Metzke & Anor v Sali & Anor [2010] VSCA 267

APPORTIONMENT - Concurrent wrongdoer - Whether trial judge erred in finding of concurrent wrongdoer - Whether error in calculation of apportionment - Hedley Byrne & Co Ltd v Heller & Partners Ltd [1963] UKHL 4; [1964] AC 465 - Spies v The Queen [2000] HCA 43; (2000) 201 CLR 603 - St George Bank Limited v Quinerts Pty Ltd [2009] VSCA 245 - Wrongs Act 1958 ss 24AH(1), 26(1)(b) - Appeal allowed in part - Cross appeal dismissed.

1 Metzke & Allen, the appellants, are the former accountants of the respondents, Sam Selami Sali, Alan Sali (deceased) and S Sali & Sons Pty Ltd ('S Sali & Sons') collectively referred to as the 'Sali parties'. The Sali parties brought proceedings against Metzke & Allen claiming damages for negligence and breach of contract. After a trial lasting 11 days, judgment was entered for S Sali & Sons against Metzke & Allen in the sum of $129,736. The damages were assessed at $432,452, but were reduced by 70 per cent under the proportionate liability provisions of the Wrongs Act 1958.

2 Following judgment, Metzke & Allen appealed and the Sali parties cross-appealed. In the cross-appeal, Metzke & Allen filed a notice of contention. In summary, Metzke & Allen contend that no finding of liability should have been made against them, and the Sali parties contend that the trial judge was wrong in failing to award damages in respect of certain losses claimed by them, and was also wrong in reducing the assessment ultimately made under the proportionate liability provisions of the Wrongs Act 1958. The underlying facts may be briefly stated as follows.

3 On 9 March 2001 an administrator was appointed to a company named Universal Logistics Pty Ltd ('Universal Logistics'). At the time of that appointment, Sam Sali and his brother, Alan Sali, were non-executive directors of the company. Until approximately a week before the company was placed into administration, the third defendant, Matthew Blizzard, had been an executive director. The three respondents, Sam Sali, Alan Sali and S Sali & Sons were the shareholders in the company. On 5 April 2001 the company went into liquidation. Unsecured creditors totalled $2,641,692, and they have received no dividend.

4 The Sali parties suffered losses as a consequence of the failure of Universal Logistics. Payments were made to creditors of Universal Logistics, pursuant to guarantees and for other reasons. Funds advanced to Universal Logistics in late 1999 have been lost. Most significantly, S Sali & Sons has been left with unpaid accounts for cartage contracting services totalling over $900,000, upon which nothing has been recovered.

5 Metzke & Allen are a firm of chartered accountants in Shepparton. The firm (and its predecessor) acted for the Sali brothers and S Sali & Sons for many years. Commencing in early 1999 a partner in the firm, Russell Allen, began attending board meetings of Universal Logistics at the request of the Salis.[1]

6 At trial, the Sali parties claimed that the losses they suffered as a result of the collapse of Universal Logistics were caused by breaches of contractual and other duties owed by Metzke & Allen to them. The claim as pleaded separated out two relevant times. The first relevant time was said to be on or about 13 September 1999 when it was alleged that the board of Universal Logistics, acting on the advice of Mr Allen, made decisions to expand Universal Logistics' business. Shortly after these decisions were taken, in October 1999, two of the Sali parties advanced $199,990[2] to the company so as to provide needed cash flow.

7 The second relevant time was said to be the period between September 1999 and March 2001. It was alleged that during this period there was a continuous failure to properly advise and in particular to adequately warn the Sali parties of, or otherwise respond to, risks and circumstances of which Mr Allen was or ought to have been aware.[3]

8 Metzke & Allen denied any breaches of contractual or other duties and alleged that if there was any breach the Sali parties were guilty of contributory negligence.

9 At the instance of Metzke & Allen, Matthew Blizzard was joined as a third defendant. This joinder was solely for the purpose of contending as against the Sali parties that Mr Blizzard was a concurrent wrongdoer and that any liability Metzke & Allen might have should be limited to an amount reflecting the extent of their own responsibility, under Part IVAA of the Wrongs Act 1958. Solicitors on behalf of Matthew Blizzard advised prior to trial that, as no relief was sought against him, he did not propose to take any part in the proceeding. There was no appearance on behalf of Matthew Blizzard at the trial.

10 The trial judge concluded that the Sali parties established negligence and a breach of retainer in two respects, but that only one of them had relevant consequences. First, the trial judge concluded that Mr Allen 'failed to exercise reasonable care and skill in October 1999 by not considering and advising the Sali brothers in relation to the financial result for the company [Universal Logistics] for the year ended 30 June 1999, but that failure had no relevant consequence as the funds [$199,990] would have been advanced in any event'.

11 Secondly, the trial judge held that Mr Allen 'also failed to exercise reasonable care and skill in that he delayed too long before taking steps which were necessary in the circumstances to obtain balance sheet information from the management of the company [Universal Logistics]'. His Honour held that the consequence of that failure was that S Sali & Sons continued to finance Universal Logistics by undertaking subcontracting work without payment, leading to an additional loss of $432,452, which became irrecoverable upon the collapse of Universal Logistics.

12 Whilst contributory negligence was in issue in respect of all of the claims made by the Sali parties at trial, no finding of contributory negligence was made by his Honour.

13 However, as we have said above, the trial judge determined that Mr Blizzard was a concurrent wrongdoer with Metzke & Allen and that it was 'just to limit the amount for which Metzke & Allen [was] liable, as required by s 24AI of the Wrongs Act, to 30 per cent of the loss' which had been found to be recoverable.

14 Whilst Metzke & Allen's notice of appeal contains seven grounds and the Sali parties' amended notice of cross-appeal contains 16 grounds[4] (with a notice of contention in the cross-appeal), the appeal and the cross-appeal can be distilled into the following questions:

1. Was the trial judge wrong in concluding that Metzke & Allen failed to exercise reasonable care and skill in October 1999 by not considering and advising the Sali brothers in relation to the financial result for Universal Logistics for the year ended 30 June 1999?[5]

2. Was the trial judge wrong in concluding that this failure had no relevant consequence, as the sum of $199,990 would have been advanced in any event?[6]

3. Was the trial judge wrong to conclude that Metzke & Allen were negligent in failing to take the steps referred to by the trial judge by the end of July 2000?[7]

4. Was the trial judge wrong to conclude that the failure of Metzke & Allen to do so would have prevented the loss found to have been suffered by S Sali & Sons?[8]

5. Was it open on the pleadings for the trial judge to reach this conclusion?[9]

6. Was the trial judge wrong in not finding negligence in relation to the period during which S Sali and Sons' debt increased between September 1999 and July 2000?[10]

7. Was the trial judge wrong in concluding there was no contributory negligence?[11]

8. Was the trial judge wrong to conclude that Mr Blizzard was a concurrent wrongdoer?[12]

9. If Mr Blizzard was a concurrent wrongdoer, was the apportionment of 70 per cent to him wrong?[13]

15 Questions 1 and 2 deal with the Sali parties' first claim, being the claim for $199,990. Questions 3 to 9 deal with S Sali & Sons' claim in respect of which judgment was given in its favour. We turn first to consider the $199,990 claim.

16 The underlying facts in relation to the $199,990 claim may be stated briefly as follows:[14]

(a) Sam and Alan Sali developed a business in partnership transporting fruit from orchards in Shepparton to Melbourne. In 1976 this business was incorporated as S Sali & Sons.

(b) In addition to the trucking business conducted by S Sali & Sons, Sam and Alan Sali undertook a number of other business ventures over the years, including conducting business as petroleum carriers, retail store operators, cinema owners and operators, and property developers. Sam and Alan Sali had limited formal education, although the trial judge found that by 1999 they were experienced and successful business men.

(c) In 1992, a person named Gregory Bowler approached Sam Sali with a proposal to acquire a small freight forwarding company in Melbourne. Sam and Alan Sali subsequently agreed with Greg Bowler to acquire the business and together the three men established a company called SGA Transport Pty Ltd which conducted the business until 4 May 1999 when it changed its name to Universal Logistics.

(d) At all times the registered office of Universal Logistics was at Metzke & Allen's offices. Board meetings of Universal Logistics were also held at Metzke & Allen's offices. His Honour found that:

as at 30 June 1998 Universal Logistics was not, and had not been profitable, that it had a deficiency of both total and current assets [and] that the support of the Sali brothers was necessary to enable it to continue ... [15]

(e) In January 1999, Blizzard commenced employment as managing director with Universal Logistics. Blizzard was engaged as managing director by the then board of Universal Logistics (Sam Sali, Alan Sali and Greg Bowler). Blizzard wished to pursue a plan of expansion, involving the expansion of existing depots and the purchase of large B-double trucks which Blizzard had devised.

(f) Russell Allen started attending the board meetings of Universal Logistics on 15 January 1999. Russell Allen attended all subsequent board meetings of Universal Logistics thereafter. He was not a director.

(g) Ron Panozzo, another external accountant, also attended board meetings of Universal Logistics. The Salis had used Ron Panozzo's services since the early 1980s. Sam Sali gave evidence that Ron Panozzo did the 'junior side' of the accounting work. Russell Allen described Ron Panozzo's role as follows:

Ron Panozzo had his own accounting practice. He acted for, as I recall, at least 10, perhaps more, of Metzke & Allen's clients at the time. He provided a similar role for those clients. He would provide us with the preliminary information to prepare financial statements and we would then do our review of the information and go back to Ron seeking further clarification prior to us finalising those financial statements.

(h) Board meetings of Universal Logistics took place on 1 February 1999, 15 February 1999, 1 March 1999 and 19 March 1999. At those meetings, one of the issues regularly discussed was whether or not Universal Logistics should purchase the B-double trucks. Another was the need for Universal Logistics to obtain a cash injection.

(i) On 8 April 1999, Gregory Bowler resigned as a director of Universal Logistics and transferred all his shares in Universal Logistics to S Sali and Sons. From that time on, Sam Sali, Alan Sali and S Sali & Sons owned all the shares in Universal Logistics. At all relevant times Sam and Alan Sali were the only directors and shareholders in S Sali & Sons.

(j) Further board meetings of Universal Logistics took place on 19 April 1999, 17 May 1999 and 13 July 1999.

(k) On 7 September 1999, John Yiannis (the Company Secretary) faxed Russell Allen a budget covering the period July 1999 to June 2000. The budget assumed, and provided for, the acquisition of the B-double trucks.

(l) There was a budget discussion at the Board meeting of 13 September 1999. Mr Allen's evidence, which was accepted by his Honour,[16] was that the budgeted revenue figures projected by Mr Blizzard were unrealistic and that Yiannis and Blizzard were to go away and reconsider the budget.

(m) On or about 11 October 1999, Ron Panozzo provided to Metzke & Allen financial material he had prepared in relation to the year ended 30 June 1999 for Universal Logistics.

(m) The material provided by Ron Panozzo on 11 October 1999 assumed significance because some weeks later Russell Allen gave the Sali brothers advice about a proposal that they advance the sum of $200,000 to Universal Logistics without having read it. Russell Allen first considered the material provided by Ron Panozzo personally in early November 1999.

(n) A consideration of the material that Ron Panozzo provided to Metzke & Allen on or about 11 October 1999 would have revealed a picture broadly the same as that set out in the eventual final 1998/1999 financial accounts for Universal Logistics.

(o) The next board meeting took place on 22 October 1999. The material provided in advance of the board meeting included a profit and loss statement said to be 'September 1999 YTD' indicating that the profit before tax was $85,990, which was said to be a result $223,603 better than that which had been budgeted for. Further, the board presentation included a graph headed 'Year Comparisons' depicting a loss in excess of $200,000 sustained in the 1999 financial year and a profit of just below $100,000 earned '2000 YTD'.

(p) A report in a memorandum dated 19 October 1999 on Universal Logistics' cash flow position noting a 'cash loss of $82,000' was presented to the board at the meeting which stated: 'The business does need a cash injection to alleviate the growing pressures. In John's and my opinion some $200,000 is required'.

(q) There was a discussion at that board meeting of the memorandum of 19 October 1999 prepared by Mr Panozzo and it was decided that Alan Sali, Sam Sali, Russell Allen and Ron Panozzo would meet separately to decide the level of equity funding to sustain the company's cash position. That meeting was held on 25 October 1999 and occupied 1½ hours. Russell Allen gave evidence that Sam and Alan Sali did not make a decision at that meeting but went away and later made the decision to inject the capital. The sum of $199,990 was advanced to Universal Logistics a few days later.

(r) The B-double trucks were delivered on 5 November 1999. Their purchase was financed through the National Australia Bank. The last board meeting for the 1999 year was held on 15 November 1999.

The trial judge's reasoning in respect of the $199,990 claim

17 The trial judge's reasons in respect of the issues of negligence, breach of retainer and causation in relation to the $199,990 claim were as follows:

1. Mr Allen perceived, quite correctly, that it was necessary for him to separately advise the Sali brothers about the proposed cash injection in October 1999. I accept his account of the advice he gave them. That advice was correct, as far as it went. He advised them that, on the basis of Ron Panozzo's analysis, the $200,000 was necessary to enable the company to continue and he advised them that there was no guarantee that that sum, if advanced, would be recovered.
2. One of the graphs presented to the board at the October meeting suggested that a loss had been incurred in the 1998/1999 financial year of over $200,000. At the time of the meeting that Mr Allen had with the Sali brothers and with Ron Panozzo to consider advancing funds to the company, Ron Panozzo's preliminary work for the financial accounts for the 1998/1999 year was in Metzke & Allen's offices. Mr Allen had not at that stage looked at it, although an employee of his had done so.
3. My conclusion is that Mr Allen should not have advised the plaintiffs on the issue of whether $200,000 should be advanced to the company without first reaching an informed view as to the outcome of the 1998/1999 financial year and advising the Sali brothers of that view. He had the material available which would have enabled him to do that. The indications were that the outcome would not be a good one.
4. In cross-examination Mr Allen himself substantially conceded the correctness of this conclusion.
5. The proposition repeatedly put, particularly early in the trial, on behalf of the plaintiffs that Mr Allen failed in his duties in October 1999 and thereafter because he did not inform Mr Sali that the company was 'insolvent' is misconceived. If by 'insolvent' what was meant was that the company could not pay its debts as and when due unless further funds were made available to it, then the directors, including Sam Sali, were aware of that. That is the very subject matter of Mr Panozzo's 19 October 1999 document which led to the proposal that further funds be injected.
6. It was clear in Mr Sali's own evidence that this 'insolvent' analysis does not reflect his real concern. His concern was whether the company's position was 'hopeless'. In other words he was concerned about the prospects of the money being lost if advanced. In that context, he and his brother ought to have been advised as to the position as at 30 June 1999 as best Mr Allen could determine it, and indeed as to the position after 30 June 1999 insofar as it was known. Mr Allen did not take the steps that were necessary to give the Sali brothers this advice, and he ought to have done so.
7. It is because of my conclusion that the 'insolvent' analysis is misconceived that I do not need to resolve the difference between the experts on that issue.
8. The issue then arises as to what the Sali brothers would have done had Mr Allen taken steps which would have enabled him to advise them in relation to the company's position as at 30 June 1999. It seems to me that, on the evidence before me, the conclusion must be that the funds would still have been advanced.
9. The first reason for this conclusion is that the final result for the year ended 30 June 1999 was not unexpected. It is not entirely clear when the financial statements for the year ended 30 June 1999 were signed by the directors, save to say that it was in early 2000. The accounts as finalised were presented to the board in February 2000. There is no indication in the contemporaneous documents that the final result for 30 June 1999 came as a surprise to the directors. As I have indicated, the directors at the October 1999 board meeting had had a chart before them indicating a loss in excess of $200,000 for the year ended 30 June 1999.
10. The second reason is the agreement made in April 2000. By then the outcome of the 30 June 1999 financial year was known. Sam and Alan Sali made a decision then to, in effect, advance further funds to the company in that knowledge.
11. Finally, it is significant that both Sam and Alan Sali were experienced businessmen. They knew from February 1999 that additional cash of in excess of $200,000 was sought for the expansion. The amount they advanced in October 1999 was somewhat less than what they had been led to expect would be required in February and March 1999.

18 In their written outline of submissions,[17] the Sali parties complain that Metzke & Allen's appeal 'consists of no more than a series of disputatious contentions about findings of facts made adversely to them, which (the [Sali parties] contend) the learned trial judge was entitled to make'. There is force in this submission so far as Metzke & Allen's complaint concerning the finding of negligence and breach of retainer in relation to the $199,990 claim. However, in our view, the same criticism can be made in respect of the Sali parties' complaints about his Honour's finding on the issue of causation.

19 Whilst strictly speaking it is not necessary to go to the notice of contention if his Honour's finding on causation cannot be shown to be wrong, in our view, there is no basis for overturning his Honour's findings: they are neither 'glaringly improbable', nor contrary to 'compelling inferences'.[18] Specifically, in our opinion, not only was his Honour's analysis of the $199,990 claim well open, it was correct. In any event, there is no basis for concluding that his Honour should have accepted as proved, the causal link between the negligence found and the advancing of the sum of $199,990.

20 It follows that the appeal by the Sali parties against the dismissal of their claim in relation to the advance of $199,990 must be dismissed. We turn now to consider the claim made by S Sali & Sons against Metzke & Allen which produced the judgment in favour of S Sali & Sons ($129,736).

The finding by the trial judge that Metzke & Allen failed to exercise reasonable care and skill in not taking appropriate steps by the end of July 2000

21 The trial judge concluded that Metzke & Allen were negligent and breached their retainer in failing to exercise reasonable care and skill by not taking appropriate steps which would have brought to an end S Sali & Sons' continued work without payment from Universal by the end of August 2000.

22 The underlying facts in relation to S Sali & Sons' claim may be stated briefly as follows:[19]

(a) At the end of January 2000, Mr Panozzo (accountant) produced a detailed report in relation to accounting practices at Universal's head office. Mr Panozzo's report expressed strong concerns about a number of aspects of Universal's accounting system. It referred to debtors and said that the company's present accounting system meant that accurate completion of financial figures was very difficult. In this area it set out a number of tasks which Mr Panozzo suggested needed to be undertaken with urgency. Mr Panozzo's report also said that accounting in the area of creditors needed prompt attention. Mr Panozzo's report also set out other concerns and stated towards its conclusion:

I have discussed the above with Russell Allen, who has expressed concern that until the debtors, creditors and bank reconciliation issues are addressed, we will have difficulty preparing accurate profit figures or figures opened to question.

(b) Universal's financial accounts for the year ended 30 June 1999 were finalised and presented to the board in February 2000. Final accounts recorded an operating loss after income tax of $255,191. The balance sheet recorded the total deficiency of $374,245, and a deficiency of current assets of $371,584.

(c) A board meeting of Universal was held on 21 February 2000. Among the items agreed to be followed up as a result of the board meeting was a further repetition of Mr Allen's request for reporting which would separate direct and indirect costs. Mr Allen's notes show that he sought to have an item relating to production of financial reports placed on the agenda for the meeting to be held on March 15, 2000, but this did not occur. Nevertheless he expressed concerns at the meeting.

(d) In March 2000, Metzke & Allen began receiving creditors statutory demands addressed to Universal.

(e) A board meeting was due to be held on 18 April 2000. Prior to that meeting, Mr Allen and John Yiannis (Universal's company secretary) agreed that in the circumstances it was necessary to advise the directors of Universal about their legal obligations.

(f) The matter which Mr Allen and Mr Yiannis had discussed in advance of the meeting, concerning the legal obligations of the directors, was included in the agenda for that meeting. A document was tabled at that meeting which was a seven page extract from the Australian Securities and Investments Commission website detailing the obligations of directors, the need to maintain accurate financial records and steps that should be taken if a company forms the view that it is unable to meet its debts as and when they fall due. The seven pages were discussed at the meeting and were attached to the action items document.

(g) Over a number of years, S Sali & Sons had provided transport services on a commercial basis to Universal. From April 2000 there was an alteration in the nature of the financial dealings between S Sali & Sons and Universal. Whereas previously S Sali & Sons' accounts had been paid regularly, from April 2000 the debt continuously escalated with only occasional payments being made, often in round figures of amounts not apparently referable to any particular invoice or balance (the 'forbearance agreement').

(h) The arrangement which was made at the board meeting on 18 April 2000 in relation to the S Sali & Sons' debt created a position whereby the debt owed by Universal to S Sali & Sons escalated throughout 2000 and into 2001. By the time Universal collapsed the debt was $912,076.20.

(i) Board meetings were held in July, August, September, October and December 2000. The evidence was that at those meetings:

(i) requests were made by Allen for improved financial reports, and in particular for balance sheets and cashflow analysis. These were never met by Blizzard.

(ii) profit and loss statements were produced by Blizzard indicating that profits were being made. In particular, the board members were told the profit was $30,796 in August, $32,377 in September, $7,251 in October, and $56,607 in November. The December board meeting was told there was a year to date profit of $156,113.

(j) A monthly profit report for December 2000 was presented to a board meeting on 11 January 2001. The January reports said there had been a December profit of $25,236.

(k) In February 2001 a sequence of events occurred which ultimately revealed that the profit reports over the previous months had been misleading, and which lead to Universal going into administration.

(l) At some point after 14 February 2001, Mr Allen received a balance sheet from Universal Logistics as at January 2001. Mr Allen prepared a detailed handwritten review of this balance sheet. Mr Allen then prepared a list of queries and faxed that to the company, on 23 February 2001. Mr Allen received a response from Karen Hardwick, an employee of Universal, on 26 February 2001. Among other things, the response revealed that an item that had been presented as an asset of $628,245 of 'other debtors', was actually very substantially comprised of figures described as 'accrual for uncharged revenue'.

(m) On the same day, 26 February 2001, Mr Allen called an urgent meeting with Sam Sali. Mr Allen asked his partner, Frank Metzke, to attend the meeting. Mr Allen expressed serious concerns about the balance sheet material which had been provided by management and suggested that an urgent meeting be arranged with an insolvency specialist at Deloittes in Melbourne.

(n) Sam Sali subsequently contacted Neil Allan. Sam Sali and Neil Allan went to Universal's premises. Neil Allan also arranged for another accountant to accompany them.

(o) Blizzard resigned as a director on 2 March 2001. An administrator was appointed to Universal on 9 March 2001, and the company later went into liquidation.

23 The forbearance agreement was entered into on 18 April 2000. Following the collapse of Universal, the amount which was finally outstanding in relation to the forbearance agreement was $912,076.20. The amount of Universal's debt to S Sali & Sons at the end of August 2000 was $479,624. His Honour thus concluded that the negligence and breach of retainer by Metzke & Allen resulted in a loss to S Sali & Sons of $432,452 (that is, the final amount of the debt minus the amount owing at the end of August).

24 The trial judge concluded that Mr Allen should have taken one of three steps by the end of July 2000 at the latest. First, it was said that he should have made a detailed request in writing, for relevant information, as he and Mr Panozzo did in February 2001. Secondly, it was said he should have advised the Sali brothers (S Sali & Sons) to bring the forbearance agreement to an end. Thirdly, it was said that he should have resigned.

25 His Honour reached this conclusion because he found that in the period April 2000 to July 2000, Mr Allen was aware of the following significant matters:

(a) Universal had suffered a significant loss in the 1998/1999 financial year, and had also suffered losses in prior years.

(b) A cash advance of $200,000 had been necessary because Universal was having trouble meeting its obligations to creditors in October 1999.

(c) Creditors were making demands and issuing proceedings.

(d) The financial reporting to the Board was unsatisfactory and that position had not been remedied despite repeated requests by Mr Allen in that regard.

(e) Universal had embarked upon an ambitious expansion plan, involving the undertaking of significant fixed obligations for vehicles and premises, and had presented an unrealistic budget in relation to that plan which had not been revised.

(g) The Sali brothers had agreed that S Sali & Sons would, in effect, be advancing significant monthly sums to Universal by way of forbearance in relation to subcontract cartage debts.

26 Having concluded that by the end of July 2000 at the latest Mr Allen should have made a detailed request in writing, or advised S Sali & Sons to bring the forbearance agreement to an end, or resigned, his Honour said:

If Mr Allen had acted as in my view he should have, my conclusion is that, one way or another, S Sali & Sons' continued work without payment would have ceased. I have reached this conclusion because that is what occurred when Mr Allen did act in 2001. It seems to me that accurate balance sheet information would have exposed or prevented the false profit reports, as it did in 2001.[20]

27 In their notice of appeal, Metzke & Allen complain that the trial judge was wrong to conclude that they were negligent or in breach of their retainer in failing to take the steps indicated by his Honour by the end of July 2000 (grounds of appeal 1 and 2). Further, they assert that his Honour was wrong to conclude that taking those steps would have prevented the loss of $432,452 found by his Honour (grounds of appeal 3 and 4). Additionally, a pleading point is taken (ground of appeal 5) in the following terms:

[T]he learned primary judge erred in concluding that S Sali & Sons was entitled to judgment against the appellants on the basis that, if Russell Allen had acted as the learned primary judge found he should have acted in July 2000, 'one way or another, S Sali & Sons' continued work without payment would have ceased', because such a basis of liability was neither pleaded nor opened at trial by the respondents.

28 In their amended notice of cross-appeal, the Sali parties complain that the trial judge was wrong in failing to find that Metzke & Allen breached their retainer or were negligent in failing to take appropriate steps in April 2000 - rather than, as the judge found, by the end of July 2000 (cross-appeal grounds 14 and 16). In the cross-appeal, complaint is also made about the trial judge's findings in relation to Mr Blizzard being a concurrent wrongdoer for the purposes of Part IVAA of the Wrongs Act 1958 and his Honour's assessment that Metzke & Allen's proportionate liability was only 30 per cent. We will come to these matters in due course. However, the amended notice of cross-appeal contains other grounds in relation to the claim by S Sali & Sons (cross-appeal grounds 6 - 10, 13 and 15).

29 During the two day hearing of this appeal and cross-appeal, no oral argument was advanced by Senior Counsel for the Sali parties in relation to cross-appeal grounds 6 - 10 and 13. At the end of his submissions in relation to the cross-appeal, when asked about grounds in relation to which no oral argument had been addressed, Senior Counsel for the Sali parties stated that those grounds in the amended notice of cross-appeal in respect of which no oral argument had been advanced could be taken as being 'not pursued'. Accordingly, it is not necessary for us to consider cross-appeal grounds 6 to 10 and 13 further - save to say that (without hearing argument) they appeared to us to be substantially answered in Metzke & Allen's outline of submissions in opposition to the cross-appeal.[21]

30 Cross-appeal ground 15 was in the following terms:

The learned judge erred in failing to find that Metzke & Allen owed the first and second respondents a higher standard of care than that of the ordinary accountant being one commensurate with the level of professional expertise that Metzke & Allen professed to have and contracted to provide.

31 Whilst cross-appeal ground 15 was not dealt with specifically or discretely during the course of oral argument, in argument Senior Counsel for the Sali parties took us to parts of the judgment below which he relied upon as relevant background capable of affecting the answer to the question of whether Metzke & Allen had been negligent or breached their retainer. Specifically, we were taken to his Honour's description of Metzke & Allen in the following terms:[22]

Metzke & Allen is a firm of chartered accountants in Shepparton. The firm was originally associated with the international accounting enterprise known as Deloittes. The firm presents itself to the public as offering a high level of quality advice in a variety of areas including business and management, tax and accounting, corporate secretarial, audit and strategic planning.

32 In the circumstances, there can be no doubt that the standard of reasonable care and skill required of Metzke & Allen was that of a firm of accountants professing to have the high level of expertise referred to. That is the basis upon which we have approached this appeal and cross-appeal. Further, having considered his Honour's judgment, there does not appear to us to be any basis for concluding that his Honour took any different approach. It follows that nothing further need be said about cross-appeal ground 15.

33 Before considering the relevant grounds of appeal and grounds of cross-appeal, it is necessary to say something more about the claim as originally brought by S Sali & Sons to recover the sum of $912,076.20 and the way in which that claim developed.

34 In opening the Salis' case at trial, Senior Counsel for the Sali parties[23] stated:

The plaintiff will tell Your Honour that had he or the plaintiffs been told that the company [Universal] was insolvent or if even a suggestion had been made that there was a possibility that that was the case, then he and the other plaintiffs would not have advanced the hundreds of thousands of dollars that they did. They would have did what they did when they first became aware that it was insolvent when they were first advised by Neil Allan, who came to look at the affairs of the company in early 2001, that is do what any prudent, proper company director will do: appoint an administrator.

That in a nutshell, Your Honour, is the plaintiffs' claim that comes before the court for trial, based upon a negligent breach of advice (sic) - a failure to advise, both negligent and in breach of retainer, as a consequence of which moneys were advanced to or paid on behalf of the company that has now been deregistered and that money has been wholly lost.

35 The claim against Metzke & Allen evolved during the course of the trial. This was because the assertion made in opening that the Sali parties were never told that Universal was insolvent or that there was a possibility that this was the case was not borne out by the evidence. As the trial judge put it:

241. The proposition repeatedly put, particularly early in the trial, on behalf of the plaintiffs that Mr Allen failed in his duties in October 1999 and thereafter because he did not inform Mr Sali that the company was 'insolvent' is misconceived. If by 'insolvent' what was meant was that the company could not pay its debts as and when due unless further funds were made available to it, then the directors, including Sam Sali, were aware of that. That is the very subject matter of Mr Panozzo's 19 October 1999 document which led to the proposal that further funds be injected.

242. It was clear in Mr Sali's own evidence that this 'insolvent' analysis does not reflect his real concern. His concern was whether the company's position was 'hopeless'. In other words he was concerned about the prospects of the money being lost if advanced. In that context, he and his brother ought to have been advised as to the position as at 30 June 1999 as best Mr Allen could determine it, and indeed as to the position after 30 June 1999 insofar as it was known.

36 As a result of the evidence given on behalf of the Sali parties not measuring up to the way in which their case was opened, the criticisms of Metzke & Allen and the emphasis on what it was asserted they should have done changed during the trial. The focus became whether or not Metzke & Allen (and specifically, Mr Allen) did enough to stop the Salis and S Sali & Sons from putting money into Universal (either by way of cash injection, to which we have already referred, or by entering into the forbearance agreement).

37 At trial, the claim by S Sali & Sons in relation to the forbearance agreement was that more should have been done by Metzke & Allen to prevent the forbearance agreement from being entered into. Further, as a result of the entry into the forbearance agreement, S Sali & Sons lost $912.076.20 - being the balance finally outstanding after the collapse of Universal.

38 However, during the course of the hearing of the appeal and cross-appeal, it became clear that the claim for $912.076.20 was overstated. The claim was premised on the proposition that at the time of entry into the forbearance agreement, S Sali & Sons were not owed any money by Universal. However, closer examination of the financial records showed that in fact S Sali & Sons were already owed the sum of $198,001.81 when the forbearance agreement was entered into.

39 Taking the claim of S Sali & Sons at its highest, the loss caused by the entry into of the forbearance agreement was only $714,074.39. Upon this matter coming to light, Senior Counsel for the Sali parties agreed that the order in lieu referred to in paragraph 2(a)(i) of the amended notice of cross-appeal should be read as seeking judgment for S Sali & Sons in the amount of $714.074.39, rather than $912.076.20.

Was the trial judge wrong to conclude that Metzke & Allen were negligent in not taking an appropriate step by the end of July 2000?

40 Metzke & Allen complain that the conclusion of the trial judge that by the end of July 2000 Mr Allen should have made a detailed written request, or advised the Salis to end the forbearance agreement or resigned, did not accord with the way the case was pleaded or argued. It can be accepted that the issue of resignation was not raised on the pleadings or by the Salis. However, central to the Sali parties' claims was an allegation of negligence (breach of retainer) relating to the failure by Mr Allen to advise that the forbearance agreement should not be entered into.[24]

41 The trial judge concluded that, absent taking some other appropriate or equivalent step (in this case, resigning or making a detailed written request for balance sheet information), Mr Allen (and thus Metzke & Allen) were negligent and in breach of retainer in failing to advise the Salis to end the forbearance arrangement by the end of July 2000. This was a perfectly acceptable conclusion open on the pleadings, the way in which the case was conducted and the evidence. By the end of July 2000, the forbearance agreement had been in place for 104 days. Substantial amounts were being foregone on a daily basis. The indebtedness of Universal to S Sali & Sons had increased to $374,097.53. The position of Universal remained precarious. Without the forbearance agreement, Universal could not pay its debts as and when they fell due. Further, despite repeated requests, proper financial reports which would have disclosed Universal's true position had not been provided.

42 In the circumstances, we think it was well open (and correct) for the trial judge to conclude that Metzke & Allen were negligent and in breach of retainer in not advising S Sali & Sons to terminate the forbearance agreement. Equally, we think it was open (and correct) for the trial judge to conclude that the proper discharge of their responsibilities did not necessarily require Mr Allen (or Metzke & Allen) to give this advice if some other appropriate step was taken instead. For example, consistently with the trial judge's findings, we think it would have been open to Mr Allen in the proper performance of his duty to have advised at the end of July 2000 that in the absence of detailed financial reports being provided immediately, the forbearance agreement must be terminated. In essence, it is the failure to give this advice which allowed at least the opportunity for Universal's debt to S Sali & Sons to increase to the ultimate amount of $912,076.20.

43 It follows that appeal grounds 1, 2 and 5 are not made out.

Did the trial judge err on the issue of causation in relation to the claim by S Sali & Sons?

44 The trial judge concluded that if Mr Allen had acted as the trial judge found he should have, then 'one way or another, S Sali & Sons' continued work without payment would have ceased'. His Honour reached this conclusion 'because that is what occurred when Mr Allen did act in 2001'. His Honour's reasons for judgment then set out his Honour's findings as to what happened when a detailed written request for reports was made in 2001. His Honour said:

1. In 2001 approximately a month elapsed between the initial written requests for detailed balance sheet information and the assessment of that information and action by Metzke & Allen and Sam Sali upon it. My conclusion is that a similar period would have elapsed before the forbearance arrangement was ended if Mr Allen had acted at the end of July 2000 as he did in February 2001.
2. The S Sali & Sons debt at the end of August 2000 was $479,624. The amount finally outstanding was $912,076, an increase of $432,452 (on my calculations). My conclusion is that that is the appropriate measure of the loss relevantly suffered by S Sali & Sons.

45 The trial judge did not set out his reasoning on causation in the event that Mr Allen had discharged his duty by advising (at the end of July 2000) that the forbearance agreement must be terminated in the absence of proper financial reports. That his Honour reached the conclusion that advice of this kind would have brought the forbearance agreement to an end a month later cannot be doubted. His Honour (as we have said) found that if Mr Allen acted as he should have, then 'one way or another' the forbearance agreement would have been terminated by the end of August 2000.

46 There is no complaint in Metzke's notice of appeal as to any inadequacy in his Honour's reasons. His Honour correctly identified the approach to be taken on the question of causation, saying that 'the question of whether a particular loss was caused by a particular breach is to be answered by reference to commonsense and experience. The 'but for' test is a useful aid, but it must be applied in a practical commonsense way'.[25] Further, no issue was taken with this approach by either party on this appeal. In our view, the application of a commonsense approach justifies an inference of causation as found by the trial judge. There is every reason to suppose that, had Mr Allen given the Salis advice of the kind to which we have referred, the Salis would have followed that advice, resulting in either the forbearance agreement being terminated or the provision of proper reports which would have showed the parlous state of Universal. Mr Blizzard would have had to have produced the reports which had been repeatedly requested or face the prospect of having to find cash (which Universal did not have) to pay for subcontract cartage.

47 If reports had not been produced, then the forbearance agreement would have been terminated by the end of August 2000. Alternatively, if reports showing the true position of Universal had been produced, then the forbearance agreement would have been terminated within the same timeframe. On the other hand, if reports showing what were described as bogus entries of the kind contained in the reports produced in February 2001 (so as to make Universal look more healthy than it really was), then there was every reason to conclude that this would have been detected as it was in February 2001 - resulting in the forbearance agreement being terminated within the same timeframe.

48 It follows that appeal grounds 3 and 4 must fail.

Did the trial judge err in not finding Metzke & Allen negligent or in breach of retainer as at April 2000?

49 During the hearing of the cross-appeal, much was made by Senior Counsel for the Sali parties that Mr Allen was aware of the following significant matters as at the time the forbearance agreement was entered into (18 April 2000), namely:

(a) Universal had suffered a significant loss in the 1998/1999 financial year, and had also suffered losses in prior years.

(b) A cash advance of $200,000 had been necessary because Universal was having trouble meeting its obligations to creditors in October 1999.

(c) Creditors were making demands and issuing proceedings.

(d) The financial reporting to the Board was unsatisfactory and that position had not been remedied notwithstanding repeated requests by Mr Allen.

(e) Universal had embarked upon an ambitious expansion plan, involving the undertaking of significant fixed obligations for vehicles and premises, and had presented an unrealistic budget in relation to that plan which had not been revised.

(g) The Sali brothers had agreed that S Sali & Sons would, in effect, be advancing significant monthly sums to Universal by way of forbearance in relation to subcontract cartage debts.

50 It was put on behalf of the Sali parties that nothing changed over the period April to July 2000 and that his Honour's findings in respect of Mr Allen's knowledge of matters in the period April 2000 to July 2000 were equally apposite in respect of Mr Allen's state of knowledge as at the time the forbearance agreement was entered into. It was said on that basis that, having concluded Mr Allen was negligent and in breach of retainer as at the end of July 2000, his Honour was bound to reach a similar conclusion as at 18 April 2000 and therefore should have concluded that the loss caused by Mr Allen's negligence was $714,074.39, rather than $432,452.

51 We reject this submission. In our view, it was well open to his Honour to conclude that the advice given by Mr Allen as at April 2000 was not negligent nor in breach of retainer. It cannot be gainsaid that the position of Universal was precarious as at April 2000. However, Mr Allen gave advice about the issues the directors needed to address. Armed with that advice, S Sali & Sons chose to enter into the forbearance agreement. More specifically, the Sali parties chose to extend credit for the purpose of seeing whether Universal could trade its way out of difficulty. We see nothing in the evidence that would have compelled his Honour to reach a different conclusion.

52 It follows that cross-appeal grounds 14 and 16, insofar as they contend that the trial judge was wrong in not finding Metzke & Allen negligent and/or in breach of retainer as at April 2000, are not made out.

53 Cross-appeal grounds 14 and 16 contend in the alternative that the trial judge was wrong in not finding negligence and/or breach of retainer as at October 1999. Insofar as cross-appeal grounds 14 and 16 so contend, the following points can be made:

(a) First, the trial judge did conclude that Mr Allen (and thus Metzke & Allen) failed to exercise reasonable care and skill in October 1999.[26] To the extent that cross-appeal grounds 14 and 16 contend to the contrary, they are misconceived.

(b) Secondly, the assertion in relation to October 1999 has no relevance to the claim by S Sali & Sons. This is because the claim by S Sali & Sons relates to the entering into of the forbearance agreement in April 2000. The circumstances in October 1999 only related to the advance made by the Salis of $199,990.[27]

(c) Thirdly, as we have already said, cross-appeal grounds 14 and 16, insofar as they relate to the advance of $199,990, are without merit.

54 We turn now to consider the issue of contributory negligence, followed by the issues raised by the proportionate liability provisions of the Wrongs Act 1958.

55 At the trial Senior Counsel for Metzke & Allen argued that S Sali & Sons had negligently contributed to its own loss by choosing not to demand payment for the sub-contracting services it provided to Universal.[28] His Honour rejected that submission. He said:

A decision was made in April 2000 to, in effect, finance Universal Logistics' continued operation. In the circumstances I do not consider that there is any relevant sense in which it can be said that S Sali & Sons 'chose not to demand full payment for the services it was providing'. It made an arrangement that it would not demand payment. It does not seem to me that there was any relevant negligence on its part in adhering to that arrangement until it was revealed that the board was being misled as to the company's performance. I do not consider that any negligence of S Sali & Sons relevantly contributed to the loss.

56 We take his Honour to be saying that S Sali & Sons were not negligent in giving Universal an opportunity to trade out of its financial difficulties, because when the company (through its directors) did so, it did not appreciate that Universal's financial position was hopeless.

1. The learned primary judge erred in rejecting the Appellants' argument that any amount otherwise recoverable by S Sali & Sons should be reduced for contributory negligence.
2. Further to paragraph 6 above, in rejecting the Appellants' argument that any amount otherwise recoverable by S Sali & Sons should be reduced for contributory negligence, the learned primary judge failed to have regard, or to give appropriate weight, to:

(a) the evidence that Sam and Alan Sali were directors of S Sali & Sons and that S Sali & Sons held its shares in Universal on trust for Sam and Alan Sali;

(b) the evidence that Sam Sali was well aware of the need for the management of Universal to provide the balance sheet information sought and the importance of that information to assessing the financial position of Universal;

58 Senior Counsel for Metzke & Allen submitted that Sam and Alan Sali, in their capacity as directors of S Sali & Sons, contributed to that company's loss, and that their acts and omissions were to be treated as the acts and omissions of S Sali & Sons.

59 We have already set out his Honour's findings about the matters known to Mr Allen in the period April 2000 to July 2000.[29] All of these matters were also known to the Salis. In our opinion his Honour's finding that S Sali & Sons did not negligently contribute to its own loss cannot be sustained.

60 As directors of Universal, the Salis were present at all the board meetings at which the company's financial situation was discussed. No doubt they were misled by the incorrect profit and loss statements which Mr Blizzard provided from at least July 2000. However, they also knew from their attendance at Board meetings that Russell Allen was pressing for a monthly balance sheet and cash flow analysis to be provided. As directors of Universal they were in a position to require Mr Blizzard to produce that financial information at any time. They also knew of the forbearance arrangement and, as directors of S Sali & Sons, must be taken to have known that the amount owed to that company from the end of July 2000 was progressively increasing.

61 Although the Sali brothers did not have much formal education, they had been involved in a number of businesses. His Honour found that 'by the time they determined to become involved in the Universal Logistics venture they were experienced and successful businessmen'.[30] It is true that the Salis relied on Russell Allen to provide them with the financial and accounting advice in relation to the affairs of Universal.[31] However their awareness of the matters mentioned above and their experience as businessmen, meant they were in a position to appreciate the need for Universal to provide more detailed financial information, and to understand the risk that S Sali & Sons was taking by permitting the escalation of the sub-contracting debt.

62 The knowledge of the Sali brothers, who were the sole directors of S Sali & Sons, must be attributed to that company. For these reasons, we consider that ground 6 is made out.

63 In determining the extent to which the damages awarded should be reduced for contributory negligence, the Court must compare S Sali & Sons' culpability with the culpability of both Mr Blizzard and Metzke & Allen, and take account of the importance of each party's own negligence in causing the loss.[32] Having regard to these matters, we consider it just and equitable to reduce S Sali & Sons' damages by 30 per cent, having regard to its responsibility for the loss it suffered.[33]

The apportionment issue (cross-appeal grounds 11 and 12)

64 Grounds 11 and 12 of the cross appeal are as follows:

1. The learned judge erred in finding that Matthew Blizzard was a concurrent wrongdoer for the purposes of Part IVAA of the Wrongs Act 1958 in circumstances where Blizzard owed no duty to and was not liable to the First and Second Respondents whether for negligent misstatement or otherwise.
2. The learned Judge erred in assessing Metzke & Allen's proportionate liability at only 30 per cent in circumstances where:

(a) Metzke & Allen had breached their retainer, alternatively were negligent by not advising the First and Second Respondents about the financial information they had in their possession in October 1999;

(b) it was Metzke & Allen's duty to advise and warn the First and Second Respondents against any foreseeable risk associated with continuing to support Universal Logistics whether by way of investing money, providing security in the form of guarantees or allowing the Second Respondent to continue to provide services to Universal Logistics on credit; and

(c) the loss occasioned by the First and Second Respondents, whether caused in part by the actions of Matthew Blizzard or not, was the very loss against which Metzke & Allen had a duty in both contract and tort to protect the First and Second Respondents.

65 Senior Counsel for the Sali parties submitted that his Honour erred in three respects in holding that Matthew Blizzard was a concurrent wrongdoer with Metzke & Allen ('the accountants') under Part IVAA of the Wrongs Act 1958.

66 First, he submitted that it was not open on the pleadings for the judge to hold that Mr Blizzard owed a duty of care to S Sali & Sons[34] under the principle in Hedley Byrne & Co Ltd v Heller & Partners Ltd[35] (a 'Hedley Byrne duty').[36] Further, it was argued that his Honour's finding that Mr Blizzard owed such a duty to S Sali & Sons was inconsistent with Spies v The Queen,[37] which held that a director of a company did not owe a duty of care to company creditors. Thus damages could not be apportioned on the basis that Mr Blizzard was a concurrent wrongdoer with the accountants.

67 Secondly, at the hearing of the appeal, Senior Counsel for the Sali parties contended that, even if it was open to the judge to conclude that Mr Blizzard owed a Hedley Byrne duty to S Sali & Sons, s 24AH of the Wrongs Act 1958 did not apply. This was because the provision applied only where the acts of one wrongdoer had caused the loss arising from the acts of the other wrongdoer and vice versa. In this case there was no relationship between the loss caused by Mr Blizzard's negligence and the loss caused by Mr Allen's negligence. Senior Counsel relied on the decision of this Court in St George Bank Limited v Quinerts Pty Ltd[38] in support of that submission.

68 Thirdly, Senior Counsel for the Sali parties submitted that the loss suffered as a result of Mr Allen's breach of his duty of care was not 'the same loss' as the loss caused by Mr Blizzard's breach of duty. Thus, on the authority of Quinerts,[39] Mr Blizzard was not a concurrent wrongdoer and the loss or damage attributable to Metzke & Allen's breach of duty was not apportionable.

69 Senior Counsel for Metzke & Allen argued that the terms of the amended defence were sufficient to permit his Honour to hold that Mr Blizzard owed a Hedley Byrne duty to S Sali & Sons. Although trial counsel for S Sali & Sons initially argued that the pleadings did not permit the trial judge to hold that Mr Blizzard had breached a Hedley Byrne duty, he had later abandoned that argument. Spies did not prevent his Honour holding that the relationship between Mr Blizzard and S Sali & Sons gave rise to a Hedley Byrne duty.

70 Senior Counsel for Metzke & Allen also submitted that s 24AH of the Wrongs Act 1958 did not require one wrongdoer to have caused the loss arising from the acts of the other wrongdoer, but required only that each wrongdoer be liable for the same loss.[40] Further, he submitted that in argument below, it was never submitted that if Mr Blizzard was legally liable to the cross-respondents, he was not a concurrent wrongdoer with them.

71 Senior Counsel for Metzke & Allen submitted that the damage suffered by S Sali & Sons Pty Ltd by the continuation of the forbearance arrangement, was the same loss as was caused by Mr Blizzard's production of false profit statements. It was not necessary to show that the claim against each of the wrongdoers was for an identical amount.

Was it open to the judge to hold that a Hedley Byrne duty applied?

72 Paragraphs 20 to 23 of Metzke & Allen's amended defence (omitting the particulars of each paragraph) were as follows:

(a) Alan Sali, Sam Sali and the Sali Company [Sali & Sons Pty Ltd] were members of Universal;

(b) Alan Sali, Sam Sali and the Sali Company were relying on Blizzard to conduct the day to day management of the business of Universal and to inform them, in their capacity as directors and members (respectively), of the true financial position of Universal;

(c) from approximately September 1999, the Sali Company was providing cartage contracting services to Universal on credit and was owed increasingly large amounts by Universal;

(d) Alan Sali and Sam Sali had executed guarantees of the obligations owed by Universal pursuant to the lease of the Sydney premises and the Brisbane premises;

(e) Alan Sali and Sam Sali had executed guarantees of the obligations owed by Universal to National Australia Bank Limited pursuant to a debtor finance facility provided by the bank.

...

1. Further, Blizzard knew, or ought to have known, that in the event that he failed to act with reasonable care and diligence in his role as the director of Universal entrusted with responsibility for the day to day management of the business of Universal and, as a consequence, Universal became unable to pay its debts as and when they fell due, each of Sam Sali, Alan Sali and the Sali Company was likely to suffer financial loss.

1. By reason of the matters referred to in paragraphs 20 and 21 above, at all material times Blizzard owed to each of Sam Sali, Alan Sali and the Sali Company a duty to take reasonable care to perform his duties and functions as the director of Universal entrusted with responsibility for the day to day management of the business of Universal and thereby to -

(a) ensure that Universal was able to pay its debts as and when they fell due;

(b) ensure that Sam Sali, Alan Sali and the Sali Company did not suffer financial loss as a result of the inability of Universal to pay its debts as and when they fell due.

1. In breach of the duty of care alleged in paragraph 22 above, Blizzard:

(a) failed to keep proper books of account, or ensure that proper books of account were kept, in relation to the business of Universal;

(b) overstated sales and understated expenses in financial reports provided by him to the directors of Universal;

(c) during each of the six months to December 2000, provided profit and loss statements to the directors of Universal that indicated that the company was trading profitably, whereas the company was incurring significant trading losses;

(d) failed to ensure that Universal did not trade while insolvent.

...

73 Paragraph 21 alleges that Mr Blizzard failed to act with reasonable care and diligence 'in his role as director' of Universal and that S Sali & Sons relied on him in that capacity. Paragraphs 22 and 23 also refer to his failure to take reasonable care in performing his duties as director.

74 The amended defence did not plead the matters necessary to establish a Hedley Byrne duty. It did not allege that Mr Blizzard had entered into a relationship with S Sali & Sons under which he knew, or ought reasonably have known, that Sam and Alan Sali, in their capacity as directors of S Sali & Sons, were relying on the monthly profit and loss statements which he presented at Universal's board meetings, in order to decide whether S Sali & Sons should permit the forbearance arrangement entered into at the Board meeting on April 20 to continue. Nor did it allege that it was reasonable for S Sali & Sons to rely on those statements for that purpose or that Mr Blizzard was aware that S Sali & Sons was likely to suffer loss if the profit and loss statements were wrong.[41]

75 The allegation that such a duty was owed appears to have been made first in the defendants' closing submissions, which asserted that 'Matthew Blizzard owed a duty to the plaintiffs to take reasonable care to ensure that the monthly profit and loss statements he presented to the Board during that period were accurate. He breached that duty and the plaintiffs suffered loss and damage as a result'.

76 In his closing submissions Senior Counsel for S Sali & Sons said that 'the defendants do not plead any proximate relationship between Mr Blizzard and the plaintiffs which could give rise to any duty of care'. The written submission said that it had not been alleged that there was any contractual relationship which was said to have existed between Mr Blizzard and the plaintiffs. After some discussion on this matter between the judge and counsel, his Honour said that 'a breach of a duty of care by information seems to me to be alleged [in the pleadings]'. Senior Counsel for the accountants said the following:

MR GUNST: It pre-supposes a duty, Your Honour, which isn't alleged. We don't read anywhere here of an allegation of the duty that Mr Blizzard is said to have owed.

HIS HONOUR: 22. 22(b) is kind of - anyway, the duty is cast incredibly widely but it is there.

MR GUNST: Your Honour, perhaps I will de-emphasise the pleading point and reiterate the point of law that there is no such duty known to the law. For the purpose of establishing a duty, in accordance with the principles in Hedley Byrne and MLC v Evatt and succeeding cases, one needs to show on the evidence a reliance on the defendants' special skill or knowledge and knowledge in the defendant of that reliance by the plaintiffs. Now, there has been no evidence of any such reliance by the plaintiffs on Mr Blizzard's special skills, no evidence that he had special skill or knowledge - - -

77 His Honour rejected the argument that Spies prevented him from finding that, on the facts of this case, Mr Blizzard owed a duty of care Hedley Byrne duty to S Sali & Sons. He said:

Metzke & Allen do not contend that Mr Blizzard is liable to S Sali & Sons on the basis of some general duty owed by him as a director to Universal Logistics' creditors. What Metzke & Allen say is that Mr Blizzard presented monthly profit and loss statements to Sam and Alan Sali in circumstances where he was aware by reason of the discussion in April 2000, and by reason of the subsequent conduct of S Sali & Sons, that those monthly profit and loss statements would be relied upon by Sam and Alan Sali, as directors of S Sali & Sons, in assessing whether or not to permit the forbearance arrangement reached at the board meeting in April 2000 to continue. Metzke & Allen rely on the principles in Esanda Finance Corporation Limited v Peat Marwick Hungerfords.

The High Court decision in Spies v The Queen does not address the matter raised by Metzke & Allen in this case. Spies v The Queen is not authority for the proposition that a director who makes negligent misstatements to a creditor of the company can never owe that creditor a duty of care. I accept Metzke & Allen's submission that the issue here is to be analysed in accordance with the ordinary principles applicable to negligent misstatement, as set out by the High Court in Esanda Finance.

Under those principles, where the claim is for pure economic loss, as it is here, mere foreseeability of loss is not sufficient to give rise to a duty of care. A relationship of proximity is required before there is a duty of care. This relationship can be established in a number of ways. It might be established where information or advice is sought from a person possessing some special skill and where that person knows or ought to know that reliance is being placed upon the information or advice. Liability will also be imposed whenever a person gives information or advice to another upon a serious matter where that person realises or ought to realise that he or she is being trusted to give the best of his or her information or advice and it is reasonable for the person receiving the information or advice to act on it.

In this connection, in the absence of any evidence or submission from Mr Blizzard, I have reached the following relevant conclusions:

(a) At the discussion at the board meeting in April 2000 Sam and Alan Sali must have been acting as directors of S Sali & Sons, and must have been receiving information in that capacity, in addition to acting as directors of Universal Logistics. It is only because they were acting in both capacities that the forbearance arrangement was able to be made. This must have been apparent to all present, including Mr Blizzard.

(b) What was revealed in February 2001 was, in substance, that what had been presented as a significant asset ('other debtors') was, to say the least, not properly accounted for. This was significant not only in relation to the balance sheet but also in relation to the previous profit figures, and was seen as such at the time. The uncovering of this circumstance prompted action which brought the forbearance arrangement to an end, and, indeed, brought the company's entire operations to an end. One reason the company continued on as long as it did was because Sam Sali had been given confidence by the false profit reports which led him to believe the company could be turned around, or which meant he was not disabused of that belief.

(c) Just as Sam and Alan Sali were acting in their capacity as directors of S Sali & Sons in April 2000 when the forbearance arrangement was made, they continued to act in that capacity during the latter part of 2000 when they permitted the arrangement to continue in the false belief that profits were being earned.

(d) Mr Blizzard, as managing director, had special skill and knowledge in relation to the subject matter of the profit reports which were eventually revealed to be false.

(e) Mr Blizzard's profit reports between July 2000 and December 2000 were prepared by him or under his supervision. They were either deliberately false or were prepared in circumstances which must have involved negligence on Mr Blizzard's part.

(f) Mr Blizzard must have known Sam and Alan Sali were relying on his false profit reports, and must have intended them to do so.

My conclusion is that Mr Blizzard is a concurrent wrongdoer and that the Wrongs Act requires me to limit Metzke & Allen's liability accordingly.[42]

78 In our opinion the amended defence did not plead the facts necessary to establish a Hedley Byrne duty. Thus Senior Counsel for Metzke & Allen should have sought leave to further amend the defence. If leave had been sought, it would have been appropriate for his Honour to grant it, to resolve the real question in controversy between the parties[43] (that is whether Mr Blizzard was a concurrent wrongdoer with Metzke & Allen).[44]

79 The situation is quite different from that considered by the High Court in AON Risk Services Australia Limited v Australian National University,[45] where the amendments made a substantial change to the nature of the Australian National University's claim.[46] Metzke & Allen's defence specifically pleaded that the claim against them was apportionable. S Sali & Sons were not taken by surprise by the allegation that Mr Blizzard owed them a duty of care, although that duty was said to arise on a different basis from that on which the accountants ultimately relied. S Sali & Sons would not have suffered any injustice and no delay would have arisen if Metzke & Allen had sought and been granted leave to amend. There was no lack of evidence relevant to the criteria for establishing a Hedley Byrne duty.

80 The more difficult question is whether, in the absence of an amendment to the pleadings, the judge should have decided that Mr Blizzard was subject to a Hedley Byrne duty. Although English courts seem to have taken a more rigorous view,[47] Australian case law suggests that a failure to amend does 'not necessarily preclude a verdict upon the facts as they have emerged', at least when the 'new issue or new way of particularizing the existing issue has emerged at the trial and has been litigated'.[48] In Dimos v Skaftouros[49] Dodds-Streeton J observed that:

Even when pleadings are employed, they do not rigidly govern the issues between the parties. As Latham, CJ stated in Miller v. Cameron,[50] where evidence has been led without objection in the course of the trial and is relevant to an issue which might have been raised by the pleadings to support a claim or defence, where there is no element of surprise, and where an opportunity to meet it has been afforded, the parties cannot 'hark back to the pleadings' in order to invalidate the determination of an issue not pleaded.

81 In this case, Mr Sali's own evidence provided the basis for a claim that S Sali & Sons had relied on the statements provided by Mr Blizzard and that Mr Blizzard must have known that this was the case.

82 In his evidence-in-chief, Mr Sali was asked about a letter he wrote on 3 June 2002 to Detective Sergeant Stephen O'Donnell of the Major Fraud Group. In that letter he said that Mr Blizzard 'was totally relied upon to manage the business on a daily basis and was trusted implicitly by Alan (his deceased brother) and I'. Later in the letter he referred to the fact that Mr Blizzard had manipulated monthly reports, that he and his brother 'had no reason not to accept [his] reports at face value' and that as a consequence they had injected directors' funds and provided freight services through S Sali & Sons.

Now to the best of your recollection are the profit and loss statements for the months July through to December 2000 ... the ones which led you to conclude that Mr Blizzard was telling you that the company was trading profitably.

84 Mr Sali answered 'Yes, but I was never happy or confident about those figures'. However later in cross-examination he agreed that because of the profit figures he believed that in the latter half of 2000 the company was trading profitably, and had hopes that the company would overcome its cash flow problems.

85 No objection was made to Mr Sali's cross-examination about the statements he made to the police. Further, as we explain above,[51] there were considerable changes in S Sali & Sons own case during the course of the trial and there was ample evidence before his Honour about the extent to which Mr Blizzard's statements were relied upon by the Sali brothers and S Sali & Sons.

86 In these circumstances his Honour did not err in holding that Mr Blizzard would have been liable to S Sali & Sons for providing them with misleading profit statements which resulted in them failing to terminate the debt forbearance arrangement.

87 Nor did his Honour err in holding that Spies 'is not authority for the proposition that a director who makes negligent misstatements to a creditor of the company can never owe that creditor a duty of care'[52] even in circumstances which would otherwise be sufficient to give rise to a Hedley Byrne duty. In Spies the High Court allowed an appeal from a decision of the New South Wales Court of Appeal setting aside the conviction of a company director for an offence under the Crimes Act 1900 (NSW) and substituting a conviction for an offence under the Companies (New South Wales) Code. In that context the Court rejected the view that directors owe 'an independent duty to, and enforceable by, the creditors by reason of their position of directors'.[53] However the question whether particular facts could impose a Hedley Byrne duty on a director in relation to a creditor was not in issue or decided.

88 It is therefore necessary to consider whether, on the basis that Mr Blizzard would have been liable to the plaintiffs for his negligence, he was otherwise 'a concurrent wrongdoer' under s 24AH(1) of the Wrongs Act 1958. That section provides as follows:

A concurrent wrongdoer, in relation to a claim, is a person who is one of 2 or more persons whose acts or omissions caused, independently of each other or jointly, the loss or damage that is the subject of the claim.

89 We can deal briefly with what we understood to be a submission that s 24AH of the Wrongs Act 1958 applies only when there is a causal relationship between the loss caused by one wrongdoer and the loss caused by the other wrongdoer. There is no support for that proposition in Nettle JA's reasons in Quinerts, or in the cases to which his Honour referred. The reference in the section to the fact that the acts or omissions may cause the loss 'independently of each other' also makes it clear that this is not required.

90 Senior Counsel for the Sali parties also relied on Quinerts in support of the submission that s 24AH did not apply because the loss caused by Mr Blizzards negligence was not 'the same loss' as that caused by the negligence of Metzke & Allen.

91 In that case, the St George Bank claimed damages for breach of contract, negligence and misleading and deceptive conduct from the respondents (ie Quinerts), who had overvalued property taken as security for a loan. Quinerts admitted negligence but argued that because the borrower and the guarantors of the loan were concurrent wrongdoers, the valuers were liable only for a proportion of the bank's loss. This Court held that the Part applied only where the persons said to be concurrent wrongdoers were liable to the plaintiff for the same loss.[54] Because the valuers and the borrower/guarantors were not liable for 'the same loss', the proceeding did not involve 'an apportionable claim' within the meaning of Part IVAA. Nettle JA (Mandie JA and Beach AJA agreeing) said:

[I]n Royal Brompton, Lord Hope of Craighead said that he did not see anything in the UK Act suggesting an intention to depart from the assumption which had always been made in contribution cases that contribution is available only where two or more persons have contributed, albeit in different ways, to the same damage and that the 'mere fact that two or more wrongs lead to a common result does not of itself mean that the wrongdoers are liable in respect of the same damage'.[55]

Consistently with reasoning in Royal Brompton, I do not consider that the Borrower or the guarantor in this case could be said to have caused or be liable for 'the same damage' as Quinerts.

The loss or damage caused by the Borrower and the guarantor was their failure to repay the loan. Nothing which Quinerts did or failed to do caused the Borrower or the lender to fail to repay the loan. The damage caused by Quinerts was to cause the Bank to accept inadequate security from which to recover the amount of the loan. Nothing which the Borrower or the lender did or failed to do caused the Bank to accept inadequate security for the loan. Furthermore, just as in Wallace v Litwiniuk, the distinct nature of the damage caused by Quinerts is demonstrated by the need to estimate the damage which the Bank would have suffered if Quinerts had not acted negligently in the preparation of the valuation and then to calculate the difference between that and the damage which the Bank has suffered by reason of the Borrower's and guarantor's failure to repay the loan.[56]

92 In considering whether the borrower and guarantor were concurrent wrongdoers with the valuers, Nettle JA gave the following example:

[A] thief steals money from a bank and, because of negligence on the part of the bank's insurance brokers, the bank finds that the risk of the theft is not covered by insurance. In such a case, the damage caused by the thief would be the loss of the bank's money. Nothing, however, which the insurance brokers did or failed to do in effecting appropriate insurance cover would have caused the theft of the bank's money. Contrastingly, the loss or damage caused by the insurance brokers would be the bank's inability to obtain indemnity from an insurance company for the loss suffered by reason of the theft. But nothing done by the thief would have caused the bank's insurance cover to be inadequate. It would follow that the thief would not be a concurrent wrongdoer in relation to any claim which the bank might make against its insurance brokers for failing to arrange appropriate insurance cover.[57] [Footnote omitted.]

93 Unlike Nettle JA's example, Mr Blizzard's actions in providing inaccurate monthly profit statements to the Board caused S Sali & Sons to continue the forbearance arrangement, even though Universal was in fact making a significant loss. Similarly, Mr Allen's failure to advise S Sali & Sons to terminate the forbearance arrangement caused their loss. If the profit and loss statements had been accurate, Mr Allen may well have advised S Sali & Sons to terminate the forbearance arrangement earlier. We therefore consider that the Mr Blizzard's and Mr Allen's negligence caused the same loss - the loss which arose because S Sali & Sons continued to extend credit to Universal after it should have ended that arrangement. Thus cross-appeal ground 11 is not made out.

94 In our opinion, ground 12 is without substance. The apportionment of the loss was a discretionary decision to which the principle in House v The King[58] applies. His Honour applied the correct principles in apportioning S Sali & Sons' loss. His Honour's attribution of responsibility for 70 per cent of the loss to Mr Blizzard does not suggest any error in the application of those principles.[59]

95 It follows from what we have said above that the answers to the questions raised in this appeal and cross-appeal are as follows:

1. Was the trial judge wrong in concluding that Metzke & Allen failed to exercise reasonable care and skill in October 1999 by not considering and advising the Sali brothers in relation to the financial result for Universal Logistics for the year ended 30 June 1999? No.

2. Was the trial judge wrong in concluding that this failure had no relevant consequence as the sum of $199,990 would have been advanced in any event? No.

3. Was the trial judge wrong to conclude that Metzke & Allen were negligent in failing to take the steps referred to by the trial judge by the end of July 2000? No.

4. Was the trial judge wrong to conclude that the failure of Metzke & Allen to do so would have prevented the loss found to have been suffered by Sali & Sons? No.

5. Was it open on the pleadings for the trial judge to reach this conclusion? Yes.

6. Was the trial judge wrong in not finding negligence in relation to the period during which S Sali and Sons' debt increased between September 1999 and July 2000? No.

7. Was the trial judge wrong in concluding there was no contributory negligence? Yes, and we have assessed (as we were invited to do by the parties) contributory negligence at 30 per cent.

8. Was the trial judge wrong to conclude that Mr Blizzard was a concurrent wrongdoer? No.

9. If Mr Blizzard was a concurrent wrongdoer, was the apportionment of 70 per cent to him wrong? No.

96 In the result, Metzke & Allen's appeal succeeds in part so that in lieu of the judgment against it in the sum of $129,736, there should have been judgment against it in the sum of $90,815. The cross-appeal must be dismissed.

[1] A partner in the predecessor firm Neil Allan (no relation to Russell Allen) had played a similar role.

[2] Referred to in many of the documents and submissions as $200,000.

[3] See Sali and Anor v Metzke & Ors [2009] VSC 48 ('Reasons'), [4],[5]

[4] As we will explain below, not all of these grounds were pursued.

[5] Metzke & Allen's notice of contention (in which complaint is also made about the trial judge's finding that a consideration of the financial information provided to the Sali parties by Ron Panozzo on or about 11 October 1999 would have revealed a picture broadly the same as that set out in the eventual final 1998/1999 financial accounts).

[6] The Sali parties' appeal grounds 1 to 5.

[7] Metzke & Allen's appeal grounds 1 and 2.

[8] Metzke & Allen's appeal grounds 3 and 4.

[10] The Sali parties' cross-appeal, specifically grounds 14 and 16.

[12] The Sali parties' cross-appeal ground 11.

[13] The Sali parties' cross-appeal ground 12.

[14] Borrowing from the parties' agreed summary dated 5 March 2010, [21]-[43]; see also Reasons, [24]-[145].

[18] Fox v Percy [2003] HCA 22; (2003) 214 CLR 118, 128 (Gleeson CJ, Gummow and Kirby JJ); CSR v Della Maddalena [2006] HCA 1; (2006) 224 ALR 1, 8 (Kirby J). For an example of the application of this principle see Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited [2010] HCA 31, [76].

[19] Borrowing from the parties' agreed summary dated 5 March 2010, [44]-[59]; see also Reasons, [160]-[204].

[23] Not the same Senior Counsel briefed on this appeal and cross-appeal.

[24] Cf paragraph 14 (j) of the statement of claim.

[27] Referred to in much of the material as an advance of $200,000.

[29] See [25] above.

[32] Podrebersek v Australian Iron and Steel Pty Ltd [1985] HCA 34; (1985) 59 ALJR 492, 494.

[33] See Wrongs Act 1958, s 26(1)(b).

[34] His Honour noted (at Reasons, [278]) that only the position of Sali & Sons was relevant in this respect.

[35] [1963] UKHL 4; [1964] AC 465.

[36] As to the requirements which must be satisfied before such a duty arises see The Mutual Life & Citizens' Assurance Company Limited v Evatt [1968] HCA 74; (1968) 122 CLR 556, 570-2 (Barwick CJ), 580-5 (Kitto J); Esanda Finance Corporation Limited v Peat Marwick Hungerfords [1997] HCA 8; (1997) 188 CLR 241.

[37] [2000] HCA 43; (2000) 201 CLR 603 ('Spies'), 653-7 (Gaudron, Mc Hugh, Gummow and Hayne JJ).

[38] [2009] VSCA 245 ('Quinerts').

[40] He cited Royal Brompton Hospital NHS Trust v Hammond [2002] UKHL 27; [2002] 1 WLR 1397, which was relied upon by Nettle JA in Quinerts [2009] VSCA 245, as authority for that proposition.

[41] For a more detailed statement of the requirements which must be satisfied before a duty of care arises to prevent an economic loss arising from a negligent misstatement see Esanda Finance Corporation Limited v Peat Marwick Hungerfords [1997] HCA 8; (1997) 188 CLR 241, 249-51 (Brennan CJ), 257-8 (Dawson J); 261-4 (Toohey and Gaudron JJ), 271-6 ( McHugh J).

[42] Reasons, [284]-[288] (citations omitted).

[43] Commonwealth v Verwayen (1990) 170 CLR 394 ('Verwayen'), 456.

[44] Rule 36.01 of the Supreme Court (General Civil Procedure) Rules 2005. See also ibid 456 (Dawson J).

[45] [2009] HCA 27; (2009) 239 CLR 175.

[46] Ibid 197-8 (Gummow, Hayne, Crennan, Kiefel and Bell JJ).

[47] See for example Blay v Pollard [1930] 1 KB 628, 634 (Scrutton LJ); Bell v Lever Brothers Limited [1931] UKHL 2; [1932] AC 161, 216 (Lord Atkin).

[48] Water Board v Moustakas [1988] HCA 12; (1988) 180 CLR 491, 497; see also Leotta v Public Transport Commission (NSW) (1976) 9 ALR 437, 446; Maloney v Commissioner for Railways (NSW) (1978) 18 ALR 147, 151.

[49] [2004] VSCA 141; (2004) 9 VR 584, 611-12. Note that this is not a case like Liftronic Pty Ltd v Unver (2001) 179 ALR 321, 333 where a court sets aside a jury finding on a basis that was not pleaded.

[50] [1936] HCA 13; 54 CLR 572, 577 (Latham CJ).

[51] [34]-[37].

[53] [2000] HCA 43; (2000) 201 CLR 603, 636-7 (Gaudron, McHugh, Gummow and Hayne JJ).

[54] This was based on both the words of the Part and its legislative history.

[55] [2002] UKHL 27; [2002] 1 WLR 1397, 1412.

[56] [2009] VSCA 245, [76].

[58] [1936] HCA 40; (1936) 55 CLR 499.

[59] See further Podrebersek v Australian Iron and Steel Pty Ltd [1985] HCA 34; (1985) 59 ALJR 492, 493-4.