McCarthy v McIntyre

THE TROPICANA TRANSACTION 4 In 1990, Jack and Neville were involved in business together. In 1990, Neville offered to sell to Jack for $300,000 one quarter of the shares in Edlan. In about August 1990, that transaction was completed and Jack became the beneficial owner of one-quarter of the issued share capital of Edlan. In 1992, an oral agreement was reached for the sale of the remaining shares in Edlan. That oral agreement ultimately gave rise to three separate instruments entered into on 17 August 1993 (together referred to as "the Tropicana Transaction"). 5 The first instrument was a share sale agreement. By the share sale agreement, Auro agreed to sell 2,501 shares in Edlan to Max for $2,501. Under the share sale agreement, Max was also required to pay $2,100,000 towards discharge of a debt that was owed by Edlan to the Commonwealth Bank. The second instrument, a deed of settlement, provided, among other things, for Auro to transfer to Jack a further 2500 shares in Edlan that had been the subject of a dispute. By the deed of settlement, Nevitoro also agreed to make advances to Edlan of $360,000 and $100,000. The third instrument was a deed of charge whereby Edlan charged its assets in favour of Nevitoro with the repayment of the advance of $360,000. The advance of $100,000 was to be secured by a mortgage by Jack over a property known as Unit 7/15 Wyatt Street, Burwood. 6 It appears that the shares in Edlan that Max purchased from Neville pursuant to the share sale agreement were purchased for the benefit of a Mr Riddell. At settlement of the Tropicana Transaction, the sum of $2,100,000 that was required to be paid towards discharge of the debt owing to the Commonwealth Bank was provided by advances to Edlan from Westpac Banking Corporation ("Westpac"). The balance of the debt then owing by Edlan to the Commonwealth Bank was provided from the advances by Nevitoro referred to above. 7 The involvement of Mr Riddell is somewhat obscure. It appears to have been common ground that a sum of $300,000 paid by Mr Riddell was treated by the parties as a payment by Mr Riddell for the shares in Edlan acquired by Max under the share sale agreement. The parties, it appears, treated Mr Riddell as the beneficial owner of the shares acquired by Max pursuant to the Tropicana Transaction. However, on 11 November 1993, Max paid Mr Riddell $313,000 for the beneficial interest in the shares in Edlan that had been acquired by Mr Riddell. Thus, it appears that by 11 November 1993, the whole of the issued share capital of Edlan had become owned, legally and beneficially, by Jack and Max.

THE ORIGINAL FINDINGS OF THE TRIAL JUDGE 8 Prior to entering into the Tropicana Transaction, the McCarthys had made attempts to obtain finance to permit Edlan to discharge the debt to the Commonwealth Bank. Initially, they were without success but, ultimately, Westpac agreed to provide the necessary financing. Westpac required that sales figures of the Tropicana and a valuation based on those figures be provided to it before it would entertain such refinancing. Westpac, by a letter dated 19 April 1993, made it clear that it was a condition of providing finance that a valuation of the Tropicana be obtained in line with a valuation of $3.18 million that had previously been obtained in December 1992. 9 The case advanced by the McCarthys before the trial judge was that Neville had supplied sales figures for the Tropicana to enable a valuation to be made. The McCarthys claimed that those figures were overstated and that, in consequence, a valuation of $3.16 million, which was made in June 1993, overstated the value. The trial judge found that Neville supplied sales figures that were false and that, by doing so, Neville had engaged in conduct that was in contravention of either section 52 of the Trade Practices Act 1974 (Cth) or section 42 of the Fair Trading Act 1987 (NSW) ("the relevant legislation"). The valuation, based as it was on the false sales figures supplied by Neville, overstated the value of the Tropicana by approximately $1 million. 10 While accepting that the McCarthys had no knowledge of the falsity of the sales figures, the trial judge nevertheless held that they had not relied on those figures, or the valuation based upon them, in entering into the Tropicana Transaction or in acquiring the beneficial interest from Mr Riddell. His Honour found, in effect, that Max was at all times prepared to accept that the Tropicana was worth $3.2 million. Whilst his Honour found that Neville was guilty of contravention of the relevant legislation, his Honour did not consider that the McCarthy interests had established that they relied on Neville's conduct in any relevant detrimental sense. 11 However, while his Honour concluded that at all times the McCarthy interests accepted that the hotel had a value of around $3.2 million, he found that it was still necessary to introduce a financier who would be prepared to lend money to the McCarthy interests, so as to enable the refinancing of the Commonwealth Bank loan to take place. It was recognised by all the parties to the Tropicana Transaction that such a refinancing could only occur if a suitable valuation could be produced. His Honour further found that it was recognised by all concerned that, in accordance with ordinary valuation practice in dealing with hotels, a valuer would need to be satisfied as to a certain quantum of takings, which would be taken into account by the application of a suitable rate of capitalisation so as to throw up a certain value for the hotel itself. 12 His Honour concluded that the party that was induced to act to its detriment was the financier, Westpac. His Honour concluded that Westpac was induced to advance the sum of $2.1 million on the faith of a valuation that itself was based on inflated sales figures. There was no claim by Westpac before his Honour. His Honour concluded, therefore, that that apparent inducement of Westpac was not a relevant consideration in the claim before him. Accordingly, his Honour dismissed the claims made on behalf of McIntyre interests based on Neville's conduct in contravention of the relevant legislation.

THE FIRST APPEAL 13 The relevant question on appeal concerned the McCarthys' claims that the inducement of Westpac found by his Honour resulted in loss to Max. It was contended that Max suffered loss by Neville's conduct in contravention of the relevant legislation within the meaning of section 82 of the Trade Practices Act 1974 (Cth). It was contended that if the valuation, based as it was on the incorrect figures supplied by Neville, had been reduced by approximately $1 million, Westpac would not have proceeded with the arrangement to refinance Edlan's indebtedness to the Commonwealth Bank. It was also contended that no other financier would have done so and that, in those circumstances, Max would not have been in a position to enter into the Tropicana Transaction. Therefore, the Tropicana Transaction would not have been proceeded with and completed. Max would therefore not have suffered the loss that he claims to have suffered as a consequence of acquiring Mr Riddell's beneficial interest in November 1993, namely payment of the price of $313,000. 14 The Full Court observed that the proceedings had been characterised by "vagueness in pleading and the failure to identify issues with precision and clarity". Nevertheless, amendments that were made to the pleading, together with submissions put to the trial judge on behalf of the McCarthys, made it tolerably clear that the case at trial for Max was put on the basis that he had suffered loss as a result of the misleading or deceptive conduct of Neville in providing false information to Westpac, thereby inducing Westpac to refinance the greater part of Edlan's indebtedness to the Commonwealth Bank. 15 The Full Court noted that this aspect of the case had not been the subject of findings by the trial judge. For Max to succeed on this aspect of the case, the Full Court held that the following findings would need to be made:

1. that had the true figures been revealed, Westpac would not have provided finance;
2. that finance would not have been available from any other source; 3. related to the first two findings, that in consequence the parties would not have entered into the transaction that they did; 4. that Max suffered loss in the result, including, within that finding, the extent of that loss. 16 The Full Court therefore allowed the appeal in part and remitted the matter to the trial judge to make the necessary factual findings to determine whether "the case of third party reliance" should succeed. In supplementary reasons delivered on 16 June 1999, the Full Court indicated that the question of whether Auro and Nevitoro had any responsibility for Neville's conduct, either as principals or as accessories, should also be determined by the trial judge on remitter.

PROCEEDINGS ON REMITTER 17 The amended notice of motion for leave to reopen Max's case sought leave to lead the following evidence: "(i) To adduce further direct evidence from Westpac bank, including from Mr. Holdsworth in particular concerning the Westpac Memorandum dated 7 July 1993 tendered into evidence as A 12 92 [sic], to prove that had the true sales figures of the Tropicana Hotel been revealed to it, Westpac would not have provided funding for the 1993 transaction; (ii) To recall Max McCarthy to give evidence that he would not have been able to fund the transaction himself either alone or with the combined resources of himself and his brother Jack McCarthy and that in consequence the 1993 transaction would not taken place. (iii) To recall Adam Tilley and Mark Duncan Riddell to give evidence that finance would not have been available from any other source if the true figures had been revealed. (iv) To recall Brian Goodacre to give evidence of as to [sic] the loss that Maxwell McCarthy suffered as a result of the 1993 transaction. (v) To reopen and call further evidence with respect to the knowledge of Auro Romano McIntyre and Nevitoro Investments Pty Ltd with respect to the conduct of Neville McIntyre. (vi) To reopen and call further evidence as to the issue of whether Neville McIntyre's misleading or deceptive conduct was undertaken on behalf of Nevitoro Investments Pty Limited." 18 In the course of argument on the hearing of the application for leave, his Honour indicated that he needed an outline of the evidence intended to be adduced. In response, the solicitor then appearing for Max prepared a document entitled "Outline of Evidence". His Honour received that on the hearing of the motion. The document relevantly provides as follows: "1. Evidence, if required by the Court, from Westpac that Westpac was relied upon and was induced by the false takings and valuation to lend the amount required to refinance the CBA loan and Westpac would not have loaned the sum required to refinance the loan of Edlan from the CBA without the valuation and trading figures supplied by Neville McIntyre on behalf of Nevitoro Pty Limited. 2. Evidence, if required by the Court, from an expert finance broker that no other commercial source of funds could have been found. 3. Evidence from Max, if required by the Court, that Max was not in a position to purchase the shares under the 1993 share purchase agreement and that as a consequence the share sale agreement, the deed of settlement, the deed of charge and the ultimate acquisition of shares from Mr. Riddell could not have proceeded and Max McCarthy would not have suffered loss. 4. Evidence, if required, of the loss of Max McCarthy being expert evidence regarding the value of the shares he acquired had the true trading figures and true value of Edlan been known being difference between what the shares were really worth and what Max Paid for them." 19 The trial judge considered that if the application for leave to adduce additional evidence were allowed, it would follow inevitably that litigation that his Honour characterised as "lengthy, complex and bitterly contested" would be reagitated in most of its dimensions. His Honour considered that immense expense would follow from a retrial of substantially all the previous issues. His Honour concluded therefore that the Full Court's reasons should be taken as directing him, as the primary judge, to revisit only the evidence previously given for the purpose of making the necessary factual findings. His Honour also concluded that, if the Full Court had intended a remitter on the footing that he had an open discretion on the question whether leave should be granted, he would, in the exercise of his discretion, have refused to do so, for the same reasons. 20 His Honour found at the trial that the average weekly sales for the Tropicana in the relevant period were approximately $40,000 per week. It was common ground that the figures supplied to the valuer were in the order of $47,000 to $48,000 per week. His Honour was not prepared to take judicial notice that Westpac would, or would not, have provided finance in the present connection if it had known that the takings of the Tropicana were only $40,000 per week rather than $47,000 to $48,000 per week. His Honour concluded, therefore, that there was no specific evidence that would support a finding that, had the true figures been revealed, Westpac would not have provided finance. Nor, in the absence of any specific evidence, was his Honour prepared to conclude that finance would not have been available from any other source or that the parties would not have entered into the Tropicana transaction as they did. His Honour also found that there was no evidence that Max had suffered loss as a result of entering into the transaction. His Honour concluded, therefore, that the Remitted Claims must fail. Accordingly, his Honour ordered that the Remitted Claims be dismissed.

NEW EVIDENCE 21 Senior counsel for Max accepted that, to be successful on the appeal from the order refusing leave to reopen, it was necessary to demonstrate that the trial judge had erred in the exercise of his discretion in refusing leave. It is only if it could be shown that the trial judge acted upon the wrong principle, took irrelevant matters into consideration, mistook the facts or failed to take into account some material consideration that the exercise of discretion could be reviewed - House v The King (1936) 55 CLR 499 at 504-5. It was submitted that, if the Full Court concluded that the exercise of discretion miscarried, the Full Court should itself exercise the discretion, rather than remit the matter to the trial judge for redetermination. 22 It was contended on behalf of Max that the trial judge erred in the exercise of his discretion in four respects: · in assuming that the Full Court had remitted the claims on the basis that they be decided on the evidence that was presently before the trial judge; · in considering that the additional evidence sought to be adduced by Max would necessarily involve further evidence from Jack because of the reliance that Max placed on Jack's opinions; · in considering that the re-opening would inevitably involve reagitating lengthy litigation in most of its dimensions and would put the parties to immense expense; · in failing to take into account the lack of any identifiable prejudice to the McIntyre interests that might follow from a reopening. 23 There is nothing in the reasons of the first Full Court to suggest that the Full Court expected that additional evidence would be received. There was no suggestion of a new trial. The Full Court's conclusion was simply that the Remitted Claims had not been addressed by the trial judge. The order made was for Max's "third party reliance claim" against the McIntyre interests to be remitted for determination by the trial judge consistently with the Full Court's reasons. 24 At the trial, Max had been given the opportunity to adduce all evidence that was considered relevant to the claims that were then being advanced. Further, Max, together with the other applicants, had been afforded the opportunity to make such submissions as they were advised in support of the claims in question. It is quite clear that the Full Court was intending to remit to the trial judge for determination, on the basis of evidence already before him those claims that, because of the vagueness in pleading and failure to identify issues with precision and clarity, his Honour had omitted to determine. It is perfectly understandable how his Honour failed to perceive that the Remitted Claims were being advanced. His Honour did not misunderstand the effect of the Full Court's orders. 25 The trial judge concluded that, if there were to be a retrial of most of the issues in litigation, Jack would once more be a central witness. That conclusion was based on the common ground that Jack was the moving party in the Tropicana Transaction and was the person involved in the conduct of all relevant negotiations. Max relied on Jack in that connection, as his Honour had found at the original trial. In the course of argument on the hearing of the motion for leave to reopen, the solicitor then appearing for Max agreed that if there was to be a reopening, Jack would possibly have to be cross-examined. The solicitor accepted that, in light of his Honour's original finding that Max relied upon Jack in all matters, "one would imagine that Jack would be recalled". 26 There was no explicit mention of evidence from Jack, either in the further amended notice of motion or in the "Outline of Evidence" document. However, the notice of motion referred to evidence from Max that he would not have been able to fund the Tropicana Transaction himself, either alone or with the combined resources of himself and Jack. In the light of the solicitor's concession and all of the circumstances, his Honour made no error in concluding that further evidence would be required from Jack. 27 It is unrealistic to characterise the proposed reopening as anything other than reagitation of substantial parts of previous issues. There was already evidence of a limited nature from Westpac and some prospective financiers concerning consideration of proposals for lending to Edlan and the McCarthy interests. The question of whether the parties would have entered into the transaction and whether Max suffered loss are matters that had been litigated and resolved in relation to the principal claims originally made by the applicants. There was no error by the trial judge in concluding that reopening would involve reagitating substantial parts of the case that had already been determined. 28 Max was, in truth, seeking a very significant indulgence. When the trial judge delivered his original reasons for judgment on 19 May 1998, it ought to have been apparent to Max that his Honour had omitted to deal with the Remitted Claims. An appropriate course in these circumstances would have been to apply immediately to the trial judge to determine those claims - see Flannery v Halifax Estate Agencies [2000] 1 All ER 373 at 379. Had an application to reopen been made at that stage, it is difficult to discern any basis on which it could properly have been granted. 29 No evidence was adduced before his Honour on the hearing of the motion to indicate: 1. whether the evidence sought to be adduced was available to the McCarthys at the time of the trial; 2. if not, when the evidence became known to the McCarthys; 3. if so, why the evidence was not adduced at the trial; 4. if relevant, why no application was made to adduce the evidence until after the judgment of the Full Court. 30 Where an application is made to reopen on the basis that new or additional evidence is available, it would be relevant to enquire why the evidence was not called at the hearing. If there was a deliberate decision not to call it, ordinarily that will tell decisively against the application. Even if that hurdle is passed, different considerations will apply depending upon whether the case is simply one in which the hearing is complete or one in which reasons for judgment have been delivered. In the former situation, the primary consideration should be that of embarrassment or prejudice to the other side. However, in the latter situation, the appeal rules relating to fresh evidence provide a useful guide as to the manner in which the discretion to reopen should be exercised - Smith v NSW Bar Association (1992) 176 CLR 256 at 266-7. 31 The present case is clearly in the second category just referred to. That is to say, the hearing was complete and judgment had been given. Thus, the relevant considerations are not simply lack of prejudice to the McIntyres but the considerations that would be relevant to an application to adduce further evidence on appeal. As just indicated, there was no evidence that would justify the grant of leave to adduce further evidence on appeal. 32 In any event, there is an incalculable prejudice to any party in having a question reopened after all evidence has been heard and a determination made. The McIntyres would be entitled to assume that, when the evidence closed prior to the trial judge reserving his decision, the totality of the evidentiary part of the case was complete. The hearing had taken place over eight days in February 1998, eight days in March 1998, four days in April 1998 and several days in May 1998 before reasons for judgment were delivered on 19 May 1998. The notice of motion for leave to reopen was not filed until 27 September 1999, nearly a year and a half after the evidence had closed. 33 It is not for a respondent to an application to reopen to demonstrate prejudice in such circumstances. It is for the party making such an application to demonstrate a case for the exercise of discretion in its favour. In the absence of evidence in support of the application to reopen, other than the "Outline of Evidence" document, the application was doomed to failure and had no merit whatsoever. His Honour correctly exercised his discretion in refusing leave to reopen.

REMITTER 34 In the course of the application for leave to reopen, no submissions were made on behalf of Max that the four propositions laid down by the Full Court were satisfied on the evidence already before the Court. No doubt a judgment had been made by the solicitor then appearing for Max as to the way in which the application would be conducted. First, a decision was made that it was desirable to apply for leave to reopen. That application must have been made because of a view that the evidence already before the Court may well have been inadequate to support the findings that would be necessary to establish the Remitted Claims. 35 Once the decision had been made to make an application to reopen, it must have been thought that the prospects of success in such an application would be maximised by establishing that, without the additional evidence, the Remitted Claims would be unlikely to succeed. Accordingly, so it must have been thought, there would be a greater prospect of obtaining leave to adduce the additional evidence. That that was the approach adopted is borne out by the submissions made to the trial judge. 36 Max's solicitor told the trial judge that the Full Court had been informed that there were large deficiencies in the evidence. He also made the following comment in relation to the reasons of the Full Court: "…if you look at what they've asked to make determinations in relation to its hardly a matter of detailed search. I mean, if there's evidence from Westpac, there's evidence from Westpac. There's none." [Emphasis added.] 37 On another occasion, the following comment was made by Max's solicitor: "…the Full Court in all its wisdom, could not have envisaged this case going back merely for your Honour to make determinations which it could have made before. There's just too many issues and too much work to be done, as your Honour rightly said, but surely couldn't have envisaged Westpac issue being decided on a few documents that were referred to by Mr Slattery. One would assume too much wisdom in the Full Court for that." 38 A further exchange took place along the following lines: His Honour: "Do you accept that there is no evidence in all of this material that was before me to establish proposition [2]." Solicitor: "I wouldn't suppose to make a judgment on that. There is some evidence there, but the Full Court didn't feel as though it was purposely - - -" His Honour: "This, of course, is the election that you've got. Either you say the evidence is there - - -" Solicitor: "I can't say that, your Honour." His Honour: "- - - in which event you don't need leave to reopen. But once you elect to move as you have for leave to reopen it rather carries with it, not a concession, but an acknowledgment perhaps that you need it because you don't have the evidence - - -" Solicitor: "…there are too many hypotheses and too many loose ends left for the evidence to stand on its own. I would say that the evidence is really insufficient." 39 Later the following exchange occurred: Solicitor: "The applicant today, concedes that new evidence has to be introduced." His Honour: "Well that's why I put to you… I think there may be an election involved from your point of view… and may be you've already made it from what you have said to me. You have to call evidence." Solicitor: "We can't rely upon the existing evidence." 40 It was contended on behalf of Max that his Honour wrongly required an election to be made. That, however, is not a fair reading of the exchanges that took place. Clearly enough, his Honour was putting to the solicitor that, as a practical matter, the view had been taken that it was highly desirable from Max's point of view that additional evidence be adduced. The solicitor was not put to any election in a formal sense. As a practical matter, he acknowledged that, without the additional evidence, the Remitted Claims had little prospect of success. 41 At the hearing before the Full Court, senior counsel for Max had endeavoured to persuade the Court to embark on a determination of the Remitted Claims. The Full Court in its reasons made the following observation: "…there were nine appeal books, including thousands of pages of transcript and exhibits, which would have to be examined before we could reach a view on the factual matters raised by this submission. Moreover, we have not had the advantage of observing the witnesses, in circumstances where the primary judge's reasons for judgment make it clear that there would be real questions of credit to be decided. We therefore reject the invitation that we should make factual findings where no such findings have been made. If the primary submission of the McCarthys succeeds, the matter must be sent back to the learned primary judge for the facts to be found." 42 For that reason, presumably, the Full Court made the remitter order. Nevertheless, senior counsel had, in the course of the hearing before the Full Court, referred the Full Court to the evidence in some detail. While the solicitor appearing on the application to reopen made reference to the submissions that had been made to the Full Court, no attempt was made to take the trial judge back to the evidence in detail in order to persuade him on the four propositions that had been laid down by the Full Court. 43 Having regard to the way in which the application to reopen was conducted, it is not now open to Max to invite this Full Court to reopen all of the evidence that it is contended would support the propositions laid down by the Full Court. Concessions were effectively made that the Remitted Claims could not succeed without the further evidence. That is the basis upon which the trial judge concluded that the Remitted Claims must fail. 44 In any event, we heard full argument on the substance of the four propositions. It was conceded by senior counsel for Max that, in order to succeed in the Remitted Claims, all four propositions must be established. On the balance of probabilities, Max could not have succeeded in establishing the second proposition, namely, that finance to enable completion of the Tropicana Transaction would not have been available from any other source, if Westpac had not provided the finance. 45 The damage claimed by Max is the loss of the consideration paid by him to Mr Riddell in November 1993 to acquire the beneficial ownership of shares in Edlan. The causal connection relied on between that loss and Neville's conduct in contravention of the relevant legislation is as follows: · but for the conduct, Westpac would not have advanced $2,100,000 to Edlan; · if the advance to Edlan Pty Limited had not been made, Max would not have been able to pay $2,100,000 towards discharge of the Commonwealth Bank debt as required by the share sale agreement; · if Max had not paid $2,100,000 towards discharge of the Commonwealth Bank debt, completion of the share sale agreement would not have taken place; · if completion had not taken place, Mr Riddell would not have acquired a beneficial interest in shares in Edlan; · if Mr Riddell had not acquired the beneficial interest in Edlan, he would not have been able to sell that beneficial interest to Max for $330,000; · accordingly, Max would not have suffered any loss or damage. 46 It is to be doubted that such a causal connection can be said to be sufficient to satisfy the requirements of section 82 of the Trade Practices Act 1974 (Cth) and the State equivalent. It must be shown that the relevant damage is suffered "by" the contravening conduct. The word "by" clearly expresses the notion of causation without defining or elucidating it. However, it is necessary that the issue of causation be approached in a "practical or common sense" way. The "but for" test, applied in a common sense and not a pedantic way, still provides a useful approach to the issue of causation - McCarthy v McIntyre [1999] FCA 784 at paragraph 49. 47 However, even if such a causal connection were sufficient to satisfy the requirements of section 82, it would be sufficient to break the causal connection if one step fails. The evidence does not support a conclusion, on the balance of probabilities, that each step is established. It does not establish that if Westpac had not advanced $2,100,000 to Edlan, the McCarthy interests could not have raised that sum from another source. 48 Reference has already been made to the concessions made in that regard before the trial judge on 24 March 2000 (see paragraphs 36 to 43 above). The question is closely linked to the first proposition laid down by the Full Court. Even if it were established that Westpac would not have advanced $2,100,000 on the basis of security over the Tropicana having a value determined in accordance with the correct figures, it does not follow that Westpac would not have lent any money at all. 49 On 19 April 1993, Westpac wrote to Edlan confirming its approval to provide facilities "to assist the purchase of Tropicana Hotel/Motel Wilberforce". The facility was a bill acceptance line in the sum of $1,800,000. The security for the facility was to be: "Ÿ Registered Mortgage by Edlan No. 54 Pty Ltd including licence over "Wilberforce" Tropicana Hotel Motel; Ÿ Equitable Mortgage by Edlan No. 54 Pty Ltd over all its Assets and uncalled capital; Ÿ Registered RPA 3rd Party Mortgage by Max McCarthy over: Orange 236 Summer Street; Ÿ Debt and Interest Guarantee by Directors." 50 The following special condition was specified: "The Loan approval is subject to the following information being supplied to the Bank:

· 1992 balance sheet & Interim Financials to be signed by Directors;

· Update Valuation Report by Ron Roberts and Partners. to reveal no adverse features & valuation to come in line with present valuation dated 8/12/92; ………………………" 51 An internal document of Westpac dated 3 March 1993, entitled "Credit Proposal/Review" recommended approval to: · term loan: $300,000; · bill acceptance line: $1,800,000. Under the heading "Security" the following appeared: " S/V L/V Ÿ Registered Mortgage by Company over Hotel Freehold incorporation license and goodwill. $2703 $1622 Reg. Valuation 8/12/92 $3180 @ 85% Ÿ Registered Mortgage by Max McCarthy Pty Ltd over Shop/Residence Orange. $ 468 $ 351 Reg. Valuation by Graeme, Jones & Assoc. 2/7/92 $550 @ 85% Ÿ Equitable Mortgage by Edlan No. 54 Pty Ltd over all its Assets and Uncalled Capital B/S 30/6/92 $ 105 $ 52 · Stock $185 @ 50% $ 90 · Debtors $35 @ 50% $ 15 $105 Ÿ Unlimited J & S Guarantee by Directors unsupported. (D & I) S/P's see Schedule "C" $3276 $2025

LS Ratio 64% Lending Value Ratio 104% In regard to Hotel we have taken L/V ratio at 60% of S/V in terms of policy. This then sees lending value ratio at 104% slightly over normal guidelines. However, bearing in mind we have amortised $300 of debt over 3 years. Ratio will be within guidelines within 12 months which we consider is quite acceptable." 52 The heading "S/V" refers to security value and is taken to be 85 per cent of the valuation evidence produced. The expression "L/V" refers to loan value and is taken to be 64 per cent of the security value, except for the hotel where the proportion was 60 per cent. Thus, on that basis, the amount that Westpac was prepared to advance on the security offered was $2,025,000 according to normal guidelines. Nevertheless, Westpac was prepared to go beyond those guidelines, albeit only slightly. 53 However, there is no basis for concluding that, if the valuation of the Tropicana Hotel had been in the order of $2,100,000, Westpac would not have advanced the same proportion of the valuation, namely, $1,071,000 rather than $1,622,000. That, of course, would have given rise to the need to borrow additional funds elsewhere. There is no evidence to support a conclusion that it would not have been possible to borrow the additional funds from another source. It may be, for example, that Nevitoro might have advanced more than it did. Further, both Max and Jack, according to the internal Westpac memorandum, had other assets that were not subject to the proposed security. Thus, Max had assets described as follows: · land - Forster/Tuncurry: $400,000 · land - 500 acres Mowlong Creek: $300,000

Jack was also shown as having an asset comprising a leasehold interest in the Macquarie Arms Hotel at Windsor with a value of $300,000. Those assets could have been employed to secure further borrowings. 54 Senior counsel for Max relied on evidence that the McCarthys had made earlier unsuccessful efforts to raise funds in connection with the proposed acquisition of shares in Edlan or an interest in the Tropicana. In the course of oral evidence, Max was asked whether it was his intention in the early months of 1993 to buy the balance of the shares in Edlan, subject to Jack raising the finance that he was pursuing. He replied that the position at the end of 1992 was that "the brokers had gone to the National Bank and it fell through". He said from then on until they got the valuation in 1993, he "could not go on with it". When asked whether a time came during 1993, perhaps around May, when he pulled out, Max said that he pulled out after "we got the bank valuation and we went to the Westpac Bank and they wanted additional money which we couldn't find. Financially I couldn't do it at that moment." That seems to have been the occasion that led to the introduction of Mr Riddell. There was no evidence concerning Mr Riddell's financial position. 55 Senior counsel for Max also referred to affidavit evidence given by Mr Adam Tilley, a finance broker who is the principal of Hunt Pacific Finance Pty Ltd. Mr Tilley said that in mid-1991 he had a conversation with Jack to the following effect: Jack McCarthy: "I own 50% of the shares in Edlan Pty Limited which owns the Tropicana Hotel. I want to purchase the other 50% and I've been to another finance broker who had no luck in raising the money. I'd like to you to find the money for me." Myself: "How much do you need?" Jack McCarthy: "$1.6 million". Myself: "A lender would need a valuation". Jack McCarthy: "Go ahead and get a valuation". Myself: "I won't do that unless you put me in funds to pay for the valuation first". [Emphasis added.] Mr Tilley said that Jack did not put him in funds to obtain a valuation. 56 There was evidence that an approach had been made to National Australia Bank by Mr Tilley. That resulted in a response of 19 February 1993 saying: "We confirm that the proposal for the refinancing of Edlan No. 54 P/L i.e. Tropicana Hotel/Motel, has been declined. As we have discussed with you, the Bank has concerns on the advanced ages of the McCarthy brothers and their ability to provide ongoing managerial and financial involvement beyond the short to medium term. Also, there are concerns about the continued success of the hotel under new management." There is no evidence that any other prospective financier would decline a proposal on the basis of the ages of the McCarthy brothers. It was apparently of no concern to Westpac. 57 Previously, Advance Bank had made an offer of accommodation to Edlan by letter of 30 April 1992. The accommodation offered was in the form of a fully drawn cash advance up to the sum of $2 million for the following purpose: "To payout 50% shareholder Neville McIntyre in the freehold hotel business known as the Tropicana Hotel/Motel, Wilberforce NSW $2,000,000." Advance Bank required security over the Tropicana, a property at 311 Bruce Street, Brighton-Le-Sands owned by Jack and the property at 236 Summer Street, Orange owned by Max. 58 It appears that that offer was subsequently withdrawn in circumstances that are not entirely clear. Mr Tilley said in his affidavit that in about October 1992 he had a conversation with Jack in which he told Jack that Advance Bank required evidence of Jack's ownership of "the two US companies". Jack responded that he could not evidence his interest in the US companies because "it was a hand shake arrangement". Mr Tilley said that he informed Advance Bank of that fact and that, following correspondence in October 1992 about Jack's asset position, an Advance Bank representative told him that Advance Bank was withdrawing their offer because Jack misstated his assets in his statement of assets and liabilities. There is no reference to the "US companies" in the letter of offer from Advance Bank. There is no reason to conclude that Advance Bank would not have entered into the transaction had Jack accurately disclosed his assets. 59 There is no other evidence that goes to the question of whether or not, if Westpac had refused financial accommodation, the McCarthys could have raised $2,100,000 to enable completion of the Tropicana Transaction in the form in which it was entered into on 17 August 1993. The evidence does not discharge the onus on Max to establish, as part of the causal connection between the contravening conduct and the loss, that the sum of $2,100,000 could not have been raised from another source. 60 More significantly, perhaps, there is no evidence upon which any conclusion could be based as to whether some other bargain might have been struck that would have enabled Mr Riddell to have acquired a beneficial interest in the shares in Edlan at the time of the Tropicana Transaction. There is no evidence one way or the other as to whether it was critical for the McIntyre interests that $2,100,000 had to be provided in part discharge of the debt to the Commonwealth Bank. There is no basis for concluding that no other transaction would have been entered into with the McIntyres that would have resulted in Mr Riddell being able to give beneficial ownership of shares in Edlan to Max in November 1993. The evidence does not establish the necessary causal connection between the alleged loss and the conduct of Neville in contravention of the relevant legislation. 61 It was accepted that senior counsel for Max that if Neville was not liable, the claims against Auro and Nevitoro would also fail. It follows that the trial judge was correct in dismissing all of the Remitted Claims. Accordingly this appeal should be dismissed with costs. I certify that the preceding sixty-one (61) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Court.

Associate: Dated: 8 September 2000 Counsel for the Appellant: Mr M Slattery QC & Mr M Ashhurst

Counsel for the Respondents: Mr P Biscoe QC, Mr M Cohen & Mr R Kelly