VII GAMBOTTO LIABILITY
1185 The NRMA's case, as summarised in submissions, was that it should have been advised by the defendants that Gambotto's case was on appeal to the High Court and, after 10 December 1993, that the appeal had reasonable prospects of success and there was a real risk that the High Court's decision might adversely impact upon the proposal; had that advice been given, the boards would have voted to stop or slow down the proposal and much, if not all, of the expenditure later incurred would have been avoided. The preferred date by which the advice should have been given and would have been acted on was 17 March 1994, when the proposal was put before the boards. The fall-back date was 28 April 1994, the date of the first board meetings after the hearing of the appeal.
1186 If Gambotto liability be found, the NRMA's damages would be at most that part of the wasted expenditure incurred after 17 March 1994 or 28 April 1994, rather than the entire wasted expenditure. At one point in the course of the hearing the NRMA said that it would be necessary to consider free shares/disadvantages liability only if there was not Gambotto liability, but it became evident that this was incorrect. Damages in relation to the wasted expenditure incurred after 17 March 1994 or 28 April 1994 would pick up the majority of the wasted expenditure, but it would still be necessary to consider free shares/disadvantages liability because the NRMA's claims there extended to earlier expenditure as wasted expenditure.
1187 A number of the defendants' defences would not apply to Gambotto liability. It is desirable to repeat what I earlier said, that not all the facts described are of great moment in my decision of these proceedings. What follows takes up the matters leading to my conclusions on Gambotto liability by general rather than detailed reference to the facts I have described, but in the light of all the facts.
1188 In accordance with the earlier description of the claims against the defendants, save as to contributory negligence it is not necessary to distinguish between the claims for negligence and the claims for breach of contract. I will deal in turn with negligence, causation, and defences.
Negligence
1189 The defendants were bound to exercise due care, skill and diligence, bringing to their task the competence and skill usual amongst solicitors or barristers (as the case may be) practising their profession and taking proper care in what they did (Voli v Inglewood Shire Council (1963) 110 CLR 74 at 84; Midland Bank Trust Co Limited v Hett Stubbs & Kemp (1979) 1 Ch 384 at 403). Each of AAH, AT and Mr Heydon professed to be, and was, expert in corporations law, and the care, skill and diligence to be exercised was that appropriate to a member of the relevant profession having such specialist expertise (Duchess of Argyll v Beuselinck (1972) 2 LLR 172 at 185; Rogers v Whitaker (1992) 175 CLR 479 at 483; Yates Property Corporation (in Liquidation) v Boland (1998) 157 ALR 30 at 50-51; Montague Mining Pty Ltd v Gare (Wilcox J, 23 October 1998, unreported).
1190 The obligation was nonetheless one of reasonable care: "the duty of care is not a warranty of perfection" (Duchess of Argyll v Beuselinck at 185; see also cases cited below when noting that negligence by the lawyers does not automatically follow from the decisions of Gummow J and the Full Court). It was not suggested that Mr Heydon was entitled to the advocate's immunity considered in Giannarelli v Wraith (1988) 165 CLR 543.
1191 The due care, skill and diligence were to be exercised in doing what the solicitors were retained or Mr Heydon was briefed to do. Because a solicitor's duty lies in tort as well as contract, it may be that in the particular circumstances it may require that the solicitor go beyond the specifically agreed professional task or function if that is necessary to avoid a real and foreseeable risk of economic loss being sustained by the client (Hawkins v Clayton at 579; Waimond Pty Ltd v Byrne at 652; Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398 at 418).
1192 In the present case I have no doubt that the retainer of AAH and AT extended to advice upon the possible risk to the proposal from the appeal to the High Court in Gambotto's case, if the exercise of due care, skill and diligence so required, and that the briefs to Mr Heydon similarly required him to advert to that risk if the exercise of due care, skill and diligence so required.
1193 As to AAH and AT, they were called upon to advise the NRMA whether the proposal could and should be implemented by scheme or meeting, and a risk in the resolutions in general meetings route was clearly something to which they should have had regard and of which they should have informed the NRMA. As to Mr Heydon, as a minimum he was asked by the revised brief delivered on 15 or 16 December 1993 to advise "whether there is a legal requirement to proceed by scheme of arrangement … or whether it is sufficient if the necessary resolutions are passed by members in general meeting". If a risk to the proposal because the resolutions would be "necessarily oppressive" (to take up Professor Austin's concise expression) should have been seen, reference to the risk should have been part of the advice. In the circumstances, it would not have been sufficient for AAH, AT, or Mr Heydon simply to advise that the proposal could be implemented by the resolutions in general meetings route, if of that view after weighing arguments for and against, without informing the NRMA of a risk forming one of the arguments against. In the language of the brief to Mr Heydon, resolutions in general meetings would not be sufficient, either as the obverse of a legal requirement to proceed by way of scheme of arrangement or as a course for the NRMA to undertake, if there were a risk.
1195 More widely, the question was whether to proceed by the resolutions in general meetings route or the scheme of arrangement route had significant practical implications, given that opposition to the proposal was expected. AAH and AT were well aware of this, and it was made known to Mr Heydon. This emphasised, if it were not already evident, that the risk of a necessarily invalidating impediment to the resolutions in general meetings route should be brought to account.
1196 The NRMA did not call a solicitor or a barrister to give expert evidence of the practice of solicitors or barristers in the positions of the defendants, or of what a solicitor or barrister in the position of the defendants would have done. Nor did the defendants, subject to what I will say about the evidence of Mr Bennett to which I will shortly refer. The NRMA drew attention to the deprecation of calling such evidence in Midland Bank Trust Co Limited v Hett Stubbs & Kemp at 402, embraced (after the hearing of these proceedings began) in Yates Property Corporation (in Liquidation) v Boland at 55-6.
1197 I express no view on whether expert evidence could or should have been called in the present case: perhaps it would not have been easy to identify areas of practice. The fact is that, again subject to what I will say about the evidence of Mr Bennett, there was no evidence from persons outside the relevant transactions to assist in giving content to the due care, skill and diligence required of the defendants. It falls to the Court itself to provide that content (see Negal v Power (1967) SASR 373 at 376; Fox v Everingham (1983) 76 FLR 170 at 178-9; Waimond Pty Ltd v Byrne at 654; Amadio Pty Ltd v Henderson (1998) 81 FLR 149 at 217).
1198 AAH called Mr Bennett, whose expertise in corporations law and experience in practice as a barrister were unquestioned, not to give evidence of practice but to give evidence of what he, Mr Bennett, would have done and advised if briefed in December 1993. The evidence was led to found a submission as to causation to the effect that, had Mr Heydon given the Gambotto advice which the NRMA said should have been given, the NRMA would have asked for a second opinion, Mr Bennett would have been briefed to advise on the relevance of Gambotto's case to the proposal, Mr Bennett's opinion would have allayed any fears of risk to the proposal in connection with Gambotto's case, and the NRMA would not have stopped or slowed down the proposal. Other parties enlarged Mr Bennett's evidence in cross-examination, and his evidence even of what he would have done and advised was inevitably drawn on by the parties, in different ways, in endeavours to give content to the due care, skill and diligence required of the defendants.
1199 Mr Bennett's evidence was founded on a brief in fact delivered to him in July 1998. The brief provided a copy of the revised brief delivered to Mr Heydon on 15 or 16 December 1993, asked that it be assumed (amongst other things) that Mr Heydon had advised "without addressing the question of oppression" that the proposal could be implemented by resolutions in general meetings, drew attention to Gambotto's case and the pending appeal to the High Court, and asked Mr Bennett to advise -
(a) as at January 1994 "whether the fact that Gambotto has gone on appeal to the High Court has any relevance to the plan to implement the proposal by way of special resolution at members' meetings and if so, what relevance"; and
(b) as at May 1994, after the hearing of the appeal, "if there is anything you wish to add to your opinion or if you wish to change your opinion in any way".
1200 In summary, in his evidence in chief Mr Bennett said that without perusal of the transcripts of the application for special leave to appeal or the argument on appeal he would have said that the appeal to the High Court in Gambotto's case was likely to fail; with perusal of the transcript of the application for special leave to appeal, he would have said that there was a possibility of the appeal being allowed, although a less than 50 per cent prospect of success; with perusal of the transcript of the argument on the appeal, he would have said that there was a reasonable prospect of the appeal succeeding, "possibly slightly in excess of 50 per cent"; and that in both instances he would have said that the possible allowance of the appeal in Gambotto's case would not affect the proposal.
1201 Mr Bennett's reasons for this last view were that the proposal and the expropriation in Gambotto's case were quite different; first, in that in the proposal all members were treated equally because all lost their memberships and had an entitlement to shares or cash; secondly, in that the members could continue to enjoy the same assets as shareholders; and thirdly, in that in Gambotto's case the interests and wishes of the majority differed from those of the minority but under the proposal the interests of all were identical. In his oral evidence he said that he thought that "the parameters of Gambotto at the trial and in the Court of Appeal are sufficiently narrow that it would be unlikely in the extreme that any decision by the High Court, even one allowing the appeal, would be so wide as to apply to this very different sort of proposal". He confirmed that he would have come to these views having exercised reasonable care.
1202 For the present concentrating on Mr Bennett's evidence so far as it might give content to the due care, skill and diligence required of the defendants, the cross-examination established that, in order to advise whether the appeal in Gambotto's case was likely to affect the proposal, he would have required to see the transcripts, and that he would have foreseen a successful appeal more readily after the grant of special leave and would have expected the High Court to decide the appeal by reference to principle rather than on the particular facts. To this extent the NRMA's case was assisted, while remembering that the course which Mr Bennett would have taken and his expectation were not necessarily the general or required course and expectation of a lawyer acting with due care and skill - for example, they may have exceeded what was involved in the exercise of due care, skill and diligence. With a similar qualification, in saying that, for the reasons outlined, he did not think that the High Court was likely to express a principle so wide as to affect the proposal, Mr Bennett's evidence was adverse to the NRMA's case, but did not directly address that case in that it presupposed awareness of the possibility that Gambotto's case might impact on the proposal. Mr Bennett was asked to advise on that possibility. Even if Mr Bennett thought that Gambotto's case would not impact on the proposal, should a lawyer in the position of the defendants have adverted to the possibility?
(a) Mr Heydon
1203 I have found on the probabilities that Mr Morgan did refer to Gambotto's case being on appeal at the conference on 14 December 1993, and so that Mr Heydon was made aware of the appeal - even if only in a loose sense which could have conveyed an application for special leave to appeal or the grant of special leave to appeal - if he was not otherwise aware.
1204 In any event, I consider that Mr Heydon should have been aware of the appeal, consistently with the exercise of due care, skill and diligence. Gambotto's case was a relevant case, at the least as a recent appellate discussion of what could constitute oppression, and had been cited prominently in the brief; it was specifically referred to at the conference as the most recent case in the area. The report at hand disclosed that an application for special leave to appeal had been filed, and even if Mr Heydon thought that the Court of Appeal was correct in what it had said it was incumbent on him, in my view, to take note that an application for special leave to appeal had been filed and follow it up to see whether special leave to appeal had been granted. If a grant of special leave to appeal had been granted, that would indicate that members of the High Court considered that there was a point of principle requiring clarification or correction, and that there was at least a prospect that the appeal would be allowed. So the filing of the application for special leave to appeal could not be ignored.
1205 In referring to at least a prospect of a successful appeal, I put aside the evidence tendered by the NRMA by way of a statistical analysis of applications, grants, and appeals, since it did not allow for different kinds of cases and to my mind would not be part of the armoury of knowledge which a barrister would bring to the practice of his profession. But I accept that from general knowledge and experience a barrister would recognise, as did Mr Bennett, that a grant of special leave to appeal warns of doubt about the reasons for the decision appealed against, and Mr Heydon's experience was that about fifty per cent of appeals to the High Court succeeded and that the decisions were generally at the level of legal principle. The percentages do not much matter. The prospect of reconsideration at the level of legal principle is what matters.
1206 Had he noted and followed up the application for special leave to appeal, Mr Heydon would have found that special leave to appeal had been granted on 10 December 1993. Even if he did not then obtain the transcript of the application for special leave to appeal, he should have seen the prospect that the appeal would be allowed to which I have referred (which not to say that the appeal was more likely than not to succeed). What did the exercise of due care, skill and diligence, from someone expert in the relevant field of law, require?
1207 I remind myself that hindsight must be avoided, and so that the upholding of the appeal and the reasons given in the High Court must not govern the answer to that question. The answer is to be found in an analysis of what upholding the appeal could mean for the proposal, viewed as at December 1993. But it must not be forgotten that Mr Heydon was an expert in the relevant area of the law, and was briefed as such. The exercise of reasonable care, skill and diligence required appropriately thoughtful and informed analysis.
1208 I return to the earlier observations about Gambotto's case, up to the decision of the Court of Appeal. The effect of the decision of McLelland J was that the fact of expropriation was enough to constitute oppression. The effect of the decision of the Court of Appeal was that, if the expropriation was fair, the fact of expropriation would not make the exercise of the power to change the articles invalid. Both McLelland J and the Court of Appeal found unhelpful the test of constraint according to exercise of the power bona fide for the benefit of the company as a whole, and the High Court in earlier cases had said much the same. The outcome did not turn on oppression because of unfairness, because the acquisition of the shares was on fair terms. So if the appeal were upheld it was in prospect that it would be upheld pursuant to a principle fashioned by the High Court, other than a test of the exercise of the power bona fide for the benefit of the company as a whole, by which the fact of expropriation, quite apart from fairness, constrained the exercise of the power.
1209 The principle could be as blunt as that upon which McLelland J had apparently acted (and his Honour was a respected and experienced judge in this area), or could leave room for expropriation if a condition or conditions other than fairness were met, but the prospect was of constraint on the exercise of the power to amend the articles greater than as held in the Court of Appeal. At the heart of any such constraint was likely to be (as in fact was evident in the High Court's reasons, although for present purposes that must be put aside) that valuable proprietary rights were at stake, something foreshadowed in the observation of Priestley JA in the Court of Appeal that the divesting of property from an owner without that owner's consent will often attract community opinion that the divestment was oppressive and/or unjust. Whatever was meant by expropriation, and notwithstanding points of distinction such as those seen by Mr Bennett, if under the proposal members arguably lost valuable proprietary rights, a successful appeal in Gambotto's case could mean that the proposal could not be implemented by resolutions in general meetings.
1210 In my opinion analysis of this kind should have led Mr Heydon to see in a grant of special leave to appeal in Gambotto's case a risk in proceeding by the resolutions in general meetings route. Perusal of the transcript of the special leave application, which I think should have been done, would have heightened concern about a risk, because the court did not call on the applicant.
1211 And, if the grant of special leave to appeal signalled the need to peruse the transcript of the argument on appeal in due course, such perusal would have given further grounds for the analysis. Mason CJ spoke of lack of power to amend articles with the effect of expropriating minority shareholders, not of oppression. So did Brennan J. McHugh J spoke of prima facie oppression to take someone's shares away, and of infraction of proprietary rights, and asked "Why should not a statutory power be read subject to the exception if it is not intended to take away such a fundamental right as your right to possess their own share" (sic: the transcript is corrupt, but the meaning is clear). Dawson J responded to the submission "One cannot say just because it is an expropriation it is oppressive" with a direct "Why not?". Going back to December 1993, these attitudes in the High Court could and should have been foreseen by a barrister professing the expertise of Mr Heydon.
1212 In my view, the risk of a decision on appeal adverse to an expropriation of shares in the circumstances of Gambotto's case should have been seen. The members of the NRMA had proprietary rights of at least some value, which Mr Morgan himself had equated with the proprietary rights of a shareholder in a company limited by shares (see in particular his letter of 4 November 1993), and which Mr Heydon recognised (although perhaps describing them as weak rights) in the conference on 29 April 1994 and his opinion of 14 June 1994. There was a difference between the majority expropriating the shares of the minority and a divesting of all memberships in return for shares or cash, but common to both was that proprietary rights were compulsorily taken away by voting power in general meeting. A risk to compulsory divestment of membership should also have been seen, depending on the principle fashioned by the High Court and its basis, and the prospect to which I have referred included that the appeal in Gambotto's case would affect the implementation of the proposal.
1213 I do not overlook the evidence of Mr Bennett. I am far from sure that, in the circumstances in which it was given in chief and by cross-examination, it could properly be taken as evidence of what the exercise of due care, skill and diligence required (more precisely, did not require). But, so far as the views of individual lawyers upon the significance of the appeal in Gambotto's case to the proposal may be taken into account as evidence of practice, it is balanced, if not outweighed, by the attention given by CU, ME and NS to the appeal as something to be known about in order properly to advise the NRMA, and by Professor Austin's express view, prior to the decision of the High Court, that a decision in favour of Mr Gambotto might present a problem because the compulsory extinguishment of membership might be necessarily oppressive. Perhaps these firms and Professor Austin had the benefit of the transcript of the argument on appeal, but the attitudes earlier mentioned would not have been unexpected if the process of analysis I have described were undertaken.
1214 That Mr Morgan saw the appeal in Gambotto's case as something to be watched in November 1994 could only tip the scales further. The preponderance of such "expert" evidence as there was in what Mr Bennett, these firms, and Professor Austin thought and did or would have done, in my opinion favours the NRMA's case, and is consistent with the view to which I would have come in the absence of the assistance gained from that evidence.
1215 It was nonetheless submitted that, taking Mr Bennett's evidence as evidence of what advice could have been given without carelessness even though others might have seen and advised of a risk (CU, ME, NS, and Professor Austin), it would not have been negligent for the defendants to conclude that Gambotto's case would not affect the proposal and so not advise of risk in proceeding by the resolutions in general meetings route. I repeat my doubt about this use of Mr Bennett's evidence, and in any event do not accept the submission.
1216 Although concluding that it was "unlikely in the extreme" that a decision upholding the appeal would be "so wide as to apply to this very different sort of proposal", Mr Bennett explained his reasons. The reasons were open to debate, and a different opinion was at the least reasonably open. As I have explained Mr Bennett was asked to advise of the relevance to the implementation of the proposal of the appeal to the High Court in Gambotto's case, and his evidence presupposed awareness of the possibility that Gambotto's case might impact on the proposal. Mr Heydon did not recognise or give thought to the possibility. In my opinion the issue posed was such that, notwithstanding that Mr Bennett saw a reasonably clear answer, there was still a risk which should have been recognised in advice to the NRMA.
1217 Perhaps curiously, in order to repel a causation argument in connection with free shares/disadvantages negligence to which I will come, the NRMA itself submitted that Gambotto's case as decided by the High Court would not have prevented the demutualisation from proceeding. It said that there were two "simple and obvious" features taking the proposal out of the reach of Gambotto's case. One was that there was no expropriation by a majority because the majority was not expropriating anything. The other was that everyone was treated equally, and all were given the same option. These features have some similarity to those underlying Mr Bennett's reasons for advising that Gambotto's case would not affect the proposal. They are, however, a product of knowledge after the event, and I am not moved by the NRMA's present stance in this respect to depart from what I have said in the preceding paragraphs.
1218 In my opinion, therefore, in responding to the revised brief delivered on 15 or 16 December 1993 Mr Heydon should have adverted to the grant of special leave to appeal to the High Court in Gambotto's case, and should have warned that if the appeal were upheld it might be upheld on grounds inimical to the validity of resolutions in general meetings having the effect that members of the NRMA were deprived of their memberships. Mr Heydon may have thought, and said, the appeal would not succeed, or that if it succeeded it would not succeed on grounds relevant to the proposal, but he did not advert to Gambotto's case in this respect, to an appeal in Gambotto's case, or to risk. At the least, a warning whereby further consideration should be given to the risk when the appeal had been heard, with the benefit of the transcript of the argument, should have been given., If that had been done, as earlier explained the transcript of the argument would have given further grounds for the analysis I have described.
1219 I do not think that, as faintly suggested in the conduct of Mr Heydon's case, failure to advert to the risk can adequately be explained by the reservation for a later occasion of advice on the other issues in the brief, or by the course taken at the conference on 2 February 1994 when those other issues had been raised in the brief of 25 January 1994 and the letter of 31 January 1994. Certainly the other issues and parts of the later brief and letter were to do with oppression, but oppression because of unfairness. The potential in the appeal to the High Court in Gambotto's case was in a sense to do with oppression, but not oppression because of unfairness; rather, oppression because of the expropriatory nature of the proposal. For reasons I have explained, oppression of that kind fell within the advice required of Mr Heydon in December 1993, but if it was not then the subject of advice there were occasions in February and March 1994 when, with appreciation that the issue was not oppression because of unfairness but oppression because of the expropriatory nature of the process, Mr Heydon should have returned to it.
1220 It is, I think, appropriate to test what I have said against evidence of Mr Heydon. Without setting out the passages, there can be found in his evidence acceptance that -
(a) if he had been aware of the appeal, he would not have expected the High Court to have decided Gambotto's case on the facts, but would have expected that "either some renewal of existing principle or some change to it was likely to occur";
(b) when he first read Gambotto's case (in context, before the decision of the High Court) he recognised it as a case dealing with the elimination or extinguishment of the rights of shareholders;
(c) it was a case about whether expropriation of shareholders, even for an adequate value, was "as it were per se unlawful";
(d) if one knew only that there was an appeal to the High Court "it would be difficult to think of any other significant issue in that appeal except a resolution of the difference between the trial judge and the Court of Appeal";
(e) the decision of the Court of Appeal "sanctioned the use of the resolution path as a means of expropriating minority interests";
(f) the appeal to the High Court was appropriately described as an examination of the legitimacy of one of the methods of acquiring minority held shares; namely, the method of alteration of the articles of association;
(g) he recognised when he read and heard the explanation of the proposal that it involved the extinguishment or termination of membership of Association and Insurance;
(h) he had no recollection one way or the other of recognising that to that extent Gambotto's case "bore upon the questions at issue" (but he did not agree that in retrospect it would be "hard to have missed the point");
(i) the question "Why can't he say I just want to stay a member of Association and Insurance" (see Mr Heydon's note for the conference of 7 March 1994) was "the very case Mr Gambotto was making"; that issue was "a Gambotto style issue".
1221 Mr Heydon gave his evidence carefully and with candour, and in these respects it seems to me to support the position that, had he given attention to the appeal, he would have seen that the appeal in Gambotto's case might be upheld on grounds inimical to the validity of resolutions in general meetings having the effect that members of the NRMA were deprived of their memberships. That position is supported, in my view, even when Mr Heydon said that it was his view in 1993-94 that it was not necessary for a company wishing to proceed by way of members' resolution in a proposal such as the NRMA's proposal to establish that its purpose was to secure itself from significant detriment or harm (that being a necessary purpose stated in the decision of the High Court). He did not give attention to the appeal.
1222 Mr Heydon said in his evidence that he had not "put myself in my chair in 1994 to see looking forward what the outcome might be" if advising on the likely result of the appeal or the effect of a successful appeal on the proposal, and that he could not do that in a reliable way in the witness box because it would be necessary to engage in quite an extensive inquiry into the cases and texts. He said that "what the High Court did was, as it were, survey the earlier authorities and propound a view different from the Court of Appeal. A similar sort of process of analysis would have to be undertaken if one was to try and predict what would happen to the Court of Appeal's judgment once the High Court had decided the case". On one view, there was in this a degree of acceptance that there was occasion for such an inquiry.
(b) AAH and AT
1223 The reasoning I have outlined in relation to Mr Heydon applies in principle to AAH and AT. I do not accept their submission to the effect that it was not a breach of the duty of care to fail to be aware of the application for special leave to appeal, or of the appeal, or to fail to perceive that Gambotto's case might present a risk to the proposal.
1224 Mr Morgan and Mr Bateman professed and had expertise in corporations law. They could and should have followed up the application for special leave to appeal, and undertaken the analysis I have described - they were not tyros in the field, or general practitioners entitled to rely on others with greater expertise. What I have said in relation to Mr Heydon applies to them also. But there was more.
1225 Mr Bateman had questioned whether a minority of members could deprive the majority of membership, and Gambotto's case had been specifically raised by Mr Morgan as the answer to his concern. Mr Bateman's answer was that Gambotto's case as decided in the Court of Appeal may not provide a sound basis for proceeding by the resolutions in general meetings route, for reasons only partially involving necessarily oppressive expropriation, but one would have expected Mr Morgan and Mr Bateman to ensure that the application for special leave to appeal was followed up and that regard was had to the pending appeal in the advice which would direct the important choice between scheme or meeting.
1226 Strangely, the grounds for Mr Bateman's concern were not translated into the brief to Mr Heydon, and while Gambotto's case in the Court of Appeal was prominent in the observations in the brief it was not put forward as relevant to the essential disagreement between Mr Morgan and Mr Bateman, whether the fact of something like expropriation would make the exercise of the power to amend the articles invalid.
1227 Concentration on Gambotto's case as relevant only to oppression in the sense of unfairness, by reason of the basis of entitlement, seems to have sent the advice on scheme or meeting down a narrower path than was warranted, and the solicitors did not adequately address either the grounds for Mr Bateman's concern or, following through Mr Morgan's view that Gambotto's case in the Court of Appeal did provide a sound basis for proceeding by the resolutions in general meetings route, whether the pending appeal might affect that basis. They did not give thought to an analysis of the kind I have described when dealing with Mr Heydon's position, but their positions and expertise were such that they should have.
1228 Had they done so, it would have been obvious to them that Mr Heydon had not given due attention to the risk from the appeal to the High Court in Gambotto's case to implementation of the proposal by resolutions in general meetings. The opinion of 20 December 1993 did not refer to Gambotto's case at all. It was primarily concerned with the source of power in s 167 of the Law and the memoranda and articles of Association and Insurance, and did not consider possible constraint on the exercise of the power because of something like expropriation. For reasons I have given, reservation of oppression for a later opinion should not have been seen as the explanation for the deficiency, but in any event neither AAH nor AT took steps to ensure that, when oppression was dealt with (to the extent to which it was), the present relevance of Gambotto's case, and the possible significance of the appeal to the High Court, were addressed and the subject of advice. So AAH and AT left the NRMA without that advice, and because they did not themselves address risk to the proposal from the appeal to the High Court in Gambotto's case, or ensure that Mr Heydon addressed it, they also did not exercise due care, skill and diligence.
1229 In what I have said I have put AAH and AT together. It was submitted by AT that its position was different from that of AAH. It was said that Mr Bateman had expressed reservations at the meetings of 3 and 6 December 1993 on the question of scheme or meeting, saying he thought a scheme of arrangement was necessary; that Ms Conway and Mr Rees at the meeting of 6 December 1993 had firmly said that Mr Morgan would deal with the matter; that Mr Bateman maintained his reservations, and brought them to the meetings of the due diligence committee on 30 March 1994 and 1 July 1994; that Mr Morgan had been left to obtain a final opinion from Mr Heydon; and that the opinion (Mr Heydon's opinion of 28 July 1994, which Mr Bateman did not see until mid-August 1994) was plain. According to the submission, Mr Bateman had "legitimately deferred to and relied on the opinions of those retained and briefed on the matter when his view had been specifically not preferred by the client". It was not for him to speak out any more than he had done, and his sign-off letter was accordingly and appropriately qualified in para 5.2 to exclude an opinion concerning "whether the resolution of members will bind all members".
1230 I do not think this answers the basis for my conclusion that AT, in common with AAH, did not exercise due care, skill and diligence.
1231 Having expressed his reservations, which he attributed to a feeling that the resolutions in general meeting route was not right rather than to risk from Gambotto's case or any other reasoned regard to statute or general law, Mr Bateman's obligation was to see that the NRMA received proper advice. His reservations had been answered by reference to Gambotto's case, and when Gambotto's case was on appeal it followed that the answer might shortly lose its basis. For that reason alone, one would have expected Mr Bateman to speak out more than he had done, but as well the reasons I have given meant that the proper advice included regard to the appeal in Gambotto's case.
1232 As I have said, it would have been obvious to Mr Bateman that Mr Heydon had not given due attention to the risk from the appeal to implementation of the proposal by resolutions in general meeting. His own continued reservations raised on 30 March 1994 and 11 July 1994 show that he did not think the NRMA had been properly advised. He did not himself give attention to the risk, or pursue attention to it by Mr Heydon or Mr Morgan, and the opinion of 28 July 1994 was as silent as the opinion of 20 December 1993 on the matters which had excited Mr Bateman's reservations and on Gambotto's case. Mr Bateman could not adopt a passive role, and in doing so, and failing himself to have regard to the pending appeal in the choice between scheme and meeting, he did not discharge his duty of care.
1233 Mr Bateman referred to and relied on what was said to be an analogous situation in Unioil International Pty Ltd v Deloitte Touche Tohmatsu (Ipp J (1977) 17 WAR 98, only reported in part; FC, 30 September 1998, unreported). I do not think that case assists AT's submission. The plaintiffs made a disastrous investment in a corporate group. Accountants and solicitors were engaged to undertake a due diligence investigation of the group. Ipp J considered and made findings on the demarcation of the work to be done between the accountants and the solicitors, and said that the ambit of the solicitors' duty depended on what they were to do. He accepted that if in the course of their work the solicitors came into possession of information which was not confidential and was clearly of potential significance to the client, the solicitors should advise the client of it, and that both professionals should advise of any "deal breakers". In the present case, as I have said, the retainer of AT extended to advice upon whether the proposal could and should be implemented by scheme or meeting, which included regard to and advice on risk in the resolutions in general meetings route. Mr Bateman was not absolved from attention to that matter when he knew or should have known that it had not properly been addressed.
1234 AAH submitted that it was entitled to rely on Mr Heydon's advice in discharging any duty of care concerning Gambotto's case. The detail in support of the submission seemed to go beyond it, and in large part to be unrelated to it, but included that AAH acted reasonably in obtaining Mr Heydon's advice and, in doing so, referring him to Gambotto's case in the context of the validity of proceeding by members' resolutions. The detail going beyond the submission seemed to contend that there was no breach of the duty of care owed by AAH because any risk posed by the appeal in Gambotto's case was "outside what a competent practitioner at the time would regard as being within the traditional issues associated with oppression".
1235 The submission so far as it concerned reliance on Mr Heydon's advice is answered by what I have already said. The retainer of AAH required that it exercise due care, skill and diligence in acting for the NRMA, and it did not cease to have that obligation because it briefed Mr Heydon. Particularly where Mr Morgan professed and had expertise in corporations law, the NRMA was entitled to the benefit of his expertise, including participation with Mr Heydon in ensuring that a relevant matter was addressed by him: cf Yates Property Corporation (in Liquidation) v Boland at 48-9. The submission so far as it concerned traditional issues associated with oppression is also answered by what I have said. On an analysis of the kind I have described, the traditional issues associated with oppression were under challenge, and the competent practitioner should have so recognised (as a number of practitioners did).
1236 AT put a slightly different submission. It said that it was reasonable for Mr Bateman to act on the law declared in a unanimous decision of the Court of Appeal until it was overturned, particularly when eminent senior counsel experienced in the field had expressed his agreement with the decision and had not thereafter withdrawn or qualified his agreement. In the circumstances I have outlined I do not agree that it was reasonable; in brief, the submission ignored the significance of a grant of leave to appeal and the inattention to it by the senior counsel to which I have referred.
Causation
1237 The advice about scheme or meeting was obtained while management was developing the proposal for presentation to the boards. As earlier recorded, in relation to causation the NRMA's case was that if the Gambotto advice had been given the boards would have voted to stop or slow down the proposal and, if not all, of the expenditure after 17 March 1994 or 28 April 1994 would have been avoided.
1238 Implicitly, it was accepted by the NRMA that warning of risk to implementation of the proposal by the resolutions in general meetings route would not have caused management to abort the proposal, and that management would still have presented the proposal to the boards on (as it happened) 17 March 1994, but with deferral of the proposal until after the decision of the High Court was known as one course open to the boards. A decision to proceed by way of scheme of arrangement was not put forward as an alternative course, either in the NRMA's evidence or in submissions - indeed, in submissions the NRMA said that it was not part of its case that there should have been advice that the risk posed by Gambotto's case might be avoided by taking the scheme of arrangement route.
1239 There is some artificiality in this. Had there been given in December 1993 the Gambotto advice which the NRMA said should have been given, management may well have directed the development of the proposal along the scheme of arrangement route. The two alternatives were squarely posed at the beginning of December 1993, and were recorded for decision by or on 4 January 1994. While there was a preference for the resolutions in general meetings route, because it was perceived that there would be a lesser platform for opponents to the proposal, management could have decided that it was better to suffer the enhanced platform rather than present the opponents with a Gambotto's case argument. If management did not so decide, and presented the proposal to the boards accordingly, the boards may have considered that the scheme of arrangement route was preferable to delaying the proposal for an unknown period pending the decision of the High Court, with the possibility that the decision dictated the scheme of arrangement route in any event.
1240 But the NRMA did not seek to improve its recovery by a case for abandonment of the proposal by management (or the boards) prior to 17 March 1994. Nor, with the exception of questions to Dr Werner asking if he would have "favoured a scheme of arrangement" if told that "the object could be achieved with legal certainty", did the defendants in the course of the evidence seek to meet the case as presented by the NRMA by cross-examination of the NRMA's witnesses to suggest that the NRMA would have continued with the proposal but by the scheme of arrangement route. Relevantly, the issue between the parties was whether or not, if the Gambotto advice had been given, the NRMA would have put the proposal on hold and so avoided wasted expenditure.
1241 A submission particularly made by Mr Heydon was that, assuming Mr Heydon had given the Gambotto advice which the NRMA said should have been given, it was likely that it would not have been communicated to the NRMA, and even more likely that within the NRMA it would not have been communicated to the boards. I do not accept the submission.
1242 For the first limb of the submission it was said that Mr Heydon's advice would have gone to Mr Morgan and/or Mr Bateman, and that it was likely that they would not have passed it on. It was likely that they would not have passed it on, it was said, because with the knowledge they in fact had they did not tell anyone at the NRMA about Gambotto's case being on appeal and its possible relevance to the implementation of the proposal.
1243 Mr Morgan and Mr Bateman failed so to advise the NRMA, but not because they considered the matter unworthy of communication to the NRMA. Rather, they failed because they did not see the risk and consequent relevance. The reasoning in this limb of the submission is astray. Its hypothesis was not put to Mr Morgan or Mr Bateman, and in my opinion it is all but unthinkable that, if Mr Heydon had warned of a risk to proceeding by the resolutions in general meetings route, the solicitors would not have passed on what he said to the NRMA. The question of scheme or meeting was an important question, alive at the time, and known to management. I do not accept this limb of the submission.
1244 For the second limb of the submission it was said that the communication would have been to Ms Godwin or Ms Conway, that it would have been "filtered" or "interpreted" at management level, and that the boards would have received no more than a fairly generalised summary of what management had done in the development of the proposal. Many references were given to the directors' faith in and reliance on management, including in receiving only the end-product of management's consideration of a number of matters, and it was said that what would have happened was demonstrated by the retention of Mr Heydon's opinions of 2 and 3 August 1994 at management level and (in another use of the evidence on the matter) by the failure to provide to the boards the opinions of Mr Jackson of 19 October 1994 and Mr Heydon of 20 October 1994. That the boards were not told in early 1994 of the CU, ME and NS concerns in early 1995 about the appeal in Gambotto's case was said to support that management would not have passed on the Gambotto advice. Further, it was said, the NRMA had not led evidence from Mr Rees or Ms Conway, or called Mr Willing to give evidence, that Gambotto advice would have been passed on to the boards, so a conclusion favourable to the NRMA should not be inferred (Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 289 at 418-9; Huntsman Chemical Company Australia Ltd v International Pools Australia Ltd (1995) 36 NSWLR 242 at 263-9) and a conclusion to the contrary could more comfortably be reached (Jones v Dunkel (1959) 101 CLR 298).
1245 Given the importance of the question of scheme or meeting, both as to the fundamental procedure for a demutualisation and as material to the voicing of and grounds for opposition to the proposal, I consider it very likely, at the least, that management would have reported to the boards on the two possible routes and, amongst other things, the risk the subject of the Gambotto advice. Assurance about the chosen route was seen as important for the due diligence committee, and rightly so; I do not think management would have left the boards unaware of the risk. I so conclude despite what was put about inferring and comfort in conclusions, and am not swayed from my conclusion by the other matters to which I have referred. It was thought that the free shares problem identified by Mr Heydon had been adequately dealt with, but in any event a number of directors were made aware of it, and the circumstances of non-disclosure of the opinions in October 1994 and of the attention to Gambotto's case in early 1995 were very different from those at the time of the question of scheme or meeting in early 1994. I do not accept this limb of the submission either.
1246 I have already set out the Gambotto advice as defined in the points of claim, and noted that it was rather different from the Gambotto advice taken up in the NRMA's evidence. Rather different again was the Gambotto advice as summarised in the NRMA's submissions, to repeat, advice that Gambotto's case was on appeal to the High Court and, after 10 December 1993, that the appeal had reasonable prospects of success and there was a real risk that the High Court's decision might adversely impact upon the proposal.
1247 This was certainly a summary, because the case that the boards would have voted to stop or slow down the proposal, put through the evidence of a number of the NRMA directors at the time called by the NRMA, took up a common form, lengthy, assumed advice set out in their witness statements -
"I have been asked to assume that at or prior to the meetings of 17 March 1994 referred to above that either the First Defendants ('AAH'), the Second Defendants ('AT') or both of them had advised me that -