HIH Insurance Limited (in liquidation) & Anor v Rodney Stephen Adler & Ors

HIH Insurance Limited (in liquidation) & Anor v Rodney Stephen Adler & Ors - [2007] NSWSC 633 - NSWSC 2007 case summary — Zoe

[4]

Agar v Hyde (2000) 201 CLR 552 Air Services Australia v Zarb (Unreported, New South Wales Court of Appeal, Priestley, Powell JJA and Rolfe AJA, 26 August 1998) AJ Thompson Pty Ltd v KLK Manufacturing Pty Ltd (1986) ATPR 40-718 Allianz Australia Insurance ltd v GSF Australia Pty Ltd (2005) 221 CLR 568 Ancuta v R (1990) 49 A Crim R 307 Angas Law Services Pty Limited (in liq) v Carabelas (2005) 215 ALR 110 ASIC v Rich (2005) 216 ALR 320 Bank of New South Wales v Murray (1963) 80 WN (NSW) 272 Bruce v Williams (1989) 46 A Crim R 122 Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 Chappel v Hart (1998) 195 CLR 232 Colly Cotton Marketing Pty Ltd v Simmons [2006] NSWCA 134 Dey v Victorian Railways Commissioners (1949) 78 CLR 62 Digi-Tech (Australia) Ltd v Brand and Ors (2004) 62 IPR 184 DPP for Northern Ireland v Maxwell [1978] 3 All ER 1140 Electrical Enterprises Retail Pty Limited v Rodgers (1988) 15 NSWLR 473 Environment Agency v Empress Car Co (Abertillery) Ltd [1999] 2 AC 22 Esanda Finance Corp Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 Ford Motor Company of Australia Ltd v Arrowcrest Group Pty Ltd (2003) 134 FCR 522 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Gibson v Parkes District Hospital (1991) 26 NSWLR 9 Giorgianni v The Queen (1985) 156 CLR 473 Gould v Vaggelas (1985) 157 CLR 215 Hampic Pty Ltd v Adams [1999] NSWCA 455 Henville v Walker (2001) 206 CLR 459 Hospitals Contribution Fund of Australia v Hunt (1982) 44 ALR 365 I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd, (2002) 210 CLR 109 James Andrew Sweeney v State of Western Australia [2006] WASCA 118 CASES CITED : Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 Johnson Tiles Pty Ltd v Esso Australia Ltd (No. 2) (2000) 97 FCR 175 Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458 Linter Group Limited (in liq) v Goldberg (1992) 7 ACSR 580 Lezam Pty Ltd v Seabridge Australia Pty Ltd (1992) 35 FCR 535 McCarthy & Ryan v R (1993) 71 A Crim R 395 March v E & MH Stramare Pty Ltd (1991) 171 CLR 506 Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 NRMA Insurance Ltd v A W Edwards Pty Ltd (1995) 11 BCL 200 Petagna Nominees Pty Ltd v AE Ledger, Liquidator of Linun Pty Ltd (1989) 1 ACSR 547 Preston v Star City Pty Ltd [1999] NSWSC 1273 R v Bainbridge [1959] 3 WLR 656 R v Phan (2001) 53 NSWLR 480 R v Russell [1933] VLR 59 Rural Press Ltd v ACCC (2003) 216 CLR 53 San Sebastian Pty Limited and Anor v Minister Administering the Environmental Planning and Assessment Act 1979 and Anor (1986) 162 CLR 340 Sidebottom v Cureton (1937) 54 WN (NSW) 88 Spellson v George (1992) 26 NSWLR 666 Stockland (Constructors) Pty Ltd v Retail Design Group (International) Pty Ltd [2003] NSWCA 84 Stokes & Difford v R (1990) 51 A Crim R 25 Sutton v AJ Thompson Pty Ltd (in liq) (1987) 73 ALR 233 TPC v Australia Meat Holdings Pty Ltd (1988) 83 ALR 299 Trade Practices Commission v Lamova Publishing Corp Pty Ltd (1979) 28 ALR 416 Travel Compensation Fund v Tambree (2005) 224 CLR 627 Valoutin Pty Ltd & Anor v Furst & Ors (1998) 154 ALR 119 Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 Western Australia v Wardley Australia Ltd (1991) 30 FCR 245 Wickstead & Ors v Browne (1992) 30 NSWLR 1 Yorke v Lucas (1985) 158 CLR 661

[90]

"The demanding nature of the test is in no way lessened in circumstances where there are the (sic) potential for difficult factual and legal issues to arise. Rather, as the decision in Webster made clear, it is heightened: see also Wickstead & Ors v Browne (1992) 30 NSWLR 1 and Esanda Finance Corp Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241." (b) referred [at 29] with approval to the observations emphasising the need for caution in emerging areas of the law as noted by Master Allen as he then was, in Hospitals Contribution Fund of Australia v Hunt (1984) 44 ALR 365 at 373-4, in a passage cited with approval by Badgery-Parker J in Gibson v Parkes District Hospital (1991) 26 NSWLR 9 at 35/36: "...It is not by any means rare in the history of the development of the common law that a high appellate court, in enunciating a novel development in the law, albeit one avowedly based on a miscellany of old cases, has chosen to use general words of imprecise limits in meaning to facilitate the arrival, in later cases, of the final form of the development without the need to overrule what earlier had been stated. That being so I am of opinion that a court at first instance should be particularly astute not to risk stifling the development of the law by summarily throwing out of court actions in respect of which there is a reasonable possibility that it will be found, in the development of the law, still embryonic, that a cause of action does lie. The risk of injustice to the plaintiff, which summary termination of his claim would entail, is real. One cannot predict, with firm assurance, what the future holds as the final formulation of the new development." (c) cited [at 30] with approval, NRMA Insurance Ltd v A W Edwards Pty Ltd , NSWCA 11 November 1994, where the Court of Appeal reversed a decision of Cole J (as he then was) in a case that was likely to turn upon developing doctrine, so as to allow the action to continue. Kirby P, with whom Powell JA agreed, said (at p7): "... the more complex and arguable is the legal point, and the more dependent it may seem to be upon debatable factual premises, the less likely is it that the peremptory relief sought by a party will be appropriate to the circumstances of the case, particularly where it would have the consequence of terminating proceedings altogether or terminating them forever against one party." (d) observed [at 35] that: "The strike out power is not appropriate in a case where the issue primarily relates to a conflict as to matters of fact or of credit, notwithstanding that one may have a strong prima facie view as to the ultimate result: Sidebottom v Cureton (1937) 54 WN (NSW) 88, Bank of New South Wales v Murray (1963) 80 WN (NSW) 272 and Spellson v George (1992) 26 NSWLR 666 at 678 per Young AJA, observations made in relation to SCR Pt13 r5, but equally applicable to SCR Pt15 r26." The issues 11 During the exchange of submissions in relation to the strike out application the plaintiffs determined that they would not press the parts of the pleading alleging a joint enterprise involving each of Gen Re and Guy Carpenter. 12 Without being exhaustive the following remaining matters were addressed in the extensive submissions:

[124]

ix. allegations that a defendant both aided a contravention and was knowingly concerned in a contravention do not create different causes of action. They are simply different routes to establishing the cause of action under s.82, being different specifications of how the relevant defendant was involved in the contravention by the principal contravener, which contravention caused the loss/damage sued upon. The core complaint by Gen Re and Guy Carpenter 21 The core complaint against the accessorial liability claims made by these defendants is that they are sought to be made liable for misleading conduct involving broadly three aspects [the Second AXOL Contract, the NI Contract and under-provisioning by FAI], when it has only been alleged that they each had knowledge of two of those three aspects [ie it is not alleged that Gen Re had knowledge of the NI Contract, or that Guy Carpenter had knowledge of the Second AXOL Contract]. The proposition is that neither the GCRA parties nor Guy Carpenter had knowledge of what they contend are all of the constituent elements of the contraventions by the directors/FAI alleged in the pleading. 22 Guy Carpenter also seeks to suggest [in contrast to Gen Re] that its knowledge of significant under-provisioning is insufficient as there is no allegation that it had knowledge of a "shortfall of $170 million". Guy Carpenter also appears to assert that it cannot be an accessory in respect of that part of the misleading conduct relating to the under-provisioning in the accounts as it did nothing to facilitate it. 23 The loss or damage sued upon by the plaintiffs here is the purchase price of FAI, it being alleged that the shares of FAI were worthless when purchased. Issues of causation are put in somewhat different ways for the various different causes of action. 24 As against Gen Re and Guy Carpenter on the accessorial liability claims it is alleged that but for the misleading and deceptive conduct of FAI/the executive directors - in which conduct Gen Re and Guy Carpenter were involved - the plaintiffs would not and/or could not have proceeded to purchase FAI. 25 In my view there is an arguable case in support of each of the following propositions:

[150]

ix. The assessment of whether or not conduct is misleading involves looking at the conduct as a whole . The case of Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 concerned whether or not a representation implicit in a diagram in a real estate agent's brochure - which was erroneous - was relevantly characterisable as misleading conduct by the agent. The majority held it was not. At [39], having quoted from Yorke v Lucas (1985) 158 CLR 661 at 666 with respect to when an agent might be held liable for a representation based upon information sourced elsewhere, their Honours said: "In applying those principles, it is important that the agent's conduct be viewed as a whole . It is not right to characterise the problem as one of analysing the effect of its "conduct" divorced from "disclaimers" about that "conduct" and divorced from other circumstances which might qualify its character. Everything relevant the agent did up to the time when the purchasers contracted to buy the Rednal land must be taken into account." x. McHugh J, who was in dissent on the facts, stated the principles similarly at [109] (citations omitted): "The question whether conduct is misleading or deceptive or is likely to mislead or deceive is a question of fact . In determining whether a contravention of s.52 has occurred, the task of the court is to examine the relevant course of conduct as a whole . It is determined by reference to the alleged conduct in the light of the relevant surrounding facts and circumstances. It is an objective question that the court must determine for itself. It invites error to look at isolated parts of the corporation's conduct. The effect of any relevant statements or actions or any silence or inaction occurring in the context of a single course of conduct must be deduced from the whole course of conduct. Thus, where the alleged contravention of s 52 relates primarily to a document, the effect of the document must be examined in the context of the evidence as a whole. The court is not confined to examining the document in isolation. It must have regard to all the conduct of the corporation in relation to the document including the preparation and distribution of the document and any statement, action, silence or inaction in connection with the document." xi. Just as the question of whether conduct is misleading cannot be divorced from the whole course of conduct, so too the question of what the conduct is must be seen in the whole context.

[172]

vii. In the criminal context the requirements have been paraphrased as a necessity to show that the defendant "is in some way linked in purpose with the person actually committing the crime [i.e. the contravention], and is by his words or conduct doing something to bring about, or rendering more likely, such commission": R v Russell [1933] VLR 59 at 67; quoted approvingly by Mason J in Giorgianni at 493.5; see also R v Phan (2001) 53 NSWLR 480 at [69] and [76] per Wood CJ at CL. Or, as Gibbs CJ put it in Giorgianni at 482.3, along with having knowledge of the essential circumstances, "the person charged must have intended to help, encourage or induce the principal offender to bring about the forbidden result". 35 In relation to element (c) identified above- the aiding [etc] conduct by the accessory - it is clearly arguable that what is required is the doing of "something" which acted to help, encourage or induce the executive directors/FAI to engage in misleading conduct [see R v Russell etc cited above]: the search is for a 'link in purpose'. The pleaded conduct of Gen Re and Guy Carpenter 36 The plaintiffs allege that by their conduct Gen Re and Guy Carpenter did do something to bring about, or render more likely, the misleading conduct in the form of the provision of misleading information to the auditors and in the published 1998 accounts. Gen Re is said to have engaged in such conduct by entering into arrangements with FAI, which were structured in a way designed to mislead the auditors, and then directly misled the auditors at the 26 August 1998 meeting. Guy Carpenter is said to have done so by procuring the NI Contract, preparing a backdated cover under artificially recreated letterhead for the purposes of misleading the auditors, and [like Gen Re] then directly misleading the auditors at the 26 August 1998 meeting. 37 The plaintiffs have submitted and I accept that in this respect it is arguably not to the point that the information and accounts supplied to HIH were also misleading because of additional matters. Self-evidently, a person said to be secondarily liable will not have engaged in all of the conduct which constitutes the contravention. They must merely have done something to assist or encourage the bringing about of the contravention. Where it is alleged that the information and accounts were misleading, the facilitation of FAI/directors being misleading in that way may constitute material assistance towards the commission of the contravention.

[174]

Returning to knowledge of the essential elements 40 As already observed, the plaintiffs' submissions are generally adopted as of substance in terms of establishing a sufficiently arguable case to go to trial. 41 The central issue of present relevance is whether it is necessary to show that Gen Re and Guy Carpenter had knowledge of all respects in which the information and accounts as ultimately provided/published by the principal contraveners were misleading, or whether instead it is enough to show knowledge that the accounts would materially misstate FAI's profitability and net asset position [in relation to the "broad" contravention]. 42 The joint judgment in Yorke v Lucas (supra) at 670, drawing upon the judgments in Giorgianni, spoke of the necessity to show "knowledge of the essential facts constituting the contravention" and, shortly thereafter, "knowledge of the essential elements of the contravention". In Giorgianni there was reference to "knowledge of the essential matters which went to make up the offences" (Wilson, Deane and Dawson JJ at 500.2) and knowledge of "the essential facts which made was done" a contravention (Gibbs CJ at 488.1). In Rural Press Ltd v ACCC (2003) 216 CLR 53 at [48] per Gummow, Hayne and Heydon JJ, the language of "actual knowledge of the essential elements constituting the contraventions" was again employed. 43 I accept as correct the proposition that the key idea appears to be that it is necessary to show in a criminal context, that a secondary offender knew such facts as would be sufficient for the prosecution to establish that a crime was to be committed by the principal offender, that is, facts sufficient to establish each of the elements of the offence. 44 At the least it is distinctly arguable that the use of the word "essential" would seem to focus attention on it being necessary to show only facts sufficiently establishing the elements of the offence, and not all the particular facts of the crime that was actually committed: if X assists Y knowing that Y is to commit a crime then X may be culpable, even if he/she does not know all the details of what is to occur. 45 For accessories before the fact, it is necessary to show that the secondary offender had the knowledge in advance of the principal offender's intention to engage in the relevant conduct. But that is also usually true (at least to a significant extent) for a secondary offender who is present at the scene: see Stokes & Difford v R (1990) 51 A Crim R 25 at 38-9 per Hunt J (for NSW CCA); McCarthy & Ryan v R (1993) 71 A Crim R 395 at 409.8. 46 The same commonly is true in relation to contraventions of s.52. Indeed, that is the case here - the plaintiffs allege that Gen Re and Guy Carpenter armed FAI with the means to later engage in misleading conduct in information provided to the auditors and published in the 1998 accounts. 47 The circumstance that typically the accessory provides assistance in advance, necessarily undermines the argument that the accessory must know all of the respects in which the conduct was misleading, when that conduct has not yet occurred and naturally may evolve. That very characteristic of secondary liability is one factor which has led to a recognition in the criminal cases that it is only necessary to show that the accessory knew the type of offence intended, and need not know all of the particular details.

[185]

vi. The drink-driving cases do appear to be closely analogous. In those cases it has been held to be sufficient that the accessory knew that the driver was over the limit even if he/she did not know how far over the limit, where the level of being over the limit actually determines what charge is brought. 51 Hence it is at the least distinctly arguable that in the TPA context, to require that the accessory had known in advance, all of the respects in which the conduct actually turned out to be misleading or deceptive or likely to mislead or deceive would be to move well beyond requiring knowledge of the essential elements to knowledge of all of the relevant facts. Returning to the case in hand 52 Here, the plaintiffs do not allege that Gen Re or Guy Carpenter knew precisely how misleading the material in the accounts ultimately turned out to be. Nevertheless, they are said to have known in advance that, based upon their own assistance, the relevant entries in the accounts and relevant information provided to the auditors would be misleading and deceptive; ie, they are said to have known that the net profits and assets entered in the draft and final accounts would be overstated. I accept that that is enough to permit the pleading of the "broad" contravention to go forward. They are said to have known that the reinsurance recoveries would similarly be overstated. I accept that that is enough to permit the pleading of the "middle" contravention to go forward. 53 Similarly, there is a close analogy between the circumstances here and the facts of Sweeney: that more was stolen from the shop than planned (and there even with a different victim than intended) did not preclude accessorial liability. Here, that the conduct may have been misleading [to an even greater extent than Gen Re or Guy Carpenter may have realised] does not alter the fact that they are alleged to have agreed to do what they did, knowing that it was to be used for the very kind of misleading purposes to which the two purported reinsurance contracts were in fact put. 54 Finally and importantly, in terms of the instant application, in light of the observation of Priestley JA in Bruce v Williams, this is not an issue which is suitable to be determined purely on the pleadings. The matter inheres in an examination of the whole course of conduct. 55 Brennan J put the issue in the following terms in Yorke v Lucas (supra) at 677 (emphasis added):

[186]

"But s75B(a) does require knowledge of the acts constituting the contravention and of the circumstances which give those acts the character which s52 defines, namely, "misleading or deceptive or ... likely to mislead or deceive". As the net of civil liability for a contravention does not catch those who would not be caught if s.52 created an offence, honest ignorance of the circumstances which give a representation a misleading or deceptive character or the character of a representation which is likely to mislead or deceive is inconsistent with civil liability under s75B(a)." 56 In Sutton v AJ Thompson Pty Ltd (in liq) (1987) 73 ALR 233 - an external accountant was held to be an accessory to representations made by a client to a potential purchaser of a business in circumstances where the accountant had been involved in preparation of the accounts and was present at a meeting between the vendor and purchaser. The relevant misleading conduct was found to be representations that the "business was viable … , capable of achieving sales of 1800 [units] per month with a substantial gross profit margin and that in the light of the value of the component parts of the business the price of $200,000 was reasonable" (at 237.2). The accountant knew that the claim of being capable of selling 1800 units per month was misleading, and that the average selling price was below $65, although he probably did not know what the average selling price actually was (242-3). Thus his knowledge was limited - it was not suggested that he knew all the details of the substantial gross profit margin, nor precisely why a selling price of $200k was not reasonable. In relation to one particular misrepresentation (about the number of sales in one particular month) he may well have been honestly mistaken (see at 242.9). Nevertheless, he was held liable. 57 As the Full Court said at 243.3, the accountant "played a significant part in the contravention by keeping important information (the financial statements) from Messrs Thompson and Stevens and by accepting joint responsibility for false statements about the volume of sales of Flexebars and their selling price". That was enough. Implicit in the decision is that it was not necessary for the accountant to have known or understood all the misrepresentations in order for him to be held liable as an accessory to the overall contravention. 58 The argument here really just goes to extent. To use some examples provided by the plaintiffs:

[189]

c) A car dealer represents to the buyer that "this car is safe to drive". The sales representative knows that this is false because the brakes do not work properly and neither do the seatbelts. One mechanic agreed with the sales representative that they would sell the car and represent that it was safe to drive even though the brakes had only partially been fixed. Another mechanic agreed with the representative that they would sell the car and represent that it was safe to drive though only some of the seatbelts had been fixed. Each mechanic was unaware of the other's role yet it would be appropriate to hold both liable as accessories, for both knew of the intended conduct (the representation that the car was safe to drive) and that the conduct was misleading, even if they did not appreciate all respects in which this was so. 59 Guy Carpenter does however submit that there is "no allegation" that it had knowledge that there was or would be a shortfall of $170 million in provisions as a result of wrongful conduct by the directors. Just as for Gen Re, the plaintiffs allege that Guy Carpenter was aware of the significant under-provisioning within the FAI Group. Whether Guy Carpenter was aware that the under-provisioning was in the order of $170 million does not detract from its knowledge of this core problem, which problem was the very context in which the NI Contract was procured. 60 Thus, of the misstatement of the order of $235 million in the 1998 accounts as to net profit and assets, the plaintiffs allege that Gen Re and Guy Carpenter each knew of their own contracts and of the under-provisioning, which in the result amounts to a sum in the order of $200 million. Despite having such knowledge, each of Gen Re and Guy Carpenter are alleged to have gone on intentionally to take steps to assist FAI to engage in the misleading conduct. On any view, that is more than enough to establish a perfectly arguable case of accessorial liability. 61 Importantly to say that such knowledge is necessarily insufficient to justify imposing liability, and to require knowledge of all key respects in which FAI was to engage in the misleading conduct, would be to enter an area of the particular details of the contravention which raises an issue closely tied to the facts. Causation and indirect or 'second-hand' reliance 62 These attacks on the further amended statement of claim raise the following question:

[190]

Is it an essential element of the causes of action pleaded variously against Gen Re, Guy Carpenter and GSA that the plaintiffs relied upon or were induced by the relevant misleading conduct? 63 The above defendants contend that on the present state of the law [the so-called 'Digi-Tech issue'], an affirmative answer to this question means that the pleading is demurrable: vide must be struck out. 64 The applications that the defendants make based on Digi-Tech relate only to the first category of claims, the misleading of the auditors. The pleaded claims against GSA 65 Three separate causes of action are pleaded against GSA. The first two are direct causes of action - namely that GSA itself contravened s.995 of the Corporations Law. The third cause of action is an accessorial claim, namely that GSA was knowingly concerned in contraventions of s.995 of the Corporations Law by FAI Insurances, Adler and Mainprize. 66 GSA seeks to strike-out the first two of the three causes of action pleaded against it. It does not seek to strike-out the claim relating to being involved in misleading conduct by FAI Insurances, Adler and Mainprize. Returning to the issue 67 The defendants assert that the Court of Appeal decision in Digi-Tech involved that Court construing a provision [s 82 TPA] [which is relevantly in identical terms to s 1005 of the Corporations Law] to mean that, in cases where "plaintiffs suffer loss because they, themselves, are induced by misleading representations to perform some act or omission by which they are prejudiced", it is essential to prove that the plaintiffs relied upon or was induced by the misleading conduct, and, therefore, "by" that conduct, suffered damage, 68 GSA puts the matter as follows: i. It is beyond question that the use of the preposition "by" in s.1005 imposes a requirement that there be a sufficient causal link between the defendant's contravening conduct and the plaintiff's loss [ Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 at 530; I & L Securities Pty Limited v HTW Valuers (Brisbane) Pty Limited (2002) 210 CLR 109 at 126 [50], 127 [54]]. ii. As Brennan J pointed out [ San Sebastian Pty Limited and Anor v Minister Administering the Environmental Planning and Assessment Act 1979 and Anor (1986) 162 CLR 340 at 366]: "A causal relationship between a representation… and economic loss does not exist because of the operation of the laws of nature. It exists because the representation induces the representee to do something which causes the loss or to refrain from doing something which would have avoided the loss. It is the operation of the representation on the representee's mind - the inducement - which links the representation with the conduct which more immediately causes the loss".

[196]

ii. the notion of causation is imported into s.82 of the TPA by the word "by": Wardley (1992) 175 CLR 514 at 525; Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at [95] per Gummow J. As is implicit in the case law analysed in the previous section of this submission (section (iv)), that word has not been viewed as a limiting one. As Gummow J stated in Marks at [99], pre-empting the more recent emphasis given to considerations of statutory purpose in relation to such causation questions (citations omitted): "The TP Act is a fundamental piece of remedial and protective legislation which gives effect to 'matters of high public policy'. It is to be construed so as 'to give the fullest relief which the fair meaning of its language will allow'." iii. that the section is not be approached in a categorical fashion was made clear by Lockhart J in Janssen-Cilag (1992) 37 FCR 526 at 529-320, in a passage quoted approvingly by Gummow J in Marks at [101]: "Section 82 is the vehicle for the recovery of loss or damage for multifarious forms of contravention of the provisions of Pts IV and V of the [TP] Act. It is important that rules laid down by the courts to govern entitlement to damages under s 82 are not unduly rigid, since the ambit of activities that may cause contravention of the diverse provisions of Pts IV and V is large and the circumstances in which damage the reform may arise will vary considerably from case to case. What emerges from an analysis of the cases (and there are many of them) is that they do not impose some general requirement that damage can be recovered only where the applicant himself relies upon the conduct of the respondent constituting the contravention of the relevant provision." iv. further, it follows from the defendants' submissions that in the category of cases they identify there will be no occasion for the court to inquire into the purpose of the statute and its application to the facts. It matters not that the plaintiff can establish that the misleading conduct materially contributed to the plaintiffs' loss. If it is not part of the plaintiff's case that he or she relied directly on the misleading conduct at issue, he or she cannot succeed in a claim for damages under s.82. 71 The plaintiffs further submitted as follows in terms of the suggested proper analysis of Dig-Tech:

[216]

iii. Importantly these particular proceedings will clearly raise difficult questions of fact arising in unusual circumstances not necessarily addressed in any previous authority. Decision on indirect reliance 73 At the end of the day I accept that it is always a question of fact as to whether the loss or damage claimed has been caused "by" the misleading or deceptive conduct. Indeed as has been observed in the TPA context "to speak of reliance can be an artificial approach to causation, which can be established if there would have been inaction or some other action if the true position had been known": Colly Cotton Marketing Pty Ltd v Simmons [2006] NSWCA 134 per Giles JA [at 161], Spigelman CJ and McColl JA agreeing. 74 The plaintiffs are entitled to contend that the issue must be decided in accordance with the principles established in the recent High Court decisions referred to above. Whether or not the decision of the Court of Appeal in Digi-Tech is to be read as intending to substantially narrow the circumstances in which a claim for damages for misleading or deceptive conduct could be brought should not be determined on a strike out application but on a final hearing. It certainly cannot be said that the position has crystallised and is so clear, as to justify a strike-out claim based on this broad construction of Digi-Tech particularly where, if necessary, an approach to the High Court to decide the issue is foreshadowed. Further, in the event that the defendants be correct in their analysis of Digi-Tech, it is clearly possible that leave to reargue the matter could be granted by the Court of Appeal. 75 In truth it cannot be said that the so-called 'indirect causation theory' is unlikely to turn upon developing doctrine. Whether absent GSA's conduct HIH could or would not have suffered a loss by relying on the Part B Statement is a matter suitable to be tried. Substantial overlap in facts 76 A parameter of the principled approach to the exercise of the relevant discretion is seen in the observation by Kirby P in Wickstead v Browne (1992) 30 NSWLR 1 at 5-6, that a Court would be reticent to summarily dismiss an action where, even if the action was dismissed, other causes of action, based on either identical or overlapping facts, will still go to trial. This is the position presently. The principle was stated by Merkel J in Johnson Tiles Pty Ltd v Esso Australia Ltd (No. 2) (2000) 97 FCR 175 at 177 in the following terms:

[235]

i. In Angas Law Services Pty Limited (in liq) v Carabelas (2005) 215 ALR 110, the High Court was concerned with an application by the liquidator of the Applicant based upon a contention that at the time the Applicant was insolvent, it entered into transactions involving preferences under s.588FA and s.588FC. Gleeson CJ and Heydon J found the preference claims were founded upon an attempt to take at face value certain book entries made by the accountant of the Applicant in circumstances where the evidence provided no justification for concluding that the entries reflected the true facts and where there was evidence to cast doubt on those entries (at 122). Gleeson CJ and Heydon J continued as follows (at 122-123): "Counsel for the present respondents argued in the Full Court that there was no evidence that these entries recorded any actual transactions, that once the order for winding up was made the directors of [the applicant] had no power to authorise any such transactions, that the evidence did not show that they purported to authorise such transactions, that if any such transactions had occurred they occurred after the winding up, that there were no transactions that amounted to preferences, and that there were merely a number of incorrect book entries. Doyle CJ agreed. The trial judge, he noted, was understandably reluctant to allow the present respondents to impeach entries made in the records of [the applicant]. However, "the evidence indicates that there was no transaction before the winding up began, that these entries record or reflect ". The trial judge had not relied on estoppel or any other principle that would prevent [the respondents] from relying upon the facts disclosed by the evidence. The proper conclusion, on the facts, was that the journal entries were not a true record of any transaction and that there was no transaction that was binding on [the applicant] or the other companies ." [Emphasis added.] ii. A recent decision in relation to the admissibility of accounts and the extent to which they can be used to prove the matters contained therein is the decision of Austin J in ASIC v Rich (2005) 216 ALR 320. Austin J was concerned with the tender of various records by ASIC and was required to determine the admissibility of those records pursuant to s.69 of the Evidence Act and/or s.1305 of the Corporations Act. His Honour noted that s.1305 was introduced into the Australian corporations legislation upon the enactment of the Companies Act and Codes of 1981. At page 371 his Honour referred to the explanatory memorandum to the Companies Bill 1981 which stated the following: "This is a new provision based on section 156(3) of the Ontario Business Corporations Act. It is an evidentiary provision that is intended to expedite legal proceedings where books are to be introduced in evidence. This provision obviates the need to call witnesses to prove the books are books of the corporation when this fact is not in question and to prove transactions recorded in books when these matters are not in dispute."

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Cases Cited (43)