Joint tortfeasors - Joint purpose and concerted action

Trespass - Trespass to land - Implied consent to entry - Purported right to enter pursuant to a Romalpa clause

Trespass - Apology - Relevance of published apology and settlement deed to liability for trespass

Negligence - Duty of care - Duty to take reasonable care not to cause economic loss to plaintiff

Negligence - Duty of care - Duty of care not to cause economic loss to plaintiff - Vulnerability of plaintiff

Economic torts - Tort of causing loss by unlawful means - Existence of the tort in Australian common law

Chattel Securities Act 1987 (WA)

Fair Trading Act 1987 (WA)

Sale of Goods Act 1895 (WA)

Trade Practices Act 1974 (Cth)

First Defendant : Mr D R Williams QC & Mr G K Macnish

Second Defendant : Mr D R Williams QC & Mr G K Macnish

Alleslev-Krofchak v Valcom Limited (Unreported, Court of Appeal for Ontario, 24 August 2010)

Allstate Life Insurance Co v Australia & New Zealand Banking Group Ltd [1995] FCA 1368; (1995) 58 FCR 26

Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676

Ansett Transport Industries (Operations) Pty Ltd v Australian Federation of Air Pilots [1991] VicRp 36; [1991] 1 VR 637

Banco de Portugal v Waterlow & Sons Ltd [1932] UKHL 1; [1932] AC 452

Barker v The Queen [1983] HCA 18; (1983) 153 CLR 338

Beaudesert Shire Council v Smith [1966] HCA 49; (1966) 120 CLR 145

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

Bonnington Castings Ltd v Wardlaw [1956] UKHL 1; [1956] AC 613

Brodie v Singleton Shire Council [2001] HCA 29; (2001) 206 CLR 512

Burns v MAN Automotive (Aust) Pty Ltd [1986] HCA 81; (1986) 161 CLR 653

Byrne v Kinematograph Renters Society Ltd [1958] 1 WLR 762

Caltex Oil (Australia) Pty Ltd v The Dredge 'Willemstad' [1976] HCA 65; (1976) 136 CLR 529

Canberra Data Centres Pty Ltd v Vibe Constructions (ACT) Pty Ltd [2010] ACTSC 20

CBS Songs Ltd v Amstrad Consumer Electronics Plc [1988] UKHL 15; [1988] AC 1013

Coco v The Queen [1994] HCA 15; (1994) 179 CLR 427

Correia v Canac Kitchens (2008) 91 OR (3d) 353

Credit Lyonnais Bank Nederland NV v Export Credit Guarantee Department [1998] 1 Lloyd's Rep 19

Crimmins v Stevedoring Industry Finance Committee [1999] HCA 59; (1999) 200 CLR 1

Cuff v Broadlands Finance Ltd [1987] NZCA 93; [1987] 2 NZLR 343

Deepcliffe Pty Ltd v Council of the City of Gold Coast [2001] QCA 342

Deepcliffe Pty Ltd v The Council of the City of Gold Coast [2002] HCATrans 326

Dodd Properties Ltd v Canterbury City Council [1979] EWCA Civ 4; [1980] 1 WLR 433

D'orta-Ekenaike v Victoria Legal Aid [2005] HCA 12; (2005) 223 CLR 1

Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317

Driver v War Services Homes Commissioner (1923) 44 ALT 130

Duyvelshaff v Catchcart & Ritchie Ltd (1973) 47 ALJR 410

Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) 35 FCR 43

Environment Agency (formerly National Rivers Authority) v Empress Car Co (Abertillery) Ltd [1998] UKHL 5; [1999] 2 AC 22

Esanda Finance Corporation Ltd v Peat Marwick Hungerfords [1997] HCA 8; (1997) 188 CLR 241

Fazlic v Milingimbi Community Inc [1982] HCA 3; (1982) 150 CLR 345

Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473

Fitzgerald v Penn [1954] HCA 74; (1954) 91 CLR 268

Fortuna Seafoods Pty Ltd v The Ship 'Eternal Wind' [2008] 1 Qd R 429

General Motors Acceptance Corporation Australia v Southbank Traders Pty Ltd [2007] HCA 19; (2007) 227 CLR 305

Graham Barclay Oysters Pty Ltd v Ryan [2002] HCA 54; (2002) 211 CLR 540

Halliday v Nevill [1984] HCA 80; (1984) 155 CLR 1

Healing (Sales) Pty Ltd v Inglis Electrix Pty Ltd [1968] HCA 60; (1968) 121 CLR 584

Henville v Walker [2001] HCA 52; (2001) 206 CLR 459

Hill v Van Erp (1997) 188 CLR 159

I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109

John Fairfax & Sons Ltd v Vilo (2001) 52 NSWLR 373

Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2003) A Tort Rep 81-692; [2003] VSC 27

JT Stratford & Son Ltd v Lindley [1965] AC 269

Kuru v The State of New South Wales [2008] HCA 26; (2008) 236 CLR 1

Lincoln Hunt Australia Pty Ltd v Willesee (1986) 4 NSWLR 457

Lister v Romford Ice & Coal Storage Co Ltd [1956] UKHL 6; [1957] AC 555

Livingstone v Rawyards Coal Company (1880) 5 App Cas 25

Louis Vuitton Malletier SA v Toea Pty Ltd [2006] FCA 1443; (2006) 156 FCR 158

Lumley v Gye [1853] EngR 15; (1853) 2 El & Bl 216

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

Meretz Investments NV v ACP Ltd [2007] EWCA Civ 1303; [2008] 2 WLR 904

Metal Fabrications (Vic) Pty Ltd v Kelcey [1986] VicRp 52; [1986] VR 507

Mount Isa Mines Ltd v Pusey [1970] HCA 60; (1970) 125 CLR 383

Murphy v The Queen [1989] HCA 28; (1989) 167 CLR 94

Nagle v Rottnest Island Authority [1993] HCA 76; (1993) 177 CLR 423

Naxakis v Western General Hospital [1999] HCA 22; (1999) 197 CLR 269

Northern Territory of Australia v Mengel (1995) 185 CLR 307

OBG Ltd v Allan [2007] UKHL 21; [2008] 1 AC 1

Oren v Red Box Toy Factory Ltd [1999] EWHC Patents 255; [1999] FSR 785

Orica Investments Pty Ltd v McCartney [2007] NSWSC 645

Parker v South Australian Housing Trust (1985) 41 SASR 493

Patrick Stevedores Operations Pty Ltd v The Maritime Union of Australia (Unreported, WASC, Library No 980215, 23 April 1998)

Perre v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180

Perron Investments Pty Ltd v Tim Davies Landscaping Pty Ltd [2009] WASCA 171

Pinky's Pizza Ribs on the Run Pty Ltd v Pinky's Seymour Pizza & Pasta Pty Ltd (1997) ATPR 41-600

Plenty v Dillon [1991] HCA 5; (1991) 171 CLR 635

Protective Commissioner v D [2004] NSWCA 216; (2004) 60 NSWLR 513

Purkess v Crittenden [1965] HCA 34; (1965) 114 CLR 164

Quinn v Leathem [1901] UKHL 2; [1901] AC 495

RCA Corporation v Pollard [1983] Ch 135

Revenue and Customs Commissioners v Total Network SL [2008] UKHL 19; [2008] 1 AC 1174

Robson v Hallett [1967] 2 QB 939

Rogers v Whitaker [1992] HCA 58; (1992) 175 CLR 479

Romeo v Conservation Commission of the Northern Territory (1998) 192 CLR 431

Rookes v Barnard [1964] UKHL 1; [1964] AC 1129

Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434

Sanders v Snell (1998) 196 CLR 329

Scott v Pedler [2003] FCA 650

Scott v Pedler [2004] FCAFC 67

Simonius Vischer & Co v Holt & Thompson [1979] 2 NSWLR 322

Spotwire Pty Ltd v Visa International Service Association Inc [2003] FCA 762

Sullivan v Moody (2001) 207 CLR 562

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

Swingcastle Ltd v Alastair Gibson (a firm) [1991] 2 AC 223

Talbot and Olivier (a firm) v Witcombe [2006] WASCA 87; (2006) 32 WAR 179

Tame v State of New South Wales [2002] HCA 35; (2002) 211 CLR 317

TC Industrial Plant Pty Ltd v Robert's Queensland Pty Ltd [1963] HCA 57; (1963) 180 CLR 130

TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130

TCN Channel Nine Pty Ltd v Anning [2002] NSWCA 82; (2002) 54 NSWLR 333

The Koursk [1924] P 140

The State of New South Wales v Ibbett [2006] HCA 57; (2006) 229 CLR 638

Thompson v Australian Capital Television Pty Ltd [1996] HCA 38; (1996) 186 CLR 574

Tobin v Dodd [2004] WASCA 288

Tubemakers of Australia Ltd v Fernandez (1976) 50 ALJR 720

Ultramares Corporation v Touche (1931) 174 NE 441

Unilever Plc v Gillette (UK) Ltd [1989] RPC 583

Vairy v Wyong Shire Council [2005] HCA 62; (2005) 223 CLR 422

Watts v Rake [1960] HCA 58; (1960) 108 CLR 158

Wenham v Ella [1972] HCA 43; (1972) 127 CLR 454

Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515

Wyong Shire Council v Shirt [1980] HCA 12; (1980) 146 CLR 40

X v Amalgamated Television Services Pty Ltd (No 2) (1987) 9 NSWLR 575

Zheng v Cai [2009] HCA 52; (2009) 239 CLR 446

Zhu v Sydney Organising Committee for the Olympic Games [2001] NSWSC 989

Zhu v Treasurer of the State of New South Wales [2004] HCA 56; (2004) 218 CLR 530

1 On 12 June 1997 a new restaurant, Spageddies Italian Kitchen (Spageddies), opened in South Perth. It was located in the South Shore Piazza (the Piazza) which is located on the corner of the Esplanade and Mends Street in South Perth, facing the Swan River. The Piazza is a multistorey building, with undisturbed waterfront views of the Swan River and of Perth City. On the ground floor of the Piazza there were located a number of retail shops, commercial premises, restaurants and cafes, all of which were leased to tenants.

2 Spageddies was owned by Pac-Am Restaurants (WA) Pty Ltd (Pac-Am). Spageddies occupied that part of the Piazza identified as Shops 26, 39 and 40 (which contained the restaurant itself, and to which I will refer in these reasons as the Premises) and Shop 28 which was in an adjacent part of the Piazza. Pac-Am leased Shops 26, 39, 40 and 28 from Hardie Finance Corporation Pty Ltd (HFC), which owned the Piazza.

3 Those involved in establishing Spageddies had high hopes for its future prospects, and intended that it would be the base from which the Spageddies chain of restaurants would expand into Australia. In preparation for the opening of Spageddies, they engaged Ferguson Corporation Pty Ltd (FC) to undertake a fit-out of the restaurant, at a cost of more than $250,000.

4 Spageddies' opening night was a gala event, attended by the then Premier of Western Australia, Richard Court, representatives of the Singaporean government, and invited guests. The opening of the restaurant was reported in Perth newspapers.

5 Despite this relatively auspicious start, by late May 1999 or early June 1999, Spageddies had closed, by 5 July 1999 Pac-Am had been placed into administration, by 15 July 1999 a receiver and manager had been appointed to the company and by 28 September 1999 Pac-Am had been placed into liquidation. At the time of its liquidation, Pac-Am was significantly in debt. Amongst its creditors was HFC, which was by then owed unpaid rent in excess of $300,000.

6 In these proceedings, HFC seeks to recover from FC, and from FC's solicitor, Mr Marcus Ahern, the money HFC claims it lost as a result of the demise of Pac-Am. HFC claims that Pac-Am's demise was attributable to the conduct of FC and Mr Ahern.

7 Within a few months of FC carrying out the fit-out of Spageddies, a dispute arose between Pac-Am and FC as to whether Pac-Am had paid FC what it was owed for the fit-out, and for other work which FC carried out for Pac-Am at the Premises. On 21 March 1998, in the purported exercise of rights FC claimed to have under a contract with Pac-Am, representatives of FC entered Spageddies, and repossessed a large quantity of items from the Premises (the Repossession). In doing so, FC acted on legal advice from its solicitor, Mr Ahern. Mr Ahern attended at the Premises while the Repossession was carried out.

8 As a result of the Repossession, Pac-Am was forced to close Spageddies for almost two weeks.

9 HFC says that Pac-Am never recovered from the financial losses Spageddies sustained as a result of the Repossession, or from the damage to Spageddies' reputation with its customers, suppliers and creditors, which resulted from the Repossession, and that Spageddies' eventual closure, and Pac-Am's ultimate demise, was attributable to the Repossession.

10 HFC's claims against the defendants are set out in greater detail below. The essence of its claims is that the defendants are jointly, and individually, liable to it for the losses it suffered as a result of Pac-Am's breach of its lease of the Premises. HFC claims that the defendants owed it a duty to take reasonable care not to cause HFC economic loss, and that their conduct in relation to the Repossession resulted in a breach of that duty. HFC also claimed that the defendants' conduct in relation to the Repossession amounted to a breach of the tort of causing loss by unlawful means. HFC claims that the defendants are liable for damages suffered by HFC arising from this conduct, including the loss of rent and outgoings owed by Pac-Am, and costs and expenses associated with re-leasing the Premises to new tenants, and in the appointment of a receiver.

11 Initially, HFC also claimed that the defendants were liable for breaches of the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (WA), arising from alleged misrepresentations made by the defendants by virtue of the conduct of the Repossession. However, HFC expressly abandoned these claims in the course of the trial.

12 The essence of the defendants' response to HFC's claims is to deny that they were under any duty of care to HFC in negligence, or that they breached such a duty (if it existed). They also deny that the tort of causing loss by unlawful means forms part of the Australian common law, and even if such a tort exists in Australia, they deny that the elements of the tort have been made out in this case. In addition, the defendants claim that even if the duties claimed by HFC, and a breach of those duties, have been established by HFC, they are not liable for the losses claimed by HFC. The defendants claim that HFC's losses were not caused by the defendants' conduct, because they say that Spageddies would have failed, and Pac-Am would have gone into administration and liquidation, and breached its lease from HFC, irrespective of the conduct of the Repossession, having regard to (amongst other things) the financial position of Pac-Am, and to the manner in which Spageddies was operated, both before and after the Repossession. In addition, the defendants claim that they should not be held liable for the losses claimed by HFC because they say HFC should have taken steps to mitigate its losses.

13 The pleadings give rise to a number of interesting, and in some respects novel, issues. These reasons deal with the following matters, which reflect the issues which arise:

(a) The parties, the primary participants in the events giving rise to this action, and the witnesses;

(f) Pac-Am's proceedings in the Supreme Court against Mr Ahern, FC and others.

1. Were the defendants acting in concert in conducting the Repossession and therefore joint tortfeasors?

(b) Legal principles in relation to joint tortfeasors;

(c) Did Mr Ahern and FC agree to pursue a joint purpose in conducting the Repossession, and to detain Pac-Am's property thereafter, and did they engage in concerted action to do so?;

(d) Conclusion: were Ahern and FC joint tortfeasors?

(c) Principles in relation to trespass and conversion;

(d) Did Mr Ahern's entry onto the Premises constitute a trespass to land?

(e) Did the entry by FC's servants or agents onto the Premises constitute a trespass to land?

(f) Did the conduct of either defendant constitute a trespass to goods or conversion of goods?

(g) Relevance of the apology and of the settlement of the Pac-Am action to the defendants' liability for trespass or conversion;

(h) Conclusion: Was the conduct of either defendant on 21 March 1998 wrongful?

1. The alleged breach of duty of care in negligence causing economic loss:

(b) Principles in relation to establishing a duty of care in cases of economic loss;

(c) Did either of the defendants owe HFC a duty to take care not to cause it economic loss?

(a) Overview of the parties' cases in relation to causation;

(b) Principles governing the determination of causation;

(c) The basis for HFC's case in relation to causation;

(d) The basis for the defendants' case in relation to causation;

(e) Evaluation of the evidence, other than the expert evidence, relating to the question of causation:

(ii) The untenable financial position claim: overview;

(iii) The untenable financial position claim: Pac-Am's financial position before the Repossession;

(iv) The untenable financial position claim: Pac-Am's financial position after the Repossession;

(f) Evaluation of the expert evidence relating to the question of causation;

(g) Determination of causation having regard to the evidence relating to the unsuitable location and untenable financial position claims;

1. The alleged breach of the tort of causing loss by unlawful means:

(b) The elements of, and rationale for, the unlawful means tort;

(c) Does the unlawful means tort form part of the Australian common law?

(d) If so, are the elements of the tort established in this case?

(b) Principles in relation to the 'duty' to mitigate loss;

(c) Did the defendants establish that HFC failed to take action to mitigate its loss?

(b) The evidence in relation to HFC's loss and damage;

14 In summary, I have concluded that the defendants are not liable to HFC for the loss and damage it claims to have suffered, because:

1. The defendants were not joint tortfeasors;
2. FC did not owe HFC a duty to take reasonable care to protect HFC from economic loss;
3. Mr Ahern did not owe HFC a duty to take reasonable care to protect HFC from economic loss;
4. Even if the defendants had owed HFC such a duty, I would not have found a breach of that duty by either defendant;
5. Although the tort of causing loss by unlawful means should now be recognised as part of the Australian common law, the elements of the tort were not established on the evidence;
6. I would not have found that the loss and damage suffered by HFC were caused by the negligence of the defendants;
7. Had it been necessary to assess damages, I would have found that HFC suffered loss and damage in the sum of $1,090,026.35 and I would not have found that HFC failed to mitigate its loss.

15 My reasons for these conclusions are explained below.

(a) The parties, the primary participants in the events giving rise to this action, and the witnesses

16 It is convenient to begin by briefly identifying the parties to the proceedings, the persons who were the primary participants in the events giving rise to the proceedings, and those who gave evidence in the proceedings.

17 HFC was incorporated in August 1981. Mr Graham Hardie has been a director of HFC since its incorporation and he has been the secretary of the company since 10 January 2002.

18 Mr Terry Pilbeam was employed as a property manager for HFC from mid-1991 until August 1998, and again from February 2000 until October 2005. In that role he was responsible for the management of the Piazza.

19 Pac-Am was incorporated on 4 April 1997. It was established with an initial shareholding of one ordinary $1 share, which was beneficially owned by Mr Hin Wee Khoo (Mr HW Khoo).

20 Mr HW Khoo was a director of Pac-Am from its incorporation until 4 March 1998.

21 Mr Hin Hiong Khoo (Mr HH Khoo) was a director of Pac-Am from 13 January 1998 until 30 January 2007. Mr HH Khoo was Mr HW Khoo's brother.

22 Mr Subramani Krishnamoorthy was a director of Pac-Am from 13 January 1998 until 30 January 2007.

23 Mr Mark Kim Hock See was a director and company secretary of Pac-Am from 4 March 1998 until 12 October 1998.

24 Mr Krishnamoorthy and Mr Dato Ronald Khoo ( Mr DR Khoo) were investors in Pac-Am. Mr HH Khoo also invested funds in Pac-Am, although to a lesser extent.

25 Pac-Am went into administration on 5 July 1999. Mr Glenn Featherby and Mr Mark Reilly of Featherby Reilly Chartered Accountants were appointed the administrators of Pac-Am until 28 September 1999 when they were appointed the liquidators of the company. They ceased that appointment on 30 January 2007, when Pac-Am was deregistered.

26 Mr Giovanni Carrello was appointed a receiver and manager of Pac-Am on 15 July 1999 and acted in that capacity until 10 January 2003.

27 The Spageddies Italian Kitchen restaurant chain was established in the United States by Brinker International Inc (Brinker), an American company.

28 Pac-Am Food Concepts (PAFC) was a holding company based in the British Virgin Islands. Mr HH Khoo was the Chairman of PAFC from its incorporation.

29 Brinker sold the worldwide franchise rights for Spageddies to PAFC in the early 1990s. Brinker subsequently acquired a 25% interest in PAFC.

30 In about August 1993, PAFC formed a subsidiary company, Pac-Am Restaurants (S) Pte Ltd (Pac-Am Singapore), to operate Spageddies in Singapore. Pac-Am Singapore was described by Mr HH Khoo as a 'joint venture company' between three other companies, Dinervest Investments Pte Ltd (a subsidiary of Singapore Technologies, which was a company incorporated in Singapore and owned by the Singaporean Government), Nations Corp Ltd and Brinker. Mr HH Khoo was the Chairman of Pac-Am Singapore from its incorporation.

31 In March 1995, PAFC and Pac-Am Singapore opened the first Spageddies Italian Kitchen restaurant in Singapore, in the Tanglin Mall. It subsequently opened a second Spageddies Italian Kitchen restaurant at the Marina Megaplex.

32 Pac-Am Singapore and PAFC planned to expand the Spageddies Italian Kitchen franchise into Australia. Pac-Am was incorporated for that purpose.

33 It was Mr HH Khoo's evidence that the one share in Pac-Am which was owned by Mr HW Khoo was held on trust for other 'shareholders' namely Brinker, Dinervest Investments Pte Ltd, Nations Corp Ltd (Mr HH Khoo's family company), Mr DR Khoo and Mr Krishnamoorthy (ts 699 - 700).

34 Mr Jude Cohen was the Development and Construction Manager for Pac-Am Singapore. He was involved with organising the fit-out of Spageddies in Perth.

35 Mr Selvam Sevasamy was employed by Pac-Am Singapore from March 1995, and by January 1997 was the Assistant General Manager of Spageddies Italian Kitchen in the Tanglin Mall in Singapore. In around late August or early September 1997, Mr Sevasamy was sent to Perth to assist in the management of Spageddies and spent a month working in the restaurant (ts 599). He returned to Spageddies in Perth in around mid March 1998, and worked at the restaurant as the General Manager until February or March 1999 (ts 605).

36 Mr David Stewart was a manager at Spageddies in Perth from July 1997 to around mid to late 1998.

37 Mr Robert Smales is the owner of Valentino's Café Restaurant (Valentino's) in Northbridge which he has owned since 1996. He has been involved in the food and restaurant industry since 1978 and has owned a number of other cafes and restaurants apart from Valentino's.

38 FC was incorporated in November 1980. In 1997 the company operated a cabinetmaking business, undertaking fit-outs of shops and restaurants.

39 Mr Ferguson was a director of FC from 27 November 1980, and was the company's secretary from 27 March 1985.

40 From 11 September 1996, Mr Ferguson was also a director of a company called Lauranne Pty Ltd (Lauranne). Lauranne owned a restaurant called Il Fiume Ristorante (Il Fiume), which operated from the Premises immediately prior to Spageddies' occupation of the Premises.

41 Mr Ahern is a barrister and solicitor in Western Australia, and since February or March 1998 has practised as a sole practitioner under the business name Ahern & Associates.

42 Mr Terry Ghazouly was employed by FC from mid 1997 to late in 1999 as a financial controller and accountant.

43 Ms Verity James has worked as a radio presenter, newspaper and magazine columnist and restaurant reviewer over many years. She was working as a restaurant reviewer during the time when Spageddies was open in Perth. Ms James dined at Spageddies in October 1997 and wrote a review of her experience, which was published in the West Australian newspaper on 22 October 1997.

44 Mr Andrew Peaston is a chef, and the proprietor of the restaurant Chanterelle at Jessica's, which he operates with his wife. He has worked in the restaurant industry for more than 39 years, and has worked in the Perth restaurant industry for the past 21 years.

45 Mr Hardie, Mr Pilbeam, Mr HH Khoo, Mr Stewart, Mr Sevasamy, Mr See and Mr Smales were called by HFC to give evidence. Mr Ferguson, Mr Ahern, Mr Ghazouly, Ms James and Mr Peaston gave evidence on behalf of the defendants.

46 Three experts provided witness statements and gave evidence in these proceedings. Mr Jim Tsagalis is the Managing Director of Lease Equity Pty Ltd, has a Bachelor of Economics and a Graduate Diploma of Business (Management), is a member of the Australian Property Institute, a registered real estate representative and has worked for over 20 years in the commercial property industry. His evidence concerned the practices adopted by landlords of commercial properties in about 1997 to obtain security for the rental obligations of their lessees.

47 Mr Vincent Smith is a partner in the Transaction Advisory Services Division of the accounting firm Ernst & Young, where he leads the Restructuring team. He was previously a Senior Partner at the accounting firm Pitcher Partners. Mr Smith has a Bachelor of Commerce (Accounting), is a member of the Institute of Chartered Accountants in Australia, is an Official Liquidator and is a member of the Insolvency Practitioners Association of Australia. Mr Smith has more than 20 years of experience in corporate restructuring and business consulting. Mr Smith prepared a report to the Court for the purposes of these proceedings dated 19 October 2006. Mr Smith prepared a supplementary report to the Court for the purposes of these proceedings dated 6 June 2010.

48 Mr Barry Honey is a partner in the chartered accounting firm Honey & Honey. He was previously a partner at accounting firm KPMG from July 1985 until June 2004. Mr Honey has a Bachelor of Business, and a Graduate Certificate in Forensic Studies (Accounting). Mr Honey is a member of the Institute of Chartered Accountants, is a Registered Liquidator and Official Liquidator, and is a member of the Insolvency Practitioners Association of Australia. Mr Honey has more than 25 years of experience in the area of corporate recovery, including business appraisals, insolvency arrangements and forensic accounting. Mr Honey prepared a report for the purposes of these proceedings dated 27 March 2006. Mr Honey also prepared a supplementary report for the purposes of these proceedings dated 3 December 2006.

(b) Findings as to the credibility of the witnesses

49 It is convenient at this point to make some general observations in relation to my conclusions as to the credibility of the witnesses. Where I have preferred the evidence of one witness to that of another in relation to a particular issue, however, I have explained in greater detail, at that point, the basis for that preference.

50 Subject to the reservations which follow, generally speaking I found the witnesses who appeared for HFC to be truthful and credible and their evidence to be reliable. None of the witnesses (apart from Mr Hardie, whose evidence I accept) have any interest in the outcome of these proceedings. My reservations pertain to aspects of the evidence of Mr Stewart and Mr HH Khoo.

51 Generally speaking, Mr Stewart was open and earnest in giving his evidence, and forthcoming with his answers. However, there were two issues in his evidence about which I had doubts, and for the reasons I explain below, I formed the view that his memory was inaccurate in relation to those matters, or alternatively that he had exaggerated his evidence in relation to those matters. I nevertheless accepted the balance of his evidence.

52 Although I accept the evidence given by Mr HH Khoo, the overriding impression I was left with was that he was (at the relevant times) and to a large extent remained, in denial about the reasons for the precarious financial position which Pac-Am was in throughout its existence. That impression led me to be cautious about placing reliance on his evidence as to Pac-Am's financial prospects. Ultimately, however, that was of little moment because that issue was analysed in considerable detail by the expert witnesses, Mr Smith and Mr Honey.

53 I have discussed the evidence of the expert witnesses, Mr Tsagalis, Mr Smith and Mr Honey, below.

54 I found Mr Peaston and Ms James to be truthful and credible, and their evidence to be reliable, although for the reasons explained below, that evidence was ultimately of limited assistance in resolving the issues in this action.

55 I found Mr Ahern, on balance, to be a credible witness. Mr Ahern frankly admitted that he had made mistakes and acknowledged that he did not remember all of the events the subject of his evidence with equal clarity. In cross-examination Mr Ahern answered only the specific questions put to him. I concluded that that was not borne of an attempt to avoid answering questions, and that his approach to those questions was hardly surprising given he is a solicitor.

56 Counsel for HFC submitted that Mr Ahern's lack of recollection of critical aspects of his defence cast doubt on his credibility, and that his lack of memory is to be considered in light of the fact that he was sued by Pac-Am immediately after the Repossession, at which time he handed over his file to his insurer. I do not accept that submission, for the following reasons. First, as I explain below, Mr Ahern did not provide written advice to FC in relation to the Repossession. It is, therefore, not surprising that Mr Ahern did not remember all of the detail of the advice he gave. Secondly, the litigation commenced by Pac-Am was settled in April 2002 (again, see below) but Mr Ahern ceased to be a defendant to those proceedings in early 1999. In those circumstances, it is not surprising that Mr Ahern does not recollect all of the detail of the advice he gave. Thirdly, counsel for HFC sought to point to the inadequacy of the basis for the advice provided by Mr Ahern to FC as undermining his credibility as a witness. While the enquiries made by Mr Ahern prior to providing his advice were relevant to the question whether his advice was negligent, I do not consider that that matter casts doubt on Mr Ahern's credibility as a witness. Accordingly, I accept Mr Ahern's evidence.

57 Mr Ferguson was not an impressive witness. His demeanour during cross-examination suggested an unwillingness to answer questions, or a desire to avoid answering the question which was in fact put to him (eg ts 1148, 1156 and following). His evidence was at times imprecise and he was inclined to speculate about what he would have done rather than what he in fact did (eg ts 1152). However, the fact that Mr Ferguson did not recollect in detail all of the factual matters the subject of this action is not surprising given the time since the events occurred, and that of itself would not necessarily cast doubt on his credibility. However, Mr Ferguson also acknowledged that there were mistakes in his witness statement, and admitted that his witness statement (which was received into evidence as his evidence-in-chief) was inaccurate in parts (eg pars 4 and 41; ts 1184). Nevertheless, these concerns did not lead me to reject Mr Ferguson's evidence in its entirety, particularly as his evidence in some respects (for example, in relation to damage done to the Premises in the Repossession) was consistent with that of the witnesses called by HFC. Accordingly, my approach to Mr Ferguson's evidence was to be cautious about accepting his evidence where it was inconsistent with the evidence given by other witnesses whose credibility was not in doubt.

58 Mr Ghazouly was also not an impressive witness, primarily because it appeared he had only a limited independent recollection of the events the subject of this action, and relied for any recollection on his witness statement which was received into evidence as his evidence-in-chief, and what recollection he had became confused in the course of cross-examination. In cross-examination, Mr Ghazouly accepted that he signed his witness statement in 2009 without turning his mind to whether he had any independent recollection of the truth of the matters contained in it (ts 1344 - 1345). Mr Ghazouly simply assumed that he had compared his typed witness statement with a handwritten witness statement he prepared in 1998 (ts 1314). Mr Ghazouly had only a limited recollection of the contents of a witness statement and an affidavit which he prepared in relation to earlier, related litigation (which is discussed below) (ts 1314). As I explain below, there were occasions during his evidence when I formed the impression that Mr Ghazouly was concerned in his answers to minimise his role in the events. Given his poor recollection of the events in question, much of Mr Ghazouly's evidence proved unhelpful, and my approach to the balance of his evidence, in those instances where it was inconsistent with the evidence given by other witnesses whose credibility was not in doubt, was to prefer the evidence of those other witnesses.

(i) The leases in respect of the premises and of Shop 28

59 Having decided to expand the Spageddies Italian Kitchen franchise into Australia, PAFC and Pac-Am Singapore settled on Perth as the first location for Spageddies in Australia. Mr HW Khoo, who at that time resided in Perth, set about searching for a suitable venue for the restaurant. In late 1996, Mr HH Khoo learned that Il Fiume, which was located on the ground floor of the Piazza, was for sale. On 25 February 1997, and again on 3 March 1997, Mr HH Khoo, on behalf of Pac-Am Singapore, wrote to the proprietor of Il Fiume, Lauranne, and offered to purchase its business together with plant and equipment for $400,000. On 4 March 1997, Mr Ferguson, on behalf of Lauranne, accepted that offer.

60 Pac-Am was incorporated shortly thereafter as the vehicle through which Spageddies would operate in Australia.

61 Mr HW Khoo and Mr HH Khoo then commenced negotiations with HFC for a lease over that part of the Piazza which had been occupied by Il Fiume. They met with Mr Hardie and Mr Pilbeam on 1 April 1997 to discuss the lease arrangements. Mr HW Khoo and Mr HH Khoo sought a long lease in the expectation that Spageddies would operate in Australia for many years.

62 On 21 May 1997, HFC entered into two leases of parts of the Piazza to Pac-Am. The first (Lease A) was a lease of that part of the Piazza comprising the Premises (ie Shops 26, 39 and 40). It was a term of the lease that Pac-Am use the Premises for the use specified under the lease, namely as a licensed restaurant trading under the name of Spageddies Italian Kitchen. The restaurant operated from the Premises the subject of Lease A. The Premises were large in size, with a seating capacity of 300 - 350 diners, which was larger than the average Spageddies restaurant in Asia (which had a seating capacity of between 200 - 250 diners). However, Mr HH Khoo considered that the size of the restaurant was desirable because it was intended that Spageddies in Perth would be a training base for Spageddies staff in Australia.

63 Pac-Am initially intended to use Shop 26 of the Premises as a takeaway facility. Mr HH Khoo's evidence was that a takeaway facility had been utilised at other Spageddies restaurants and had worked well, enabling quick sales especially during lunch times. Mr HH Khoo estimated that takeaway food typically accounted for 20% of the revenue of Spageddies restaurants. However, HFC refused to permit Shop 26 to be used as a takeaway facility, because this was contrary to HFC's agreement with the City of South Perth concerning the Piazza. That part of the Premises comprising Shop 26 was eventually utilised by Pac-Am as an office immediately adjacent to the restaurant (ts 705).

64 The second lease (Lease B) was a lease to Pac-Am of Shop 28 in the Piazza, the permitted use for which under the Lease was as a lunch bar trading under the name of Spageddies Italian Kitchen.

65 Also on 21 May 1997, HFC entered into an agreement with Pac-Am for a licence in respect of the balcony area immediately in front of the Premises for the purpose of an alfresco dining area ancillary to the restaurant.

66 Settlement on the purchase of Il Fiume was originally intended to take place on 1 May 1997 but this was delayed for a short time. Pac-Am nevertheless agreed to pay rent to HFC for the Premises and for Shop 28, pursuant to Lease A and Lease B, from 1 May 1997.

(ii) The negotiations for the fit-out of the Premises

67 Once the Premises had been identified as the likely location of Spageddies, and while the lease negotiations were proceeding, Mr HW Khoo and Mr HH Khoo began planning for the fit-out of the Premises. They intended that Spageddies would open in early June 1997.

68 The concept behind the Spageddies franchise was that of a casual dining restaurant, serving full bodied, traditional Italian dishes, with an emphasis on good food and friendly service. The interiors of all restaurants in the Spageddies franchise were fitted out in a consistent manner, in tones of terra cotta, green and white, with an open kitchen and a wood-fired pizza oven. Accordingly, it was necessary to arrange for the Premises to be fitted out in this décor.

69 Pac-Am and Pac-Am Singapore approached FC for a quote for the fit-out. FC was approached because Mr Ferguson had become known to Pac-Am's representatives during the course of negotiations to purchase the Il Fiume and because FC had undertaken the fit-out of Il Fiume and was familiar with the Premises. Mr Ferguson had assured Pac-Am and Pac-Am Singapore that FC could perform a suitable fit-out for the Premises.

70 On 8 April 1997, Mr Ferguson, on behalf of FC, sent a letter to PAFC by facsimile, setting out the scope of the 'proposed alterations & additions for Pac-Am Restaurants ... South Shore Plaza' [sic] in South Perth (exhibit 143). The estimated price was $271,278 and covered work set out in a lengthy schedule, including tiling, painting, various items of joinery (including five waiter's stations, reception desk, shelving and so on), installation of various stainless steel items (including stainless steel benches, doors for refrigerators and a canopy over the cooking area), various items of plumbing, electrical and glazing work, installation of roller shutters and signage.

(iii) The Contract for the fit-out and the Romalpa clause

71 By letter dated 9 April 1997, which was sent by facsimile, Mr Ferguson, on behalf of FC, wrote to PAFC providing a quote for the 'proposed alterations & additions for Pac-Am Restaurants (WA) Pty Ltd ... South Shore Plaza' [sic] (exhibit 154). The proposed alterations and additions to which the quotation pertained largely reflected those set out in FC's letter of the previous day, although with some minor amendments and additions. The price quoted for the work was $270,000. The letter indicated that upon acceptance of the quote, the works could be commenced immediately with practical completion by 8 May 1997 (which date ultimately proved to be prior to the commencement of Pac-Am's lease over the Premises). The letter indicated that the terms of payment would be 40% deposit prior to commencement, 50% payment on completion and a further 10% after completion.

1. That upon your acceptance of the quotation either verbally or in writing and irrespective of whether any further formal contract is entered into or not, you acknowledge and agree that:

4.1 ownership of any goods supplied by Ferguson Corporation Pty Ltd (the Company) shall remain vested in the Company and shall not pass to yourselves until the Company has been paid the invoiced price in full, together with any freight, costs, and Sales Tax (where applicable).

4.2 If such payment is overdue then:

4.2.1 the Company by its servants or agents may recover and sell the goods supplied by the Company to yourselves;

4.2.2 the Company may enter upon your business premises and take possession and remove such goods, it being acknowledged yourselves that until the Company is paid in full, the relationship of yourselves to the Company shall be fiduciary in respect of any goods supplied and if the same is sold by yourselves, the Company shall have the right to trace the proceeds thereof.

I will refer to these terms collectively as 'the Romalpa clause'.

73 Mr HH Khoo 'approved' the quote on 9 April 1997, and signed it 'for and on behalf of ...', Pac-Am. He sent the signed quote back to FC the same day.

74 Although the letter (exhibit 154) expressly stated that it 'merely constituted a quotation' and that if FC requested it, a formal contract with regard to the proposed works containing FC's 'standard terms and conditions' (which were not specified in the letter) would be required to be entered into, no such further document was ever executed (ts 1201). It appears that Pac-Am and FC understood that Mr HH Khoo's signature constituted an acceptance of the quotation and that it resulted in a contract between Pac-Am and FC for the performance of the alterations and additions, for the price quoted, and on the terms set out in the letter. This was notwithstanding the fact that the quotation had been addressed to PAFC and not to Pac-Am. Although counsel for HFC noted this discrepancy in his opening submissions, HFC did not plead, and its counsel did not seek to contend, that there was no contract between HFC and Pac-Am in accordance with the terms set out in the letter.

75 That the parties proceeded as though the acceptance of the quote on 9 April 1997 gave rise to a contract between them for the fit-out work was confirmed by the fact that on 9 April 1997, Mr HH Khoo wrote to Mr Pilbeam requesting his approval for a fit-out of Spageddies. In addition, Mr Ferguson flew to Singapore, and on 10 April 1997 he inspected the Spageddies restaurants there to see first hand the Spageddies concept and the layout and fit-out of the Spageddies restaurants. By letter dated 11 April 1997, Mr Ferguson, on behalf of FC, wrote to Mr Khoo and expressed his thanks to Mr Khoo for his faith in FC 'to do your fit-out in Perth', and provided FC's bank details (presumably for the payment of the deposit) (exhibit 156.1).

76 I find that on or about 9 April 1997 the parties agreed that FC would undertake the fit-out work, for the price, and on the terms, set out in FC's letter of that date. I will refer to the letter dated 9 April 1997 from FC to PAFC as 'the Contract'.

77 In cross-examination, Mr Ferguson was asked whether he understood, from the terms of the Contract, that he had reserved a contractual right to add in variations. His evidence was that 'it was a given that there was going to be some variations along the way' (ts 1201). However, he was unable to point to anything in the Contract that indicated that variations were to be covered by the Contract, and he accepted that the Contract did not make any express provision for variations (ts 1201).

78 Shortly thereafter, FC commenced the fit-out of the Premises. The work took approximately five to six weeks. Pac-Am's supervisor for the fit-out of the Premises was Mr Jude Cohen.

79 Mr Ferguson's evidence was that during the five to six week period in which the fit-out was carried out, he attended the Premises on a number of occasions, and was asked by representatives of Pac-Am (whose names he could not recall) to carry out additional works. Mr Ferguson agreed to perform this work and told Pac-Am's representatives that FC 'would invoice Pac-Am for the reasonable costs of carrying out the work associated with these variations' (exhibit U par 11). Mr Ferguson's evidence was that 'some of these variations were confirmed in writing, others were purely oral' (exhibit U par 11).

80 On 16 April 1997 Mr Ferguson, on behalf of FC, sent a facsimile to Mr Cohen and provided a quotation for 'works regarding the floor' (exhibit 160.1). The letter indicated that the quotation followed 'discussions on site', presumably with Pac-Am's representatives. The quoted work was for the removal of a raised floor section of the restaurant, the removal of concrete, debris and carpet, sanding and filling the floor, supplying and laying tiles, and with an allowance for the removal and/or salvage of floor material. In addition, the quotation included one other item of work unrelated to the floor, namely 're-cover existing timber chairs in vinyl'. The quoted price for the work was $31,000. The quote contained a Romalpa clause in identical terms to that set out above.

81 Following a meeting with Mr Cohen, Mr Ferguson, on behalf of FC, again wrote to Mr Cohen by letter dated 6 May 1997 and indicated that '[FC] will carry out the following additional works to the contract, previously dated April 9th, 1997' (exhibit 160.10). The letter contained a long list of additional works. The first two sets of items in that list duplicated the works referred to in FC's facsimile to Mr Cohen of 16 April 1997 (that is, the works to the floor, and the re-covering of the chairs). The additional work included removal, installation and alteration of gyprock walls, fitting a new stainless steel top to the top of the existing bar, installing a new cabinet for the telephone and security system, extending a shelving unit behind the bar, and supplying and fitting signage to the front entry area. The letter noted that the original contract price was $270,000, that the revised contract sum would be $285,000 and that an amount of $108,000 had been paid by that date. The balance outstanding was therefore $177,000. The letter contained a Romalpa clause in the terms set out above.

82 Mr Ferguson's evidence was that the calculation of the additional $15,000 which was to be added to the cost of the Contract in respect of this extra work took into account the fact that work which FC was initially to have done to fit-out Shop 26 as a takeaway facility was no longer to go ahead (ts 1201).

83 The letter advised that the $177,000 balance which remained (following the deduction of the payment of $108,000 from the revised contract sum of $285,000) 'will be our final account' (exhibit 160.10).

84 Although there was nothing on the face of the letter to indicate that this variation of the Contract was accepted by Pac-Am, and no document was tendered in evidence indicating any written acceptance by Pac-Am of this variation of the Contract, the letter appears to have been regarded by Pac-Am as constituting a variation of the Contract. I find that on 6 May 1997, FC and Pac-Am varied the Contract, so that FC would undertake both the fit-out described in the Contract, and the additional work set out in FC's letter of 6 May 1997, for the total price, and on the terms, set out in that letter. For convenience I will refer to the letter dated 6 May 1997 from FC to Pac-Am as 'the Contract Variation'.

85 FC completed the work specified in the Contract and Contract Variation, in advance of the official opening of Spageddies on 12 June 1997.

(v) The dispute between FC and Pac-Am in relation to payment for the fit-out

86 Following the completion of the initial fit-out, FC undertook further work at the Premises, at Pac-Am's request. The evidence as to how this work came to be performed was sketchy, but it appears that Mr Ferguson understood that this work was requested, and agreed to, by Pac-Am's representatives, particularly (or perhaps solely) Mr Cohen. There was no evidence to suggest that these additional works were documented by the provision of a quotation by FC which was formally accepted on behalf of Pac-Am. There was, however, some evidence to suggest that Mr Cohen, and Pac-Am, accepted that Pac-Am had requested that some further work be carried out, in addition to that which was specified in the Contract and Contract Variation.

87 Between April and December 1997, FC issued a number of invoices in respect of further work it claimed that it had carried out, and other monies which it claimed it was owed by Pac-Am.

88 Not surprisingly, given the lack of documentation in relation to the performance of this further work, a dispute soon emerged between Pac-Am and FC in relation to what money Pac-Am owed to FC for all of the work FC had undertaken for Pac-Am.

89 The way in which the dispute arose, the quantum of money involved, the merit of FC's claims to additional payment over and above the Contract Variation price, and the contractual terms on which this additional work was performed are all examined in greater detail below in the context of the lawfulness of the Repossession. For present purposes it suffices to say that the dispute between FC and Pac-Am covered whether the additional work, and if so which parts of the additional work, were covered by the Contract Variation (and therefore subsumed within the price quoted for the Contract Variation) and which parts of that additional work were to be the subject of additional charges, whether some items of the additional work for which FC sought to charge Pac-Am had actually been undertaken by FC, or had in fact been undertaken at Pac-Am's request, and whether some items of the additional work were undertaken by FC but were items of work for which Pac-Am was not, or should not be, liable to pay (for example, because the work had to be undertaken as a result of errors by FC).

90 After a number of letters and phone calls were exchanged between Mr Ferguson and Mr Ghazouly, on behalf of FC, and Mr HH Khoo and Mr Cohen, on behalf of Pac-Am, Mr Ferguson met with Mr HH Khoo in November 1997 in an effort to resolve the dispute. On 23 December 1997, Mr Ferguson and Mr Ghazouly wrote to Mr HH Khoo enclosing a list of items which they considered there could be no dispute that Mr Cohen had requested, and indicated that payment of $32,460 would be accepted in satisfaction of the amounts claimed by FC in respect of additional work undertaken for Pac-Am. However, at the same time, FC continued to make claims for payment in respect of other monies it claimed it was owed by Pac-Am.

91 By January 1998, FC claimed that Pac-Am owed $56,332.17 for the additional work undertaken by FC at the Premises, and for other monies FC claimed it was owed by Pac-Am, arising from the sale of Il Fiume, and the payment of freight charges and import duty on items used in the fit-out.

(vi) Legal advice provided to FC by Mr Ahern

92 By February 1998, the debt FC claimed it was owed by Pac-Am remained outstanding. On about 16 February 1998, Mr Ferguson approached Mr Ahern for legal advice in relation to the Romalpa clause in the Contract and Contract Variation, and specifically in relation to whether that clause permitted FC to repossess goods from Spageddies (the Repossession).

93 In about August of the previous year, Mr Ahern provided advice to Mr Ghazouly in relation to the repossession of goods from another restaurant, Quattros Café, in reliance on a Romalpa clause in a contract between FC and the owners of Quattros Café. Mr Ghazouly's evidence was that on that occasion, Mr Ahern's advice was that because full payment had not been made on the goods supplied to Quattros Café, FC still owned the goods it had supplied and FC was entitled to repossess those goods pursuant to the Romalpa clause. In about September 1997, FC acted on Mr Ahern's advice and repossessed the goods it had supplied to Quattros Café.

94 Mr Ahern's evidence was that in his meeting with Mr Ferguson on 16 February 1998, he gave advice which, in substance, was the same advice he had previously given to Mr Ghazouly, namely that:

[T]he Romalpa clause arguably covered all of the goods that had been supplied [to Spageddies by FC]. The Romalpa clause allowed [FC] to repossess all the goods that it had supplied whether they had been paid for or not if there were any outstanding accounts in respect of the equipment which had been supplied (exhibit FF pars 9 and 12).

Mr Ahern's evidence as to the advice he gave was consistent with Mr Ferguson's evidence as to the advice he received. I accept Mr Ahern's evidence as to the advice he gave.

95 Mr Ahern had a brief meeting with Mr Ghazouly at his office on 19 March 1998. Two factual questions arose on the evidence concerning that meeting. First, the witnesses had different recollections of what Mr Ahern advised in relation to the entitlement of FC's staff to enter Spageddies to undertake the Repossession. In a witness statement Mr Ghazouly prepared in April 1998, he stated that he asked Mr Ahern whether Pac-Am's staff could 'kick us out' during the Repossession, and that Mr Ahern advised him that 'they can but not many people know what the law is' (exhibit EE). In cross-examination, Mr Ghazouly's evidence was that exhibit EE was a typed version of the handwritten statement he had prepared in 1998, and that when he wrote that statement, he was writing out his best recollection of the truth (ts 1341). His evidence was that what was written in the statement (in relation to this aspect of Mr Ahern's advice) in fact occurred (ts 1341).

96 Mr Ahern was unable to recall whether Mr Ghazouly asked him what might happen in the Repossession, and whether Spageddies could 'kick us out' (ts 1374). However, Mr Ahern's evidence was that if he had been asked he may have said that 'if we're asked to leave, we would have to leave' (ts 1374). Although he did not recall giving this advice, he accepted that he may have said that 'not many people know the law' (ts 1374).

97 Although Mr Ghazouly's recollection of the events of 1998 proved poor during the course of the trial, I accept his evidence that when he prepared his witness statement in 1998 he intended to write down a true account of what had occurred. Given the recency of the events when Mr Ghazouly prepared that statement, Mr Ahern's inability to recall whether or not he gave this advice, and his concession that he may have said that 'not many people know the law' I accept that Mr Ahern advised Mr Ghazouly that if FC's workmen were asked to leave Spageddies they would have to do so.

98 The second factual issue arising from the meeting of 19 March 1998 concerned FC's intention with respect to what goods were to be seized during the Repossession. Mr Ahern was instructed by Mr Ferguson to draft a letter to Pac-Am which was to be handed over to one of Pac-Am's representatives during the Repossession (the Repossession letter). The Repossession letter was addressed to Pac-Am from Ahern & Associates. Mr Ahern settled the Repossession letter on 23 February 1998 (ts 1367) and on 25 February 1998 sent a copy of it by facsimile to Mr Ghazouly, who passed it on to Mr Ferguson. Mr Ahern said that he attached to the Repossession letter a copy of an inventory, which indicated all of the goods which were to be repossessed. A copy of the Repossession letter, including the inventory attached to it was tendered in evidence. The evidence was that the goods taken during the Repossession were those listed in the inventory (the Repossession inventory).

99 Mr Ahern's evidence was that in the course of his meeting with Mr Ghazouly he was shown an inventory of the goods which he was instructed FC had supplied to Pac-Am. Mr Ahern said that Mr Ghazouly identified the goods which had been paid for and the goods for which payment had not been received. Mr Ahern's evidence was that he believed that FC had decided to repossess only those goods that it had supplied to Pac-Am which had not been paid for in full. Mr Ahern's evidence was that Mr Ghazouly told him that 'he and Ferguson had been through the inventory carefully and that they wanted to make sure that they were only taking goods for which payment hadn't been received' (exhibit FF par 27). Mr Ahern maintained that evidence under cross-examination (ts 1360, 1372, 1374). Initially, Mr Ahern's evidence was that the Repossession inventory was the inventory he had been shown by Mr Ghazouly. However, in cross-examination, Mr Ahern said that the inventory he had seen listed all items provided by FC, including those paid for as well as those not paid for, and he suggested that the Repossession inventory must have been a clean copy of the inventory he had been shown, which listed only those items which had not been paid for (ts 1371 - 1373).

100 Although I accept that Mr Ahern's understanding was that FC intended to repossess those items for which it had not been paid, I do not accept that the Repossession inventory listed only those goods for which FC had not received payment. Instead, I find that the Repossession inventory listed all of the goods which FC proposed to repossess, and that it was not the case that the goods listed were only those for which no payment had been made. I have reached that conclusion for five reasons.

101 First, Mr Ahern did not have any role in relation to the preparation of the Repossession inventory. That document was prepared by Mr Ferguson, probably with some input from Mr Ghazouly (although Mr Ghazouly could not have assisted in identifying the goods to be repossessed because he was not involved with the fit-out and was not aware what goods had been supplied) (ts 1193, 1251).

102 Secondly, Mr Ghazouly's evidence was that it was difficult to identify those goods which had been paid for and those which had not, because payments were not allocated to particular items on the invoices (ts 1249).

103 Thirdly, that the Repossession inventory included goods supplied to Spageddies for which payment had been made, as well as those for which payment had not been made, is more consistent with Mr Ahern's evidence as to the advice he gave - namely that the Romalpa clause extended as far as permitting the repossession of goods where there was any money outstanding under the Contract, even where the bulk of the payments had been made (ts 1374).

104 Fourthly, Mr Ferguson denied instructing Mr Ghazouly to convey to Mr Ahern that the Repossession inventory listed only those goods that had not been paid for in full. Instead, Mr Ferguson's evidence was that he 'said they were the goods that we could probably repossess easily' and he accepted that this was because those goods were valuable and easy to remove (ts 1219).

105 Finally, the value of the goods on the Repossession inventory was stated to be in excess of $116,000. Mr Ferguson claimed that the amount sought by FC in conducting the Repossession was the amount it had sought in December 1997, namely $32,000 (ts 1195). If that was the case, then it is difficult to see how the seizure of goods said to have a value of more than $116,000 could have involved only goods for which Pac-Am had not paid FC. Mr Ferguson suggested that the figure of $116,000 would have represented the manufactured cost of the goods, and not the actual value of the goods (ts 1195). Even if that explanation is accepted, it still tends to detract from the conclusion that the inventory of goods to be seized during the Repossession listed only those goods for which Pac-Am had not paid.

106 After receiving the draft Repossession letter from Mr Ahern, Mr Ferguson considered the matter for a while and then decided to go ahead with the Repossession. Mr Ferguson's evidence was that he waited a month after seeing Mr Ahern before going ahead with the Repossession because he 'had other things on his mind' at the time, and hoped that the dispute with Pac-Am would resolve itself (ts 1219).

107 Once he had decided to proceed with the Repossession, Mr Ferguson chose the date and time of the Repossession. Mr Ferguson then asked Mr Ghazouly to put things in train with Mr Ahern. Mr Ahern was to attend the Repossession, and Mr Ferguson authorised Mr Ahern to hand over to Spageddies' staff the Repossession letter, which set out the grounds on which FC was carrying out the Repossession.

108 Either on the evening of Friday 20 March 1998, or on the morning of Saturday 21 March 1998 prior to the Repossession, there was a meeting between Mr Ferguson, Mr Ghazouly and some of the workmen who were to conduct the Repossession, to discuss the way in which the goods were to be recovered (ts 1220 - 1221, 1258). Mr Ghazouly's recollection was that the workers 'were instructed that not everything was to be taken' - that is, that only items on the inventory were to be taken (ts 1258) and that 'no damage was to be caused' (exhibit Y par 38; ts 1258).

109 The Repossession was conducted on Saturday 21 March 1998 at approximately 11.00 am. Present throughout all, or at least most, of the Repossession were Mr Stewart, the manager of Spageddies who was working at the restaurant at the time, Mr Ahern, and Mr Ghazouly. Mr Ferguson went to the car park across the road from the Premises, and waited there for a short term while the Repossession commenced, but then left. Mr Pilbeam, Mr Sevasamy and Mr See attended the Premises during the course of the Repossession and witnessed some of what occurred. Mr Hardie attended the Premises during the course of the afternoon of Saturday 21 March 1998.

110 My findings in relation to what occurred during the Repossession are set out below. Save where I have indicated, there was no dispute in relation to much of the evidence concerning the Repossession. It is convenient to outline, first, those aspects of the evidence as to which there was no inconsistency in the witnesses' evidence, and then to address the key issues in relation to which there was some inconsistency in the witnesses' evidence.

111 Spageddies was open and trading on the morning of Saturday 21 March 1998. By 11.00 am, there were either two or four customers at the restaurant, and they were seated on the balcony outside. There were no customers seated inside the restaurant.

112 Mr Ahern met Mr Ghazouly in the car park opposite the Piazza at approximately 11.00 am. Mr Ghazouly was accompanied by approximately 40 or so workmen. Some of the workmen were employees or subcontractors used by FC, and others had been engaged solely for the purpose of assisting in the Repossession (ts 1192, 1252). Mr Ferguson's brother and his nephew also assisted with the Repossession (ts 1192). They brought some trucks into which the repossessed goods were to be loaded. Some of the workmen were carrying saws, hammers, hacksaws and crowbars.

113 Mr Ferguson also attended the car park opposite the Piazza but he waited in the car park while the Repossession commenced, and did not go into Spageddies. Mr Ferguson said that he remained in the car park for a small amount of time before leaving (ts 1221). He said he 'was hoping that commonsense would have prevailed and we would have got some sort of a settlement, so I was there if it could be sorted out' (ts 1221).

114 Mr Ahern and Mr Ghazouly led the workmen up the front stairs of the Piazza and into Spageddies. Mr Ahern came through the door of Spageddies first. There were double doors at the entrance of Spageddies. Mr Ahern entered through the door on the right hand side of the entrance, which was unlocked, and then unlatched the door on the left hand side (which until then had been locked) (ts 1375). Mr Ahern had not asked for, and was not expressly given, permission to unlock the door (ts 493).

115 Mr Ahern approached Mr Stewart who was at the restaurant desk, and asked him to get the manager. Mr Stewart replied that he was the manager. Mr Ahern told Mr Stewart that he represented FC and Mr Ahern handed Mr Stewart the Repossession letter. The Repossession letter was in the same terms as the draft of that letter which Mr Ahern had prepared and sent to Mr Ghazouly in late February 1998.

116 In the Repossession letter, Mr Ahern referred to the 'written contract for the carrying out of construction work at [Spageddies] that you entered into with our client and the balance of the contract price that, despite several demands, has not been paid by you'. The letter went on to set out the terms of the Romalpa clause, which I have referred to above, and advised that:

In accordance with our clients [sic] right to re-enter contained in sub-clause 4.2.2 of the contract as set out above our client elects to hereby enter the premises for the purposes of taking possession of our client's goods.

...

Attached hereto is an inventory of goods supplied by our client which our client intends to hereby take possession of (exhibit 310).

The Repossession inventory which was attached contained a long list of items which FC claimed were goods it had provided to Pac-Am.

117 Mr Stewart's evidence was that Mr Ahern 'said words to the effect that he and the workmen were going to repossess all the goods that FC had put into the Restaurant as part of the refurbishment of the Restaurant' (exhibit B par 15).

118 Mr Stewart said that he asked Mr Ahern if he had a court order, and Mr Ahern replied 'by saying words to the effect that the document he had handed me was a legal and binding document and that he had authority to repossess goods from the Restaurant' (exhibit B par 16).

119 Mr Stewart claimed that he asked Mr Ahern what he was doing by entering and unlocking doors that he did not have permission to touch (ts 499) but at no stage during the Repossession did Mr Stewart ask Mr Ahern, Mr Ghazouly or any of the workmen to leave the restaurant (ts 499).

120 After this initial exchange, the workmen then moved into the restaurant and commenced the Repossession.

121 Mr Ahern then left the restaurant and stood on the balcony outside by himself. For the most part Mr Ahern remained standing outside the restaurant on the balcony, although he looked around the restaurant from time to time.

122 Mr Ahern told Mr Ghazouly that he thought that a couple of the workers should stand by the doors at the entrance to the restaurant 'just in case there was a problem with anyone trying to lock the doors or any physical threat' (exhibit FF par 36; ts 1375). Mr Ahern's evidence was that he was concerned that the workers might leave some of the items from the restaurant unattended on the balcony where they could be stolen or damaged by third parties (ts 1379).

123 As they removed goods, the workmen carried them from the restaurant down the stairs outside the front of Spageddies and loaded them onto trucks parked outside the Restaurant.

124 Not surprisingly, Mr Stewart was very concerned about what was taking place, and he telephoned Mr HW Khoo, and Mr See, two of Pac-Am's directors (ts 495), and Mr Sevasamy, the then General Manager of Spageddies. Someone, perhaps Mr Stewart, also telephoned Mr Pilbeam. Mr Stewart also telephoned the police (ts 495). As I have already noted, Mr See, Mr Sevasamy and Mr Pilbeam came to Spageddies while the Repossession was taking place and Mr Hardie attended the Premises later that afternoon. The police also attended at Spageddies while the Repossession was taking place.

125 In evidence were a number of photographs of the interior of Spageddies, taken after the Repossession had taken place. Although those photographs did not include photographs of the interior of the restaurant before and after the Repossession occurred, which might have permitted a more accurate comparison to be made of the state of the restaurant after the Repossession had taken place, the photographs nevertheless depict that at least parts of the kitchen, and some parts of the main body of the restaurant, had been stripped of items, leaving gaps and holes. By way of example, the photographs clearly show gaps in the cabinetry from where a stove and sink appear to be missing, a bar area from where the bench-top and shelving appears to be missing, a cavity in the ceiling from where a range-hood appears to be missing, exposed electrical wires and exposed plumbing connections. Although some items remained in the restaurant, the scene depicted in the photographs suggests the restaurant was gutted.

126 The Repossession was completed within a very short time period - the witnesses estimated that it took a total of between one and two hours (ts 1378). Mr Stewart described the Repossession as 'mayhem' (ts 529). The whole event was distressing to Mr Stewart and to the other staff members of Spageddies who were present during the Repossession or arrived while it was being carried out. Mr Pilbeam watched the Repossession 'in disbelief' and said that he 'had never witnessed an event like [it]' (exhibit I pars 162, 165).

127 After the Repossession was completed, the workmen left and the trucks drove away.

128 The inconsistencies in the evidence of the witnesses in relation to the Repossession concerned four issues:

(i) Whether items were thrown over the balcony to the trucks below;

(ii) Whether damages was done to the goods or the Premises in the course of the Repossession;

(iii) The conversation between Mr Ahern and Mr Stewart at the commencement of the Repossession; and

(i) Whether items were thrown over the balcony to the trucks below

129 In his witness statement which was received in evidence as his evidence-in-chief, Mr Stewart recollected that during the Repossession, the workmen were 'throwing items they had taken out of the restaurant over the balcony of the restaurant and onto the landing below' (exhibit B par 39). Mr Stewart maintained this evidence during cross-examination. He said that:

[T]here was a garden bed below which things could be passed over. People could stand up on the garden. Things could be thrown over and things were being thrown over into the lower garden bed (ts 496).

Despite his claim that things were being 'thrown over the balcony' Mr Stewart claimed that no items were damaged in the process:

[B]ecause it was going into a garden bed and there was a couple of people - like, they were passing things over because there was the tables, there was the chairs, basins and piping and other things, dishwashers (ts 496).

130 I do not accept Mr Stewart's evidence that items seized by FC's workmen during the Repossession were thrown over the size of the balcony adjacent to the restaurant, for several reasons. First, the evidence appears inherently unlikely, having regard to the nature (and probable weight) of the items which were being removed from the restaurant. Secondly, there was no evidence that any of the items seized in the Repossession were actually damaged in the Repossession. It seems highly likely that if items were being thrown over the balcony at least some of the items would have been damaged, even if they had fallen onto a garden bed below the balcony. Thirdly, amongst the items Mr Stewart said were being thrown over the balcony were basins, and there is no mention in the inventory of basins having been seized in the Repossession. Fourthly, Mr Ahern's evidence was that he did not witness equipment being thrown over the balcony. Mr Ahern's evidence was that:

The balcony was around 20ft above the ground and any equipment thrown off the balcony would have been substantially damaged, if not destroyed. I was of the belief that the equipment was owned by [FC] so I believe I would have recalled it if [FC] had not taken due care of its own equipment by throwing it over the balcony (exhibit FF par 54).

131 Mr Ahern did not see any of the workmen passing goods over the balcony down to people below either (ts 1381). Finally, although I do not place significant weight on his evidence, given his poor recollection of the events, and other concerns I have about his evidence of the Repossession, Mr Ghazouly also denied that any of the goods were thrown over the balcony outside Spageddies (exhibit Y par 56). He denied that he would have allowed that to happen, on the basis that it would have been too dangerous (ts 1321).

132 I find that in respect of this aspect of his evidence, Mr Stewart's recollection is mistaken, or alternatively that he has exaggerated his evidence, and I do not accept this aspect of Mr Stewart's evidence.

(ii) Whether damage was done to the Premises in the course of the Repossession

133 Other than for the evidence of Mr Ghazouly, the evidence in relation to the Repossession supports the conclusion that the Repossession caused damage to the Premises. Mr Ghazouly's evidence was that he did not recall any damage being done to Spageddies during the Repossession. He stated that:

[T]he Workers who were employed by Ferguson Corporation were skilled professionals who were experienced in the safe installation and disconnection of equipment. The Workers were provided with a full set of tools and where the Goods were fixed to the premises etc, they were correctly removed by unscrewing the bolts, or whatever was required to be done, to disconnect the Goods (exhibit Y par 49).

However, Mr Ghazouly said that he was not monitoring whether the removal was done correctly, but rather was just responsible for making sure that no one got injured and all the goods were taken, and that he didn't remember damage being done to the Premises (ts 1258).

134 I do not accept Mr Ghazouly's evidence that there was no damage to the Premises as a result of the Repossession, for the following reasons.

135 First, the evidence of Mr Stewart, Mr Pilbeam, Mr Hardie, Mr See and Mr Sevasamy was to the effect that items were pulled from the walls, leaving exposed water pipes, the water supply was not disconnected before the items were removed so that water leaked onto the floor of the restaurant and eventually leaked into the arcade near to the restaurant, the power supply was not disconnected before items were removed and electrical wires were left exposed, and the phone lines were cut off at one stage (although apparently this problem was rectified before the Repossession concluded).

136 Secondly, the photographs of the Premises after the Repossession was conducted are entirely consistent with the evidence given by Mr Stewart, Mr Pilbeam, Mr Hardie, Mr See and Mr Sevasamy as to the state in which the Premises was left as a result of the Repossession.

137 Thirdly, Mr Ahern did not see much, if any, of the Repossession actually being conducted inside the Premises. However, to the limited extent that his evidence touched on the manner in which the Repossession was conducted, Mr Ahern's evidence was consistent with that of the witnesses for HFC. Mr Ahern recollected that he was advised of water dripping down from the restaurant into the car park below, and said that he reported this to Mr Ghazouly and asked him to attend to the problem. (Mr Ghazouly denied any recollection of a conversation of this nature with Mr Ahern (ts 1325). I do not accept that aspect of Mr Ghazouly's evidence either.)

138 Fourthly, Mr Ferguson accepted that the photographs tendered in evidence were taken after FC's workmen had carried out the Repossession (ts 1232), and that the photographs suggested that there had been some damage done to the Premises (ts 1233). Mr Ferguson accepted that the damage was done to the Premises in the course of the Repossession (ts 1233 - 1234).

139 In addition, I have doubts about the reliability of this part of Mr Ghazouly's evidence, for the following reasons.

140 First, it was apparent that in many respects Mr Ghazouly's recollection of the events of 21 March 1998 (and the events around that time) was at best vague, and in some cases non-existent. It was apparent as a result of his responses to cross-examination that at the time of giving evidence in these proceedings, Mr Ghazouly had very little independent recollection of the events of 21 March 1998. In addition, under cross-examination he clearly became confused about the events, and was unable to recall evidence to which he had deposed in an earlier affidavit and in a draft statement of his evidence prepared in 1998 (see ts 1341 - 1342).

141 Secondly, the tenor of much of Mr Ghazouly's evidence under cross-examination, in relation to whether damage was done to the Premises during the Repossession, was that he did not see the damage caused to the Premises. His evidence was that he 'didn't actually go into the kitchen area or anything like that. I was mainly on the floor area where the tables were' (ts 1324). He said that he was 'in the restaurant, not actually physically inside where the workmen were. I was just making sure there was no damage and no-one got hurt, everything was done properly' (ts 1325).

142 Thirdly, Mr Ghazouly's evidence was that he was responsible for ensuring that no damage was caused during the Repossession. To admit that damage had been caused would have been to admit that he had failed in his supervisory role, and in that sense, there was some reason for him to seek to minimise either his role or the damage caused in the Repossession.

143 Accordingly, I find that damage was caused to the Premises during the Repossession.

144 As I have already observed, and as counsel for HFC conceded in closing, there was no evidence as to damage being caused to any of the goods seized during the Repossession.

(iii) The conversation between Mr Ahern and Mr Stewart at the commencement of the Repossession

145 I have already recounted aspects of the conversation between Mr Ahern and Mr Stewart at the commencement of the Repossession. There was a difference in the evidence of some of the witnesses in relation to one significant aspect of this conversation.

146 Mr Stewart's evidence was that after Mr Ahern informed him why the workmen were present and handed him the Repossession letter, Mr Ahern

then turned to the workmen, clicked his fingers and moved his arm in a sweeping motion pointing towards the centre of the Restaurant and said to the Workmen 'come on guys let's get everything out of here and wreck this joint' (exhibit B par 19).

In cross-examination, Mr Stewart maintained that Mr Ahern said these words (ts 493, 497).

147 Mr Ahern denied that he said anything along these lines, and denied that he clicked his fingers (ts 1377). However, he accepted that Mr Ghazouly was waiting for Mr Ahern's indication that he could proceed with the Repossession (ts 1377). Although he denied that he 'motioned' to Mr Ghazouly, Mr Ahern accepted that he 'indicated somehow that he [ie Mr Ghazouly] could get started' (ts 1377). He said that he was 'not even sure that I could call it a signal. Mr Ghazouly was a few metres away and I certainly indicated to Mr Ghazouly that he could start' (ts 1378).

148 Mr Ghazouly's evidence-in-chief was that Mr Ahern 'did not say words to the effect of 'let's get all this stuff out of here and let's wreck this joint' and he did not click his fingers' (exhibit Y par 45). However, in cross-examination Mr Ghazouly admitted that he did not hear what Mr Ahern and Mr Stewart said when Mr Ahern handed Mr Stewart the Repossession letter. Mr Ghazouly said he was too busy with the workmen going into the restaurant at the time (ts 1261). Although Mr Ghazouly went on to deny that Mr Ahern had said to the workmen 'let's get this stuff out of here', his basis for this answer was not that he recollected the conversation and no such remark had been made, but that he would have remembered if that had been said (ts 1262). In addition, Mr Ghazouly accepted that Mr Ahern may have told him that the workmen could commence the work, but he could not remember what Mr Ahern said to indicate that (ts 1262). Mr Ghazouly also accepted that he would not have made his own decision to start the Repossession until Mr Ahern told him to do so (ts 1263, 1302). Given the inconsistency in Mr Ghazouly's evidence, and his apparently poor, or doubtful, recollection of the conversation between Mr Stewart and Mr Ahern, I do not place any weight on Mr Ghazouly's evidence in relation to this conversation.

149 I find that Mr Ahern did motion to the workmen that they could commence the Repossession, but I do not accept that Mr Ahern told them to 'get everything out of here and wreck this joint' as Mr Stewart alleged, for the following reasons.

150 First, as I indicated above (in relation to his evidence that items were being thrown from the balcony), I am unable to accept Mr Stewart's evidence in its entirety. While that does not mean that his evidence cannot be accepted at all, and indeed his demeanour suggested that he was an earnest witness, it does highlight the possibility that Mr Stewart may have been mistaken, or prone to exaggeration, in parts of his evidence.

151 Secondly, for the reasons I have outlined above, I am satisfied that Mr Ahern was a witness of truth, who was willing to admit when he was mistaken and to admit the limits of his own recollection.

152 Thirdly, it was apparent from his evidence that Mr Ahern was well aware that FC may be liable if its workmen caused damage to the Premises in the course of the Repossession and he advised Mr Ferguson accordingly. It is also unlikely that Mr Ahern would have positively advocated that FC's workmen proceed to engage in wilful damage of the Premises, or in any way to damage the Premises, in the course of the Repossession, given the potential consequences of doing so.

153 There was some evidence to suggest that those present at the Repossession gained the impression that Mr Ahern was in charge of the Repossession, and a participant in it. It was clear that Mr Stewart understood that this was the case. Mr Stewart appears to have formed this view because he saw Mr Ahern unlock the door to Spageddies, it was Mr Ahern who stated he represented FC and gave Mr Stewart the Repossession letter, and because it was Mr Ahern who indicated to the workmen that they could start the Repossession (ts 497). Mr Stewart asserted that Mr Ahern 'certainly was very outspoken in the direction of everything to be done. It was almost like it was a personal thing that he wanted to do himself. That was the impression I got' (ts 498). From time to time Mr Stewart walked up to Mr Ahern and asked him questions and 'asked him to exercise control over the Workmen and to ask them to show care in the manner in which they were carrying out the Repossession' (exhibit B par 29; see also ts 493, 495).

154 There was also evidence that Mr Pilbeam had approached Mr Ahern to ask him to deal with a problem arising from the Repossession, namely the fact that water was dripping down into the car park below the restaurant.

155 I am not persuaded on the evidence that Mr Ahern was in charge of the Repossession, in the sense that he was able to direct the workmen as to what to do, or that he was responsible for their conduct, and I am not persuaded that he played any active role in the physical seizure of the goods during the Repossession. I have reached that view for the following reasons. First, Mr Ahern's evidence was that he attended the Repossession because he was asked to do so by Mr Ferguson, who wanted Mr Ahern to be able to speak to the police (if they were called), to provide legal advice to FC if necessary, and to deal with Pac-Am's solicitors or other parties, should the need arise (exhibit FF par 15). It was Mr Ahern's evidence that the workmen were under the supervision of Mr Ghazouly and it was Mr Ghazouly's role to tick off items seized from the Repossession inventory (ts 1380 - 1381). In addition, after the Repossession, Mr Ahern was not involved in the storage or return of the seized goods to Spageddies.

156 Secondly, Mr Ahern's evidence as to his role was consistent with Mr Ferguson's evidence in relation to his role (ts 1218, 1222). Mr Ferguson's evidence was that it was Mr Ghazouly who was 'basically in charge of what was happening' with the Repossession (ts 1192, 1222). Mr Ghazouly's evidence in relation to Mr Ahern's role was consistent with the evidence given by Mr Ahern and by Mr Ferguson.

157 Thirdly, the evidence was that Mr Ahern's role during the Repossession was confined to speaking to Pac-Am's representatives, to Pac-Am's solicitor, and to the police (ts 1380). In contrast, there was no evidence that Mr Ahern participated in the physical removal of any of the goods from Spageddies, and he remained outside on the balcony for the majority of the time during the Repossession (ts 498).

158 Fourthly, although there were occasions when a concern or issue was raised with Mr Ahern in relation to the manner in which the Repossession was being conducted (such as Mr Pilbeam's concern that water was leaking to the car park below the restaurant) the evidence was that on each occasion, Mr Ahern went to Mr Ghazouly and asked him to deal with the matter (ts 493, 495). That is also consistent with the conclusion that it was Mr Ghazouly, and not Mr Ahern, who was responsible for the conduct of the workers during the Repossession, and that Mr Ahern was simply present to be available to provide advice, or to deal with third parties, should the need arise.

159 HFC's case is that Pac-Am's goods were seized during the Repossession, and that those goods were detained by FC until an order was made in this Court for the return of the goods by 26 March 1998. After the Repossession was completed, the trucks containing the seized goods were driven to FC's warehouse, where the goods were stored. Mr Ferguson's evidence was that FC retained the goods which had been repossessed until the Supreme Court ordered their return, and that that occurred on Thursday 26 March 1998 (ts 1234). This aspect of HFC's claim is made out.

160 HFC also pleads that some of Pac-Am's goods were damaged either during the Repossession or their detention by FC, and that not all of the goods were returned. There was insufficient evidence to establish this aspect of HFC's case. Mr See stated that some of the items seized in the Repossession were never returned, however he did not particularise these items. Mr Ferguson did not accept that any of the goods which were returned to Pac-Am were damaged (ts 1234). Mr Ferguson also did not accept that FC failed to return all of the equipment which had been repossessed. He said that it was his belief that everything had been returned, and that all items from the inventory of goods seized were ticked off by Mr Ghazouly or one of FC's project managers when the goods were returned (ts 1234). Counsel for HFC correctly conceded that these aspects of HFC's pleading had not been made out (ts 1623).

161 HFC also pleads that by reason of HFC's seizure and detention of Pac-Am's goods, Spageddies was unable to trade between 21 March 1998 and 3 April 1998. Mr Stewart gave evidence that Spageddies was unable to trade from 21 March 1998 to 3 April 1998 as a result of the removal of items during the Repossession and the damage that had been caused to the Premises. The defendants did not dispute this evidence. This aspect of HFC's case is made out.

162 As a result of the Repossession, Pac-Am incurred a number of expenses, such as for the cost of food wastage and wages over the period when the restaurant was closed. In order to assist Pac-Am to recover from the Repossession, Mr Hardie granted Pac-Am a grace period for the payment of rent and outgoings to HFC, and deferred the payment of arrears of rent which were then outstanding in the sum of $56,000.76 until January 1999.

163 The Repossession and the legal proceedings which followed (which are discussed below) were reported in the press. In the weeks following the Repossession, there was evidence that Spageddies received very few restaurant bookings and that group bookings were cancelled.

164 Mr Sevasamy's evidence was that Spageddies lost the majority of its casual staff as many staff resigned shortly after the Repossession and staff morale was negatively affected. Mr Sevasamy did not employ new staff to replace staff who had resigned, due to the downturn in sales.

(f) Pac-Am's proceedings in the Supreme Court against Mr Ahern, FC and others.

165 On 24 March 1998, Pac-Am commenced an action (CIV 1312 of 1998) (the Pac-Am action) in this court against Mr Ahern, FC, Belton Lights Pty Ltd and Greenfall Investments Pty Ltd (Belton and Greenfall were both companies with which Mr Ferguson was associated) (exhibit C). Pac-Am sought a mandatory injunction for the return of the goods seized during the Repossession, and damages for trespass, intentional interference by the defendants with Pac-Am's business and detinue and conversion of Pac-Am's goods as a result of the Repossession. On 31 March 1998 Mr Ghazouly and Mr Ferguson were joined as defendants to the Pac-Am action.

166 On 24 March 1998 the Court granted Pac-Am an order restraining FC from selling or dealing with the goods seized during the Repossession, and on the following day the Court granted an injunction requiring that all goods seized during the Repossession be returned by 5.00 pm on 26 March 1998.

167 The defendants to the Pac-Am action denied liability for the damages Pac-Am claimed. Mr Ferguson and his companies also counterclaimed against Pac-Am for money FC claimed it was owed arising from the work it performed for Pac-Am pursuant to the Contract Variation and subsequent oral variations of that agreement. Pac-Am pleaded that it had paid in full for the work performed under the Contract Variation. It also pleaded that it paid $15,000 in full and final satisfaction of the outstanding claims made in relation to further work performed by FC, and in the alternative pleaded that FC was in breach of the agreement between it and Pac-Am and that Pac-Am was not liable to pay anything for the further work performed by FC, or that any amount for which Pac-Am was liable should be set off against the damages awarded to Pac-Am.

168 In the course of the Pac-Am action, Mr Ferguson, in his capacity as a director of FC (and other companies) and Mr Ahern, in his capacity as the solicitor for Mr Ferguson, for FC and for other companies, published an apology in The West Australian newspaper on 27 February 1999 (the apology). The terms of that apology were:

We acknowledge that on 21 March 1998 we attended 'Spageddies Italian Kitchen' restaurant operated by [Pac-Am] and representatives of [FC] (acting on legal advice) wrongly removed goods, equipment and fixtures from 'Spageddies Italian Kitchen' damaging the restaurant and interfering with its trade.

We acknowledge that the claims which formed the purported (and unfounded) basis for the removal were subject to a bona fide dispute between [FC] and [Pac-Am]. The dispute had nothing to do with the solvency of 'Spageddies Italian Kitchen' and we regret that our actions may have wrongly suggested otherwise.

'Spageddies' restaurant immediately commenced proceedings in the Supreme Court of Western Australia seeking damages and also successfully obtained, by Court order, the return of its removed goods, equipment and fixtures.

[FC] has admitted liability to [Pac-Am] and Marcus Ahern's insurers have agreed to indemnify [FC] in respect of Spageddies claim for damages in the Supreme Court proceedings which will now proceed to a hearing to access [sic] the damages payable to 'Spageddies Italian Kitchen'. [FC] will contest the amount of damages payable to [Pac-Am] at the hearing to assess damages.

We sincerely and unreservedly apologise for the distress and damage to 'Spageddies Italian Kitchen', [Pac-Am], its management and staff and to the public at large for the disruption to the business of 'Spageddies Italian Kitchen' caused by our actions (exhibit 425).

169 Following the publication of the apology, Pac-Am discontinued the Pac-Am action as against all defendants apart from FC and filed a substituted statement of claim against FC for a trial of an assessment of damages. In its defence to that substituted statement of claim, FC pleaded, amongst other things, that 'as to the whole of the Statement of Claim the Defendant will not contest the issue of its liability to the Plaintiff but will only contest the issue of damages' (exhibit C par 14). However, it did not make any formal admission, in its pleading, of liability to Pac-Am.

170 The Pac-Am action was settled in April 2002, with the signing of a Settlement of Claim Deed. I note that the defendants to the present action pleaded in their defences that the Pac-Am action was settled upon the payment, 'by the Defendants [to that action], without any admission of liability on their part' of the sum of $239,000, or alternatively $120,000. The evidence was that the parties to the Pac-Am action agreed that FC (which by that stage, as I have observed, was the only remaining defendant to the action) would pay Pac-Am $120,000 and that the parties would bear their own costs of the proceedings. Clause 5 of the Settlement of Claim Deed also provided that:

The Parties acknowledge that, in settling the Proceedings in the manner set out in this Deed, the Parties have engaged in a settlement of the Proceedings which does not necessarily reflect upon the Parties' ultimate positions as to what relief they are entitled to in the Proceedings, or the merits of the Proceedings (exhibit 587).

171 No evidence was led of any other payment having been made in settlement of the Pac-Am action. Accordingly, I find that the Pac-Am action was settled in about April 2002 by FC paying the sum of $120,000 to Pac-Am.

2. Were the defendants acting in concert in conducting the Repossession and therefore joint tortfeasors?

172 I turn now to the question whether the defendants were joint tortfeasors in the conduct of the Repossession. This section of my reasons deals with the following matters:

(b) Legal principles in relation to joint tortfeasors;

(c) Did Mr Ahern and FC agree to pursue a joint purpose in conducting the Repossession, and to detain Pac-Am's property thereafter, and did they engage in concerted action to do so?

(d) Conclusion: Were Ahern and FC joint tortfeasors?

173 HFC's case is that the defendants acted in concert and assisted and facilitated each other in performing the Repossession and in doing so were joint tortfeasors who are liable for each other's actions. In support of this claim, HFC pleads that Mr Ahern was FC's solicitor, that Mr Ahern and FC without notice, and without Pac-Am's consent, entered onto the Premises on 21 March 1998, and wrongfully and forcibly removed Pac-Am's property from the Premises, converted the seized property to their own use and caused damage to the Premises. In addition, HFC alleges that after Mr Ahern handed the Repossession letter to Mr Stewart, Mr Ahern snapped his fingers and gestured to the employees or agents of FC with his arm for them to advance into the Premises and contemporaneously said to the employees words to the effect of, 'let's get all this stuff out of here and let's wreck this joint' and that he thereby incited, directed and procured the acts of FC by its employees or agents, in conducting the Repossession.

174 The defendants deny that they were acting in concert, or assisting or facilitating each other in performing the Repossession, so as to be able to be considered joint tortfeasors.

175 HFC also pleads that the defendants continued to be joint tortfeasors in detaining the property until compelled to return it by order of this court.

176 FC admits that it detained some of Pac-Am's property but says that all of Pac-Am's property was returned to Pac-Am on 26 March 1998. Mr Ahern denies that he detained any of Pac-Am's property after the Repossession was conducted.

(b) Legal principles in relation to joint tortfeasors

177 At common law, persons will be held jointly liable for a tort in circumstances where (amongst others) they agree to pursue a common purpose and take concerted action to that end, and in the course of pursuing that joint purpose any one of them commits a tort: Thompson v Australian Capital Television Pty Ltd [1996] HCA 38; (1996) 186 CLR 574, 580 - 581 (Brennan CJ, Dawson & Toohey JJ), 600 (Gummow J agreeing), 591 (Gaudron J agreeing); The Koursk [1924] P 140, 151 - 152 (Bankes LJ), 155 - 156 (Scrutton LJ), 159 - 160 (Sargant LJ).

178 What will be required to establish a common purpose will be evidence of an agreement, express or implied, to undertake the activity complained of: CBS Songs Ltd v Amstrad Consumer Electronics Plc [1988] UKHL 15; [1988] AC 1013; Balkin RP & Davis JLR, Law of Torts (4th ed, 2009) [29.25]. In CBS Songs, the defendants manufactured and sold hi-fi systems with facilities for recording from pre-recorded cassettes onto blank cassettes. The plaintiffs claimed (amongst other things) that the defendants were joint infringers with members of the public who infringed the plaintiffs' copyright in music. Lord Templeman (with whom the other Law Lords agreed) dealt with this argument in the following way:

BPI next submitted that Amstrad were joint infringers; they became joint infringers if and as soon as a purchaser decided to copy a record in which copyright subsisted; Amstrad could become joint infringers not only with the immediate purchaser of an Amstrad model but also with anyone else who at any time in the future used the model to copy records. My Lords, Amstrad sell models which include facilities for receiving and recording broadcasts, disc records and taped records. All these facilities are lawful although the recording device is capable of being used for unlawful purposes. Once a model is sold Amstrad have no control over or interest in its use. In these circumstances the allegation that Amstrad is a joint infringer is untenable. In Townsend v Haworth (1875) 48 LJ Ch 770n ... Mellish LJ said, at 773:

'Selling materials for the purpose of infringing a patent to the man who is going to infringe it, even although the party who sells it knows that he is going to infringe it and indemnifies him, does not by itself make the person who so sells an infringer. He must be a party with the man who so infringes, and actually infringe.'

...

My Lords, joint infringers are two or more persons who act in concert with one another pursuant to a common design in the infringement. In the present case there was no common design. Amstrad sold a machine and the purchaser or the operator of the machine decided the purpose for which the machine should from time to time be used. The machine was capable of being used for lawful or unlawful purposes. All recording machines and many other machines are capable of being used for unlawful purposes but manufacturers and retailers are not joint infringers if purchasers choose to break the law (1055 - 1057).

179 It was also submitted that even if Amstrad had not authorised an infringement of copyright or itself infringed copyright, nevertheless its activities in selling and advertising the hi-fi systems constituted the common law tort either of incitement to commit a tort, incitement to commit a criminal offence or negligence. In relation to this submission, Lord Templeman concluded:

My Lords, I accept that a defendant who procures a breach of copyright is liable jointly and severally with the infringer for the damages suffered by the plaintiff as a result of the infringement. The defendant is a joint infringer; he intends and procures and shares a common design that infringement shall take place. A defendant may procure an infringement by inducement, incitement or persuasion. But in the present case Amstrad do not procure infringement by offering for sale a machine which may be used for lawful or unlawful copying and they do not procure infringement by advertising the attractions of their machine to any purchaser who may decide to copy unlawfully. Amstrad are not concerned to procure and cannot procure unlawful copying. The purchaser will not make unlawful copies because he has been induced or incited or persuaded to do so by Amstrad. The purchaser will make unlawful copies for his own use because he chooses to do so. ... Buckley LJ observed in Belegging-en Exploitatiemaatschappij Lavender BV v Witten Industrial Diamonds Ltd, at 65, that 'Facilitating the doing of an act is obviously different from procuring the doing of the act.' Sales and advertisements to the public generally of a machine which may be used for lawful or unlawful purposes, including infringement of copyright, cannot be said to 'procure' all breaches of copyright thereafter by members of the public who use the machine. Generally speaking, inducement, incitement or persuasion to infringe must be by a defendant to an individual infringer and must identifiably procure a particular infringement in order to make the defendant liable as a joint infringer (1058).

180 The issue was further considered by the Court of Appeal in Credit Lyonnais Bank Nederland NV v Export Credit Guarantee Department [1998] 1 Lloyd's Rep 19. In that case, the question was whether acts which knowingly facilitated the commission of a crime and which amounted to the crime of aiding and abetting would suffice to give rise to civil liability on the part of the person aiding the offence (which offence also constituted a tort), as a joint tortfeasor. The Court of Appeal held that knowingly facilitating the commission of a crime was not sufficient to render the aider a joint tortfeasor with the principal who committed the crime (and the tort).

When one turns to the authorities, they show that the law is that knowing assistance is not enough to found tortious liability. The leading authority is the speech of Lord Templeman in CBS Songs Ltd v Amstrad Consumer Electronics Plc [1988] UKHL 15; [1988] 1 AC 1013. A review of the authorities is also to be found in the judgment of Lord Justice Mustill in Unilever Plc v Gillette (UK) Ltd [1989] RPC 583. The effect of these authorities was summarized by Mr Justice Aldous in PLG Research Ltd v Ardon International Ltd [1993] FSR 197 at 238 - 239, a patent infringement action in which the personal liability of the director of the infringing company had to be considered; he said:

'I believe it is clear that a director will not be liable unless his involvement would be such as to render him liable as a joint tortfeasor if the company had not existed. For example, the law distinguishes between facilitating and procuring a tort. A person who only facilitates a tort is not liable as a joint tortfeasor whereas a person who procures the tort is liable. ... What amounts to facilitating tort will vary in case to case, but as Mellish LJ said in Townsend v Haworth (1879) 48 LJ Ch 770 at 773:

"Selling materials for the purpose of infringing a patent to the man who is going to infringe it even though the party who sells it knows that he is going to infringe it and indemnifies him, does not by itself make the person whoso sells an infringer. He must be party with the man who so infringes and actually infringe." '

These are cases which arise out of the law of intellectual property but the principles applied are drawn from the general law of tort. Infringement of a patent or copyright is a tort (44).

182 After further reviewing the decision of the House of Lords in CBS Songs and the Court of Appeal in Unilever Plc v Gillette (UK) Ltd [1989] RPC 583, Hobhouse LJ concluded:

The overall effect of these cases is clear. ... The criminal law for obvious policy reasons goes further than the civil law. Acts which knowingly facilitate the commission of a crime amount to the crime of aiding and abetting but they do not amount to a tort or make the aider liable as a joint tortfeasor.

...

Mere assistance, even knowing assistance, does not suffice to make the 'secondary' party jointly liable as a joint tortfeasor with the primary party. What he does must go further. He must have conspired with the primary party or procured or induced his commission of the tort ...; or he must have joined in the common design pursuant to which the tort was committed (46).

Stuart-Smith LJ also concluded (35 - 36) that in order to be held a joint tortfeasor, it was not enough to merely facilitate the commission of the tort. Instead, the party must provide assistance in pursuance and furtherance of a common design.

183 I note that Credit Lyonnais was the subject of an unsuccessful appeal to the House of Lords ([1999] 1 All ER 929) but on different issues.

184 Dowsett J considered these authorities in Louis Vuitton Malletier SA v Toea Pty Ltd [2006] FCA 1443; (2006) 156 FCR 158 [148] - [170], in determining whether a landlord and manager of a market was liable, as a joint tortfeasor, for trade mark infringements committed by stallholders at the market. Having regard to the authorities, his Honour applied the principle that in order to hold the landlord and manager liable for the stallholders' infringements 'there must be a concurrence in the act or acts causing damage, not merely a coincidence of separate acts which by their conjoined effect cause damage', and that in order to satisfy that test in the present case, it is necessary to show that the respondents acted in concert with each stallholder in 'committing the tort' [171]. His Honour held that the landlord and manager had not

acted in common with any of the stallholders in the actions which constituted infringement of the applicant's copyrights. I am also satisfied that such infringements were not committed in the execution of any common purpose shared with the respondents. As I have said, the respondents' purpose was to conduct an efficient and profitable Market. The purpose of each stallholder was the successful conduct of his or her stall. There was no common purpose [172].

185 In the present case, in order to establish that FC and Mr Ahern were joint tortfeasors, HFC needs to establish (quite apart from establishing that the Repossession involved the commission of a tort, which is considered below) that FC and Mr Ahern had reached an agreement to pursue a common end, namely the Repossession of goods supplied to Spageddies by FC, and that they took concerted action to achieve that end. It will not be sufficient for HFC to show that by his conduct, Mr Ahern assisted or facilitated the Repossession.

(c) Did Mr Ahern and FC agree to pursue a joint purpose in conducting the Repossession, and to detain Pac-Am's property thereafter, and did they engage in concerted action to do so?

186 I am not persuaded that the evidence is sufficient to establish, on the balance of probabilities, that Mr Ahern and FC had reached agreement to pursue a common purpose, namely the Repossession, and that they took concerted action to achieve that common purpose, for the following reasons.

187 There was no evidence that Mr Ahern and Mr Ferguson, or anyone else on behalf of FC, had reached any express agreement that FC should conduct the Repossession. The evidence was to the contrary. Mr Ahern provided advice that FC was entitled to conduct the Repossession, and provided Mr Ferguson with the Repossession letter which could be provided to Pac-Am when the Repossession was conducted to advise Pac-Am of the basis for the Repossession. However, it was entirely up to Mr Ferguson to decide whether to proceed with the Repossession. He considered the matter for a while, and when he had made the decision that FC would proceed with the Repossession, he determined when the Repossession would occur.

188 In addition, Mr Ahern did not have any input into what items were to be seized during the Repossession, and for the reasons I have already outlined, his understanding of what items were to be seized (that is, whether only those which had not been paid for would be seized) differed from that of Mr Ferguson and Mr Ghazouly. What was seized (as set out in the Repossession inventory) did not reflect Mr Ahern's understanding of what was to occur.

189 In my view, the evidence does not permit an inference to be drawn that Mr Ahern and Mr Ferguson reached an agreement that they would conduct the Repossession. Mr Ahern did not remove any goods from Spageddies, and the evidence was that for the very large majority of the time while the Repossession was being carried out, he remained outside on the balcony.

190 In my view, the evidence supports the conclusion that Mr Ahern's role in relation to the Repossession was a very confined one, which did not involve any active participation in the Repossession. Mr Ahern attended the Repossession only because he was requested to do so by Mr Ferguson, who asked him to hand to Spageddies' staff the Repossession letter, to speak to the police if they were called, to provide legal advice to FC's staff if necessary and to deal with Pac-Am's solicitors, or other parties, should the need arise. Mr Ahern did not seize any goods from Pac-Am, he did not retain any goods after the Repossession, and he left the Premises even before the Repossession was completed.

191 HFC relies on three matters which it says establish that FC and Mr Ahern were joint tortfeasors. First, HFC relies on the evidence that Mr Ahern led the workmen up the stairs and into Spageddies, that he entered the restaurant through the unlocked door, and that he unlatched the locked entry door to enable the workmen to enter. I do not consider that this evidence, either alone or in combination with the other evidence, permits the inference to be drawn that Mr Ferguson and Mr Ahern formed a joint purpose to conduct the Repossession. Mr Ahern proceeded up the stairs before the workmen did so because Mr Ahern was to speak with Spageddies' staff and hand to them the Repossession letter. That was to be done before the seizure of any goods began. In that context, I do not think that the fact that Mr Ahern went up the stairs first, entered the door first, and proceeded to unlatch the door next to it (knowing that the workmen were also coming up the stairs) can be seen as significant.

192 Further, the fact that Mr Ahern handed over the Repossession letter to Mr Stewart does not alter the position. Merely handing over the Repossession letter, on instructions from his client, did not establish that Mr Ahern had reached an agreement with Mr Ferguson to conduct the Repossession. At best, it might be viewed as facilitating the conduct of the Repossession, by advising Spageddies' staff of the basis for the Repossession. However, even if that view were taken, merely facilitating the commission of conduct by another person is not sufficient to establish an agreement to pursue a common purpose to achieve that conduct, or to evidence concerted action to achieve that result.

193 In reaching this view, I note that Mr Ahern could have performed the same role by sending a facsimile to Spageddies, or by telephoning Spageddies staff, immediately prior to FC's workmen arriving to commence the Repossession. In my view, the action of a solicitor in conveying information to another party about his client's intention to take certain action, and the asserted basis for that action, cannot, without more, properly be viewed as evidence of the solicitor and the client agreeing to the joint purpose of taking that action, so as to establish that they are joint tortfeasors.

194 Secondly, HFC contends that Mr Ahern told the workmen to 'get all this stuff out of here and let's wreck this joint'. For the reasons explained above, I have concluded that Mr Ahern did not make this statement.

195 Thirdly, HFC relies on what it says was Mr Ahern's admission that he gave a direction to Mr Ghazouly and to the workmen to start the Repossession. I have found that Mr Ahern did motion to the workmen that they could commence the Repossession. It seems to me that in doing so, Mr Ahern was simply conveying that he had finished his communication to the Spageddies' staff of what was about to happen and the basis for it, so that FC's workmen were then able to proceed to conduct the Repossession. Neither alone nor in combination with the other evidence did this evidence establish that Mr Ahern and Mr Ferguson agreed to a joint purpose to conduct the Repossession.

196 Counsel for HFC submitted that the evidence established that Mr Ahern was in charge of the conduct of the Repossession. HFC relied on the evidence that Mr Ahern motioned to the workmen that they could commence and on Mr Ghazouly's evidence, which counsel submitted was to the effect that Mr Ahern was in charge of the Repossession, that Mr Ghazouly took instructions from Mr Ahern during the Repossession and that Mr Ahern told Mr Ghazouly that no one was to do anything in the Repossession without Mr Ahern's direction. HFC's reliance on Mr Ghazouly's evidence was somewhat surprising in view of the submission also made by counsel for HFC that Mr Ghazouly's evidence lacked credibility. In any event, for the reasons explained above, the evidence does not establish that Mr Ahern was 'in charge' of the Repossession, or that his role was to direct the workmen as to what to do.

197 As for counsel's submission that Mr Ghazouly took instructions from Mr Ahern during the Repossession, the evidence in my view was to the contrary. By way of example, on one occasion during the Repossession Mr Ahern was advised of a problem arising from the Repossession (namely of water dripping from exposed plumbing). On that occasion Mr Ahern's evidence (which for the reasons I have already given, I accept) was that he went to Mr Ghazouly and reported the problem to him and asked him to attend to it. In my view, the evidence, seen in its context, cannot properly be construed as evidence of Mr Ahern directing Mr Ghazouly as to what to do, but rather established that when Mr Ahern was given information about a problem arising from the Repossession, he immediately relayed that information to the person in charge of the conduct of the Repossession, namely Mr Ghazouly.

198 That conclusion is also consistent with the evidence of Mr Ferguson that it was Mr Ghazouly who was in charge, and who was responsible for the conduct of the Repossession. In addition, the fact that Mr Ahern left the Premises before the Repossession was completed is entirely inconsistent with any conclusion that Mr Ahern was 'in charge' of the Repossession.

199 Finally, I note for completeness HFC's pleading that the defendants continued to be joint tortfeasors in that each of them detained, withheld and continued to detain and withhold property from Pac-Am. That pleading fails, both as a result of my finding that Mr Ahern and Mr Ferguson were not joint tortfeasors, and for the reason that Mr Ahern's evidence was that he did not remove or retain any of Pac-Am's property, and there was no evidence to the contrary.

(d) Conclusion: were Ahern and FC joint tortfeasors?

200 HFC has not established, on the balance of probabilities, that Mr Ahern and FC were joint tortfeasors in relation to the conduct of the Repossession and the detention of Pac-Am's goods thereafter.

201 In this section of my reasons I deal with the issue of whether the conduct of the defendants on 21 March 1998 was wrongful (in the sense of constituting the commission of the torts of trespass or conversion). The issue is of primary relevance to the application of the tort of causing loss by unlawful means, but aspects of the analysis are also of relevance to other issues in the action, so it is convenient to deal with it at this point. In dealing with the question of whether the defendants' conduct was wrongful, I address the following matters:

(c) Principles in relation to trespass and conversion;

(d) Did Mr Ahern's entry onto the Premises constitute a trespass to land?

(e) Did the entry by FC's servants or agents onto the Premises constitute a trespass to land?

(f) Did the conduct of either defendant constitute a trespass to goods or conversion of goods?

(g) Relevance of the apology and of the settlement of the Pac-Am action to the defendants' liability for trespass or conversion;

(h) Conclusion: Was the conduct of either defendant on 21 March 1998 wrongful?

202 HFC's case is that on Saturday 21 March 1998, the defendants entered that part of the Piazza the subject of Lease A and Lease B (the leased property), without notice and without Pac-Am's consent, and wrongfully and forcibly removed Pac-Am's property (the seized property), thereby converted the seized property to their own use, and in the course of removing the seized property, damaged the leased property. HFC alleges that damage to the leased property occurred because many items of the seized property were fixtures or were intermingled with Pac-Am's property and the leased property, and the removal of those items caused damage to walls, pipes, fittings and wiring on the leased property. HFC also pleads that after taking the seized property, the defendants detained and withheld that property from Pac-Am until they were compelled by an order of the Supreme Court to return that property. HFC pleads that the order of the Court was substantially, but not wholly, complied with on Thursday 26 March 1998.

203 Although HFC's pleadings alleged that the Repossession of the seized property constituted a trespass to, and conversion of, the seized property, and a trespass onto the leased property, counsel for HFC made clear in his opening and closing submissions that the focus of HFC's case was that the Repossession constituted a trespass to the leased property and a trespass to the seized property. HFC did not abandon its claim that the defendants converted the seized property to their own use, but that aspect of the pleading received little attention. Having regard to those submissions, the discussion below also focuses primarily on the allegations of trespass.

204 HFC submits that by entering the Premises through the unlocked door, and bending down and unlatching the other locked door to enable the workmen to enter, Mr Ahern trespassed onto the Premises. HFC submits that because Spageddies was open for trade at the time of the Repossession, it invited customers to enter for the purpose of attending the restaurant as guests and that did not involve any actual or implied invitation to Mr Ahern to attend on the Premises for any other purpose, including the purpose of providing legal advice to HFC and dealing with the police and Pac-Am's representatives. As there was no express agreement between Pac-Am and Mr Ahern which permitted him to enter the Premises, the question is whether Pac-Am's consent can be implied to Mr Ahern's entry for the purpose for which he attended the Premises.

205 Mr Ahern denies HFC's allegations, other than to say that he was present on 21 March 1998 for the sole purpose of providing legal advice to FC and if necessary dealing with the police, Pac-Am's representatives or its solicitors (if that was required) and for no other purpose, and that he did not involve himself in any of the activities at the Premises. Mr Ahern also pleads that the only part of the leased property at which he attended was the Premises (and his case is therefore that he was not present at that part of the leased property which was the subject of Lease B).

206 HFC submits that the conduct of FC's representatives constituted a trespass because Pac-Am had not extended any invitation to them to attend on the Premises for the purpose for which they did, namely to conduct the Repossession.

207 FC denies HFC's allegations other than to admit that it removed some of Pac-Am's property from the leased property but says that it acted on the belief that it was entitled to do so pursuant to the Contract. FC also says that it took the seized property from, and that its servants or agents attended only at, the Premises, and not that part of the leased property which was the subject of Lease B.

208 Both defendants plead that by the Contract, Pac-Am conferred on FC the right to enter upon the leased property and remove property in circumstances where that property had been supplied by FC to Pac-Am, where payment for that property was overdue, and where ownership of that property at all times remained with FC.

209 The defendants submit that merely entering the restaurant, and opening the adjacent locked door to let in the large group of workmen, did not constitute an act of trespass by Mr Ahern (ts 1495). The defendants also submit that at no stage during the Repossession did any representative of Pac-Am ask Mr Ahern, Mr Ghazouly, or the workmen, to leave the Premises.

210 The defendants submit that when representatives of FC attended at the Premises to carry out the Repossession they were acting in reliance on the Romalpa clause, and on Mr Ahern's advice, in view of the fact that the amount which FC claimed was owed by Pac-Am for work FC had performed at the Premises had not been paid. The defendants submit that by agreeing to the Contract, which contained the Romalpa clause, Pac-Am had agreed that ownership of any goods supplied to it by FC remained vested in FC and would not pass to Pac-Am until those goods had been paid for in full by Pac-Am, and that if payment was overdue, FC could recover and sell the goods supplied by it to Pac-Am, and enter the Premises and take possession and remove the goods. The defendants' case, having regard to the evidence they advanced, was also that work subsequently done by FC for Pac-Am constituted a variation of the Contract, and was subject to the Romalpa clause.

211 HFC submits that the Contract did not constitute an authority for FC to enter, and that the defendants do not rely, in their pleadings, on the Contract Variation as providing any such authority. Even assuming that the Contract Variation also incorporated the Romalpa clause, HFC's case is that the work the subject of the Contract and the Contract Variation was fully paid for, and that other work done by FC for Pac-Am was not the subject of a contract which included a clause in the same terms as the Romalpa clause.

212 Given my finding that Mr Ahern was not engaged in the Repossession in the pursuit of a joint purpose with FC, it is necessary to consider separately whether his entry onto the Premises constituted a trespass.

213 In relation to FC, it is necessary to consider whether the workmen (who were clearly FC's agents) entered the Premises with the consent of Pac-Am, and in particular, whether it was open to them to rely upon the Romalpa clause as the basis for their claim to authority to enter the Premises and to remove the seized property. This requires a construction of the Romalpa clause and an analysis of the dispute that arose between Pac-Am and FC in relation to payment for the work performed by FC at the Premises. Counsel for HFC submitted that it was also necessary to consider the effect of the Chattel Securities Act 1987 (WA) on FC's reliance on the Romalpa clause.

214 Finally, in considering whether Mr Ahern or FC engaged in a trespass to land or to the seized property, it is necessary to consider the relevance of the apology to that question.

215 Before turning to those issues, it is convenient to dispose of a minor factual issue which emerged on the pleadings, in relation to that part of the Piazza on which the alleged trespass was said to have occurred.

216 As I have noted above, HFC pleads that the defendants entered that part of the Piazza the subject of Lease A and Lease B and that the alleged acts of trespass to land occurred there. The defendants deny any entry into that part of the Piazza the subject of Lease B.

217 Lease A covered Shops 26, 39 and 40 in the Piazza. This was the part of the Piazza in which the restaurant was located, and also contained an office area which was used for the manager's office. Lease B covered Shop 28 in the Piazza, which was located in the food court area of the Piazza, a short distance away from the restaurant.

218 There was no evidence that either Mr Ahern, Mr Ghazouly or any of the workmen who attended Spageddies on 21 March 1998 entered that part of the Piazza identified as Shop 28 or took any goods from that location. The evidence was that they entered that part of the Piazza covered by Lease A alone (which I have referred to as the Premises). The seized property was taken only from the Premises. Counsel for HFC conceded that this was so (ts 1570).

219 To the extent that HFC pleads that the alleged trespass took place both on the Premises, and on that part of the Piazza identified as Shop 28, this part of its case was not made out on the evidence. Accordingly, in these reasons, in the analysis of where the alleged tortious conduct was alleged to have taken place, I have referred only to the Premises.

(c) Principles in relation to trespass and conversion

220 A trespass to goods occurs when a party directly, and either intentionally or negligently, interferes with goods which are in the possession of another. The tort may be committed in a variety of ways, including by taking goods out of the possession of another person: see Balkin & Davis, Law of Torts (4th ed) [4.43] - [4.45], [4.47] - [4.48].

221 A person commits the tort of conversion when that party intentionally deals with goods in a manner which is inconsistent with the possession (or right to immediate possession) of those goods by another person. What is required to establish the tort is a positive, intentional act, which involves an unauthorised and unjustifiable assumption of ownership of the goods, or some wrongful interference with them, which is inconsistent with the owner's right of possession, whether or not that interference is intended to be permanent, or only for a time: see generally Balkin & Davis, Law of Torts (4th ed) [4.3], [4.19] - [4.20], citing (amongst others) Cuff v Broadlands Finance Ltd [1987] NZCA 93; [1987] 2 NZLR 343. In that case it was held that the seizure of goods to satisfy a debt, when goods other than those listed in the security instrument were seized, constituted a conversion by taking (346).

222 A trespass to land occurs (amongst other things) when a person intentionally or negligently enters into, or remains on, land which is in the possession of another. The emphasis of the tort is on physical interference with possession: see generally Balkin & Davis, Law of Torts (4th ed) [5.1]. Accordingly, it is the person with the exclusive possession of the land, rather than the owner of the land, who may sue in trespass: see Barker v The Queen [1983] HCA 18; (1983) 153 CLR 338, 341 - 342 (Mason J). It is well established that the tort protects the interest of the plaintiff in maintaining the right to exclusive possession of the property, rather than to protect title in the sense of ownership (although the party in possession may often also be the owner): The State of New South Wales v Ibbett [2006] HCA 57; (2006) 229 CLR 638 [29] (the Court).

223 Entry onto another person's land without the permission of the occupier, or otherwise with lawful authority, will constitute a trespass: Kuru v The State of New South Wales [2008] HCA 26; (2008) 236 CLR 1 [43] (Gleeson CJ, Gummow, Kirby & Hayne JJ); Plenty v Dillon [1991] HCA 5; (1991) 171 CLR 635, 639 (Mason CJ, Brennan & Toohey JJ), 647 (Gaudron & McHugh JJ); Coco v The Queen [1994] HCA 15; (1994) 179 CLR 427, 435 (Mason CJ, Brennan, Gaudron & McHugh JJ). Whether an occupier has granted a licence to another person to enter on the land is a question of fact: Halliday v Nevill [1984] HCA 80; (1984) 155 CLR 1, 6 - 7 (Gibbs CJ, Mason, Wilson & Deane JJ).

224 Justification or authority to enter land may take a variety of forms including a paramount right to possession, some other statutory or common law right of entry, the authority or permission of the person in possession and, in the absence of negligence, involuntary and inevitable accident: Barker v The Queen (356 - 357) (Brennan & Deane JJ).

225 The permission of the occupier may be given expressly, or implied from the circumstances. A licence to enter will be implied in certain circumstances, unless something in the facts is capable of founding the conclusion that any such implied licence was negated or revoked: Halliday v Nevill (7) (Gibbs CJ, Mason, Wilson & Deane JJ). Consent to an entry will be implied if the person entering on the land does so for a lawful purpose: Plenty v Dillon (647) (Gaudron & McHugh JJ); Robson v Hallett [1967] 2 QB 939, 951 (Lord Parker CJ). The implication of a licence will be precluded by an express or implied refusal of it, and an implied licence may be revoked at any time by an express or implied withdrawal of it: Halliday v Nevill (7) (Gibbs CJ, Mason, Wilson & Deane JJ).

226 The occupier's authority to enter may be subject to express or implied limitations regarding the time, place, manner or purpose of entry, and if it is so limited, it will operate only to authorise an entry which comes within the scope of its limited terms: Barker v The Queen (357) (Brennan & Deane JJ) and the authorities cited therein. If, on the facts, the right or authority to enter onto land is limited in scope then an entry which is unrelated to the right or authority will amount to a trespass. Accordingly a person who has permission to enter onto land for a specific purpose commits a trespass if he enters onto land for any other purpose, especially if that other purpose is an unlawful purpose. That person will stand in no better position than a person who enters with no authority at all: Barker v The Queen (342, 346) (Mason J), (357) (Brennan & Deane JJ).

227 However, an authority to enter need not be limited. As Brennan and Deane JJ observed in Barker v The Queen, the authority to enter onto land

need not be limited (in its character as an authority to enter land) by reference to the things which the person whose entry is permitted may legitimately do after he has entered or to the range of purposes which were or might have been in the contemplation of the grantor of the permission. If it is a general permission to enter in the sense that it is not limited, either expressly or by necessary implication, by reference to the purpose for which entry may be effected, it is not legitimate to cut back the generality of the permission to enter merely because it is probable that the grantor would, if the matter had been raised, have qualified it by excluding from its scope any entry for the purpose of committing an unauthorised act. When the permission is not in fact so limited, an unanticipated or illegitimate purpose on the part of the entrant does not, at common law, affect the status of his entry or make him a common law trespasser (357 - 358).

228 Their Honours went on to observe that if the authority to enter onto land is not limited by reference to the things the invitee may do once he or she has entered:

[A] purpose of subsequently doing an unlawful act will not, under the common law, convert entry which was otherwise within the permission into entry as a trespasser. In particular, to take the example on which most reliance was placed, the implied invitation to enter which a shopkeeper extends to the public may ordinarily be limited to public areas of the shop and to hours in which the shop is open for business: it is not, however, ordinarily limited or confined by reference to purpose. Indeed, in the context of the importance of 'impulse buying', the mere presence of the prospective customer upon the premises is itself likely to be an object of the invitation and a person will be within the invitation if he enters for no particular purpose at all. The fact that a person enters with the purpose or some thought of possibly stealing an item of merchandise or of otherwise behaving in a manner which is beyond what he is authorised to do while on the premises does not, in the ordinary case where the invitation to enter is not confined by reference to purpose, result in the actual entry being outside the scope of the invitation and being trespassory (361 - 362).

229 Difficult questions can arise when the authority or permission to enter onto the land is limited to a particular purpose and a person enters onto the land for that purpose and for some other purpose: TCN Channel Nine Pty Ltd v Anning [2002] NSWCA 82; (2002) 54 NSWLR 333 [30] (Spigelman CJ, Mason P & Grove J agreeing). Whether the entry will constitute a trespass on the land is an issue which has not been finally resolved in the authorities: see Barker v The Queen (345 - 347) (Mason J), cf (365) (Brennan & Deane JJ); cf Healing (Sales) Pty Ltd v Inglis Electrix Pty Ltd [1968] HCA 60; (1968) 121 CLR 584, 599 (Barwick CJ & Menzies J), cf 606 (Kitto J); TCN Channel Nine v Anning [32] - [37] (Spigelman CJ, Mason P & Grove J agreeing) and the cases discussed therein; Byrne v Kinematograph Renters Society Ltd [1958] 1 WLR 762, 776 (Harman J).

230 A common example of the implication of a licence to enter relates to private homes, where a licence will ordinarily be implied in favour of any member of the public to go upon the path or driveway to the entrance of the home for the purpose of lawful communication with, or delivery to, any person in the house. The path or driveway will be viewed as having been held out by the occupier of the house as the link from the street to his or her home upon which members of the public may go for a legitimate purpose that in itself involves no interference with the occupier's possession nor injury to the occupier, his or her guests or his, her or their property: Halliday v Nevill (7) (Gibbs CJ, Mason, Wilson & Deane JJ). However, a licence will not be implied in such a case if the path or driveway leading to the entrance of the house is obstructed or the gate locked: Halliday v Nevill (7 - 8) (Gibbs CJ, Mason, Wilson & Deane JJ).

231 The same principles apply in relation to the implication of a licence to enter business premises. In TCN Channel Nine v Anning the question was whether employees of the appellant, a television reporter and cameraman, had trespassed on business premises when they entered the premises and attempted to film an interview with a view to broadcasting it. At trial, the appellant was found to have committed a trespass. On appeal, the appellant submitted that the entry of its employees occurred pursuant to an implied licence because the use of the land as a business (either as a tyre dump or as a race track) necessarily involved permission for members of the public to enter, or on the basis that any member of the public has a right to enter a property in an attempt to lawfully communicate with the occupier, and specifically to do so for the purpose of requesting an interview. The evidence was that the gate to the property was unlocked at the time of the entry and that some form of implied licence to enter the property existed.

232 In determining whether the entry occurred pursuant to such licence, Spigelman CJ (with whom Mason P and Groves JA agreed) found that the purpose of the entry onto the land was a material consideration. His Honour held that:

Whatever may have been the scope of a permission for entry with respect to the conduct of the used tyre business or the conduct of a race track, nothing the appellant did was referable to any such purpose. If there was an implied licence to enter for any such purpose, the appellant did not avail itself of such a licence [43].

233 His Honour also rejected a general submission by the appellant that by virtue of the unlocked gate to the property, there was an implied licence which was not limited in any way by what could be done by persons entering onto the property [46] - [49]. He held that most implied invitations will be for limited purposes, and that:

Persons conducting business on private property are entitled to do so without others intruding for purposes unrelated to the business activities they are conducting. This includes those who wish to enter with a view to publicly exposing aspects of their business [58].

Accordingly, he concluded that there was no implied licence for the appellant's employees to film on the property.

234 Similarly, an implied licence for members of the public to enter onto business premises was held, prima facie, to exist in Lincoln Hunt Australia Pty Ltd v Willesee (1986) 4 NSWLR 457 in the course of an application for an injunction based, in part, on an alleged trespass. However, that implied licence was held not to authorise entry for the purpose of a journalist and film crew filming a dissatisfied customer when she attended at the premises. Young J held that the evidence suggested that

the implied invitation by the plaintiff for the public to visit its premises was limited to members of the public bona fide seeking information or business with it or to clients of the firm, but not to people, for instance, who wished to enter to hold up the premises and rob them or even to people whose motives were to go onto the premises with video cameras and associated equipment or a reporter to harass the inhabitants by asking questions which would be televised throughout the State (460).

(d) Did Mr Ahern's entry onto the Premises constitute a trespass to land?

235 I have found that Mr Ahern attended at Spageddies on 21 March 1998 for the purpose of handing to Spageddies' staff the letter which set out the basis for the Repossession, to speak to the police if they were called, to provide legal advice to FC's staff if necessary and to deal with Pac-Am's solicitors, or other parties, should the need arise.

236 Although not expressly pleaded, nor expressly stated in the defendants' submissions, it appeared to be Mr Ahern's case that when he entered the Premises he had authority to do so. Absent any suggestion of an alternative basis for that authority, I have surmised that Mr Ahern's case is that he entered the premises with Pac-Am's permission. There being no evidence that he had express permission from Pac-Am to enter the Premises, I have surmised that Mr Ahern's case is that he entered with an implied licence from Pac-Am to do so.

237 The evidence in relation to the scope of such an implied licence was scant. The evidence was that the restaurant was open for business when Mr Ahern entered the Premises. He entered through the front door of the restaurant, which was open at the time. Customers were present in the restaurant.

238 Counsel for HFC submitted that the only implied licence which could be inferred in the circumstances applied to persons intending to dine at the restaurant - that is, that the only persons with Pac-Am's authority to enter Spageddies were persons who intended to dine at the restaurant. I do not accept that such evidence as there was supports the conclusion that the implied licence was so narrowly confined. By way of example, persons potentially interested in dining at the restaurant, but who wished to consider the menu before making a decision to dine there, would no doubt have had Pac-Am's authority to enter the Premises. Similarly, there can be no doubt that suppliers of goods to the restaurant would have had Pac-Am's authority to enter. Whatever may have been the full scope of the implied licence to enter the Premises, it seems to me that on the balance of probabilities that implied licence encompassed those persons who entered for the purposes of communicating with Pac-Am's staff or of engaging in business dealings with Pac-Am.

239 Mr Ahern was such a person. He attended at the Premises for the purpose of communicating information to Pac-Am's staff about FC's intention to conduct the Repossession and the basis for that conduct, and to deal with Pac-Am's solicitors, in relation to the Repossession, should the need arise. To that extent, his entry into the Premises was, in my view, authorised by Pac-Am's implied licence to enter the Premises. Although Mr Ahern also attended at the Premises to provide legal advice to FC's servants and agents during the course of the Repossession, should the need arise, there was no evidence that any such advice was in fact provided. Mr Ahern also attended for the purpose of being able to speak to the police, should they be called by Pac-Am's staff. The police were in fact called by Pac-Am's staff, and Mr Ahern spoke to them, but in my view this did not take his entry onto the Premises outside the scope of the implied licence.

240 In addition, there was no evidence that the implied licence was revoked by Pac-Am's staff at any stage while Mr Ahern was present at the Premises. There was no evidence that at any time Mr Ahern was asked to leave the Premises.

241 Accordingly, in my view, Mr Ahern did not commit a trespass to land when he entered the Premises.

(e) Did the entry by FC's servants or agents onto the Premises constitute a trespass to land?

242 The same conclusion does not apply in relation to the entry onto the Premises by FC's servants or agents. They entered the Premises solely for the purpose of conducting the Repossession of goods FC had supplied to Pac-Am. Whatever the scope of the implied licence to enter the Premises, nothing in the evidence supports the conclusion that that licence extended to persons entering for purposes entirely unrelated (and in this case, entirely antithetical) to the operation of Spageddies or of Pac-Am's business of conducting the restaurant: cf TCN Channel Nine v Anning [58] (Spigelman CJ).

243 Accordingly, if FC's servants and agents entered the Premises with authority, that authority did not derive from any implied licence to enter the Premises.

244 The defendants' case was effectively that FC's servants and agents had Pac-Am's express authority to enter the Premises and that that authority derived from the Contract, and in particular from the Romalpa clause in the Contract. I turn, then, to consider the construction and operation of the Romalpa clause.

245 The terms of the Romalpa clause are set out earlier in these reasons. The Romalpa clause formed part of the Contract. By its terms, the Romalpa clause pertained to the work to which the Contract pertained. The purported effect of the Romalpa clause was twofold. First, its effect was that ownership of the goods provided by FC to Pac-Am under the Contract would remain with FC and would not pass to Pac-Am until FC had been paid the 'invoiced price' in full, together with any freight, costs, and sales tax. In this sense, the Romalpa clause was designed to enable FC to retain its title in the goods supplied until Pac-Am paid the 'invoiced price' and the specified associated charges, in full (cf Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676).

246 The 'invoiced price' was not defined anywhere in the Contract, but appears to have been a reference to the invoice for payment which FC would send to Pac-Am following completion of the work described in the Contract. In that sense, the Romalpa clause appears to have been designed to indicate the intention of Pac-Am and FC that the passage of property in the goods supplied by FC was to be conditional on payment of the 'invoiced price' in full: cf s 17 and s 19 of the Sale of Goods Act 1895 (WA).

247 Secondly, in the event that payment of that invoiced price was overdue, the Romalpa clause gave FC the right to recover and sell the 'goods supplied' to Pac-Am, and the right to enter Pac-Am's business premises to take possession of, and remove, those goods. The 'goods supplied' were not defined in the Contract, but in the context those words must be understood as referring to the goods supplied by FC to Pac-Am pursuant to their agreement.

248 In their defences the defendants relied solely on the Romalpa clause in the Contract as authorising the entry by FC's servants and agents onto the Premises. There was no express reliance on the Contract Variation. However, it is necessary to bear in mind my earlier finding that on 6 May 1997, FC and Pac-Am agreed to vary the Contract, so that FC would undertake both the fit-out described in the Contract, and the additional work set out in the Contract Variation, for the total price, and on the terms, set out in the Contract Variation. The Romalpa clause was part of the terms of the Contract Variation. Although the defendants did not expressly refer to the Contract Variation in their defences, this does not, in my view, preclude consideration of the Contract Variation for the purpose of considering the scope of operation of the Romalpa clause. Although for convenience I have referred to the Contract and the Contract Variation separately in these reasons, the reality was that those effectively set out the terms of the one agreement between Pac-Am and FC, which was entered into on 9 April 1997 and which was varied on 6 May 1997. The terms of that agreement were set out in both the Contract and the Contract Variation.

249 Accordingly, in construing the terms 'invoiced price' and 'goods supplied' in the Romalpa clause, regard must be had both to the Contract and the Contract Variation as a whole. Consequently, unless the Contract was subject to a further variation, the 'invoiced price' in total was to be $285,000 and the 'goods supplied' were those goods supplied in the performance of the work described in the Contract and in the Contract Variation.

250 In order to consider whether the Romalpa clause constituted an express authority for FC's servants and agents to enter the Premises and conduct the Repossession, it is necessary to consider whether Pac-Am's payment of the 'invoiced price' for the work done was overdue, and whether FC's servants and agents entered the Premises for the purpose of taking possession of those goods which had been supplied by FC pursuant to the Contract and the Contract Variation.

(ii) By virtue of the Romalpa clause, did FC's servants and agents enter the Premises with Pac-Am's consent?

251 Resolution of this issue requires consideration of a number of questions. The first - which FC did not expressly advance, but which should be disposed of nevertheless - is whether the Romalpa clause in the Contract and the Contract Variation authorised the entry of FC's servants and agents because payment for the invoiced price for the goods supplied under the initial fit-out of Spageddies was overdue at the time of the Repossession.

252 The second possibility, which represented FC's case, was that following the initial fit-out, it agreed to perform additional work for Pac-Am at the Premises, which involved the provision of goods, and that to this end, FC and Pac-Am had varied the Contract so that the terms of that Contract also applied to the performance of the additional work. An alternative possibility to this one is that a Romalpa clause (in identical terms to the Romalpa clause in the Contract) was included as an express term of the agreement reached between FC and Pac-Am in relation to the performance of the additional work. The first plank of each of these alternatives is that the additional work which was performed was the subject of a Romalpa clause, either by a variation of the initial Contract to include the additional work, or by the parties agreeing to a new contract for the performance of the additional work, which contract also included a Romalpa clause.

253 Even if the additional work performed by FC at Spageddies was subject to a Romalpa clause, the next issue which must be considered is whether payment of the invoiced price for the goods supplied in relation to this additional work was overdue at the time of the Repossession.

(A) Did the Romalpa clause in the Contract and the Contract Variation authorise the entry of FC's servants and agents because payment for the invoiced price for the goods supplied under the initial fit-out of Spageddies was overdue at the time of the Repossession?

254 In my view, when FC's servants and agents entered the Premises on 21 March 1998, the Romalpa clause in the Contract and the Contract Variation, at least in so far as it applied to the goods supplied in the original fit-out of Spageddies, did not authorise that entry. The starting point for that conclusion is to consider whether the invoiced price of $285,000 due under the Contract and Contract Variation, for the work performed by FC, was overdue at the time of the Repossession on 21 March 1998. The evidence supports the conclusion that it clearly was not overdue, but rather had been paid in full by the end of May 1997. This much can be discerned from the invoices sent by FC to Pac-Am in relation to the work performed pursuant to the Contract and the Contract Variation, and is confirmed by additional documents and by the evidence of Mr Ferguson.

255 On 23 April 1997, FC issued an invoice - number I01439 - to Pac-Am for what was described as the 'first progress payment on South Perth Restaurant' in the sum of $108,000 (exhibit 165A). Pac-Am paid this sum to FC on the same day.

256 On 30 April 1997, FC sent an invoice - number I01451 - to Pac-Am for the sum of $50,000.00 (exhibit 166B). However, some time in May 1997, FC sent a further invoice - number I01452 - to Pac-Am, for the sum of $77,000.00 (exhibit 166A). (This invoice was dated 30 April 1997 but bears a handwritten annotation indicating that it was sent in May.) This invoice appears to have been intended to supersede invoice number I01451, because (amongst other things) it indicated that the balance on the contract after the payment of this invoice would be $100,000, having regard to the stated contract price of $285,000.

257 On 16 May 1997, FC sent an invoice - number I01465 - to Pac-Am for the sum of $75,000 which was described as a 'third progress payment' (exhibit 172A).

258 On 23 May 1997, FC sent an invoice - number I01479 - to Pac-Am, for the sum of $25,000, which was said to be for the balance of the $285,000 Contract Variation price, having regard to the amounts the subject of the earlier invoices (exhibit 180A).

259 I digress to note that invoices I01451, I01452, I01465 and I01479 were inconsistent with the terms of the Contract. As I noted above, it was a term of the Contract that there be payment of a deposit of 40%, a payment on completion of 50%, with a final payment of 10% after completion. While invoice I01439 (for $108,000) equates to 40% of the initial Contract price of $270,000, invoices I01451, I01452 and I01465, for $50,000, $77,000 and $75,000 respectively, do not, either alone or in combination, equate to 50% of the initial Contract price of $270,000 nor of the Contract Variation price of $285,000. Finally, invoice number I01479 (for $25,000) does not equate to the sum of 10% of either the Contract price or the Contract Variation price. What FC appears to have done, after the payment of the initial deposit, was to invoice Pac-Am for the work done as it was completed, rather than pursuant to the terms agreed in the Contract.

260 Nevertheless, the evidence clearly established that by the end of May 1997, Pac-Am had paid FC the sum of $285,000 (exhibit 165) and this was also acknowledged in writing by FC in July 1997 (exhibit 204B - invoice I01581). In cross-examination, Mr Ferguson also acknowledged that prior to March 1998 (when the Repossession was carried out), FC had received full payment from Pac-Am of the $285,000 Contract Variation price, although Mr Ferguson maintained that FC had subsequently carried out additional works for which payment remained outstanding (ts 1199, 1201).

261 Accordingly, I find that by the end of May 1997, FC had paid the 'invoiced price', namely the price set out in the Contract Variation, for the work described in the Contract and the Contract Variation. From that perspective, there is no basis upon which it could be said that by the date of the Repossession on 21 March 1998, Pac-Am was overdue in paying the 'invoiced price' for the work done pursuant to the Contract and the Contract Variation.

262 Before turning to consider the alternative possibility, on which FC's case was based, namely that the additional work performed by it was the subject of a variation of the Contract, or alternatively the subject of a separate agreement a term of which included the Romalpa clause, it is convenient to describe how it came about that by February 1998, FC and Pac-Am were in dispute in relation to whether Pac-Am owed FC any money for the work undertaken by FC at Spageddies, the amount of that debt, and the items in respect of which that money was owed.

263 The initial fit-out work described in the Contract and the Contract Variation appears to have been completed in either May or early June 1997, prior to the opening of Spageddies in June 1997. After that time, FC performed additional work for Pac-Am at the Premises. Between May 1997 and December 1997, FC issued a number of invoices for payment for money it claimed was owned by Pac-Am. I have set out below, in chronological order, the evidence in relation to the invoices and correspondence sent by FC to Pac-Am, which identifies the money FC claimed it was owed by Pac-Am, and the items in respect of which it said that that money was owed.

264 By way of an overview of this evidence, it seems to me that the fact that a dispute arose between Pac-Am and FC was, broadly speaking, attributable to four factors, all of which are inter-related. First, FC's invoicing practices, and its bookkeeping (which was described by Mr Ferguson - in a considerable understatement - as 'maybe not as diligent as what it should be' (ts 1216)) are more aptly described as shambolic. Secondly, confusion arose as to whether various items of work undertaken by FC were covered by the Contract or Contract Variation or were additional items for which FC was entitled to seek additional payment. Thirdly, Pac-Am disputed whether some of the work for which FC sought payment had actually been performed, or was work for which Pac-Am was liable. Fourthly, the amount which FC claimed was outstanding varied widely from time to time, no doubt adding to the confusion about the precise quantum of the debt which it claimed.

265 On 16 May 1997, FC issued invoice number I01466 to Pac-Am. This invoice sought the sum of $6,420.24 and was said to comprise the sum of $4,014.50 for 'Stamp Duty on the Sale of Il Fiume', $531.97 for 'Import Duty Fed-Ex' and $1873.77 for 'Import Duty Owens Shiping' [sic] (exhibit 172B). On 30 May 1997, FC issued an invoice - number I01485 - to Pac-Am dated 30 May 1997, for the sum of $2,187.23 for 'Import Duty Owens' (exhibit 187A).

266 On 24 July 1997, FC sent another invoice - number I01558 - to Pac-Am for the sum of $2,187.23 for 'Owens International Freight Charges for Goods Delivered to Spageddies South Perth' (exhibit 203A). (It is not entirely clear whether or not this invoice pertained to the same items specified in invoice I01485.)

267 On 31 July 1997, FC issued an invoice - number I01580 - to Pac-Am for the sum of $24,231.00 which was said to be for 'Office Fitout $10,594.00, Restaurant Floor Area Works $1759.00, Supply Tables (5) and Chairs (30) $11,450.00 and Service Calls $428.00' (exhibit 204A). On 7 August 1997 Mr Ferguson wrote to Spageddies providing 'costings for work carried out on additional projects on your restaurant' to a total cost of $10,594 (exhibit 160.3). It appears that some of the work the subject of this letter was the same work which was, in part, the subject of invoice number I01580. The work referred to in the letter included an office fit-out, with a total cost of $10,594, work in the restaurant area including the removal of a waiter's station, the relocation of a drink station, some electrical and plumbing work and some related repairs to the tiled floor, with a total cost of $1,750, and fees for service call charges of $428.

268 On 3 September 1997, Mr Ferguson wrote to Spageddies twice in relation to this additional work. The details of that correspondence are discussed below. However, in what appears to have been the first of those letters (exhibit 160.9) Mr Ferguson noted that the work associated with the office fit-out also included 'electrical work' although the total price quoted for the office fit-out remained the same. In addition, Mr Ferguson acknowledged that Pac-Am had made a part payment of $15,000 for this work, leaving due and payable the sum of $9,231 (exhibit 160.9). In the second letter sent by Mr Ferguson to Spageddies on 3 September 1997 (exhibit 160.8) he advised that the total cost of the office fit-out was $11,677, so that (taking into account the part-payment of $15,000), the balance owing for this work was said to be $10,314.

269 FC subsequently issued an invoice - number I01581 - to Pac-Am for the sum of $83,224 for 'Extra as per attached schedule' [sic] (exhibit 204B). It is not entirely clear when this invoice was sent. The invoice was dated 31 July 1997, although Mr Ferguson's evidence was that he prepared the schedule attached to the invoice in September 1997 (ts 1204 - 1205). The schedule which was attached contained a long list of what were claimed to be additional items of work performed for Pac-Am, under the heading 'Extras as discussed on site with Jude Cohen'. There were a number of difficulties with this invoice, which are discussed below.

270 On 27 August 1997, FC issued an invoice - number I01606 - to Pac-Am for the sum of $1644.77 for 'Owens International Freight Charges to Transport Equipment for Spageddies Restaurant' (exhibit 211A).

271 By invoice number I01613 dated 31 August 1997 (exhibit 211B) FC sought payment of $1348 from Pac-Am for work including picking up a tomato slicer, taking it to a factory for repair, and returning it to the Premises, and electrical work.

272 On 4 September 1997, FC sent Pac-Am an Invoice Statement claiming payment for invoices described as invoices [I0]1466, [I0]1558, [I0]1580, [I0]1581 and [I0]1606 totalling $117,707.31. The Invoice Statement acknowledged that $19,014.50 had been paid, and claimed an outstanding balance of $98,682.81. The Invoice Statement sought an immediate payment of $15,468.74. Part of that amount was said to constitute an unpaid portion of FC's invoice numbered I01580 in respect of the office fit-out. The balance of the $15,468.74 was said to arise from an unpaid portion of FC's invoice number I01466, and to the outstanding balances said to be owed under FC's invoices numbered I01606 and I01558, to which I have referred above.

273 Eventually Mr HH Khoo became concerned that FC may have overcharged Pac-Am for the cost of the work performed at Spageddies. He instructed Mr Cohen to carry out a reconciliation of the costs of the fit-out and of the work performed by FC. On 18 June 1997, Mr Cohen prepared a reconciliation document in which he concluded that Pac-Am owed $13,412 to FC. The basis for Mr Cohen's view is set out below.

274 Following the receipt of further invoices from FC, Mr Cohen sent a facsimile to Pac-Am on 9 September 1997, for the attention of Mr HW Khoo and with a copy to Mr HH Khoo. Mr Cohen advised that he had reviewed the documentation and inventory of work, which by that stage was claimed by FC to amount to an outstanding balance of in excess of $83,000, and had concluded that Pac-Am only owed FC the amount of $13,000.

275 On Mr HH Khoo's instruction, Mr Cohen sent a facsimile to Mr Ferguson on 19 September 1997 disputing the amount claimed by FC in invoice number I01581. Mr Cohen advised Mr Ferguson that Pac-Am was prepared to pay only a further sum of $13,000 in full and final settlement of all payments due from Pac-Am in respect of the work performed by FC. Pac-Am did not ever pay FC the $13,000 that it conceded it owed FC (ts 702).

276 Mr Ghazouly responded to Mr Cohen by letter dated 22 September 1997. He made it clear in that letter that FC did not accept Pac-Am's view that it owed only $13,000. However, Mr Ghazouly's letter complicated matters further because he went on to claim that Pac-Am now owed FC the sum of $89,461.74. This sum was said to reflect amounts owing in respect of invoice I01466 (which was said to have been 'short paid'), and invoices I01581, I01538 (which appears to have been a reference to invoice I01558) and I01606. It appears that the outstanding sum of $89,461.74 referred to by Mr Ghazouly was comprised of the longest outstanding invoices amongst those which FC claimed had not been paid.

277 To add to the confusion, however, on 22 September 1997 FC sent Pac-Am a statement of outstanding invoices, indicating an outstanding total balance owing of $101,123.74 in respect of invoices I01466, I01485, I01580, I01581, I01606 and I01633.

278 By letter dated 7 October 1997, Mr Ghazouly, on behalf of FC, again wrote to Mr Cohen but this time referred to an overdue account in the sum of $89,461.74 for invoices I01466, I01485, I01581 and I01606.

279 By facsimile dated 23 October 1997, Mr Ghazouly wrote to Spageddies, in relation to 'Breakdown of Invoices Totalling $10,579.00', a figure which does not appear to correlate with any of the previous invoices or correspondence sent by FC to Pac-Am.

280 On 29 October 1997, Mr Cohen, on behalf of Pac-Am, wrote to FC in response to FC's letters of 22 September and 7 October 1997. In his letter, Mr Cohen disputed the position advanced by FC and advised that Pac-Am's position was that it understood that the sum of $285,000 represented a lump sum payment for all works done and services performed by FC, with the exception of certain additional works and services specifically agreed. Mr Cohen advised that those additional works were the subject of an oral agreement with Mr Ferguson that the cost of those works would be $13,412 (which sum took into account the cost of the works, and various amounts to be reimbursed by FC). Mr Cohen therefore requested clarification of the amount of $89,462.74 which FC now claimed was owed by Pac-Am.

281 Mr Cohen also requested clarification of the additional works and services charged under invoice numbers I01466, I01581, I01538 and I01606. He expressed the view that if these items were not already included in the Contract or the Contract Variation then Pac-Am would require evidence that the works were in fact authorised by Pac-Am by its approval of the quotations submitted by FC for those works. In addition, Mr Cohen advised that the works listed in invoice number I01581 were not 'additional works' as FC claimed, because (for example) they represented work for which Pac-Am had been overcharged, or items of work for which Pac-Am should not have been charged. The basis for these claims by Mr Cohen is set out below. Finally, Mr Cohen advised that if FC insisted on charging Pac-Am for any additional work in fact done under invoices I0166, I01581, I01538 and I01606, Pac-Am contended that the amount owing was only $11,467.74, and not $89,461.74 as had been claimed by FC.

282 On about 18 November 1997, Mr Ferguson met with Mr HH Khoo and Mr Cohen, to discuss these matters. Mr Ferguson's evidence was that Mr HH Khoo told him that he would be in touch within the next couple of weeks to 'sort out the account' (exhibit U par 27). Mr Ferguson's evidence was that as a result of that meeting, he decided to accept a reduced sum for the work done, in order to help secure contracts for the fit-out of further restaurants which Pac-Am intended to open in Australia in the future.

283 By letter dated 28 November 1997, Mr Ferguson and Mr Ghazouly, on behalf of FC, responded to Mr Cohen's letter of 29 October 1997. They made reference to the meeting held on 18 November 1997 with Mr Ferguson, and noted that they had not heard from Mr HH Khoo. They advised that if no response was received from Mr HH Khoo, they would respond in detail to Mr Cohen's letter.

284 On 23 December 1997, Mr Ferguson and Mr Ghazouly wrote to PAFC for the attention of Mr HH Khoo (exhibit 256). They attached a schedule to the letter which set out various items of work comprising $6,780 for the supply and fitting of metal work, $200 for the supply and fitting of tiling/marble work, $13,300 for the supply and fitting of carpentry and joinery, and $12,180 for electrical work, to a total of $32,460. In that letter, Mr Ferguson and Mr Ghazouly contended that each item of work had been performed on the instruction of Mr Cohen, and that there had been no suggestion that the items were included within the original Contract or Contract Variation.

285 Mr Ferguson's evidence was that 'in order to expedite settlement of Pac-Am's account and in order to maintain good working relations between [FC] and Pac-Am ... [FC] offered to accept the sum of $32,460 in full payment of the invoice for $83,224' (exhibit U par 32).

286 Mr Ghazouly wrote a further letter to PAFC on 23 December 1997. In that letter he sought payment of the amount of $10,579, comprising an outstanding balance of $9,231 in respect of invoice I01580 (for which a part payment had already been received) and the full balance owed on invoice I01613 (ts 1212). Mr Ghazouly advised in that letter that 'failure to expedite immediate payment will leave our Company with no alternative but to exercise our rights under the contract at hand'.

287 Finally, on 23 December 1997, Mr Ferguson and Mr Ghazouly, on behalf of FC, wrote to PAFC and advised that FC had yet to receive the sum of $8,500 'for the shortfall at settlement of the sale of Il Fiume Ristorante', and requested payment of that amount (exhibit 258).

288 Mr Ferguson's evidence was that he did not know why these additional letters were sent on 23 December 1997, because $32,450 'was the item that we expressly wanted to finish the job' (ts 1211) and that FC was prepared to accept that sum (apparently in final settlement of its outstanding claims) if that amount was paid prior to the end of December (ts 1212). I note, however, that that sentiment was not expressed anywhere in the invoices sent on 23 December 1997.

289 On 12 January 1998, Mr Ghazouly wrote to Mr Paul Myles, the accountant for Pac-Am, advising that the total amount payable by Pac-Am was $56,332.17, comprising the amount of $8,500 owing from the sale of Il Fiume, freight charges totalling $4261.20 (for invoices I01558 and I01466 and a further invoice described as for Owen Freight), import duty under invoice I01466 of $531.97, an amount of $32,460 for 'variations to the Original Contract', an outstanding balance of $9,231 on invoice I01580 and an outstanding balance of $1,348 on invoice I01613. Mr Ferguson's evidence was that this letter was sent because no response was received to FC's letter of 23 December 1997. I have discussed aspects of this letter further below.

290 Mr Ferguson said that he telephoned Spageddies on 22 January 1998, again on 29 January 1998 and again approximately one week later, to seek a response to Mr Ghazouly's letter of 12 January 1998. On each occasion he asked to speak to Mr HW Khoo, was told he was not available, and left a message requesting that Mr HW Khoo telephone him.

291 As I have already found, by February 1998, Mr Ferguson was considering undertaking the Repossession to recover the goods FC had supplied to Pac-Am, and sought advice from Mr Ahern in relation to this course of action.

292 I now turn to consider whether the evidence supported FC's case that the additional work performed by it for Pac-Am was subject to the Romalpa clause.

(C) Was the additional work performed by FC for Pac-Am at the Premises the subject of a further variation or variations to the Contract, so that the Romalpa clause in the Contract also applied to the goods supplied in relation to that additional work?

293 FC's case was that by their agreement (or agreements) that FC would perform additional work for Pac-Am at the Premises, the parties had varied the Contract so that the terms of that Contract also applied to the performance of the subsequent work. I am not persuaded that the evidence supports that conclusion, for the following reasons.

294 There was scant evidence concerning the basis on which the additional work was performed by FC. No quotations were sent, and there was no evidence that Pac-Am had accepted, in writing, any proposal by FC to undertake additional work. Other than in respect of Mr Ferguson's letters of 7 August 1997 and 3 September 1997 (which I have discussed further below) the details of the work to be performed, and the terms on which it was to be performed, do not appear to have been set out in writing at all. The only documentation which was in evidence comprised the invoices sent by FC to Pac-Am for the work it claimed it had done, and the correspondence exchanged between Pac-Am and FC as the dispute between them developed, which I have set out above.

295 It appears, then, that to the extent that there was any agreement in relation to the performance of the additional work by FC, that that was the subject of an oral agreement (or agreements) between Mr Ferguson and Mr Cohen. Mr Cohen did not give evidence at the hearing, and the witnesses associated with Pac-Am who gave evidence at the trial were unable to shed any light on what was agreed between Pac-Am and FC in relation to this additional work.

296 The only witness who had any direct knowledge of the terms on which the additional work was to be performed was Mr Ferguson. His evidence in relation to the basis on which the additional work was to be performed was, however, limited. The essence of his evidence was that 'the whole job was one contract' (ts 1227). That is, it appears that he regarded that FC's performance of additional work at the Premises would be treated as a further variation of the Contract.

297 However, the force of this aspect of Mr Ferguson's evidence is diminished by three considerations. First, as I have observed earlier in these reasons, Mr Ferguson's demeanour in the course of giving his evidence was such that I am cautious in accepting his evidence absent any corroborating evidence. The question whether FC was entitled to undertake the Repossession was integral to this action, and was a key issue upon which it would have been in Mr Ferguson's interests to be less than candid. Secondly, Mr Ferguson did not give any evidence to indicate that Pac-Am's representatives had agreed that the additional work would be performed by way of a further variation of the Contract. That is, Mr Ferguson did not recount any conversations with Mr Cohen or with any other representative of Pac-Am in which it an oral agreement was reached that any additional work would be performed by way of further variation of the Contract. Thirdly, in cross-examination Mr Ferguson accepted that some of the amounts for which FC had invoiced Pac-Am were not in fact the subject of variations to the Contract, but were other amounts which FC considered Pac-Am owed (such as for the outstanding balance on the sale of Il Fiume) and were amounts for which FC wanted to be paid (ts 1227).

298 There was some very limited evidence which was consistent with Mr Ferguson's understanding that the additional work performed by FC was the subject of a further variation of the Contract. In Mr Ghazouly's letter to PAFC dated 23 December 1997, he advised that failure to make an immediate payment would leave FC with no alternative 'but to exercise its rights under the contract at hand' (exhibit 257). That tends to suggest that Mr Ghazouly's understanding was that the terms of the Contract (including the Romalpa clause) governed the performance of the additional work. In addition, in Mr Ghazouly's letter to Mr Myles of 12 January 1998, Mr Ghazouly set out the amounts which FC considered were owed by Pac-Am. Those amounts included an amount of $32,460 for 'variations to the Original Contract'. (That sum had been referred to in the letter from Mr Ferguson and Mr Ghazouly to PAFC dated 23 December 1997.) Again, that tends to suggest that Mr Ghazouly's understanding was that the additional work was performed pursuant to a further variation to the Contract. However, in the course of Mr Ghazouly's evidence he made it very clear that he had no personal knowledge of the terms on which work was performed by FC for Pac-Am, but rather relied on Mr Ferguson's advice as to what had been done and what sums were owing for that work.

299 There was also some evidence which was inconsistent with Mr Ferguson's understanding of the basis on which the additional work was to be performed. In his facsimile to Mr Ferguson of 19 September 1997, Mr Cohen set out Pac-Am's view that it had been agreed that the price for the work carried out by FC would be $285,000 and that the parties had agreed that the cost of the additional work would be $13,000.

300 Further, in his letter of 29 October 1997 to FC Mr Cohen advised that Pac-Am's position was that it understood that the sum of $285,000 represented a lump sum payment for all works done and services performed by FC, with the exception of certain additional works and services specifically agreed. Mr Cohen advised that those additional works were the subject of an oral agreement with Mr Ferguson that the cost of those works would be $13,412 (which sum took into account the cost of the works, and various amounts to be reimbursed by FC). On that basis, Mr Cohen requested clarification of the amount of $89,462.74 which by that stage FC claimed was owed by Pac-Am. Mr Cohen also requested clarification of the additional works and services charged under invoice numbers I01466, I01581, I01538 and I01606, and indicated that Pac-Am would require evidence that these works were in fact authorised by Pac-Am.

301 Viewing the evidence as a whole, I am not satisfied that the evidence supports the conclusion that the additional work FC performed for Pac-Am at the Premises was carried out pursuant to a further variation or variations to the Contract, so that that work was subject to the same terms (including a Romalpa clause) as the initial fit-out carried out under the Contract and the Contract Variation.

(D) Was the additional work performed by FC for Pac-Am at the Premises the subject of a separate agreement, a term of which included the Romalpa clause?

302 As I noted above, an alternative possibility is that at least some of the additional work carried out by FC at the Premises was the subject of a separate agreement, the terms of which included a Romalpa clause in the same terms as the Romalpa clause in the Contract. This alternative possibility was not expressly raised by FC, and on one view is inconsistent with FC's case, but it is arguably alluded to in the evidence, and it is appropriate to briefly deal with it in order to dismiss it.

303 As I have already noted, on 16 July 1997, Mr Ferguson wrote to Pac-Am enclosing a scope of works for 'office alterations' which were to commence on 18 July 1997. The scope of works attached to that letter referred to an office refurbishment but also included a number of items of work in the restaurant (such as removing a waiter's station and relocating a drinks station).

304 On 31 July 1997, FC issued an invoice - number I01580 - to Pac-Am for the sum of $24,231.00 which was said to be for 'Office Fitout $10,594.00, Restaurant Floor Area Works $1759.00, Supply Tables (5) and Chairs (30) $11,450.00 and Service Calls $428.00' (exhibit 204A).

305 On 7 August 1997 Mr Ferguson wrote to Spageddies providing 'costings for work carried out on additional projects on your restaurant' to a total cost of $10,594 (exhibit 160.3). It appears that at least some of the work the subject of this letter was the same work which was, in part, the subject of invoice number I01580. The work referred to in this letter included an office fit-out, with a total cost of $10,594, work in the restaurant area including the removal of a waiter's station, the relocation of a drink station, some electrical and plumbing work and some related repairs to the tiled floor, with a total cost of $1,750, and fees for service call charges of $428.

306 On 3 September 1997, Mr Ferguson again wrote to Spageddies in respect of the same work. This letter was in identical terms to his letter of 7 August 1997, other than in three respects. First, the work associated with the office fit-out also included 'electrical work' although the total price quoted for the office fit-out remained the same. Secondly, the letter indicated that a part payment of $15,000 had been made, leaving due and payable the sum of $9,231. The key difference about this letter, however, was that it contained a Romalpa clause in the same terms as the Romalpa clause set out in the Contract and Contract Variation.

307 Mr Ferguson wrote a further letter to Spageddies on 3 September 1997 which was in identical terms, other than in so far as the total cost of the office fit-out was stated to be $11,677. The total cost of the work done was correspondingly increased, with an outstanding balance after the part payment of $15,000, of $10,314.

308 The question arises whether the office fit-out was the subject of a separate contract which contained the Romalpa clause set out in Mr Ferguson's letter of 3 September 1997. In my view, that was not the case. It appears more likely than not that the office fit-out work was carried out prior to 3 September 1997. In the scope of works sent on 16 July 1997, Mr Ferguson indicated that the work was to commence on 18 July 1997. In addition, on 3 September 1997, Mr Ferguson received $15,000 by way of a part payment of invoice I01580. That also tends to suggest that the office fit-out was conducted prior to 31 July 1997 when invoice I01580 was sent.

309 That being the case, it seems that the letters sent by Mr Ferguson on 7 August 1997 and 3 September 1997 were by way of clarification of the price for the work, and of what work was carried out, rather than to propose the terms on which the work was to be performed, despite the inclusion in one of those letters of a Romalpa clause. In his evidence, Mr Ghazouly sought to suggest that it would not have been difficult for Pac-Am to make sense of this documentation because 'it's pretty easy. I mean, it's virtually the same except for a couple of variations for electrical work' (ts 1328). It is difficult to envisage that any client could have made sense of this chain of correspondence.

(E) If the additional work performed by FC at Spageddies was subject to a Romalpa clause, was the payment of the invoiced price for the goods supplied in relation to this additional work overdue at the time of the Repossession?

310 Finally, even if it could be said that at least some of the additional work performed by FC for Pac-Am at the Premises was carried out pursuant to a contract containing a Romalpa clause in the same terms as that set out in the Contract and Contract Variation, in my view that Romalpa clause did not authorise entry by FC's servants and agents to the Premises on 21 March 1998. The evidence does not support the conclusion that payment of the 'invoiced price' for the 'goods supplied' by FC, was in fact overdue at the time of the Repossession. The only evidence that Pac-Am had failed to pay what it owed FC for the additional work was the admission by Mr HH Khoo that Pac-Am owed $13,000 to FC for that work, and that that amount was never paid to FC (ts 702, 762). However, the figure of $13,000 did not accord with any evidence, documentary or otherwise, to indicate that it represented an 'invoiced price' in the terms of a Romalpa clause contained in any contract with FC.

311 Even if it is assumed that the amounts claimed by FC for the additional work in September or December of 1997 or in January of 1998, were amounts which could be described as an 'invoiced price' for the additional work done, there are three additional reasons why failure to pay those amounts would not have enlivened the Romalpa clause (assuming it applied) so as to authorise entry by FC to the Premises.

312 First, there was evidence which suggested that some of the goods for which FC sought payment as part of the additional work were goods which had been supplied to Pac-Am during the initial fit-out, for which it had been charged under the Contract Variation, and for which it had paid in full by May 1997. As I have noted above, invoice number I01581 claimed the sum of $83,224 for additional work set out in the schedule attached to that invoice. At least four of the items of work in that list appear to be identical to work included within (and charged pursuant to) the Contract Variation. The list of work included 'chairs and tiling $31,000', a 'stainless steel top to bar $3,500', '4 large planter boxes' and 'Tiled Signage to front of Entry Area'. Items with an identical, or strikingly similar, description were listed as goods to be supplied as part of the Contract Variation. This overlap was noted by Mr Cohen in his letter to FC dated 29 October 1997.

313 The reason for the overlap between the items covered by this invoice, and the items the subject of the Contract Variation, became clear in cross-examination. Mr Ferguson acknowledged that in preparing the schedule attached to invoice I01581 he worked from the original Contract, rather than from the Contract Variation:

Mr Bennett: Some of those additional works were incorporated in the revised contract [ie the Contract Variation] were they not?---That's why we went and did this summary here, because everything was happening very, very quickly and there was that many chops and changes; as you can see by those documents, all the bits and pieces that were added in.

Mr Bennett: Is the answer to my question yes?---Well, I can only work off what's on this.

Mr Bennett: You revised a contract in May didn't you?---Yes.

Mr Bennett: Some time in September you produced a reconciliation but you didn't work off the revised contract, you worked off the original contract. Isn't that right?---Yes.

Mr Bennett: So you ignored the fact that you had revised the contract and fixed a sum of $285,000 for all the extras up until May 6, didn't you? --- Because everything kept changing.

Mr Bennett: Is the answer to my question yes?---That everything kept changing?

Mr Bennett: No, that you revised the contract incorporating all the variations up until 6 May, produced the sum of $285,000 and agreed that with the client, Pac-Am, didn't you?---I think you might be right.

Mr Bennett: And then come September you redid the calculation, didn't you?---Yes.

Mr Bennett: You redid the calculation, going back not to the revised contract but to the original contract?---This itinerary [sic] was done because there were so many bits and pieces happening along the way, and everybody was losing track so I thought, 'Well, I'll give you a complete itemised list of what was happening' (ts 1204 - 1205).

314 Secondly, there was some evidence to suggest that the additional work for which FC claimed payment included items of work that FC had not performed, which it had not carried out at all, or for which it was not entitled to seek payment. In the reconciliation document which Mr Cohen prepared on 18 June 1997 he set out his view that, amongst other things, FC had invoiced Pac-Am for work that had not been performed and had charged for work which was inadequately carried out and for which FC had agreed to bear the cost. Similarly, in his letter to FC on 29 October 1997 Mr Cohen advised that the works listed in invoice number I01581 were not 'additional works' as FC claimed. Attached to Mr Cohen's letter were a number of schedules, setting out (amongst other things) items of work in invoice I01581 for which Pac-Am considered it had been overcharged, which Pac-Am claimed had not been carried out at all, or for which Pac-Am claimed it should not have been charged. These included items of work where, for example, Pac-Am claimed that as a result of errors by FC, the work had been done but had not been required to be done by Pac-Am in the first place, or where the work had to be redone as a result of a mistake by FC. One of the items for which Pac-Am disputed the charge pertained to the provision of a brass plaque, bearing the FC logo, for which FC sought to charge $650. Pac-Am's claim was that it had accepted the plaque on the basis that it was a gift from FC.

315 Thirdly, the evidence supports the conclusion that the amounts for which FC sought payment clearly encompassed amounts for items quite unrelated to any 'goods supplied' by FC, or to 'freight, costs or sales tax' related to the provision of goods supplied by FC. Accordingly, even if the Romalpa clause had applied to the additional work, FC could not have relied upon that clause to authorise its entry to the Premises.

316 By way of example, invoice number I01466 sought payment for (amongst other things) the sum of $4,014.50 for 'Stamp Duty on the Sale of Il Fiume'. Similarly, invoice I01581 included an amount described as '$8,500 outstanding from Sale of Il Fiume'. These amounts did not relate in any way to the cost of the fit-out work for Spageddies, and Mr Ferguson acknowledged this in cross-examination (ts 1207, 1227). Neither amount could be regarded as within the scope of the Romalpa clause, and that clause could not have been relied upon as a means to secure payment by Pac-Am of these sums to FC.

317 Invoice number I01466 also sought payment for items of import duty. So too did invoice I01485. It is far from clear that import duty would have fallen within the description of 'freight, costs or sales tax' for which payment FC would have been entitled to rely upon the Romalpa clause, had it applied.

318 Invoices I01558 and I01606 sought payment for items described as freight charges. In cross-examination, Mr Ferguson accepted that these freight charges were unrelated to goods supplied by FC and, in respect of these charges, there were no goods supplied to Pac-Am to which any Romalpa clause would apply (ts 1212, 1227).

319 Mr Ferguson's evidence was that the outstanding payment on the sale of Il Fiume, the stamp duty on that sale, and the freight charges 'were items that we wanted to get paid for, not technically that they were covered under the Romalpa clause because, clearly, they weren't variations but they were moneys that was outstanding from the company' (ts 1227).

320 By way of final example, in invoice number I01613 FC sought payment for work including picking up a tomato slicer, taking it to a factory for repair, and returning it to the Premises, and electrical work. These charges do not appear to pertain to the provision of any goods by FC to Pac-Am, and therefore, even assuming that this work was subject to a contract containing the Romalpa clause, could never have been the subject of the Romalpa clause.

321 Counsel for HFC submitted that the goods supplied by FC to Pac-Am had become fixtures because they were affixed to the Premises. In addition, counsel pointed to cl 9(8) of Lease A which applied to the Premises and which provided that all fixtures and fittings were to be removed by the lessee at the end of the term of the lease, other than for those 'fixtures, fittings, equipment and furnishings which in the opinion of the Lessor form an integral part of the Leased Premises and or of the Complex including (without limitation) ... basins, lavatories and plumbing installations' (exhibit 179). The clause further provided that the property in such fixtures, fittings, equipment and furnishings would, upon the termination of the lease, pass to the lessor.

322 Counsel submitted that as a consequence, FC was not entitled, pursuant to the Romalpa clause, to remove any goods which it supplied to Pac-Am, and which had, by virtue of affixation to the Premises, become fixtures. Counsel submitted that had FC wished to preserve its interest under the Romalpa clause, as a means of authorising it to enter the Premises and seize the goods, FC would first have had to register that interest under Pt III of the Chattel Securities Act.

323 I am unable to accept that submission. The only security interests which are able to be registered under Pt III of the Chattel Securities Act are registrable goods, namely motor vehicles and trailers described in s 13 of that Act: see s 15 of the Chattel Securities Act and the definition of 'registrable goods' in s 3 of that Act.

324 I note that s 6(1) of the Chattel Securities Act provides that:

If, after a security interest attaches, goods subject to the security interest are affixed to land and become fixtures, the fixtures, for the purposes of the exercise of the secured party's right to take possession of, remove or sell the goods, shall be deemed not to have become fixtures.

325 A 'security interest' is defined in s 3 of the Act to mean:

[A]n interest in or a power over goods (whether arising by or pursuant to an instrument or transaction) which secures payment of a debt or other pecuniary obligation or the performance of any other obligation and includes any interest in or power over goods of a lessor, owner or other supplier of goods, but does not include a possessory lien or pledge.

326 Under s 3(4) of the Chattel Securities Act a 'security interest attaches at the time at which value is given by the secured party [ie the holder of a security interest] and the debtor [ie the person who created the security interest] has rights in the goods or at such later time as the secured party and the debtor intend'.

327 It is arguable that FC's interest under the Romalpa clause would have constituted a security interest under the Chattel Securities Act: cf General Motors Acceptance Corporation Australia v Southbank Traders Pty Ltd [2007] HCA 19; (2007) 227 CLR 305 [19] - [35] (in relation to the question whether a retention of ownership clause constituted a 'security interest' under the Chattel Securities Act 1987 (Vic)). If that was so, then had the Romalpa clause applied to the goods supplied in the course of the additional work carried out by FC, there may have been scope for s 6(1) of the Chattel Securities Act to have operated.

328 However, neither party addressed the application of the Chattel Securities Act generally, and I have rejected the only basis upon which HFC submitted that it was relevant. In addition, there was no evidence specifically directed to the extent of affixation to the Premises of particular goods supplied by FC. In these circumstances, and given that I have determined in any event that the Romalpa clause did not authorise FC to enter the Premises and remove the seized property, it is unnecessary for me to explore further the possible application of the Chattel Securities Act. For the same reason, it is also unnecessary to explore questions such as whether the Romalpa clause would have authorised FC to seize any goods in that the event that they were fixtures: cf Perron Investments Pty Ltd v Tim Davies Landscaping Pty Ltd [2009] WASCA 171 [12] - [13] (McLure JA).

(G) Conclusion: whether FC's servants and agents engaged in a trespass to land

329 Accordingly, I find that when FC's servants and agents entered the Premises on 21 March 1998 they were not authorised to do so pursuant to any contract with Pac-Am, and specifically by virtue of the operation of the Romalpa clause.

(f) Did the conduct of either defendant constitute a trespass to goods or conversion of goods?

330 As I found earlier in these reasons, Mr Ahern did not participate in the Repossession, and did not remove any of the goods from the Premises, nor was he a joint tortfeasor with FC in the Repossession. Mr Ahern therefore did not commit a trespass to the goods of Pac-Am.

331 In contrast, the evidence establishes clearly that FC committed a trespass to goods, and converted those goods to its own use, when it removed the seized property from where it was situated in the Premises and took it from the Premises during the Repossession. FC retained those goods until it was compelled to return the goods by order of this Court. By taking and retaining the seized property, FC's servants and agents directly and intentionally interfered with Pac-Am's possession of the goods. That conduct involved an unjustifiable assumption of ownership of those goods, or at the very least a wrongful interference with them, which was inconsistent with the possession of those goods by Pac-Am. In order to constitute the tort of conversion, it was not necessary for HFC to establish that FC's interference with the goods was intended to be permanent.

332 For completeness I note that although HFC pleaded that the defendants intentionally damaged or allowed damage to occur to the seized property, there was no evidence that any such damage had occurred, and this was conceded by counsel for HFC (ts 1623). In addition, HFC pleaded that the defendants failed to return all of the seized property to Pac-Am. Again there was no evidence in support of this pleading. However, neither deficiency affects the conclusions I have reached in relation to the trespass to goods and conversion by FC.

(g) Relevance of the apology and of the settlement of the Pac-Am action to the defendants' liability for trespass or conversion

333 There are two additional pieces of evidence on which HFC relied to establish that the defendants are liable for trespass to land or to goods, or for conversion of the seized property, namely the apology and the Settlement of Claim deed signed by FC in the Pac-Am action.

334 The terms of the apology are set out earlier in these reasons. A copy of the apology was tendered in evidence by HFC as part of its case, and Mr Ahern and Mr Ferguson were cross-examined about it.

335 Counsel for HFC submitted that the apology was 'unequivocal' by which I gather he meant that the apology unequivocally admitted the defendants' liability in trespass arising from the Repossession. I am unable to accept that submission. In my view, the submission ignores several features of the apology. First, in so far as Mr Ahern is concerned, the apology did not contain any admission that Mr Ahern had removed any goods from the Premises, but rather stated only that representatives of FC (acting on legal advice) had done so. Secondly, the apology admitted that the representatives of FC 'wrongly removed' the goods, but did not indicate why, or the basis on which, it was said that the goods were wrongly removed. Thirdly, both defendants acknowledged that the claims which formed the basis for the removal of the goods were subject to a bona fide dispute between FC and Pac-Am. Fourthly, the apology noted that FC had admitted liability to Pac-Am in the Pac-Am action, and that Mr Ahern's insurers had agreed to indemnify FC in respect of Spageddies' (ie Pac-Am's) damages claim, but that FC would contest the quantum of damages being claimed by Pac-Am. Finally, both defendants apologised for the distress caused to Spageddies, Pac-Am, its management and staff, and the public for the disruption to Spageddies' business arising from their conduct. There was, in my view, a considerable degree of ambiguity about precisely what the apology signified. It was not written in sufficiently clear terms to be construed as an admission of liability by either or both defendants of trespass to land or goods arising from the Repossession.

336 This much was also confirmed during the cross-examination of Mr Ahern and Mr Ferguson in relation to the apology. Mr Ferguson refused to accept that by publishing the apology he had intended to convey to the public that he accepted the allegations made against him by Pac-Am. Instead, Mr Ferguson maintained that he signed the apology 'based on legal advice' (ts 1156). Counsel for HFC submitted that Mr Ferguson's evidence in cross-examination constituted a 'complete denial that the words contained in the apology were an admission of any liability in relation to the Repossession', but that he had offered no justification to explain that he did not understand the nature and issues involved in the Pac-Am action. Given the terms in which the apology was expressed, it is difficult to see how Mr Ferguson could be criticised for refusing to accept the meaning of those words put to him by counsel.

337 Similarly, although counsel for HFC submitted that Mr Ahern had accepted in cross-examination that the apology 'was an acceptance of liability for the conduct in the Repossession', that was not Mr Ahern's evidence. Mr Ahern was asked to accept 'that the liability was a liability for the conduct', a proposition which was itself ambiguous. His affirmative answer to that proposition was no less ambiguous (ts 1389). In so far as counsel for HFC sought to suggest that Mr Ahern accepted that the apology constituted an admission of liability on the part of the defendants for the wrongful conduct alleged by Pac-Am in the Pac-Am action, that submission does not accurately reflect the totality of Mr Ahern's evidence, and I reject it. Mr Ahern did not accept that in the apology FC admitted that the Repossession was unlawful, because in his view that was not what the apology said (ts 1388). On several occasions, Mr Ahern was at pains to point out that the meaning of the apology was confined to the particular words used in the apology, and that its significance did not extend beyond that. By way of example, Mr Ahern denied that the admission of liability in the apology referred to liability for wrongful conduct, trespass to goods and premises, because that was not what was said in the apology (ts 1388). He also refused to accept that the admission of liability was an admission of liability on the pleaded case. Mr Ahern's evidence was that:

I acknowledge that the apology provides that goods were removed when they were subject to a bona fide dispute and that there was acknowledgment on my part that we were liable in respect of the restaurant's claim for damages which had not, at that time, been determined. ... the apology is very specific in its terms ... and it says exactly as I have read out. ... It doesn't say anything about the court action ... . The apology doesn't say anything about the pleadings or the matters in issue in the pleadings (ts 1388 - 1389).

338 Accordingly, it does not assist HFC to establish that either or both of the defendants engaged in the torts of trespass to land or goods, or the conversion of goods.

339 In any event, in considering whether the apology is capable of assisting HFC to establish its claims that the defendants trespassed on the land or engaged in trespass to the seized property or the conversion of those goods, the observations of the High Court in Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317 must be borne in mind. In that case, the members of the Court emphasised that care must be taken in identifying what precisely is being admitted in an apology, the relevance of that admission to the matters in issue in legal proceedings, and whether, by its nature, the admission may be relied on by a court in the application of the legal principles applicable to the action. Justice Gummow (with whom McHugh J agreed [40], and Heydon J agreed [177]) pointed out (at [69] - [70]) that:

Admissions on the pleadings are one thing. Modern rules of court commonly provide that a party may, by its pleading, raise any point of law. That which is so raised may be admitted. But that is not the present case. Certainly a party may admit the facts from which a conclusion of law may then be drawn. ...

Different questions arise where, as here, the suggested admission includes a conclusion which depends upon the application of a legal standard. In Grey [v Australian Motorists and General Insurance Co Pty Ltd [1976] 1 NSWLR 669, 675] Glass JA considered an admission sought from a witness to the effect that he had assigned certain choses in action at law or in equity. His Honour said:

'By extorting from a party an admission that he was negligent, or that he was not provoked, or that his grandfather possessed testamentary capacity, there is added to the record something which is, not merely of dubious value, but by definition valueless, owing to the witness' unfamiliarity with the standard governing his answer'.

340 Justice Gummow also referred at [71] to observations he made in a joint judgment with Lockhart J in Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) 35 FCR 43. Their Honours there said:

As a general proposition, an informal admission as to a matter of fact, by words or conduct which is made by a party or a privy, is admissible evidence against that party of the truth of its contents. ... In the case of alleged contraventions of s 52 of the Act, admissions by a trader in the course of cross-examination that his conduct was 'misleading' and 'deceptive' cannot be relied upon to usurp the task of the court to judge the legal quality of that conduct.

It is unsettled whether admissions may be made of matters of mixed law and fact. In Grey, Glass JA described various decisions accepting admissions by a party as to questions of mixed law and fact as having been given with no regard to principle. In his view, when a standard, measure or capacity is fixed by law, a party cannot be asked to admit a conclusion depending upon the legal standard; however, the witness may be asked to admit facts from which the conclusion of law may be drawn by the court (68).

I agree with what is said by Gummow J as to the care that needs to be taken in identifying the precise significance of admissions, especially when made by someone who has a private or commercial reason to seek to retain the goodwill of the person or persons to whom the admissions are made. Common sense may dictate that they be used with caution by a fact-finder. And it is always necessary for the fact-finder to consider precisely what it is that is being admitted. If the driver of a motor vehicle says to an injured passenger: 'I am sorry, I let you down', that may not mean much, or anything. If the driver says: 'I am sorry, I was going too fast', that may be very significant. The statement that the appellant '[failed] in its duty of care to inform growers as to the presence of these weed seeds' cannot be an admission of law, and it is not useful as an admission of failure to comply with a legal standard of conduct. There is no evidence that the author of the statement knew the legal standard [25].

342 Accordingly, even if (or to the extent that) the apology might be construed as constituting an admission of liability for trespass by either or both defendants, it has not assisted me to reach a conclusion on that question, for two reasons. First, even if (contrary to the conclusion I have reached) the apology is construed as an admission by FC or Mr Ferguson that its servants and agents trespassed on the land, no reliance could be placed on that admission. It would constitute the admission of a legal conclusion which Mr Ferguson was not in a position to reach, given that there was nothing to suggest that he had any knowledge of the legal standard relevant to the question of trespass or conversion.

343 In addition, the context in which the apology was issued needs to be borne in mind. An acceptance of his company's legal liability for trespass to the Premises and to the seized property is not the only possible explanation for why the apology was made. In cross-examination, Mr Ferguson said that he signed the apology 'to bring the matter to the course [sic], to bring a resolution' and that 'the letter was drawn up to bring that issue to a head' (ts 1157). I asked Mr Ferguson whether he had any understanding about the meaning of the words in the apology and what effect they might have had, or whether he signed the apology without really understanding what he was doing. Mr Ferguson's evidence was that 'I had no other way to go. I had to agree with what the lawyers were saying. ... [I]t was basically saying to admit this so that the case against Pac-Am could be settled and everybody walks away' (ts 1157).

344 Secondly, in so far as the 'admission' by Mr Ahern is concerned, it was not an admission by him at all, in the sense of an admission of his own liability. Instead, in signing the apology Mr Ahern acknowledged that FC's representatives had wrongly removed the goods. Although the apology admitted that FC's representatives acted on legal advice in removing the goods, acknowledged that his insurers had agreed to indemnify FC in respect of any damages awarded to Pac-Am, and apologised for the distress to others caused by the defendants' conduct, there was no admission by Mr Ahern that his own conduct constituted the commission of a tort.

345 I turn now to the significance of the Settlement of Claim deed signed by FC in the Pac-Am action. Earlier in these reasons, I referred to the circumstances in which the Settlement of Claim deed was signed in the Pac-Am action, and I noted that cl 5 of that deed provided that the parties to the Deed (namely Pac-Am and FC) acknowledged that in settling the Pac-Am action the settlement did 'not necessarily reflect upon the Parties' ultimate positions as to what relief they are entitled to in the Proceedings, or the merits of the Proceedings' (exhibit 587) (emphasis added). Counsel for HFC submitted that the

settlement deed is not a settlement deed entered into without admission of liability, nor could it be in the [context] that liability had been admitted and this was a resolution of quantum. The closest it comes is the curious provision paragraph 5, which isn't a reservation of a no admission of liability; it's just a statement that, 'We acknowledge' - it doesn't necessarily reflect their ultimate position, which is a different matter (ts 362).

346 The terms of the Settlement of Claim deed do not assist in determining whether either or both of the defendants engaged in a trespass to the Premises or to goods, or a conversion of goods, on 21 March 1998. The Settlement of Claim deed was signed by FC and accordingly, it could not constitute any admission in relation to Mr Ahern's conduct on 21 March 1998. Further, nothing in the Settlement of Claim deed constitutes an express admission by FC that it trespassed on the Premises, or engaged in a trespass to goods, or conversion. The fact that the parties to the deed acknowledged that the deed did not necessarily reflect on their ultimate position as to the merit of the Pac-Am action supports that conclusion. Further, and contrary to the submission of counsel for HFC, the Settlement of Claim deed in my view must be viewed in the context of the pleadings in the Pac-Am action. In its substituted defence to Pac-Am's substituted statement of claim, FC did not admit liability for the causes of action pleaded by Pac-Am, but rather stated that it would 'not contest the issue of its liability to the Plaintiff but will only contest the issue of damages' (exhibit C). That is, the Settlement of Claim deed merely resolved the quantum of the damages to be paid in the context of the Pac-Am action, in which no formal admission of liability had been made by FC.

(h) Conclusion: was the conduct of either defendant on 21 March 1998 wrongful?

347 For the reasons set out above, I find that Mr Ahern did not engage in a trespass to the Premises, or a trespass to the seized property, or the conversion of the seized property, when he attended at the Premises on 21 March 1998. However, FC's servants and agents did trespass on the Premises when they entered the Premises on 21 March 1998, and did engage in a trespass to the seized property, and conversion of that property, when they removed the seized property from where it was situated and took it from the Premises.

4. The alleged breach of duty of care in negligence causing economic loss

348 I turn now to consider the question of whether the defendants owed HFC a duty to take care not to cause HFC economic loss as a result of FC's conduct of the Repossession, and if so, whether either or both defendants breached that duty of care. In this part of my reasons, I deal with the following matters:

(b) Principles in relation to establishing a duty of care in cases of economic loss;

(c) Did either of the defendants owe HFC a duty to take care not to cause it economic loss?

349 HFC pleads that the defendants (individually and jointly) owed HFC a duty to take reasonable care to protect HFC from economic loss in respect of Lease A and Lease B and the Premises (as that term is defined in the statement of claim, namely to refer to that part of the Piazza comprising Shops 26, 39, 40 and 28) and in respect of their conduct and actions in respect to Pac-Am and the Premises. As I have already found, the Repossession took place at Shops 26, 39 and 40. Although HFC pleads the duty of care the defendants owed to it applies to the economic loss it suffered in respect of all parts of the Piazza which were leased to Pac-Am, from a legal and factual perspective Pac-Am's lease over Shop 28 is irrelevant other than in relation to the question of damages. For the purposes of this discussion, therefore, I confine my findings to the events at Shops 26, 39 and 40 (to which I have referred in these reasons as the Premises) and to any duty to which either Mr Ahern or FC was subject as a result of the events that occurred there on 21 March 1998.

350 HFC relies on the following matters in support of its claim that the defendants were subject to this duty of care. First, it says that the defendants were aware that it was the owner and lessor of the Premises. Secondly, HFC pleads that it was reasonably foreseeable that it would suffer loss and damage by reason of the defendants' joint conduct in undertaking the Repossession. Thirdly, HFC pleads that there was proximity between HFC and each of the defendants. It pleads that this proximity arises from the fact that HFC has a legitimate interest which is deserving of protection by the common law. In addition, HFC pleads that it was susceptible to damage and interference by the type of actions and conduct engaged in by the defendants in respect to Pac-Am and the Premises and that it was vulnerable to harm from the defendants' conduct in jointly engaging in the Repossession. Fourthly, HFC pleads that there are no factors which warrant a finding that no duty of care applies to the defendants. HFC pleads that it is a specific and ascertainable party and not merely a member of an indeterminate or infinite class of persons to whom a duty might be owed, and that the existence of a duty of care to HFC would not infringe upon the legitimate and lawful rights of other parties, such as the defendants, to pursue their interests against parties such as Pac-Am.

351 In its written submissions, HFC alluded to the fact that the damage HFC claimed to have suffered arose as a result of actual physical damage to its property. However, HFC put its case on the basis that it involved only pure economic loss and I have approached its case on that basis.

352 The defendants emphasise that merely carrying on an activity with a lack of care is not synonymous with negligence as a matter of law, which involves a failure to conform to a legal obligation, namely a failure to protect the interests of someone with whose interests the law deems that that defendant ought be concerned. The defendants' case is that the ultimate issue is whether they should have had the interests of HFC in contemplation before pursuing the Repossession, and they say that the answer to that question is no.

353 The defendants deny that they owed HFC any duty to take reasonable care to protect HFC from economic loss in respect of the Premises, and from their conduct and actions in respect to Pac-Am and the Premises (defence 16). The defendants deny that they had knowledge, as at 21 March 1998, that Pac-Am was the lessee of the Premises. The defendants go on to say that the Repossession occurred only at that part of the Premises the subject of Lease A and that Mr Ahern had no knowledge of Lease B. The defendants plead that HFC was able to protect itself against the consequences of the commercial activities of Pac-Am's creditors and that it did so. The defendants deny that HFC is a specific and ascertainable party and they deny HFC's claim that a duty of care would not amount to the imposition of a duty to an indeterminate or infinite class of persons. The defendants also deny HFC's claim that the alleged duty of care does not infringe upon the defendants' rights to pursue their legitimate and lawful business interests. The defendants say that Pac-Am gave FC a contractual right to enter the Premises and remove goods, and that had the Repossession been lawful, the consequences would have been the same as are pleaded in the Statement of Claim, and HFC could not have complained.

(b) Principles in relation to establishing a duty of care in cases of economic loss

354 Since the decision of the High Court in Caltex Oil (Australia) Pty Ltd v The Dredge 'Willemstad' [1976] HCA 65; (1976) 136 CLR 529 there has been no absolute rule in the Australian common law against the recovery of damages in negligence for economic loss which is not consequential upon injury to person or property. The general rule remains that no duty of care to found such an action will ordinarily be found to exist: Caltex Oil (Australia) v The Dredge 'Willemstad' (555, 558 - 559, 592, 598); Perre v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180 [4] (Gleeson CJ), [71], [101] (McHugh J). However, in some circumstances a duty of care has been found, so as to permit the recovery of economic loss which does not derive from physical injury or damage to property (sometimes referred as 'pure economic loss'): Perre v Apand [4] (Gleeson CJ), [24] (Gaudron J), [70] (McHugh J), [166] (Gummow J).

355 The decisions of the High Court in this area reveal a continuing caution about expanding the circumstances in which a duty of care will be found in cases of pure economic loss. Certainly the law has not yet developed to a stage where there has been enunciated a governing principle applicable in all cases of negligence, or even to all cases involving economic loss, and it has been suggested that perhaps there never will be: Sullivan v Moody (2001) 207 CLR 562 [53] (the Court); Perre v Apand [25] (Gaudron J), [71], [76] (McHugh J), [405] (Callinan J); see also J Stapleton, Duty of Care Factors: a Selection from the Judicial Menus in P Cane & J Stapleton (eds), The Law of Obligations: Essays in Celebration of John Fleming (1998) page 89.

356 What is clear is that although the reasonable foreseeability of the harm suffered is an essential criterion of a duty of care in economic loss cases, foreseeability is not sufficient, of itself, to render a defendant liable for negligently inflicted economic loss: Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515 [21] (Gleeson CJ, Gummow, Hayne & Heydon JJ); Perre v Apand [27] (Gaudron J), [70] (McHugh J), [329] (Hayne J); see also, to similar effect in the context of psychiatric injury, Tame v State of New South Wales [2002] HCA 35; (2002) 211 CLR 317 [12] (Gleeson CJ), and see also, in the context of a discussion of whether an affirmative duty of care was owed by a public authority, Graham Barclay Oysters Pty Ltd v Ryan [2002] HCA 54; (2002) 211 CLR 540 [9] (Gleeson CJ).

357 The test for reasonable foreseeability is that 'a risk of injury which is remote in the sense that it is extremely unlikely to occur may nevertheless constitute a foreseeable risk. A risk which is not far-fetched or fanciful is real and therefore foreseeable': Wyong Shire Council v Shirt [1980] HCA 12; (1980) 146 CLR 40, 48 (Mason J, Stephen & Aickin JJ agreeing), see also 53 (Wilson J). The requirement of reasonableness is bound up with the question whether it is reasonable to require a person to have in contemplation the risk of injury that has eventuated: Tame v NSW [12], [29] (Gleeson CJ). It is not necessary that the particular type of damage that eventuated be reasonably foreseeable, but rather that the class of damage be foreseeable as a possible consequence of the defendant's conduct: Tame v NSW [203] (Gummow & Kirby JJ, citing Mount Isa Mines Ltd v Pusey [1970] HCA 60; (1970) 125 CLR 383, 390, 402 - 403, 413 - 414), and at [249] (Hayne J, citing Sutherland Shire Council v Heyman [1985] HCA 41; (1985) 157 CLR 424, 487 (Brennan J)). The test is not considered to be a demanding one: Wyong Shire Council v Shirt (44) (Mason, Stephen & Aickin JJ agreeing); Tame v NSW [96] - [99] (McHugh J).

358 The requirement for proximity between a plaintiff and defendant, which was once seen as essential to found a duty of care, is no longer considered a universal criterion of liability for negligence Perre v Apand [74] (McHugh J), [330] - [334] (Hayne J); Sullivan v Moody [48] (the Court). To the extent that the notion of proximity remains relevant in this context at all, it simply signifies that it is necessary to identify a factor or factors of special significance in addition to the foreseeability of harm before the law will impose liability for the negligent infliction of economic loss: Perre v Apand [27] (Gaudron J). The presence of such factors is seen to bring the plaintiff and defendant into such a close and direct relationship as to warrant the imposition of a duty of care: Perre v Apand [217] (Gummow J), [430] (Callinan J); Crimmins v Stevedoring Industry Finance Committee [1999] HCA 59; (1999) 200 CLR 1 [46] (Gaudron J).

359 In recent cases, the High Court has identified a number of factors - or 'salient features' (Caltex Oil (Australia) v The Dredge 'Willemstad' (576 - 577) (Stephen J); Perre v Apand [201] (Gummow J)) - which are weighed up for the purpose of making a judgment as to whether a duty of care should be found to exist. Not all of these features will be relevant in every case, and not all of them will warrant the same degree of weight, depending upon the circumstances: see, for example, Woolcock Street Investments v CDG [87] (McHugh J); and see also Stapleton J, Duty of Care Factors: a Selection from the Judicial Menus in Cane P & Stapleton J (eds), The Law of Obligations: Essays in Celebration of John Fleming (1998) page 88.

360 Whether a duty of care exists is to be determined by reference to these salient features immediately prior to the conduct of the defendant which is said to be tortious, and not thereafter: Vairy v Wyong Shire Council [2005] HCA 62; (2005) 223 CLR 422 [49] (McHugh J), [145] (Hayne J); see also Nagle v Rottnest Island Authority [1993] HCA 76; (1993) 177 CLR 423, 440 (Brennan J); Perre v Apand [112] (McHugh J) and see also [336] (Hayne J). The existence and the content of the duty is not determined by looking first to the damage sustained by a plaintiff, and the alleged want of care in that regard by a defendant, and reasoning back from that point: Vairy v Wyong Shire Council [60] (Gummow J).

361 Although sometimes other features will be relevant in the particular circumstances of a case (see, for example, Woolcock Street Investments v CDG [89] (McHugh J)) the primary salient features which have been identified in the case law thus far, and which were referred to by the parties in this action, are discussed below.

362 This feature is concerned with whether a finding that a duty of care is owed to a plaintiff would give rise to the imposition of liability 'in an indeterminate amount for an indeterminate time to an indeterminate class': Bryan v Maloney (1995) 182 CLR 609 618 (Mason CJ, Deane & Gaudron JJ), citing Ultramares Corporation v Touche (1931) 174 NE 441, 444 (Cardozo CJ). Indeterminate liability is not dependent on the existence of a large number or size of claims: Perre v Apand [139] (McHugh J), [336] (Hayne J). Instead, indeterminacy refers to the situation where liability cannot be realistically calculated. It is not necessary that liability be confined to a particular plaintiff. Instead, provided that a defendant knows, or has the means to know (either by reasonable calculation, or deduction by reference to objective criteria), who are the members of an ascertainable class affected by its conduct and the nature of their claims and the likely losses to the members of that class, its liability will not be indeterminate: Caltex Oil (Australia) v The Dredge 'Willemstad' (555) (Gibbs J), (576 - 578) (Stephen J), (593) (Mason J); Perre v Apand [107], [109] - [110] (McHugh J), [206] (Gummow J), [336] - [337] (Hayne J), [394] - [395], [409] (Callinan J); Crimmins v Stevedoring [93] (McHugh J); see also Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2003) A Tort Rep 81-692; [2003] VSC 27 [910] - [912], [915] - [918], [921] - [922], [924] - [926] (Gillard J).

363 Concern about indeterminacy most frequently arises where a defendant cannot determine how many claims might be brought against it or what the general nature of those claims might be. This is a particular concern because of the potential 'ripple down' effect of economic loss - that is, where one party suffers a financial loss which in turn causes another party to suffer a financial loss and so on: Perre v Apand [106] (McHugh J, citing Dr J Stapleton, 'Duty of Care and Economic Loss: A Wider Agenda' (1991) 107 Law Quarterly Review 249, 255, see also Cane P, 'The blight of economic loss: Is there life after Perre v Apand?' (2000) 8 Torts Law Journal 246, 257 - 258.

364 One consideration which may militate against a finding of indeterminacy is whether the plaintiffs, or the class of plaintiffs, are involved in closely integrated operations, either because that will provide a basis for limiting the size of the class to which potential plaintiffs would otherwise belong, or because it would be artificial to differentiate between the members of a commercially integrated operation: Perre v Apand [304] - [305] (Kirby J), although cf [353] (Hayne J); Fortuna Seafoods Pty Ltd v The Ship 'Eternal Wind' [2008] 1 Qd R 429 [17], [25] (McMurdo P), [95] - [104] (Dutney J).

365 Because indeterminacy reflects a policy consideration, it is not necessarily fatal to the recognition of a duty of care that the duty is owed to a class whose members cannot be identified with complete accuracy: Perre v Apand [32] (Gaudron J), [206] (Gummow J). However, if the imposition of a duty of care would lead to indeterminacy, that will tend to negative the existence of the duty. At the same time, the absence of indeterminacy does not mean that a duty of care will be found: Perre v Apand [102] (McHugh J); see also Woolcock Street Investments v CDG [77] (McHugh J).

(ii) Autonomy of the individual and non-interference in ordinary commercial behaviour

366 This feature is concerned with whether the imposition of a duty of care in a competitive commercial environment would be inconsistent with community standards in relation to what is ordinarily legitimate in the pursuit of personal advantage: Bryan v Maloney (618) (Mason CJ, Deane & Gaudron JJ); Perre v Apand [33] (Gaudron J), [395] (Callinan J). Accordingly, if a person is legitimately protecting or pursuing his or her social or business interests, the common law will not require that person to be concerned with the effect of their conduct on the economic interests of others, even when the person knows that their actions will cause loss to a specific individual: Bryan v Maloney (618 - 619) (Mason CJ, Deane & Gaudron JJ); Hill v Van Erp (1997) 188 CLR 159, 184 (Dawson J), 211 (McHugh J); Perre v Apand [115] (McHugh J), [419] - [421] (Callinan J).

367 No clear test has emerged as to how 'legitimate' acts of protection or pursuit of a person's business interests are to be differentiated from those which are not considered legitimate. One approach has been to treat as legitimate those competitive acts which are not prohibited by law, other than conduct which would constitute one of the economic torts: Perre v Apand [116] (McHugh J). The rationale behind that approach is that if a defendant is already restrained, by virtue of the operation of another branch of the law, from engaging in the conduct within the ambit of the proposed duty of care, then its autonomy and freedom of action will not be impaired if it were held to owe the same duty to the plaintiff in tort: Perre v Apand [147] (McHugh J).

368 A similar but slightly different approach has been to look at whether the defendant's conduct would have been illegal, or would have made the defendant liable to the plaintiff in tort, had the defendant engaged in that conduct deliberately, rather than negligently. If so, the conduct will be considered to fall outside the boundaries of acceptable commercial dealing: Perre v Apand [346] - [350] (Hayne J), but cf Cane P, 'The blight of economic loss: Is there life after Perre v Apand?' (2000) 8 Torts Law Journal 246, 260 - 261.

369 If the defendant's conduct involved legitimately protecting or pursuing its social or business interests this will also tend to negative the existence of a duty, but again the absence of this feature in the circumstances of a case will not necessarily mean that a duty of care will be found: Perre v Apand [102] (McHugh J); see also Woolcock Street Investments v CDG [78] (McHugh J).

(iii) Other freedoms, controls and limitations established by the law

370 This feature is concerned with whether the imposition of a duty of care would interfere with freedoms, controls and limitations established by common law and statute, or (in the case of an asserted affirmative duty of care owed by a statutory authority) whether it would impose liability with respect to a statutory authority's core policy making or quasi legislative functions: Hill v Van Erp (214) (McHugh J), Perre v Apand [5] (Gleeson CJ), [120] (although cf at [122]) (McHugh J), [395], [424] (Callinan J); Graham Barclay Oysters v Ryan [27] (Gleeson CJ), [58] - [62] (Gaudron J), [176] (Gummow & Hayne JJ); Crimmins v Stevedoring [93] (McHugh J); and Woolcock Street Investments v CDG [90] - [92] (McHugh J). The presence of this feature will also tend to negative the existence of a duty of care.

(iv) The defendant's knowledge of the risk and of the magnitude of the risk

371 This feature is concerned with whether a defendant has actual or constructive knowledge that the plaintiff, or an ascertainable class of persons, is or are vulnerable to suffering financial harm as a result of its conduct, and of the magnitude of that risk: Perre v Apand [10], [15] (Gleeson CJ), [41] - [42] (Gaudron J), [104], [131] (McHugh J), see also [213] - [214] (Gummow J), [412] - [413], [430] (Callinan J); Crimmins v Stevedoring [93], [101] - [102] (McHugh J). However, it has been suggested that some caution is required in using a defendant's constructive knowledge of the risk as the basis for a finding that the harm was reasonably foreseeable, lest that elevate foreseeability of the risk to the criterion of the duty: Perre v Apand [132] (McHugh J). In economic loss cases, it has been observed that such knowledge is 'virtually a prerequisite of a duty of care': Perre v Apand [131] (McHugh J), although cf Woolcock Street Investments v CDG [87] (McHugh J).

372 Vulnerability in this context refers to the vulnerability of the plaintiff to incurring loss by reason of a defendant's conduct: Perre v Apand [11] (Gleeson CJ), [104], [118] (McHugh J), [416] (Callinan J); and Crimmins v Stevedoring [44] (Gaudron J), [93] (McHugh J). Vulnerability means not only that the plaintiff was likely to suffer loss if reasonable care was not taken, but refers to whether, as a practical matter, the plaintiff has any capacity to protect himself or herself against the risk of the harm or loss: Hill v Van Erp (186) (Dawson J), (216) (McHugh J); Perre v Apand [120] (McHugh J); Crimmins v Stevedoring [100] (McHugh J); and Woolcock Street Investments v CDG [23] (Gleeson CJ, Gummow, Hayne & Heydon JJ). A plaintiff's vulnerability in this respect is assessed by reference to the plaintiff's ignorance or knowledge of the defendant's likely conduct, or to social, political or economic constraints, including, for example, market conditions: Woolcock Street Investments v CDG [80], [95] (McHugh J).

373 If the plaintiff has taken, or could have taken steps to protect itself from the defendant's conduct and was not induced by the defendant's conduct not to take such steps, the law will not step in and impose a duty on the defendant to protect the plaintiff from pure economic loss: Esanda Finance Corporation Ltd v Peat Marwick Hungerfords [1997] HCA 8; (1997) 188 CLR 241, 266 (Toohey & Gaudron JJ), 284 - 285 (McHugh J), 304 (Gummow J); Perre v Apand [118] (McHugh J), [216] (Gummow J). One way in which such protection might be secured, for example, is by seeking contractual warranties: Perre v Apand [120] (McHugh J); Woolcock Street Investments v CDG [81] - [83] (McHugh J). On the other hand, whether the plaintiff has purchased, or is able to purchase, insurance is generally not relevant to the issue of vulnerability: Lister v Romford Ice & Coal Storage Co Ltd [1956] UKHL 6; [1957] AC 555, 576 (Viscount Simonds); Caltex Oil (Australia) v The Dredge 'Willemstad' (580 - 581) (Stephen J); Perre v Apand [130] (McHugh J), but cf Johnson Tiles v Esso Australia [1101] - [1105] (Gillard J).

374 Vulnerability will often include, but is not synonymous with, concepts of reliance and assumption of responsibility, because they indicate the plaintiff's vulnerability to harm from the defendant's conduct: Esanda Finance Corporation v Peat Marwick Hungerfords (263 - 264) (Toohey & Gaudron JJ); Perre v Apand [124] (McHugh J); Crimmins v Stevedoring [43] (Gaudron J), [100] (McHugh J); Woolcock Street Investments v CDG [24] (Gleeson CJ, Gummow, Hayne & Heydon JJ).

375 The degree and the nature of vulnerability sufficient to found a duty of care will vary from case to case: Perre v Apand [129] (McHugh J).

376 In some respects, this consideration is the corollary of the plaintiff's vulnerability. It refers to the control exercised by the defendant in respect of the activity in relation to which the duty of care is said to arise, and in respect of those of the plaintiff's rights, interests or expectations which would be affected by its conduct: Hill v Van Erp (198 - 199) (Gaudron J), (234) (Gummow J); Perre v Apand [15] (Gleeson CJ), [38], [41] (Gaudron J), [129] (McHugh J), [215] (Gummow J), [406] - [408] (Callinan J); Crimmins v Stevedoring [44] (Gaudron J), [93] (McHugh J), [351] - [354], [357] (Callinan J).

(c) Did either of the defendants owe HFC a duty to take care not to cause it economic loss?

377 I turn now to consider the application of these features in the circumstances of this case. In so far as they dealt with the basis for a duty of care, both HFC's statement of claim and its submissions focussed very heavily on the circumstances and position of FC, and said very little about whether Mr Ahern independently owed HFC a duty of care. In part, no doubt, this was because of HFC's plea that the defendants were joint tortfeasors. Nevertheless, HFC expressly maintained its claim of individual, as well as joint, liability on the part of the defendants. In view of my finding that the defendants were not joint tortfeasors, it is necessary only to consider the position of the defendants individually. It is convenient to examine the position of FC first.

The foreseeability of the damage suffered by HFC

378 In order to determine if the risk of HFC suffering economic loss as a result of FC's conduct of the Repossession was reasonably foreseeable it is necessary to identify the type of damage it suffered. The type of damage was financial loss, particularly the loss of the rent which HFC was entitled to receive from Pac-Am in respect of those parts of the Piazza which were leased to Pac-Am. In my view, it was reasonably foreseeable that HFC would suffer damage of this kind if the Repossession was conducted negligently, for two reasons.

379 First, FC knew that Spageddies would be forced to close, temporarily, following the Repossession. In cross-examination, Mr Ferguson admitted that he knew that the Spageddies would have to close (ts 1223 - 1224). It must, in any event, have been apparent to FC, both from the nature of the goods that were seized in the Repossession and from the state of the Premises immediately following the Repossession, that Spageddies would not be able to continue to trade without the seized property being returned or replaced.

380 Necessarily, therefore, it must have been apparent to FC that Pac-Am would suffer financially as a result of the Repossession. It was obvious that it would suffer a loss of income from Spageddies over the period for which the restaurant was closed. In addition, it must also have been apparent to FC that if Pac-Am wished to resume trade following the Repossession, it would either have to pay FC the debt FC claimed it was owed, plus any additional costs FC sought for the return and reinstallation of the seized property, or alternatively that it would need to take legal action to recover the seized property from FC, or possibly that it would need to arrange for a new fit-out for Spageddies. Each of these alternative courses of action would necessarily have involved some further cost to Pac-Am.

381 A reasonably foreseeable consequence of the closure of Spageddies, and of additional costs being incurred by Pac-Am, was that Pac-Am would have difficulty paying its debts at least during the period of the closure, if not for some period immediately thereafter. HFC was one such creditor.

382 Secondly, FC had some prior experience of the range of possible consequences of the seizure of kitchen equipment from a restaurant. In Mr Ferguson's evidence-in-chief, he referred to action taken by FC in 1997 to seize goods and equipment it had provided in the fit-outs of two other restaurants - the Orient Hotel and Quattros Café - following the failure by the proprietor of each restaurant to pay for the goods and equipment in full. In his cross-examination of Mr Ferguson and Mr Ghazouly, counsel for HFC sought to explore this conduct by FC, and to put into evidence additional material related to FC's conduct, and to the outcome of that conduct. That additional material comprised documents in relation to the corporate status and administration of the company which operated the Orient Hotel, Gamoren Pty Ltd. Counsel for the defendants submitted that the evidence in relation to the Orient Hotel was irrelevant and should not be admitted because it concerned the recovery of goods pursuant to a warrant of execution rather than a repossession pursuant to a Romalpa clause (ts 1146).

383 I admitted this evidence provisionally and permitted cross-examination of Mr Ferguson and Mr Ghazouly in relation to it on the same provisional basis. Having now considered the totality of the evidence, in light of the submissions of the parties, I accept that the evidence is relevant to the issue of the foreseeability of the loss suffered by HFC, although for the reasons set out below, I have given this evidence only limited weight.

384 Mr Ferguson gave evidence that in 1997 FC was owed debts by the owners of Quattros Café and the Orient Hotel, and that Mr Ferguson sought legal advice in relation to whether FC could repossess goods it had supplied to those restaurants, for which it had not been paid in full, pursuant to a Romalpa clause in its contract with each of the restaurants. In September 1997, FC repossessed goods from Quattros Café, and soon afterwards FC received full payment for the goods which it had supplied.

385 The Orient Hotel was operated by Gamoren Pty Ltd. FC commenced proceedings in the District Court against Gamoren Pty Ltd for a debt it claimed was owed by Gamoren Pty Ltd (ts 1139) and obtained judgment in default of an appearance by the defendant (ts 1139). After judgment was obtained, FC arranged for the sheriff to execute a warrant of execution at the Orient Hotel on 26 September 1997 (ts 1139). The sheriff removed kitchen goods and equipment which FC asserted that it owned, pursuant to rights it claimed under a Romalpa clause in its contract with Gamoren Pty Ltd (ts 1139). Mr Ferguson accepted that the removal of the goods meant that the Orient Hotel could not function as a restaurant and as a hotel (ts 1140). Administrators were appointed to Gamoren Pty Ltd on 30 September 1997 (ts 1140) and they immediately took steps to have the goods seized by the sheriff returned to them in accordance with the requirements of the Corporations legislation (ts 1140). Between September 1997 and May 1999 the administrators continued to operate the business (ts 1140) before a deed of company arrangement was executed, permitting the business to continue to trade, with the support of the company's secured creditors. That arrangement terminated in May 2002 (ts 1141). Ultimately the creditors (including FC) received 46 cents in the dollar in respect of the debts owed to them (ts 1143). Mr Ferguson accepted that his experience in relation to the Orient Hotel was that the repossession of goods which FC had pursued through the sheriff triggered the administration of Gamoren Pty Ltd, of which FC was an unsecured creditor (ts 1144).

386 I have reached the conclusion that the evidence in relation to Quattros Café and the Orient is relevant to this action because it establishes that FC had knowledge of the range of consequences which could flow from the repossession of goods from a restaurant. In both instances, FC's basis for the seizure of the goods was that it retained ownership of the goods as a result of a Romalpa clause in its contract with the restaurant's proprietor. At the same time, the evidence in relation to the Orient Hotel warrants limited weight because of the limitations in the evidence itself and the factual differences between that case and this one (not the least of which was that the seizure of goods from the Orient Hotel was conducted by the sheriff on a warrant of execution). In particular, the limited nature of the evidence in relation to the Orient Hotel permitted no assessment of the extent to which the repossession of goods by the sheriff had contributed to the decision to place Gamoren Pty Ltd into administration. What the evidence did establish, however, was that one possible consequence of the seizure of goods and equipment from a restaurant's kitchen was the temporary closure of the restaurant, and in some cases might lead to the permanent closure of the restaurant, as a result of which the creditors of that business might suffer financial loss. In cross-examination, Mr Ferguson accepted that it was 'a possibility' that the repossession of goods, which forced the closure of a business, could force the company operating that business into administration.

387 I am satisfied that the evidence supports the conclusion that it was reasonably foreseeable that HFC may suffer financial loss, particularly the loss of rent, as a result of the Repossession. The evidence established that there was a risk, which was not far-fetched or fanciful, that the Repossession would result in the closure of Spageddies, at the very least on a temporary basis, and possibly on a permanent basis, with consequential financial losses for Pac-Am's creditors, including HFC. In my view, the evidence also supports the conclusion that it was reasonable to expect that FC should have in contemplation the risk of financial loss to HFC, particularly its loss of rent, as a consequence of the Repossession.

The salient features of the case in relation to the relationship between FC and HFC

FC's knowledge of HFC and of the risk of financial loss as a result of the Repossession

388 Two features of this case which provide strong support for the conclusion that FC owed a duty of care to HFC concern FC's knowledge of the possible consequences of the Repossession. The first is that FC had specific knowledge of HFC, and of the fact that Pac-Am leased the Premises from HFC. It was clear on the evidence that Mr Ferguson, and therefore FC, knew that HFC was the owner and lessor of the Premises, and of Shop 28. Mr Ferguson admitted that this was the case (ts 1166 - 1167, 1236). Quite apart from that admission, there was also ample evidence of FC's knowledge that HFC was the lessor of the Premises, and that Pac-Am had leased the Premises from HFC. FC performed a fit-out of the Premises for Il Fiume when it was owned by Lauranne, and Mr Ferguson subsequently became a shareholder in Lauranne and thereby knew Lauranne leased the Premises from HFC, and paid rent to HFC. When he became a director of Lauranne, Mr Ferguson entered into a Deed of Guarantee with HFC by which he guaranteed the performance by Lauranne of its obligations under the leases and licences from HFC. When FC sold Il Fiume to Pac-Am (or more accurately at that stage, to Pac-Am Singapore) one of the terms of the offer to purchase was that satisfactory lease terms be agreed between Pac-Am and HFC. In addition, at about the same time, Mr Ferguson executed a Deed of Surrender of its lease and that deed acknowledged that HFC had secured another lessee for the Premises. Correspondence from HFC to FC in relation to the sale of Il Fiume also confirmed that Pac-Am was the proposed lessee of the Premises. Finally, in the course of carrying out the fit-out of the Premises for Pac-Am, FC also dealt with HFC's representatives.

389 In addition, by virtue of its past dealing with Gamoren Pty Ltd in relation to the Orient Hotel, FC had knowledge that there was a risk that the repossession of goods from a restaurant may result in that restaurant's closure, and its being placed into administration. As I have found, the evidence in relation to the seizure of goods from the Orient Hotel supports the conclusion that it was reasonably foreseeable that HFC would suffer financial loss as a result of the Repossession. However, the limited extent of the evidence in relation to the Orient Hotel, and the factual differences between that situation and this case, means that that evidence does not support the conclusion that FC was actually aware of the likelihood of that risk manifesting itself, or of the extent of the risk in terms of the financial loss which might be suffered. The other evidence did not support that conclusion either.

390 Mr Ferguson's evidence was that he did not think that Pac-Am (and, presumably, much less its creditors) would suffer any real financial harm as a result of the Repossession because he considered its backers, including the Singapore government, would step in and pay to FC the money owed by Pac-Am (ts 1221, 1237). However, the candour of that evidence must be doubted in view of Mr Ferguson's acknowledgement, under cross-examination, that Spageddies would be forced to close as a result of the Repossession.

391 There was also some evidence from Mr Ghazouly that FC was concerned about Pac-Am's financial position prior to conducting the Repossession. Shortly after the Repossession, Mr Ghazouly swore an affidavit in the Pac-Am action, in which he stated that he held an 'extreme concern' that Pac-Am was unable to pay its debts (exhibit DD par 30). However, in cross-examination Mr Ghazouly had no independent recollection of the content of that affidavit or of that paragraph of his affidavit in particular, and stated that some of the matters in the affidavit were matters in which he did not recollect having any involvement at all, and that he was not, or could not recall having been, involved in the preparation of the affidavit, but rather just signed it (ts 1312, 1314). Having regard to the nature of this evidence, and to the observations I made above about Mr Ghazouly's evidence more generally, I do not place any weight on this aspect of Mr Ghazouly's evidence.

392 In my view, the evidence supports the conclusion that FC was, or should have been, aware that there was a risk that the Repossession could result in the closure of Spageddies, and possibly of Pac-Am going into administration. However, the evidence does not support the conclusion that FC had knowledge of the magnitude of that risk or of the risk of the damage which might be suffered by HFC should that occur.

393 The decision whether to proceed with the Repossession (or whether, for example, to seek to recover its debt from Pac-Am through legal proceedings), how to effect the Repossession, and what goods should be seized in the Repossession, were matters solely within FC's control. HFC had no control at all over these matters. In addition, as HFC had no prior notice of the Repossession, there was no opportunity for it to take steps to prevent the Repossession from occurring at the Premises.

394 HFC submits that another feature of the case that supports the conclusion that FC owed it a duty of care is that it was vulnerable to damage as a result of the type of conduct engaged in by the defendants. HFC pleaded that this vulnerability arose because the dispute between FC and Pac-Am did not relate to HFC, that HFC had no knowledge of the defendants' intention to carry out the Repossession, and because HFC's financial interests in its leases to Pac-Am were incapable of being effectively protected by HFC from actions of the kind engaged in by the defendants.

395 The defendants submit that HFC was not vulnerable to the conduct of FC in the sense recognised by the law of negligence, for three reasons. First, the defendants submit that this was not a case in which HFC had relied on FC to protect its position, or where FC had assumed any duty with respect to HFC. Secondly, the defendants submit that absent special features or circumstances, the creditors of a business are not legally vulnerable to the intentional or negligent acts of other creditors of the business, in that all creditors are legally able to protect themselves against the vicissitudes of commercial life. The defendants submit that the most powerful creditors of a business include its secured creditors and the landlord (in a case where business premises are leased) because they typically have control over important assets fundamental to the carrying on of the business. Thirdly, the defendants submit that HFC had an extensive variety of legal rights available to it to protect itself against its commercial risks associated with any fluctuations in Pac-Am's fortunes which might be brought about by the intentional or negligent acts of other creditors or the investors or managers of Pac-Am itself.

396 Whether HFC was vulnerable is a matter which must be assessed having regard to the evidence as to what HFC did, and what it was open to HFC to do, to protect its financial position, prior to the defendants' alleged negligent conduct (that is, prior to 21 March 1998).

397 The question of HFC's vulnerability is, in my view, a finely balanced one, but I have reached the conclusion that HFC was not vulnerable to damage as a result of the type of conduct in which FC engaged. I have reached this view for two reasons. HFC had the means to protect itself from damage of the kind which it claims to have suffered, and the information available to it should have alerted it to the need to take steps to protect itself.

HFC had the means to protect itself from damage of the kind which it claims to have suffered

398 Although HFC was completely ignorant about FC's proposed Repossession, and therefore was not able to take steps to prevent that conduct from occurring, it was nevertheless in a position to protect itself, by contractual means, against the same sort of damage which it now claims to have suffered as a result of FC's conduct, namely financial loss which HFC might incur as a result of Pac-Am's breach of its obligations under the lease. The evidence established that HFC had taken some steps to protect itself. The terms of Lease A (exhibit 179), for example, included (amongst others) a term requiring the payment of rent in advance (cl 2(2)(c)), a term requiring the payment of interest on arrears of rent at a rate 3% above that paid by HFC for its unsecured bank borrowings (cl 3(8)), a prohibition on Pac-Am giving an encumbrance or charge over any asset fixed to the Premises without HFC's written permission (cl 9(12)), a term giving HFC the right to resume occupancy of the Premises in the event of a default (cl 11(1)), and a term giving HFC the right to exercise its powers under the lease without proof, or notice, of default by Pac-Am (cl 13(25)).

399 The primary contractual means by which HFC sought to protect itself, however, was that it included in Lease A an obligation on Pac-Am to provide a bank guarantee in the sum of $70,000, which represented approximately three months rent, and which could be drawn upon in the event of a default by Pac-Am. Ultimately, however, it was agreed that Pac-Am Singapore would deposit $70,000 into a bank account in the name of Hardie Finance Rental Guarantee Account. That was done.

400 HFC's case was that requiring a rental guarantee approximating three months rent was reasonable having regard to ordinary commercial practice at the time. Mr Tsagalis gave evidence in relation to the prevalence in Perth, at the time when the leases were entered into, of landlords obtaining guarantees (whether bank guarantees, personal guarantees or guarantees of some other kind) for restaurant leasing. His evidence was that most non-corporate landlords (that is, those without a hierarchy of fund managers, asset managers and property managers) did not seek bank guarantees. It was more usual for bank guarantees to be provided for commercial office leases and a lot less prevalent in the retail property sector 'mainly due to the relatively small ownership of retail assets in Western Australia by corporate landlords' (exhibit N page 2). Mr Tsagalis noted that since then, as more shopping complexes have been purchased by corporate landlords, commercial practices have changed, including the requirement for bank guarantees.

401 It was Mr Tsagalis' evidence that if bank guarantees were sought for restaurant premises they were normally in the range of three to four months of the first year's gross rental, whereas for commercial leases, bank guarantees closer to six to 12 months of the gross rental were sought. Mr Tsagalis also gave evidence that:

Based upon the shareholding of Pac-Am, it would have [been] unlikely for a Landlord to seek greater financial security than the $70,000 gained on the basis of the Tenant company [ie Pac-Am] being partly owned by the Singaporean Government, and also Brinker International ... . It is unlikely that a Bank Guarantee of any greater amount would have been requested by many (if any) Landlords. Notwithstanding, even if requested, normal commercial practice at that time involved Landlords conceding this as the backing of the company both from an experience and financial perspective was very strong.

This response is given with the understanding that it is very difficult to claw back any money from other countries/part owners of a business. Moreover, the experience of the operator typically would have dominated discussions/negotiations in relation to financial security (exhibit N page 3).

402 Mr Tsagalis' evidence was that in dealing with a tenant like Pac-Am, his experience then and since was that 'to have received a guarantee of $70,000 as it was, in addition to a very substantial fit-out undertaken by the tenant, from my perspective the landlord got as much security as you otherwise expect' (ts 996). Mr Tsagalis regarded the substantial amount contributed by Pac-Am to the fit-out as 'almost a security in itself when you're a landlord of that sort of size. Quite often the deals would have been done without any guarantee' (ts 996).

403 The defendants did not adduce any evidence contrary to that given by Mr Tsagalis and I accept his evidence. In relation to the quantum of the rental guarantee, I accept that HFC did what was reasonable, and that in the circumstances, it could not be expected to have required Pac-Am to provide a rental guarantee of a greater amount.

404 However, in the present case, requiring the provision of the rental guarantee was not the only course which was open to HFC in order to protect itself against possible financial loss if Pac-Am defaulted on its lease obligations. In my view, the evidence supports the conclusion that prior to 21 March 1998, there were four other things that HFC could have done to protect itself against losses it might suffer in the event that Pac-Am defaulted on its obligations under the leases, irrespective of the reason for that default.

405 First, HFC did not require Pac-Am to maintain the rental guarantee at the figure of $70,000, and to replenish that account immediately it was drawn on. In January 1998, HFC drew on the rental guarantee account to recover $55,637.06 which was then owed by Pac-Am in arrears of rent and outgoings. HFC did not insist that Pac-Am replenish the rental account immediately thereafter (ts 924). As a result, as at 21 March 1998, the balance of the account was just under $15,000. I note, also, that by 4 March 1998 Pac-Am was in arrears on the rent it owed for Lease A and Lease B in the amount of $48,450.80. Effectively, therefore, by 21 March 1998, the rental guarantee account provided no protection to HFC in the event that Pac-Am defaulted further in its obligations under the lease. The evidence was that Mr Hardie and Mr Pilbeam were prepared to accept the risk of not requiring the rental guarantee account to be maintained because Mr Hardie was confident that Pac-Am's financial position was sufficiently secure in the longer term, particularly given his understanding that Pac-Am had the support of shareholders in Singapore (eg, ts 919, 922).

406 Secondly, HFC could have required personal guarantees from the directors of Pac-Am to cover any default by Pac-Am in respect of its obligations under the leases. The evidence established that this had been Mr Hardie's practice in relation to restaurants in the Piazza. Mr Hardie's evidence-in-chief was that his business practice has always been to seek personal guarantees from directors of lessee companies if those persons were Australian residents and the lessee companies were Australian companies, other than for substantial companies which were listed on the Australian Stock Exchange (exhibit F par 56). In cross-examination, Mr Hardie initially sought to say that HFC did not have a standard practice in this respect (ts 822). Mr Hardie said that he evaluated each tenant on its application, and depending on the assessment of the tenant's financial standing, a decision would be made as to whether or not a guarantee would be sought. He said that there were some leases for which no guarantees were obtained (ts 817). However, Mr Hardie accepted that in relation to the restaurants in the Piazza it was his invariable practice to seek personal guarantees from the directors of lessee companies (ts 828). That much is clear from the evidence concerning the terms of the other leases for restaurants which had occupied the Premises prior to Spageddies. HFC had required personal guarantees from the directors of Grayson, Walbeck Investments Pty Ltd, Lauranne, Robenikee Pty Ltd, and Celestial Asset Pty Ltd.

407 In that sense, HFC's conduct in this case marked a departure from its ordinary practice. Mr Hardie's evidence was that he did not pursue a personal guarantee from Pac-Am's directors as they were all overseas. That was not entirely correct. Mr HW Khoo was a director of Pac-Am from its incorporation, and he was an Australian resident.

408 Mr Hardie's evidence was that in his professional experience, guarantees obtained from the directors of overseas companies and guarantees from non-Australian residents were 'in commercial reality 'toothless tigers' in that they are not easily enforceable' (exhibit F par 57). However, he accepted that he did not actually have any direct experience of this. Mr Hardie's evidence was that his opinion was based on his awareness of the difficulty other people had had in trying to pursue guarantees from a person overseas (ts 828). For that reason, he did not seek to obtain personal guarantees from the directors of Pac-Am Singapore in respect of the leases taken by Pac-Am. There was nothing in the evidence to suggest that it was not possible for HFC to have obtained personal guarantees from Pac-Am's directors. Rather, the evidence established that Mr Hardie decided not to pursue that course, and instead made a commercial judgment that it was sufficient to rely solely on the rental guarantee to protect HFC's position under the leases. In my view, the fact that Pac-Am's directors (apart from Mr HW Khoo), its shareholders, and the companies which Mr Hardie understood were behind Pac-Am (including Pac-Am Singapore and PAFC) were located overseas, warranted a more cautious approach to protecting HFC's position under the leases.

409 Thirdly, the evidence established that it was open to HFC to have required Pac-Am to provide HFC with a charge over Pac-Am's assets. That much was clear from the fact that in December 1998 HFC did obtain a debenture charge over Pac-Am's assets. Mr Hardie's evidence was that it was his practice that where he was concerned with the strength and long term viability of a tenant, he would take a debenture charge over the business and its assets (ts 828). It appears that the decision not to do so in this case prior to December 1998 was made on the basis of Mr Hardie's commercial judgment that it was not necessary for HFC to seek this additional security against the prospect that Pac-Am might default in its obligations under the leases.

410 Finally, there was some evidence that it was open to HFC, when it entered into the leases, to obtain a guarantee from PAFC that Pac-Am's obligation to pay the rent would be met and that in the event of any default, PAFC would pay the rent. The evidence was not entirely clear as to whether this guarantee had actually been obtained. Mr Hardie believed that it had been given, although the signed document could not be found (ts 832). Mr Pilbeam also recollected seeing correspondence setting out the guarantee which had been signed. However, Mr HH Khoo's evidence was that he thought that the guarantee had probably not been given as a copy of it could not be found (ts 699). On balance, it is more likely than not that the guarantee was given, although it was not in evidence.

411 The evidence suggested that the term of this guarantee was limited to the first 12 months following the commencement of the leases and Mr Hardie accepted that after 12 months the guarantee would be worthless (ts 834). Mr Pilbeam accepted that if a lessee's performance during the guarantee period was poor, then HFC would try to extend the period of the guarantee, but acknowledged that it would have no power to require that this occur (ts 916).

412 Mr Tsagalis' evidence was that 'quite often organisations such as Pac-Am demand that no further security will be given' (exhibit N page 3) but the evidence fell short of establishing that a longer term for the guarantee was not a realistic option in the circumstances. Instead, the decision to fix the term of the guarantee at 12 months appears to have been based on a commercial assessment by Mr Hardie of the adequacy of this security in light of his assessment of the likely risk that Pac-Am may default on its obligations under the leases. Mr Hardie's evidence was that 'we'd assessed what the company was like and it was really in some regards an added bonus to what we already had with the three months' guarantee rental in Australia, which was actually a hard asset in Australia' (ts 828).

The information available to HFC should have alerted it to the need to take steps to protect itself from damage of the kind it claims to have suffered

413 Although HFC was ignorant of FC's intention to carry out the Repossession, it nevertheless had some indication, in the months leading up to the Repossession, that Pac-Am was experiencing financial difficulties. That knowledge should have put HFC on notice that Pac-Am was at risk of defaulting on its obligations under the leases, irrespective of the reason for that default, and should have alerted HFC to the need to take steps, or further steps, to protect itself from financial loss in the event that Pac-Am defaulted in its obligations under the leases.

414 I note at this point that the steps I have identified as being within HFC's capacity to protect itself were steps which it was open to HFC to take at the time that it entered into the leases. However, the evidence suggests that it may have been open to HFC to insist on at least some of these additional steps being taken after the leases were entered into, and prior to 21 March 1998, for example when Pac-Am first fell into arrears in its payment of the rent under the leases. (I note, for example, that HFC required a charge over Pac-Am's assets in December 1998 following further defaults in the payment of the rent by Pac-Am.)

415 Prior to 21 March 1998, there were three matters that should have alerted HFC to the need to protect itself from the risk of Pac-Am defaulting on its obligations under the leases. The first was the limited evidence which was available to HFC to support the conclusion that Pac-Am was in a secure position financially. Mr Hardie clearly formed the view, from the outset, that Pac-Am was a company which was part of a group of companies with very substantial means (ts 830). It was the case that Pac-Am had purchased Il Fiume from Lauranne for a substantial sum, and then engaged FC to undertake a fit-out of the Premises at a substantial cost (ts 848 - 849). As I have already observed, PAFC had also provided a corporate guarantee for the first year of Pac-Am's lease. Beyond this, however, the evidence to support the conclusion that either individually, or as part of a group of companies, Pac-Am had substantial financial means was very limited. A company search would have revealed that only one share in Pac-Am had been issued, with a value of $1.

416 Mr Hardie's evidence was that the basis for his conclusion about Pac-Am's financial position was information provided to him by Mr HW Khoo and Mr HH Khoo, who told him about Pac-Am's investors, Mr DR Khoo and Mr Krishnamoorthy, and who provided him with a brochure in relation to the Pac-Am Group (ts 830). He had also been informed by Mr HW Khoo and Mr HH Khoo of Pac-Am's plans to expand the Spageddies franchise throughout Australia. However, Mr Hardie did not seek to obtain any independent or objective evidence that Pac-Am would be financially supported on an ongoing basis, and of the extent of any such support, by its investors or by other companies in the Pac-Am Group. The absence of any such evidence in my view warranted a more cautious approach, than might otherwise have been appropriate, to the steps HFC saw fit to take to protect itself against possible losses arising from Pac-Am's default.

417 Secondly, by 1997 it had been drawn to Mr Hardie's attention that Spageddies was encountering some difficulties affecting its profitability, including difficulty in understanding the different dining patterns of Australian customers and the different peak trading periods of Australian restaurants during the year, and in adjusting to the required staffing levels and the inflexibility of Western Australian labour laws. Mr Hardie said:

I considered these problems to be 'teething problems' attributed to the fact Spageddies had only just opened and had no previous experience in operating restaurants in Australia. I remained confident about Pac-Am's concept and their ability to operate the Spageddies business. This was due to their professionalism and experience together with their committed goal to establish their restaurant chain in Australia (exhibit F par 83).

Mr Hardie also stated that as a result of his 25 years of experience in the hospitality industry, he had formed the opinion that:

[N]ew businesses generally needed time to establish themselves. I considered that it would take some time, and perhaps 1 to 2 years for Pac-Am to finetune its operations in Perth and that expectation was in line with the long lease which Pac-Am had secured with HFC. I considered it reasonable to afford Pac-Am an opportunity to establish itself in the Australian market especially as they were from overseas (exhibit F par 84).

While that was not an unreasonable approach to take in the abstract, there were other indications that suggested that Pac-Am was in financial difficulty which went beyond mere 'teething problems' associated with a new business operation.

418 As I have noted above, by January 1998, Pac-Am owed $55,637.06 in arrears of rent and outgoings. In addition, between the end of 1997 and March 1998 HFC received only two payments in respect of Pac-Am's rent and outgoings, and both of those had been drawn from the rental guarantee account, and there had been no payment from Pac-Am itself for rent or outgoings in that period (ts 925).

419 In addition, Mr Pilbeam's evidence was that by early March 1998, he was aware that Pac-Am was in

arrears with some of their creditors, as there was some rental arrears, but the assurance we had received from Singapore was that that situation would be rectified, and we were awaiting that to be rectified. The question of whether the people behind Spageddies had the capability of meeting those obligations was not questioned (ts 920).

420 Thirdly, HFC had had the experience, on several occasions, of restaurants which occupied the Premises experiencing financial difficulties. That experience also warranted a more cautious approach being taken to the steps which HFC should have taken to protect its financial position in the event that Pac-Am defaulted on its obligations under the leases, particularly its obligation to pay the rent and outgoings.

421 As I have noted above, in assessing a plaintiff's vulnerability, regard must be had to the social, political or economic constraints, including, for example, market conditions, which may bear upon a plaintiff's capacity to protect itself. That assessment must also, in my view, take into account the fact that in a commercial context, parties frequently make decisions about the degree of financial risk which they are willing to bear, based on commercial considerations such as the cost to them of protecting themselves against the risk, their assessment of the likelihood of the risk manifesting itself, and so on. In the present case, the additional steps which it was open to HFC to take to protect itself were not taken by HFC because Mr Hardie made a decision not to do so based on his view of the risk that Pac-Am might default on its obligations under the leases. The fact that he exercised his judgment to make that decision is inconsistent with the conclusion that HFC was truly vulnerable in the circumstances.

422 HFC also pleads that FC owed it a duty to take reasonable care to protect it from economic loss because it was a specific and ascertainable party and not merely a member of an indeterminate or infinite class of persons to whom a duty might be owed, and that the recognition of a duty to it would not give rise to the imposition of a duty to an indeterminate and infinite class of persons (SOC 17). FC's case is that it did not owe a duty of care to HFC because any such duty would involve indeterminate liability for FC's conduct.

423 Like vulnerability, this feature of the present case raises some difficult questions, and is finely balanced. However, I have concluded that this is not a case in which a finding of a duty of care would give rise to indeterminate liability.

424 In most respects, HFC was in no different a position from any of Pac-Am's other creditors. If Pac-Am were to suffer financially as a result of the Repossession, and be unable to pay its debts as a result of its inability to trade following the Repossession, then conceivably a wide range of other parties might in turn suffer financial loss. Given the nature of Pac-Am's business, those parties would inevitably have included food and beverage suppliers, but would conceivably include banks or other credit providers, Pac-Am's employees, the Australian Taxation Office, and utilities such as electricity, water, gas and telephone suppliers. However, there was nothing in the evidence to suggest that FC had any knowledge of the identity of those other creditors, or that it was capable of ascertaining their identity, or of calculating the likely quantum of their claims for loss. In that sense, HFC was a member of a class of potential victims whose identity and claims could not have been identified by FC.

425 However, there is one critical feature which sets HFC apart from these other potential plaintiffs, namely FC's actual knowledge of HFC's position as the lessor of the Premises, and of its relationship with Pac-Am as the lessor of the Premises. The nature of its likely claim (that is, loss of rent) could therefore have been identified by FC, and it may also have been possible for FC to calculate, at least in general terms, an estimate of the likely quantum of any such claim. In this respect, this case is unusual because HFC was an identifiable (and identified) member of an otherwise indeterminate class of potential plaintiffs.

426 If a duty of care is owed to some persons who suffer financial harm as a consequence of negligent conduct, but not to others, then that must be explicable on a rational basis if it is to be just: Perre v Apand [15] (Gleeson CJ), [353] (Hayne J). FC submits that this is not a case in which the position of HFC can be differentiated from that of other creditors, such as might have been the case if HFC and Pac-Am had been engaged in a common venture or part of an integrated commercial operation. However, in my view, a distinction may be drawn between HFC and Pac-Am's other creditors who may have been potential plaintiffs on the basis that HFC was an obvious victim, having regard to FC's knowledge of Pac-Am's business and of the nature of the relationship of lessor and lessee between Pac-Am and HFC. In Perre v Apand, the plaintiffs to whom a duty of care was found to be owed were able to be differentiated from other possible plaintiffs on the basis that they were the owners of, and the growers of potatoes on, land within 20 km of Sparnons, they were parties whose potatoes were exported to Western Australia, and their identities were easily ascertainable by Apand.

427 For completeness, I note that HFC also submitted that in this case there was no risk that a finding of a duty of care to it would give rise to indeterminate liability for FC because the limitation period for claims by other creditors is now long expired. From the perspective of principle that is not a persuasive basis for drawing a distinction between HFC and other creditors, but from a practical perspective it does eliminate the concern that a finding of the existence of a duty to take care not to cause economic loss may expose a defendant to liability to an indeterminate class of plaintiffs for an indeterminate sum.

Impact of the imposition of a duty on FC's pursuit of legitimate commercial interests

428 HFC pleads that the defendants' duty to take reasonable care to protect it from economic loss arises because the existence of the duty of care would not infringe upon the legitimate and lawful rights of other parties, such as the defendants, to pursue their interests against parties such as Pac-Am. HFC submits that the damage inflicted by the defendants was premeditated and wilful, and not simply a case of a negligent act resulting in damage, so that the Repossession cannot seriously be viewed as a legitimate business pursuit. The defendants submit that as a matter of policy, and of autonomy of action by commercial enterprises, a landlord of a business should not be owed a duty of care by other creditors of the business. The defendants submit that this case should be seen as one involving two creditors taking action to protect their commercial interests: they submit that HFC took certain action to protect itself from financial harm in the event that Pac-Am defaulted in its obligations under the leases, and FC sought to include the Romalpa clause in the Contract and then to act on what it understood were its contractual rights when Pac-Am did not pay a debt FC considered was owed to it.

429 In my view, this case cannot be characterised as one in which FC sought to pursue its legitimate commercial interests. The conduct in which FC engaged, namely the Repossession, was inconsistent with another branch of the law, in that it constituted a trespass. From that perspective, FC's conduct in engaging in the Repossession cannot be considered a legitimate pursuit of its commercial interests, and a finding that a duty of care existed would not interfere with the autonomy of FC's pursuit of what it otherwise was entitled to do.

430 The situation would have been very different had FC sought to recover its goods in a way that it was legally entitled to do, for example if the Romalpa clause had actually provided authority for FC to enter the Premises and seize the seized property, or if FC had commenced legal proceedings, obtained judgment against Pac-Am and obtained a warrant of execution to recover sufficient of the seized goods to cover the judgment debt. In that situation, FC would not only have been legitimately protecting its legal rights, but the imposition of a duty of care would be inconsistent with the legal process upon which it would have relied to recover the debt owed to it.

431 The latter consideration also highlights the fact that the imposition of a duty of care in the present case would not interfere with FC's protection of its commercial interests, because it could have pursued those interests by commencing an action against Pac-Am for the recovery of the debt it considered was owed to it.

Conclusion: whether FC owed HFC a duty of care

432 This is a difficult case because its salient features, which are relevant to whether a duty of care should be found, are finely balanced. On the one hand, I am of the view that imposing a duty of care would not give rise to indeterminate liability for FC, nor would it interfere with FC's legitimate pursuit or protection of its commercial interests. In addition, I have found that FC had specific knowledge of HFC, and that it had, or should have had, knowledge of the risk that the Repossession would result in the closure of Spageddies, and possibly would force Pac-Am into administration, but it did not have knowledge of the magnitude of that risk, or of the likely damage which might be suffered by HFC. On the other hand, this is a case in which HFC was not vulnerable to the conduct in which FC engaged, because it was able to, and did, take steps to protect itself from the very damage which eventuated, namely financial loss to it in the event that Pac-Am defaulted on its obligations under the leases, primarily its obligation to pay the rent and outgoings each month.

433 Ultimately, I have reached the conclusion that the fact that HFC was not vulnerable warrants the greatest weight of all the salient features in this case, and tips the balance against a finding that a duty of care existed. In the absence of vulnerability on the part of a plaintiff, it is difficult to see the rationale for the law intervening to impose a duty which ultimately serves to protect that plaintiff when in fact no such protection is required. In reaching that conclusion, I am mindful of the commercial context in which this case arises. As one of Pac-Am's creditors, and in the pursuit of financial reward through the payment of rent by Pac-Am, HFC also operated in an environment where it was exposed to the risk of financial loss if Pac-Am's fortunes waned. HFC made a commercial judgment about the steps it considered necessary to take to protect itself from that risk, and of the extent of the risk which it was willing to bear in not taking other steps which were open to it to protect its position. Having regard to all of the circumstances, I am not persuaded that this is a case in which the imposition of a duty of care is warranted.

(ii) Whether Mr Ahern owed HFC a duty of care

434 As I have already observed, counsel for HFC focused primarily on that part of HFC's case which alleged that Mr Ahern and FC were joint tortfeasors. Little attention was given to the foundation for HFC's case that each defendant was individually liable to HFC. In so far as its case against Mr Ahern was concerned, HFC's submissions made little reference to the evidence which it said established that he was subject to a duty of care to HFC. Nevertheless, piecing together HFC's case concerning Mr Ahern's individual liability as best I can, I have assessed whether Mr Ahern was subject to a duty of care not to cause HFC economic loss by the provision of advice to FC which was negligent.

The foreseeability of the damage suffered by HFC

435 The evidence supports the conclusion that it was reasonably foreseeable to Mr Ahern that Pac-Am's creditors would suffer financial loss if he provided negligent advice to FC in relation to its conduct of the Repossession. I have reached that view for two reasons.

436 First, there was evidence that Mr Ahern knew that Spageddies would be forced to close, at least temporarily, if FC proceeded with the Repossession. In cross-examination Mr Ahern accepted that he understood it was inevitable that if the Repossession proceeded, Spageddies would have to close for a short time (ts 1386). He agreed that it was 'starkly obvious' that that was the case (ts 1386). For the same reasons I set out above in relation to FC, in my view it must have been apparent to Mr Ahern that Pac-Am would suffer financially as a result of the Repossession, and that a reasonably foreseeable consequence of the closure of Spageddies, and of any additional costs being incurred by Pac-Am, was that Pac-Am would have difficulty paying its debts to its creditors at least during the period of the closure of the restaurant, if not for some period immediately thereafter.

437 Secondly, Mr Ahern had acted for FC when it brought legal proceedings against the Orient Hotel, which involved the seizure of goods by the sheriff pursuant to a warrant of execution (ts 1351 - 1352). Mr Ahern was also aware that Gamoren Pty Ltd went into administration after that occurred (ts 1352). However, Mr Ahern was reluctant to accept that the execution of the warrant forced Gamoren Pty Ltd into administration, given that the quantum of the debt involved in that case was relatively modest, and the hotel itself was a substantial operation, but he nevertheless accepted that the execution of the warrant may well have forced the company into administration (ts 1352).

438 This evidence also suggests that there was a risk which was not far-fetched or fanciful that the Repossession would result in the closure of Spageddies, at least on a temporary basis, and possibly on a permanent basis, with consequential losses for Pac-Am's creditors.

439 As I explain below, however, there was no evidence that Mr Ahern knew, or should have known, that HFC was one of Pac-Am's creditors. Accordingly, it was not reasonably foreseeable to Mr Ahern that HFC would suffer financial loss, through the loss of rent, if the Repossession forced the closure of Spageddies on either a temporary or permanent basis.

The salient features of the case in relation to the relationship between Mr Ahern and HFC

Whether Mr Ahern knew of HFC, and of the risk of financial loss to it as a result of the Repossession

440 HFC submits that the Court should infer that by reason of his position as a lawyer, and the nature of the Premises, Mr Ahern knew that Pac-Am was the lessee of the Premises. HFC also submits that in the course of the Repossession Mr Ahern came to know that HFC was the owner of the Premises.

441 The evidence does not support an inference that Mr Ahern knew that Pac-Am was a lessee of the Premises. Mr Ahern's evidence was that 'at no time was [he] aware that the premises in which Spageddies was located were owned by [HFC]' and that he did not enquire whether Spageddies was the owner of the Premises or a lessee (exhibit FF par 28; ts 1357). Mr Ahern also said that Mr Ferguson had not advised him that Spageddies was a restaurant that had taken over the Premises occupied by Il Fiume, or that Mr Ferguson had sold Il Fiume to Pac-Am (ts 1355). Mr Ferguson's evidence was that he did not remember telling Mr Ahern that HFC was the lessor of the Premises (ts 1167).

442 Mr Ahern also said that although he knew of Coco's, he had never been there, and that prior to the Repossession he did not know that Coco's (or, by implication, Spageddies) was located in the Piazza (ts 1351). Mr Ahern said that the first time that he attended at the Piazza was on Saturday 21 March 1998 when he attended for the Repossession (ts 1358). There was no evidence that any information came to Mr Ahern's attention prior to the Repossession which may have suggested that Pac-Am leased the Premises or that HFC was the lessor of the Premises.

443 There was some evidence that suggested that in the course of the Repossession Mr Ahern was told that HFC was the owner of the Premises. Mr Pilbeam arrived at the Premises after the Repossession had commenced. He was directed to Mr Ahern and introduced himself. Mr Pilbeam's evidence was that he said words to the effect that 'HFC owned the Piazza and the Premises, [and] I was HFC's senior property manager' (exhibit I par 152). Mr Ahern's evidence was that Mr Pilbeam came and introduced himself, but he denied that Mr Pilbeam said that he represented the building owner. Mr Ahern's recollection was that Mr Pilbeam 'just said he was the property manager' (ts 1380). Although he was cross-examined as to whether he understood that to mean that Mr Pilbeam represented the owner of the building, or Pac-Am, Mr Ahern's evidence was that 'at that time, I wasn't spending any time thinking about that' but that he was focused on dealing with a problem Mr Pilbeam had drawn to his attention, namely leaking water, about which Mr Ahern then spoke to Mr Ghazouly (ts 1381). It is not necessary to resolve this difference in the evidence because even if Mr Pilbeam told Mr Ahern that HFC owned the Piazza, Mr Ahern received that knowledge after the Repossession had commenced. As I have noted above, whether a duty of care exists is to be determined by reference to the salient features of the case immediately prior to the conduct of the defendant which is said to be tortious. In Mr Ahern's case, the conduct which HFC appears to assert was negligent (in the absence of a finding that he was a joint tortfeasor) was his advice to FC in relation to whether the Repossession could be conducted in reliance on the Romalpa clause. That advice was given well before the Repossession commenced, so that information which came to Mr Ahern's attention while the Repossession was conducted is not relevant in determining whether Mr Ahern was subject to a duty of care.

444 There was also no evidence to support the conclusion that Mr Ahern had any actual or constructive knowledge that HFC was vulnerable to suffering financial harm if he gave negligent advice to HFC in relation to the Repossession, or of the magnitude of that risk. There was some evidence that Mr Ahern had advised FC that it should take care not to damage the Premises while the seized property was being removed (ts 1383). However, the provision of that advice does not, without more, support an inference that Mr Ahern had in contemplation the position of the owner of the Premises. Rather, the provision of this advice suggests that Mr Ahern had in mind that if damage was done to the Premises, Pac-Am would have an action against FC in respect of that damage.

445 There was no evidence to support the conclusion that Mr Ahern had any knowledge of any creditors of Pac-Am who might suffer loss in the event that Spageddies was unable to trade following the Repossession, or of the nature or likely quantum of such losses. The defendants submit that to hold that a solicitor owes a duty to avoid economic loss suffered by persons that may be affected by the conduct of the solicitor's client, acting in pursuance of the solicitor's advice, would be to expose the solicitor to indeterminate liability. I accept that submission. As the defendants point out, solicitors traditionally provide advice on almost all aspects of commercial and corporate liability, much of which, when acted upon, will affect a wide range of persons including employees, investors and creditors. In this case, HFC was simply one creditor of Pac-Am. Other than for the fact that the limitation period has long expired, so the risk of indeterminate liability is no longer a practical concern, from the perspective of principle there is nothing to distinguish HFC from the range of other creditors of who might suffer financial loss in the event that Spageddies was unable to trade. In my view, but for the expiry of the limitation period, this is a case where a finding of a duty of care to HFC would have given rise to liability to an indeterminate class of plaintiffs.

446 For the same reasons as I have set out above in relation to whether HFC was vulnerable to the consequences of FC's conduct, the evidence does not support the conclusion that HFC was unable to protect itself from the consequences of FC acting on Mr Ahern's advice and conducting the Repossession. There was no evidence of any other indicia of vulnerability in so far as Mr Ahern was concerned. Mr Ahern had not assumed responsibility for looking after HFC's interests, nor had HFC placed any reliance on him.

447 This was not a case in which Mr Ahern exercised control over any of HFC's rights, interests or expectations which might be affected by his provision of advice to FC. Mr Ahern provided advice to FC but it was entirely a matter for FC whether it proceeded to act upon his advice, or the manner in which it did so. Mr Ahern therefore cannot be considered to have exercised any control over such of HFC's interests which might be affected if FC acted on that advice.

Impact of a duty of care on Mr Ahern's pursuit of legitimate commercial interests and on other freedoms, controls and limitations established by the law

448 Mr Ahern owed a duty to FC, his client. Generally speaking, a solicitor owes a duty solely to his or her client (subject to professional rules of conduct). As Brennan CJ observed in Hill v Van Erp (167):

That is because the solicitor's duty is to exercise professional knowledge and skill in the lawful protection and advancement of the client's interests in the transaction in which the solicitor is retained and that duty cannot be tempered by the existence of a duty to any third person whose interests in the transaction are not coincident with the interests of the client.

449 Dawson J expressed a similar view (187). Consequently, no duty of care will be owed to a third party if that duty is inconsistent with the duty owed to the client, or if the solicitor is obliged to act exclusively in the client's interests: Hill v Van Erp (196 - 197) (Gaudron J).

450 In some cases, the interests of the client who retains the solicitor, and of the third party, will coincide, so that the imposition on a solicitor of a duty of care to a third party would not be inconsistent with the solicitor's duty of care to the client: see for example, Hill v Van Erp; see also Tobin v Dodd [2004] WASCA 288 [43] (EM Heenan J, Murray J agreeing); and Talbot and Olivier (a firm) v Witcombe [2006] WASCA 87; (2006) 32 WAR 179 [26] - [28] (Steytler P, Pullin & Buss JJA agreeing). The present case is not a case of that kind. Unlike Hill v Van Erp, this was not a case where the matter in relation to which Mr Ahern was engaged by FC (that is, the provision of advice in relation to the Repossession) had as its object the conferral of a benefit on HFC, and there was no coincidence of the interests of FC and those of HFC.

451 The imposition of a duty of care to HFC in this case would be inconsistent with Mr Ahern's existing duty to FC. This factor weighs strongly against the conclusion that Mr Ahern was subject to a duty of care to HFC.

Conclusion: Whether Mr Ahern owed HFC a duty of care

452 Although I have found that it was reasonably foreseeable that FC's creditors would suffer financial loss if Mr Ahern negligently provided advice to FC in relation to its conduct of the Repossession, the salient features of this case weigh heavily against the conclusion that any duty of care was owed by Mr Ahern to FC. Prior to the Repossession, Mr Ahern had no actual or constructive knowledge that Pac-Am leased the Premises from HFC. In addition, this is a case where (but for the expiry of the limitation period) a finding of a duty of care to HFC would have given rise to liability to an indeterminate class of plaintiffs. Further, HFC was not vulnerable to incurring loss if Mr Ahern negligently advised FC and that advice was acted upon by FC, and Mr Ahern did not exercise control in respect of any of HFC's rights, interests or expectations which might be affected if FC acted on his advice. At the same time, this is a case where the imposition of a duty of care would be inconsistent with Mr Ahern's duty to FC. All of the salient features of the case point to the conclusion that the relationship between Mr Ahern and HFC was not such as to warrant the imposition of a duty of care. Accordingly, in my view, Mr Ahern was not subject to a duty of care not to cause economic loss to HFC.

453 Although I have concluded that neither FC nor Mr Ahern owed HFC a duty of care not to cause it economic loss, so that it is, strictly speaking, unnecessary to consider whether there was a breach of that duty, it is nevertheless appropriate to make some brief findings as to the conclusions I would have reached in the event that either party owed HFC a duty of care. I turn, then, to the question whether the evidence supports a finding that either Mr Ahern or FC would have been in breach of a duty of care, had they owed such a duty to HFC.

454 HFC pleads that each defendant breached the duty of care owed to it. HFC contends that Mr Ahern negligently advised FC that it could perform the Repossession. It contends that FC deliberately or negligently performed the Repossession, and that it had no right at law or otherwise to perform the Repossession.

455 The defendants deny any breach of a duty of care (if one existed). Mr Ahern denies that he provided negligent advice to FC in relation to the Repossession. FC's case is that before undertaking the Repossession, it obtained legal advice from Mr Ahern, that it acted on that legal advice, and that it did so to protect its own commercial interests. FC says that a reasonable person in its position could do no more than seek and obtain legal advice from a solicitor, before proceeding with the Repossession. FC's case is that it acted reasonably, and therefore was not in breach of a duty of care even if one existed.

456 A defendant only breaches a duty of care when it both knows or ought to know of a risk of harm from doing or failing to do an act and does or fails to do that act and has reasonable means available to it of avoiding that harm: Perre v Apand [66] (McHugh J). In other words, the question is whether the defendant's failure to eliminate the risk of harm showed a want of reasonable care for the plaintiff: Tame v NSW [99] (McHugh J). That needs to be judged by what a reasonable person in the position of the defendant would have done to guard against the foreseeable risk of injury: Nagle v Rottnest Island Authority (431) (Mason CJ, Deane, Dawson & Gaudron JJ); Romeo v Conservation Commission of the Northern Territory (1998) 192 CLR 431 [50] (Toohey & Gummow JJ), [126] - [128] (Kirby J). That in turn is a judgment made by reference to 'a consideration of the magnitude of the risk and the degree of the probability of its occurrence, along with the expense, difficulty and inconvenience of taking alleviating action and any other conflicting responsibilities which the defendant may have. It is only when these matters are balanced out that the tribunal of fact can confidently assert what is the standard of response to be ascribed to the reasonable man placed in the defendant's position': Wyong Shire Council v Shirt (47 - 48) (Mason J).

457 In his submissions, counsel for HFC focused on the position of the defendants as joint tortfeasors, and did not address the basis on which it was alleged that Mr Ahern negligently advised FC.

458 For the reasons outlined above, the Romalpa clause did not, in the circumstances, render lawful FC's seizure of the seized property from Pac-Am. Insofar as Mr Ahern's advice was that the Romalpa clause did provide a lawful basis for the seizure of the seized property, that advice was wrong. However, it does not automatically follow that Mr Ahern was negligent in his provision of the advice. That conclusion would depend, amongst other things, on a consideration of the instructions given to Mr Ahern by Mr Ferguson prior to his provision of the advice and to the information which Mr Ahern should have sought to obtain from Mr Ferguson before providing the advice. Those matters were not explored, or adequately explored, in the evidence. By way of example, Mr Ahern acknowledged, in cross-examination, that he did not give consideration to the Chattel Securities Act, but that he should have done so. The basis for that concession - namely that the Romalpa clause had to be registered under that Act before it could be relied upon - was itself erroneous.

459 Counsel for HFC relied on the apology as evidence of a breach of the duty of care owed by the defendants generally. However, the apology contained no admission of liability by Mr Ahern for a breach of a duty of care to HFC. For the reasons I have already set out above in relation to the apology (in the context of my discussion of the lawfulness of the Repossession), the apology does not assist HFC to establish a breach by Mr Ahern of any duty of care he owed to HFC.

460 Having regard to the very limited evidence relevant to the alleged negligent advice, and in the absence of any submissions by HFC in relation to how a breach of Mr Ahern's duty of care had been established on that evidence, it is neither possible, nor appropriate, for me to make any finding as to whether or not Mr Ahern was negligent in the provision of that advice. Accordingly, even had I concluded that Mr Ahern owed HFC a duty of care, I would not have found any breach of that duty.

461 HFC submits that FC breached its duty of care to HFC because its conduct in carrying out the Repossession was entirely unreasonable and that it could, and should, have prosecuted its claim against Pac-Am through the Courts. HFC points to the fact that FC knew that there was a genuine dispute between it and Pac-Am and says that in carrying out the Repossession FC did not act reasonably because it engaged in the commission of another tort, namely a trespass to the Premises and to the goods.

462 I do not accept that submission, for three reasons. First, the evidence was that Mr Ferguson sought legal advice from Mr Ahern about whether FC was entitled to act on the Romalpa clause and conduct the Repossession. Mr Ferguson's evidence was that he 'would not have authorised the Spageddies Repossession without advice from Ahern that the Romalpa clause operated to allow [FC] to carry out the Spageddies Repossession' (exhibit U par 55). I accept this aspect of his evidence. In my view, a reasonable person in FC's position would have sought legal advice in relation to whether the Romalpa clause permitted it to undertake the Repossession. Having received legal advice that it was entitled to conduct the Repossession in reliance on the Romalpa clause, it was reasonable for FC to act on that advice.

463 Secondly, the submission that FC should have pursued its claim against Pac-Am through the Courts ignores the fact that Mr Ahern's legal advice was that FC was entitled to proceed with the Repossession. HFC's submission is, effectively, that FC should have ignored the legal advice it was given and instead commenced legal proceedings to recover the debt it claimed was owed by Pac-Am. I am not persuaded that it was unreasonable for FC to rely on the legal advice it received from Mr Ahern. In this respect, I note that HFC did not plead, nor submit, that it was not reasonable for FC to rely on Mr Ahern's advice because Mr Ferguson had not provided him with all information in FC's possession which might be relevant to the question whether FC was entitled to rely on the Romalpa clause (such as copies of all correspondence and invoices passing between FC and Pac-Am) and that Mr Ferguson knew, or should have known, that that information may be material to whether FC was entitled to rely on the Romalpa clause.

464 Thirdly, HFC's submission that FC acted unreasonably because it engaged in a trespass in the course of conducting the Repossession also ignores the fact that the information available to FC was that it was lawfully entitled to carry out the Repossession. I am not persuaded that a reasonable person in the same position would have acted differently, when there was no information available to FC to suggest that entry into the Premises and the removal of the seized property constituted a trespass. As I have noted above, there was some evidence that Mr Ghazouly asked Mr Ahern whether FC's workmen would have to leave the Premises if asked to do so, and that Mr Ahern advised that they would have to leave in those circumstances (ts 1341, 1374). Counsel for HFC submitted that this evidence indicated that FC knew that it had no lawful right to enter the Premises, and that it did not actually regard the Romalpa clause as efficacious (ts 1622). I am unable to accept that submission. In the face of Mr Ahern's advice to FC that it was entitled to enter the Premises and to conduct the Repossession, it is not at all apparent why a reasonable person in FC's (or Mr Ferguson's) position would have taken the view that that advice should not be relied upon in view of the fact that Mr Ahern had also advised that if asked to leave, FC's workmen would be obliged to do so. There was no evidence concerning the context in which Mr Ahern provided the latter advice. There was no evidence that suggests that a reasonable person would have doubted Mr Ahern's advice that FC was entitled to conduct the Repossession in reliance on the Romalpa clause merely because Mr Ahern had also advised FC that if FC's workmen were asked to leave the Premises, they would be obliged to do so.

465 I note, for completeness, that for the same reasons as are outlined above in relation to the relevance of the apology to the whether Mr Ahern breached a duty of care (had one existed), I do not consider that the apology assists HFC to establish a breach by FC of a duty of care to HFC (had one existed).

466 Accordingly, I find that Mr Ahern did not owe HFC a duty of care not to cause it economic loss by the negligent provision of advice to FC. However, even if such a duty of care existed, I would have found that HFC has not established that Mr Ahern breached any such duty of care.

467 I find that FC did not owe HFC a duty of care not to cause it economic loss in its conduct of the Repossession. However, even if such a duty of care existed, I would have found that HFC has not established that FC breached any such duty of care.

468 In view of my conclusion that neither defendant owed HFC a duty of care not to cause it economic loss, and that I would not have found a breach of any such duty (had one existed), it is, strictly speaking, unnecessary to deal with the question of causation. Nevertheless, as this was a significant issue at trial, it is appropriate to indicate the findings I would have made, had I found a breach by either defendant of a duty of care.

469 In this section of my reasons I deal with the following matters:

(a) Overview of the parties' cases in relation to causation;

(b) Principles governing the determination of causation;

(c) The basis for HFC's case in relation to causation;

(d) The basis for the defendants' case in relation to causation;

(e) Evaluation of the evidence, other than the expert evidence, relating to the question of causation:

(ii) The untenable financial position claim: overview;

(iii) The untenable financial position claim: Pac-Am's financial position before the Repossession;

(iv) The untenable financial position claim: Pac-Am's financial position after the Repossession;

(f) Evaluation of the expert evidence relating to the question of causation;

(g) Determination of causation having regard to the evidence relating to the unsuitable location and untenable financial position claims;

(a) Overview of the parties' cases in relation to causation

470 HFC pleads that by reason of the defendants' breaches of the duty of care each of them owed to it, HFC suffered loss and damage in that as a result of the Repossession, Pac-Am had an administrator appointed to it on 5 July 1999, entered into receivership on 15 July 1999, had a liquidator appointed to it on 28 September 1999, ceased to carry on business on 1 June 1999 and as and from March 1998 was unable to pay its rent and variable outgoings and other expenses to HFC.

471 The defendants deny that as a result of a breach of any duty alleged to have been owed by them, Pac-Am went into administration, receivership, liquidation, ceased to carry on its business and was unable to pay its rent and outgoings to HFC. They repeat their plea that Spageddies operated out of the Premises (that is, out of Lease A only), and deny the allegations of breach of duty.

472 The defendants then set up a number of positive pleas to the effect that any loss and damage suffered by HFC was incurred for reasons apart from any breach of duty on the defendants' part. First, the defendants plead that in any event, and quite apart from any of the matters alleged by HFC in its statement of claim, Pac-Am would have ceased trading on or before 1 June 1999 because from its commencement of business at the Premises until 21 March 1998, the business traded at a loss and irrespective of the Repossession would have continued to trade at a loss such that it would have been forced to cease trading, and because the Premises were unsuitable by reason of their size, cost and position to the particular business being carried on by Pac-Am.

473 Secondly, the defendants plead that as at 21 March 1998, Pac-Am owed and was unable to pay HFC approximately $104,000 in arrears of rent and outgoings, it owed and was unable to pay certain of its trade creditors approximately $239,000, it owed and was unable to pay BankWest approximately $64,000 and it owed and was unable to pay the Australian Taxation Office approximately $24,000.

474 Thirdly, the defendants plead that because Pac-Am was trading at a loss from 21 March 1998 and would have continued to trade at a loss so that it would have been forced to cease trading, by 21 March 1998 Pac-Am was insolvent and unable to pay its debts, including rent, as and when they fell due.

475 Fourthly, the defendants plead that in any event and quite apart from any of the matters alleged by HFC in its statement of claim, Pac-Am would not have been able to pay HFC any further amount by way of rent or otherwise beyond March 1998 because by then it was already trading at a loss and would have continued to do so, because the Premises were unsuitable by reason of their size, cost and position to the business being carried on by Pac-Am, and because by 21 March 1998 Pac-Am owed and was unable to pay HFC approximately $104,000 in arrears of rent and outgoings, owed and was unable to pay certain of its trade creditors approximately $239,000, owed and was unable to pay BankWest approximately $64,000 and owed and was unable to pay the Australian Taxation Office approximately $24,000.

476 Fifthly, the defendants plead that Pac-Am was in breach of all its lease agreements with HFC by 21 March 1998 at the latest because it never in fact occupied Shop 28 in the Piazza, and from about August 1997, Pac-Am was unable to, and did not, pay rent and other outgoings when it fell due, or at all.

477 The defendants also plead that had the Repossession been in all respects lawful, that HFC could not lawfully complain about it, and on HFC's pleaded case the consequences so far as HFC was concerned would have been the same as the consequences HFC pleads were caused by the defendants' breach of duty.

(b) Principles governing the determination of causation

478 A defendant is liable in negligence only if the plaintiff proves, on the balance of probabilities, that the defendant's breach of a duty of care caused or materially contributed to the loss or damage the subject of the plaintiff's claim: Bonnington Castings Ltd v Wardlaw [1956] UKHL 1; [1956] AC 613, 620 (Lord Reid); Duyvelshaff v Catchcart & Ritchie Ltd (1973) 47 ALJR 410, 417; Tubemakers of Australia Ltd v Fernandez (1976) 50 ALJR 720, 724; March v E & MH Stramare Pty Ltd [1991] HCA 12; (1991) 171 CLR 506, 514 (Mason CJ).

479 The defendant's breach need not be the sole cause of the plaintiff's loss or damage. It is sufficient that a defendant's breach of duty is a cause of the plaintiff's loss or damage, in the sense that it materially contributed to the loss and damage. What amounts to a material contribution is a question of degree. Any contribution which is not properly described as 'de minimis' will be a material contribution: Bonnington Castings Ltd v Wardlaw (621) (Lord Reid); March v E & MH Stramare (532) (McHugh J); Chappel v Hart (1998) 195 CLR 232 [27] (McHugh J).

480 Questions of causation can be some of the most difficult and complex in the area of negligence, and it is accepted that causation is not susceptible of reduction to a satisfactory formula: Fitzgerald v Penn [1954] HCA 74; (1954) 91 CLR 268, 277 - 278 (Dixon CJ, Fullagar & Kitto JJ). While it is recognised that 'the notion of causation should not be overcomplicated' it should not 'be oversimplified' either: Environment Agency (formerly National Rivers Authority) v Empress Car Co (Abertillery) Ltd [1998] UKHL 5; [1999] 2 AC 22, 29 (Lord Hoffman). It remains the case that the determination of causation is still regarded as a matter of common sense: Fitzgerald v Penn (277) (Dixon CJ, Fullagar & Kitto JJ); March v E & MH Stramare (515) (Mason CJ), (522 - 523) (Deane J); Bennett v Minister of Community Welfare [1992] HCA 27; (1992) 176 CLR 408, 412 - 413 (Mason CJ, Deane & Toohey JJ).

481 The determination of causation involves two questions. The first is to determine causation in fact, which is determined by the 'but for' test: that is, whether the damage suffered by a plaintiff would not have occurred but for the breach of a duty of care on the part of the defendant. The second question is to determine whether a defendant is, in law, responsible for damage which his or her negligence has played some part in producing: March v E & MH Stramare (515) (Mason CJ).

482 If the 'but for' test is applied as the exclusive criterion of causation it can give rise to unacceptable results, especially in cases in which there are multiple acts or events leading to a plaintiff's injury. As an exclusive criterion, the 'but for' test is also unsatisfactory because the mere fact that something constitutes an essential condition of an occurrence does not mean that, for the purposes of ascribing responsibility or fault, it should properly be seen as a 'cause' of that occurrence. Accordingly, it is accepted that the outcome of the 'but for' test needs to be tempered by the making of value judgments and the infusion of policy considerations as part of the second question which requires consideration in determining causation: March v E & MH Stramare (516) (Mason CJ), (522 - 523) (Deane J), (524) (Toohey J), (525) (Gaudron J); Bennett v Minister of Community Welfare (412 - 413) (Mason CJ, Deane & Toohey JJ). By way of example, it may not be just to hold a defendant legally liable for an injury which can be traced back to the wrongful conduct of a defendant but nevertheless was the immediate result of unreasonable action on the part of a plaintiff: Chappel v Hart [62] (Gummow J).

483 The 'but for' test is a useful aid in determining whether something is properly to be seen as an effective cause of something else. It is particularly useful to exclude causation for the purposes of the law of negligence if the answer to the question it poses is that the accident which caused the injuries would have occurred in the same way and with the same consequences in any event: March v E & MH Stramare (522) (Deane J), (530) (McHugh J), citing Duyvelshaff v Cathcart & Ritchie. In principle, if a defendant's breach of duty has done no more than expose the plaintiff to a class of risk to which the plaintiff would have been exposed irrespective of the defendant's breach of duty, the law of torts should not require the defendant to pay damages: Chappel v Hart [28] (McHugh J, dissenting but not in relation to this principle).

484 The question in the determination of legal causation is not what caused the plaintiff's loss or damage, but whether the defendant caused the loss or damage. It is therefore necessary to focus on whether there is a causal connection between the particular breach of duty by the defendant and the loss or damage suffered by the plaintiff. That requires a consideration of the nature, content and purpose of the duty of care which the defendant has breached: Chappel v Hart [62] - [67] (Gummow J); Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434 [84] (Gummow J); and Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 [98] - [102] (McHugh J); I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109 [56] (Gaudron, Gummow & Hayne JJ).

485 It is for a plaintiff to establish that a defendant's breach of duty caused or materially contributed to his loss or damage. In that sense, the plaintiff bears the burden of proof with respect to causation as much as to any other aspect of establishing a case in negligence, or the commission of some other tort. However, if a defendant contends that the plaintiff would have suffered the same outcome at some stage in the future irrespective of any breach of duty on the defendant's part, the defendant bears an evidentiary onus to establish that that is so. If a defendant meets that evidentiary onus, the burden remains on the plaintiff to establish, on the whole of the evidence, that the defendant's breach of duty caused the plaintiff's loss and damage: see Purkess v Crittenden [1965] HCA 34; (1965) 114 CLR 164, 167 - 168 (Barwick CJ, Kitto & Taylor JJ); Watts v Rake [1960] HCA 58; (1960) 108 CLR 158, 160 (Dixon CJ), 163 - 164 (Menzies J), 165 (Windeyer J agreeing).

(c) The basis for HFC's case in relation to causation

486 Because the focus of HFC's case was that the defendants were joint tortfeasors, it did not separately address the question whether a breach of each duty of care said to be individually owed by Mr Ahern and by FC caused the loss and damage HFC claimed to have suffered. The evidence relied upon by HFC focused on establishing a causal connection between FC's conduct in engaging in the Repossession, and HFC's loss and damage.

487 The duty that HFC alleged Mr Ahern owed was a duty not to cause economic loss to HFC as a result of the provision of negligent advice to FC. HFC's case was that Mr Ahern's advice was negligent because he advised FC that it was entitled by virtue of the Romalpa clause in the Contract and the Contract Variation to enter the Premises and undertake the Repossession. The duty that HFC alleged FC owed was a duty not to cause economic loss to HFC as a result of deliberately or negligently performing the Repossession. Assuming for present purposes that Mr Ahern and FC engaged in a breach of those duties, the question is whether that conduct caused HFC to suffer the loss and damage it claims (that is, the loss of rent and outgoings in respect of that part of the Piazza subject to Lease A and Lease B until that area could be leased to new tenants, and related costs associated with attracting new tenants, preparing the lettable area for new tenants, and the costs of appointing a receiver to act on the debenture charge).

488 In support of its case that its loss and damage was caused by the defendants' breaches of the duties of care they owed to it, HFC relied primarily on the evidence of Mr Vincent Smith.

489 Mr Smith prepared two reports for use in these proceedings. The first, dated 19 October 2006 (the initial report) was superseded by a second report (the supplementary report), dated 6 June 2010. The production of the supplementary report was prompted by Mr Smith's receipt of further instructions from HFC's solicitors, including an instruction to remove an assumption on which he had been instructed to act in his initial report, namely that Pac-Am had available to it an ANZ overdraft facility in the sum of $300,000 (the ANZ overdraft). Having taken into account this additional information, and the removal of the assumption concerning the ANZ overdraft, Mr Smith's evidence was that in the supplementary report he amended some of the opinions set out in the initial report.

490 I have discussed Mr Smith's opinions below. It suffices for present purposes to say that the supplementary report constituted prima facie evidence that the Repossession caused Pac-Am's financial demise, leading to its administration and subsequent liquidation, which HFC says led to its own loss and damage. The initial report and the supplementary report provided by Mr Smith provide prima facie evidence that Pac-Am's insolvency and liquidation in and after June 1999 were attributable to the Repossession.

491 I deal below with the criticisms made by the defendants of the bases for Mr Smith's opinions, and with the contrary opinions expressed by Mr Honey.

(d) The basis for the defendants' case in relation to causation

492 Having regard to the defences filed, the defendants' case in relation to causation relies on four broad contentions. It is convenient to assess the evidence by reference to these contentions:

(i) the size, cost and position of the Premises meant that they were unsuitable to the business being carried on by Pac-Am, with the result that Spageddies would in any event have ceased to trade prior to the expiry of its leases (the unsuitable location claim);

(ii) Pac-Am would not have been able to pay HFC any further amount by way of rent or otherwise beyond March 1998 because by then it was already trading at a loss, by 21 March 1998 it owed various of its creditors a total amount of $431,000, it was thus insolvent as at 21 March 1998, and it would have continued to trade at a loss after 21 March 1998 so that it would have been forced to cease trading (the untenable financial position claim);

(iii) even if the Repossession had been lawful in all respects, the outcome for Pac-Am and for HFC would have been the same, with the result that it cannot be said that the Repossession caused the loss and damage claimed by HFC (the alternative outcome claim); and

(iv) by 21 March 1998 Pac-Am was in breach of its lease agreements with HFC because it never occupied Shop 28 in the Piazza and because from August 1997 it was unable to, and did not, pay rent and other outgoings when it fell due, or at all (the breach of lease claim).

493 The first two of these contentions were relied on for the defendants' claim that Pac-Am would inevitably have ceased trading, irrespective of the defendants' conduct.

494 In order to discharge the evidentiary burden on them in contending that Pac-Am would inevitably have been forced to cease trading irrespective of the Repossession, the defendants relied on the evidence of Mr Peaston, Ms James and their accounting expert Mr Honey, in addition to the content of a number of documents tendered in evidence. HFC relied on the evidence of Mr Smith, and on the evidence of Mr Smales, in addition to a number of documents tendered in evidence, in response to the defendants' case on causation.

(e) Evaluation of the evidence, other than the expert evidence, relating to the question of causation

495 As I have already observed, there were a number of aspects to the defendants' contention that Spageddies was an untenable business. The defendants' defences referred specifically to the location, cost and size of the Premises. Another related feature of the location of the Premises which was addressed in the evidence was whether there was sufficient parking available for patrons of the restaurant.

496 The defendants submitted that since 1991 every lessee of the shops which comprised the Premises, both before and immediately after Spageddies occupied the Premises, had been in arrears with their rent and outgoings and experienced difficulties in trading, and none of them successfully traded from the Premises for the full term of their leases.

497 In February 1990, HFC entered into a lease over Shops 26 and 39 in the Piazza to Grayson Developments Pty Ltd (Grayson), for a term of 10 years, with an option to renew for a further five years, for use as a restaurant. The restaurant traded under the name of Sardi's the Place for Ribs (Sardi's). In February 1991, HFC entered into a lease of a further part of Shop 26 to Grayson, for a term of 10 years, with an option to renew for a further five years, for use as office premises in connection with Sardi's restaurant. On 8 May 1995, the directors of Grayson resolved that the company be placed in voluntary administration, an administrator was appointed, and the company subsequently went into liquidation.

498 On 18 August 1995, the liquidator assigned Grayson's rights under its lease to Lauranne for the balance of the 10 year term of the lease (which commenced on 1 July 1990) together with the option to renew for a further five years.

499 In February 1990, HFC entered into a lease of part of the Premises (namely Shops 28 and 40) to Walbeck Investments Pty Ltd and Midland Bay Holdings Pty Ltd, for a term of 10 years, with an option to renew for a further five years, for use of the premises as a restaurant trading under the name of Café de Paris.

500 On 16 November 1995, HFC entered into a lease of another part of the Premises (namely part of Shop 40) with Robenikee Pty Ltd, for a term of 10 years, with an option to renew for a further five years, for use as a restaurant, trading under the name Riverbank Restaurant.

501 On 16 November 1995, HFC entered into a lease of Shop 28 in the Piazza to Robenikee Pty Ltd, for a term of 10 years, with an option to renew for a further five years, for use as a lunch bar, trading under the name of Café Express.

502 On 27 March 1996, Robenikee Pty Ltd's rights under its leases of Shop 28 and Shop 40 were assigned to Lauranne, for the balance of the term of each lease, which commenced on 16 November 1995, together with an option to renew the term for a further five years. On the same day, HFC granted Lauranne a licence to use a balcony area and accessway immediately adjacent to Shop 40 for the purpose of an alfresco dining area ancillary to the restaurant. The term of the licence was commensurate with that over Shop 40, with a deemed renewal in the event of any extension of the lease of Shop 40 to Lauranne. Lauranne traded as Il Fiume between mid-1996 and March 1997 in the area comprising shops 26, 28, 39 and 40.

503 Shortly after September 1996, Lauranne began to fall behind in the payment of its rent to HFC. Within a short period thereafter Lauranne owed approximately $240,000 in unpaid rent to HFC. In March 1997, Il Fiume was sold to enable Lauranne to meet its rental arrears, and Lauranne surrendered its lease over the area occupied by Il Fiume. By 1998, Lauranne was in the process of being wound up, and it was deregistered on 15 December 1999.

504 Following the closure of Spageddies, on 31 August 2001 HFC leased Shops 25, 39 and 40, together with the balcony area adjacent thereto, to Celestial Asset Pty Ltd, for use as a restaurant which traded as LinQ Restaurant (LinQ) from October 2001. The term of the lease was for five years, with three options for renewal for a further five years in each case. By 19 April 2002, LinQ was experiencing cash flow difficulties. An arrangement was reached with HFC to reduce the rent payable for a period.

505 In July 2002, Celestial Asset Pty Ltd sold LinQ to Warren Mead as Trustee for the South Perth Trust. Celestial Asset Pty Ltd subsequently went into administration.

506 Celestial Asset Pty Ltd's lease was varied, and assigned to Mr Mead on 5 August 2002. HFC and Mr Mead reached agreement to a significant reduction in the monthly rent. LinQ was subsequently rebadged as the Oyster Bar South Perth (the Oyster Bar), and operated from 5 August 2002 until late 2008. However, in late 2008, a receiver and manager was appointed to Mr Mead's group of companies (by another creditor) and operated the Oyster Bar until March 2009.

507 In March 2009, the Oyster Bar was sold to Bramwell Investments Pty Ltd and Bramwell Investments Pty Ltd was assigned the lease. Bramwell Investments Pty Ltd renovated the restaurant, and re-opened the restaurant as Palais 85 in May 2009.

508 In cross-examination, both Mr Hardie and Mr Pilbeam accepted that all of the restaurants that occupied the Premises prior to Spageddies got into financial difficulty in the sense of accruing rental arrears (ts 867, 914).

509 It was the defendants' case that the evidence outlined above established that the location, size and cost of the Premises rendered it an inherently unsuitable location for a restaurant. I am not persuaded that this evidence establishes that the Premises was an unsuitable location for a restaurant, having regard to its location, size or cost.

510 Nothing in the evidence established why the restaurants fell into rental arrears, or established that they did not maintain their leases for the full lease term for any reason associated with the location, size or cost of the area of the Piazza which was occupied. Although Mr Hardie accepted that none of the restaurants maintained their tenancies for the full term of their leases over the Premises, his evidence was that this was because the tenants assigned their leases to other tenants when the restaurant businesses were sold to those tenants (ts 868).

511 In addition, the evidence did not unequivocally establish that all of the restaurants which occupied the Premises before and shortly after Spageddies' occupation fell into rental arrears. Mr Hardie's evidence was that other than for some minor and normal aberrations which were to be expected from retail tenants, the Oyster Bar met all its lease obligations for the payment of rent and outgoings as they fell due.

512 In addition, some other features of the evidence mean that it is not possible to conclude that something about the Premises rendered them unsuitable for a restaurant. For example, other than for Il Fiume, all of the restaurants to which I have referred above operated from smaller areas than the Premises, and different amounts of rent were paid by those restaurants as compared with Spageddies.

513 In addition, Mr Smales' evidence was that, on the assumption that Spageddies was paying approximately $350 per square metre in rent, which was higher than what he was paying at Valentino's during the same period, the Premises were in a prime location, and as a result the rental rate was not excessive for the location and view.

514 There was also evidence that Shops 39 and 40, and Shop 38 which is located immediately adjacent to the Premises, at the front of the Piazza facing the Swan River and the Perth City skyline, have always been rented out to restaurants, having regard to the location, the undisturbed sweeping views of the Swan River, and the outdoor balconies which are attractive to restaurant operators. I note that other than for the period between Spageddies' occupancy and the opening of LinQ restaurant, the Premises have been continuously leased to businesses operating restaurants.

515 Mr Peaston pointed out that although the Piazza has views of the Perth skyline, patrons sitting in the restaurant could not actually see much of these views because they were obscured by the alfresco area in front of the Premises, and the wall in front of that, so the view was partially blocked (ts 1272). Nevertheless, Mr Peaston accepted that for a family-style, middle-of-the-road restaurant like Spageddies, a large alfresco area was an attractive feature (ts 1273).

516 Finally, there was evidence that since the Piazza opened, Shop 38 has been occupied by Coco's restaurant. Mr Pilbeam's evidence was that the space occupied by Coco's was comparable to the Premises in that both the Premises and Coco's were located on the ground floor of the Piazza, both the Premises and Coco's were accessible from the street via a common set of stairs, both shared a similar outlook over the Swan River to Perth City, and both spaces included an outdoor, semi-covered balcony facing the Swan River (exhibit I par 71). Mr Hardie's evidence was that Coco's is regarded as one of Perth's longest running and most successful restaurants, and that its success can be attributed to its location as well as to the experience and professionalism of its proprietor (initially Mr Ian Love and Mr Warren Mead, and subsequently Mr Love alone). The successful operation of Coco's also militates against the conclusion that there is anything about the location or size of the Premises which made it unsuitable for a restaurant.

517 A further aspect of the defendants' case that the Premises were an unsuitable location for a restaurant, and in particular for a restaurant like Spageddies, was that it was unable, by virtue of its location, to attract customers from passing pedestrian traffic.

518 Mr Peaston gave evidence was that he had visited Spageddies when it first opened in 1997 and formed the impression that it was a very large, 'family style' restaurant, which would have seated approximately 300 people. In his opinion, restaurants of that kind relied heavily on attracting customers as they pass by - that is, on pedestrian traffic. Mr Peaston contrasted restaurants of this kind with restaurants like Coco's which he described as 'destination restaurants' for which the majority of diners would make a reservation and travel to specifically to dine at. Mr Peaston's evidence was that in order to be successful, family style restaurants which require pedestrian traffic 'need to be located in areas which attract large numbers of potential diners, such as South Bank in Melbourne or Northbridge or Subiaco in Perth' (exhibit AA par 10). He did not consider South Perth to be such an area. Mr Peaston likened Spageddies to restaurants like Sizzler, which were typically located in areas where there was a captive market, such as near a movie theatre or shopping centre visited by large numbers of people. His evidence was that South Perth 'does not offer a captive market for a restaurant like Spageddies, nor does it attract sufficient numbers of passers-by. As a result, I believe [it] was the wrong location for Spageddies' (exhibit AA par 12).

519 HFC relied on the evidence of Mr Smales to answer the evidence of Mr Peaston. Mr Smales did not agree with Mr Peaston's view that the Premises were unsuitable for a restaurant like Spageddies. In his opinion, 'the location was suitable for a restaurant such as Spageddies which relied on walk-in customers, or what is commonly referred to in the restaurant industry as "pedestrian traffic"' (exhibit O par 15.1). However, Mr Smales did not consider that Spageddies was the kind of restaurant which would have relied predominantly on walk-in/pedestrian traffic in order to succeed, and considered that the majority of Spageddies' patrons would have made bookings and would have driven to the restaurant (ts 1002). In any event, Mr Smales considered that the residential area around Mends Street (with which he was familiar, by virtue of being a nearby resident) would result in a sufficient number of walk-in customers (ts 1002).

520 Ultimately I preferred the evidence of Mr Smales to that of Mr Peaston, for four reasons. First, although Mr Peaston has had many years of experience in the restaurant industry, his experience has primarily been as the proprietor of a fine dining restaurant, namely Chanterelle at Jessica's, rather than in operating mid-priced family restaurants such as Spageddies. In contrast, for many years, Mr Smales has been the proprietor of Valentino's, which appears to have been a restaurant more similar in size and nature to Spageddies.

521 Mr Smales' view about the suitability of the location for a restaurant such as Spageddies was based on his own experience as the proprietor of Valentino's restaurant in Northbridge. Mr Smales' evidence was that as a casual, mid-priced Italian café restaurant, Spageddies was 'more or less comparable to Valentino's in terms of size, cuisine and pricing' (exhibit O par 18). Although he agreed that 'family-style restaurants such as Spageddies and Valentino's rely on attracting passer-by traffic/pedestrian traffic' (exhibit O par 19), he did not agree with Mr Peaston's view that such restaurants 'rely heavily or predominantly on pedestrian traffic' (exhibit O par 19). By reference to Valentino's, Mr Smales' evidence was that:

We do rely, and we did rely, even when we were doing the large numbers consistently - we relied on bookings; we relied on people making it a destination restaurant. You can't rely on your area [that is, on walk-in customers]. ... Even today we rely on [being] a destination restaurant' (ts 1012).

522 Thirdly, Mr Smales did not agree with Mr Peaston's view that the position of the Premises was more suited to a 'destination' restaurant such as Coco's. Mr Smales' evidence was that in his experience in the restaurant industry, 'patrons are willing to drive or catch public transport to mid-priced restaurants, such as Valentino's' (exhibit O par 25).

523 Fourthly, Mr Smales pointed to other examples of restaurants of a similar size to Spageddies which were successfully operating at the same time, despite being located in areas which were not high in pedestrian traffic. He pointed to the Sicilian restaurant in Subiaco and Fremantle, and to Siena's in Oxford Street, Leederville as examples. He also pointed to Spaghi's in South Perth and Ciao Italia in South Perth as examples of successful mid-priced restaurants located in areas removed from high-pedestrian traffic.

524 A related aspect of the evidence concerned the size of the Premises. In his evidence in chief, Mr Peaston's evidence was that 'it would be extremely difficult to attract enough customers in Perth to fill a restaurant the size of Spageddies' (exhibit AA par 15). Mr Peaston went on to express the view that:

I do not believe that there are any areas in Perth which would attract sufficient people to fill a restaurant the size of Spageddies. I do not know of any other restaurants in Perth which are or have been the size of Spageddies and that is undoubtedly because of the fact that Perth does not have the population to support a restaurant of that size (exhibit AA pars 16 - 17).

525 In cross-examination, Mr Peaston clarified that in making these comments he was referring to the size of the room in Spageddies in which the diners were seated, which he felt was too large. Mr Peaston acknowledged that there are restaurants that seat the same number of people as Spageddies, but they do so in smaller areas rather than in one large area. In Mr Peaston's view, the dining area in Spageddies should have been divided up so that on quieter nights it could be sectioned off to make the room look busier (ts 1272). Mr Peaston's experience was that 'customers do not like to eat in restaurants which appear empty or have a lot of unoccupied tables' (exhibit AA par 15).

Spageddies was not too large. For a restaurant such as Spageddies which sells mid-priced café style food to succeed, it has to achieve high turnover. In my experience, high turnover is more difficult to achieve if the restaurant is small in size (exhibit O par 15.2).

527 Mr Smales pointed to Valentino's and to Siena's as examples of successful restaurants of a similar size to Spageddies. Mr Smales' evidence was that Valentino's seats approximately 330 patrons. In addition, I note that there was no evidence about the extent to which the dining area in Spageddies was filled with diners during each sitting. Mr Smales also did not agree with Mr Peaston's view that the population of Perth was not large enough to attract sufficient people to fill a restaurant the size of Spageddies.

528 The defendants submitted that Mr Smales' evidence could not be relied upon as he had not dined at Spageddies. However, given the nature of the matters referred to in his evidence it was not significant that Mr Smales had not actually been to Spageddies. For the reasons I have previously given, I prefer Mr Smales' evidence to Mr Peaston's evidence, given that Mr Smales' views were based on his experience in operating a restaurant of a similar size and nature to Spageddies.

529 The final aspect of the evidence relating to the suitability of the Premises related to the adequacy of parking for customers at Spageddies. The evidence was that there were approximately 150 car bays underneath the Piazza, which were all ticketed parking (exhibit I par 190). In addition, there were approximately 60 - 120 council parking bays in the car parks across the road from the Piazza.

The availability of parking is crucial to any restaurant's success. ... I have also observed that customers do not like to use underground parking or parking which attracts a fee. A large restaurant like Spageddies would have needed ample parking to attract enough customers to be profitable. I do not believe that there is enough free, secure parking available in the Mends Street precinct to attract in the vicinity of 300 customers (exhibit AA pars 13 - 14).

I am not persuaded that Mr Peaston's evidence, viewed in the context of the totality of the other evidence, permits the conclusion to be drawn that the availability of parking had any significant bearing on the suitability of the Premises for a restaurant like Spageddies.

531 In cross-examination, Mr Peaston accepted that there was a considerable amount of parking in the South Perth precinct and that there had been even more in 1997 - 1998 compared with the present (ts 1274). Mr Smales' evidence was also that 'there was ample parking under the ... [Piazza]. In addition, there was street parking available very close to the restaurant' (exhibit O par 15.3). Also, Mr Pilbeam's evidence was that during his employment with HFC, he had not received any complaints from any person regarding the availability of parking at the Piazza.

532 It became clear that from Mr Peaston's perspective, the real problem with the existing parking was that in his experience, people were hesitant about parking their cars in enclosed spaces in the evening if the car park was not a secure parking area (ts 1273), and Mr Peaston's recollection was that the car park was not staffed by an attendant. However, there was no evidence as to whether the car park under Spageddies was in fact staffed by an attendant in the evening.

(ii) The untenable financial position claim: overview

533 The defendants submitted that Pac-Am's ultimate demise was caused by its inability to trade profitably, which had nothing to do with the defendants' conduct, and it would inevitably have ceased trading prior to the expiry of its lease even if the Repossession had not occurred. The defendants pointed to a number of factors which they contended bore upon Pac-Am's profitability. In summary, these were the poor service offered at Spageddies, which meant that the restaurant did not develop a loyal customer base, Spageddies' high costs of wages, food and beverages and its insufficient cash flow as a result of insufficient revenue from trading, its high level of debt and the number of creditors refusing to supply goods on credit to Spageddies, and Pac-Am's dependency on its investors to continue to inject funds into the business. The defendants' case was that these factors manifested shortly after Spageddies opened, and endured until it closed in June 1999. The defendants relied on evidence which they submitted established the existence of these factors both before and after the Repossession. In addition, the defendants relied on the evidence of Mr Honey, who assessed Pac-Am's financial position before and after the Repossession having regard to factors of this kind.

534 It is convenient to commence by examining the evidence of the presence of these factors both before and after the Repossession, because that evidence provided the foundation for the opinion evidence given by Mr Smith and Mr Honey. I then deal separately with the evidence of Mr Smith and Mr Honey.

(iii) The untenable financial position claim: Pac-Am's financial position before the Repossession

535 The defendants' case was that the service provided by the staff of Spageddies was of a poor standard, that this meant that the restaurant did not, and would not, develop a loyal customer base, and therefore that the business would be forced to cease trading. In order to make out this aspect of their case, the defendants adduced evidence from three sources.

536 The defendants pointed to documentary evidence that indicated that prior to the Repossession, Spageddies had received a number of complaints in relation to poor service or other problems with customers' dining experiences (such as the wrong meals being brought to the table, or the meals being brought at different times). The defendants tendered 12 documents in the nature of letters from customers who dined at Spageddies prior to the Repossession, and which contained complaints about aspects of the service they had received (the complaints).

537 Counsel for HFC initially objected to the admission of the written complaints. Although I admitted this evidence, I have given it little weight, for four reasons.

538 First, the complaints were not relied upon by the defendants as evidence of the veracity of the complaints. Having regard to the evidence before me, it is impossible to assess whether any of the complaints had merit. In addition, although there were some common themes to the complaints is not possible to assess how common these particular issues or problems were.

539 Secondly, it is not possible to assess the significance of the complaints in terms of what they say about overall customer satisfaction with the dining experience at Spageddies. There was, for instance, no way to determine whether these were the only complaints received, or only some of the complaints, given that these were complaints in writing and did not include verbal complaints. In his evidence, Mr Stewart accepted that Spageddies had received complaints but he was unable to say how many complaints were received (ts 504). There was also no way to determine whether the complaints received by Spageddies reflected dissatisfaction from a significant proportion of customers. When considered against the background of a restaurant open for lunch and dinner for seven days per week over almost two years of operation, the existence of 12 written complaints suggest that the overall number of complaints may well have been very low.

540 Thirdly, not all of the complaints contained exclusively negative comments. Some contained compliments as well, or recognised that previous meals the authors had had at Spageddies had been good. In addition, HFC tendered a bundle of customer feedback forms which contained a number of compliments in relation to customers' dining experiences at Spageddies. Mr Sevasamy also noted that although Spageddies received some negative comments, generally in a shift the restaurant would 'get several good comments ... it's not extraordinary to see good comments being given' (ts 635).

541 Finally, Mr Sevasamy noted in his evidence that 'restaurants usually have some form of complaints over the course of their operations' (ts 600). Similarly, there was evidence from Mr Smales that in any restaurant, not every one of the customers would be happy, but that that would not necessarily affect the restaurant's business (ts 1002). He referred to the position of his restaurant, Valentino's, by way of example:

[A] restaurant like mine back in ... [that] era, we were doing three-odd thousand people per week, so out of every 100 customers you might have one complainant, you know, that's not happy with the service. ... Not every - not 100 out of 100 of your customers are happy but, you know, it doesn't affect your business (ts 1002).

542 The defendants also relied on the evidence of Mr Peaston, and Ms James, to support their case that Spageddies offered poor service. Mr Peaston's evidence was that he dined at Spageddies in 1997, and on that occasion there did not appear to be any system of table service in place, which he considered was important for a large restaurant.

543 The evidence of Ms James, a restaurant reviewer, who dined at Spageddies in October 1997, was that she 'was unimpressed with the standard of service we received at Spageddies' (exhibit CC par 13). She also concluded that it was apparent that Spageddies did not have a system in place for table service by waiting staff. Ms James' impression of the service she received and the restaurant itself was 'extremely negative' to such an extent that she 'would never have wanted to go back and eat there again' (exhibit CC pars 27, 43). Following her experience, Ms James wrote a largely unfavourable review of Spageddies for the West Australian newspaper, which was published on 22 October 1997.

544 I am unable to place much weight on the evidence of Mr Peaston and Ms James. Each of them dined at Spageddies only once, so their observations are confined to one occasion. It is impossible to assess whether their experiences reflect a problem experienced by a significant number of diners at Spageddies, or whether they had an unsatisfactory, and therefore regrettable, but nevertheless uncommon, experience.

High costs of wages, food and beverages, and insufficient cash flow as a result of insufficient revenue from trading

545 There was ample evidence that from the commencement of Spageddies' operations until the Repossession, the cost of food, beverages and wages represented too high a percentage of its gross turnover to enable the business to trade profitably.

546 According to Pac-Am's profit and loss statements from July 1997 to March 1998, Spageddies' food and beverage costs each month ranged from between 23% and 73% of its gross sales for each month.

547 Mr Peaston's evidence, in light of these figures, was that 'such costs were clearly excessive and indicate ... that the business did not have tight control over its ordering and stock levels and at that level could never have survived' (exhibit AA par 28). Mr Peaston's evidence was that in his experience the cost of food and beverages should be between 25% and 30% of gross turnover.

548 According to Pac-Am's profit and loss statements for July 1997 to March 1998 (exhibit 198), Spageddies' wages costs as a percentage of its gross sales for each month ranged from 50% (in December 1997) to 80% (in July 1997) and 130% (in March 1998). Mr Peaston's evidence was that these wage figures were excessive and indicated that Spageddies could never have survived, even if it had been able to increase its turnover. Mr Peaston's evidence was that the cost of wages should never exceed 35% of gross turnover, and ideally should be between 25% and 30% of gross turnover. However, Mr Peaston acknowledged that 'it is not uncommon to slightly overstaff a restaurant for the first two or so months of its operation. This is to ensure that customers receive excellent service so that they will want to return to the restaurant' (exhibit AA par 22).

549 The evidence relied on by HFC indicated that there was no real dispute that during the period between its opening and the Repossession, Spageddies' food and beverage costs, and wages costs, were too high to enable the restaurant to trade profitably.

550 Mr Sevasamy's evidence was that shortly after he commenced working at Spageddies in mid March 1998, he formed the view that labour costs were too high, food costs were slightly higher than they should have been, and some areas of the restaurant's operations were not being managed as well as they should have been. In particular, Mr Sevasamy's evidence was that 'at times there were too many staff in the restaurant and consequently wage costs were excessive, the costs of some supplies were excessive due to high prices of those goods in Perth, and some supplies lacked quality and the suppliers of those goods needed to be changed' (exhibit D par 36; see also ts 599, 610, 611).

552 The same conclusion was reached by Pac-Am's directors. On 9 February 1998, Mr HW Khoo wrote to Mr HH Khoo outlining a number of difficulties that Pac-Am was facing at that point. These included that its food and wages costs were too high.

553 Mr HH Khoo's evidence was that he formed the view that Pac-Am's wages and food costs were too high. He considered that the reasons for this were that Pac-Am had deliberately ensured that Spageddies was overstaffed for the first few months of its operations and Australian law required staff to work shifts of a minimum duration irrespective of customer demand in the restaurant.

554 In addition, Mr Smales accepted that at the time Spageddies was operating, the industry ratios for restaurant operations were approximately one-third food, one-third wages and one-third for overheads and profit (of gross turnover). Mr Smales' evidence was that the percentage of turnover which would appropriately be spent on wages in a restaurant like Spageddies would have been 35% if the restaurant was under management, and 30% if the restaurant was owner operated (ts 1004). Mr Smales also agreed with Mr Peaston's view that it is common to overstaff a new restaurant in the first months of its operation, to ensure that it operates smoothly in the period when staff are learning how to perform their duties in a new environment.

555 HFC's position in relation to Pac-Am's wages, food and beverage costs up to March 1998 was that these costs were largely attributable to poor management, and that the directors of Pac-Am took steps to address those management problems by appointing Mr Sevasamy as the General Manager of Spageddies from approximately mid March 1998.

556 Mr Sevasamy had previously been a restaurant manager and subsequently the Assisting General Manager at Spageddies in the Tanglin Mall in Singapore, where he was responsible for supervising all areas of the restaurant's daily operations and staff, and the profitability of the restaurant. He was also familiar with Spageddies in Perth, having worked at the restaurant for a month in September 1997. Mr HH Khoo said that Mr Sevasamy was

well versed in every aspect of [the business]. He is what we would call a troubleshooter as well. ... We [the shareholders] all trusted Mr Selvam and so we were anxiously waiting for his report and the actions that he would take to rectify some of the inadequacies that we saw in [Spageddies] (ts 766).

557 There was also some evidence in relation to the question whether Spageddies' turnover was sufficiently high, and in particular, whether it was serving enough customers per day, to be profitable. The defendants pointed to the fact that according to Pac-Am's profit and loss statements, between July 1997 and March 1998, Pac-Am did not record a profit in respect of its operations, and from December 1997, Pac-Am's gross sales turnover was in decline.

558 It was also apparent that Spageddies' turnover in the months between its opening and March 1998 was far less than had initially been estimated when PAFC and Pac-Am Singapore were considering whether to open Spageddies in Perth. Mr HH Khoo's evidence that when PAFC and Pac-Am Singapore were considering opening Spageddies in Perth, detailed profit and loss projections were estimated. Two sets of figures were projected, based on a restaurant with a seating capacity of 330 diners, with each table being filled 1.5 times per day, at an average price per diner of either $25 or $27. Using the average price of $25 per diner, the projection was of estimated gross monthly income of $376,406.25 made up of food sales of $263,484.38, alcohol and beverage sales of $109,157.81, and the balance in merchandise sales. The projections also encompassed estimated monthly costs, including estimated food costs of $68,505.94 (estimated at 26% of gross food sales), alcohol and beverage costs of $21,605.72 and wages costs of $131,742.19 (estimated at 35% of gross monthly income). Using the average price of $27 per diner, the projection was of estimated monthly income of $406,518.75 made up of food sales of $243,911.25, alcohol and beverage sales of $154,477.13, and the balance in merchandise sales. These projections also encompassed estimated monthly costs, including estimated food costs of $63,416.93 (estimated at 26% of gross food sales), alcohol and beverage costs of $36,261.47 and wages costs of $142,281.56 (estimated at 35% of gross monthly income). (In each case, cost projections were also calculated based on wages costs estimated at 40% of gross monthly income). In cross-examination, Mr HH Khoo sought to distance himself from these estimated profit and loss figures. He said the figures were later revised because they contained errors, one of which was that they assumed 100% occupancy, which is never the case in a restaurant (ts 697).

559 Nevertheless, when these projections are compared with Spageddies' actual trading results for the months from its opening until March 1998, the contrast is stark. Using Pac-Am's profit and loss statement for December 1997 (which had the highest gross sales of that period) as an example, Spageddies' gross sales for the month amounted to $282,398.17, its food costs were $63,587.27, and its alcohol and beverage costs were $20,898.06. The difference in the projected and actual trading figures appears to be attributable, at least in part, to the average amount spent by each customer at Spageddies. In July 1998, Mr Sevasamy estimated that over the months prior thereto, the average price spent per customer was $18.43.

560 The difference between the projected and actual figures also appears to be attributable, in part, to the number of customers served per day. Counsel for HFC suggested to Mr Peaston in cross-examination that according to his calculations (set out in exhibit BB, which was received as an aide memoire) when Spageddies' gross sales for the months between Spageddies' opening and February 1998 were divided by the number of days in each month, and divided again by the average price spent per customer, those figures suggested that Spageddies averaged more than 300 customers per day. Mr Peaston did not accept that this was an impressive result (ts 1277). His evidence was that in a restaurant with a seating capacity of 300, the restaurant should have been able to fill each table twice per day, and on that basis, Spageddies should have been doing a dinner service of 450 - 500 covers per day (ts 1277). Mr Peaston also noted that the figures covered both lunch and dinner service, so that the restaurant should have been doing 500 - 600 covers per day, especially in a peak trading month like December (ts 1280). However, he did accept that as the figures put to him were an average only, it was likely that on busier days of the week, namely Fridays and Saturdays in December 1997, Spageddies had been serving over 600 customers per day (ts 1281).

561 Finally, Pac-Am's profit and loss statements for the period from July 1997 to February 1998 indicated that it operated at a significant loss for each month of that period. Pac-Am's monthly losses over that period ranged from a high of $167,877.58 (in July 1997) to $92,731.02 (in December 1997) and $18,629.59 (in January 1998) before increasing to $79,814.05 (in February 1998).

Pac-Am's high level of debt and the refusal by some of its creditors to supply goods on credit

562 The defendants relied on evidence which established that within a short period after the opening of Spageddies, Pac-Am had started to accumulate significant debts. By August 1997, Pac-Am was in arrears of rent and outgoings to HFC in the sum of $34,095. It remained in arrears for every month in which it traded thereafter. By January 1998, HFC had called on the rental guarantee account to repay $55,637.06 of arrears in rent and outgoings owed by Pac-Am. By early March 1998, Pac-Am was in arrears of the rent and outgoings for February and March 1998 in the sum of $48,450.80, whereas the balance of the rental guarantee account was by that stage only $15,849.00.

563 Within less than four months of its opening Pac-Am had accumulated other significant debts. In a letter to Mr HH Khoo of 3 September 1997, Mr HW Khoo noted that Pac-Am's debts at that point were $25,000 (owed to Ausdata), $31,000 for group tax, $10,000 for superannuation and $8,000 for uniforms. Mr HW Khoo advised that he had deposited a sum of $50,000 from his own company account (Swee Pty Ltd) to cover wages, and he estimated that Pac-Am's bank account would need to be topped up by approximately $50,000 per month until December 1997.

564 By February 1998, things had deteriorated further. In February and early March 1998, Pac-Am received letters of demand from nine of its suppliers, threatening that legal action would be taken if their accounts were not paid. These included debts owed to Western Power totalling $6258.70. In addition, the Australian Taxation Office was threatening legal action to recover unpaid tax in the sum of $24,040.71. Further, BankWest was threatening legal action if an overdraw on Pac-Am's cheque account, in the sum of $64,456.89, was not immediately paid.

565 According to a list of Pac-Am's outstanding debts to trade creditors dated 5 March 1998 (but which appears to have been prepared at some time prior to mid March 1998) Pac-Am owed its trade creditors a total of $239,102.48. That document indicated that $112,498.07 of that amount had been outstanding for in excess of 30 days, $43,220.99 had been outstanding for in excess of 60 days and $46,552.61 had been outstanding for in excess of 90 days. Of those trade creditors, 25 had stopped supply or required cash on delivery, while a further 16 creditors had threatened or commenced legal action (ts 520 - 522, 951).

566 Pac-Am's financial position appears to have prompted Pac-Am's accountant, Mr Paul Miles, of Hospitality Accounting Services, to write to Pac-Am's directors and shareholders on 5 February 1998. Mr Miles' letter referred to a number of the problems described above, including low average weekly sales in January, and concerns about likely sales during the quieter winter months, Spageddies' high wages bill, its severe cash flow problem, and the number of suppliers refusing to supply on credit. Mr Miles recommended that

action needs to be taken immediately to prevent the demise of this business. We need to be realistic and respond to both external and internal concerns. ... The business is lacking in direction and leadership as we do not have a management team capable of running a successful business at this stage.

...

However the financial position will need to be addressed by no later than Friday 6 February or I cannot guarantee the business will be able to operate over the weekend (exhibit 287).

567 Mr HH Khoo was cross-examined about the matters raised in Mr Miles' letter. Mr HH Khoo gave evidence that although he thought that action 'had to be taken all along' he did not agree with Mr Miles' concerns about the demise of Pac-Am. Mr HH Khoo accepted that 'there was a lack of working capital but that was not a concern for the shareholders at that point' (ts 711).

568 Mr HH Khoo's evidence was that Pac-Am's policy was to pay its creditors when its debts fell due (ts 702). When asked why Pac-Am did not implement that policy his evidence was that payment 'depended on the veracity of the claim' (ts 702). However, he also acknowledged that some debts (such as to the Australian Taxation Office for group tax) were not paid 'because the need was towards other direction [sic]' (ts 703). That seems to me to be the more likely explanation for Pac-Am's failure to pay its creditors: it simply did not have the cash available to do so.

569 Mr HH Khoo also rejected Mr Miles' concerns because Mr Miles was not a restauranteur and was not familiar with the Spageddies concept (ts 763). However, although Mr Miles was not called to give evidence and to be cross-examined about the opinions he expressed, and his qualifications to provide them, it nevertheless remains significant that as Pac-Am's accountant he had expressed the view, as at February 1998, that Pac-Am's financial position was sufficiently serious that without immediate action the business may not survive. I note that the concerns expressed by Mr Miles were reflected in a letter from Mr HW Khoo to Mr HH Khoo dated 9 February 1998, in which he referred to Pac-Am's significant debts at that point, its high labour and food costs, and recommended strategies to deal with these problems.

570 Mr HH Khoo was cross-examined about a lengthy list of Pac-Am's creditors dated 5 March 1998. His evidence was that the document had not given him cause for concern at the time it was prepared and provided to him (ts 718). He said that the number of creditors and the quantum of the debt were not of concern because from a financial standpoint he was confident that Pac-Am could meet its obligations (ts 764).

571 It was put to Mr HH Khoo in cross-examination that as at January 1998 Pac-Am was in a parlous financial state. Mr HH Khoo gave two inconsistent answers to that proposition. At first he conceded that Pac-Am was in a parlous condition, but suggested that it was not unusual, for a new concept going into a new country, to incur losses for at least 12 months (ts 705). He later disagreed with the proposition that Pac-Am was in a parlous financial state. Mr HH Khoo said that he disagreed because that would mean that the shareholders and directors would not stand behind any financial deficiency 'and that is not the case ... . Our shareholders are very substantial people and if it was a legitimate claim and it was a claim that we would be required to meet, we certainly would' (ts 762).

572 In view of his evidence that substantial shareholders were behind Pac-Am, I asked Mr HH Khoo why it was the case that Pac-Am was permitted to accrue such significant debts as it had at 5 March 1998 (as set out in exhibit 305). Mr HH Khoo's answer was far from convincing:

Before any shareholders would make any substantial investment, your Honour, we had to know the exact position. Everything was moving so rapidly and we were seeing a kind of opposition in all different angles. The concern, as I said, of labour and of food cost was of tremendous concern.

Pritchard J: Yes, I can appreciate that, but insofar as you had incurred debts already ... why not just deal with those debts if they weren't actually disputed, the amounts of them, and I don't understand anything that you have said so far to be to the effect that any or most of them were in dispute?---Yes. Well, I really do not know if those amounts had been settled but we had injected several amounts of money since that time, but the concern I had was to have a helicopter view of where the business was going and how the operation was being conducted. In a couple of months we had to release two of our general mangers from the local scene because they were not receiving our concept as such and so there was a lot of turmoil within the management itself, within the restaurant operation itself, so the shareholders were anxious, your Honour, and it wasn't that we were not going to meet those payments (ts 765).

573 The latter claim was wholly undermined by the evidence that Pac-Am's investors ultimately refused, or were unable, to provide further financial support for Pac-Am.

Pac-Am's dependency on its investors to inject funds into the business

574 When Spageddies was being established, Pac-Am received significant financial contributions from two investors, namely Mr Krishnamoorthy and Mr DR Khoo. Each of them contributed approximately $520,000 in equity and loans to Pac-Am. Both Mr Krishnamoorthy and Mr DR Khoo continued to contribute to Pac-Am, through loans, over the ensuing months prior to the Repossession. The evidence as to the precise amounts contributed by each of them was inconsistent (compare exhibit K, exhibit 702, exhibit 703, exhibit 105), although the amounts contributed were less than the initial contributions they had made.

575 In addition to financial contributions from Mr Krishnamoorthy and Mr DR Khoo, by 8 August 1998 Pac-Am had received financial assistance in the form of an initial equity injection, and subsequent loans and advances, of more than $850,000 from Pac-Am Singapore or PAFC, including a contribution of $280,000 from Pac-Am Singapore in March 1998.

576 There was some suggestion in the evidence that there was an agreement of some kind that Mr Krishnamoorthy and Mr DR Khoo would make financial contributions to Pac-Am (ts 704, 736). However, there was no evidence to confirm that such an agreement actually existed, and if so, whether it was a formal agreement or simply a mere understanding or hope that financial contributions would be made, nor was there any evidence as to the parties to any such agreement or the quantum of the contributions that individual investors were to make.

577 There was, however, some evidence to suggest that by the latter half of 1997, Pac-Am's investors were not contributing as much as they had been expected to contribute to Pac-Am. In a letter to Mr HH Khoo of 3 September 1997 Mr HW Khoo noted that Mr DR Khoo was 'not keeping his side of the agreement and this needs to be resolved' and that 'perhaps Pac-Am Singapore should seriously consider greater participation' (exhibit 215). In his evidence, Mr HH Khoo agreed that Mr DR Khoo was not supporting Pac-Am as was expected of him (ts 704). There was also some evidence to suggest that by February 1998, Pac-Am's investors had decided to significantly reduce their investment (exhibit 288). In his letter of 5 February 1998 Mr Miles indicated that Pac-Am was experiencing severe cash flow difficulties, which were attributable, in part, to a 'lack of commitment from shareholders in relation to providing promised capital' (exhibit 287).

578 It was apparent from the evidence that from the outset Pac-Am was, and remained, dependent on its investors to provide it with injections of cash if it was to be able to pay its debts. By way of example, in his letter of 5 February 1998 Mr Miles advised Pac-Am's directors that $200,000 in capital was required by 6 February 1998. It appears that Pac Am Singapore's contribution of $280,000 in March 1998 was used to pay creditors.

Conclusion: Pac-Am's financial position prior to 21 March 1998

579 The clear picture which emerged from the evidence was that prior to 21 March 1998, Pac-Am had experienced serious financial difficulty for most of the period for which it had been trading, and given the significant losses which Pac-Am was making each month, it remained dependent on its investors to continue to inject funds to enable it to pay its debts.

(iv) The untenable financial position claim: Pac-Am's financial position after the Repossession

580 The defendants' case was that after the Repossession, the standard of the service provided to Spageddies' customers by its staff continued to be poor, and that this contributed to Pac-Am's demise.

581 The defendants pointed to documentary evidence that indicated that following the Repossession, Spageddies continued to receive complaints in relation to poor service or other problems with customers' dining experiences. The defendants tendered eight documents in the nature of letters from customers who dined at Spageddies prior to the Repossession, and which contained complaints about aspects of the service they had received (the additional complaints).

582 For the same reasons as I have set out above in relation to the complaints received prior to the Repossession, I have given little weight to the additional complaints.

Insufficient cash flow as a result of insufficient revenue from trading

583 Mr See's evidence was that when Spageddies reopened following the Repossession, 'trade was very slow and significantly less than trading levels prior to the Repossession' (exhibit J par 40). Mr Sevasamy also gave evidence that Spageddies' sales were very low in the months following the Repossession.

584 However, other evidence suggested that in the months following the Repossession, the problems Spageddies experienced were the same problems that it had experienced prior to the Repossession, and that those problems were not attributable to the impact of the Repossession.

585 Mr Sevasamy wrote to Pac-Am's accountant Mr Peter Monterio, of Hospitality Accounting Services on 27 April 1998. Mr Sevasamy noted that sales for the week of 6 - 12 April 1998 were $26,000. Notably, however, Mr Sevasamy did not attribute the poor performance of Spageddies solely to the effects of the Repossession itself. Instead, Mr Sevasamy attributed the restaurant's poor sales to 'bad weather during the early part of the week, guests still unaware that we are open (despite advertising in the papers) [and] families leaving town for the long weekend holidays' (exhibit 335). In addition, Mr Sevasamy noted that 'guest perception of Spageddies is not too positive at this point of time. Food quality and services standards have not been up to Spageddies high standards and this has affected us' (exhibit 335; ts 628). He also noted that 'the kitchen is a major concern with a clear lack in leadership' (exhibit 335).

586 Mr Sevasamy provided a report to Pac-Am's directors in July 1998. By that time, things had improved slightly. Mr Sevasamy reported that May sales had been $120,000 but had dropped to $97,630.60 in June, 'mainly due to the change in climate to cold and rainy winter conditions' and that 'this trend [that is, the reduction in sales] is expected to continue through July and August' (exhibit 201; ts 631). Again, it is notable that Mr Sevasamy did not attribute the poor sales figures to the impact of the Repossession. The only reference to the impact of the Repossession was in Mr Sevasamy's comment that there were 'still several guests who are unaware that we have reopened' (emphasis added) (exhibit 201).

587 In addition, Mr Sevasamy noted that Spageddies' payroll had been at its lowest in June 1998, and that all hiring of new staff had ceased and those staff who resigned were not being replaced. Nevertheless, the percentage of the restaurant's income being expended on staff costs remained high 'due to the drop in sales' (exhibit 201). Mr Sevasamy also noted that there continued to be issues with the management of the 'front of house' staff (that is, those who worked on the floor of the restaurant) (exhibit 201). Nevertheless, Mr Sevasamy reported that the general morale of staff had improved and this had been reflected in better service and food quality, and better feedback from guests on the quality of the food and the service (ts 632). It is again notable that Mr Sevasamy was optimistic about increased future trading. He reported that 'word is spreading that after re-opening, the store has improved and this is bringing in guests. Being a small community, word would spread fast' (exhibit 201).

588 In his evidence, Mr Sevasamy noted that 'management implemented various changes in order to increase cash-flow including ... reducing the number of items on the menu ... which was designed to reduce the number of orders and the kitchen staff required for each shift [and] starting all shifts at 9.00 am rather than 8.00 am' for managerial and office staff (exhibit D par 88).

589 It was Mr Sevasamy's evidence that by late 1998, Spageddies was 'slowly improving' (exhibit D par 89). That is to some extent borne out by Pac-Am's profit and loss statements. By November 1998, Pac-Am's profit and loss sheet showed a small profit of $3,094.48. In December 1998, Pac-Am returned a loss for the month of over $28,000 but its sales for the month were $185,825.35 which were the highest sales figures it had achieved since January 1998. In January 1999, Pac-Am made only a comparatively small loss for the month of just over $8,000.

590 Nevertheless, despite these improvements, Mr Sevasamy reported that by December 1998, Spageddies 'was experiencing significant cash flow problems' and Mr Sevasamy remained concerned about Spageddies' high level of debt (exhibit D pars 92, 97).

591 On 9 December 1998 Spageddies' management sought a discretionary overdraft account with the National Australia Bank for that week, of $20,000. On 22 December 1998, Pac-Am sought approval from the Bank to again draw $20,000 from that overdraft facility, in order to pay staff wages. However the Bank refused this request on the same day, because the overdraft facility was a temporary arrangement which 'was originally agreed upon for a couple of weeks only' (exhibit 409). Before the bank would consider any further request for financial assistance, it required, amongst other things, profit and loss statements to 30 November 1998 to establish Pac-Am's current financial position, and aged debtor and creditor listings, confirming any arrangements to pay long standing creditors (including HFC).

Pac-Am's high level of debt and the refusal by some of its creditors to supply goods on credit

592 After the Repossession Pac-Am continued to trade with a high level of debt and its creditors continued to threaten legal proceedings over unpaid debts, and to refuse to provide goods on credit.

593 Mr Sevasamy noted that the closure of the restaurant 'excalated [sic] our creditors' demands, disrupting our provisions and plans for the cash sent down [ie the cash advance received from Pac-Am's investors]' (exhibit 335). He noted that the advance of $280,000 which was made by Pac-Am Singapore had had to be paid to various suppliers and a number of suppliers required cash on delivery. Mr See's evidence was to similar effect.

594 According to Mr Sevasamy, the practical effect of the decision by some suppliers to request cash upon delivery was that Pac-Am required continual injections of cash in order to keep trading. In addition, according to Mr Sevasamy, the downturn in sales, coupled with the absence of trade terms from suppliers, meant that Spageddies had difficulty 'meeting its obligations to pay staff wages and purchase goods in order to continue trading' (exhibit D par 84).

595 In his report of July 1998, which was sent to the directors of Pac-Am, and to its investors including Mr Krishnamoorthy, Mr Sevasamy advised that there were a number of creditors who required urgent payment, who had threatened legal action or issued a summons, or had threatened to cease supply (for example, Western Power). Letters of demand or notices of court proceedings which were sent to Pac-Am by or on behalf of eight separate creditors in June 1998 and July 1998 were tendered in evidence.

596 In addition, throughout 1998 and into 1999 Pac-Am remained significantly in arrears for its rent and outgoings. This was despite the fact that shortly after the Repossession, HFC granted Pac-Am a deferral (until January 1999) of the payment of approximately $56,000 of arrears of rent which was then owing. Nevertheless, by 22 May 1998 Mr HH Khoo requested more time to pay the rent owed for that month and also requested an extension of a further four months to resume rental payments. HFC agreed to defer the rent payments for May and June until 1 September 1998, but only on the basis that Pac-Am to provide either a debenture charge over its assets or personal guarantees from its directors. Mr HH Khoo executed a debenture charge on behalf of Pac-Am in favour of HFC on 23 December 1998.

597 On 22 September 1998, Mr HH Khoo requested that Pac-Am be permitted to repay the rental arrears owing to HFC at the rate of $15,000 per month until the arrears were fully paid. That request was granted by HFC, but Mr Hardie requested that when Pac-Am received an insurance payout in relation to the Repossession (which it expected to receive in the near future) that it direct that payment towards the reduction of rent arrears. (Ultimately, however, the insurance claim for the interruption to Pac-Am's business following the Repossession was not paid in full.)

598 As a result, Pac-Am did not make any payments for rent and outgoings between March 1998 and 6 October 1998, although on about 23 March 1998, the balance of the rental guarantee account was taken by HFC to reduce Pac-Am's outstanding liability for rent (ts 713). Furthermore, although in September 1998 HFC agreed to Pac-Am paying $15,000 per month to clear its rental arrears, thereafter Pac-Am did not pay its current rent for each month, so that it continued to accrue arrears of rent and outgoings even after September 1998.

599 By the end of December 1998, Pac-Am had accumulated arrears of rent and outgoings of almost $200,000. By 8 January 1999, Pac-Am's financial position was described by Mr See as 'desperate' (exhibit 412). By 12 April 1999, Pac-Am's debt to HFC had reached $231,649.97.

600 At the same time, Pac-Am was accumulating other significant debts besides its outstanding rent. By 20 January 1999, Pac-Am owed the Australian Taxation Office $74,000 for unpaid group tax and superannuation contributions. By 4 February 1999, Pac-Am owed the Australian Taxation Office $229,000 for unpaid group tax from January 1998 to January 1999, and for unpaid superannuation from June 1998 to January 1999.

Pac-Am's continued dependency on its investors to inject funds into the business

601 The evidence clearly confirmed that after 21 March 1998, Pac-Am remained dependent on its investors to inject funds into the business to ensure its survival. By way of example, Mr Sevasamy and Mr See made urgent requests for additional financial contributions from Pac-Am's investors, in July 1998 and in January 1999.

602 Mr DR Khoo died on 22 March 1998, and despite some suggestion that his estate was to contribute further funds to Pac-Am (ts 736) this did not eventuate and no contributions to the company were made after his death (ts 733). There was evidence that Mr Krishnamoorthy loaned Pac-Am the sum of $218,404.18 between 5 March 1998 and 23 April 1998 but it appears that he did not make any further contributions thereafter.

603 The evidence also established that PAFC and Mr HH Khoo made cash advances or loans to Pac-Am on various dates after between April 1998 and January 1999. Although there was differing evidence as to the precise sums contributed, the contributions appeared to be in the vicinity of between approximately $150,000 and $180,000 from PAFC, and $25,000 - $30,000 from Mr HH Khoo. In any event, it is clear that the amounts contributed by PAFC and by Mr HH Khoo were significantly less than those initially contributed by Mr Krishnamoorthy and Mr DR Khoo.

604 By mid 2008, Pac-Am's Singaporean directors had begun to feel the effects of the Asian economic crisis. On 8 July 1998, Mr HH Khoo advised Mr Hardie that Pac-Am's Singaporean directors had been negatively affected by the crisis and that they were having difficulty arranging for funds to be sent to Spageddies in Perth to cover Pac-Am's debts, but that they would honour Pac-Am's obligations to HFC under its leases. On 2 October 1998, Mr HH Khoo told Mr Hardie that the Pac-Am group of companies had been badly affected by the Asian financial crisis, that PAFC and Pac-Am Singapore were being restructured, that Mr HH Khoo was in negotiations with a potential new investor who was able to provide a capital injection needed by the Pac-Am group of companies, and that Mr HH Khoo remained confident that Spageddies could recover from the effects of the Repossession.

605 On 13 April 1999, Mr HH Khoo wrote to advise Mr Hardie that the 'Pac-Am Group' (which appears to have been a reference to PAFC and Pac-Am Singapore) was still undergoing restructuring and that the group had been placed under 'Judicial Management to enable us to achieve a restructuring framework' (exhibit 435; see also exhibit E par 213). Precisely what was involved in 'judicial management' was not the subject of evidence, but Mr HH Khoo explained that the restructuring of PAFC saw Spageddies stores owned by PAFC 'go into the hands of the franchisees who are our partners' with the result that PAFC continued to receive royalty fees and franchise fees (but presumably none of the profits of the businesses) (ts 733). Eventually PAFC was sold to a public company in Singapore (ts 764), while Pac-Am Singapore was eventually wound up, in 2005 (ts 734).

606 By April 1999, Mr Krishnamoorthy, Mr HW Khoo and Mr HH Khoo decided to sell a property owned by Pac-Am at 3 Maldon Way in Mount Pleasant in order to increase the cash flow available to Pac-Am and to pay off some of Pac-Am's debts. On 28 April 1999, they accepted an offer of $540,000 for the purchase of the property. However, the settlement statement from the sale of that property revealed that after the payment of the outstanding mortgage, and other costs associated with the sale of the property, the balance due to Pac-Am after the settlement was only $37,277.07.

607 Some time after the settlement of the Maldon Way property but before July 1999, Mr HH Khoo telephoned Mr Hardie and told him 'words to the effect that I and the other directors had lost faith in Spageddies' ability to recover from the consequences of the Repossession. ... I was not prepared to spend any more money trying to save it and I told him to do what he needed to protect his interests pursuant to the Lease Agreements' (exhibit E par 218).

(f) Evaluation of the expert evidence relating to the question of causation

608 The parties relied on the expert evidence of Mr Smith and Mr Honey in support of their cases concerning the impact of the Repossession on Pac-Am's financial position.

609 Part of this expert evidence was directed expressly to the question whether Pac-Am was insolvent as at 21 March 1998. That issue was of particular importance in relation to HFC's action under the Trade Practices Act. Once HFC abandoned that aspect of its case, the question of insolvency as at the date of the Repossession held far less significance in the resolution of the issues in dispute in this action. Nevertheless, it was not entirely irrelevant because one aspect of the defendants' pleading that Pac-Am would inevitably have failed was its pleading was that Pac-Am was insolvent on 21 March 1998.

610 That having been said, in my view, it was not particularly significant whether Pac-Am was actually insolvent on 21 March 1998. Counsel for HFC acknowledged that even in the context of the 'inevitable failure' defence (as he described it) the insolvency of Pac-Am as at 21 March 1998 did not have the same significance that it had for HFC's claim under the Trade Practices Act (ts 1625). In my view, of greater significance in the application of the 'but for' test to determine causation in this case is the question of Pac-Am's financial position before the Repossession and after it, bearing in mind the immediate impact of the Repossession itself.

611 The experts' opinions touched on some matters which in my view were not supported by the evidence to which I have referred above. Where those matters did not appear to be essential to the overall opinion expressed by the witness, I have not placed any weight on that aspect of the witness' opinion. For example, Mr Honey suggested that one of the matters which should have been considered by Mr Smith as a possible cause of Pac-Am's collapse was the service provided by staff at the restaurant. However, for the reasons outlined above, the evidence did not provide a basis for concluding that Spageddies' service was unsatisfactory to such an extent that Spageddies was unable to develop a customer base to which its poor sales figures could be attributed. In other cases, however, matters about which there was an absence of evidence appeared to be essential to the opinion of the witness, and in that situation I have taken the absence of an evidentiary foundation into account in evaluating the opinion given by the witness.

612 Mr Smith's reports dealt with five issues: Pac-Am's financial position at its commencement; its financial position from its commencement until 21 March 1998; its financial position after 21 March 1998; whether Pac-Am's insolvency and liquidation was in any way caused or contributed to by the events of 21 March 1998; and what Pac-Am's likely financial position would have been after 21 March 1998, had the Repossession not occurred. In order to appreciate the different approaches taken and conclusions reached by Mr Smith and Mr Honey, it is convenient to summarise the tenor of Mr Smith's views on each of these issues.

613 Mr Smith made the following assessment of Pac-Am's financial position at its commencement:

2.3.1 Pac-Am's financial position at commencement can be summarised as follows:

• Pac-Am had Net Assets of $1,229,508 and Working Capital of $106,621 (both figures excluding shareholder loans);
• It did not have a foreseeable future need for significant further capital expenditure;
• The shareholders were of significant corporate and individual wealth ... and had already demonstrated a willingness to provide additional support to the business in the form of shareholder loans totalling $374,076;
• The business had already accommodated significant extraordinary setup costs associated with the opening of a new concept restaurant ... ;
• The shareholders behind the business had extensive overseas experience in the setup and trading of Spageddies branded restaurants, albeit they had no experience in Australia.

2.3.2 Accordingly ... the financial position of Pac-Am at commencement (ie 30 June 1997) can be seen as reasonably positive. Whilst significant setup costs had already been incurred, it was not anticipated any further capital expenditure would be required. Further, the nature and background of the company's shareholders, and their actions leading up to commencement, clearly indicated that Pac-Am could look forward to significant financial and operational support in its future trading operations. Having said this, whilst Pac-Am had positive working capital (excluding shareholders loans), the balance of the working capital was not extensive and as such Pac-Am had little ability to sustain any future trading losses without quickly having to revert to its shareholders for financial support (exhibit 706 pages 4 - 5).

614 Mr Smith then assessed Pac-Am's financial position from its commencement to 21 March 1998:

2.3.3 In summary Pac-Am's financial position from commencement (and including the trading results for June 1997) through to 21 March 1998 was as follows:

• During the period Pac-Am had generated trading losses totalling $869,968, and had yet to generate a trading profit in any month of trading;
• Pac-Am traded at a Gross Margin of 61% which was well within the range suggested as suitable by industry benchmarks;
• Pac-Am had an unacceptably high wages level ranging between 50% - 82% of sales, whereas industry benchmarks suggested an appropriate level to be 25% - 30% of sales. Albeit management made progress in addressing the wages level during the period, the wages burden was clearly a significant cause for trading losses incurred during the period;
• Pac-Am had Net Assets totalling $1,104,543 at 31 March 1998;
• Pac-Am had a negative Working Capital position of $165,056 as at 31 March 1998 (after excluding shareholder loans);
• Trading losses during the period were largely sustained through shareholder loans, shareholder equity investments, and the growth in current liabilities (ie trade creditors);
• Shareholders continued to financially support the business investing an additional $150,500 in the form of Paid Up Capital, and $284,674 in the form of shareholder loans; and
• As a result the financial position of Pac-Am was such that it relied upon the extended credit terms it was able to negotiate with its suppliers and cash advances from its shareholders including loans and capital investments, in order to meet its liabilities.

2.3.4 Accordingly, whilst trading during the period to 21 March 1998 had incurred significant losses, the financial position of Pac-Am in March 1998 (before the events of 21 March 1998) was a likely cause for concern for the directors of Pac-Am but far from terminal. This is because Management had identified some of the most significant causes of the poor results (ie excessive wages) and were starting to address these. In addition despite the trading losses the shareholders continued to support the business in the form of new debt and equity providing some comfort to Management that they could fund trading requirements into the future (exhibit 706 page 5).

615 Mr Smith assessed Pac-Am's financial position after 21 March 1998 as follows:

2.3.5 In summary, the financial position of Pac-Am after 21 March 1998 was as follows:

• Significant improvements were made by management in controlling wages costs with wages being 53% of sales for the entire trading period after March, and only 46% of sales after August 1998;
• Sales dropped dramatically after 21 March 1998 (they were on average only 35% of the sales values before 21 March 1998);
• Despite significantly lower sales figures Pac-Am recorded profits in November 1998, and January, February (albeit this was the result of $56,435 of Extraordinary Income) and March 1999;
• Despite these profits, on an annualised basis Pac-Am continued to trade at a loss after 21 March 1998;
• With the significant reduction in sales and other difficulties encountered by Pac-Am and its management post 21 March 1998 ongoing losses were hardly surprising; and
• In the absence of trading profits, Pac-Am became even more reliant on credit from its trade suppliers (ie the level of trade creditors increased), and it continued to be reliant on new loans ($201,842) and equity ($29,990) from its shareholders (exhibit 706 page 6).

616 Mr Smith also considered the question whether Pac-Am was insolvent as at 21 March 1998. He concluded:

• Pac-Am could not fund its operations from trading in the lead up to or at 21 March 1998 as it was in fact incurring significant trading losses;
• Pac-Am had negative working capital;
• Irrespective of the negative working capital position, and having regard to solvency and the timing of when payables are due, on further examination not all the current liabilities included in the 31 March 1998 balance sheet were due and payable as at 21 March 1998 (or in fact 31 March 1998).
• The amounts available to pay creditors at 31 March 1998 exceeded the liabilities due and payable at 31 March 1998.
• Based on correspondence between the management of Pac-Am and its shareholders it appears additional loan or equity funds were requested in order to pay outstanding liabilities;
• These additional funds were paid in February and March 1998 to address outstanding debts with the ATO, BankWest and trade suppliers; and
• The outstanding rental with HFC was brought into line by the release of the $70,000 security deposit and also subsequent deferral arrangements with HFC.

2.3.7 Based upon the above, and in particular the support Pac-Am had received and could expect to receive from its shareholders, and given the liquid assets available to it, it appears that Pac-Am could properly consider it was capable of paying its debts as they fell due at 21 March 1998 (exhibit 706 page 6).

617 Mr Smith expressed the following opinion as to whether Pac-Am's insolvency and liquidation was 'in any way caused or contributed to by the events of 21 March 1998':

2.3.8 In my opinion if the business had not been effected [sic] by the events of 21 March 1998 I can see no reason why it would not have continued to achieve sales at levels at least the same as those achieved in the period prior to 21 March 1998. Further, if this is coupled with the improvements in wage costs achieved by Pac-Am after 21 March 1998 then Pac-Am would have been in a significantly better financial position.

2.3.9 It is likely Pac-Am's financial position would have been improved by at least $727,358 and this would have been sufficient for it to meet its liabilities as and when they fell due. In such a case it is unlikely Pac-Am would have ceased trading and entered Voluntary Administration and subsequently liquidation.

2.3.10 Accordingly, it is my opinion that the events of 21 March 1998 did in fact contribute significantly to the failure and eventual liquidation of Pac-Am (exhibit 706 page 7).

618 Finally, Mr Smith considered what Pac-Am's likely financial position would have been after 21 March 1998, had the Repossession not occurred:

2.3.11 ... it appears that the events of 21 March 1998 had an immediate impact (closure of the business) and subsequent impact (reduced public perception and confidence) on the business of Pac-Am. Both impacts clearly and adversely affected sales.

2.3.12 I have ... calculated the immediate impact of the closure of the business and the resultant reduction in sales in March 1998 to be $55,384.45 and the resultant increase in the loss for March 1998 to be $39,322.96.

2.3.13 Further I have calculated ... that this loss of profit in March 1998 combined with the subsequent impact of the events of 21 March 1998 on trading between April 1998 and May 1999 reduced Net Profits by $727,358.

...

2.3.15 In addition to the additional sales and profit which could have been generated had the events of 21 March 1998 not occurred, Pac-Am would also have avoided the need to incur and pay for certain expenses arising from the events of 21 March 1998. These included legal fees ..., repair costs, and costs of replacing inventory.

2.3.16 If the events of 21 March 1998 had not occurred and Pac-Am had achieved the levels of profit referred to ... then the financial position of Pac-Am would have been dramatically improved.

2.3.17 Further, if Pac-Am had achieved these results, and avoided unnecessary expenses, then it would have had a significantly better Working Capital position represented by a greater cash at bank balance and/or fewer creditors. Further, it is highly likely in this circumstance that it would have been able to pay its debts as they fell due.

...

2.3.19 I have not been provided with any information during the course of preparing this report that indicates the anticipated trading results would not have continued in subsequent years.

2.3.20 Accordingly, I am of the opinion that if Pac-Am had achieved the results as calculated above and continued to trade after June 1999 then it is not unreasonable to conclude that the business could have continued to trade from the Premises for the full period of the Lease (exhibit 706 pages 7 - 8).

619 Mr Honey prepared two reports for the Court: a report dated 27 March 2006 which contains the substance of his views; and a report dated 3 December 2006, in which Mr Honey addressed the matters raised in the initial report prepared by Mr Smith. In addition, Mr Honey prepared a document containing his comments following his comparison of his report dated 27 March 2006 and a report prepared by Mr Smith dated 17 May 2010. (The latter report, with some relatively minor amendments which did not affect the substance of Mr Smith's conclusions, was tendered as the supplementary report prepared by Mr Smith.) Mr Honey prepared his comments prior to a conferral between he and Mr Smith, and the document containing those comments was also tendered.

620 Mr Honey did not address precisely the same questions as Mr Smith in the documents he prepared for these proceedings. In particular, he was not asked to address the question whether Pac-Am was insolvent as at 21 March 1998. Instead, Mr Honey looked at the broader question of Pac-Am's solvency prior to July 1999. Nevertheless, the issues Mr Honey addressed in his reports overlapped to a considerable extent with those addressed by Mr Smith.

621 Mr Honey looked at Pac-Am's position at its commencement. His evidence, in summary, was that:

6.2a Pac-Am commenced business during May 1997 with issued and paid up capital of $1,149,500.

1. The issued and paid up capital of $1,149,500 was absorbed in financing the cost of assets employed in the business. As at 30 June 1997, the cost of the assets employed in the business (other than cash) comprised ... :

(i) Property, plant and equipment $476,007

(ii) Intangibles (Goodwill at cost and

franchise development costs $655,515

(iii) Inventories $210,658

(iv) Rental deposit $70,000

Total $1,412,180

1. At the outset, shareholder loans were required in addition to the issued and paid up capital to enable the company to acquire the assets listed in b. above (exhibit 11 pages 31 - 31).

622 Mr Honey then proceeded to look at the position of Pac-Am during the period from the date it commenced business until June 1999. In summary, he concluded:

2.1a. Pac-Am incurred significant losses on a continuing basis from the time it commenced trading during May 1997 through to 31 May 1999 resulting in accumulated losses as at 31 May 1999 totalling $1.657 million ... ;

1. The losses incurred resulted in the company experiencing a continuing and significant cash flow deficit over the period from June 1997 to May 1999 resulting in an aggregate net cash flow deficit for that period of $1.392 million. To be in a position to pay trade creditor accounts as and when those accounts fell due for payment, the cash flow deficit had to be funded ... ;

1. The financial position of Pac-Am deteriorated over the period from June 1997 to June 1999 as a consequence of the continuing losses being incurred with the net asset surplus of $1.1495 million available at the commencement of the business declining to a net asset deficiency of $327,955 as at June 1999. ...

1. Consistent with the deterioration in net assets, Pac-Am also suffered a sharp deterioration in its working capital position which indicated that from at least 31 December 1997 the company would have experienced increasing difficulty in paying its liabilities as and when those liabilities fell due for payment ... ; and,
2. On the basis of a comparison of the sources of finance available to Pac-Am over the period from June 1997 to June 1999 ... it is apparent that Pac-Am did not have access to sufficient sources of finance to be in a position to pay all of its trade accounts falling due for payment from as early as July 1997 and these circumstances endured through to the time that the company ceased trading in June 1999. The company managed to continue trading through to June 1999 by delaying payments to its creditors ... (exhibit II pages 3 - 4).

623 Mr Honey also looked at the question whether a restaurant such as Spageddies could ever have been viable at the Premises. In summary, he concluded:

2.3 On the basis of my analysis of the cost structure of the business ... and, in particular, on the basis of my observations about the performance of the restaurant in the areas of food and beverage costs and wages costs assessed against the level of sales achieved by the restaurant, I am of the opinion that the restaurant operated by Pac-Am did not demonstrate a viable level of sales and a viable cost structure at any point during the period from the commencement of business through to May 1999 (exhibit II page 5).

624 Mr Honey then looked at the question whether Pac-Am was insolvent prior to the appointment of administrators in July 1999, and if so, when it became insolvent. His analysis was as follows:

6.2d. From the time that the company commenced business during May 1997 through to May 1999, the company incurred substantial losses on a continuing basis ... . As the nature of a restaurant business of the type operated by Pac-Am is that revenue earned and expenses incurred are typically received and paid either immediately or within a short period of time, the case flow deficit stemming from the losses incurred ... needed to be funded if the company was to be in a position to pay its liabilities as and when those liabilities fell due for payment.

1. The capacity of Pac-Am to fund the cumulative cash flow deficit being incurred, enabling the company to continue to trade while paying liabilities as and when those liabilities fall due for payment, depended upon the sources of finance available to the company, the extent of the finance available and the extent of finance required by the company. If the company did not have access to sources of finance sufficient to meet the finance required to pay for the assets used in the business and to fund the cumulative losses incurred, then the company would not have had the capacity to pay its current trade creditor accounts falling due for payment.
2. ... from as early as July 1997, the company did not have access to sufficient finance to meet its financing needs and, consequently from as early as July 1997 the company did not have access to sufficient sources of finance to be in a position to pay its trade creditor accounts falling due for payment ... .

Opinion

6.3 Based on my analysis of the finance required by Pac-Am to fund:

1. the cost of the assets employed in the restaurant; and
2. the cash flow deficits stemming from continuing losses incurred by the restaurant,

1. the sources of finance available to the company; and
2. the extent of finances available to the company,

in my opinion, from as early as July 1997, Pac-Am did not have access to sufficient sources of finance to be in a position to pay current trade creditor accounts falling due for payment. This position endured through to June 1999 (exhibit II pages 31 - 32).

625 It thus appears that Mr Honey was of the view that from July 1997, Pac-Am was for all intents and purposes insolvent. That that was his view was confirmed by his evidence in relation to whether Pac-Am should have continued to trade until the end of May 1999. Mr Honey's evidence was that had he been consulted in relation to Pac-Am's affairs on the basis of its financial performance reported to the end of December 1997, he would have provided the following advice to Pac-Am's directors:

7.3a. A threshold issue would have been the viability of the restaurant business. The financial performance of the business to 31 December 1997 demonstrated that the company was operating at a significant loss. Further, the cost structure to 31 December 1997 was not viable ... .

1. I would have informed directors of the provisions of section 588G of the Corporations Law dealing with the Director's duty to prevent insolvent trading by the company ... .

1. In view of the financial performance of the business to 31 December 1997 and its financial position as at 31 December 1997 and in view of the provisions of section 588G of the Corporations Law, I would have advised the directors that, if they wished to continue to trade in the company without breaching the provisions of section 588G ... then they would need to obtain an injection of funds sufficient to be in a position to enable the company to continue to pay its liabilities as and when those liabilities fall due for payment. ...

1. In the absence of:
   1. a viable business plan; and
   2. access to funds sufficient to ensure that all liabilities will be paid as and when those liabilities fall due for payment,

then I would have advised the directors to consider either a voluntary administration or the winding up of the company ... .

Opinion

7.4 The restaurant continued to trade through to the end of May 1999 by delaying payments to creditors... .

7.5 However, had the directors received advice from an experienced insolvency practitioner during late 1997/early 1998, the directors would have been advised to consider the viability of the business, their duty to prevent insolvent trading by the company, and whether, in the circumstances of the company at that time, the company should have been placed in either voluntary administration or liquidation at that time. If the directors acted on such advice ... it is likely that the administrator or liquidator, as the case may be, would have closed the restaurant in view of the poor profit and cash flow outlook of the restaurant at that time.

7.6 The key issues to be considered by the directors were:

1. The apparent absence of a viable cost structure in the light of the level of sales being achieved by the restaurant; and
2. The insufficiency of finance available to fund the costs of establishing the restaurant and to fund ongoing trading losses.

These circumstances were present from July 1997 ... and would have been apparent from at least October 1997 after considering the trends established in the first three to four months trading ... . These circumstances endured until the restaurant finally ceased trading during June 1999 ... (exhibit II pages 33 - 34).

626 In so far as Mr Smith's evidence addressed the question whether Pac-Am would have gone into administration and liquidation if the Repossession had not taken place, and in so far as Mr Honey's evidence touched on the question of the viability of Spageddies, the questions they addressed bore some considerable parallels with aspects of the question whether, but for a breach of a duty of care by FC in conducting the Repossession, HFC would not have suffered loss and damage arising from Pac-Am's administration and liquidation. From that perspective, the opinions expressed by the experts might be said to constitute opinions on one of the 'ultimate issues' in this action. The question whether a court is entitled to rely on the opinion of an expert on the 'ultimate question' remains unresolved: see Naxakis v Western General Hospital [1999] HCA 22; (1999) 197 CLR 269 [110] (Callinan J), Brodie v Singleton Shire Council [2001] HCA 29; (2001) 206 CLR 512 [355] (Callinan J), cf Murphy v The Queen [1989] HCA 28; (1989) 167 CLR 94, 110 - 111 (Mason CJ & Toohey J), 127 (Deane J); and see also Cross on Evidence (8th Aust ed, 2010) [29125] and the authorities cited therein. While I have given the opinions expressed by each expert careful consideration, I have done so having regard to the facts established by the evidence, and have therefore not relied solely on either of their opinions to provide the answer to the 'but for' test in this case.

(iii) Parallels and divergences in the expert evidence

627 There was a significant degree of consistency in the figures and methodology employed by both experts in their analysis. By way of example, the experts agreed on what was the immediate impact of the closure of Spageddies as a result of the Repossession, and how this impact should be calculated. Both Mr Honey and Mr Smith agreed that the immediate impact of the closure was effectively a loss of gross profit (because Spageddies continued to bear all of its usual expenses for the month, such as wages, food costs and so on, but without sales to offset those costs) (ts 1422). Mr Smith and Mr Honey effectively agreed on the manner in which this loss of profit should be calculated but differed only in the result based on the number of days of closure (ts 1021). Although the restaurant was closed for 13 days, Mr Smith calculated the immediate loss as being a loss of profit of $39,323 for the 11 day period from 21 March until the end of that month (ie 31 March), whereas Mr Honey calculated the loss as being a loss of profit of $46,473 for the 13 day period from 21 March until 2 April 1998.

628 The points of difference between the foundations for the opinions expressed by Mr Honey and Mr Smith were identified in a supplementary report prepared by Mr Honey and dated 3 December 2006 (exhibit KK), and were discussed during the evidence of the experts at trial. Mr Honey identified some errors and anomalies in Mr Smith's analysis, but these were not significant and Mr Honey acknowledged this to be so.