ESANDA FINANCE CORPORATION LTD (RESPONDENT) v PEAT MARWlCK HUNGERFORDS - [1994] SASC 4402 - SASC 1994 case summary — Zoe

[44]

be dealt with in the accounts; 84.1.4 were not in accordance with Australian Accounting Standards and applicable Approved Accounting Standards. 84.2 by reason of the matters alleged in paragraphs 57 to 64, 72 to 78, 79 and 80, the 30 June 1989 accounts: 84.2.1 had not been audited in accordance with Australian Auditing Standards; 84.2.2 were not drawn up properly in accordance with the provisions of the Code; 84.2.3 did not give a true and fair view of: 84.2.3.1 the state of affairs of Excel as at 30th June 1989, or of the result of the company for the year ended on that date; or 84.2.3.2 the other matters required by Section 269 of the Code to be dealt with in the accounts; 84.2.4 were not in accordance with Australian Accounting Standards and applicable Approved Accounting Standards; 84.3 PMH had become aware of matters prejudicial to the interests of the stockholders and the trustee. 84A 84A.1 At all material times, the members of PMH were members of the Institute of Chartered Accountants in Australia and as such bound by the Australian Accounting Standards published from time to time jointly by the said Institute and the Australian Society of Accountants. 84A.2 The plaintiff will refer to the statement on conformity with Statements of Accounting Standards APS1 published by the said Institute and Society at the trial of this action which in substance provides that the Australian Accounting Standards above referred to are mandatory and lay down the principles to be followed by members and that failure by an Institute member to observe the provisions of the said statement may be regarded as failure to observe a proper standard of professional care, skill or competence. 84B Australian Accounting Standard AAS5 was and is the statement of accounting standards relating to materiality in financial statements. In substance AAS5 provides that the test of materiality calls for a consideration as to who are likely to be the prime users of financial statements and further provides that in relation to financial statements of a business entity the prime users would have to be regarded as comprising present and potential providers of equity or loan capital, and creditors. The plaintiff will refer to AAS5 at the trial of this action for its full terms and effect. 84C Esanda was at all material times a member of a class or

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the sufficiency of that information for the preparation of the Excel 30 June 1989 accounts and the expression of the opinions in the report pleaded in paragraph 55. 85A By reason of the matters pleaded in paragraphs 84A to 84C inclusive:- 85A.1 Esanda was so closely and directly affected by the actions or conduct of PMH in furnishing the report pleaded in paragraph 55 that PMH was under a duty of care to Esanda in respect thereof; and 85A.2 PMH accepted or must be taken to have accepted that in furnishing the report pleaded in paragraph 55, the duty of care referred to in paragraph 85 was owed to a class of persons including the plaintiff. 86 In breach of the duty pleaded in paragraph 85, PMH: 86.1 allowed the Excel 30 June 1989 accounts to include the sum of $2.5 million pleaded in paragraph 57; 86.2 failed to report that no or no proper or adequate provision had been made in the Excel 30 June 1989 accounts for the bad or doubtful debts pleaded in paragraphs 72 to 78; 86.3 failed to detect or report upon the fact or the extent of the loan freshening pleaded in paragraph 80; 86.4 failed to detect or report the matters pleaded in paragraph 81; 86.5 notwithstanding the matters pleaded in paragraph 79, failed to qualify, the said report. 87 By reason of PMH's conduct in contravention of Section 56 of the Fair Trading Act 1987 as pleaded in paragraph 84 or, in the alternative, by reason of PMH's breach of duty as pleaded in paragraphs 85 and 86, Esanda has suffered the loss and damage pleaded in paragraphs 14, 19, 24, 25, 31, 36 and 40 in that: 87.1 Esanda relied on the Excel 30 June 1989 accounts and the report pleaded in paragraph 75 in deciding to enter into; 87.1.1 the Skyana Loan Agreement; and 87.1.2 the Champions Loan Agreement; 87.1.3 the first purchase of receivables; 87.1.4 the second purchase of receivables - chattel leases; 87.1.5 the second purchase of receivables - animal leases; 87.1.6 the third purchase of receivables; 87.1.7 the fourth purchase of receivables - animal lease; 87.1.8 the fourth purchase of receivables - chattel leases; and 87.1.9 the revolving line of credit agreement.

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(at page 354) Conscious of the factors already mentioned, courts have sometimes dealt with the duty of care in relation to negligent misstatement without relating it to Lord Atkin's exposition in Donoghue v Stevenson. However, the correct view is that, just as liability for negligent misstatement is but an instance of liability for negligent acts and omissions generally, so the treatment of the duty of care in the context of misstatements is but an instance of the application of the principles governing the duty of care in negligence generally. The special complications which arise in connexion with the imposition of a duty of care on the author of a statement can only be unravelled in a variety of factual situations. Decisions such as Hedley Byrne, Mutual Life and Citizens' Assurance Co Ltd v Evatt [1970] UKPC 1; (1971) AC 793 and Shaddock and Associates Pty Ltd v Parramatta City Council (No 1) [1981] HCA 59; (1981) 150 CLR 225 are therefore to be seen as illustrations of the general duty of care in its application to particular instances of negligent misstatement. (at page 355) The relationship of proximity is an integral constituent of the duty of care concept. We refer to that relationship in its broader sense, namely, as embracing a general limitation upon the test of reasonable foreseeability, this being the sense in which it has been discussed and applied in recent judgments in this Court (Caltex (1976) 136 CLR at 574-6; Jaensch v Coffey [1984] HCA 52; (1984) 155 CLR 549 at 552-553; Sutherland Shire Council v Heyman [1985] HCA 41; (1985) 157 CLR 424 at 461-2, 506-7; Stevens v Brodribb Sawmilling Co Pty Ltd [1986] HCA 1; (1986) 160 CLR 16. The notion of proximity, because it limits the loss that would otherwise be recoverable if foreseeability were used as an exclusive criterion of the duty of care, is of vital importance when the plaintiff's claim is for pure economic loss. When the economic loss results from negligent misstatement, the element of reliance plays a prominent part in the ascertainment of a relationship of proximity between the plaintiff and the defendant, and therefore in the ascertainment of a duty of care. But when the economic loss results from a negligent act or omission outside the realm of negligent misstatement, the element of reliance may not be present. It is in this sphere that the absence of reliance as a factor creates an additional difficulty in deciding whether a sufficient relationship of proximity exists to enable a plaintiff to recover economic loss. In cases of negligent misstatement, reliance plays an important role, particularly so when the defendant directs his statement to a class of persons with the intention of inducing members of the class to act or refrain from acting, in reliance on the statement, in circumstances where he should realize that they may thereby suffer economic loss if the statement is not true."

Parties

Applicant/Plaintiff:

# ESANDA FINANCE CORPORATION LTD (RESPONDENT)

Respondent/Defendant:

PEAT MARWlCK HUNGERFORDS

Legislation Cited (4)

Planning and Assessment Act 1979

Trading Act 1987

Planning and Assessment Act 1979

Trading Act 1987

Cases Cited (18)

ESANDA FINANCE CORPORATION LTD (RESPONDENT) v PEAT MARWlCK HUNGERFORDS (REG) (APPELLANT) No. SCGRG 93/245 Judgment No. 4402 Number of pages - 24 Practice (1994) Aust Torts Reports 81-265, (1994) 13 ACSR 164 (1994) 61 SASR 424 [1994] SASC 4402 (14 February 1994)

CWDS Practice - South Australia - Appeal against refusal to strike out part of statement of claim - Supreme Court Rules 5CR 46.18

consideration of whether statement of claim disclosed reasonable cause of action - negligent mis-statement pleaded - mere plea of assumption of responsibility insufficient
failure to plead an express intention on part of defendant to induce Plaintiff to act on statement - viable cause of action not pleaded - appeal allowed. Supreme Court Rules 46.04, 46.18. General Steel Industries Inc v Commissioner for Railways (NSW) and Ors [1964] HCA 69; (1964) 112 CLR 125; Egan v The Commonwealth Minister for Transport (1976) 14 SASR 445; Hedley Byrne and Co Ltd v Heller and Partners Ltd [1963] UKHL 4; (1964) AC 465; Jaensch v Coffey [1984] HCA 52; (1984-85) 155 CLR 549; Sebastian Properties Proprietary Limited v Minister Administering the Environmental Planning and Assessment Act 1979 and Anor (1986) 162 CLR 341; Sutherland Shire Council v Heyman and Anor [1985] HCA 41; (1985) 157 CLR 424; Hawkins v Clayton and Ors (1988) 164 CLR 539; Al Saudi Banque and Ors v Clark Pixley (1989) 3 All ER 361; Caparo Industries Pty Ltd v Dickman and Ors [1990] UKHL 2; (1990) 2 AC 605; R Lowe Lippmann Figdor and Frank v AGC (Advances) Ltd [1992] VicRp 93; (1992) 2 VR 671; Scott Group Ltd v McFarlane [1977] NZCA 8; (1978) 1 NZLR 553; Morgan Crucible Co Plc v Hill Samuel Bank Ltd and Ors (1991) 1 All ER 148; Candler v Crane, Christmas and Co (1951) 2 KB 164 and Columbia Coffee and Tea Pty Ltd and Ors v Churchill and Ors (1992) 29 NSWLR 141, discussed.

(1994) 61 SASR 424

(1964) 112 CLR 125

(1976) 14 SASR 445

(1986) 162 CLR 341

(1985) 157 CLR 424

(1988) 164 CLR 539

(1992) 2 VR 671

(1992) 29 NSWLR 141

(1968) 122 CLR 556

(1986) 162 CLR 340

(1976) 14 SASR 445

(1988) 164 CLR 539

(1981) 150 CLR 225

(1984) 155 CLR 549

(1986) 160 CLR 16

(1968) 122 CLR 571

ESANDA FINANCE CORPORATION LTD (RESPONDENT) v PEAT MARWlCK HUNGERFORDS

At a glance

Court

Decision date

Before

Source

Judgment (94 paragraphs)

Parties

Legislation Cited (4)

Cases Cited (18)

ESANDA FINANCE CORPORATION LTD (RESPONDENT) v PEAT MARWlCK HUNGERFORDS (REG) (APPELLANT) No. SCGRG 93/245 Judgment No. 4402 Number of pages - 24 Practice (1994) Aust Torts Reports 81-265, (1994) 13 ACSR 164 (1994) 61 SASR 424 [1994] SASC 4402 (14 February 1994)