His Honour accepted the submission that "there was cooperation between those controlling Kia Ora, including Harold Abbott, and those controlling Mawson Pacific, including Stokes and it was likely that they agreed to arrange the meetings in that order to suit themselves" (J277). His Honour concluded (J279):

"All of this evidence establishes that there was a close relationship between Stokes and Harold Abbott and between Mawson Pacific and Kia Ora and Western United and in the context of commercial affairs which were mutually advantageous to all of them. Nelson Wheeler Perth, apart from Stokes, were closely associated with Mawson Pacific through the provisions of services mainly through Langford, Martino and staff."

His Honour found that it was inappropriate for NWP to undertake the 3J(3) Report because of that association alone. That observation was made in the course of holding that what his Honour considered to be the duty to act independently had been breached by NWP. It is, nevertheless, a significant finding. His Honour considered that the relationships developed through the Mawson Pacific connection "explain why Kia Ora could rely upon Mawson Pacific to complete the purchase of the mine and they are very likely the reason for Kia Ora selecting Nelson Wheeler Perth to undertake the work with respect to the takeover". (J280)

Another of the more significant associations arose from the acquisition by (inter alia) Stokes and Munachen of a substantial interest in Wattle Gully Goldmines NL and the subsequent transactions in which it was involved during the course of 1987. It was his Honour's conclusion that Stokes and Munachen were financially dependent on Western United and Harold Abbott through those transactions, which transactions also depended for support on the involvement of Kia Ora. It was not insignificant that Messer, one of the NWP partners who gave evidence, said that if he had been aware of those transactions at the time he would not have accepted the retainer. He made similar observations in relation to the loan of $950,000 obtained by Stokes from Western United through Cullimore Investments on 10 September 1987, whilst the 3J(3) Report was being prepared.

These transactions alone indicated the depth of the relationship of some of the partners of NWP with Harold Abbott, Kia Ora and Western United in their business and personal dealings. There was, on the findings of the learned trial judge, no impropriety on the part of those partners of NWP who were involved. However, their relationship indicated a high degree of dependence and reliance of some of the partners, in the furtherance of their own business interests, on the goodwill and support of Kia Ora, Western United and especially of Harold Abbott and his fellow directors. To that evidence must be added the many other business transactions to which his Honour referred in making his findings concerning other relevant associations between NWP and the directors. The strength of that relationship was confirmed by a number of events which took place after the 3J(3) meeting but which, one can infer, would be unlikely to have happened but for such dependence and association.

One was the assistance rendered to Harold Abbott by Stokes when consenting to become a director of Kia Pacific. At the time, Kia Pacific was controlled by Harold Abbott, and Kia Ora was the major shareholder. Stokes was appointed to the board shortly before the 3J(3) meeting, but was an active participant in the subsequent ratification of the acquisition by Kia Pacific of a substantial parcel of shares at a considerable over-value, being some of the shares involved in the Autocure transaction engineered by Abbott.

The other such event was the involvement of Pilmer in providing information to Horwath and Horwath to enable them to prepare their report to Western United to accompany the Part B statement. The learned trial judge inferred (and that inference was properly able to be drawn from the evidence) that such assistance was sought by Harold Abbott, and that Pilmer agreed to provide it in order to please Harold Abbott.

While most of the events relating to these two transactions postdated the 3J(3) meeting, they were yet further indication of the obligation that some of the partners of NWP considered they had towards Harold Abbott in particular.

One may caution against inferring too readily not only that a duty of loyalty exists but that past commercial relationships will necessarily give rise to a conclusion of lack of independence in breach of that duty of loyalty. However, each case must be judged on its own facts. We have already referred to the nature of the retainer and the reasons for it in this case, which can be extracted from r3J(3) itself. The relationship of a report provider to the directors whose shareholdings require the provision of the report in the first place becomes critical. The directors of Kia Ora who were shareholders in Western United were the last people on whom any partner of NWP should either be seen to have or should actually have any dependence, whether legally, personally or commercially. And yet, there was a real sense in which, upon the trial judge's findings there was such dependence - dependence such that it was not surprising that the relevant partners should act in the interests of those to whom they had a personal and business commitment of some considerable standing and involvement.

In our opinion, not only did NWP, in the circumstances, lack independence, but they were in a position where their obligation to act solely in the interests of Kia Ora was compromised by and in substantial conflict with their personal and commercial loyalty to certain of the directors of Kia Ora. The fact that they apparently did prefer, whether consciously or sub-consciously, the interests of the directors to those of Kia Ora is borne out by their failure to mention in their report such fundamental matters of which they were or ought to have been aware and which, if disclosed, could only have had a substantial effect on the opinion they expressed. Amongst those matters were the knowledge of the Parry transaction some few weeks before at a substantially lower price per share than they were considering to be fair to Kia Ora, the identity of the major depositors with Western United and the back to back loan transactions being undertaken through Western United, failure to disclose all of which gave a misleading impression of the asset position and business activity of Western United.

NWP's preference for and loyalty to the directors, rather than to Kia Ora, is nowhere better illustrated than in their failure to mention an earlier valuation they had done of portion of Western United. NWP, through Crawford, had been instructed to give an independent valuation of the sharebroking firm of Ray Porter and Partners for the purposes of the acquisition of the balance of that firm by Western United. It became, after the acquisition, Porter Western Ltd, a wholly owned subsidiary of Western United. Crawford had valued the company on the basis of capitalisation of future earnings, in the same way as Pilmer had for the purposes of the Western United takeover by Kia Ora. Crawford considered that a figure of $3 million for 65% of the capital of the company was fair and reasonable, thus attributing a value to the whole of the company of some $4.6 million. Six months later, Pilmer valued the same company, using the same method of valuation, for the purposes of the 3J(3) report at approximately $41 million. Quite apart from the warning bells that that fact should have sounded to those undertaking the 3J(3) report within NWP, it was a fact known to NWP at the time of submitting their 3J(3) report. There was no apparent explanation either for the extraordinary discrepancy, or for the failure to refer to the earlier valuation - a valuation of startlingly obvious relevance. The failure to refer to it provides the strongest possible inference that NWP preferred the interests of the directors of Kia Ora, because only they could benefit from the withholding of the information.

Mr Gray QC also argued that there were two instances of one or more of the partners of NWP benefiting directly from proposed takeover and therefore having an interest in the provision of a favourable report. None of the partners were shareholders in Western United. However, his Honour made a finding that some of the shares acquired from the Parry Corporation were acquired from Bowyang Nominees by Muscoda Holdings Pty Ltd, a company controlled by Newton, a sharebroker friend of Stokes. Cullimore Investments Pty Ltd, trustee of the Cullimore family trust, a trust for the Stokes family, owned some shares in Muscoda Holdings Pty Ltd, although his Honour found that that was a company controlled by Newton. His Honour's conclusion (J313) was that Stokes, by that means, "had an indirect shareholding of an unspecific nature in Western United through Muscoda". Whatever the holding was, Stokes' ultimate interest in the undisclosed number of Western United shares seems to have been substantially diluted through his minority share holding in Muscoda Holdings Pty Ltd. His Honour does not appear to have concluded that that was of any significance, and we would not do so either.

The other instance in which the inducement of profit was said to be relevant was in the prospect of the NWP share registry taking over the management of the share register of Kia Ora, substantially enlarged by the takeover of Western United. NWP already managed the share register of Western United, but that was to disappear if the takeover succeeded.

From an internal memorandum of Munachen dated 15 October 1987 it was inferred by his Honour that Harold Abbott had indicated to Munachen that NWP would be offered the management of the enlarged Kia Ora share register after the takeover. That would have almost doubled the size of the NWP share registry, with the substantial increase in fees payable to NWP on that account. There was no evidence as to when that offer had been made, but it was plainly made before the 3J(3) meeting. His Honour was not able to conclude that it had been made before the 3J(3) report was prepared. Had it been made before that time, it would be clear that NWP had a significant undisclosed financial interest in the success of the takeover, and a personal financial interest to advance in conflict with their duty to Kia Ora. However, that finding was not and could not properly have been made in the state of the evidence as it was left before the trial judge.

What the memorandum did show was another example of the close association between Munachen and Harold Abbott, but that is all. It cannot be said that in the preparation of the 3J(3) report NWP was, on that account, acting in its own interest.

Of course, NWP knew that the report was for consideration at the 3J(3) meeting. Because of their close association with the directors of Kia Ora, it is likely that one or more of the partners knew when the meeting was to occur.

Once a professional adviser gives an opinion, it will seldom be necessary for the adviser to revise that opinion or make disclosure of relevant matters to the client as and when new circumstances arise after the delivery of the opinion. To do so in the absence of any special requirement would be to impose an intolerable burden on the adviser, who may have no ongoing relationship with the client at all.

However, NWP's brief, to their knowledge, had a finite purpose and life. Their advice was given in the knowledge that it was prepared for the purpose of and would be considered at a 3J(3) meeting on a known and specified date. Their duty to the company included their duty not to mislead. If some material event or circumstance arose after delivery of the report and before the meeting which affected the advice they gave or, in this context, affected their duty to disclose any possible conflict of interest, they were under an obligation to report that to the company so that it could be conveyed to shareholders. Failure to mention a subsequent change which renders an initial representation incorrect may constitute misleading and deceptive conduct: Rohne-Poulenc Agrochimi SA v UIM Chemical Services Pty Ltd [1986] FCA 218; (1986) 12 FCR 477 per Bowen CJ at 490; Richard Ellis (WA) Pty Ltd v Mullins Investments Pty Ltd (in Liq.) (1995) 124 FLR 157.

Failure to report that potential conflict in this case might have constituted a breach of fiduciary duty to the company, but it cannot have affected the initial preparation and delivery of the report, and it is difficult to see how, in the circumstances, it could have been productive of loss.

Mr Gray QC in similar vein relied on the non-disclosure of both the appointment of Mr Stokes to the board of Kia Pacific and his involvement in the acquisition of portion of the Autocure shares on behalf of that company, and also on the later involvement of Mr Pilmer in giving information to Horwath and Horwath at Harold Abbott's request. However, whether or not there was a duty to disclose those events if they had occurred before the 3J(3) meeting, in our opinion the retainer of NWP to advise on the fairness of the price came to an end after the resolution of the non-associated shareholders at the 3J(3) meeting, and there was no duty to report such events as occurred after that meeting.

Nevertheless, in our opinion circumstances did arise before the preparation of the report which, coupled with the requirements of r3J(3) itself, gave rise to circumstances of conflict and the imposition of fiduciary obligations upon NWP in its approach to the retainer to advise Kia Ora.

9.7 The nature of the fiduciary duty and its breach

As with the infinite variety of circumstances in which a fiduciary duty will arise, so the nature of the duty will vary according to those circumstances. Once again we confine ourselves to the situation of the professional adviser.

Simply stated, the duty is to act solely in the interests of the client where potential conflict arises. In some cases that may be achieved purely by appropriate disclosure of the conflict of interest, either with or without a recommendation to obtain separate advice. In other cases that will not be enough.

In this case, there was certainly a duty to disclose any conflict of duty and personal interest or other conflicting loyalties of the required type, but in our opinion that would not have been enough. In the first place, there would have been great difficulty in adequately describing, for the purposes of any such disclosure, a personal and business relationship of the type that had arisen between some of the partners of NWP and the directors of Kia Ora, especially Harold Abbott. To disclose every relevant transaction would be unduly burdensome, and would not necessarily convey to the reader the true significance of some of those transactions. Secondly, one must ask to whom such disclosure would properly have been made in order for the company to consent to the retainer being fulfilled? It could hardly be made sensibly to the directors who knew the facts anyway and whose interests might be favoured by NWP preparing the report. If disclosure had properly been made to the board as a whole, there was nothing to prevent the associated directors from voting nevertheless to request NWP to continue. However, that could not amount to any effective waiver of the conflicting interest. Disclosure could hardly have been made to the shareholders because of both the difficulty in accurate description of the relationship and because the unassociated shareholders were not able to grant the waiver in any event. But even if all those difficulties did not exist, the conflict was of such a nature that in our opinion there was only one clear duty which overrode any duty to disclose, and that was simply a duty not to accept the retainer. To act in any other way could neither remove nor neutralise the conflict of interest that NWP had.

In the circumstances NWP had an obligation to protect Kia Ora from paying a price that was not fair by not supplying the report if it was not able to express the opinion which r3J(3) required to be submitted to the meeting. In those circumstances the obligation is to refrain from any engagements which might conflict with the interests of those whom the fiduciary is bound to protect: Aberdeen Railway Co v Blaikie Brothers (1854) 1 Macq. 461. As Dawson and Toohey JJ said in Breen v Williams (1996) 186 CLR 71 at 93:

"Equity requires that a person under a fiduciary obligation should not put himself or herself in a position where interest and duty conflict or, if conflict is unavoidable, should resolve it in favour of duty and, except by special arrangement, should not make a profit out of the position." (Footnotes omitted)

In this case the conflict was avoidable, and the only available option to NWP was to avoid putting itself in the position of conflict. To quote from Gaudron and McHugh JJ in the same case at 108:

"The law of fiduciary duty rests not so much on morality or conscience as on the acceptance of the implications of the biblical injunction that '[n]o man can serve two masters' Matt. 6:24. Duty and self-interest, like God and Mammon, make inconsistent calls on the faithful. Equity solves the problem in a practical way by insisting that fiduciaries give undivided loyalty to the persons whom they serve."

The only way in which that undivided loyalty could be effected in this case was by refraining from acting.

By providing the 3J(3) report NWP was in breach of its fiduciary obligations to Kia Ora. The provision of that report in breach of those obligations caused loss to Kia Ora. The principles governing the assessment of compensation for that loss are discussed later in this judgment.

We have held that NWP were in breach of their fiduciary duty to Kia Ora. That breach was not the same as their breach of contract or breach of common law duty of care in negligently providing the report. The breach of fiduciary duty in this case was in providing the report at all.

Unlike many situations of breach of fiduciary duty, NWP had no dealings with any trust property or property which might be treated as such, as in the case of directors in relation to company assets. They did not wrongly apply such property to their own or to anyone else's use. They did not mismanage property entrusted to them. They did not profit in any identifiable way from entering into the transaction they did, other than by being paid a fee. Kia Ora has not claimed return of the fee in any event. There can be no question of any requirement to account for benefits received, nor any question of constructive trust arising. There cannot be any question of rescission in equity or of restitutio in integrum by that means. The only remedy available in the circumstances is equitable compensation for the loss that Kia Ora has incurred as a result of the breach. That requires some analysis of the principles upon which equitable compensation will be awarded, and the extent to which such principles may differ from the principles governing the award of damages at common law.

Our starting point must be that the loss incurred by Kia Ora as a result of the provision of the Nelson Wheeler report in breach of NWP's fiduciary duty to Kia Ora is the same as that incurred as a result of the negligent preparation of the report. In those circumstances, the starting point for the measure of damages will be the same as that at common law subject, in this case, to possible modification in areas which we are about to discuss. See Spry: "The Principles of Equitable Remedies" (5th edition), LBC at pages 648-649; Wenham v Ella [1972] HCA 43; (1972) 127 CLR 454.

We have confirmed the learned trial judge's finding that NWP were in breach of their contractual and tortious duty of care. We have found that the amount of the damages will be the same in either case. We have further found that Kia Ora was guilty of contributory negligence in circumstances justifying a reduction of the damages otherwise payable by NWP for breach of their common law duty of care, and that such a finding is not precluded by principles of non-attribution of the conduct of the directors to Kia Ora. However, by virtue of the decision of the High Court in Astley v Austrust Limited [1999] HCA6 we are precluded from reducing the damages assessed for breach of contract on account of Kia Ora's contributory negligence.

The question now to be resolved is whether, by virtue of the principles applicable to an award of equitable compensation, the result should be any different by virtue of a consideration of the following four particular matters:

1. Whether principles of causation in equity bring about any different result in the amount of compensation to be awarded;

2. Whether equitable principles require a different approach to the calculation of interest as a component of the compensation assessed as against both Nelson Wheeler on the one hand and the directors on the other;

3. Whether there can and should be any reduction of equitable compensation payable by Nelson Wheeler on account of Kia Ora's contributing fault; and

4. Whether, if such a reduction is possible and appropriate, that too is precluded by the existence and breach of the contractual duty of care by NWP, resulting in a higher award of compensation.

In the circumstances of our finding that there was a sufficient causal link between the loss suffered by Kia Ora and the breach of NWP's contractual and common law duty of care, including losses which might be said to have been caused or exacerbated by the share market crash, we are relieved of an exhaustive consideration of the question of causation in equity, even though the nature of the breach of fiduciary duty is different from the breach of the common law and contractual duty of care in this case.

It is sufficient to note the observations of Street J in Re Dawson; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211 at 215. His Honour discussed the effect of Caffrey v Darby [1801] EngR 484; (1801) 6 Ves 488; 31 ER 1159, where trustees had negligently failed to recover possession of some assets of a trust estate, causing loss. Lord Eldon M.R. had held (at 496; 1162) that even if the trustees could not look to the possibility of the actual event which occasioned the loss, "yet if they have been already guilty of negligence, they must be responsible for any loss in any way to that property: for whatever may be the immediate cause the property would not have been in a situation to sustain that loss if it had not been for their negligence. If they had taken possession of the property it would not have been in [the defaulter's] possession. If the loss had happened by fire, lightning, or any other accident, that would not be an excuse for them, if guilty of previous negligence. That was their fault".

"Caffrey v. Darby, is consistent with the proposition that if a breach has been committed then the trustee is liable to place the trust estate in the same position as it would have been in if no breach had been committed. Considerations of causation, foreseeability and remoteness do not readily enter into the matter. To the same effect is the case of Clough v. Bond [1838] EngR 949; (1838), 3 My. & Cr. 490."

797. Whether those remarks concerning causation, foreseeability and remoteness are limited to the actual restitution of a trust estate or something analogous to it need not presently be pursued. However, we respectfully agree with Ipp J speaking on behalf of the Full Court of the Supreme Court of Western Australia in Permanent Building Society (In liquidation) v Wheeler (1994) 11 WAR 187 at 244:

"It is to be emphasised that Street J, in saying that 'considerations of causation, foreseeability and remoteness do not readily enter into the matter', did not depart from the requirement that the beneficiary should prove that, but for the breach of duty by the trustee, the loss would not have happened. As his Honour said 'the inquiry in each instance would appear to be whether the loss would have happened if there had been no breach'."

798. There can be no doubt in this case that there would have been no loss if the breach of fiduciary duty had not occurred. The takeover simply could not have gone ahead. It is idle to speculate about whether the directors of Kia Ora would have found some other expert to provide the appropriate 3J(3) report in order to allow the directors to proceed with their scheme. The Court can only presume, in the light of the findings as to the inadequacies of the Nelson Wheeler report, that no other competent accountant would have provided the report either, by reason of the fact that no reasonably competent accountant would have been able to express the view that the takeover price was fair to Kia Ora. Even if the more stringent common law tests of causation and foreseeability were to be applied to this breach, the loss sustained by Kia Ora as a result of NWP's breach of fiduciary duty was plainly foreseeable and was subject to the same causative links as we have found to exist in respect of the common law and contractual breaches.

799. Much attention was directed before us to the case of Brickenden v London Loan and Savings Co [1934] UKPC 25; [1934] 3 DLR 465 and the (now) oft quoted dictum of Lord Thankerton which we set out below. While referring to it as oft quoted, we should observe that, although it was decided by the Privy Council in 1934, and then apparently not considered worthy of reporting in the Authorised Reports, it is only in relatively recent times that it seems to have attracted any significant attention. That case involved a claim against a solicitor by a loan company for whom the solicitor acted, in respect of the making of a secured advance to a Mr and Mrs Briggs. They were already indebted to the loan company in respect of two loans for which the loan company held first mortgages on their properties. They were substantially in arrears in the payment of interest on those loans. They had also obtained three earlier advances from the solicitor, the advances being secured by mortgages on the same properties as had previously been mortgaged to the loan company. They sought a further advance from the solicitor who was unable to provide it. He spoke to the loan company, and as a result of which the further advance was given by the loan company to Mr and Mrs Briggs for the stated purpose of repaying the arrears of interest on the first loans and of discharging one of the mortgages to the solicitor. A fresh mortgage was taken by the loan company over the same properties. The loan company was ignorant of the other two loans by and mortgages to the solicitor. The disclosed mortgage was discharged out of the proceeds, but the other two mortgages were not. However, unknown to the loan company they were in fact repaid by Mr and Mrs Briggs out of the proceeds of the advance but out of their own bank account. The mortgage security granted for the further advance was worthless. The solicitor had argued that there was no evidence of breach of duty and that, even if there were, there was no evidence that the loan company had not received full value for its security, and that they would have been in no worse position had full disclosure been made. It was in that context that Lord Thankerton, delivering the opinion of the Privy Council, said at 469:

"When a party, holding a fiduciary relationship, commits a breach of his duty by non-disclosure of material facts, which his constituent is entitled to know in connection with the transaction, he cannot be heard to maintain that disclosure would not have altered the decision to proceed with the transaction, because the constituent's action would be solely determined by some other factor, such as the valuation by another party of the property proposed to be mortgaged. Once the Court has determined that the non-disclosed facts were material, speculation as to what course the constituent, on disclosure, would have taken is not relevant."

800. Although the passage has been referred to with approval in a number of recent cases: Commonwealth Bank of Australia v Smith [1991] FCA 375; (1991) 42 FCR 390 at 393-394; Wan v McDonald [1992] FCA 4; (1992) 33 FCR 491 at 519-521; Hill v Rose [1990] VicRp 13; [1990] VR 129 at 142, Gemstone Corporation v Grasso [1993] SASC 4211; (1994) 62 SASR 239 at 243, 245 and 253 and although it has been similarly referred to in decisions of the Supreme Court of Canada: Canson Enterprises Ltd v Boughton and Co (1991) 85 DLR (4th) 129, and New Zealand: Farrington v Rowe McBride and Partners [1985] NZCA 21; [1985] 1 NZLR 83 at 93, 99 and Estate Realties Ltd v Wignall [1991] 3 NZLR 482, its authority in Australia was expressly left open by a majority of the High Court in Maguire v Makaronis [1997] HCA 23; (1996) 188 CLR 449 at 471-472. However Kirby J in that case, whilst arriving at the same result, took a different view of the applicability of Brickenden to the case, and held that it did apply in Australia.