PANTON v. BAILEY & 4 ORS [2003] NSWSC 407

CATCHWORDS : NEGLIGENCE - essentials of action for negligence - where economic or financial loss - negligent misstatement - Statement of Claim alleged negligence where Defendants gave information to Bank which led Bank to advance money to Cox which Cox used to purchase land and Plaintiff entered into partnership with Cox for vineyard and winery on the land - plaintiff also consulted defendnats for tax advice - Master struck out Statement of Claim and allowed leave to amend - on appeal and cross-appeal, struck out without leave to amend - consideration of development of law of economic loss torts - consideration of causation, Fair Trading Act and Fiduciary Duty Claims. - PRACTICE and PROCEDURE - pleadings - striking out Statement of Claim Pt15 r.26 where pleading discloses no reasonable cause of action - claim outside limits of negligent misstatement law. Supreme Court Rules Pt.15 r.26 LEGISLATION CITED : s.68 of the Fair Trading Act 1987 s.82 of the Trade Practices Act 1974 (Cth) Aghajanian v. Stanley Thompson Valuers Pty Ltd [1999] NSWSC 1154 Australian Breeders Co-Operative Society Ltd v. Jones & Ors (1997) 150 ALR 488 Caltex Oil (Aust.) Pty Ltd v. The Dredge Willemstad (1976) 136 CLR 529 Caparo Industries PLC v. Dickman [1990] 2 AC 605 Esanda Finance Corporation Ltd v. Peat Marwick Hungerfords (1997) 188 CLR 241 Hedley Byrne & Co. Ltd v. Heller & Partners Ltd [1964] AC 465 Hill v. Van Erp (1997) 188 CLR 159 Perre v. Arpand Pty Ltd (1999) 198 CLR 180 San Sebastian v. The Minister (1986) 162 CLR 340 Hawkins v. Clayton (1988) 164 CLR 539 CASES CITED : White v. Jones [1995] 2 AC 207 Ta Ho Ma Pty Ltd v. Allen (1999) 47 NSWLR 1 State of Western Australia v. Wardley Australia Ltd & Ors (1991) 30 FCR 245 Wardley Australia Ltd v. State of Western Australia (1992) 175 CLR 514 Janssen Calag Pty Ltd v. Pfizer Pty Ltd (1992) 37 FCR 526 March v. E & MH Stramare (1991) 171 CLR 506 General Steel Industries Inc. v. Commissioner for Railways (N.S.W.) (1964) 112 CLR 125 Bryan v. Maloney (1995) 182 CLR 609 Seas Sapfor Forests Pty Ltd & Ors v. Electricity Trust of South Australia (1996) 187 LSJS 369 McMullin v. ICI Australia Operations Pty Ltd [1997] 72 FCR 1 Johnson Tiles Pty Ltd v. Esso Australia Pty Ltd [2003] VSC 27 PARTIES : Bernard John Panton - Plaintiff Bruce Leonard Bailey, Peter Charles Mattock and Peter John Saccasan t/as Saccasan Bailey Partners FILE NUMBER(S) : SC 5534/01 COUNSEL : Plaintiff in Person R. Dubler - Defendant SOLICITORS : John R. Quinn & Co. - Plaintiff Phillip Fox Lawyers - Defendant

LOWER COURT Supreme Court (Master) JURISDICTION : LOWER COURT SC 5534/01 FILE NUMBER(S) : LOWER COURT Acting Master Berecry JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5534/01 PANTON v. BAILEY & 4 ORS JUDGMENT 1 HIS HONOUR: The plaintiff commenced these proceedings by Statement of Claim filed on 16 November 2001. Particulars of the Statement of Claim were given by correspondence. By Notice of Motion of 16 April 2002 the defendant claimed that the Statement of Claim be struck out pursuant to Pt.15 r.26 of the Supreme Court Rules. The Notice of Motion was heard by Acting Master Berecry on 22 October 2002. On 30 October 2002, for reasons then published, the learned Acting Master decided that leave should be granted to the plaintiff to amend his pleadings in relation to the claims based on negligent misstatement and fiduciary duty and the limitation issue in respect of the claim based on misleading and deceptive conduct, and made orders by which certain paragraphs of the Statement of Claim were struck out. The Master granted the plaintiff liberty to file and serve an Amended Statement of Claim within 28 days. The plaintiff appealed and claimed that the order of 30 October 2002 should be set aside and the Notice of Motion should be dismissed. The defendant cross-appealed and claimed that certain of the Master's orders should be set aside and the Statement of Claim should be struck out. Proceedings before the Master were conducted on the terms of the Statement of Claim together with evidence of the correspondence relating to particulars and the accounts of Miller Blue Services Pty Ltd for the year ending 30 June 1995. A further letter of particulars dated 2 December 2002 from the plaintiff's solicitors was put in evidence before me. 2 Part 15 r.26 of the Supreme Court Rules is in these terms: (1) Where a pleading - (a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading; (b) has a tendency to cause prejudice, embarrassment or delay in the proceedings, or (c) is otherwise an abuse of the process of the Court, the Court may at any stage of the proceedings, on terms, order that the whole or any part of the pleading be struck out. (2) The Court may receive evidence on the hearing of an application for an order under subrule (1) . 3 On an application under this rule it is appropriate to take a broad view of the plaintiff's claim and to have regard to the prospect that amendments may be made to the pleading as additional information is encountered in the course of preparation for hearing. Allowances are made in this way for changes which can truly be considered as amendments, such as corrections of factual errors, better considered or fuller statements of allegations, or the introduction of ancillary or more complete expositions of what is alleged in the pleading. The liberty thus allowed does not extend to contemplating a radical or far-reaching transformation in the case put forward; a transformed case can only be regarded if the pleader applies for leave to amend the pleading in terms which enable what is under consideration to be clearly understood. Amendments are allowed liberally; but they are not allowed, or considered, without knowing what they are to be. The Master's order gave liberty to file and serve an Amended Statement of Claim within 28 days; that order was not availed of, and the plaintiff's case before me was that he upheld the Statement of Claim as filed. 4 The plaintiff, who conducted the hearing of the appeal in person (although he has legal representation), is plainly not a trained lawyer but he presented his case in what was, for a lay person and for such a difficult subject, a fairly clear manner. It was not possible however to get him to accept fully the discipline of confining the debate to the terms of the pleading and the material in evidence. He told me that there had been some attempt to obtain the defendant's consent to an amendment to the Statement of Claim before the hearing before the Master. He sought to show me a form of Amended Statement of Claim but was not prepared to tell me that he adhered to that document or wished to make the amendments in it. What the plaintiff said about this document and about amendment could not be clearly understood; he neither approbated nor reprobated the document, and notwithstanding the full opportunities extended to him by the Master's order he had no clear proposal to make an amendment. In these circumstances I was not prepared to pay any regard to the document. My address to the appeal has been based on the view that, notwithstanding the liberal view taken about the possibility of amendment when testing a pleading under this rule, there is no identifiable possible amendment at the present time. There is no allegation and there was no reference in the hearing to any possibility of a case based on conspiracy or other tort involving intentional harm caused to Mr Panton. I had the benefit of careful written submissions prepared by the plaintiff's counsel, as well as the plaintiff's own oral submissions, and also of submissions, including written submissions, by the defendants' counsel. 5 The Statement of Claim is expressed in a markedly unclear way. It seeks to allege causes of action for negligence causing economic loss, for breach of fiduciary duty and for misleading or deceptive conduct under s.42 and s.68 of the Fair Trading Act 1987. None of these is simple or routine and none falls into a category where the facts relied on are in a class which recurs frequently. For just and fair preparation for and conduct of the trial there is a need for clear statement in summary form of the material facts on which the plaintiff relies, without going to the evidence by which those facts are to be proved; without such a statement it would be difficult, and it would not be procedurally fair, for the parties to prepare themselves to go to trial with appropriate evidence and reasoning, and it would be difficult for the Judge to conduct the hearing, make evidence rulings and decide the issues. The Statement of Claim is of little value for these purposes. There is no orderly arrangement of allegations or of ideas, it is not easy to recognise which allegations are said to be related to which causes of action, there is no dealing in a recognisable way with a claim under the Fair Trading Act apart from widely dispersed brief allusions and the claim for relief, and there is nothing to indicate, in a clear way (although the subject is alluded to) what is said to link the matters complained of by a chain of causation to the loss alleged; nor can the loss alleged be identified in a clear way, although that too is alluded to. On the other hand there are fairly lengthy passages which seem to set out in detail evidence upon which parts of the claim are based; these probably do not have any part in a pleading at all, and were very little referred to. In the presentation of his case the plaintiff frequently diverted into assertions which went beyond the terms of the pleading, and may have been intended to be further elements of a cause of action relied on or particularly telling aspects of the evidence which he proposed to call. This did not assist my understanding of the essential debate. 6 While those who wish to follow these reasons fully must read the Statement of Claim, I will give an outline of the allegations in it. The defendants (Bailey) are a firm of Chartered Accountants and Tax Agents and provided services as accountants and tax agents to Mr Cox and to Miller Blue Service Pty Ltd of which Mr Cox was a director and shareholder. About 14 October 1995 Bailey was retained by Mr Cox to assist in borrowing $250,000 from a bank to fund the purchase of "Burnbrae", a property at Mudgee. The purpose of the acquisition was connected with a proposed partnership between Mr Cox and Mr Panton, who during 1995 had discussed entering into a partnership for the purpose of growing grapes and making and selling wine. Mr Cox told Mr Panton that he did not have the financial capacity to enter a partnership unless he could obtain a loan from the bank, and obtaining the loan from the bank was dependent upon Bailey producing financial statements for Miller Blue. 7 About 23 October 1993 Bailey produced financial statements for Miller Blue for the year ending 30 June 1995. Bailey knew that the financial statements would be used by Mr Cox to support his application for a bank loan in respect of Burnbrae. About 23 October 1995 the financial statements were provided to National Australia Bank in support of Mr Cox's application for a loan to purchase Burnbrae. (Mr Panton told me that he expected to give evidence that Bailey furnished the financial statement directly to NAB by letter). By providing financial statements Bailey represented to NAB:

(b) that Miller Blue had an asset being shares in other companies acquired for $750,000.

However in fact Miller Blue did not owe Mr Cox $271,835.67; rather Mr Cox owed Miller Blue $95,664.33; and Miller Blue had not acquired shares in other companies for the sum of $750,000. (Particulars alleged, not in a clear way, that the transactions which underlay statements in Miller Blue's accounts were not genuine.) The accounts are in evidence; they were prepared by Bailey; they stated under Creditors and Borrowings (Non-current) that Miller Blue was liable to Mr Cox for a director loan of $271,836.00. The accounts did not say that Miller Blue had an asset being shares in other companies acquired for $750,000; an item in the balance sheet said "Non-current Assets Investments $750,000." This states a value, not a cost of acquisition, and does not say what the investments were. 8 The accounts included a statement by the directors that they gave a true and fair view, and an accountant's report by Bailey stating that they had not been prepared in accordance with accounting standards, that they had not been audited, that Bailey expressed no opinion whether they presented a true and fair view and gave no warranty of accuracy or reliability and did not want to take responsibility to any person other than the directors. It is alleged that the representations (a) and (b) which Bailey made to NAB were false, misleading, deceptive, and were made in trade or commerce, that about 10 November 1995 NAB offered Mr Cox a loan of $250,000 to be secured by a mortgage over Burnbrae, and that Mr Cox accepted the offer. 9 Paragraph 15 alleges: 15. Panton relied on: (a) the fact that the financial statements were being prepared by Bailey and were being used in the process to establish that Cox had sufficient after tax funds to service the NAB loan. (b) Bailey to produce the financial statements for provision to Cox's proposed lenders which disclosed a true and fair view of Miller Blue's affairs.

The vigilant reader will see that it is not alleged that Mr Panton saw the financial statements, and it is not alleged that he knew what was in them. It is not alleged that Mr Panton had any arrangement at all with Bailey about the statements. 10 It is alleged (SC16) that as a result of Mr Cox securing and accepting the NAB loan, Mr Panton agreed with Mr Cox to an elaborate arrangement under which Mr Cox was to lease a winery site to a company called Burnbrae Winery Pty Ltd who were to erect and operate a building and Mr Cox would develop a vineyard on Burnbrae at his expense. An elaborate array of provisions of the agreement are alleged including arrangements about Mr Panton advancing money to Mr Cox, disposition of the grapes and wine produced, shares and other affairs of Burnbrae Winery Pty Ltd and many other matters. Then the Statement of Claim alleges a series of other dealings and arrangements involving Mr Panton and Mr Cox including dealings in the title to Burnbrae and loans and other dealings; and there are lengthy allegations about agreements made about 15 October 1996 and 11 December 1996 and a partnership agreement under which on 1 February 1997 Mr Cox and Mr Panton commenced business in partnership in connection with growing grapes, making wine and sale of wine. These allegations occupy about half the text of the Statement of Claim and it is difficult to understand their significance for a statement in summary form of the material facts upon which the plaintiff relies. They are expressed with some obscurity, for example: In October 1996 NAB consented to Cox transferring a one half interest in the property to Panton as tenants in common, as part of an arrangement in which Panton and Cox took a further loan of $105,000 from NAB.

I think it should be understood that a half interest in Burnbrae in fact was transferred to Mr Panton (paras 16-25), and that Mr Panton was one of the borrowers from NAB in a further loan. 11 In paras SC26-30 some actions of NAB are alleged. About 17 November 1998 NAB sought to require Mr Panton to guarantee Mr Cox's indebtedness, but Mr Panton refused, and NAB threatened to enforce its rights as mortgagee of Burnbrae if Mr Panton did not. SC 29 alleges: 29. NAB was entitled to foreclose on the Cox Loan by virtue of clauses 13(c) and 14 of the Loan Agreement between Cox and NAB dated 10 November 1995, which provide that: (a) in the event of default NAB has would have a right to serve on Cox demand whereupon the whole of the loan, interest, fees, charges and all monies owing or payable by Cox under the Loan Agreement would become immediately due and payable. (b) it was an event of default if any of the information supplied by Cox in support of the loan application was found to be false, or in the reasonable opinion of NAB is misleading in the material respect.

It is then alleged that NAB was able to foreclose on the loan to Mr Cox and exercise its powers to sell Burnbrae, and that Mr Cox had stated that he would not resist such attempts. 12 The vigilant reader will see that it is not alleged that Mr Panton executed a guarantee, or took any other action, that it is not alleged that the Cox loan was secured on land owned by Mr Panton and it is not alleged, in para 29 or elsewhere, that NAB foreclosed on the Cox loan by virtue of cll.13(c) and 14 of the Loan Agreement; and it is not alleged that NAB ever mentioned those clauses or asserted it would rely on them, or did rely on them; or foreclosed on the Cox loan at all. 13 Under the heading "Loss and Damages" paras SC 31, 32 and 33 allege to the effect that Mr Panton agreed to enter into all the agreements and became a partner and contributed moneys to the partnership by reason of the false misleading and deceptive statements of Bailey, that Mr Panton discovered the conduct of Mr Cox and elected to rescind the agreements between him and Mr Cox by letter of 30 June 2000 and 33. By reason of the conduct of Bailey, Panton has suffered loss and damage. Particulars a) Panton invested money in the partnership. b) Panton incurred liabilities to NAB. c) Panton's share of the partnership assets is worth significantly less than the amount of his investments plus the liabilities to NAB. 14 Lack of precision in the concept of financial or economic loss, referred to by Gleeson CJ in Perre v. Apand (1999) 198 CLR 180 at 193 [6] has exerted itself here. 15 No more is alleged of the chain of causation between Bailey producing Miller Blue financial statements provided to NAB in October 1995, and Mr Panton suffering loss and damage. So far as is shown by the allegations in the Statement of Claim, the chronological sequence is what is relied on. An indulgent reader might conclude that it was contended that the sine qua non or but-for view of causation had been satisfied. (Mr Panton's oral submissions indicated that he regarded it as important for the formation of his agreements with Mr Cox including the Partnership Agreement that Mr Cox's finance from NAB was secure for 14 years, yet NAB could recall the loan at any time because its agreement to the 14 year term was obtained by deception. The Statement of Claim does not allege that Mr Cox's dealings with NAB provided for the 14 year term, and does not allege that availability of finance for 14 years was material to Mr Panton's agreements with Mr Cox, or that Mr Panton knew of its being available when he made any of the agreements or at any other time.) 16 SC 34 and 35 allege many facts and circumstances in which Bailey owed Mr Panton a duty of care not to provide any bank assessing Mr Cox's loan with financial statements and information which were false, misleading or deceptive. (The words "misleading or deceptive" occurring several times throughout the Statement of Claim in relation to financial statements are the most significant allusion to a cause of action under the Fair Trading Act). 17 Collected in 16 subparagraphs of para 34 are matters which it is alleged that Bailey knew or ought to have known. These include: a) Cox was seeking a loan of $250,000 over a 14 year period to assist in funding the purchase of the property on which the repayments would be approximately $33,000 a year; (b) the primary source of Cox's income was from Miller Blue and its subsidiary Training & Support; (c) Cox's salary in the tax year 1994/1995 before the deduction of income tax was from Miller Blue $23,556 and from Training & Support nothing; (d) Cox needed to show he had an after-tax cash flow from Miller Blue substantially above the level of his after tax salary so as to establish that he had income sufficient to service the loan being sought; (e) Cox was claiming that he could take approximately $90,000 a year free of income tax out of Miller Blue because Miller Blue owed Cox $271,835.67 on 30 June 1995; (f) in fact and in truth Cox owed Miller Blue $95,664.33. k) Panton had sought advice from (Bailey) on taxation matters relating to Cox's proposal to Panton that they should enter into a partnership and acquire a vineyard and winery. l) if Cox failed to obtain a loan i) the purchase of the property would fail; ii) Panton would not have entered into the proposed partnership or any other arrangement with Cox relating ot the property; m) any action by him, which facilitated Cox obtaining a loan for the purchase of the property, would likely to result in Panton entering into a venture with Cox based on the property; n) any bank assessing Cox's loan application would be likely to rely upon any financial statements prepared and information provided by Bailey; o) in the event a bank agreed to provide a loan relying on the financial statements and/or information provided by Bailey, which statements were false, misleading and deceptive, the bank would be likely to have rights to terminate any commitment it may have given in respect of such loan: 18 It is then (SC36) alleged that Bailey was negligent in breach of a duty of care to Mr Panton in making the representation. There are particulars of this allegation. (Mr Panton told me that his case was that Bailey actually knew that the accounts were false). 19 Paragraph 37 repeats para.15 word for word. Paragraph 38 alleges that by reason of the negligence Mr Panton suffered loss and damages and its particulars adopt para.33 20 In correspondence particulars were given of the allegation in para.5 relating to Bailey giving tax advice to Mr Panton. The particulars are to the effect that about 18 May 1995 Mr Panton asked Bailey to advise on the tax nature of losses made by Canord Pty Ltd and their possible use; Bailey agreed and on 25 May 1995 gave Mr Panton oral advice about possible use of the tax losses in two ventures, one of which was a venture involving Mr Cox. The particulars really add nothing to para.5 of the Statement of Claim and its allegation to the effect that Bailey provided Mr Panton with tax advice in connection with ventures one of which was a partnership with Mr Cox. 21 Particulars of paras 33, 38 and 43 given in correspondence state that the time when it was alleged that the plaintiff suffered loss and damage was "No sooner than when NAB required the plaintiff to execute a guarantee and indemnity in favour of Mr Cox on 17 November 1998." This should be taken with SC27 which alleges "Mr Panton refused to execute such a guarantee". These particulars reveal nothing of the plaintiff's case and cannot be understood with the allegation and particulars in SC33. Mr Panton referred to the NAB's requirement on or about 17 November 1998 as the earliest possible accrual date of his cause of action under the Fair Trading Act, and pointed out the date of filing the Statement of Claim 16 November 2001 was the last day of three years from that date. 22 Extensive particulars were given of SC34 and the sixteen subparagraphs setting out matters which it is alleged that Bailey knew or ought to have known, in relation to the negligence alleged. Further particulars furnished since the decision of the Master, and put in evidence before me dealt with these allegations. It was then alleged to the effect that Bailey knew that the Miller Blue financial statements were false, misleading and deceptive because Bailey correctly recorded in the Miller Blue share register that the consideration for transfer by Mr Cox and Mr Shih of shares in Training and Support to Miller Blue was $15,000, but entered into the books of account (of Miller Blue) a transaction whereby Mr Cox and Mr Shih proposed to sell their shares in Training and Support to Miller Blue for $750,000; this was a sham transaction and known by Bailey to be a sham transaction. It is also alleged that in a letter from Bailey to NAB dated 23 October 1995 Bailey knowingly misstated Mr Cox's after-tax income for the years 1994 and 1995, and that Bailey knew that Mr Cox would not receive approximately $90,000 a year by way of loan account drawings for the next three years. (Apparently it is intended to say that the letter was to the contrary.) 23 To state the ground shortly, the Master decided that the paragraphs of the Statement of Claim alleging negligence could not stand because they did not allege a cause of action for negligent misstatement within the line of authority commencing with Hedley Byrne & Co. Ltd v. Heller & Partners Ltd [1964] AC 465 and leading to Esanda Finance Corporation Ltd v. Peat Marwick Hungerfords (1997) 188 CLR 241; he particularly referred to the judgment of Brennan CJ at 252 and his Honour's statement of what in every case it is necessary to allege and prove. The passage is: The uniform course of authority shows that mere foreseeability of the possibility that a statement made or advice given by A to B might be communicated to a class of which C is a member and that C might enter into some transaction as the result thereof and suffer financial loss in that transaction is not sufficient to impose on A a duty of care owed to C in the making of the statement or the giving of the advice. In some situations, a plaintiff who has suffered pure economic loss by entering into a transaction in reliance on a statement made or advice given by a defendant may be entitled to recover without proving that the plaintiff sought the information and advice. But, in every case, it is necessary for the plaintiff to allege and prove that the defendant knew or ought reasonably to have known that the information or advice would be communicated to the plaintiff, either individually or as a member of an identified class, that the information or advice would be so communicated for a purpose that would be very likely to lead the plaintiff to enter into a transaction of the kind that the plaintiff does enter into and that it would be very likely that the plaintiff would enter into such a transaction in reliance on the information or advice and thereby risk the incurring of economic loss if the statement should be untrue or the advice should be unsound. If any of these elements be wanting, the plaintiff fails to establish that the defendant owed the plaintiff a duty to use reasonable care in making the statement or giving the advice. 24 See also in Esanda Dawson J.at 257, Toohey and Gaudron JJ at 263 and their reference to White v. Jones [1995] 2 AC 207 at 272; also in Esanda McHugh J at 284 and Gummow J at 301. 25 As stated by Brennan CJ and, I would think, on any available view of the law of misstatement, it is necessary that the defendant's information be communicated to the plaintiff, either individually or as a member of an identified class. The Court of Appeal of New South Wales continues to treat communication and reliance as necessary elements in a course of action for negligent misstatement: see Ta Ho Ma Pty Ltd v. Allen (1999) 47 NSWLR 1. It is not part of Mr Panton's case that the accounts, or the letter of 23 October 1995 from Bailey to NAB referred to in the particulars, were communicated to Mr Panton, however indirectly. It was contended, in the Notice of Appeal and in submissions, to the effect that it was an error that the Master treated the plaintiff's claim as a claim for negligent misstatement, and treated it as necessary that the plaintiff satisfy the test stated by Brennan CJ in Esanda. It was contended that the present case is not such a case; counsel's written submissions said: "He did not rely on the information supplied by Bailey to NAB in the sense of being persuaded by it to proceed with his investments. Mr Panton's case, however, is that he did rely on Bailey to provide an accurate statement." This appears to be an allusion to para.15 of the Statement of Claim. It was contended that it is not necessary that a claim for pure economic loss should fit within a traditional negligent misstatement case, and it was said that the decision of the Full Court of the Federal Court in Australian Breeders Co-Operative Society Ltd v. Jones & Ors (1997) 150 ALR 488 is an example of this. (This case is referred to as ABCOS). 26 In my view the judgment of Wilcox and Lindgren JJ who formed the majority in ABCOS shows that their Honours did not see themselves as awarding a remedy under different principles to those in Esanda; the reasons given, particularly at p523 and following, show that quite to the contrary the majority saw their decision as an application of the principles in Esanda in relation to facts which were unusual and difficult to interpret. The facts in ABCOS were complex but, in a severe epitome, the persons who, in Esanda terms, needed to show reliance on the valuation made by ABCOS were 18 investors in the horse breeding syndicate; the 18 investors did not see or know of the contents of the valuation themselves and were represented at the settlement for the purchase of blood-stock horses required by the venture by Mr McDonald. The valuation was obtained by and furnished to the financier (referred to as MANL), and Mr McDonald did not see the valuation or know what it said; he was aware of its existence and his evidence, which was accepted, was "I had to turn my mind to the ABCOS valuation for the simple reason that I realised that if the ABCOS valuation did not come to the value that was being paid for the horses, then the financier wouldn't pay - wouldn't go ahead …. It wasn't me buying the horses, it was up to the financier. I assumed that the valuation was satisfactory to them, otherwise it wouldn't have happened" (521). 27 The majority accepted this evidence, and they also made findings (at 524-525): … it is clear that ABCOS, through Pulford, knew the valuation would be communicated to the prospective syndicate members; indeed it was addressed to the syndicate, not to MANL. Copies were sent to King, McDonald and Done, all of whom were acting on behalf of the syndicate members rather than MANL. Pulford did not know the identity of the proposed members of the syndicate and he may not have considered whether the valuation would be seen by each of them. But he intended to place it before them, individually or as a group. Pulford knew, or ought reasonably to have known, that the valuation would be likely to cause the syndicate members to proceed with the venture. This was not only because they might draw comfort from the values ascribed to the horses by him, but because the valuation would be likely to ensure provision of the finance that was critical to the venture proceeding. In other words, Pulford knew the valuation was likely to be a crucial element in the decision whether or not the venture was to proceed; in the words of Brennan CJ, it "would be very likely to lead the plaintiff to enter into a transaction of the kind that the plaintiff does enter into". But it cannot be said Pulford knew, or ought to have known, it would be likely that the syndicate members would enter into the transaction in reliance on the valuation. Pulford knew the financier would rely on the valuation in entering into the transaction; but he also knew the prospective members were already minded to proceed, on the basis of the prices agreed between King and McDonald. The investors did not rely on the valuation, in the sense of being persuaded by it to proceed with their investment. But the valuation caused them to proceed with their investment, because MANL relied on it in deciding to provide the finance necessary for the venture to proceed. We have hesitated over this aspect of the case but we think it falls within the notion of proximity described by Brennan CJ. As judges have often pointed out, it is erroneous to read a judgment as if it were a statute. In applying an authority, the task is to identify and apply the relevant principle, rather than to determine whether the facts of the instant case fall within the precise language of the earlier case. Courts have imposed a limitation on the extent of the duty of care in respect of a representation because of concern about the effect of an unlimited duty of care on commercial and professional activity: see per McHugh J in Esanda at 781-7. The classic expression of this concern was by Cardozo CJ in Ultramares Corp v Touche (1931) 174 NE 441; at 444: a duty of care imposed only by reference to the criterion of foreseeability would expose the maker of the representation "to a liability in an indeterminate amount for an indeterminate time to an indeterminate class". An approach that upheld the existence of a duty of care to B where A relied on the representation to enter a particular transaction with B, the representor knowing of B's existence and the general nature of the proposed transaction, would fall well short of exposing representors to the risk described by Cardozo CJ; the class would be determinate, or at least determinable, and the amount and duration of the risk would be limited by the nature of the known transaction. The extent of liability in such a case would be no greater than if the representation had caused B, rather than A, to go ahead with the transaction; a situation clearly covered by the Hedley Byrne principle as developed in Australia by the cases discussed in Esanda . 28 In Aghajanian v. Stanley Thompson Valuers Pty Ltd [1999] NSWSC 1154 Hamilton J made an extensive citation from ABCOS at para [88] and did not treat that case, to the difficulties of which he referred at [93, 94] as involving the application of any principle other than that expressed in Esanda. 29 In my opinion it is altogether clear that in ABCOS the learned Judges in the majority saw themselves as applying the principles established in Esanda, and not some other and different principles; notwithstanding that the syndicate members did not rely on the transaction in a manner analogous what was under consideration in Esanda, and did not rely on it in the sense of being persuaded by it to proceed with their investment. It is I think significant that the valuation was in fact directed to the syndicate members, and that it was intended that it should influence their conduct. Their Honours adverted to Ultramares and to the underlying concern about indeterminate liability which has made the approach of courts to negligence law to economic loss caused by dissemination of information different to their approach to economic loss caused by physical damage. 30 Mr Panton contended that his claim is a negligence claim in quite a different classification to negligent misstatement and Esanda. He contended that the principles on which his case should be judged are based on Caltex Oil (Aust.) Pty Ltd v. The Dredge Willemstad (1976) 136 CLR 529. He contended that there is no risk of an indeterminate liability of the kind referred to in Ultramares because Bailey was in fact aware that Mr Panton was contemplating and negotiating for a partnership with Mr Cox; and further, that Bailey was in fact aware that the formation of such an arrangement by Mr Cox with Mr Panton was dependent upon Mr Cox obtaining the finance in the application for which the accounts and Bailey's letter of 23 October 1995 were to be considered by the bank. (In making this contention Mr Panton went considerably further than was justified by the terms of the allegations in the Statement of Claim, and by the particulars in evidence.) It was contended that the "transferred loss cases" give examples of courts being less stringent in the test they apply in relation to proximity in cases of pure economic loss. Explaining "transferred loss cases" counsel's written submission said "That is, where the loss that would otherwise be suffered by a person as a consequence of being the owner of property is transferred to another person." 31 In Australian law a rule which in my opinion was established by Caltex Oil (Aust.) Pty Ltd v. The Dredge Willemstad (1976) 136 CLR 529 is that as a general rule damages are not recoverable for pure economic loss even when it is foreseeable; see Gibbs J at 555. See too Stephen J at 573. The categories of cases in which notwithstanding this general rule damages are recoverable for pure economic loss are categories in respect of which decisions of courts have established that the general rule does not prevent recoverability; characteristically these are cases where the defendant has the knowledge or means of knowledge that a particular person, not merely as a member of an unascertained class, will be likely to suffer economic loss as a consequence of negligence; but this is a general characteristic of the categories where there is recoverability, not a defining characteristic. The most clearly established category of recoverability is the law of negligent misstatement. The contents and the limits of this are most recently illustrated in High Court authority by Esanda Finance Corporation Ltd v. Peat Marwick Hungerfords (1997) 188 CLR 241. It can be said respectfully that there is no authoritatively established principle upon which additional categories of recoverability can confidently be recognised, and the difficulty of establishment of such a principle arises from the nature of the judicial process, the incremental establishment of legal rules by decision case by case, and the exposition of the processes of reasoning of many individual judges in appellate decisions with the practical necessity, having regard to the nature of human reasoning processes, that the grounds of decision will to a greater or less extent be diverse. 32 When confronted with an application under Pt.15 r.26 it could be said that the range of the reasonably arguable is so very wide as to include the allegations of negligence in the present Statement of Claim. Where the practice of ultimate appellate courts, and (it may be) the theoretical framework on which they proceed, is incremental or case-by-case development, some colour of accuracy can be suffused into a proposition that no supposed new category is unarguable. To take that view would be to resign from judicial responsibility, and not to discharge it. To do so would be to abandon the general rule for which I regard Caltex Oil as authority. The initiating step in the whole process of recognition of claims in negligence for pure economic loss was Hedley Byrne & Co. Ltd v. Heller & Partners Ltd [1964] AC 465 decided almost 39 years ago; Caltex Oil was decided almost 27 years ago. Causes of action in negligence are much travelled by litigants and Courts, and judicial experience, and also the absence of judicial experience of categories of recovery which are exceptions to the general principle must be reviewed and cannot be ignored. In Perre v. Apand (1999) 198 CLR 180 at 253 [197] Gummow J said:. Moreover, this case does not fall in a field where to allow recovery in negligence for economic loss would cut across a well developed body of doctrine which already applied, with its own checks and balances, to the situation in question.

A well developed body of doctrine about dissemination of information exists and fixes a boundary. 33 Within judicial experience the law of negligent misstatements represented by the decision in Esanda is the only category of recovery with which Mr Panton's case can in any way be related; judicial opinion has been carefully crafted in the course of repeated consideration by ultimate appellate Courts, and the established boundaries of the category include a need for communication of the negligent misstatement to a person or class of persons including the plaintiff, and reliance by the plaintiff on the statement. It is quite clear that the accounts of Miller Blue and the letter of 23 October 1995 from Bailey to the National Australia Bank were not communicated to Mr Panton in any way and that he did not know their contents. The allegation of reliance in SC15 can only be a matter of form and not of substance, as Mr Panton did not know what was in the documents on which he says he relied. 34 For the purposes of a cause of action based on negligent misstatement the accounts have quite different standing to the letter to NAB. The accounts bear an explicit disclaimer of a kind which, as the decision in Hedley Byrne clearly establishes, exempts the maker of a misstatement from liability. It is not known whether there is a disclaimer in the letter of 23 October 1995 to NAB; its terms are not alleged in the pleading and are only alluded to in the particulars, no amendment of the pleading has been made and there is no more before the Court than Mr Panton's assertion that he would wish to rely on that letter, not accompanied by any recognisable proposal to do so by amendment. The terms of the accounts including their disclaimer make it impossible for Mr Panton to base a case on the accounts. This consideration may, depending on what is in the letters, not apply to the letter to ANZ Bank referred to in the pleading and the letter to NAB which Mr Panton claimed to be in a position to introduce by amendment. From the material before me it cannot be said whether or not the disclaimer has the effect that Mr Panton does not have an arguable case; this arises from the inadequacy of Mr Panton's pleading. 35 The law of negligent misstatements is largely shaped in its present form by the underlying concern expressed by Cardozo CJ in Ultramares, which for many decades before and after Cardozo CJ spoke led Courts to the view that there was no recovery at all for careless dissemination of information; the law of negligent misstatements has been carefully crafted to avoid indeterminate liability, and Mr Panton and his case do not fall within it. 36 In contending that it was a mistake of the Master to test his case by the law of negligent misstatements, and that he has an arguable case proceeding from first principles of negligence law in relation to economic loss, Mr Panton comes under the practical necessity of referring to some decision which authoritatively establishes, or of some judicial opinion which arguably supports a category of recoverability into which he can arguably claim to fall. Given the general rule that there is no recovery, the carefully crafted boundaries of the law of negligent misstatements and the absence of any other category covering careless dissemination of information, a simple claim to resort to first principles does not seem to me to be reasonably arguable. ABCOS, on which Mr Panton much relied was, in the concept of the majority judges and according to their reasons, an application of the law in Esanda, not a departure from it, in circumstances where a finding of fact that there was reliance presented difficulties which their Honours acknowledged, but are not in any way analogous to anything to which Mr Panton can point as part of his case. 37 I see no useful analogies with the present case in two cases in the High Court of Australia relating to solicitors and wills and miscarriages and intended benefactions - Hawkins v. Clayton (1988) 164 CLR 539 and Hill v. Van Erp (1997) 188 CLR 159. In Hill the majority opinions were variously expressed but, if they can be generalised, their Honours recognised existence of a duty of care on the basis of close address to the facts of that case: see Brennan CJ at 170-171; Dawson J at 180-183, Toohey J at 190, Gaudron J at 199 and Gummow J at 233-234. The judges who formed the majority differed significantly in their statements of the basis of decision and McHugh J dissented. In a field where reasoning by analogy is important, Hill is not a source of any useful analogy. Nor is Perre v. Apand Pty Ltd (1999) 198 CLR 180, which did not relate to the dissemination of information in any way. Although their Honours were unanimous in allowing the appeal there were significant differences of approach. 38 A concept of vulnerability, not always identified by that word, was treated as significant in some judgments in the High Court in Perre v. Apand, although there was no majority or uniform exposition of the concept or its significance. Gleeson CJ said at 194 [11]: Vulnerability can arise from circumstances other than reliance. In Caltex, the obvious vulnerability of a specific plaintiff was influential in a number of the judgments ( Willemstad (1976) 136 CLR 529 at 555, 576-577, 593). This was not merely an arbitrary method of solving the problem of potentially indeterminate liability. It was an application of what Lord Oliver later discussed as the idea that in a given case, the degree (and nature) of foreseeability may have an important bearing on whether there is a duty of care. 39 Gleeson CJ's concept of vulnerability is based on the degree and nature of foreseeability of harm: 195 [15], and the width of the net of liability remains an important consideration for the concept of vulnerability: [15]. McHugh J gave an epitome of the grounds on which he acted at 204 [50] including vulnerable exposure of the plaintiff's business to Apand's conduct because the Perres were not in a position to protect themselves against the effects of Apand's negligence. His Honour regarded vulnerability as always relevant and likely to be decisive: 220 [104], and ordinarily a pre-requisite to imposing a duty: [225] 118. An aspect of vulnerability is that the plaintiff cannot bargain to protect its interest in any meaningful way: 228 [124], and vulnerability will often include concept of reliance and assumption of responsibility: 228 [125]. Vulnerability is to be considered from cases to case on the facts of each case: 229 [129]. McHugh J carried out an appraisal of vulnerability at 236 [149]. 40 Gaudron J did not use the expression "vulnerability" and based liability on a special relationship of control and dependence over the exercise and enjoyment of a legal right: 210 [38]. Gummow J did not articulate vulnerability but had regard to what appears to be that concept as a characteristic of the case leading to the duty of care: 259 [216]. Kirby J mentioned vulnerability in his appraisal of proximity at 289 [296] in the context of physical propinquity. Hayne J did not to my reading refer to vulnerability or use the concept. Callinan J did not use the term vulnerability but had regard to what appears to be that concept at 328 [416]. 41 The approach which appears to have been taken by most members of the High Court was to review the facts of that case and to form a judgment on whether a duty of care existed. The factors reviewed included the foresight of a likelihood of damage and means of knowledge of an ascertainable class of vulnerable persons who were unable to protect themselves from the harm. Vulnerability is a rather generalised concept and Mr Panton's case does not fall within my perception of vulnerability. The concept of vulnerability cannot be regarded as an established touchstone for discerning a duty of care to prevent economic loss. In various ways, the concept has been treated as important to that end; this does not avail Mr Panton. On the facts before the High Court means of knowledge and an ascertainable class of vulnerable persons appear to have had clarity and strength for which Mr Panton's case has no analogies; the foresight of the likelihood of harm to potato growers within a known radius from an outbreak of disease subjected to special consequences by regulations in the export market was particularly clear and direct, and the means of knowledge of an ascertainable class of vulnerable persons was also readily available, from studying a map and identifying commercial potato growers, not a difficult exercise in relation to someone in the trade who was carrying out a perilous activity in a commercial context. There are no means in any way comparable for identifying the class of persons with whom Mr Cox might deal and on whom he might inflict loss if he was commercially potentiated by an advance of money, and there is no clear relationship between the availability of money to Mr Cox and the likelihood of harm to persons dealing with him. 42 An element which was treated as important in several judgments in Perre v. Apand was that the plaintiffs were vulnerable persons who were unable to protect themselves; unable to know or by any reasonable means to find out what kind of certified seed potatoes were being brought onto another potato farm within 20 kilometres of their operations or what were the characteristics of the seed potatoes being used there. No equivalent concept of vulnerability can be applied to persons entering into commercial relationships with Mr Cox; those persons were in a position to make whatever enquiries they thought fit, to act on whatever information available, and make their own decisions about what commercial rates they were prepared to take, whether or not Mr Cox was sufficiently financially responsible and whether or not to deal with him. Those persons, exemplified by Mr Panton who claims to have entered into a partnership arrangement with Mr Cox, were in a position to protect their own interests in any way they thought sufficient and were not vulnerable in any sense analogous to the positions of the plaintiffs in Perre v. Apand who suffered harm from transactions over which they had no possible influence. If Mr Panton were otherwise vulnerable in any sense the consideration that he dealt with Mr Cox for several years, over three years before he alleges that the facts precipitating loss occurred, and made several other agreements with Mr Cox before they made the partnership agreement, greatly enhanced his opportunities to protect himself. 43 Very great difficulties confront Mr Panton on foreseeability of harm, even by the most undemanding test and with a high degree of generality of the kind of harm which may occur. For him to establish foreseeability he must persuade the Court that it was foreseeable that the supposed negligent act would

• facilitate an application by Mr Cox to the bank for finance; - enable Mr Cox to obtain finance; - cause Mr Cox to acquire Burnbrae (or some such property); - enable Mr Cox to enter into a partnership with Mr Panton (or some such person) in which use of the property was involved; - make Mr Cox's hold on the property insecure because susceptible to rescission by the Bank of the terms of its advance; - cause the Bank to rescind; - after some years, on rescission of the finance by the Bank, cause Mr Cox to be unable to continue in the venture; and - when Mr Cox was unable to continue in the venture, cause loss to Mr Panton which Mr Cox did not recompense him.

This is quite unlike any chain of foresight which I have known to be accepted as reasonably foreseeable in the context of negligence law: hence my inquiry to Mr Panton for analogous decisions, to which he gave an inconclusive answer. 44 Knowledge of Bailey, based on the consultation for tax advice, that Mr Panton was considering whether he should or would make some agreement with Mr Cox does nothing to alter or improve this chain of foresight. Knowledge that Mr Panton contemplated an agreement with Mr Cox did not change or limit the range of persons who might suffer loss at some time in future years if Mr Cox was unable to obtain a loan. Every plaintiff can be expected to find some element which could plausibly define himself into a unique or more readily foreseeable position than the generality: but it is as a member of the generality of persons who would in the future have commercial dealings with Mr Cox that foresight of his loss falls to be considered. The prospect of loss to him is no less indefinite and no less contingent on a long chain of contingencies because Mr Bailey gave him tax advice. The plaintiff is no less involved as a member of an unascertained class of persons who may deal with Mr Cox because a defendant happens to know who he is; his involvement is still involvement as a member of an unascertained class. 45 Vulnerability is not a characteristic of Mr Panton, and he does not fall with any either literal or figurative circle of delimitation which in any way resembles the 20 kilometre radius within which the plaintiffs in Perre v. Apand fell. In reality there is no limit to the class of persons who might foreseeably suffer loss in the foreseeable chain of events that a bank might act on the information in Bailey's documents to decide to lend money to Mr Cox, that the availability of funds might enable Mr Cox to acquire an asset control of which might be important for some commercial arrangement which he might be able to make with some other person, known or unknown to Bailey and that that commercial arrangement might fall apart when and if it became known to the bank that the information provided had not been correct, and the bank decided to act on that basis to withdraw the finance to Mr Cox. The range of persons with whom Mr Cox might make fragile commercial arrangements can include the entire community; and the kind of losses they might foreseeably incur extend to any kind of commercial transaction they and Mr Cox might make; in practical terms, limitless as to kind and amount, and contrasting markedly with the potential loss of an opportunity to grow and process potatoes and sell them to Western Australia. 46 Mr Panton's counsel contended in written submissions that what he called transferred loss cases give examples of courts being less stringent in the test they apply in relation to proximity in claims for pure economic loss. He contended that in the transferred loss cases there is no risk of indeterminate liability. Mr Panton's case cannot be seen as a transferred loss case in the sense referred to or in my understanding in any sense, as no loss incurred by the bank, or by Mr Cox, or by anyone else was transferred to him. The transferred loss cases referred to do not present useful analogies with Mr Panton's case, or give it any real support at all. Counsel referred to three cases. Bryan v. Maloney (1995) 182 CLR 609 is well described as a transferred loss case as the builder's negligence in construction of a house caused loss to a later buyer of the house, and in relation to a dwelling house, there was no difficulty in foreseeing that it would be purchased and would have another owner afer the owner who had it built. Seas Sapfor Forests Pty Ltd & Ors v. Electricity Trust of South Australia (1996) 187 LSJS 369 was a case in which companies which acquired a timber mill in an area which had earlier been damaged by fire sought to be added as plaintiffs because their business was less advantageous than it would have been if there had not been a fire. The companies who claimed to be additional plaintiffs were not added as plaintiffs, although Doyle CJ contemplated (at 388) that with other allegations in the pleading they might have been so added. Counsel also referred to McMullin v. ICI Australia Operations Pty Ltd [1997] 72 FCR 1, but did not indicate which part of the complex holdings in that case was said to exemplify the concept of transferred loss. 47 Courts do not accept that the concept of proximity has utility as a practical test. Dissatisfaction with proximity as a concept in negligence law seems to be principally related to its lack of precision and lack of indication of what is the element common to cases in which a duty of care exists to which it alludes. The word "proximity" in its etymology refers to physical closeness, and has not been regarded as a useful indicator of what is being spoken of where the relationship is traced through intangible connexions such as communications and economic effects. In Hill v. Van Erp (1997) 188 CLR 159 dissatisfaction was traced by McHugh J at 288 to Caparo Industries PLC v. Dickman [1990] 2 AC 605. Signs of dissatisfaction were discernible eleven years earlier in San Sebastian v. The Minister (1986) 162 CLR 340: see 355. By Perre v. Apand proximity was no longer being employed in the exposition of the decision of the High Court, and was no longer being treated as useful for that purpose, although the word itself continued to be employed, usually accompanied by disclaimers of its efficacy as a legal test. 48 The difficulty of imposing indeterminately extending-liability for economic loss if a duty of care simply follows foreseeability was stated famously but relatively shortly by Cardozo CJ in Ultramares. The considerations involved were stated more extensively in Perre v. Apand by Gleeson CJ at 192-3 [5-6]. These considerations are still cogent, even if they are no longer seen as absolutely compelling. The learned Chief Justice said at 193 [7] "… There is no convincing reason why conveying advice or information should be treated as the solitary exception to an otherwise absolute exclusionary rule." His Honour also said "Courts have found difficulty in proposing an alternative general rule which makes better sense and which, at the same time, pays due regard to the problems earlier mentioned. - [8]." That difficulty is clearly shown by the views expressed in judgments in Perre v. Apand and in the unavailability of an authoritatively supported rule of decision for application by courts whose decisions are subject to the authority of the High Court of Australia. To my reading only Kirby J spoke in terms which would establish a generally available rule of decision; while it should respectfully be observed that the terms of that rule of decision and the whole terms of Kirby J's judgment demonstrate that application of that rule of decision can never be simple or obvious, it is unfortunate that there is no authoritatively established framework within which to address duties of care and economic loss. Mr Panton referred me to observations of Gillard J in Johnson Tiles Pty Ltd v. Esso Australia Pty Ltd [2003] VSC 27 at [751] to [754] on the views of Kirby J on the concept of proximity and the three-step process. In my opinion authority does not support employing these as rules of decision. Gleeson CJ rejected the three stage test - 193-194 [9]. 49 I am conscious that there are many judicial expositions of high authority of this part of negligence law, and opinions are very diverse, and that expressions of dissatisfaction with or rejection of many of the propositions which I have employed, and of the theoretical base of negligence law are numerous, so that much of what I have said is contestable to some degree with references to High Court authority. I do regard it beyond argument that cases in which damages for pure economic loss can be recovered in negligence are exceptions, established by judicial authority, to a general rule that there is no such recovery and that foreseeability of loss does not establish that there is a duty of care. There is room to generalise from the exceptions which have been established; from Hawkins v. Clayton and Hill v. Van Erp to transferred loss arising from the performance of professional duties where the rights or expectations of another person are closely involved; such cases are arguable. A case in which analogies could be drawn with Perre v. Apand in which some practical operation such as the supply of goods which potentially may be deleterious can expose an ascertainable class of vulnerable persons to economic consequences arising under law, or perhaps under the operation of market conditions would be reasonably arguable. In relation to negligent misstatement, the boundaries of what is reasonably arguable are clearly established; repeatedly and authoritatively recovery has been limited to persons or a class of persons to whom the statement was communicated. In Mr Panton's case the statement was communicated to NAB, the proposition that Mr Panton relied on the statement has no substance at all and the chain of events between communication of the statement and Mr Panton's loss involves a series of decisions and transactions, not being communication of the statement, by the bank, Mr Cox and Mr Panton. Such a case is not reasonably arguable. 50 I will seek to point to elements which in some or many decisions in economic loss cases, have been treated as significant for the recognition of the duty of care. In my opinion none of the following elements exists in relation to Mr Panton's claim. There was no reasonable foreseeability of risk of loss of the kind which he alleges.

There was no representation to the plaintiff or to a class of person of which the plaintiff was a member of the information giving which is said to be negligent.

There was no reliance by Mr Panton on information furnished by Bailey: the allegation of reliance in the Statement of Claim is nominal, nothing of substance is alleged, and it is not alleged that there is any knowledge of what was in the account. There is no analogy with reliance in the form which was treated as sufficient in ABCOS .

There was no assumption by Bailey of responsibility to Panton, or to any class of persons which Mr Panton could be said to be a member.

Quite to the contrary the accounts contained a disclaimer; in view of the lack of reliance, the disclaimer can have had no additional influence.

There was no breach of any alleged contractual duty, or any other duty, of Mr Bailey to Miller Blue or to Cox or to the Bank.

There was no assumption by Mr Bailey of responsibility to Mr Panton to perform any relevant task in any fiduciary or other special relationship. There was no alleged relationship between Mr Bailey and Mr Panton within the scope of which provision of accounts or information to the Bank, or to Mr Cox or to Miller Blue or to Mr Panton fell. Even if there had been, the disclaimer in the accounts seems closely similar to the disclaimer which was the point of decision in Hedley v. Byrne .

If the assumption of responsibility to Mr Cox should be relevant to the identification of a duty of care to Mr Panton, the burden of Mr Panton's allegation seems to be that Mr Cox required the information to be wrong, not that it be accurate. 51 Notwithstanding the full and earnest manner in which Mr Panton presented his case as unconnected with negligent misstatement cases, and as requiring a new and original address, on its own facts, to negligence law in relation to economic loss, his case cannot escape its reality as based on an alleged negligent misstatement or statements to the bank followed by a chain of economic consequences, among which are decisions and actions of a series of persons who made a series of contractual arrangements, and not consisting of further communication of the information. In a clear way Mr Panton seeks to present a negligence case which lies beyond an outer boundary of negligent misstatement cases clearly established by authority, clearly articulated by Brennan CJ in Esanda and clearly required by the concern for avoidance of indeterminately extending liability which has dominated appellate decisions on negligence and economic loss from their beginning. 52 The Master made no error in holding as he did at [21] that the paragraphs of the Statement of Claim alleging negligent misstatement cannot stand. As was contended in support of the cross-claim, the Master should not have granted the plaintiff leave to amend his pleading on negligent misstatement. The difficulties with that claim went far beyond inadequacies of expression in the Statement of Claim; neither in the present Statement of Claim and particulars, nor in any amendment the possibility of which appears from the material Mr Panton brought forward is there a reasonably arguable cause of action based on negligence and economic loss. 53 FIDUCIARY DUTY. In paras. 39 to 43 of the Statement of Claim the plaintiff repeats many allegations made earlier in support of the claim in negligence and alleges: 40. Panton relied upon and trusted Bailey to produce financial statements for provision to Cox's proposed lenders which disclosed the true and fair view of Miller Blue's affairs.

41. In the premises Bailey owed Panton a fiduciary duty to ensure that any financial statements and information provided to any of Cox's proposed lenders was true and correct and showed they were true and a fair view of Miller Blue's affairs. 54 It is then alleged that Bailey acted in breach of fiduciary duty in preparing the financial statements for provision to Mr Cox's proposed lenders and in making the representations in them. 55 The allegations in the Statement of Claim, taken alone and also supplemented by particulars relating to tax advice, show that the business which Bailey undertook to perform, and did perform for Mr Panton related to the provision of tax advice about the use of tax losses, and further show that producing financial statements relating to Miller Blue, producing the statements for provision to Mr Cox's proposed lenders, and communicating with Mr Cox's proposed lenders and making representations to them all fell altogether outside the range of any business which Bailey performed, or undertook to perform for Mr Panton, and outside anything which could be regarded as within a confidential relationship between Bailey and Mr Panton; outside anything in which Bailey could arguably have come under any fiduciary duty. In my view fiduciary duty is invoked only nominally in the Statement of Claim and no circumstances which might arguably show that, whatever duty there was in relation to furnishing tax advice, there was any fiduciary relationship or any fiduciary duty that had any bearing on furnishing information to National Australia Bank. 56 The Master was of the view that: 27. Therefore, as the pleading stands, the plaintiff has not established a cause of action based on fiduciary duty. However it seems to me that with some amendments to the Statement of Claim, the plaintiff may at least be in a position to assert that he has an arguable cause of action against the defendant for breach of fiduciary duty.

From the following passage it appears that the Master had in view that there might be some relevant fiduciary duty associated with a contractual duty to advise Mr Panton undertaken by Mr Bailey. The Master's reasons do not show any full or clear way what possible further allegations might have been introduced by the amendment the possibility of which he contemplated, and Mr Panton has not done so either. In my view the Master was in error in allowing leave to amend the Statement of Claim in terms which extended to fiduciary duty. 57 FAIR TRADING ACT - misleading or deceptive conduct. The Master summarised the position taken by the defendant before him in these terms: 29. … The defendant's submissions broadly relate to three matters. Firstly, that there is not a causal link between the alleged misleading and deceptive conduct and the loss or damage alleged to have been suffered by the plaintiff. Secondly, that no representation was made by the defendants because the financial statements are of Miller Blue and not of the defendants. Thirdly, the defendants gave an expressed disclaimer concerning the [truth] or falsity of the material prepared by them.

The defendant took much the same positions before me. The Master regarded the pleading as inadequate because causation of loss by misleading or deceptive conduct was not alleged (para 38) and because the Statement of Claim did not allege the facts which showed that the proceedings had been commenced within the three-year period provided for by s.68(2) of the Fair Trading Act; but that in all other respects [40] the Statement of Claim disclosed a good cause of action, and that the plaintiff should have an opportunity to file an Amended Statement of Claim. 58 The provisions of subs.68(2) and the time bar for which the subsection provides would probably be of importance at any trial of the claim under the Fair Trading Act. It is not possible to form any view of the likely outcome, or to test the strength of the plaintiff's claim because the plaintiff has avoided stating, in the pleading, in any comprehensible form what loss or damage the plaintiff is alleged to have suffered, when and how he is alleged to have suffered that damage, and what acts or events show that the damage was caused by the misleading or deceptive conduct and breach of subs.68(1) alleged. The purported particulars of time of incurring loss were given in a way which was frankly evasive, and there has been studied avoidance of any particularity in saying what the loss was or when it occurred. The particulars of SC33 illustrate that this so; to say that the plaintiff's share of the partnership assets is worth significantly less than the sum of his investments and liability is to say nothing about, and to avoid saying anything about the impact of the alleged misleading or deceptive conduct. 59 In State of Western Australia v. Wardley Australia Ltd & Ors (1991) 30 FCR 245 the Full Court of the Federal Court (Spender, Gummow and Lee JJ) determined, upon the operation of subs.82(2) of the Trade Practices Act 1974 (Cth) that it is for the defendant to assert non-compliance rather than for a plaintiff to assert compliance with s.82(2) as an element of the cause of action. This holding appears to have been approved on appeal by Toohey J; see Wardley Australia Ltd v. State of Western Australia (1992) 175 CLR 514 at 560, text at note 47. Other judgments in the High Court do not appear to deal with this, but decided that the time had not been exceeded, or had not been shown to have been exceeded. Section 68 of the Fair Trading Act 1987 differs from s.82 of the Trade Practices Act only in insubstantial ways. In my respectful opinion the approach taken in the Federal Court in Wardley should be followed and is equally applicable to s.68, and for that reason the Master was in error in taking the view that the plaintiff was required to plead material facts which would establish that the proceedings are not defeated by the limitation provision in s.68. It was for this reason that the Master, when granting leave to amend the pleadings, contemplated that leave would extend to the limitation issue in respect of the claim based on misleading or deceptive conduct. 60 In my view the pleading was inadequate not in failing to deal with time of accrual but in failing to reveal the facts which were alleged to constitute a cause of action, including comprehensible allegations recognisably referrable to subs.42(1) "A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive" and to subs.68(1), that the plaintiff suffered loss or damage by conduct in contravention of s.42(1). 61 The plaintiff has created difficulty in approaching the question whether the Statement of Claim discloses any reasonable cause of action for misleading or deceptive conduct by saying very little, in practical terms next to nothing about important elements which such a pleading should disclose; about what the loss or damage is, and about the causation of the loss or damage by misleading or deceptive conduct. Enough is said in the pleading however for it to be understood that it is alleged that the misleading or deceptive conduct consisted of Bailey preparing and in October 1995 communicating to NAB false and misleading statements in the Miller Blue accounts and in a letter the terms of which are not found in the Statement of Claim; and that then, at some time (according to a letter of particulars, not sooner than November 1998) Mr Panton, to whom the representation was not made and who did not know its contents, suffered loss or damage in that his share of partnership assets in a partnership with Mr Cox is worth significantly less than the amount of his investments and his liabilities to NAB. 62 Causation of loss or damage by contravention of s.42 need not, although it usually does, depend on reliance by the plaintiff on the misleading or deceptive conduct, or on communication of the misleading or deceptive conduct to the plaintiff. This subject was considered by Lockhart J in Janssen Calag Pty Ltd v. Pfizer Pty Ltd (1992) 37 FCR 526 at 530-531. Lockhart J's observations at 530 anticipate observations in the High Court in Wardley Australia Ltd v. Western Australia, which was decided the following month. Lockhart J said: The use of the preposition "by" in s. 82 (1) is important; it indicates the requirement that there be a sufficient cause or link between the respondent's conduct and the recoverable loss or damage: Brown v Jam Factory Pty Limited (1981) 35 ALR 79 at 88; Elna Australia Pty Limited v International Computers (Aust) Pty Limited (No. 2) (1987) 16 FCR 410 at 418. "By" is used in s. 52 (1) in the sense of "by reason of" or "as a result of": Munchies Management Pty Limited v Belperio (1989) ATPR 40-926 at 50,037. Loss or damage must directly result from or be caused by the respondent's conduct. The respondent's conduct must be the real or direct or effective cause of the applicant's loss; it must have been "brought about by virtue of" the conduct which is in contravention of s. 52 : Elders Trustee and Executor Company Limited v E.G. Reeves Pty Limited (1988) 20 FCR 164; Kabwand Pty Limited v National Australia Bank Limited (1989) 11 ATPR 40-950 at 50,378 where Lockhart J. said: ... The right to damages arises where the applicant to the Court has suffered loss or damage 'by' the conduct that was in contravention of s. 52 . The relationship between the damages and the impugned conduct is expressed by the word 'by' which signifies no more than that the loss or damage has to have been brought about by virtue of the conduct which is in contravention of s. 52 . For present purposes it is sufficient to say that a person claiming damages must show either that he has been induced to do something or to refrain from doing something which gives rise to damage or has been influenced to do or refrain from doing something giving rise to damage by the conduct contravening s. 52 ... even if the issue of reliance may, as Lockhart J. indicated in Henjo , be more complex than the formulation of the test in terms of 'influence' suggests. Whilst the applicant's loss or damage must be caused by the respondent's misleading or deceptive conduct, I see nothing in the language of the Act or its purpose to warrant the suggestion that the right of an applicant for damages under s. 82 is confined to the case where he has relied upon or personally been influenced by the conduct of the respondent which contravenes the relevant provision of Part IV or Part V of the Act . 63 At p.531 Lockhart J said: In March v E and M H Stramare Pty Limited (1991) 171 CLR 506 the High Court considered questions relating to causation and claims to recover damages for negligence; but certain observations of their Honours are apposite to questions of causation under s. 82 of the Act . Mason C.J. (with whose reasons for judgment Toohey and Gaudron JJ. concurred) rejected the view that the "but for" or causa sine qua non test ever was or should now become the exclusive test of causation in negligence cases (at 508). Toohey J. said (at 524): Where negligence is in issue, causation is essentially a question of fact, in the sense explained by the Chief Justice, into which considerations of policy and value judgments necessarily enter. Deane J. said (at 524): "Nonetheless, the question whether conduct is a of injury remains to be determined by a value judgment involving ordinary notions of language and common sense." Section 82 (1) should not be given a restricted meaning to be available only to the person who suffers loss or damage by reason of his own reliance upon the representations which constituted the relevant contravention of Part IV or V; nor for that matter should it be given an extended meaning which strains the language used by the legislature. But a person who suffers damage by reason of or as a result of the conduct of the contravener (albeit that that person does not himself rely upon the representations) is not to strain the language of the subsection, but to interpret it according to its ordinary and natural meaning. For a person to recover under the section he must suffer loss or damage by reason of or as a result of the contravention. There is nothing unduly wide about that.

64 In Wardley Australia Ltd v. Western Australia at 525 Mason CJ, Dawson, Gaudron and McHugh JJ said: 11. The statutory provisions By virtue of s.82 (2) of the Act , the period of limitation begins to run at the time when the cause of action under s.82 (1) accrues. As loss or damage is the gist of the statutory cause of action for which s.82 (1) provides ((14) Elna Australia Pty. Ltd. v. International Computers (Australia) Pty. Ltd . (1987) 75 ALR 271, at p 279), the cause of action does not accrue until actual loss or damage is sustained. The statutory cause of action arises when the plaintiff suffers loss or damage "by" contravening conduct of another person. "By" is a curious word to use. One might have expected "by means of", "by reason of", "in consequence of" or "as a result of". But the word clearly expresses the notion of causation without defining or elucidating it. In this situation, s.82 (1) should be understood as taking up the common law practical or common-sense concept of causation recently discussed by this Court in March v. Stramare (E and M. H.) Pty. Ltd. ((15) (1991) 171 CLR 506 ), except in so far as that concept is modified or supplemented expressly or impliedly by the provisions of the Act . Had Parliament intended to say something else, it would have been natural and easy to have said so.

65 Observations of Brennan J in San Sebastian Pty Ltd v. The Minister (1986) 162 CLR 340 at 366 deal with economic loss caused by a representation, although not in the context of the Trade Practices Act. In a context of motor traffic and personal injury, without reference to causation of economic loss, Mason CJ in March v. E & MH Stramare (1991) 171 CLR 506 at 509 to 519 stated the law with respect to causation in terms which have established the approach of courts since his Honour spoke. His Honour made plain that satisfaction of the but-for or sine qua non test is not sufficient to establish causation: The Common law tradition is that what was the cause of a particular occurrence is a question of fact which 'must be determined by applying common sense to the facts of each particular case', in the words of Lord Reid: Stapley v. Gypsum Mines Ltd [1953] AC 663 at 681" (at 515) and The cases demonstrate the lesson of experience, namely, that the [but for] test, applied as an exclusive criterion of causation, yields unacceptable results and that the results which it yields must be tempered by the making of value judgments and the infusion of policy considerations. 66 At 517-519 Mason CJ discussed the effect of a new intervening event, novus actus interveniens, which may be said to break a chain of causation which would otherwise have resulted from an earlier wrongful act. This consideration led his Honour to say at 518-519: As a matter of both logic and common sense, it makes no sense to regard the negligence of the plaintiff or a third party as a superseding cause or novus actus interveniens when the defendant's wrongful act has generated the very risk of injury resulting from the negligence of the plaintiff or a third party and that injury occurs in the ordinary course of things. In such a situation, the defendants' negligence satisfies the 'but for' test and is properly to be regarded as a cause of the consequence because there is no reasoning common sense, logical policy for refusing to so regard it. 67 The plaintiff's case on misleading or deceptive conduct can only be disposed of at this interlocutory stage if it is established, according to the test associated with General Steel Industries Inc. v. Commissioner for Railways (N.S.W.) (1964) 112 CLR 125 that the plaintiff's case with respect to causation in fact of his loss or damage by the misleading or deceptive conduct is not reasonably maintainable, so clearly so that it should not be allowed to go to trial in the usual way. I endeavoured earlier to set out what Mr Panton narrated to me as the events connecting the communication of information by Bailey to the NAB with Mr Panton's loss. It is not simply a matter of a representation inducing Mr Panton to act, or of a representation inducing some conduct of another person which involved Mr Panton in loss or damage. The chain of conduct and events which Mr Panton must persuade the tribunal of fact shows causation of loss or damage by the representation does, indeed include the representation and, assuming that his allegations of fact succeed, the representation was a sine qua non of the whole series; but the whole series includes that the representation produced conduct by the bank, a series of acts and events involving Mr Cox in relation to his use of the loan and the terms on which he contracted with the bank, then a series of transactions between Mr Cox and Mr Panton leading to a partnership, but not until February 1997; then some further events including decision and action by NAB to (according to the pleading) make a demand or (according to Mr Panton's narration) rescind the loan and shorten the period for which credit was available to Mr Cox, leading then to some unstated events in which Mr Cox's partnership with Mr Panton failed and Mr Panton incurred an undefined loss. Causation must on any reasonable appraisal of the facts run out in the sands of a series of decisions, contracts and other transactions, with opportunities for gathering and appraising information and for assessment of risks and choices at each stage and over a number of years, involving a number of persons, all falling between communicating information from Bailey to NAB and Mr Cox's not having a piece of property which he needed to have if he was to continue in partnership. No recognisable prospects of success in persuading a tribunal of fact, acting reasonably, that this chain of causation exists as a matter of common sense and brought about the loss or damage can be seen; its prospects have no substance at all and the proceedings should not be allowed to continue. 68 For this reason I will dismiss Mr Panton's appeal, allow the defendants' cross-appeal, and to make the orders which the defendants sought in their Notice of Motion. 69

(1) Appeal dismissed with costs. (2) Cross-appeal allowed with costs. (3) Order pursuant to Part 15 rule 26 of the Supreme Court Rules that the whole of the Statement of Claim be struck out.

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