King v Yurisich

BACKGROUND - TRAVEL COMPENSATION SCHEME 9 The essential features of the scheme have been examined in a number of decisions, including Travel Compensation Fund v Tambree t/as R Tambree & Associates (2005) 80 ALJR 183; 222 ALR 263 ('Tambree') and Travel Compensation Fund v Travel Guide Pty Limited (in liq) (1997) 72 FCR 371 (Lehane J, on appeal: sub nom Howden v Travel Compensation Fund (1997) 78 FCR 374). Uniform State legislation has established a national scheme for the regulation of travel agents by State governments, although we were informed that this did not apply to the Northern Territory. The scheme operates in Victoria by the authority of the Travel Agents Act 1986 (Vic). As Gleeson CJ explained (Tambree 80 ALJR at 186[3]) one aspect of the regulatory scheme involves a compensation fund designed to safeguard people who suffer loss by reason of an act or omission of a travel agent. One form of such loss involves paying in advance for travel services and, through default on the part of the agent, not receiving the services. 10 The fund is administered by a group of trustees who may sue and be sued in the name of the Travel Compensation Fund (s 45A(1) of the Travel Agents Act 1986 (Vic)). The existence of the fund is recognized by the Travel Agents Act 1986 (Vic) and regulations made under it. Travel agents may become 'participants' in the scheme established by the deed of trust entered into by the responsible ministers of four States on 12 December 1986. Since the deed was originally established, others have been appointed as trustees. 11 Travel agents are required to be licensed. By s 6 of the Travel Agents Act 1986 (Vic), it is an offence to carry on business as a travel agent without a licence. In Victoria, the Business Licensing Authority issues licences to travel agents. By s 11(2) of the Travel Agents Act 1986 (Vic), each licence is made subject to a condition that the licensee at all times during the currency of its licence be a participant in the compensation scheme. A licence remains in force pursuant to the provisions of the Travel Agents Act 1986 (Vic) until it is surrendered or cancelled (s 16(1)). If the licensee ceases to participate in the compensation scheme the licence is suspended until the licensee again participates in the scheme (s 16(2)). The trustees of the fund and management committees established under the trust deed assess, at least on an annual basis, whether travel agents can become or remain participants in the fund. The management committee determines whether applicants should be admitted as participants and conducts annual financial reviews to determine whether participation should be renewed. There are eligibility criteria based on financial security, determined by reference to audited financial statements. Failure to meet the criteria could result in a requirement to obtain, originally a bank guarantee and later a guarantee from an insurer, QBE Insurance Limited, or to invest more capital in the business or it could result in denial or loss of participation (Tambree 80 ALJR at 186 [4]). 12 Relevantly, the fund can impose conditions on travel agents who seek to be or continue to be participants in the scheme, including requirements to report on their financial position more frequently than annually or with more detail or to provide the fund with sufficient assurances of the ability of the travel agency business to be in a position to meet its liabilities (see cl 9.6 of the trust deed). If the fund determines that a person is no longer eligible to remain a participant in the scheme, then it must give notice to the person as soon as practicable as well as to the relevant state licensing authority identifying the determination and the matters that had been taken into account in making it (cl 12A.4). Before the fund determines so to act, it is required to allow the participant a reasonable opportunity to be heard (cl 13.1). In conformity with ss 46(2)-(4) of the Travel Agents Act 1986 (Vic), cl 13.2 of the deed provides that a travel agent which the fund determines is no longer eligible to be a participant in the scheme has a right of review of that determination in the Victorian Civil and Administrative Tribunal. 13 The fund's liability to members of the public is created by cl 15 of the deed. Relevantly, that provides: '15.1 The Board must pay compensation out of the Fund to a person who - (a) enters into travel arrangements or travel-related arrangements directly or indirectly with a participant; and (b) has suffered or may suffer pecuniary loss arising directly from a failure to account by the participant for money or other valuable consideration paid by the person; and (c) is not protected against the loss by a policy of insurance. 15.2 The Board may pay compensation to: (a) a person referred to in clause 15.1 in relation to any consequential pecuniary loss suffered from a failure to account as referred to in that clause ….' 14 The deed also permits another travel agent to be paid compensation under cl 15 if it is exercising, as assignee, the right of a person entitled to claim under cl 15.1 or 15.2 (cl 15.6). The reason for this is that when travel agencies collapse, other travel agencies or operators of airlines or other services will often provide travel services to customers of the failed business who had paid for their services on the basis that those customers then have a right to claim compensation against the fund. Rather than involving the customers in having to pay twice for the same services, the subsequent agent or operator will enter into an assignment with the customer of the customer's right to compensation. There are evident practical benefits to customers of the failed business which this aspect of the scheme affords. Additionally, ss 37(3) and (4) of the Travel Agents Act 1986 (Vic) give the fund and its trustees the rights of action of a claimant to whom the fund has made payment. They provide: '(3) If a payment is made to a claimant under the compensation scheme by reason of an act or omission by a person carrying on business as a travel agent, the compensation scheme trustees are subrogated to the rights of the claimant in relation to the act or omission. (4) If the rights conferred by sub-section (3) on the compensation scheme trustees are exercisable against a body corporate, those rights are enforceable jointly against the body corporate and the persons who were its directors at the time of the act or omission and severally against the body corporate and each of those directors.' 15 A person loses a right to make a claim for compensation after 12 months following the failure to account referred to in cl 15 (cl 16.1). The trust fund is maintained and administered in New South Wales and the deed is governed by and construed in accordance with the law of New South Wales (cl 31). 16 Gleeson CJ described the practical significance of cl 15.2 as being obvious. He said that business failures were not always neat and tidy and that people often attempted to trade out of financial difficulties (Tambree 80 ALJR at 187 [8]). The Chief Justice said: 'The whole purpose of the scheme is to protect the public against loss resulting from dealing with defaulting agents. Default commonly results from financial failure, and failure to account by an agent may well involve some form of illegality. When the [fund]called for audited financial statements, the kind of loss to the public, and the kind of loss to itself, against which it sought protection was loss that would always involve an agent's failure to account.' (Tambree 80 ALJR at 190 [27]) 17 He pointed out that whether the claims were made on the fund under cl 15.1 or cl 15.2, there would always be the conduct of a third party, described as 'failure to account', in between the breach of statute or negligence on the part of an accountant or auditor involved in providing financial statements to the fund and the suffering of harm by the fund. The fund, his Honour noted, did not exist only to protect the public against lawful behaviour and that typically, the failure to account would be related to financial difficulties in which the agent was involved. It was for that reason that agents are required to provide financial statements in support of applications to become, and remain, participants in the scheme (Tambree 80 ALJR at190[27]).

BACKGROUND 18 In late November 1998 Lane Moller on behalf of Jaja submitted to the fund its renewal application and annual financial review form together with its audited financial statements for the year ended 30 June 1998 for the purpose of enabling the fund to consider permitting Jaja to continue to be a participant in the scheme in 1999 ('the 1999 renewal documents'). 19 The 1999 renewal documents showed that Jaja had made a loss of $23,040 in the year ended 30 June 1998 and that its then current liabilities were $67,987 as against its current assets of $46,916. The balance sheet showed total shareholders equity of only $2,742. Mr Young qualified his auditor's report which was addressed to, among others, the fund. He noted that during the 1997/98 financial year Jaja had changed from a manual accounting system to a computerised general ledger and client accounting system. Mr Young said that he was unable to satisfy himself as to the accuracy of certain computer generated records and, in particular, the commission received records which had decreased some $42,518 (or 31%) compared to the previous year despite an increase in turnover of 30%. The auditor was also unable to express an opinion on the accuracy of the client bank account and client creditors shown in the balance sheet. Mr Young said that he was unable to quantify the extent of the above uncertainties. With that qualification, Mr Young opined that the annual statements of Jaja for the year ended 30 June 1998 were properly drawn up so as to give a true and fair view of the company's state of affairs at that date, its loss for the year and the other matters required by the relevant provisions of the Corporations Law, accounting standards and mandatory professional reporting requirements. 20 Lane Moller's letter submitting the 1999 renewal documents commenced by saying: 'Our client, the Directors of above, wish to advise that the attached audit report has confirmed their grave concerns regarding the financial ratio position of the company's accounts as at 30 June 1998.' The accountants advised that the directors had expressed concern as to the position of the client account and the amount of available commission income to be transferred to their general operating account because of their lack of knowledge and understanding of new integrated computer travel software which had been supplied by the franchisor, Harvey World Travel Franchises Pty Limited. They continued: 'On investigation by ourselves and the auditor, [Mr Young],we found that the Directors' fears were well founded, as the accounts reflected inadequate working capital and other requirements to satisfy the minimum financial ratios required by TCF/IATA and Harvey World Travel.' 21 Lane Moller said that they believed that the commission income was inaccurate and therefore produced an inaccurate profit, working capital and equity result for the year ended 30 June 1998. They said that having had lengthy discussions with the directors of Jaja it was decided that the cost, time and resources available made it prohibitive further to investigate and determine the exact cause of the problem but that the directors had on their accountants' advice taken steps to rectify the position as it would be assessed by the fund and the International Air Transport Association ('IATA'). They said that a number of measures had been implemented including a $10,000 capital injection from the shareholders' private funds, which was said to have been made in October 1998 without encumbering the company's assets. They said that steps had been also taken to strengthen internal controls and to enhance the accuracy of fund transfers into Jaja's general operating accounts. Jaja's shareholders were said to have been in the process of selecting a real estate agent for the purposes of listing their home for sale so as to be able to provide funds from the sale to contribute to the working capital of the company. Interim financial statements for the six months ended 31 December 1998 would be prepared and as soon as surplus working capital became available, the directors intended to invest in comprehensive staff training in the use of the new software package to avoid future problems. 22 Lane Moller expressed their belief that given the resolve of Jaja's directors, combined with a positive result of the steps taken which they had outlined, the fund's and IATA's financial performance criteria would be met during the year to 30 June 1999. They and the directors of Jaja acknowledged that the financial material provided with the 1999 renewal documentation did not meet the fund's requirements. 23 On the fund's rating scale, the 1999 renewal documents produced a minus one score. This meant that Jaja did not meet the fund's financial criteria. The fund immediately wrote to Jaja requiring rectification of the position by increasing working capital by $55,000 or providing a bank guarantee, not secured over agency assets, or other capital raising to realize or provide for such a sum. 24 Lane Moller replied with a written undertaking from Mr and Mrs Yurisich, Jaja's directors, that the $10,000 had been injected into Jaja as capital and would be retained there to strengthen its position. Lane Moller also reported that the directors undertook to provide a further $30,000 in capital from the unencumbered proceeds of the sale of their home. 25 In early February 1999 Lane Moller provided to the fund financial statements for the six months ended 31 December 1998. The profit and loss account showed an operating profit for those six months of $3,430, an excess of assets over liabilities of $6,482 and current assets of $56,495 as against current liabilities of $48,626. However, the issued capital recorded in the balance sheet, was the same as it had been at 30 June 1998, and thus did not reflect any capital injection of $10,000 or any other sum in the subsequent six months. 26 Later in February 1999 the fund placed conditions on Jaja's further participation in the scheme. It required Jaja to provide to the fund monthly management accounts and client accounts reconciliations by the 21st of every month following 28 February 1999 and to lodge its renewal application and annual financial review for the year ended 30 June 1999 by 31 August 1999. Apart from the failure to lodge one month's management accounts which the fund waived, Jaja complied with those conditions. 27 The trial judge found that the $10,000 had never been injected, however that was not a fact which was directly made known to or appreciated by the fund. His Honour also found that no capital injection of $30,000 was made by the directors from the sale of any property of theirs. 28 However, some time in early 1999 Ms Gottschalk (whose evidence was accepted) paid the sum of $40,000 for a 50% shareholding in Jaja. She had understood that sum was to be used to offset a bad debt of approximately $47,000 due by Aussie Golf and his Honour found that the half interest had been sold to her for that purpose. 29 Ms Gottschalk thought that by injecting $40,000 the debt would be mostly cleared off and that Jaja then would be able to move ahead. She had not been informed of any other bad debt. Mr Yurisich had led her to believe that although the company was not making a great profit, it was holding its own and by her working there as another travel agent, the business would be able to grow. She was never told anything to the contrary by Mr Yurisich or Mr Martin Lane (of Lane Moller). Ms Gottschalk had agreed with Mr Yurisich that her appointment as a director would be postponed at his discretion. Her primary concern was to obtain some employment security due to the fact that she could only work part time in the business since she had to attend to her parental duties. She never received the transfer of shares and was not appointed a director.

QBE GUARANTEE SCHEME 30 In September 1998 QBE Insurance Limited and the fund arranged a scheme for QBE to provide guarantees of travel agents' liabilities in favour of the fund. By issuing a guarantee QBE became liable to pay on demand any sum demanded by the fund up to the amount of the guarantee in consideration of which the participant - ie travel agent - would pay QBE 2.2% of the amount guaranteed. 31 That scheme was amended with effect from 1 January 1999. QBE agreed with the fund that it would provide a guarantee for any amount less than $900,000 if requested by a participant which paid the fee of 2.2%. An important feature of this scheme was that QBE was prepared to give on demand guarantees without any knowledge of the requesting participant's financial position. Where the amount sought to be guaranteed was less than $900,000, participants were not required to submit to QBE any financial or accounting information in support of their request. The guarantee was issued for one year and could be renewed from year to year by payment of the premium of 2.2%.

JAJA'S 2000 RENEWAL APPLICATION 32 On 27 August 1999 Lane Moller on behalf of Jaja submitted Jaja's renewal application, its annual financial review form and its accounts for the year ended 30 June 1999 which had been prepared by Lane Moller and audited by Mr Young ('the 2000 renewal documents'). The purpose of the submission of the 2000 renewal documents was so that the fund might consider and approve Jaja's participation in the scheme in the year 2000. Jaja also submitted a guarantee provided by QBE by which QBE guaranteed to pay the fund $60,000 in the event of any default by Jaja. 33 The audit report of Mr Young of Jaja's financial statements of the year dated 30 June 1999 was again qualified. He noted that current liabilities in the attached balance sheet comprised trade creditors of $16,090 and trust creditors of $14,098. He said that the trust creditors' amount was a net amount after offsetting client debtors of $57,746 which resulted in both current assets and current liabilities being understated by that sum. The qualification continued by explaining that the current client debtors total of $57,746 included $47,217 owing by one debtor. At the date of Mr Young's report, 27 August 1999, the ageing of that debt was as follows: Over 2 months $ 12,988 Over 6 months $ 7,318 Over 12 months $ 26,911 $ 47,217 Mr Young said: 'We are unable to be satisfied that this material debt is collectable. No provision for doubtful debts has been made.' The qualification continued by saying that to the extent that the previous year's financial report had been subject to an audit qualification on specified balance sheet items, the auditor had had to accept that the closing balance sheet amount as at 30 June 1998 the subject of that qualification had been used as opening balance sheet amounts for the then current financial year for the same items. Subject to those qualifications, the auditor opined that the financial reports of Jaja for the year ended 30 June 1999 were in accordance with the Corporations Law including that they gave a true and fair view of the company's financial position and of its performance as at that date, complied with accounting standards, the Corporations Regulations and other mandatory professional reporting requirements. 34 As his Honour found, the audit opinion did not express the effect upon Jaja's financial statements of the understatement of current assets and liabilities of $57,746, and that while the opinion drew attention to the debt of $47,217 and its ageing, it did not express any opinion by the auditor as to whether any provision should have been made for bad or doubtful debts. Nor did Mr Young's audit qualification express an opinion of the effect on Jaja's financial statements if any provision of that kind were made. His Honour found that both Lane Moller and Mr Young knew that the fund and IATA would rely upon Jaja's financial statements and Mr Young's audit opinion in considering whether Jaja should remain a participant in the scheme. In submitting Jaja's audited financial statements and annual financial review form to the fund on 27 August 1999, Lane Moller provided a covering letter in which they said: 'We are pleased to report that the commitment of the company's Directors to rectify the problems of the past is beginning to effect a positive result as reflected in [Jaja's] financial statements with a significant turnaround of $28,405 from the loss of 1998 to the profit of 1999. In addition, please note that the majority of the problems relating to the company's "in house" computer system have been addressed.' 35 Lane Moller said that the directors were now in a position to produce more accurate reports than in the past and that having regard to their compliance with the requirements which the fund had imposed in February 1999 they requested that Jaja be permitted to submit only half yearly unaudited management accounts together with client travel account bank reconciliations. Lane Moller made no reference to the qualified audit opinion of Mr Young. 36 The fund assessed the 2000 renewal documents. Mr Newman, one of the fund's officers, looked at the audit qualification and calculated a financial ratio analysis which assumed a provision for bad and doubtful debts of $26,911, being the amount of the debts in Mr Young's qualification which had been outstanding for in excess of 12 months. On that assumption and on the assumption that no further allowance needed to be made for a provision in the succeeding financial year he concluded that Jaja's point score on fund's scale should be 13 which was sufficient for it to remain a participant in the scheme without conditions. However, Mr Newman had noticed that Jaja was deficient in meeting IATA's financial criteria by $4,421 because it had insufficient capital and reserves. He wrote to IATA recommending that it approve renewal because the shortfall in equity and reserves was below $5,000. 37 His Honour found that on 16 September 1999 in reliance upon Lane Moller's and Mr Young's reports in the 2000 renewal documents, the trustees resolved: · to rescind their previous resolution requiring monthly management accounts to be provided by Jaja; · to require Jaja to lodge with the fund by 20 January 2000 detailed but unaudited management accounts for the period ended 31 December 1999 signed by the directors as being correct and that they would then review compliance or otherwise at their meeting to be held in February 2000 and make any further appropriate determination. This had the result that Jaja continued as a participant in the scheme. 38 During October and November 1999, Mount Lilydale College made two substantial payments to Jaja for a tour of Italy and France which was to take place in March and April 2000. It paid Jaja $36,000 on 26 October 1999 and $120,930 on 16 November 1999 in respect of travel services to be provided for the tour. 39 On 20 January 2000 Lane Moller provided to the fund Jaja's unaudited management accounts for the period ended 31 December 1999. These showed shareholders equity was $9,515 and that current assets exceeded current liabilities by about $7,500. 40 In mid February 2000 Ms Gottschalk had a meeting with her husband, Mr Lane and Mr Moller (of Lane Moller) and Mr Yurisich. Mr Lane told them that Jaja had problems. It had a shortfall of about $100,000 and that it should not continue to trade. 41 On 23 February 2000, Ms Gottschalk and Mr Yurisich as directors of Jaja wrote to the fund in the following terms: 'As the two owners of the above busines we advise that due to deficiencies in our accounts we have current liabilities to the client files totalling $151,387, that we are unable to meet. As such, we have ceased trading forthwith and wish to surrender our licence.' On the next day they wrote again to the fund saying that further investigation of their client accounts '… indicates that current liabilities to the client files are approximately $198,600 that we are unable to meet'. 42 None of the services for which Mount Lilydale College had paid the total sum of $156,930 had been used to purchase any travel services for it at the time of Jaja's collapse. Other persons also contracted with Jaja and paid it money prior to its collapse for travel services which were not provided. The Court was informed on the appeal that the fund had not pursued claims for about $12,000 in respect of payments which had been made by Jaja's customers prior to the submission to the fund of the 2000 renewal documents. 43 In total the fund paid $266,135 to Jaja's clients or to third parties, such as Harvey World Travel Franchise, on behalf of those clients. The fund recovered $66,000 from QBE pursuant to the guarantee provided by it, which had been increased by $6,000 before Jaja collapsed. The fund then claimed the balance of $200,135 from Lane Moller and Mr Young. 44 Although it commenced proceedings against Mr and Mrs Yurisich, the fund did not pursue those proceedings before the trial judge and they were not participants in the appeal. Mr Yurisich became a bankrupt and no leave to proceed against him had been obtained at the time of the trial. The fund also sued Ms Gottschalk. However, the proceedings against her were settled and his Honour dismissed the claim against her with no order as to costs. The deed of settlement between the fund and Ms Gottschalk recited that she had paid $10,000 with a denial of liability on the claim by the fund. The payment was characterized as: 'being a compromise of costs or a proportion of them of pursuing [Ms] Gottschalk (including irrecoverable legal fees and disbursements) claimed by the [fund] in the proceedings against [Ms] Gottschalk.' The settlement provided for mutual releases. The $10,000 was paid on 13 April 2005. Ms Gottschalk also abandoned her cross claims against Mr Young and Lane Moller, the latter also settling its cross claim against her. No money changed hands in relation to that settlement.

TRIAL JUDGE'S FINDINGS 45 His Honour found that in providing the 2000 renewal documents Lane Moller had made representations to the fund that: · the 2000 renewal material accurately reflected the liability of Jaja, as at 30 June 1999, for monies of clients deposited with it; · the extent of Jaja's liability as at 30 June 1999 for monies of clients deposited with it was $14,098; · the previous inability of Jaja to generate from its computerized accounting system financial information which accurately reflected the financial position of the company had been overcome; · on the fund's formula for the assessment of the ratio of working capital to average monthly overheads and the ratio of net tangible assets to turnover, Jaja scored 16 points; · the financial statements were appropriate in form and free from material misstatements; · the client travel account balance at bank and the related liability for client deposits were shown on the balance sheet; · Lane Moller complied with miscellaneous accounting professional statement 9 'Statement on Compliance Financial Reports' (APS 9) issued by the National Council of the Institute of Chartered Accountants in Australia and the Australian Society of Practising Accountants. 46 His Honour found that those representations by Lane Moller were false and were made in contravention of s 52 of the Trade Practices Act 1974 (Cth) because they were misleading and deceptive. The trial judge found that Lane Moller had an obligation to ensure that in compiling the financial statements they were appropriate in form and free from material misstatements. He also found that Lane Moller owed the fund a duty to take reasonable care, in making any representation to the fund in relation to the 2000 renewal documents, to avoid loss and damage to the fund and that Lane Moller breached that duty of care by failing to perform its work competently and to the standard required of an ordinarily competent accountant. As a result of that breach of duty, Lane Moller had been negligent in making the false representations to the fund. 47 Next, his Honour found that Mr Young had made the following representations in the 2000 renewal documents which were false: · the financial information provided in the 2000 renewal documents were true and fair; · the information contained in the annual financial review form disclosed all material liabilities of Jaja as at 30 June 1999; · the 2000 renewal documents accurately reflected the liability of Jaja, as at 30 June 1999 for monies of clients deposited with it; · the extent of Jaja's liability as to 30 June 1999 for monies of clients deposited with it was $14,098; · the financial statements (comprising the profit and loss account, balance sheet, director's report and notes to and forming part of the financial statements) for Jaja for the year ended 30 June 1999 gave a true and fair view of the financial position of Jaja as at 30 June 1999; · on the fund's formula for assessment of the ratio of working capital to average monthly overheads and the ratio of net tangible assets to turnover, Jaja scored 16 points; · no provision for doubtful debts of Jaja was required to be made; · the client travel account balance at bank and the related liability for client deposits were shown on the balance sheet; · the ageing of the debt of $47,217 was: Over 2 months $ 12,988 Over 6 months $ 7,318 Over 12 months $ 26,911 $ 47,217 · there was no need to adjust the point score or the financial statements to have regard to that doubtful debt and/or that Jaja had attained the score of 16 points on the TCF's point score as set out in the annual financial review; · there was no need to make an adjustment to the annual financial review and accounts even given the qualification expressed by Mr Young regarding doubtful debts; · the 2000 renewal documents were audited in accordance with the Australian Auditing Standards; · Jaja was not insolvent and it was appropriate to adopt a going concern basis in the financial statements; · the client travel account balance bank and the related liability for client deposits were as shown in the balance sheet. 48 His Honour found that the netting off of creditors and debtors in the financial statements and the inappropriate application of and failure to apply accounting practices and standards had served to disguise the amount owing by Jaja to its clients for travel services not then provided. He also found that a provision should have been made for bad and doubtful debts in the sum of $127,569. His Honour found that had such a provision for bad and doubtful debts been made Jaja could not have been assessed as a going concern, and that it was not, in fact, a going concern as at 30 June 1999. He said 'it was insolvent and hopelessly so. The auditor ought to have concluded so on his examination of the financial records'. 49 His Honour noted that in his evidence, Mr Young said that he had reached the conclusion that the $47,217 referred to in his audit opinion was not collectible and that he should have given an opinion to that effect notwithstanding claims by Mr Yurisich to the contrary. His Honour said that Mr Young had admitted in evidence that his audit opinion was wrong and that it should have been an adverse opinion concluding that Jaja was insolvent. His Honour found that Mr Young knew that the fund would rely upon his audited financial reports for the purposes of assessing Jaja's continued participation in the fund as at August 1999 and that each of his above representations was made in trade or commerce and was false, misleading and deceptive and thus contravened s 11 of the Fair Trading Act 1985 (Vic) or alternatively s 9 of the Fair Trading Act 1999 (Vic). He found that Mr Young owed a duty to the fund to take reasonable care in making any representation in relation to the 2000 renewal documents to avoid loss and damage to the fund. The trial judge found that Mr Young was in breach of that duty of care by his conduct in providing the inaccurate material referred to above. 50 The findings of negligence made by his Honour against Lane Moller and Mr Young were, of course, subject to proof of damage. As noted earlier, the trial judge found that the fund relied upon the 2000 renewal documents for the purposes of assessing the continuing eligibility of Jaja as a participant in the fund and upon the representations made by each of Lane Moller and Mr Young. He found that the provision to the fund of Mr Young's audit report was a direct cause of any loss or damage suffered by the fund. His Honour's findings implied that Lane Moller's provision of the material which it included in the 2000 renewal documents was in the same category. Their position can have been no different. Indeed, his Honour concluded: 'There can be no doubt that the fund relied upon the expression of Mr Young's opinion, as it did on the [Lane Moller] financial statements in allowing Jaja to continue to participate in the fund after 27 August 1999.'

IDENTIFICATION OF THE LOSS 51 The fundamental question in the appeal is whether his Honour correctly approached the identification of the loss suffered by the fund and, if not, how it ought be ascertained. He reasoned that if Jaja's true financial position as found by him had been made known to the fund as at August 1999, Jaja would have had to stop trading immediately and could not have continued to participate in the scheme. And, he held that the fund could not have supported a company which was hopelessly insolvent by imposing a condition that Jaja obtain a guarantee from QBE in the sum of $220,000 which might give some protection to the fund, since the guarantee would not have been available to the general body of creditors. Accordingly, he found that if on either 27 or 30 August 1999 the fund had become aware of Jaja's true financial position, it would have immediately ceased Jaja's participation in the fund. 52 His Honour then reasoned that if Jaja had ceased to be a participant in the fund it would have become liable immediately for claims that could have been made against the fund as at late August 1999. Accordingly, his Honour said that the fund had to prove what claims it would have been exposed to at that time and then compare its position to that in which it found itself in February 2000 when Jaja failed to account to one or more of its clients. The critical passage in his Honour's reasoning is as follows: 'It seems to me that the Fund needed to establish those facts so that it could establish its damages. Its damages must be the additional sum which it was called upon to pay by reason of its allowing Jaja to continue to participate in the fund after 30 August 1999 and up to and including either 23 February 2000 or 29 February 2000. The fund had an existing liability to Jaja's clients as at 27 or 30 August 1999. It had to discharge that liability. By relying on the audited financial statements, it allowed Jaja to continue to participate in the fund up until the time that Jaja advised that it was insolvent in February 2000. The true measure of the fund's loss is the amount by which its liability increased to Jaja's clients between August 1999 and 23 or 29 Feburary 2000. The measure of damages must be the difference between the fund's liability as at 27 or 30 August 1999 and its liability as at February 2000.' (emphasis added) 53 His Honour held that the fund had failed to prove what 'its existing liability', as he termed it, was as at 27 or 30 August 1999 and therefore it failed to prove the difference in its position had the incorrect representations not been made by Lane Moller and Mr Young and correct representations made instead. 54 The principal submission put by the fund on the appeal became that its economic interest infringed by the misleading and deceptive conduct or negligence of Lane Moller and Mr Young was the incurring in February 2000 of the actual liability it had to the persons who in fact made claims under cl 15 of the deed (Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 533). The fund could only incur a loss when a person made a claim on the fund under cl 15 that Jaja had failed to account. The fund disputed the characterization which his Honour used in the passages we have emphasized that the fund had 'an existing liability' as at late August 1999. The fund might then have had a contingent liability to pay some amount, but its liability could only ever become actual if claims were made by persons who satisfied the criteria in cl 15. There could be no loss or damage suffered until the fund was called upon to pay claims that were properly brought against it. And that could only occur when there had been a failure to account. Up until then, any group of potential claimants would exist with others who had paid money but could not claim, (because for example they had travel insurance: see cl 15.1(c)). Those comprising the group would change in Jaja's creditors' ledger each time one of them received the travel services for which he, she or it contracted or when someone new contracted for such services. Then, a new group of Jaja's customers differently composed would replace the old and different contingent liabilities may arise in the fund. 55 However, unless and until a person had actually suffered a failure to account, there was no basis for his Honour to hold that there were 'existing liabilities of the fund as at August 1999'. The provision of the erroneous financial information by Lane Moller and Mr Young allowed Jaja to continue trading and to incur new debts, as it did, for example, with Mount Lilydale College, after August 1999. Those persons, to whom the obligations were incurred, would be able to bring a claim when and only when there had been a failure to account to them. The persons who had rights to bring claims, if any, in August 1999 had, for the most part, disappeared by February 2000. New series of creditors with new rights were substituted as each day passed. 56 Lane Moller and Mr Young argued that the approach of the trial judge was correct although it was accepted that his Honour erred in using the expression 'an existing liability' to describe the fund's relationship to Jaja's clients as at 27 or 30 August 1999. They argued that cases such as Gates v City Mutual Life Assurance Limited (1986) 160 CLR 1 at 12, 14; Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 526 and Kenny & Good Pty Limited v MGICA (1992) Limited (1999) 199 CLR 413 at 428 [28]-[29] supported the approach taken by the trial judge. Thus, Mason CJ, Dawson, Gaudron and McHugh JJ in Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 526 said in respect of utilisation of the common law measure of damages in assessing the amount recoverable as economic loss under s 82(1) of the Trade Practices Act 1974 (Cth): 'In a case such as the present, it may safely be assumed that the plaintiff is entitled to recover "a sum representing the prejudice or disadvantage [the plaintiff] has suffered in consequence of his altering his position under the inducement" … of the misleading conduct or "or the actual damage directly flowing from" … that conduct, to take up and adapt well-known statements of the measure of damage applicable in an action of deceit.' [footnotes omitted] 57 However, close attention to their Honours' judgment demonstrates that it does not support the proposition for which the respondents here contend. Their Honours continued, (175 CLR 514 at 527): 'Economic loss may take a variety of forms and, as Gaudron J noted in Hawkins v Clayton ((1988) 164 CLR 539 at 600-601), the answer to the question when a cause of action for negligence causing economic loss accrues may require consideration of the precise interest infringed by the negligent act or omission. The kind of economic loss which is sustained and the time when it is first sustained depend upon the nature of the interest infringed and, perhaps the nature of the interference to which it is subjected (see Cane, Tort Law and Economic Interests (1991) at 16-17). With economic loss, as with other forms of damage, there has to be some actual damage …. Prospective loss is not enough.' (emphasis added) 58 That case dealt with whether a limitation period had commenced to run upon the entry into a contract to indemnify upon which the plaintiff was later called upon to pay (see 175 CLR 514 at 519). The Court rejected the argument that the plaintiff had suffered actual loss immediately upon entry into the indemnity. The entry into the indemnity was alleged to have been induced by false representations as to the financial stability of a third party which amounted to misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) (see: 175 CLR 514 at 521). The plaintiff commenced the proceedings outside the limitation period that ran from the time at which the contract of indemnity was made, but within the limitation period running from the time on which it was called upon to pay. The joint judgment noted that before the indemnity could be called upon it was necessary that the third party had failed to satisfy a liability which it owed and that rights against the defaulting party had to have been fully exercised by the person calling on the indemnity. 59 As Mason CJ, Dawson, Gaudron and McHugh JJ said, the indemnity was not one of a kind which generated an immediate non-contingent liability to pay upon execution of the instrument. They said that it was neither a promise to meet a liability of the promisee to make a payment nor a promise to pay a debt owing by a third party to the promisee (referring to the discussion by Barwick CJ in Wren v Mahony (1972) 126 CLR 212 at 225-229). In Wardley, the indemnity was characterized as being one: '… which created a liability on the part of the respondent to the Bank to make payment if and when the Bank's relevant "net loss" was ascertained and quantified (see Bradley v Eagle Star Insurance Co Ltd [1989] AC 957 at 966, though there the policy required that the existence and amount of the liability to a third party be established by action, arbitration or agreement), subject to the making of a demand for payment by the Bank. The liability was, therefore, … contingent and executory. The likelihood, perhaps the virtual certainty, that there would be a loss in light of Rothwell's actual financial position as it stood when the indemnity was executed, did not transform the liability into an actual or present liability at that time .' (175 CLR 514 at 524-525; emphasis added) 60 It is significant that their Honours, in the passage just cited, referred to the virtual certainty of loss in light of the debtor's actual financial position. The facts are analogous to those found here by the trial judge. The result, however, was that if, as a result of a defendant's negligent misrepresentation, or contravention of s 52 of the Trade Practices Act 1974 (Cth), a plaintiff enters into a contract which exposes him or her to a contingent loss or liability, the plaintiff sustains no actual damage until the contingency is fulfilled and the loss becomes actual; until that happens the loss is prospective and may never be incurred (175 CLR 514 at 532-533). Their Honours held: 'The conclusion which we have reached with respect to the time when the plaintiff first suffers loss in respect of contingent loss or liability accords with the comment of Gaudron J in Hawkins v Clayton (1988) 164 CLR at 601): "[I]f the interest infringed is an interest in recouping moneys advanced it may be appropriate to fix the time of accrual of the cause of action when recoupment becomes impossible rather than at the time when the antecedent right to recoup should have come into existence, for the actual loss is sustained only when recoupment becomes impossible."(Emphasis added.) Gaudron J went on to point out (ibid at 602): "It would be too simplistic to restrict analysis of economic loss merely to a consideration of reduced value or increased liability." The conclusion which we have reached is reinforced by the general considerations to which we referred earlier. It is unjust and unreasonable to expect the plaintiff to commence proceedings before the contingency is fulfilled. If an action is commenced before that date, it will fail if the events so transpire that it becomes clear that no loss is, or will be, incurred. Moreover, the plaintiff will run the risk that damages will be estimated on a contingency basis, in which event the compensation awarded may not fully compensate the plaintiff for the loss ultimately suffered. These practical consequences which would follow from an adoption of the view for which the appellants contend outweigh the strength of the argument that the principle applicable to the cases in which the plaintiff acquires property (or a chose in action) should be extended to cases where an agreement subjects the plaintiff to a contingent loss. In such cases, it is fair and sensible to say that the plaintiff does not incur loss until the contingency is fulfilled.' 61 Under cl 15.1 of the deed, the fund had no actual liability and could suffer no loss until a claim was in fact made upon it to pay by a person who satisfied the criteria set out in that clause. Here, cl 15 subjected the fund to a contingent loss in August 1999. But, the fund did not incur loss until the contingency was fulfilled in February 2000 when actual claims under cl 15 were properly made calling on the fund to pay. 62 Whatever may have been the position of Jaja in August or September 1999, the fact is that Jaja did not fail then. His Honour and the respondents pointed to difficulties in establishing precisely what claim or claims may have been able to have been made on the fund at that time, had there been proper reporting revealing Jaja's hopeless insolvency. But, it is neither fair nor sensible to say that the fund incurred any loss then because the contingency of there being actual claims made upon it to pay under cl 15 had not been fulfilled (see 175 CLR 514 at 333). At that time, the fund suffered no loss. Its liability, in protecting members of the public, was to pay valid claims when under cl 15, and only when, a failure to account actually occurred. 63 Of course, the provision of accurate financial information and audit reports to the fund so that it could rely upon them in determining whether or not to take steps to protect the public in respect of the continued participation of a travel agent in the scheme was relevant. The purpose of the scheme is to protect the public against loss resulting from dealing with defaulting agents as Gleeson CJ explained in Travel Compensation Fund v Tambree (2005) 80 ALJR 183 at 191 [27]. And he said, when the fund called for audited statements, the kind of loss to the public, and the kind of loss to itself, against which it sought protection was loss that would involve an agent's failure to account. The Chief Justice there noted, whether claims on the fund were made under cll 15.1 or 15.2, there would always be conduct of a third party, described as a failure to account, in between the breach of statute or negligence, on the part of an accountant or auditor involved in providing financial statements to the fund, and the suffering of harm by the fund. He said: 'A travel agent's failure to account, whether the agent be licensed or unlicensed, will always be the occasion of the kind of loss suffered by the appellant in meeting claims under cl 15 of the deed. Typically, as in the present case, the failure to account will be related to financial difficulties in which the agent is involved. That is why agents are required to provide financial statements in support of applications to become, and remain, participants in the compensation scheme.' (80 ALJR at 191 [27]) 64 In Travel Compensation Fund v Tambree (2005) 80 ALJR 183, the Court held that even though the fund had ceased the participation of the defaulting, and thereafter unlicensed, agent, the agent's activities in continuing to trade while unlicensed caused failures to account for which the fund was liable by reason of the negligent or misleading or deceptive audited financial statements prepared by the accountant and auditor in that case. As the Chief Justice continued (80 ALJR at 191 [31]-[36]): '[31] This is a case of known reliance, and negligent misrepresentation. The aspect of trade and commerce which attracted the operation of s 42 of the Fair Trading Act was the conduct of the business of a travel agent, in a regulatory context that provided for a scheme of compensation for members of the public who suffer loss through failure to account on the part of defaulting agents. That scheme exposed the appellant to claims for compensation, and to the risk of loss by reason of payments made under cl 15 of the deed. Because of cl 15.2, and the way it worked in practice, as explained in the evidence, the risk to which the appellant was exposed included the risk of claims for compensation by people who dealt with a travel agent who was no longer a participant in the fund and was operating following loss of a licence - perhaps attempting to trade out of financial difficulties. To protect itself against that risk, as well as to protect the public, the appellant required information about the financial position of participating agents. It acted in reliance on that information in making decisions about continuing participation, including decisions as to whether to require further security or additional funding. The first and second respondents participated in the provision of such information, knowing that it was for the purpose of such reliance. The statute prohibited misleading conduct by them. They engaged in misleading conduct by the part they played in the provision of false financial information. [32] Misrepresentation will rarely be the sole cause of loss. If, in reliance on information, a person acts, or fails to act, in a certain manner, the loss or damage may flow directly from the act or omission, and only indirectly from the making of the representation. (Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 356-357; Henville v Walker (2001) 206 CLR 459 at [14].) Where the reliance involves undertaking a risk, and information is provided for the purpose of inducing such reliance, then if misleading or deceptive conduct takes the form of participating in providing false information, and the very risk against which protection is sought materialises, it is consistent with the purpose of the statute to treat the loss as resulting from the misleading conduct. [33] The compensation scheme was not limited to providing compensation for failure to account by agents who had current licences at the time of the failure to account. Clause 15.2 of the deed makes that clear. People whose businesses collapse may well attempt to trade out of their difficulties; and there may well be an interim period between termination of participation in the fund, with consequent loss of licence, and physical closure of a business by action of the regulatory authorities. The risk that an insolvent agent (as Ms Fry appears to have been) would keep trading until forced by the authorities to close down, and that claims would be made under cl 15.2, was part of the risk against which the appellant was seeking to protect itself when it considered the financial statements of Ms Fry. [34] The illegality of Ms Fry's conduct did not take it outside the scope of the risk against which the appellant attempted to obtain protection. That is made obvious by a consideration of the operation of cl 15.1 of the deed. A failure to account, by a licensed agent who is still a participant in the fund, could well involve illegality of some kind. There might be an issue, in a given case, about whether a loss to the appellant in such a case was causally related to misrepresentation by providing erroneous financial statements. If it were so related, however, it would be unlikely that illegality would be an answer to any issue of causation. Loss following reliance on negligently prepared financial statements often arises in circumstances of illegal conduct on the part of someone against whose default protection is sought. It could hardly be the case that the appellant could only recover damages from a negligent accountant or auditor in the case of a failure to account by an agent whose conduct involved no illegality. [35] The answer to the problem of causation in the present case is to be found, not in a value judgment, but in an accurate identification of the nature of the risk against which the appellant sought protection and of the loss it suffered, considered in the light of the kind of wrongful conduct in which the first and second respondents engaged. [36] The considerations discussed above in relation to the claim under the Fair Trading Act are of equal force in relation to the common law claims for negligence.' 65 In the present case, just as in Travel Compensation Fund v Tambree (2005) 80 ALJR 183, the fund sought the reports from Lane Moller and Mr Young, as accountant and auditor of Jaja, to protect itself against the risk of loss. Just as in the decision of the High Court, there was always a possibility that Jaja could trade illegally, without a licence. Here, the misleading and deceptive and negligently prepared reports in the 2000 renewal documents, were a cause of the fund continuing Jaja's participation in the compensation scheme. That exposed the fund to the very risk of loss at the time Jaja collapsed. When the loss became actual, by the making of claims which enlivened the fund's obligation under cl 15 of the deed, the fund suffered loss. Until that occurred, it suffered no loss. 66 The fund's liability under cl 15 to pay compensation to members of the public who had suffered from a travel agent's failure to account depended upon the circumstances at the time of the failure to account. The fact that, had accurate accounting or auditing information been given to the fund at an earlier time, the travel agent's potential liability to its clients, some or all or none of whom may have had the entitlement to make claims had failures to account occurred for a greater sum than the fund in fact actually became liable to pay, cannot affect the calculation of damages. That is because the fund could never sue for loss it had not suffered, or get the benefit of a reduction in liability to members of the public because the agent's financial position improved in the period between when the misleading or negligent accounting or auditing statements were made to the fund and when the travel agency failed to account. 67 As the joint judgment in Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 526 pointed out, the virtual certainty of loss is not loss under an obligation such as that created by cl 15 on the fund. And, in Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413 at 457-458 [119]-[120] Kirby and Callinan JJ held that if a correct valuation had been given, there would have been no loss suffered by the mortgage insurer because it would not have provided mortgage insurance at all. They said that this approach gave content to, or defined, the contractual obligation to exercise reasonable care and the tortuous duty of care. It did this by having regard to the kind of loss or damage in respect of which the contract breaker or tortfeasor was required to exercise reasonable care. 68 In that case the valuation included a representation that the property was a suitable investment for trust funds, on the basis of the valuation, for a term of 3-5 years. Kirby and Callinan JJ said that the valuer had an obligation and a duty in giving the valuation to exercise reasonable care to enable the mortgage insurer to decide whether to enter into an insurance transaction at all. The obligation or duty was breached if an accurate representation would have suggested that the mortgage insurer should not have entered into the transaction (the other justices took a similar approach: 199 CLR 413 at 425-246 [19]-[21] per Gaudron J, 447 [83] and 449 [92] per Gummow J; but see per McHugh J at 431 [35]). The valuer was held liable for the whole of the loss which the mortgage insurer suffered, some of which resulted from a later fall in the property market. 69 Here, the position is different, since neither Lane Moller nor Mr Young had any contractual relationship with the fund. Nonetheless, at the time they provided the 2000 renewal information to the fund they knew that it would rely on that information for the purpose of considering the continued participation of Jaja in the scheme and any conditions which might be imposed on it. And, they knew the fund would be exposed to the risk of loss if Jaja failed to account at any time in the future were its continued participation in the fund permitted. Even if it were virtually certain that Jaja was hopelessly insolvent, the fund had no actual liability in August 1999 to anyone. Jaja had not then failed to account. Such a failure to account occurred only at the time of its collapse in February 2000. 70 The liability of the fund to meet claims made under cl 15 consequent upon that failure to account, and the satisfaction of the other requirements for a valid claim, occurred only after that collapse. And a cause of that liability being then incurred was the fund's earlier reliance in September 1999, in continuing Jaja's participation in the scheme, on the misleading or deceptive and negligent representations in 2000 renewal documents for which Lane Moller and Mr Young were responsible: Travel Compensation Fund v Tambree (2005) 80 ALJR 183.

FUND'S ALTERNATE CASE 71 The fund submitted, correctly, that there was no need to decide the issue that it raised as an alternative case if it succeeded on the basis set out above. Essentially, the fund claimed that the trial judge had erred in rejecting evidence of witnesses called by it as to the hypothetical exercise which they had been asked to undertake for the purposes of giving their evidence. The exercise was directed to seeking to prove how the fund would have reacted had there been accurate material provided by Lane Moller and Mr Young in the 2000 renewal documents. 72 As indicated above, the problem with the exercise was that although a hypothetical report was reconstructed for the trustees' meeting of 16 September 1999 reflecting the conclusions (which his Honour found as facts) expressed by the fund's expert witness, Mr Humphreys, as to the true financial position of Jaja as at 30 June 1999, the hypothetical report wrongly included Mr Young's actual audit opinion on the 1999 accounts as well as another audit opinion which had no qualification in it. Thus, the two audit reports in the hypothesis were both internally inconsistent one with the other and neither related to the financial position that came from Mr Humphreys' report. It was, as his Honour correctly said, a 'nonsense'. Because the hypothetical report had this defect, the evidence of the witnesses who were asked to consider it was of no value and could not have assisted his Honour in coming to a conclusion as to how the trust would have acted. The trial judge was correct in rejecting this evidence. Without it, the further arguments could not be advanced which the fund sought to raise, namely that a guarantee from QBE would have been sought by Jaja in the amount of about $220,000 within 21 days of receiving the hypothetical report and the fund would consider whether or not Jaja should be allowed to continue its participation in the scheme following a special investigation that would be conducted. 73 Nonetheless, the fund sought to challenge, by relying on the hypothetical evidence, his Honour's finding that the auditor would have reported that Jaja was hopelessly insolvent (based on his Honour's findings as to Mr Humphreys 30 June 1999 expert report and, on this scenario, it would not have been allowed to trade after 30 August 1999. 74 Mr Whittaker, an officer of the fund, had given evidence saying that had he thought Jaja was hopelessly insolvent, he would have recommended to the trustees of the fund that they terminate its participation in the scheme (AB 4/1743.45). And, such external financial support could also have been provided, in part, by a guarantee from QBE in respect of Jaja's customers who could make a claim on the fund. The fund argued that this evidence had to be understood as being a conclusion reached after the fund had undertaken a special investigation following receipt of accurate audit and accounting information and the setting of a condition that Jaja seek a guarantee. 75 If the position were that on 30 August 1999 it was obvious from a proper audit report and accounting material that Jaja was hopelessly insolvent then his Honour's conclusion is one that was open to him and, ought not be disturbed. However, there is a hidden assumption in the basis on which his Honour reached that conclusion. It is that the directors would not sign the statement in the accounts, required by the Corporations Law, that there were reasonable grounds to believe that the company, Jaja, would be able to meet its debts as and when they fell due. If Jaja's directors and shareholders had been prepared to support it and had the financial capacity to do so, then even though Jaja may have had a large deficiency on paper in its balance sheet, that support would have negated the finding of 'hopeless' insolvency. 76 The fund argued that because Mr Yurisich had insisted to Mr Young that the $47,217 owed by Aussie Golf, the subject of Mr Young's audit qualification was collectible, the inference could be drawn that he would have made a similar assertion about Mr Humphreys' conclusion that the bad debts which ought be written off or made the subject of a provision amounted to about $127,000. However, when it became apparent to Mr Yurisich that the debts were of the order of $100,000 in February 2000 he was not prepared to allow Jaja to continue trading. It follows that there was no sound evidentiary basis, in the absence of any other evidence, for the conclusion that had a true picture been presented by proper accounts and a properly given audit opinion, Mr Yurisich or Ms Gottschalk would have supported Jaja. Ms Gottschalk thought her investment of $40,000 had substantially provided the support Jaja needed in respect of the Aussie Golf debt and, for whatever reason, Mr Yurisich told Mr Young he thought it was collectible. But on the evidence neither Ms Gottschalk nor Mr Yurisich appreciated in August 1999 that Jaja had to make provision for about three times the sum of the Aussie Golf debt and, that, necessarily those other debtors' positions had to be assessed. 77 One of the real difficulties Mr Yurisich and Ms Gottschalk had in having a properly informed understanding of the true financial position appears to have been caused by the difficulty in translating Jaja's accounting systems from the manual system to that operated by computer software provided by Harvey World Travel Franchise. The difficulties which this change in methodology of record keeping had caused in the production of accurate accounts by Jaja is likely to have concealed from Mr Yurisich, Ms Gottschalk and others the true state of the company's finances. When the picture became clearer, it ultimately emerged in February 2000 that the debts were of the order that, with Mr Humphrey's hindsight, could be seen to have been found on proper investigation as at 30 June 1999. Those debts were ones which Mr Yurisich and Ms Gottschalk in February 2000 were not prepared to support further and which Lane Moller told them they should not support when it reported that position to them. Without that support there would be no occasion for the fund to consider the provision of further accommodation or to require further guarantees to be sought or provided. The alternative case of the fund must be rejected.

LANE MOLLER'S NOTICE OF CONTENTION - DID THE CLAIMANTS ON THE FUND SUFFER LOSS? 78 After Jaja's collapse, Harvey World Travel Franchise Pty Ltd, which was the franchisor of the Harvey World Travel name, arranged for another Harvey World Travel agency to take over the affairs of customers of Jaja's who had been affected by its collapse. Each of those customers signed a deed of release which appeared to have been prepared on the fund's stationery indicating the nature of the claim and the amount which was anticipated to be received from the fund as compensation. The deed contained a clause providing that the claimant authorized and directed the fund to pay any approved compensation to the claimant or to Harvey World Travel Franchise as the claimant's nominee and the claimant acknowledged that payment to it would be good as a receipt by the claimant personally. On appeal Lane Moller and Mr Young accepted that this constituted an assignment as his Honour found. This is plainly so. As Lord Macnaghten said in William Brandt's Sons & Co v Dunlop Rubber Company Limited [1905] AC 454 at 462, an equitable assignment for valuable consideration communicated to a third person cannot be revoked by the creditor or safely disregarded by the debtor. His Lordship said: 'The language is immaterial if the meaning is plain. All that is necessary is that the debtor should be given to understand that the debt has been made over by the creditor to some third person. If the debtor ignores such a notice, he does so at his peril.' 79 Lane Moller argued that no loss or damage had been suffered by claimants on the fund who had had their travel arrangements provided by Harvey World Travel Franchises making alternative arrangements after Jaja's collapse. Lane Moller contended that because Harvey World Travel Franchises had made the alternative arrangements for its own commercial reasons, each of the claimants on the fund had received, without further payment by them, the travel and travel related services for which they had paid Jaja, albeit that the source of the supply was not Jaja. Lane Moller said that the assignment in favour of Harvey World Travel Franchise by each claimant executing the deed was irrelevant. But, they said that because Harvey World Travel Franchise voluntarily paid for the services that were actually provided to each of the claimants, no claimant had suffered any loss which would justify the making of a claim on the fund. Because their travel services had to be delivered at a later time, it was argued, there was no failure to account at the time they executed the deeds in late February 2000 following Jaja's collapse. 80 This argument should be rejected. It ignores the reality that Jaja had contracted with each of the claimants to provide the relevant travel service. At the time of its collapse on about 23 February 2000 Jaja was no longer in a position to provide such services. None of these services which Jaja contracted to provide with the claimants was ever provided to them. Jaja had failed to account to each claimant for the service for which that claimant had paid. Instead, someone else had provided a substitute service in consideration of the assignment of the right to claim compensation from the fund. 81 It cannot avail Lane Moller that someone else contracted with the claimants to provide a substitute service, which may have been, for example, tickets on the same airline flight with the same carrier as had been supposed to have been arranged by the claimants' earlier payment to Jaja. Indeed, the claimants gave good consideration for Harvey World Travel Franchises to undertake the responsibility to search out and provide substitute services in the future for those which Jaja had failed to account at the date of its collapse. When Jaja collapsed without then having provided the claimants with an enforceable or valid right to receive the travel service for which they had paid, Jaja had committed an anticipatory breach of its contracts with them which evinced an intention not to be bound by the contract. At that point Jaja, which then ceased to be a travel agent, could not arrange, lawfully or practically, travel or travel related services for which it had contracted with the claimants. Since the services were not provided at that time the claimants were entitled to treat that as a breach of contract. And, because of Jaja's financial impecuniosity it was obvious that Jaja would not perform its contracts with the claimants and they would neither be reinstated with their money, at least in the foreseeable future, or provided with the services for which they had contracted. In effect, Jaja, by its conduct evinced an intention not to be bound by its contract which amounted to a repudiation. 82 Lane Moller also argued that none of the claimants or Ms McAlpine, an officer of Harvey World Travel Franchise, in their evidence had said that they perceived that the deed created a legal relationship as set out above and, somehow, that meant that they had not suffered a failure by Jaja to account. The argument made no sense. Those claimants and Harvey World Travel Franchises became bound by the written contracts contained in the deeds. Their subjective understandings of the arrangements they had made or of the documents they had executed, where no misrepresentation was in issue, is not to the point. They were bound by the terms of the deeds which they had executed with all the legal consequences which flowed whether or not they had read or understood them: Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 at 179 [39]-[40]; 181-182 [46]-[47] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ. 83 His Honour accepted Ms McAlpine's evidence that when a franchisee failed, her duties for Harvey World Travel Franchises were to co-ordinate claims made by clients of the failed franchisee and to pass the responsibility for making travel arrangements for those clients to other Harvey World Travel offices. Her primary role was to ensure that the clients or customers of the failed franchisee still received their travel arrangements. She facilitated another franchisee taking over the files, who would then have the responsibility of determining what had been paid for and what had been already supplied in travel services. The payment for the replacement bookings would then be provided by Harvey World Travel Franchises which would contact the fund to advise it that, as franchisor of Harvey World Travel agents, it would be funding those travel arrangements and making claims on the fund for the defaulting agency's failure to account. The purpose of this action of Harvey World Travel Franchise was to protect clients. The franchisee, who then would arrange the provision of substitute services, would also help clients to complete the claim forms to the fund. The clients would be told that Harvey World Travel Franchises would be paid the amount of the claims. Ms McApline's evidence was that if the fund declined a claim, Harvey World Travel Franchises would have to bear that loss. 84 The trial judge accepted Ms McAlpine's evidence that Harvey World Travel Franchises only arranged such travel because it could be paid for by the fund. His Honour found that the deeds satisfied the provisions of cl 15.6 of the fund's trust deed which, his Honour correctly held, did not contemplate any formal assignment. As his Honour said, the purpose of that clause was to prevent travel agents profiting by reason of the default of other travel agents. And as Gleeson CJ said in Travel Compensation Fund v Tambree (2005) 80 ALJR 183 at 191 [27]: 'The whole purpose of the scheme is to protect the public against loss resulting from dealing with defaulting agents. Default commonly results from financial failure ….' 85 No error has been shown in his Honour's conclusion that the fund became obliged to pay Harvey World Travel Franchises the sums which the latter in fact paid to arrange the travel services for which Jaja had failed to account in the circumstances creating an entitlement of each of the claimants to compensation under cl 15.

MR YOUNG'S NOTICE OF CONTENTION 86 Mr Young argued that the trial judge's findings of causation and reliance should be found to be wrong. He argued that the assessment of Mr Newman, an officer of the fund, was flawed in providing the draft recommendation which the fund's management committee adopted at their meeting of 16 September 1999 so as to permit the participation of Jaja in the scheme. His Honour found that Mr Newman was in certain respects an unsatisfactory witness. The trial judge was not satisfied that Mr Newman was necessarily wrong in failing to assess the whole of the $47,217 the subject of the qualification made by Mr Young as requiring the making of a full provision. Mr Young's argument overlooked that his Honour had found that Mr Young represented in his audit report that first, there was no need to make an adjustment to the annual financial review and accounts notwithstanding the qualification expressed by him regarding doubtful debts, secondly, Jaja was not insolvent and it was appropriate to adopt a going concern basis in the financial statements and thirdly, the financial statements of Jaja for the year ended 30 June 1999 gave and a true and fair view of its financial position as at that date. 87 Mr Young argued on the appeal that what his Honour found him to have conveyed should have been ignored by the fund to whom his report had been addressed. Moreover, he asserted that his Honour's findings and the evidence of the way in which Mr Newman had approached the assessment of Jaja's reporting to the fund from the time of the submission of the 1998 renewal documents up until the preparation of his recommendation of the 16 September 1999 meeting, demonstrated unreasonableness and irrationality on Mr Newman's part, which either showed that he did not rely on Mr Young's reports or that the chain of causation had been broken by Mr Newman's intervening conduct. Mr Young argued that because the chief executive of the fund, Mr Brattoni, and another senior officer, Mr Hammond, had said in cross examination that they would have made a provision of the full amount of $47,217 had they seen his qualification, Mr Newman's adoption of a lesser sum of $26,911 which had been outstanding for over 12 months was unreasonable. 88 His Honour found that Mr Newman, who was cross examined, should be accepted on this point. And, it was not unreasonable for Mr Newman to have relied on his reading of Mr Young's negligently prepared and misleading audit report for the very representations which his Honour found that report to have conveyed. They were a cause of the way which Mr Newman acted. Mr Newman was a chartered accountant in New Zealand. He gave evidence that he did not read the qualification in the way that Mr Young says it ought to have been read. Mr Newman's reading was open because of the finding, not challenged, of the representations which the audit report conveyed. The argument should be rejected. 89 Mr Young also asserted that it was the failure of Lane Moller to provide accurate accounts and their endorsement of what was being put forward by the directors as being a cause, taken in conjunction with Mr Newman's alleged irrationality, that overwhelmed any causative conduct of Mr Young. 90 Fundamentally, Mr Young's submissions sought to eschew the fact that for causation, the law only requires that the conduct, act or omission relied on as being causative was a cause. It does not have to be the only cause or even the dominant cause so long as it can be seen to have played a part in the relevant chain of events (Travel Compensation Fund v Tambree (2005) 80 ALJR 183 at 190-192 [25]-[36] per Gleeson CJ, 193-194 [45]-[50] esp at [49] per Gummow and Hayne JJ, 195 [57] per Kirby J, 200 [78] per Callinan J). 91 Indeed, Mr Young's submission amounts to saying that the fund was irrational, through the agency of Mr Newman, for reading the report in the sense which Mr Young had conveyed by what he had written. His negligence and misleading conduct had concealed the very thing Mr Young now says Mr Newman should have seen. It is to be noticed, as his Honour found, that the audit report did not say that a provision should have been made, it merely noted that Mr Young had concerns about the collectability of the debt and that no provision had been made. It was self-evident, from reading Jaja's financial statements, that no provision had been made. The trial judge found that the audit report conveyed a representation that no provision needed to be made. That makes the argument put by Mr Young untenable. There is no reason to disturb his Honour's finding of causation and reliance on Mr Young's negligent and misleading report. 92 Mr Young also argued that Mr Newman's behaviour was inconsistent with the fund's own internal procedures and expectations. Mr Newman was criticized for not having advised anyone within the fund's organization, including the trustees, of the qualification in the audit report, so that they would have had that information on which to base their decision. Mr Young argued that had Mr Newman drawn the qualification to the attention of others in the fund's organization, then the steps which Mr Brattoni and Mr Hammond said they would have taken, would be likely to have occurred. That, it was argued, would have meant that the trustees or the management committee would have acted differently in taking the course it did. Had the full amount of $47,217 been the subject of a provision raised internally by the fund, Jaja would have scored seven out of twenty on its internal scale. Mr Newman was also criticized for failing to do anything about the netting off of the amount said to be owing by client debtors and current assets which was also the subject of the qualification. Again, this ignores the findings that representations were conveyed by Mr Young that, in effect, despite the qualification there was no need to do anything to adjust the accounts and that the accounts, as they appeared, gave a true and fair view. 93 Mr Young placed the fund, through whichever of its employees had to deal with his report, in the difficult position of trying to make unambiguous what he had written negligently and in a misleading and deceptive form. As Lord Macmillan remarked in Banco de Portugal v Waterlow & Sons Limited [1932] AC 452 at 506: 'It is often easy after an emergency has passed to criticize the steps which have been taken to meet it, but such criticism does not come well from those who have themselves created the emergency. The law is satisfied if the party placed in a difficult situation by reason of the breach of a duty owed to him has acted reasonably in the adoption of remedial measures, and he will not be held disentitled to recover the cost of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken.' 94 Mr Young's contention should be rejected. 95 For these reasons, the appeal should be allowed with costs. The orders made by the trial judge on 13 September 2005 and 2 December 2005 will be set aside. In lieu thereof, there should be judgment for the appellants against the third and fourth respondents in the sum of $200,135, together with interest to be calculated from the dates that the appellants paid the respective claims in accordance with the rate of interest used by the Supreme Court of Victoria for money due before judgment. See generally: GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 201 ALR 55 at [7] (per Finn J). 96 Because the calculation of interest involves a potentially complex arithmetical task, the best course seems to be to invite the appellants, in consultation with the third and fourth respondents, to agree on a precise figure. The only formal order that need be made at this stage is that the appellants bring in short minutes of order reflecting these reasons for judgment on or before 20 September 2006. I certify that the preceding ninety-six (96) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Sundberg, Weinberg and Rares JJ

Counsel for the Appellant: Mr R Dubler SC and Mr P Cawthorn

Solicitors for the Appellant: McCabe Terrill

Counsel for the Third Respondent: Mr M Thompson SC

Solicitors for the Third Respondent: Moray and Agnew

Counsel for the Fourth Respondent: Mr P Cosgrave SC

Solicitors for the Fourth Respondent: Moray and Agnew

Date of Hearing: 10 and 11 August 2006

Date of Judgment: 4 September 2006