Q. It is something you would have asked had you been acting prudently, would you not?
A. I am not sure that they would tell me.
Q. Because one way, I want to suggest to you, you could have measured Macquarie's commitment to this proposal would be to find out how much of the underwriting they had maintained; do you agree with that?
A. No, not necessarily."
483 That evidence does not sit well with Mr Saville's evidence, already referred to (see paras [308] to [311] above), that he read, considered and understood the terms of the draft sub-underwriting agreement when it was sent to him on 16 November 1998, and that he checked the terms of the final version before accepting it and sending it off, and that those terms "came as no surprise to him".
484 It must follow from that evidence that Mr Saville read, considered and understood the following:
" Additional terms of the offer
(1) Additional terms under which this Offer is made, which you will be deemed to have made or agreed to in the event that you accept this Offer, are set out in Attachments 2 to 5. In particular, please note that your obligations in relation to the Capital Raising will terminate only if the obligations of Macquarie under the proposed Underwriting Agreement cease or are terminated. If Macquarie elects to terminate, or not to terminate the Underwriting Agreement, being entitled to do so, you will be bound by such election. The circumstances under which Macquarie may terminate the Underwriting Agreement are set out in the draft Prospectus."
(Letter of agreement, page 3.)
"(2) You acknowledge and agree that you will accept the decisions and actions of Macquarie under or in respect of the Underwriting Agreement and Macquarie is not obliged to consult with you as to any such matter and nothing in this agreement qualifies the exercise or non-exercise of the rights of Macquarie under the Underwriting Agreement in any way. Without limiting the foregoing, if Macquarie elects not to terminate the Underwriting Agreement, although entitled to do so, you will be bound by that election and obliged to fill your obligations as set out in this agreement and have no claim against Macquarie in respect thereof."
(Attachment 5, clause 2.)
485 Taken at face value, the plain import of those terms is that Macquarie was entitled to consult its own interests, to the exclusion of the interests of sub-underwriters, in deciding whether or not to terminate the underwriting agreement if it might become entitled to do so. I have no doubt that Mr Saville understood this; he is clearly an astute and intelligent man, and is and was a very experienced businessman.
486 It follows, as to the first element of the omission alleged in 6FAS para 58, that Macquarie informed Mr Saville in clear terms that the decision whether or not to terminate the underwriting agreement (should it become entitled to do so) was its alone, and that it could make that decision without consulting any sub-underwriter.
487 It is correct, as a matter of language, to say that the terms to which I have referred did not in so many words tell Mr Saville that Macquarie might make a decision not to terminate where it was in its interests, but not those of sub-underwriters, not to terminate. However, Mr Saville can scarcely have understood otherwise. It is apparent from his evidence at T1657.17-.27 that he understood that Macquarie was laying off to sub-underwriters at least some of its underwriting risk, but that he was not concerned with the proportion laid off. I think the better inference from his evidence is that he understood that Macquarie, notwithstanding that it was laying off risk, retained a financial interest in the performance of the underwriting agreement. If commonsense did not tell him this, cl 7 of attachment 5 did:
"7. As Underwriter to the Capital Raising, [MECM] has a financial interest in its success, as described in the draft Prospectus."
488 Section 11.2 of the draft prospectus (which is where the events of default under the underwriting agreement were defined) sets out the fees payable to MECM, including (with some exceptions) 2.5% of the amount raised (in round figures, a fee of USD1.25 million) and a "Management Fee" of $1,875,000 (presumably, Australian rather than US dollars).
489 Even allowing for the sub-underwriting fees payable by Macquarie, its interest in the success of the raising was, and must have been seen by Mr Saville to have been, substantial.
490 To the extent that Mr Saville's evidence in PX 3 para 129 is intended to suggest that he was not aware that Macquarie might, to its advantage but the disadvantage of sub-underwriters, decide not to terminate the underwriting agreement even though it became entitled to do so, I do not accept it. It suggests a degree of financial and commercial naivety that is entirely inconsistent with my assessment of Mr Saville, and with my observations of him in the witness box.
491 In any event, Mr Saville (and through him the plaintiffs) and the Macquarie parties were dealing at arm's length. As Mr Saville in effect acknowledged at T1657.1-.15, he could have sought to protect himself (ie, he could have sought to renegotiate the relevant terms in the sub-underwriting agreement). He did not do so. The very purpose of sub-underwriting being to lay off risk, he must have appreciated that his interests (or the interests of the plaintiffs whom he committed to sub-underwrite) might conflict with those of MECM in the event that MECM became entitled to terminate the sub-underwriting agreement. In those circumstances, I do not think that Macquarie had any obligation to disclose to Mr Saville over and above the disclosure that it made (see Gleeson CJ (with whom Meagher JA and Samuels AJA agreed) in Lam v Ausintel Investments Australia Pty Limited & Ors (1989) 97 FLR 458 at 475.
492 I therefore conclude, as to the claims of misleading or deceptive conduct based on 6FAS para 58: issue 27 should be answered "yes"; issue 28 should be answered "yes; and through Mr Saville's own knowledge and understanding"; and issue 29 should be answered "no".
Issues 30 and 31: the indirect causation case
493 I have set out in paras [404] to [413] above the pleaded structure of this case.
The case is bad in law
494 In substance, what is alleged is a "but for" case: that "but for" the alleged misleading or deceptive conduct of Macquarie, relating to the various DDC representations, NCRH would not have issued the prospectus, the plaintiffs would not have agreed to sub-underwrite or acquire rights or other securities, and the board (through its committee) would not have agreed to issue the notes.
495 This formulation confuses a necessary precondition with an effective cause (to adapt the distinction drawn by Gummow J in Elna Australia Pty Limited v International Computers (Australia) Pty Limited (No 2) (1987) 16 FCR 410, 419). The "but for" test of causation is not that postulated by s 82 of the Trade Practices Act or its analogues: Wardley Australia Limited & Anor v The State of Western Australia (1992) 175 CLR 514; cf March v E. & M. H. Stramare Pty Limited (1990) 171 CLR 506.
496 To put it another way (adapted from the language of Hodgson JA in Stanilite Pacific Limited (in liquidation) & Anor v Seaton (t/as PricewaterHouse) & Ors (2005) 55 ACSR 460, 497-498), the conduct complained of (assuming that it occurred, and that it was misleading or deceptive) provided the opportunity for the losses to occur, but did not relevantly cause them to be incurred.
497 The test of causation is not something to be resolved by the application of some formula. It involves normative analysis, requiring attention to be paid to the purpose of the legal norm that has been breached: see para [1109] below. Thus, as Mc Hugh J said in Allianz Australia Insurance Limited v GSF Australia Pty Limited & Anor (2005) 221 CLR 568 at 586 [54], "causality is determined in light of the subject, scope and objects of the Act." In the same case, Gummow, Hayne and Heydon JJ pointed out at 597 [99] "that notions of "cause" as involved in a particular statutory regime are to be understood by reference to the statutory subject, scope and purpose."
498 The requirement for normative analysis does not permit the Court to make value judgments that are uninformed by the legal context, as Gleeson CJ pointed out in Travel Compensation Fund v Tambree (t/as R Tambree and Associates) (2005) 80 ALJR 183 at 191 [29]. His Honour said that the relevant norms must be derived from legal principle. In that case, where the action was one for damages pursuant to s 68 of the Fair Trading Act for contravention of s 42, the norms to which attention was required were those to be found in that Act. Gummow and Hayne JJ said at 193 [46] that whilst considerations of legal policy might enter into the selection of those causative factors which are determinative of loss, it did not follow "that in any given case the ultimate issue is whether "the defendant ought to be held liable to pay damages for [the] harm [suffered]"." Their Honours had said earlier, at 193 [45], that in some cases "the answer to a question of causation will require examination of the purpose of a particular cause of action, or of the nature and scope of the defendant's obligation in the particular circumstances."
499 It cannot be said a priori that s 82 is satisfied only where there is a direct causal link between the contravening conduct and the loss or damage. In Sellars v Adelaide Petroleum NL & Ors (1992) 179 CLR 332, Brennan J pointed out at 356-357 that "where the making of a false representation induces a person to act in a certain manner, loss or damage may flow directly from the act and only indirectly from the making of the representation; but in such a case the act "is a link - not a break - in the chain of causation"." It does not follow from what his Honour said that every case of indirect causation, no matter how it is structured either as a pleaded case or on the evidence, will fall within s 82. This is not a case in which the plaintiffs say that they themselves were induced to act by the representations that are the subject of present consideration.
500 The Macquarie parties submitted that an indirect causation claim, pleaded in the way that I have indicated, is not available to the plaintiffs in any event, by reason of the decision of the Court of Appeal in Digi-Tech. In that case, the Court said at 62 IPR 212 [156] to [158]:
"156 The Janssen-Cilag and Stockland category of claim is materially different to that which occurs when plaintiffs suffer loss because they, themselves, are induced by misleading representations to perform some act or omission by which they are prejudiced. The difference lies in the fact that in the first category of case no conduct on the part of the plaintiff forms a link in the causation chain. In the second category, the inducement of the plaintiff and his or her act or omission causing loss is an essential part of the chain. Without such inducement and a consequential act or omission on the part of the plaintiff there is indeed no linking chain between the misleading conduct and the plaintiff's loss.
157 This analysis demonstrates the fallacy of applying the so-called indirect theory of causation to this case.
158 On the assumption that Digi-Tech's forecasts as to the revenue and gross margin of the products were misleading and deceptive, that misleading and deceptive conduct resulted in Deloitte producing, in essence, a misleading and deceptive valuation to support the price of $72.5m. That valuation enabled the investment scheme to be put together and proposed by Urwin to the appellants. But to complete the chain of causation, there must be something linking the appellants' loss to their entry into the investment scheme. That link is the inducement of the appellants and their consequential act of entering into the transaction to their prejudice. Without that link, there is no proof that the misleading conduct caused the loss."
501 However, the plaintiffs submitted that there was authority to the contrary in their favour. They relied on the decisions in Port Stephens Shire Council v Booth & Ors (2005) Aust Torts Rep ¶ 81-807 and Janssen-Cilag Pty Ltd v Pfizer Pty Limited (1992) 37 FCR 526.
502 Port Stephens was a case of negligence. Relevantly, the plaintiffs (respondents) sued on alleged negligent misrepresentations in certificates under s 149 of the then Local Government Act 1919 issued by the defendant (appellant) council. The council submitted that it was necessary for the plaintiffs to establish that they had read or learned of the terms of the certificates and had been misled by them, so as to show that they had been induced by the misrepresentation alleged to have been made in the certificates to act to their detriment. It submitted that there was no causation in the absence of reliance, and no doctrine of general reliance, and that actual reliance had not been proved.
503 The evidence of the plaintiffs' solicitor, Mr Williams, was that he had read the certificates in question and had some (although limited) understanding of the matters disclosed by them.
504 Against that background, Giles JA (with whom Beazley JA and Hunt AJA agreed) said at 67, 846 [147]:
"[147] Causation may be established by reliance on a misleading statement, or it may be otherwise established; there can be causation, including reliance, through an agent. It is not necessary that the purchasers themselves had read the terms of a s 149 certificate and were misled by its terms, and causation may be established by proof that, because the certificate was misleading, the purchasers through Mr Williams were not alerted to the forecast noise affectation and proceeded with their purchases when they would not have done so had the certificate been framed with reasonable care."
505 His Honour's statement that "causation … may be otherwise established" must be read in the context of what follows. It is clear that his Honour regarded Mr Williams as, relevantly, the agent of the plaintiffs, so that if he, in the performance of his duty as their solicitor to read the certificates, was not alerted to the relevant problems (which should have been disclosed had the certificates been drafted adequately) then causation was established.
506 That reasoning is remote from the facts in this case. There is no basis for suggesting that the board of NCRH or its members were in any way the "agent" of Mr Saville or the plaintiffs. The "indirect causation" (as the plaintiffs would have it) of which Giles JA spoke is not dissimilar to the plaintiffs' "direct causation" case in these proceedings: that they themselves did not read (or otherwise become familiar with) the allegedly misleading or deceptive material, but their "agent" Mr Saville did so, and they through him were misled or deceived by that material.
507 Janssen-Cilag was a case where, so the applicant alleged, the respondent made misleading or deceptive misrepresentations about its drug "Combantrin" and thereby induced consumers and pharmacists to buy that drug rather than the applicant's drug "Vermox". The applicant claimed that it had suffered loss through lost sales of Vermox. The respondent said, among other things, that the applicant "is not a person who relied on" any of the alleged representations. As I have noted in para [500] above, the Court of Appeal in Digi-Tech considered Janssen-Cilag to be "materially different to [the class of case where] plaintiffs suffer loss or damage because they, themselves, are induced by misleading representations to perform some act or omission by which they are prejudiced".
508 Lockhart J said in Janssen-Cilag at 529 that "the cases … 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." However, his Honour said at 530, "the preposition "by" in s 82(1) … indicates the requirement that there be a sufficient cause or link between the respondent's conduct and the recoverable loss or damage … . The respondent's conduct must be the real or direct or effective cause of the applicant's loss; it must have been "brought about by virtue of" the conduct which is in contravention of s 52."
509 Lockhart J concluded that, on the basis of the facts alleged in Janssen-Cilag's statement of claim, the statutory test of causation set out in s 82 could be met. In other words, his Honour decided that the particular question thrown up by Pfizer's defence should be answered in favour of Janssen-Cilag. If I may say so with respect, it is self evident why this should be so in cases such as slander of goods, or passing off, where the intended, natural and obvious result of the wrongful conduct is that consumers will be misled and will divert their purchases accordingly. That is not in truth indirect causation at all.
510 His Honour's observations are not authority for the proposition that indirect causation is available (or that the test of causation in s 82 is satisfied by indirect causation) where it is alleged that a misrepresentation induced entry into a transaction. In any event, if that did follow from what his Honour said, it is not open to me to accept it, having regard to what was said in para [159] of the decision in Digi-Tech.
511 It follows that issue 30, whether qualified as the plaintiffs suggest or otherwise, must be answered "no".
The case would fail on the facts
512 That makes it unnecessary to consider the factual issues raised in issue 31. However, if those matters arose for decision, I would conclude that if the plaintiffs' indirect causation case was open to them in law, it would fail on the facts. That is because the plaintiffs have not made out that the directors on 18 November 1998 or their delegates on 12 January 1999 relied on any relevant representation made by Macquarie.
513 Further, to the extent that it is an element of this aspect of the plaintiffs' case against the Macquarie parties that the other members of the DDC relied on representations alleged to have been made by Macquarie to the DDC (see paras [404] and [409] above), there is an element of artificiality. I do not doubt that other members of the DDC relied upon Macquarie's representatives (in general, Dr McKenzie) in relation to matters that were within Macquarie's assigned or assumed areas of responsibility. Indeed, the proposition can be stated more widely: I do not doubt that each member of the DDC relied on each other member in relation to matters within that other member's assigned or assumed areas of responsibility. But it does not follow that (for example) other members of the DDC relied on Dr McKenzie in relation to accounting or legal matters. Thus, the scope for misleading or deceptive conduct by any member of the DDC, vis a vis other members, seems to me to be limited to that member's assigned or assumed areas of responsibility. But the plaintiffs do not confine their case, in relation to representations said to have been made by Macquarie to other members of the DDC (or, for that matter, said to have been made by any other member of the DDC to his or her colleagues on it) in that way.
514 The position as between the DDC and its members on the one hand and the directors (or those of them who were not members of the DDC) on the other is a little different. Although there was but scant evidence that any director paid any attention to the activities of the DDC, I think it safe to accept that each director (with the possible exception of Messrs Daya and Peck, who were members of the DDC) would not have resolved to sign the prospectus unless satisfied that the DDC had reported appropriately. To that extent, I think, the directors may be taken to have relied upon the representations made by the DDC prior to the issue of the prospectus. But it does not follow that any director relied on any member of the DDC beyond what that director understood to be that DDC member's assigned or assumed areas of responsibility. That must be plain in the case of Messrs Peck and Daya, who knew from their participation in the work of the DDC what areas of work had been assigned to or undertaken by each other member. And I think it is also plain in the case of the other directors, for the reasons that follow.
The resolution of 18 November 1998
515 I start with the resolution of 18 November 1998. There are two problems with this. Firstly, there is no evidence that any of the directors received the minutes of the DDC meetings of 5 and 18 November 1998 in which (according to the plaintiffs) the Macquarie 5 November 1998 and 18 November 1998 DDC representations were contained. The plaintiffs' written submissions refer back to their submissions on issues 8 and 30 and to "further factual presumptions". Nothing said in the submissions dealing with issues 8 and 30 bears on the point to which I am referring. The "further factual presumptions" are not spelled out. The plaintiffs point to no evidence to show that any board member had any knowledge of the Macquarie 5 November 1998 and 18 November 1998 DDC representations.
516 Mr Ghose gave no evidence of reliance on any representation made by Macquarie through the DDC report. He referred to, and said he was satisfied by, sign offs given by a number of people; those people did not include any employee of Macquarie.
517 The evidence of Messrs Beach, Deery and Morrissey was that they were aware of the limited areas of responsibility assigned to Macquarie in the DDC conduct memorandum, and that, to the extent that they relied on Macquarie, they did not do so beyond that limited area of responsibility.
518 Mr Peck gave no evidence that he (in his capacity as a director, considering whether to authorise the issue of the prospectus) relied on any representation made by Macquarie through the DDC report. Of course, Mr Peck was a member of the DDC, and aware of what had been done (and by whom) in relation to the preparation and verification of the prospectus. Although he said that he relied on various members of the DDC for their contributions to various sections of the report, he gave no specific evidence of reliance on Macquarie. To the extent that he gave general evidence of reliance on a "drafting committee" or "drafting sub committee" (which evidence was admitted as evidence of understanding, there being no evidence of the establishment of any such committee or sub committee or its membership), he did not attribute any particular responsibility to Macquarie, or allege any particular reliance on work undertaken by Macquarie.
The resolution of 12 January 1999
519 I turn to the resolution of 12 January 1999. The power to issue the notes was delegated to Messrs Daya and Peck by a resolution of the board on 5 January 1999. There is no evidence from any member of the board that, in so resolving, he relied on any representation or action by Macquarie. On the contrary: Messrs Beach, Deery and Morrissey said words to the effect that Mr Beach asked whether everything had been discussed and disclosed and was everything out on the table to which someone - unidentified - "answered "yes" without any hesitation or qualification" (see paras 81 and 82 of Mr Beach's statement dated 6 October 2005, exhibit 5,7,8DX 6).
520 The resolution to issue the notes on 12 January 1999 was preceded by a meeting of the DDC on the same day. The issue of significance, and the essential subject of that meeting, was the question of claims development. A number of senior employees of NCRH or NCRA, including Messrs Daya, Williams, Aroney, and Sparkes, was present. They were asked in substance whether there was anything to disclose; they said in substance that there was not.
521 When it came to the resolution of Messrs Peck and Daya, as delegates of the board, to issue the notes, Mr Peck said that he relied in substance on information provided by management at the DDC meeting (see para 452 of his statement dated 4 October 2005, exhibit 9DX 1). He confirmed this in cross-examination at T5010.9-.15, agreeing that he relied upon the absence of any report from management of any new material matters.
522 Mr Peck did not say that he placed any reliance upon Macquarie when resolving on 12 January 1999 to issue the notes. That may be contrasted with other aspects of his evidence, where in other contexts he did assert reliance on Macquarie (see, for example, exhibit 9DX 1, paras 360, 364).
523 At a board meeting on 17 February 1999, Mr Peck confirmed to his fellow directors the significance of the lack of any report from management of adverse claims development: see the minutes of that meeting; and see Mr Ghose's evidence at para 375 of his affidavit sworn 8 September 2005.
524 Thus, of the two members of the board who (as delegates of all) resolved on 12 January 1999 to issue the notes, one - Mr Peck - gave no evidence that, in joining in the resolution, he relied on any representation made by Macquarie. The other - Mr Daya - did not give evidence, and accordingly there is nothing to suggest that he did rely on any representation made by Macquarie. In any event, it is inherently unlikely that he did, given that the almost inevitable inference on the totality of the evidence is that he was all too aware of the significant adverse claims development and that he decided, for his own reasons, to keep it to himself.
525 None of this evidence is surprising; indeed, it reflects the objective probabilities at the time. Adverse claims development was the key issue. That was a matter for management in the first instance and Trowbridge in the second. It was not a matter in respect of which Macquarie possessed, held itself out as possessing, or was believed to possess any knowledge or expertise independent of the sources to which I have referred. There was no reason for the board on 5 January 1999 or its delegates or the DDC on 12 January 1999 to look to Macquarie for information on claims development. There was every reason for them to look, as they did, to management.
Other matters
526 There are other reasons why in my view the indirect causation case (if in law it were available to the plaintiffs) would fail on the facts. I deal in paras [613] to [677] below with the representations that the plaintiffs allege were made by the prospectus. I then deal in paras [678] to [829] below with the matters alleged by the plaintiffs to falsify them. I conclude in substance that, to the extent that representations were made by the prospectus, they were not false as at 18 November 1998. It follows that the plaintiffs have not made out their case that the prospectus was misleading or deceptive when it was issued. Thus, to the extent that it is open as a matter of law to say and as a matter of fact to conclude that representations made by the DDC caused the issue of the prospectus, and that the prospectus caused the plaintiffs to invest in converting notes, there was no misleading or deceptive conduct "by" which any loss or damage flowing from that investment was suffered.
527 For this reason also, the indirect representation case fails as at 18 November 1998.
528 The position is somewhat different as at 12 January 1999. For the reasons that I give in paras [913] to [918] and [986] to [998] below, the likely significant increase in claims liabilities was such that NCRH should have taken steps either to issue a supplementary or replacement prospectus or to withdraw the issue. But, as I say in para [931] below, the only director or officer of NCRH (or, for that matter, NCRA) who had knowledge of the relevant matters was Mr Daya, and he withheld that from both his colleagues on the DDC and his colleagues on the board. Thus, no member of the DDC apart from Mr Daya had any knowledge of what I have concluded was the only relevant supervening matter. It follows that it was not misleading or deceptive for any member of the DDC apart from Mr Daya to join in the making of the 12 January 1999 DDC representations.
529 For this reason also, the plaintiffs' indirect causation case, if otherwise available as a matter of law and a matter of fact, would fail as at 12 January 1999.
Conclusion
530 Thus, if issue 31 does arise, then leaving out the intermediate steps in it, it must be answered "no", because there was in fact no reliance by the relevant persons on any of the alleged representations.
Issues 32 and 33: as to Mr Saville's knowledge of and likely reaction to certain matters
531 On the view to which I have come on the preceding issues, these issues do not arise as between the plaintiffs and the Macquarie parties, and should be so answered.
532 That concludes my consideration of the plaintiffs' misleading and deceptive case (or cases) against the Macquarie parties. I turn now to the negligence case.
Issues 34 and 38: duty of care?
533 It is convenient to consider these issues together.
534 The relevant duty of care is alleged in 6FAS para 86 to be based on matters alleged in a large number of identified paragraphs, to have subsisted from 18 November 1998 to 12 January 1999 and to comprise the following four elements:
"(a) ascertain from Trowbridge its opinion as to the effect of the New Cap Group's claims experience on the claims provision which ought to be adopted by NCRH and, to the extent possible, the resultant effect on NCRH's NTA;
(b) require Trowbridge to report to the Due Diligence Committee as to the impact of the New Cap Group's recent claims experience on the claims provision which ought to be adopted by NCRH and, to the extent possible, the resultant effect on NCRH's NTA; and