Seiwa Australia Pty Ltd v Beard

STRICTLY PRIVATE AND CONFIDENTIAL " 15 After Mr Azuma looked at the document briefly, the following conversation took place: Azuma: "With my English, I cannot possibly understand this. Is that just like what you said to me about how it works, right?" Seeto: "It doesn't talk about any investment program specifically. But it is like an education. It tells you the background of why high returns are possible and how it works in the financial world. However, with our custodian account investment, you get a fixed 50% a year, guaranteed by our firm's professional insurance and Lloyd's insurance cover." Mansell: "How much can you put in? We need a minimum of US$10 million to qualify; otherwise, everyone will miss out until the next one available which we don't know when." 16 Mr Seeto said he could get about US$3 million. Mr Seeto suggested that Mr Azuma should get any other friends who were wealthy and wanted to invest to also do so. Mr Seeto said that he did not understand the document, and his Japanese friends would not understand it either, so he would need to have a Japanese translation of it. Mr Seeto agreed to that, and said: "Let me give you some other documents about how our custodian account and insurance works; otherwise, they might be scared." 17 Mr Seeto then handed him a document, in the form of a standard form letter on the letterhead of "Gould Ralph Services Pty Ltd Chartered Accountants". The heading of the typed text of the letter was: "GOULD RALPH SERVICES PTY LIMITED ACTING AS CUSTODIAN" 18 Mr Seeto said: "These are just some standard documents that you should give them to your wealthy Japanese friends. You should have a look at them. It tells you how our custodian account works and the insurance aspect that I told you about the other day." 19 Mr Azuma said he would need to have those documents translated into Japanese too. Mr Seeto said: "Good idea. Make sure the Japanese translator does not tell anyone about this investment. Get him to sign an agreement that he won't tell anyone. Otherwise, we will all break the rules of secrecy about the investment and lose the deal." 20 The conversation continued: Azuma: "… When I get the money ready, should I just transfer that to your firm's account?" Seeto: "I will give you the account which we use to pool everyone's money together before sending to our firm's offshore custodian account." Azuma: "Ok. I'll call you about it when I get the US$3 million ready to transfer." Seeto: "One other thing. I suggest that you open a bank account with Lloyds Bank offshore for your profits to be paid into directly, without coming to Australia. You should get a British Virgin Island company to be the account holder. I have the British Virgin Island company and Lloyds Bank's account opening documents ready here for you to just sign. After that, just leave the rest to me." Azuma: "I can see you are so organised." 21 Mr Seeto handed Mr Azuma some documents, indicated where Mr Azuma was to sign, and Mr Azuma signed them without reading them or keeping a copy. 22 The first document that Mr Azuma received at that meeting had on its front page an "IMPORTANT NOTICE" that stressed, over 10 lines of closely typed text, that the program to which the document referred "can only be offered to qualified recipients" and was confidential information. 23 The second page of that document was headed: " Seeto Group Funding of High Yield Private Investment/Bank Debenture Programs " 24 It continued: " Dear Sho , In accordance with our meeting I have compiled the following documentation as listed in the index for your reference for your Corporations['] consideration. The Seeto Group in conjunction with its associates in the United States and the United Kingdom have internationally Pre-Approved investment partners with bankers and traders within the top 25 trading Banks in the United Kingdom, (Barclays Bank PLC, National Westminster and Midland Banks) and Europe, (Swiss Banking Corporation, Union Bank of Switzerland and Credit Suisse) which enables us to participate in I.M.F./FED registered Bank Trade Programs. We also have access to the major trading banks within the United States and it should be understood from the outset that all programs are registered and approved by the US Treasury and the FED and are duly stamped with their registration approval numbers. The information found herein, should be used as a guide for the development of a program which will attain the necessary yield for your investors, given the parameters as developed between you and the trustees, and matching those parameters with the trading facilities and programs available to us today, we feel that in order to best serve the client, we must utilize the I.M.F Trade programs, in that the I.M.F programs yield the greatest returns and the highest level of security for the investment Dollars. Also, given the fact that the I.M.F. permits a return of I.M.F Trading Dollars as grants to humanitarian projects, a paring [sic] of yield and grant monies will be suitable to the needs of the client. The most lucrative of the HIGH YIELD BANK TRADE PROGRAMS that are currently in effect, are the short term and Table Top Funding Programs. Both consist of minimum investments of USD$100,000,000.00 and the 'Principal Amount' remains fully guaranteed by a 106% PBG from the trading bank and the profits are provided for by Bank Guaranteed Pay Orders which are issued 72 Hours after the 'Investment Amount' has been utilised for trading. The risk is ZERO, profits are absolute, not on a best effort basis. At each contract period the profits are based on the amount of funds placed for that period. Should you and your associated parties be ready willing and able to enter into a Joint Venture Contract with the Seeto Group and its associates and can bring forward the USD$100,000.00 minimum do not hesitate to contact either myself or Stephen Seeto and we will make ourselves available to structure this transaction, for a potential closing. Yours sincerely, [signature] Andrew R. Mansell" 25 A line at the bottom of that letter appears in a font different to that of the letter itself, and has an appearance like that of the contact details that sometimes appear at the foot of the page of the standard form letterhead of a business organisation: "Level 40, 50 Bridge Street, Sydney NSW 2000 Australia: Telephone: +61 29 328 [XXXX] Mobile: [04XX XXX XXX] Facsimile: +61 29 418 [XXX]" 26 Appearing behind that letter was an index, as follows: "1. Summary of Trading in Bank instruments 2. Procedures and Implementation process of the High Yield Investment Program 3. Exhibit 1. Specimen Text Non-Circumvention Non-disclosure Agreement 4. Exhibit 2. Specimen Text / Proof of Funds 5. Exhibit 3. Specimen Text / Letter of Intent 6. Exhibit 4. Specimen Text / Joint Venture & Yield Distribution Agreement 7. Exhibit 5. Specimen Text / Bank Guarantee" 27 There followed seven documents, each behind a page bearing one of the respective headings set out in the index. 28 The text of the first of those documents had a subheading "I.M.F REGISTERED BANK TRADE PROGRAMS". It gave an account of how the problem of extensive destruction in Word War II came to be dealt with through international agreements derived from the Bretton Woods Convention, how by 1961 "USD were in short supply as the United States was faced with a dwindling Gold Supply to back additional dollars" and how that problem was dealt with. "The FED recognizes a tier of High quality banks, usually in the top 100, which it authorizes to deal in the INVESTMENT AND DEBENTURE ISSUANCE PROGRAM. Those are the APPLICANT or PRIME BANKS. … … The INTERNATIONAL MONETARY FUND (IMF) as guided by the G7, utilize the INTERNATIONAL BANK TRADE PROGRAMS (The latest and most up to date) to fund world relief programs for nations who's [sic] ability to handle internal crisis, due to the ravages of war, famine and natural disasters, have brought them to the brink of financial ruin, making it impossible to aid their own, let alone the people of other nations. The INTERNATIONAL BANK TRADE PROGRAM, in its current form, is simplistic at best, utilizing the funding abilities of the top 100 INTERNATIONAL WORLD PRIME BANKS and the US DOLLAR as its medium of exchange, to develop a flow of currency from those prime banks to lesser banks, in a rapid succession of turns of the dollar, which equate into high yields over an extremely short period of time. The standard by which these trade programs yield funds to the investment group, are notated under the 40 week High Yield Investment Charter. The 40 week programs are initiated annually from March 1 st through December 31 st of that year, and are considered to be those programs where not only the major banks and investment houses enter into the programs, but as well the long term investors, such as major Corporations and private individuals, who invest no less than USD$100,000,000.00." 29 After naming two of these "HIGH YIELD BANK TRADE PROGRAMS", and the way of paying money to participate in such a program, it continued: "… Should an individual, Corporation or Entity wish to apply their Funds to a Trade Program, it must also be understood at this time, that due to the fact that there are only seven Internationally known and accepted Bank Traders, dealing with trades outside the banks themselves, there are only a limited number of acceptable and Pre-Approved Investment Partners acceptable to each of those Bank Traders. The Seeto Group and its associates are known to bank traders and bankers and have been accepted as a trading partner by them. As an acceptable Investment Manager to the Bank Trade Programs, The Seeto Group has joined those Bank Trade Programs currently in operation as a JOINT VENTURE PARTNER and BENEFICIARY with individuals and corporations who have brought forward their CASH and LETTERS OF CREDIT. … In order to simplify the variety of documents required to enter, close, fund and be funded, in the latest of the High Yield Short Term Bank Trading Programs, the following texts have been perfected and made available to you as a trading partner with The Seeto Group." 30 The second document in the index purported to set out the procedures for participation in the "HIGH YIELD BANK TRADE PROGRAM". The document included the following: "As discussed The Seeto Group, though its overseas sources, is ready, willing and able to proceed, as an active VENTURE PARTNER, with you and your clients, for entry into the HIGH YIELD BANK TRADE PROGRAM." 31 It set out a series of steps for participation. One of them was the sending of a letter of intent, which: "… typically enumerates the facts and functions of the principal and their willingness to bring forward either CASH (U.S. DOLLARS), STANDBY LETTERS OF CREDIT, CERTIFICATE OF TIME DEPOSITS or ANY OTHER ACCEPTABLE INSTRUMENT for Hypothecation by THE SEETO GROUP …". 32 A prerequisite to entering into a trade program was the provision by a bank of a document, in a standard form, that the applicant has a certain amount in US dollars standing to its credit in an account with that bank. The next step was: "Upon receipt of the formal PROOF OF FUNDS, the bank trading officer will immediately make to be issued, a BANK TRADING CONTRACT to The Seeto Group, as its trading partner. This contract, as issued to The Seeto Group, is in conjunction with the formal CONTRACTUAL AGREEMENT previously mentioned. This CONTRACTUAL AGREEMENT between the parties, stipulates irrevocably, the entry into a specific trade program, while stipulating, but not limited to, the entry and exit date, the yield and or compounding factors, I.M.F. PROGRAM requirements, signed and agreed to by that TRADER and its FED COUNTER PART. This contract is produced and delivered to The Seeto Group at the trading desk, within the officers of that bank trader. Acceptance of this contract by The Seeto Group, is critical to the entry timing and the trades [sic] ability to obtain the stated yields of the stipulated HIGH YIELD BANK TRADE PROGRAM, as found in this contract." 33 The sixth document in the index was a pro forma agreement that identified its parties as following: "THIS AGREEMENT, by and between The Seeto Group , and ___________ (asset owner) shall set forth the distribution of the NET yield, of the Bank Trade Program to be funded by the Proof of Funds enclosed with a Face Value USD $_______" 34 It provided for the respective percentages in which The Seeto Group and the asset owner would share the net yield. It included a term: "The parties agree that the Asset Owner shall appoint The Seeto Group, as Attorney - In - Fact, to act for and on behalf of the Asset Owner in the matter of execution of all documents for the implementation of the contemplated Asset/Bank Trade Program." 35 It concluded with provision for the "asset owner" to sign by its corporate seal, and for "The Seeto Group" to also affix its corporate seal. 36 The evidence casts no light on whether something called The Seeto Group actually exists, or, if it does, on any characteristics of that entity. 37 The first of the documents that Mr Seeto handed to Mr Azuma at the meeting was, as I have said, on a letterhead of Gould Ralph Services Pty Ltd Chartered Accountants. The letterhead included an ACN, and the address at level 40 AMP Centre, 50 Bridge Street, Sydney 2000 Australia. It also included a telephone number, a facsimile number, and the email address "mail@gouldralph.com.au". At the foot of the first page was a logo with the words "Liability is limited by the Accountants Scheme". The letter was not dated, addressed to anyone, or signed. However, there was provision for the insertion into the standard form letter of a date, and the name and address of a recipient. After "Dear Sir/s" and the heading I have mentioned earlier (at para [17]) above the text continued: "We have been asked to contact you in relation to a transaction you may be entering whereby you have been asked to deposit funds into our custodian account we have established. This letter defines our role, and outlines the procedures we will follow in our capacity as custodians. The funds deposited are under our firm's sole control, are not leined [sic], encumbered or pledged in any way. The funds are held by our firm as custodian and will only be withdrawn on return of funds to the depositor. We note that with respect to this matter, we are not soliciting funds from depositors nor are we providing investment advice. Our role is purely as custodian of the funds deposited by you. We note that as a professional firm, we have current professional indemnity insurance taken out with Lloyds of London Insurance (through Resource Underwriting Pacific Pty Ltd). A certificate of currency of this policy can be provided. In addition, depositors have the option of additional insurance by purchasing Deposit Protection Insurance ("DPI") with Lloyds of London for a cost of 0.5% (half of one percent) of their deposit amount. Procedures 1. On advice of the depositor's details we will communicate with the depositor by facsimile to confirming [sic] that we are expecting their deposit. Where DPI has been requested, we will provide a Lloyds Insurance Cover Note for the pending deposit. 2. Once the deposit has been received into our custodian account we will again fax the depositor confirming receipt of their funds and that their funds are held in our custodian account. The length of the deposit will be stipulated in the agreement between the depositor and the transacting party. The period will be confirmed to the depositor. Where DPI has been purchased we will confirm that a policy will be issued within 14 days of the deposit date. 3. Once the transaction period has expired, we will return funds directly to depositors to their banking co-ordinates as stipulated in the agreement between the depositor and the transacting party. No fees are charged to the depositor for our custodian services. Our fees are paid by the transaction party. Gould Ralph Services Pty Limited and Stephen Andrew Seeto Gould Ralph & Company is a Chartered Accounting firm established in 1975 with an emphasis on revenue law. During the next decade the practise [sic] saw substantial growth, particularly in the areas of general accounting and auditing. The firm consists of four partners and employs approximately 30 staff. Stephen Seeto holds a Bachelor of Economics Degree from the University of Sydney and is a Fellow of the Institute of Chartered Accountants in Australia. Stephen is a registered company auditor, a Justice of the Peace and holds various directorships both in listed and private companies. Stephen joined Gould Ralph & Company in 1987 having left Peat Marwick Hungerford as a manager. He was accepted into partnership in 1989. Resource Underwriting Pacific Pty Ltd ('RUPPL') RUPPL was established in 1991. As part of the Chartwell Managing Agents Limited group (one of the largest managing agencies in the Lloyd's insurance market), RUPPL provide direct access to the Lloyd's insurance market. We trust that the enclosed information is beneficial for your purposes. Should you wish to discuss the matter further, please do not hesitate to call the writer on 61412 679588. Yours faithfully GOULD RALPH SERVICES PTY LIMITED STEPHEN A. SEETO B.Ec., F.C.A." 38 The second document that Mr Seeto handed to Mr Azuma at the meeting was not specifically referred to by the trial judge. However, Mr Azuma's evidence about it being handed to him by Mr Seeto at that meeting was quite clear, and was not challenged. It was a single page document headed "SECURED FUNDS PROGRAM". Relevant parts of it were: "THIS PROGRAM IS STRUCTURED TO ALLOW AN INVESTOR TO ENTER AN INVESTMENT PROGRAM WITHOUT THE RISK OF PRINCIPAL INVESTED. INVESTED FUNDS ARE DEPOSITED WITH A HIGHLY RESPECTED FIRM OF 'CHARTERED ACCOUNTANTS' CUSTODIAN ACCOUNT WHERE ALL DEPOSITS ARE COVERED BY PROFESSIONAL INDEMNITY INSURANCE. IN ADDITION TO THE PROFESSIONAL INDEMNITY INSURANCE THE PARTICIPANT MAY PURCHASE AN OPTIONAL LLOYD'S DEPOSIT PROTECTION INSURANCE POLICY FOR 0.5% (HALF OF ONE PERCENT) OF THE PRINCIPAL AMOUNT. THIS COVER IS FOR 100% OF THE INVESTED FUNDS AND THE 'KEY TERMS' ARE DETAILED BELOW: (i) THE POLICY IS IN THE NAME OF THE INVESTOR (ii) INSURED SUM IS 100% OF THE INVESTMENT AMOUNT (iii) INSURING CLAUSE - THEFT OF INVESTMENT SUM BY ACCOUNTANT, PARTNER, EMPLOYEE OR BANKER OR EMPLOYEE THEREOF. (iv) ANY ACT, ERROR OR OMISSION (OTHER THAN THEFT) COMMITTED BY ACCOUNTANT, PARTNER OR EMPLOYEE OR BANKER OR EMPLOYEE THEREOF." 39 After setting out the rate at which profits would be paid, it said: "PROCEDURES: 1. PROVIDE OVERNIGHT BANK STATEMENT NO OLDER THAN 3 DAYS (72 HOURS). 2. NON-SOLICITATION LETTER. 3. LETTER OF INTENT. 4. CORPORATE RESOLUTION (IF APPLICABLE) 5. INVESTOR, IF ACCEPTED WILL RECEIVE A JOINT VENTURE AGREEMENT TO BE EXECUTED WITH THE PROGRAM FACILITATOR. 6. INVESTOR WILL THEN EXECUTE THE AGREEMENT, WITH THE PRINCIPLE FACILITATOR & PROVIDE INSURANCE DIRECTIVES & DISBURSEMENT INSTRUCTIONS FOR THEIR PROFITS. 7. INVESTOR WILL RECEIVE A LETTER OF UNDERTAKING FROM THE CHARTERED ACCOUNTING FIRM INDICATING THEY ARE ABOUT TO RECEIVE THEIR DEPOSIT. WHERE INSURANCE HAS BEEN REQUESTED INVESTOR WILL RECEIVE A COVER NOTE OF THE LLOYD'S INSURANCE POLICY TO BE ISSUED IN THEIR OWN NAME. 8. ONLY NOW WILL THE INVESTOR TRANSFER FUNDS INTO THE CHARTERED ACCOUNTING FIRM'S CUSTODIAN ACCOUNT. 9. INVESTOR WILL RECEIVE THE LLOYD'S DEPOSIT PROTECTION AND INDEMNITY INSURANCE POLICY WITHIN 14 DAYS." 40 While it is not explained who the "facilitator" is, the only joint venture agreement that is contained in the draft documentation is the joint venture agreement between The Seeto Group and the proposed investor, which was contained in the bundle of documents that Mr Mansell handed to Mr Azuma. 41 A week or two later Mr Azuma received a letter enclosing some documents relating to a British Virgin Island company that he had evidently acquired. A few days after that, around 7 May 1998, he opened a US dollar account with the National Australia Bank and caused the conversion and transfer of US$3,010,000 from the Australian dollar term deposit account that the First Appellant had with the NAB to Mr Azuma's personal US dollar account. 42 A few days after that, Mr Azuma had a further conversation with Mr Seeto, as follows: Azuma: "I have US$3 million ready to be transferred to the custodian account now. Can you give me the details of your firm's custodian account?" Seeto: "That's great. But as I told you, we need to get US$10 million before we can qualify to invest. I have an account where I put everyone's money in before I send it to our offshore custodian account once it gets to US$10 million. The account name is Seito Ocean Pty Limited. This is one of my family companies. I am the signatory on that account. As I told you, I am also putting my own family money into the custodian account investment through this family company. That's why I am getting everyone to put their money into this account first. Once we get to US$10 million in that account I will send it to our firm's offshore custodian account." 43 Mr Seeto then gave him the BSB and bank account numbers of a bank account. The conversation continued: Azuma: "Ok. I will send the money to that account. When do you think you will get enough in that account to invest in your firm's offshore custodian account?" Seeto: "Within a week or two. Make sure that you transfer your money into that account in the next few days." Azuma: "I will." 44 On or about 13 May 1998, Mr Azuma transferred US$3 million from his own US dollar account with the NAB to the bank account whose details Mr Seeto had provided to him. That account was an account of Seito Ocean Products Pty Ltd. It is a company the shares in which are held by two people with the surname Seeto (but not the Mr Seeto with whom Mr Azuma was dealing). However the Mr Seeto with whom Mr Azuma had been dealing was one of the four directors of the company (all of whom had the surname of Seeto), and one of the two secretaries of the company (both of whom had the surname Seeto). 45 Around 13 May 1998, Mr Azuma said to Mr Seeto: "I have just transferred US$3 million to your Seito Ocean account. Can you please let me know when you have put it in the offshore custodian account?" 46 A few weeks later, Mr Seeto said to Mr Azuma: "I've just sent your US$3 million to our custodian account. So, in 12 months time, we will all be 50% richer."

The Kim How Documentation 47 Mr Azuma agreed he had received a letter dated Friday, 25 September, that bears a fax transmission notation of being transmitted on 25 September 1998. The letter was on the letterhead of "Kim How Group". The bottom of the letterhead identified three companies, namely Kim How Trading Pty Ltd, Kim How Holding Coy Pty Ltd and Rosca International Pty Ltd. It gave an address that was the same as the address that Mr Azuma had, in other evidence, identified as the address of Mr Seeto's home. 48 That letter was signed by Mr Mansell and gave some details of "the programs that are currently available this week, which we have been considering". It gave a sketch, of the order of 10 lines long, concerning each of eight different investment programs that were said to be available. For each, it stated the minimum amount of investment. Those amounts ranged from US$100,000 to US$10 million. The returns were all extraordinary - they ranged from 30% per month less (unspecified) commissions, to 1,400% in 10 banking days. The letter makes no reference to Gould Ralph & Co, or to Gould Ralph Services Pty Ltd. 49 Mr Azuma also received a fax dated 2 November 1998 from Mr Seeto, on letterhead of Kim How Group. It purported to give an explanation of how "a return of say 30-50% a month" was achievable. In the transaction described, the central actor is called "The Trading Group" (not otherwise identified). Gould Ralph Pty Ltd, and Gould Ralph Services Pty Ltd, are nowhere mentioned. The scheme referred to in that letter was said to be "for a minimum placement of USD$2 million." It differed from the scheme that had been outlined in April 1998 because the return was many times higher, and Mr Azuma was to place the amount of his investment into a nominated bank account that was held in Mr Azuma's own name, the presence of which would make that bank willing to lend to Mr Seeto an amount equal to the amount deposited.

Entering the Second Investment Contract 50 Around February 1999 Mr Seeto told Mr Azuma that he was trying to put together another group of investors and enquired whether he or his friends had any money to participate. The conversation continued: Seeto: "I am trying to put together another group of investors. The minimum amount is again US$100,000. Do you or your friends have the money to participate?" Azuma: "Is this the same custodian account investment as last time?" Seeto: "Yes. 100% guaranteed safety. I am the only one controlling the account; plus our firm's professional insurance cover of $20 million. On top of that, we also have Lloyds insurance. Let me give you a full set of documents that will explain all of this. You and any of your friends can have a look at them at any time. I think you have already seen these documents before." 51 Mr Seeto gave him a bundle of documents. Part of it was another copy of each of the letters that Mr Seeto had handed to Mr Azuma at the meeting around April 1998 that Mr Mansell attended. However, there were some additional documents. 52 One of them was a draft letter dated 6 February 1999 that was on plain paper, not letterheaded paper. Its form was: "Dear Sir Transfer to Gould Ralph Services Pty Limited Custodian Account We have been advised that you intend to forward the sum of US$00,000 (United States Dollars) representing US$,000 to be held in our Custodian Account to in [sic] trust for you and US$_,000 for the purchase of Deposit Protection Insurance. Enclosed is a 30 day Cover Note for you[r] principal sum. Of course the cover note will only be valid if the funds for the insurance is forwarded. We note that the original of the insurance policy will be forwarded to you within 14 days from the receipt of funds into our Custodian Account. Your funds will be held in our account for a period of 12 (twelve) months and will be returned to you at the expiration of this period. Notice of Cancellation may be made at any time by the PARTICIPANT(S) by formal written advise [sic] for the return of the initial investment. Participant(s)['] capital will be returned within forty five (45) days of the given notice. The original of this letter will be forwarded to you by DHL following the receipt of your funds and will act as our official acknowledgement to you of the receipt. We note that our role in this matter is as custodian only and that we are not providing you with investment advice nor are we party to any transaction you may be entering into with respect to these funds. Yours faithfully GOULD RALPH SERVICES PTY LIMITED Stephen A Seeto B.Ec., F.C.A. Director" 53 Another of the additional documents was one that appeared to be a policy schedule concerning insurance effected with a Lloyd's syndicate. The insured was Gould Ralph Services Pty Ltd, the "professional business" was "custodians", and the period of insurance was 10th February 1999 to 10th February 2000. Another was a blank form headed "Certificate of Insurance". It stated: "This is to certify that in accordance with the authorisation granted under the Master Policy Number 98/032/9724 to Gould Ralph Services Pty Ltd by Resource Underwriting Pacific Pty Ltd for an [sic] on behalf of Syndicate 839 Underwriters at Lloyd's (the Underwriters) and in consideration of the premium specified herein, the said Underwriters are hereby bound to insure in accordance with the terms and conditions of the attached Certificate of Insurance and/or contained herein and or endorsed hereon." 54 It then set out a schedule, which contained blanks, but was in a form appropriate for identifying an insurance cover. The document had provisions for being signed on behalf of Resource Underwriting Pacific Pty Ltd on behalf of the Lloyd's syndicate, by Mr Seeto. 55 Another of the documents was headed: "GOULD RALPH SERVICES PTY LTD CUSTODIAN ACCOUNT BANK TRANSFER DETAILS" 56 It gave details for remitting funds to a New York bank, into an account called "ROYAL BANK OF SCOTLAND INTERNATIONAL LIMITED, JERSEY" and with a reference "COVER PAYMENT TO BENEFICIARY OF BELOW SWIFT MT100". It also said that information should be "SENT DIRECTLY TO THE ROYAL BANK OF SCOTLAND IN JERSEY OTHERWISE DELAYS COULD BE INCURRED", and purported to give identifying details of an account whose beneficiary was Gould Ralph Services Pty Limited. 57 Mr Azuma enquired whether it would be necessary to translate any of the documents into Japanese. Mr Seeto said he did not think so, as they were similar to the ones he gave Mr Azuma before. He enquired how much Mr Azuma could put in, and Mr Azuma said he thought he could get about US$1.5 million in about two months time. 58 About two months later Mr Azuma told Mr Seeto that he had US$1.5 million ready to go, and enquired whether he should transfer the money then, or wait until Mr Seeto was ready with everybody else's investment funds. Mr Seeto said, "We are ready to go now. Don't wait". The conversation continued: Azuma: "Ok. Can you give me the bank details of your firm's custodian account?" Seeto: "It's in the documents I gave you 2 months ago. I can give you another copy." 59 Mr Seeto then gave him another copy of the document headed "Gould Ralph Services Pty Limited Custodian Account Bank Transfer Details". Mr Seeto recommended that Mr Azuma should open a new bank account with the Royal Bank of Scotland, and said he had their bank account opening details "ready here for you to sign". Mr Azuma then and there signed the documents put in front of him without reading them or keeping a copy. 60 On 9 and 12 April 1999 Mr Azuma caused the transfer of US$1.5 million from the First Appellant's NAB account to the Jersey account of Gould Ralph Services Pty Limited, in accordance with the document that Mr Seeto had given him.

Entering the Third Investment Contract 61 Around April 1999 Mr Azuma spoke to a friend of his, Mr Terry Nishiura, enquired whether he was interested, and gave him a copy of the Japanese translation of various of the documents he had received. 62 In late April 1999 Mr Azuma, Mr Nishiura and Mr Seeto met at the Intercontinental Hotel in Sydney. Mr Azuma's evidence about that meeting was admitted on the basis that his account of what Mr Seeto said was admitted as proof that those words were said, not of their truth. After introductions, Mr Seeto said to Mr Nishiura: "... Sho might have already told you. I am a senior partner of a chartered accountant firm called 'Gould Ralph'. I know an investment which is an IMF registered program which provides very high return with the security of our accounting firm's exclusive control of the money invested. As you might know, we as accountants also have a $20 million insurance cover to guarantee the security of your money. On top of that, we also take out the extra insurance with the world's biggest insurer called Lloyds. You leave your money in our firm's custodian account for 12 months and you will get 50% return on your money. But the minimum amount of investment is US$100,000." 63 A few days later Mr Azuma, Mr Nishiura and Mr Seeto met again, this time at Mr Seeto's office in the AMP Building, Sydney. Mr Nishiura asked for an explanation about the IMF registered program, in simple English. Mr Seeto said: "The IMF program tells you about how these big financial institutions can make the big money, and therefore are able to pay investors like you the 50% return with money simply sitting in a secure custodian account." 64 Mr Nishiura sought, and was given, confirmation that Mr Azuma had already invested in the program. The conversation then continued: Nishiura: "Ok. Although I don't really understand how this much money can be made, I trust your ability as a professional accountant. At least, my money is safe with your accounting firm. What should I do next to participate in the investment?" Seeto: "How much do you have to invest? The minimum is US$100,000." Nishiura: "I can only invest US$100,000." Seeto: "That's ok. Here are some documents about our custodian account details for you to send money to. Here are some forms for you to sign to open an offshore bank account so that your profits can be paid directly into your own offshore account." 65 Mr Seeto then handed Mr Nishiura some documents, and indicated where Mr Nishiura was to sign. 66 By about 6 May 1999 Mr Azuma had received a total of US$100,000 from Mr Nishiura, which Mr Azuma transferred to his personal account. On 10 May 1999 Mr Azuma caused US$100,000 to be transferred from the First Appellant's NAB account to the account of Gould Ralph Services Pty Limited in Jersey, using the same procedure as had been used for transfer of funds to make the second investment. The account of the making of the third investment that I have given so far is derived from the evidence of Mr Azuma. 67 Mr Nishiura swore an affidavit that gives an account of events that differs in some respects from that given by Mr Azuma. According to Mr Nishiura, the initial meeting with Mr Seeto was attended not only by himself and Mr Azuma, but also by another man called Hide-Kakuda, who was introduced by Mr Azuma as someone who was going to invest money in the IMF Program. Mr Nishiura gives evidence that Mr Seeto handed him his business card, and annexes a copy of it. It says in large letters "Gould Ralph & Company Chartered Accountants", with no "Pty Ltd", and no ACN. However, the card contains the same logo as appears on the letterhead of Gould Ralph & Company Chartered Accountants Pty Limited, and the statement "Liability is limited by the Accountants Scheme". It gives the same address, telephone and facsimile number as appears on the company's letterhead. The card as originally printed also provided a similar email contact address to that which appears on the letterhead, but that email contact address was crossed out in handwriting, and in its place was written "seetos@ozemail.com.au". In larger printing than the address, the bearer of the card was identified as "Stephen A. Seeto". 68 According to Mr Nishiura, the conversation continued: Azuma: "Stephen works for a Chartered Accountant Company called Gould Ralph and he has an investment program called 'IMF'." Seeto: "Yes that is right I have been working as an accountant for many years and for Gould Ralph for several years. Azuma has told you about the 'IMF' Program, they secure money and you get high returns 50% on your investment. You have to make a decision quickly because the invitation of the scheme expires soon." 69 After some discussion about insurance, it continued: Seeto: "… You have to hurry because the applications are closing soon. Why don't we hold another meeting later on." Nishiura: "OK that sounds like a good idea, here is my business card you can reach me on my mobile telephone." 70 Mr Nishiura also gave an account of a further meeting either that day or in the days that immediately followed, at Mr Seeto's office in the AMP Building, attended by Mr Seeto and Mr Azuma. Mr Nishiura said they were joined by another person, concerning whom Mr Seeto said: "This is Andrew Mansell. He is one of our employees here, and he assists me with the IMF program. Terry I have some private companies. The IMF program may go through my private companies or through Gould Ralph & Co. If I am busy and you cannot contact me, please contact Andrew." 71 Mr Seeto then handed Mr Nishiura a business card relating to an entity called "Kim How Group". The card identified the bearer as: "Stephen A. Seeto B.Ec., ACA Managing Director " 72 It gave an address that was the same as Mr Seeto's home address. It gave his home phone and fax contact details, and also his business phone and fax contact details. Those latter details are the same as those that appear on the letterhead of Gould & Ralph Chartered Accountants Pty Ltd. On it, Mr Seeto wrote Andrew Mansell's name and contact details. 73 The judge did not choose between the different accounts of the conversations given by Mr Azuma and Mr Nishiura.

The Unravelling 74 It is unnecessary to recount the detail of the attempts that Mr Azuma made thereafter to obtain more information about his investments, and the profits he was supposed to receive from them. In February or March 2001 Mr Seeto told Mr Azuma that he (Mr Seeto) had permitted Andrew Mansell to be a signatory on "our custodian account" and that he took from it "your money, my money, lots of other investors' money." Mr Seeto told Mr Azuma that "if the other partners of my firm get to know about this, I will lose all control over it". Mr Azuma agreed to leave Mr Seeto to deal with his partners. 75 Having received no documents, and no information, Mr Azuma's trust and patience finally expired in May 2003, when he instructed lawyers to commence investigations.

Gould Ralph Services Pty Limited 76 The company that at the time of the events involved in this case was known as Gould Ralph Services Pty Ltd was incorporated in 1985 under a different name, and adopted the name Gould Ralph Services Pty Ltd in August 1986. Over the period in which the three investments the subject of this litigation were made, its directors were Mr Seeto, Mr Ralph, Mr Beard and a Mr Brian Barnett. According to the ASIC records the latter three directors ceased to hold office on 1 April 2001. Over the period in which the three investments were made, there were two shareholders in the company, namely Mr Ralph (as to 9,000 shares) and Mr Seeto (as to 1,000 shares). Mr Barnett was never a partner in Gould Ralph & Company. 77 Mr Seeto and Mr Ralph had each been a secretary of the company during the period the three investments were made, but Mr Ralph ceased to be a secretary, according to the ASIC records, on 1 April 2001. 78 Effective from 20 April 2001, the name of the company was changed to Seeto Financial Services Pty Ltd. At some time not identified in the ASIC records, but between the lodgement of an annual return on 21 November 2000 and the conducting of a search on 18 May 2004, Mr Ralph ceased to be a shareholder, and Mr Seeto came to hold all 10,000 issued shares. Mr Ralph gave evidence that on 1 April 2001 control of the company was transferred to Mr Seeto, and that he transferred his shares to Mr Seeto for nominal consideration.

Gould Ralph & Company 79 Gould Ralph & Company is a partnership that began in 1982. Mr Seeto was admitted as a partner in 1992. 80 Mr Ralph gives evidence as follows: "… Gould Ralph & Company has [since the instigation of Gould Ralph Services Pty Ltd as the practice company in approximately 1986*] only provided audit and, to a limited extent, insolvency services to its clients. The reason for the limited activities of the partnership is that when Gould Ralph & Company was formed and prior to the changes to the Corporations Act allowing 'Authorised Audit Companies' in 2004, the Corporations Law did not allow audit firms to operate within a limited liability structure. For that reason, the first defendant, then called Gould Ralph Services Pty Limited, could not be registered as an auditor or undertake statutory audit work. In my experience and to my observation, Gould Ralph & Company provided those audit services and Gould Ralph Services Pty Limited did not. In my experience and to my observation, we maintained a dichotomy between the partnership carrying out only audit and insolvency services and the first defendant carrying out other accounting and taxation work."

(* as corrected orally by Mr Ralph at tp 130). 81 Mr Beard explained: "I was an audit partner, so I was a registered company auditor and did audit work." 82 The trial judge found (at [53]) that Mr Seeto resigned from the partnership in October 1998. On the basis of that finding, the first investment was made during the period he was a partner, but the second and third investments were not. 83 There was no written partnership agreement, nor was there any writing whereby Mr Seeto resigned, nor any document in which the ongoing partners agreed with Mr Seeto that the partnership of which Mr Seeto was a member was ended. 84 Mr Ralph gave evidence, that the judge accepted, that in October 1998 Mr Seeto said to Mr Ralph: "I am resigning from the practice. I am too busy with family businesses and my other investments but think I should remain a director of Gould Ralph Services for the time being to maintain the relationship with the tax clients I've introduced."

Payment Records 85 Numerous items of evidence, some of them documentary, are relevant to the date of Mr Seeto's resignation. 86 An extract from the payroll register of Gould Ralph & Co relating to Mr Seeto for the period 30 January 1998 to 30 June 2004 was in evidence. It shows that Mr Seeto was paid $5,000 per month up to the end of October 1998, apart from in June 1998, when he received nothing. After October 1998 no further payments were made to him. These payments of $5,000 per month were made by direct credit. 87 From the fact that they were an identical amount each month, I would infer that they were in the nature of drawings on account of profits, rather than the totality of the remuneration he received. That inference is confirmed by the tax return of the partnership for the year ended 30 June 1998, which shows Mr Seeto having a distribution of net income from the partnership of $58,800, ie $1,200 less than the amount that would accrue over a year at the rate of $5,000 per month. 88 That tax return shows that the only other distribution of partnership income in that year was to Mr Beard, who received a somewhat smaller sum from the partnership than Mr Seeto received. In other words, notwithstanding that Mr Ralph was a partner, and identified in the partnership tax return as the contact partner for the taxation office, he received no distribution from the partnership. 89 The partnership tax return for the year ended 30 June 1999 shows that Mr Seeto received a distribution of $20,000 in that tax year. That is consistent with him having been paid $5,000 for each of the four months July to October 1998, but nothing thereafter. Mr Ralph received a distribution of $3,000. Mr Beard received a distribution numerous times larger than the distribution Mr Seeto had received. 90 The partnership return for the year ended 30 June 2000 makes no mention of Mr Seeto at all, and distributes the partnership income virtually equally (though with a $200 difference) between Mr Beard and Mr Ralph. 91 None of the partnership tax returns bears a date of preparation or lodgement. Mr Ralph's evidence was: "Q. … When approximately would you have lodged your [partnership] tax return for the year ended 30 June 1999? A. Regrettably our returns are quite often late, but '99 ought to have been lodged by, I would think, about May 2000. Q. Do you have any reason to think that particular one was substantially late? A. Not offhand but unfortunately our own records are quite often late."

Mr Seeto's Ongoing Connection with the Premises 92 At all times relevant to these proceedings both Gould Ralph & Company and Gould Ralph Services Pty Ltd occupied premises in the AMP building at Level 40, 50 Bridge Street Sydney. Mr Ralph said that the premises in 1999 had "signs over the reception for Gould Ralph & Company, Gould Ralph Services and other subtenants". Both Mr Ralph and Mr Beard gave evidence that, after he ceased to be a partner, Mr Seeto continued to have an office on Level 40, 50 Bridge Street Sydney, which he occupied as a subtenant. Mr Ralph's cross-examination included, in a context where 1999 was the period being talked about: "Q. And someone coming into that floor and then going to Mr Seeto's office might well get the impression from that signage that Mr Seeto was in fact working for Gould Ralph, isn't that right? A. Well, they might, yes. Q. And if they had dealt with Mr Seeto in the past as a partner of Gould Ralph, they'd be likely to believe, particularly seeing him in that office, that he continued to be a partner of Gould Ralph, isn't that right? A. I think he moved offices, but I agree with that proposition." 93 In April 2001, Mr Ralph was aware that Mr Seeto "was maintaining contact with some of his clients at the Gould Ralph Services … he was providing assistance to those clients in their relationship with our staff." Mr Ralph's evidence included: "Q. You knew that Mr Seeto was doing work for one or more Gould Ralph entities in relation to Gould Ralph's clients at that time; isn't that right? A. Yes, in terms of Gould Ralph Services he was meeting clients, but I don't think he was actually producing documents himself. Q. You knew that either Mr Azuma or Mr Azuma's companies or both were clients of one of the Gould Ralph entities in early 2001, didn't you? A. Yes. Q. And you knew that Mr Seeto was continuing to do work for Mr Azuma or his companies; isn't that right? A. Well, when you say continue to do work, I mean he met with Mr Azuma. To my knowledge." 94 When asked about Mr Seeto's work in June 2000, Mr Ralph's evidence was: "HIS HONOUR Q. Just so that I'm clear, do you say he was or was not working for the practice? A. He was engaging with the practice. Q. What does that mean? A. He wasn't to my understanding, preparing any documents or having any substantial meetings with clients. But he may meet with a client that he had introduced. He may give the other staff some advice or assistance or explanation as to the affairs of clients that Steve was familiar with. Q. And was that working for the practice or not? A. I wouldn't consider it working for the practice, no. It was more of a personal interest on his part."

The Respondents' Knowledge of the Investment Scheme and Bank Account 95 Mr Ralph gave evidence that he had no knowledge prior to 2001 about any investment scheme organised by Mr Seeto, but that in about 2001 he had come to understand, from two American investors who called at his office, that Mr Seeto had been involved in "some scheme involving bond trading in the USA". 96 In 2001, some days after the visit of the Americans, Mr Seeto told Mr Ralph that "he had done silly things and he had established an account without our knowledge in the Channel Islands". Mr Ralph was told by his former partner Mr Gould at that time that Mr Seeto had told Mr Gould that he had arranged investments into that account in America, from Americans, and that a sum of money had been seized by a US government authority. The information that Mr Ralph then acquired was that "a bank teller had alerted the Customs agencies or whatever in Florida when somebody turned up to transfer a large sum of money. Ten-odd million dollars." 97 Mr Ralph said that prior to 2001 he was not aware that the company ever had a custodian account, and he did not authorise any such account. Nor was he aware that it had an insurance policy with Lloyd's, and did not authorise any such policy. Further, prior to 2001 he had never heard of IMF registered trade bank programs, and was not aware that the company had an account with the Royal Bank of Scotland in the Channel Islands, or anywhere else outside Sydney, and he did not authorise any such account. 98 Mr Beard likewise gave evidence that prior to 2001 he was neither aware of nor authorised any activities by the partnership outside audit or insolvency activities. As well, he was not aware of, and did not authorise, anything to do with any custodian bank account.

The Business Names Records 99 A search of the business names records shows that the name "Gould Ralph & Company" was renewed by documents lodged in September 1991, December 1994, September 1997, and August 2000. A "Statement of Change in Certain Particulars" was lodged on 29 June 2001. 100 A Statement of Renewal of Registration of a Business Name form that was issued on 24 August 2000, shows that the business name "Gould Ralph & Company" had a business of "chartered accountants", and the proprietors of the business name were Mr Beard, Mr Ralph and Mr Seeto. Mr Ralph signed that form, and after it was lodged in August 2000 it was available on search of the Business Names Register. 101 A "Statement of Change in Persons" form prescribed under the Business Names Act 1962, was received in the registry on 29 June 2001. All the blanks in the form that had been filled in, apart from three signatures, were filled in by typing. It stated that Mr Seeto had ceased to carry on business under the business name on 7 December 1999. It was signed by Mr Ralph in two separate places, one relating to Mr Seeto ceasing to carry on business under the name, and the other relating to Mr Ralph continuing to carry on business under the name. Alongside each signature the "Date signed" was said to be "7/12/1999". 102 Mr Beard had signed an annexure to the form, certifying that he was continuing to carry on business under the business name. That signature appeared alongside a space where the "Date Signed" had been filled in, in typing, with "7/12/1999". Mr Beard could not remember when he signed it, but said that "I would have thought that Stephen ceased as a partner well before this". He said "I would have viewed that he would have ceased when he ceased audit work". Mr Beard had no explanation for the date of 7 December 1999 on the document, and said "I would have thought it was around about October '98, when he ceased doing audit work …". Mr Beard's cross-examination continued: "HIS HONOUR Q. Why do you think it was October '98? A. Well, Stephen and I did a lot of audits [sic] work together, particularly on public companies, the biggest was Finemore Holdings which was, involved a lot of staff, a lot of travel to, particularly to Wagga, Melbourne, Albury, so it was quite an involved process, and Stephen had other things on his mind, he was, had other directorships, he had other businesses and he didn't enjoy the detailed audit work, so he, at the end June '98 he said, look, I'm not going to do this any more, I'm going to do other things, I mean, he had, a director of Adavale which is another listed company, wasn't a client, but he was interested in that, it took him to China-- Q. My question was, why did you mention October '98? A. That's the end of the audit, so 30 June '98, you do all the audit work it takes you two or three months to finish an audit because you have to let the Stock Exchange know by a certain period, so all of that work stops, after that travel ceases and you move on to other things." 103 The Statement of Change in Persons form had a footer, that was part of the form rather than a typed addition, saying "BN FORM 6 APRIL 2001". 104 An ASIC search shows that that Statement of Change in Persons form was both lodged and processed on 29 June 2001. Thus, prior to 29 June 2001 the Business Names Register relating to Gould Ralph & Company would have shown Mr Beard, Mr Ralph and Mr Seeto as the proprietors of the business name. 105 When Mr Ralph was first questioned in cross-examination about the business name record, he acknowledged that Mr Seeto had been one of the proprietors of the business name. The cross-examination continued: "Q. When did that change? A. I think formally in '99. … Q. Didn't you just say that in 1999 there was some change made in relation to the business name of Mr Seeto? A. There was a document that changed the ownership of the business name and it was dated 1999. Q. What happened in 1999 in relation to Mr Seeto and the Gould Ralph & Company name? A. Well, physically nothing, to my recollection, other than there was a document signed at that time. I can't explain why it was dated then. December 1999." 106 Mr Ralph had no recollection of signing the document, and said it was not his understanding that it was prepared in 2001, in particular between April and June of 2001. 107 Mr Ralph said that probably the office manager at the time, Dorothy Lewis, was involved in the preparation of the document. She was still alive, and living in Northern New South Wales at the time of the trial. Mr Ralph said: "Q. There is no reason that you are aware of why she could not be available for these Court proceedings if somebody had sought fit to call her? A. I believe she was contacted and advised that she was in some pain. She is an aged lady and would find great trouble in travelling to Sydney. Q. But she knows something about this document, are you saying? A. She may know something about the document. I couldn't say for sure. Q. When you signed the document, you knew that it was dated 7 December 1999, didn't you? A. Well, when I signed the document it would have been dated then, yes." 108 He said that he may have signed it without looking at it. When his attention was drawn to the footer on the form, he said: "Q. What has happened is there has been an attempt to put in a form pretending that it is a 1999 form, but someone has forgotten that they are actually using a 2001 form: isn't that right? A. That does appear to be the case, yes. Q. So, there was an attempt to pretend that the document was a 1999 document, exposed merely by the sloppiness in using only the form current in 2001: isn't that right? A. It would have that appearance now that you have drawn my attention to it, yes." 109 He denied he did that in the middle of 2001 because he had a concern about Mr Seeto's activities.

The Quality Control Manual 110 There is a document called a "Quality Control Manual" that Mr Ralph describes as "generated for use (and in fact used) internally within Gould Ralph & Company and Gould Ralph Services Pty Limited." The coversheet of that manual identifies it as relating to: "Gould Ralph & Company Chartered Accountants Gould Ralph Services Pty Limited"

It is not clear from what date the Quality Control Manual emanated, but when it has been admitted into evidence the parties evidently regarded it as relevant. 111 The index identifies the following practice areas: "- Audit - Taxation - Accounting services - Company secretarial"

In other words, the practice areas cover those activities carried on by the partnership, and also the other activities of providing professional accounting services that were carried on by Gould Ralph Services Pty Ltd. 112 The section of the manual headed "Introduction" includes: "This manual is intended to serve number of purposes:- * to standardise various procedures within the Firm; * to outline the firm's views and standards in connection with both the management of a professional practice, and the conduct of professional work[;] * to act as [a] training aid for new staff and a reference aid for existing staff; and * to form a vital part of the firm's quality control system required by the ethical rulings of the Institute of Chartered Accountants in Australia. … The firm undertakes each assignment in the name of Gould Ralph Services Pty Limited ('GRS Pty Limited') or Gould Ralph & Company, GRS Pty Limited is a limited liability practice company approved by the Institute of Chartered Accountants. Gould Ralph & Company is a partnership. The only assignments which will be undertaken in the name of Gould Ralph & Company are those which a company is prohibited from undertaking, ie statutory audit under the Corporations Law, receivership and liquidations. All other assignments will be undertaken by Gould Ralph Services Pty Limited. Staff should ensure that all outward correspondence is on the appropriate letterhead." 113 The introduction goes on to refer to the "firm" in a way that covers both the activities of the partnership and the activities of the practice company. 114 In a section headed "Professional Independence" standards that "[a]ll partners and staff are required to adhere to" are identified. Some of the specific procedures to achieve that objective are identified as being: "New staff members are required to complete and sign an 'Independence Checklist for Partners and Employees' (Form…) after reviewing the current client listing. On an annual basis an updated client listing is circulated to all partners and staff, who are required to sign the 'Independence Checklist for Partners and Employees' (Form…) to confirm continued compliance with independence guidelines[.] The senior partner is responsible for clearing conflicts arising from employees they have employed. This may involve communications with the accounting bodies where the conflict can not be resolved internally." 115 A section of the manual relates to a professional development program. Professional development "is considered an essential part of the firm's activities". The "administrative partner" is responsible for the formulation and implementation of "firm policy" regarding the professional development program. There is a requirement for a minimum number of hours of continuing professional education to be completed by "each partner and professional employee" each year. The professional development program is reviewed annually "at a partners meeting". 116 The balance of the manual repeatedly refers to "firm" as the entity that is carrying out the practice. In particular, in each of the practice areas of taxation, accounting services, company secretarial, and audit, it is the "firm" that is carrying out the activity.

The Insurance Proposals 117 On 20 December 1998 Mr Ralph signed a proposal form seeking professional indemnity insurance. The "Insured" was identified as "Gould Ralph & Company (& associated entities per attached)". Those "associated entities" were identified as including: " GOULD RALPH & COMPANY The practice partnership entity, acting as Auditor and Liquidator (being professional practice not able to be conducted through incorporated entities). GOULD RALPH SERVICES PTY LIMITED This company principally acts as a practice company and trustee of the practice trust. The company also acts in miscellaneous nominee circumstances on behalf of clients. SPUNTILL PTY LIMITED This company receives cash funds from clients and invests same in bank bills and short term deposits at call with licensed operators such as: Westpac Banking Corporation Commonwealth Bank of Australia Accordingly, this company handles the administration of short term deposits on behalf of clients, via a pooled fund. Additionally acts in nominee circumstances on behalf of clients." 118 Another four companies, that carried on activities including being trustee of a "service trust" or acting as "nominee" on behalf of clients were also named. 119 In a part of the form requesting the "Name of all Partners/Principals/Directors", the names of Mr Ralph, Mr Seeto, Mr Beard and Mr Barnett appeared. There was insufficient space on the form to identify the qualifications and professional body membership of those people, so a typed annexure was included. Under the heading "Item 2 - Partners" it listed the qualifications of each of Mr Ralph, Mr Seeto, Mr Beard and Mr Barnett. On that page, Mr Beard and Mr Barnett were each referred to as an "Associate Partner". They were described in that way even though Mr Barnett had never been a partner of the partnership, only a person who carried out professional accounting work for Gould Ralph Services Pty Ltd. 120 A request for "the approximate percentage of your fee income derived from the following fields of work" listed percentages in relation to auditing, accounts preparation or bookkeeping, receiverships, liquidations or bankruptcies, taxation, and "Others" (specified as being share registry). In other words, those percentages were percentages of the combined fee income of the partnership and of Gould Ralph Services Pty Ltd. 121 On 28 June 2000, Mr Ralph submitted another proposal form for professional indemnity insurance. The entities to be insured were identified as "Gould Ralph & Company", "Gould Ralph Services P/L", and other entities listed on an annexure. That annexure included Spuntill Pty Ltd, and described its activities in the same way as the 1998 proposal had done. 122 The space in the form for "Names of all Principals/Directors" was again filled in with the names of Mr Ralph, Mr Beard, Mr Barnett and Mr Seeto, though this time alongside Mr Seeto's name appeared "(Part time)". The question relating to total numbers of "Partners/Directors" was answered by saying that there were three full-time and one part-time. 123 A request for the percentage of "approximate total fees derived from the following activities" was answered in the same way as it had been in the 1998 proposal form. 124 A question in relation to whether claims had been made was answered by saying that a claim by VMF Pty Ltd (in liquidation) had been notified on 30 March 2000. That claim was described as: "Claim by liquidator of VMF against former partner Vanda Gould & Stephen Seeto (as liquidators of Stanone Pty Ltd) for …"

That way of putting it suggests that, even though Mr Gould had ceased to be a partner, Mr Seeto had not. 125 Again there was insufficient space to provide the qualifications of the "Principals/Directors", so there was a typed annexure headed "ITEM 3 - PARTNERS" that listed exactly the same information in relation to each of Mr Ralph, Mr Seeto, Mr Beard and Mr Barnett as had been provided in the 1998 proposal. Mr Ralph explained that his method of preparing the form was to cut and paste from previous years' proposal forms. 126 In relation to a question in the format "Please provide details of Partners'/Directors' previous partnerships/directorships (if any): Partner Previous Firm Period of Previous Partnership"

details were provided of Mr Barnett. This happened notwithstanding evidence from Mr Ralph that Mr Barnett "was never actually a partner of the firm" . 127 The covering letter that Mr Ralph signed enclosing the 2000 proposal said "circumstances have not significantly changed since our last proposal".

The Audit Reports 128 The financial accounts of both of the corporate appellants for the year ended 30 June 1998 are in evidence. Each set of accounts contains an auditor's report which includes statements that: "We have audited the financial report … We have conducted an independent audit of the financial report … Our audit has been conducted in accordance with Australian Auditing Standards … Our procedures included … In our opinion the financial report of [company name] is in accordance with …". 129 Each of the audit reports was expressed to be signed on 30 October 1998. Each audit report ended: "GOULD RALPH & COMPANY Chartered Accountants [signature] S A SEETO, B.Ec. FCA Partner" 130 The financial accounts of each company for the year ended 30 June 1999 contain independent auditor's reports in the same terms (apart from changes in dates), and signed in the same fashion by Mr Seeto. Those reports were expressed to be signed on 25 November 1999.

The Memoranda of Fees 131 The evidence contains various memoranda of fees that were submitted to the corporate appellants over a period from 30 November 1996 to 9 May 2000. Each is on a letterhead of "Gould Ralph Services Pty Ltd Chartered Accountants" that identifies an ACN. Fee memos from April 1998 onwards include the statement that "Liability is limited by the Accountants Scheme", but fees memos in evidence dated earlier than April 1998 contain no such statement. Each memorandum of fees includes charges for both audit services and other services, without making any differentiation between the entities said to have provided those different types of services. The memorandum of fees dated 9 May 2000 includes a charge for auditing services for one of the corporate appellants for the year ended 30 June 1999.

The Judge's Finding 132 The judge set out Mr Ralph's account of the resignation conversation at [32] of his reasons. While the judge did not say in so many words that he accepted the evidence, neither did he express any doubt about it. 133 Mr M W Young appeared as counsel for the Appellants both at the trial and on the appeal. In cross-examination, Mr Young had put to Mr Ralph a different account of the October 1998 conversation to that to which Mr Ralph had deposed, that had as one element that Mr Seeto said he wanted to stay on in the partnership but with reduced remuneration because of his working on his own affairs. Mr Ralph rejected that version of the conversation. That cross-examination included: "Q. So rather than you having any conversation with Mr Seeto in October 1998 about him resigning from the practice, the conversation you had was in relation to changing the method of remuneration because Mr Seeto was in effect going part-time: that is the case, isn't it? A. No. That is not right." 134 The judge referred to this cross-examination of Mr Ralph and summarised it at [38] of the judgment, including Mr Ralph's denials. The judge said nothing about having any doubt about those denials. 135 At [46], the judge found that "the strongest likelihood is that Mr Seeto did resign as a partner in October 1998." 136 The insurance proposal documents were described by the judge at [51] as: "… a composite proposal with respect to more than one entity. No attempt has been made to distinguish between partners of the firm and directors of the company. This may be evidence of a lack of attention to detail but does not in my opinion amount to any more than that." 137 The judge also said, at [52]-[53]: "A significant attack was made upon Mr Ralph's credit having regard to the Statement of Change in Persons that he signed and the suggestion that he was attempting to create a false impression of the actual state of the partnership. There are several problems with this, the most significant being that the document failed to 'avoid' the consequences of the first transaction. No such attack can be levelled at Mr Ralph for the Statement of Renewal of Registration of a Business Name, of course, as it was on its face inimical to Mr Ralph's contentions about the membership of the firm when the transactions took place and otherwise supportive of the plaintiffs. The plaintiffs' position on these issues is no less than an allegation of dishonesty by Mr Ralph. I cannot be comfortably satisfied, and I am not prepared to find, that the plaintiffs have established that Mr Ralph set out falsely to execute a document informing the Department of Fair Trading that Mr Seeto ceased to be a partner on a particular date contrary to the true position or that he gave false evidence on that issue before me. I find that Mr Seeto resigned from the partnership in October 1998."

The Submissions 138 Mr Young submits that the preferable view of the evidence is that Mr Seeto remained a partner in the partnership until April 2001. He submits that, while the judge has failed to be satisfied that Mr Ralph falsely executed the Statement of Change in Persons document or that he "gave false evidence on that issue", that is not the same as accepting Mr Ralph as a witness of truth. He submits that the absence of Ms Lewis from the witness box was inadequately explained, given the seriousness of the issues and the large sum at stake (of the order of A$7 million including interest), and that the judge should have drawn a Jones v Dunkel (1959) 101 CLR 298 inference concerning her absence. He submits that the judge's finding about the date of resignation is in substance not based on credit, and that the principles in Abalos v Australian Postal Commission (1990) 171 CLR 167 are thus not applicable. 139 Mr Leopold SC, counsel for the Respondents, submits that the finding is one that is affected by the judge's view of the credit of the witnesses, and thus cannot be overturned unless the criteria identified in Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 are met. He submits that those criteria are not met. He submits that the finding of the judge is specific - that the resignation occurred "in October 1998", and that the only clear evidence that fixes the date with that degree of precision is Mr Ralph's evidence about the resignation conversation. He submits that Mr Ralph's evidence is supported by the evidence that Mr Beard gave about Mr Seeto expressing an intention in June 1998 to resign, with how a resignation in October 1998 would fit in with the annual ebb and flow of work in an audit practice, and with the evidence showing the cessation of payments to Mr Seeto after October 1998. He submits that the occasion for drawing a Jones v Dunkel inference did not arise.

Overturning Factual Findings 140 In Jones v Hyde (1989) 63 ALJR 349 at 351-2; 85 ALR 23 at 27-8 McHugh J (with whom Brennan, Deane, Dawson and Toohey JJ agreed) restored a finding of a trial judge about the circumstances of a road accident, after that finding had been reversed by the Full Court. The plaintiff and defendant had given the trial judge inconsistent accounts of how the accident had happened. McHugh J said: "It is true that the learned judge did not expressly rely on the demeanour of the plaintiff in making his findings of primary fact. But this does not mean … that an appellate court is in as good a position as the trial judge to determine the primary facts of the case. When a trial judge resolves a conflict of evidence between witnesses, the subtle influence of demeanour on his determination cannot be overlooked. It does not follow that, because the learned judge made no express reference to demeanour and credibility, they played no part in his conclusion … I do not accept that in this case the learned trial judge's observations of the demeanour of the plaintiff and the defendant and their manner of giving evidence played no part in his findings. I think they almost certainly did. In accordance with the rules relating to review of findings of fact based in whole or in part on demeanour, those findings are not open to review in an appellate court." 141 In Abalos v Australian Postal Commission at 178, McHugh J (with whom Mason CJ, Deane, Dawson and Gaudron JJ agreed) approved the statement of Lord Sumner in SS Hontestroom v SS Sagaporack [1927] AC 37 at 47 that: "… not to have seen the witnesses puts appellate judges in a permanent position of disadvantage as against the trial judge, and, unless it can be shown that he has failed to use or has palpably misused his advantage, the higher Court ought not to take the responsibility of reversing conclusions so arrived at, merely on the result of their own comparisons and criticisms of the witnesses and on their own view of the probabilities of the case." 142 McHugh J said, at 179: "… when a trial judge resolves a conflict of evidence between witnesses, the subtle influence of demeanour on his or her determination cannot be overlooked. It does not follow that, because her Honour made no express reference to the demeanour or credibility of either [two named witnesses], demeanour or credibility played no part in her findings …" 143 Abalos was a case involving an industrial injury, in which the relevant conflict of evidence was between an expert, whose evidence was that nothing short of a wholesale redesign of the entire system of work would have fixed its inadequacies; and a supervisor whose evidence was that the operations could be carried out with minimal risk of injury to the workers, and within the existing system, if a particular method of going about the work was adopted. The plaintiff had not pleaded her case by alleging that the negligence consisted of a failure to redesign the system, only that the negligence lay in inadequate supervision. The trial judge had found for the plaintiff, on the basis of the evidence of the supervisor, but the Court of Appeal had overturned that decision on the basis of the evidence of the expert. That factual context explains the conclusion that McHugh J drew at 178 from Lord Sumner's statement of principle, namely: "… where a trial judge has made a finding of fact contrary to the evidence of a witness but has made no reference to that evidence, an appellate court cannot act on that evidence to reverse the finding unless it is satisfied 'that any advantage enjoyed by the trial judge by reason of having seen and heard the witnesses, could not be sufficient to explain or justify the trial judge's conclusion': Watt or Thomas v Thomas [1947] AC 484 at 488." 144 At 179, McHugh J went on to say: "But in any event, no matter how impressive [the expert's] evidence may appear, it cannot claim the consideration of an appellate court to the extent necessary to overcome the advantage which her Honour enjoyed in seeing and hearing [the supervisor] give evidence. There is simply no basis for concluding that, in so far as her Honour preferred the evidence and demonstrations of [the supervisor] to the evidence of [the expert], she failed to use or palpably misused the advantage which she had of seeing and hearing the witnesses." 145 In Devries v Australian National Railways Commission (1993) 177 CLR 472 an injured worker had given an account, which the trial judge accepted, of how he came to be injured. On appeal the Full Court overturned that finding, on a basis that included some statements of the circumstances of the injury that the plaintiff had made on earlier occasions and that were recorded in documents. The High Court reversed the Full Court's decision. The majority judgment of Brennan, Gaudron and McHugh JJ said, at 477: "The statements in the reports were not 'established facts'. They constituted admissions which could be used to discredit the plaintiff's testimony. But the 'facts' in the statements did not constitute 'facts incontrovertibly established by evidence'. One of the critical issues in the case was the extent to which the statements could be relied on as an accurate account of how the plaintiff had sustained injury. The question for the judge was whether he should accept the plaintiff's oral evidence or whether the accounts in the claim form and report threw such doubt on the plaintiff's evidence that it should not be accepted. Once the trial judge concluded that the plaintiff's hospitalization, pain and limited knowledge of English explained his failure to mention the specific incident or give 23 January 1985 as the date of the incident, the statements had little, if any, evidentiary value. In accepting that there was an explanation for the inconsistencies, the trial judge had the advantage, which was denied to the judges of the Full Court, of being able to judge the true character and intelligence of the plaintiff and his ability to understand questions and to express himself in answer to those questions. These matters were fundamental to determining whether the plaintiff's evidence should be accepted." (citation omitted) 146 Their Honours also said, at 479: "More than once in recent years, this Court has pointed out that a finding of fact by a trial judge, based on the credibility of a witness, is not to be set aside because an appellate court thinks that the probabilities of a case are against - even strongly against - that finding of fact. If the trial judge's finding depends to any substantial degree on the credibility of the witness, the finding must stand unless it can be shown that the trial judge 'has failed to use or has palpably misused his advantage' or has acted on evidence which was 'inconsistent with facts incontrovertibly established by the evidence' or which was 'glaringly improbable'." (citations omitted) 147 Fox v Percy involved a plaintiff who was injured when the horse she was riding collided with the defendant's motor vehicle. Both the plaintiff and a companion with whom she had been riding gave evidence that the plaintiff had been on her correct side of the road, while the defendant gave evidence that her vehicle had been on its correct side of the road. The plaintiff's contention was supported by an expert's report, but that expert was not called to give evidence. The trial judge preferred the evidence of the plaintiff. The Court of Appeal reversed that decision, largely because a policeman who attended the scene of the accident soon after it occurred, found that the defendant's vehicle was on its correct side of the road at that time, and there were 10 metres of skid marks immediately behind it. The High Court held that the Court of Appeal had been right to rely upon those skid marks, and some other uncontested facts (evidence from ambulance attendants that the vehicle was on its correct side of the road, and the comment that the attending police officer immediately made to the plaintiff on seeing the skid marks that "it looks like you were in the wrong" (at 121 [5], 130 [36]) as sufficient basis to overturn the trial judge's finding. 148 The joint judgment of Gleeson CJ, Gummow and Kirby JJ made clear the obligation of an appellate court conducting an appeal by way of rehearing (as the present appeal is) to "conduct a real review of the trial and, in cases where the trial was conducted before a judge sitting alone, of that judges reasons" (at 126-7 [25]), and "give the judgment which in its opinion ought to have been given in the first instance" (at 125 [23]). However there are "natural limitations" on an appellate court that proceeds wholly or substantially on the record (125 [23]), and the appellate court's obligation to review can only be carried out within those natural limitations (126-7 [25]). 149 The majority judges in the High Court in Fox v Percy at 127 [26] referred to Jones v Hyde, Abalos, and Devries without any hint of qualification, and indeed with the remark that those cases "did not constitute a departure from established doctrine." 150 Repeatedly, submissions in this Court proceed as though it is concerning factual findings affected by the demeanour of witnesses that trial judges have an advantage over an appellate court. While Jones v Hyde, Abalos and Devries had paid particular attention to the advantage that a trial judge has concerning factual findings affected by demeanour, Fox v Percy at 127 [26] made clear that those three cases "were simply a reminder of the limits under which appellate judges typically operate when compared with trial judges." At 126 [23] of Fox v Percy, their Honours made clear that the advantage of a trial judge is by no means confined to the making of factual findings that are affected by demeanour. Deliberately not being exhaustive, their Honours said that the limitations on an appellate court: "… include the disadvantage that the appellate court has when compared with the trial judge in respect of the evaluation of witnesses' credibility and of the 'feeling' of a case which an appellate court, reading the transcript, cannot always fully share. Furthermore, the appellate court does not typically get taken to, or read, all of the evidence taken at the trial. Commonly, the trial judge therefore has advantages that derive from the obligation at trial to receive and consider the entirety of the evidence and the opportunity, normally over a longer interval, to reflect upon that evidence and to draw conclusions from it, viewed as a whole." (citations omitted) 151 Having sat as both a trial judge and on appeal, my personal experience confirms the reality of each of those limitations. 152 The majority in Fox v Percy at 128 [28] stated that in some cases "incontrovertible facts or uncontested testimony will demonstrate that the trial judge's conclusions are erroneous, even when they appear to be, or are stated to be, based on credibility findings". Their Honours also acknowledged, at 128 [29], that "In some, quite rare, cases, although the facts fall short of being 'incontrovertible', an appellate conclusion may be reached that the decision at trial is 'glaringly improbable' or 'contrary to compelling inferences' in the case", and be justified by those matters in reversing a trial judge's conclusion on a matter of fact. 153 The inevitable advantage of a trial judge over an appellate court is one of the "natural limitations" on the ability of an appeal court to be satisfied that the trial judge has erred. In the sort of situations identified by their Honours in 128 [28] and [29] an appellate court can be satisfied that the trial judge has erred in making a factual finding that was affected by demeanour. 154 More generally, concerning any factual finding of a trial judge that is affected by any of the different ways in which the trial judge has an advantage over the appellate court, there needs to be a reason, such as those identified in 128 [28] and [29] of Fox v Percy, that explains why it is that an appellate judge is satisfied, notwithstanding the circumstance that would usually give the trial judge an advantage, that there is error in the finding. But once an appellate judge is satisfied that there is such a reason, the obligation of the appellate judge is to correct the error.

Decision Re When Mr Seeto Ceased to be a Partner 155 At the relevant times, section 5(1) of the Business Names Act 1962 prohibited a person from carrying on business under a business name unless that business name was his or her own name without any addition, or the business name was registered under the Act. Section 5(5) provided: "Notwithstanding anything in this Act a contravention of or failure to comply with any provision thereof shall not operate to avoid any agreement transaction act or matter." 156 There was provision in section 6 for the Commissioner of Consumer Affairs (and, after 17 July 2001, the Director-General of the Department of Fair Trading) to keep a register of business names. Under section 11, once a business name was registered, it remained in force for a period of three years, but that registration was able to be renewed from time-to-time. 157 Section 24 provided that a document purporting to be a copy of or extract from the register shall in all courts be prima facie evidence of any matter contained or set out therein. 158 Section 41 of the Business Names Act 2002 repealed the Business Names Act 1962. That repeal became effective on the date of commencement of section 41 of the 2002 Act, 5 October 2004. Section 26 Business Names Act 2002 provides: "A certificate: (a) that is signed by the Director-General, or by an officer of the Department authorised by the Director-General in that regard, and (b) that certifies that, on a specified date or during a specified period, the particulars contained in the Register as to specified matters were as so specified, is admissible in any proceedings and is evidence of the matters so certified." 159 The hearing in the present case took place in August 2008. Subject to any contrary statutory provision, it is the statutes that are in force at the time of a trial that govern admissibility of evidence at it. The evidence in the present case as to the state of the Business Names Register from time to time did not take the form of the certificate signed in a manner required by section 26 Business Names Act 2002. Thus, unlike the situation that could apply under section 24 of the Business Names Act 1962, the evidence concerning the state of the register in the present case has no special statutory force. 160 However, the fact that until June 2001 the registered proprietors of the business name of the partnership included Mr Seeto has the force of an admission made by Mr Ralph and Mr Beard. In particular, the renewal of the business name registration in August 2000, with Mr Seeto included as a proprietor of the business name, is a specific admission that he continued to be a partner as at that date. But, like any admission, it can be outweighed by other evidence. 161 In Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154; [2007] Aust Contract Reports ¶90-263 (90,058) at [39] I concluded, with the agreement of Beazley and Basten JJA, that: "… in circumstances where the registered proprietor of a business name is not in fact carrying on the business that is carried on under that name, and has not conferred an actual or ostensible authority on the person who is actually conducting the business to act on his behalf, a person who enters a contract with whoever it might be that is carrying on business under the business name does not contract with the registered proprietor of the business name." 162 As well as the evidence that arises from the registration under the business name, there are other indications that were argued to favour a conclusion that Mr Seeto ceased to be a partner much later than October 1998. 163 The audit certificates for the year ended 30 June 1998, which Mr Seeto signed, are dated 30 October 1998, and so are consistent with an October 1998 resignation. The audit certificates of the companies of the year ended 30 June 1999, signed by Mr Seeto on 25 November 1999, and billed for as late as May 2000, are quite inconsistent with Mr Seeto having resigned from the partnership in October 1998. However, the weight of those audit certificates would need to be assessed bearing in mind that they are documents that Mr Seeto created for the very companies that have been defrauded by someone, and Mr Seeto's actions, as they emerged from the evidence, are such that one would have more than a little caution about accepting them at face value. 164 The insurance proposals treat Mr Seeto as being a "partner" well after October 1998, but do so in the context of seeking insurance for the combined business operations of the partnership and the various companies associated with it. The Quality Control Manual shows a tendency to refer to the "firm" as covering the totality of the operations of the partnership and the companies associated with it, and that gives some added plausibility to the description of Mr Seeto as a "partner" in the insurance proposals. 165 In my view the insurance proposal reflects the same practical reality as appears repeatedly in the Quality Control Manual, that there was a single business or professional operation, which included a partnership and several different companies, and that business or professional operation provided clients with a range of accounting services. Through remaining as a director of Gould Ralph Services Pty Ltd, Mr Seeto remained a participant in that business or professional operation, and that is capable of providing an explanation for insurance cover being sought for him. 166 While the cessation of payments from the partnership to Mr Seeto after October 1998 is clearly of significance, it is still consistent with Mr Seeto having continued to be a partner after that date. The manner of distribution of partnership profits, as revealed by the partnership tax returns, shows that it was not a partnership in which there was equal distribution of profits. The 1998 tax return shows Mr Ralph as receiving no distribution at all from the partnership, notwithstanding that he was undoubtedly a partner during the whole of that tax year. The manner of distribution between the partners in the 1998 and 1999 tax year may well be consistent with it being those partners who themselves performed the audit and insolvency work who received distributions of partnership profits. However, that possibility was not explored with Mr Beard and Mr Ralph in cross-examination. 167 The context in which Mr Ralph gave evidence of the resignation conversation in his affidavit was that, after recounting the words of Mr Seeto that I have set out at para [84] above, he said nothing about any response he gave to Mr Seeto, and the next paragraph of his affidavit began "Mr Seeto's resignation was not formally documented. However, after October 1998, Mr Seeto stopped receiving any remuneration from the partnership." 168 There were three passages in later parts of Mr Ralph's affidavit, in which he said "At about the same time as Stephen Seeto resigned …", "… the resignation of Stephen Seeto in October 1998", and "Around about the time of his resignation in October 1998". Each of those references to resignation was objected to, and allowed as a reference to the words that Mr Ralph had recounted Mr Seeto as saying in October 1998. 169 It could be said that the words that Mr Ralph attributes to Mr Seeto concerning resignation are in the present continuous tense ("I am resigning …"), and when considered as an isolated piece of language might mean that he was intending to resign, or in the process of resigning, rather than then and there resigning. However that is not the way the judge understood them. If the fact of the matter was that Mr Ralph had not understood Mr Seeto to be then and there resigning, Mr Ralph's affidavit would have been a misleading one, and it is hard to see how it would have been anything other than deliberately misleading. While the judge's acquittal of Mr Ralph of dishonesty did not relate to the sense in which the resignation conversation of October 1998 was to be understood, his acquitting Mr Ralph of dishonesty about the circumstances of the Statement of Change in Persons documents would not sit well with the judge rejecting his evidence about the October 1998 conversation, or treating it as equivocal about whether Mr Seeto was then and there resigning. 170 As well, an October 1998 resignation is consistent with Mr Beard's evidence (para [139] above). 171 In my view, Mr Leopold is right when he submits that the judge could not have made the specific finding that he did about Mr Seeto having resigned in October 1998 (as opposed to some other time) without having accepted the evidence of Mr Ralph on that topic. 172 This case differs from each of Jones v Hyde, Abalos, and Fox v Percy in that those cases involved a trial judge who had chosen between two inconsistent accounts of an incident that witnesses had given, while the present involves weighing the account that a witness gave in evidence against contemporaneous documents. However, Devries was a case where the only eye-witness account of the disputed incident was that of the plaintiff himself, and the relevant comparison was between his evidence, contemporaneous documents, and the evidence of some witnesses who had seen the plaintiff soon after the incident in question and could provide at best somewhat corroborative evidence of his account. Even there, the judge who heard and saw the witness was recognised as having an advantage over an appellate court that could only read the transcript. 173 In the present case, while there was evidence contrary to Mr Ralph's evidence about the resignation conversation, none of it can be described as "incontrovertible facts or uncontested testimony". Nor is it of such weight that the trial judge's conclusion could be described as "glaringly improbable" or "contrary to compelling inferences". More generally, bearing in mind the various ways in which the trial judge had an advantage over me so far as fact-finding on this topic is concerned, I am not satisfied that there is adequate reason to find that the judge's conclusion is in error. In my view, this Court would not be justified in overturning the trial judge's finding about the date of resignation.

Jones v Dunkel Inference? 174 At the trial, Mr Young made a submission that, while it did not mention Jones v Dunkel by name, was unmistakably invoking the principle in that case. He said that Ms Lewis was "the person who did anything that other people don't want to own up to", that she lived in the State, and was "presumably no older than many judges of this court who are quite able to come to court on a regular basis", and that there was no satisfactory explanation for her absence. That submission was made in a context of Mr Young's submission about the lack of credibility of Mr Ralph's evidence on "the partnership issue" (T 273-276). 175 The trial judge made no express mention in his reasons of any Jones v Dunkel challenge. The only reference to Ms Lewis was at [35], where he referred to her as the person who had prepared the Renewal of Business Name document that was lodged on 30 August 2000. 176 On this appeal, Mr Young submits that: "By the principles of Jones v Dunkel (1959) 101 CLR 298, if a witness such as Ms Lewis is not called by a party in whose camp that witness lies (and Ms Lewis was clearly in the Respondent's camp), then an inference must be drawn that the witness would not have supported that party's case." 177 Insofar as that submission contains a "must" it is incorrect. In Howell v Macquarie University [2008] NSWCA 26 at [97]-[98], I said, with the agreement of Spigelman CJ and Bell JA (as her Honour then was): "The only sense in which Jones v Dunkel (1959) 101 CLR 298 establishes a 'rule' concerns the inferences of fact that are open to 'be drawn when a relevant witness is not called. Jones v Dunkel concerned the trial by jury of a negligence action arising from a motor vehicle collision, at which the defendant, who was also the driver of the motor vehicle with which the plaintiff's vehicle had collided, did not give evidence. The decision related to the adequacy of the trial judge's directions to the jury. I venture to repeat what I said (with the agreement of Beazley JA and Pearlman AJA) in Manly Council v Byrne [2004] NSWCA 123 at [51]-[52] about the consequences that can be drawn from Jones v Dunkel concerning the obligations of the trial judge in a civil trial by judge alone: 'Thus, if a witness is not called two different types of result might follow. The first is that the tribunal of fact might infer that the evidence of the absent witness, if called, would not have assisted the party who failed to call that witness. The second is that the tribunal of fact might draw with greater confidence any inference unfavourable to the party who failed to call the witness, if that witness seems to be in a position to cast light on whether that inference should properly be drawn. Even though a jury should be directed about the availability of the inferences which are recognised by Jones v Dunkel , it is entirely a matter for the jury whether it actually draws one, or both, of those inferences: Cafe v Australian Portland Cement Co Pty Ltd (1965) 83 WN (Pt 1) (NSW) 280 at 286, 287; [1965] NSWR 1364 at 1370. Applying this principle to the situation of a trial by judge alone, there is no compulsion on the trial judge to draw either of the Jones v Dunkel inferences.' In other words, in a civil trial by judge alone Jones v Dunkel licences, but does not compel, the drawing of inferences when a witness is not called. Whether either or both of the inferences are actually drawn is part of the trial judge's task of weighing the evidence." (original emphasis) 178 Mr Young goes on to submit "Thus, in the present matter, the inference should have been drawn that Ms Lewis … would not have supported Mr Ralph's account of the preparation of the records in question." When Jones v Dunkel does not compel the drawing of any inferences, the "thus" in this submission cannot be acceded to. Whether the inference was in fact drawn was one of the matters for the trial judge to take into account in reaching his ultimate conclusion. There is no challenge to the judgment based upon inadequacy of reasons, or a failure of the trial judge to deal with the case of one of the parties. That Ms Lewis was not called does not fall into any of the categories of facts identified in Fox v Percy as a basis upon which an appellate court can overturn a trial judge's finding that is affected by his views of the credibility of the witnesses.

Terms of the Investment Contracts 179 It is common ground that the rights and liabilities of parties to a contract are determined objectively, as stated in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at 179 [40] (per curiam): "This Court, in Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction ( Pacific Carriers Ltd v BNP Paribas at 461-462 [22])." 180 The trial judge at [55] held that that principle applied to the task of ascertaining who are the parties to a putative contract. That application of the objective theory of contract is not challenged on this appeal. 181 The trial judge concluded at [73] that if Mr Azuma or the respondents entered a contract with anyone: "… it was formed with Mr Seeto and/or Mr Mansell or the Seeto Group, whatever that meant. I can see no reasonable basis for concluding that the plaintiffs ever entered into such a contract, or indeed any contract at all, with Gould Ralph & Company. References in the documents to 'we' were in my opinion always references to Mr Seeto and Mr Mansell or the indistinct groups they represented. None of the documents was a document on the letterhead of Gould Ralph & Company or a document that otherwise promoted that firm as an actual or even potential contracting party."

Issue 2 - An Illusory Contract? 182 Mr Azuma had given evidence that around April 1999 he had explained the investment scheme to Mr Nishiura, saying: "Mr Seeto's accounting firm has exclusive control of the investment funds. The money just sits in their custodian account for 12 months, guaranteed by their accountants' $20 million professional insurance. After 12 months, the investor gets his money back with 50% return on top of it. He is looking for more investors. Are you interested in it?"

to which Mr Nishiura had replied "50%? That's very high return. It's almost unbelievable. How can they make that kind of return? It's almost unbelievable." 183 As part of inquiring whether a reasonably informed objective observer would have formed the view that the partnership was a contracting party, his Honour said, at [71], that one of the "components of the factual matrix" that needed to be taken into account was the "plainly fraudulent nature of everything that Mr Azuma was told or given." The judge said, at [71]-[72]: "… There is some tension between the ideas that money can earn fantastic income, or any income at all, without ever leaving the sanctuary of a custodian account (whatever that might have been). For example, Mr Young and I had the following discussion: 'HIS HONOUR: Do you understand how, for example, the transaction as described in the documents generated income if it never left a custodian account? YOUNG: In the real world I don't think it could ever possibly work. Well not work legally. One could imagine some system where money sat in an account and then representations were made about that account that in some way helped in some practice of deception where one would launder money. And if ever somebody asked where you got money from you would give proof of clean funds and say look at this money, I'm in an account, and use that in some money laundering scam, although it's hard to know exactly how that could work if the money was just sitting in an account. HIS HONOUR: Hard is an understatement. Sure. I have some real difficulties with the proposal or with the alleged structure of the transaction that suggests that the deposit of US$10m into a particular custodian account can in effect underwrite a bank's relationship with the industrial bank in a way that permits it to raise funds elsewhere at high returns. YOUNG: I think that's clearly nonsense.' Mr Young went on to submit that Mr Azuma was not someone with sufficient skills or capacity to realise that the touted programs 'were a load of rubbish'. However, that is beside the point. Mr Nishiura was certainly concerned to observe that the investments appeared almost unbelievable. And so they were. In my view any reasonably informed hypothetical person proposing to enter a contract promoted and 'explained' using the words and documents that were said or given to Mr Azuma by Mr Seeto and Mr Mansell would appreciate that no one, and certainly not a firm of accountants, could offer that person the benefit of a legally enforceable bargain that promised a return of 50 per cent per annum 'guaranteed by … professional insurance'. The putative contract was illusory." 184 The first thing to say about this passage is that the judge is not using the notion of a contract being "illusory" in the sense of a supposed contract in which one party reserves to itself the right of deciding whether to perform the "contract" at all or, if so, how: cf Placer Development Ltd v The Commonwealth (1969) 121 CLR 353. Rather, his Honour appears to be using the expression as referring to a contract that no reasonable person could believe was really being offered to him. 185 It is well enough established that, in deciding whether a contract has been entered, a court can take into account whether the parties were play-acting, joking, or doing something not intended to be taken at face value: Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 550 per Gleeson CJ (with whom Hope and Mahoney JJA agreed); Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 318-9 (per Hope JA), 330-1, 333-4 (per Mahoney JA), 336 (per McHugh JA). These situations are consistent with the objective theory of contract because there is a form of communication between the parties, or a context, such that a reasonable person would realise that the words were not intended to be taken at face value: Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603 at 656-7 [266]. As Dixon J said in Gullett v Gardner (1948) 22 ALJ 151 (HCA) at 155, in a passage quoted by Gleeson CJ and Handley JA in NSW Cancer Council v Sarfaty (1992) 28 NSWLR 68 at 77: "… The inference that the parties must have intended to bind themselves in the manner sought to be implied should arise from the circumstances and from the contract as a rational deduction of such cogency that another intention could hardly be supposed. The intention was to be gathered from what they had said and done, and concerned what each party to the contract had the right to expect, but it did not necessarily mean an inquiry into their actual mental state. The question was one of interpretation in the sense of ascertaining the full scope and bearing of their contractual intent. In such a question it was not only permissible, it was requisite, to consider the circumstances in which the parties contracted." 186 Though the judge made no critical comments about the terminology of the documents that Mr Seeto handed to Mr Azuma at the April 1998 meeting, he was scathing about the documents that Mr Mansell handed over at that meeting. The judge said that the document headed "Seeto Group" was "nothing short of incomprehensible drivel" (at [9]), that the other documents that Mr Mansell handed over "certainly compete closely for the same level of incomprehensibility" (at [11]), and the document headed "IMF Registered Bank Trade Programs" was "incoherent gibberish" (at [11]). 187 I do not agree that the documents are incomprehensible. There are very many aspects of their operation that are not clear, but the overall thrust is clear enough - money is placed into an accountant's custodian account where it remains, the mere presence of that money in the custodian account enables the financial institutions with whom Mr Seeto has contacts to increase their reserves, increasing their reserves enables them to make huge profits, and they are willing to pay handsomely for having been given the opportunity to make those huge profits. A person with experience in financial matters would be most unlikely to believe that such a scheme could actually work, but that does not make it incomprehensible. 188 The judge has not made any finding about whether it was Mr Seeto who was the fraudster, and it is not necessary for this Court to make any such finding, but it is clear that there was a fraudster behind the scheme. There is no principle of law whereby a person who invests in a fraudulent scheme does not enter a contract because a reasonable person would not have believed that the benefit said to be derived from the fraudulent scheme could actually be derived. 189 Beale (ed), Chitty on Contracts, 30th ed (2008), Sweet & Maxwell at [3-023] (p 268-9) says: "… if the performance of one party's promise is known by both to be impossible to perform, it is arguable that the consideration is only illusory and therefore to be disregarded. For example, a promise by A to pay B £100 for all the wine in B's cellar would probably be regarded as gratuitous if at the time when it was made both A and B knew that there was no wine in the cellar." 190 A footnote to that passage says "There could be a good contract if the parties were in doubt on this point: see Smith v Harrison (1857) 26 LJ Ch 412." 191 Treitel, Frustration and Force Majeure, 2nd ed (2004) Sweet & Maxwell, paras [2-033], [3-056] and [3-057] instances cases where a contracting party was held to its contract notwithstanding that, at the time it was entered, the contract was one that it was impossible to perform. 192 Rather, the scheme that Mr Seeto was presenting to Mr Azuma was one put forward by an accountant in whom Mr Azuma had, and was known to have, faith and trust. There was nothing in the objective communications between them to show that Mr Seeto's words were not to be taken at face value. They were put forward with a mass of documentation that could well look plausible to someone who did not analyse it critically, were put forward in an accountant's office, and were being put forward as a business opportunity. I do not accept that the high practical unlikelihood of the scheme working is a reason why there could be no contract concerning it.

Issue 3 - Whether Appellants' Argument Open on Appeal

Appellants' Submission 193 Mr Young submits that the terms of the contract pursuant to which the investment was made (including the parties to it) are to be ascertained not only from the draft or pro forma documents that Mr Azuma was given, but also from Mr Seeto's explanation of what was involved in the investment. Indeed, when the documents are far from clear, and significant parts of the conversations preceded the handing over of the documents, the conversations are particularly important. I can say immediately that I accept that submission. 194 Mr Young submits, in substance, that the trial judge has erred in failing to recognise that the combined effect of the conversations and the transaction documentation that Mr Mansell and Mr Seeto gave Mr Azuma involved two distinct stages in the transaction, with different parties playing different roles at those two stages. Those different stages are reflected in the documents that Mr Azuma received from Mr Seeto, and from Mr Mansell respectively at the second meeting in April 1998. The first stage of the transaction involved the amount of the investment being paid into a custodian account, and staying there until the transaction period had expired. Insofar as the terms on which that stage of the transaction takes place are reflected in writing, it is to be found in the two documents that Mr Seeto handed to Mr Azuma (paras [37] and [38] above). The second stage of the transaction concerns the manner in which the deposited funds are utilised once they have been deposited. Insofar as that stage of the transaction is contained in writing, it is in the various documents that Mr Mansell handed to Mr Seeto (paras [22]-[35] above). The documents in the second stage contemplate that "The Seeto Group" will be the contracting party with the investor for the second stage of the transaction. 195 Mr Young submits that the arrangement put forward was that "The Seeto Group" would facilitate the generation of profit for the Appellants, but would not actually have custody of the Appellants' funds. He submits that the document headed "Seeto Group" (para [23] above) contains within it a reference to entering a contract "with the Seeto Group and its associates", and that, overall, the proper construction is to regard the partnership as one of those "associates". He submits that the documents that Mr Seeto handed over at the April meeting, construed in context, show that the custodian account is one of a "chartered accounting firm", and that Mr Seeto is a partner of that firm. 196 So analysed, the promise that Mr Seeto made to Mr Azuma was that "the Partnership through its agent Gould Ralph Services Pty Ltd was to have custody of the Appellants' funds", and would repay them once the investment had run its course. It is that promise that the partnership broke. That the only promise that the firm is alleged to have made was to keep the money safe and return it provides the explanation for the Appellants having sued the firm only for the amount of capital that was lost, not for the failure of the Appellants to earn any of the promised profits.

Divergence From the Pleaded Case? 197 Mr Leopold submits that it is not open to the Appellants to present a case of the sort just outlined on appeal, because it is fundamentally different from the pleaded case. 198 The way in which the first investment agreement was pleaded in para 8 of the Further Amended Statement of Claim was as follows: "In or about May 1998, the first and second plaintiffs ('the Contracting Plaintiff/s') made an agreement with Gould Ralph and with the first defendant and second defendant whereby the Contracting Plaintiff/s would invest the sum of USD $3,000,000 to be managed by Gould Ralph, with that sum to be paid to the second defendant to be forwarded to the account of the first defendant, with the first defendant thereafter maintaining custody of those funds and any return generated thereon ('the First Investment Agreement'). Gould Ralph was to receive reward for rendering advice and management of the Contracting Plaintiff's/s' investments, whilst the Contracting Plaintiff/s were to receive consideration in the form of return on the Contracting Plaintiff's/s' investments." 199 Two alternative versions of that agreement were pleaded, in one of which it was all the plaintiffs who contracted with Gould Ralph and the First and Second Defendants, while in the other it was Mr Azuma alone who contracted with Gould Ralph and the First and Second Defendants. 200 Paragraphs 13 and 18 of the Further Amended Statement of Claim pleaded the second and third investment agreements in words that mirrored those of paragraph 8. 201 Mr Leopold submits that the Appellants' submissions on appeal depart from the pleaded case in three respects: "(a) it introduces The Seeto Group as the 'Investment Manager' ; (b) it seeks to characterise [Gould Ralph Services Pty Ltd] as a party only in its capacity as an agent for the Partnership, [and] (c) it seeks to jettison the essential thread running through paragraphs 8, 13 and 18 of the pleading, namely, that the funds invested would be 'managed' by the Partnership with [Gould Ralph Services Pty Ltd] to have the custody of the moneys invested." 202 I do not accept that the way in which the case is presented on appeal is fundamentally different from the way it was presented at trial. It suffices to say that, having read the transcript of Mr Young's submissions at the trial, in particular at pages 220-1 and 271-3 of the transcript, I am not persuaded that this preliminary point of Mr Leopold is correct.

Issue 4 - Whether Mr Seeto Purported to Contract on Behalf of Partnership

Ascertaining Existence of Contract with Partnership on Objective Theory 203 When it is alleged that there is a contract between the Appellants (or one or more of them) and the partnership, there are two separate types of questions involved. The first is whether, from the communications that passed in the course of formation of the putative contract and knowledge of relevant common background information, the objective bystander would conclude that one of the people involved in the transaction was purporting to act on behalf of the partnership. If that question is answered in the affirmative, there is then a further question of whether the actions of the person purporting to act on behalf of the partnership were effective to bind the partnership. For the present, I will concentrate on the first question, whether the objective bystander would conclude that Mr Seeto was purporting to act on behalf of the partnership.

Relevant Common Background Information 204 Early in their relationship, Mr Seeto told Mr Azuma that he was a partner in a firm called Gould Ralph, and Mr Azuma "moved all of the company's accounting work to Mr Seeto's firm that he knew as Gould Ralph". By the time of the conversations alleged to have led to a contract, Mr Azuma had been dealing with Mr Seeto for some years as an accountant. Over the years his communications were such as to lead him to conclude that it was the firm providing him and his companies with "accounting taxation and auditing services". There is no evidence that he ever had explained to him the firm's endeavour to divide work so that some species of work were done by the partnership, and some by a company in which the partners were involved. Whenever he went to see Mr Seeto, he went to the same set of offices, regardless of whether the topic for discussion was auditing, or some other accounting matter. 205 Mr Seeto came to be carrying out the auditing work for the two corporate appellants after Mr Azuma had accepted in writing the terms of an audit engagement letter sent to each company. Each such letter was on a letterhead of "Gould Ralph & Company Chartered Accountants". There was no "Pty Ltd" on that letterhead, nor any ACN, nor any statement about liability being limited in any fashion. Each letter commenced: "The purpose of this letter is to confirm our understanding of the basis of our engagement as Auditors of [company name]." 206 It went on to state what "we" would do, referred to what will be done "by us", referred to "our audit" and "our report". Near the end it said: "This letter will be effective for future years unless it is terminated, amended or superseded. Please sign and return the attached copy of this letter to indicate that it is in accordance with the Directors['] understanding of the arrangements for our audit of the financial report. Yours faithfully GOULD RALPH & COMPANY [signature] S A SEETO B.Ec., F.C.A. Partner" 207 There followed provision for signature on behalf of the addressee to accept the proposal. The letter made no mention anywhere of any corporate entity being involved in any way in the carrying out of the audit. 208 There is no evidence of any analogous engagement letter being brought into existence with Gould Ralph Services Pty Ltd for species of work other than auditing. 209 All the work that was done for the Appellants by Mr Seeto, whether auditing or other accounting work, was billed in the same fashion. While it was the company that sent out these bills, there is nothing objectively unusual about a company doing the fee collection for a partnership - indeed having the administrative work connected with a professional partnership carried out by a service company is a course commonly adopted as a tax planning measure. 210 A note that Mr Azuma made to assist himself in giving evidence said: "I knew that there are companies called Gould Ralph Services, Gould Ralph P/L, Gould Ralph Chartered Accountants, like that!" 211 When cross-examined on that note he said: "Q. Well, in any event, what you were writing there you think was that you knew in about April 1998 that there was a company called Gould Ralph Services and another entity called Gould Ralph which are chartered accountants: right? A. I think so." 212 Contrary to Mr Leopold's submission, I do not regard that evidence as being particularly significant, because (a) Mr Azuma's note showed that he thought that "Gould Ralph Chartered Accountants" was a company (b) his concession was qualified, (c) his concession included that he thought that "Gould Ralph" were "chartered accountants" - not auditing and insolvency specialists, and (d) the significance of the existence of the two entities was not explored with him.

The Allegedly Contractual Communications 213 At the first meeting in April 1998, at which no documents were handed over, Mr Seeto explained the transaction in the terms set out at para [12] above. It included the statement that "our firm is in charge of the funds we receive". Mr Seeto said he was the only signatory "on our firm's custodian account". His explanation of a "custodian account" analogised it to the trust account of an accountant or lawyer. Mr Seeto agreed with Mr Azuma's statement that the account was "guaranteed by your professional insurance". Later in the conversation, Mr Seeto said: "… our firm has established a custodian account to be controlled by me only … Gould Ralph has insurance to cover situations if something happens to your money. Our insurance cover is $20 million. We also have the world's biggest insurance company Lloyds to cover us on top of that. Don't forget the money only sits in our custodian account ..." 214 At the second meeting, the one attended by Mr Mansell, Mr Seeto said, as a partial explanation of the documents that Mr Azuma said he could not understand, "with our custodian account investment, you get a fixed 50% a year, guaranteed by our firm's professional insurance and Lloyd's insurance cover." When Mr Seeto handed over the documents that he passed to Mr Azuma he said that those documents were "about how our custodian account and insurance works". Throughout the conversations there were repeated references to it being the firm's custodian account. 215 The documents that were handed over were handed over in a context where they were purporting to be the means by which the arrangement that Mr Seeto had already explained was carried out. 216 The letter that is on the letterhead of Gould Ralph Services Pty Ltd clearly has the three indicia, identified at para [37] above, on the pre-printed part of the stationery of it being a letter from a company. In the typed part of the letter the heading gives the name of the company and says "acting as custodian" - again, a reference to a corporation. Likewise, the manner in which there is provision for the letter to be signed refers to the corporation. 217 However, the body of the letter repeatedly talks about "we" and "our". It says that "The funds deposited are under our firm's sole control … The funds are held by our firm as custodian …". It says that "as a professional firm, we have current professional indemnity insurance …". The two paragraphs immediately following the subheading "Gould Ralph Services Pty Limited and Stephen Andrew Seeto" speaks as though the company is, or is part of, the "firm", which is a "Chartered Accounting firm" and a "firm [that] consists of four partners". 218 Mr Leopold has correctly pointed out that while a lawyer would frequently use the word "firm" to refer to a partnership, and in contradistinction to a company, its meaning in general use is not so precise. The New Shorter Oxford Dictionary (1993) Clarendon Press, Oxford gives a meaning of "firm" when used as a noun as "A partnership or company for carrying on a business; a group of people working together …" (that meaning has remained the same in the 6th ed (2007)). Australian English usage is similar: the Macquarie Dictionary 4th ed (2005) gives two meanings of "firm", when used as a noun, namely "1. a business organisation or partnership. 2. the name or title under which associated parties transact business …". The Quality Control Manual that covered the combined operations of Gould Ralph & Company and Gould Ralph Services Pty Ltd repeatedly used "firm" in this extended sense. 219 The judge's decision about who the contracting parties were is one that he arrived at as a matter of inference from documents, and from Mr Azuma's uncontested account of the terms of his conversations with Mr Seeto. Thus it is the sort of decision referred to in Warren v Coombes (1979) 142 CLR 531 at 551 and Taylor v Johnson (1983) 151 CLR 422 at 426 where, subject to giving due weight to the conclusions of the trial judge, an appellate court is entitled to determine the matter for itself. 220 With respect, I do not agree that the conversations and documents can be construed as purporting to give rise only to a contract with Mr Seeto or Mr Mansell. The whole tenor of the conversations that Mr Seeto had relating to the first investment were that it was the "firm" that had the custodian account in which the money would sit, and that had the professional indemnity insurance. The documents, in so far as they relate to the role that any entity with "Gould Ralph" as its name would play, were equivocal as to whether it was the company or the partnership, and are insufficient to outweigh the clear impression derived from the conversations that it would be the partnership that would operate the custodian account. 221 In my view, the reasonable observer with the background knowledge that was shared by Mr Azuma and Mr Seeto (which, necessarily, can be no more extensive than the background knowledge that Mr Azuma had) would conclude that the "firm" being spoken of and written about was the partnership. Even though the company was contemplated by the documents as being the entity in whose name the custodian account was held, that custodian account was one that was under the sole control of the partnership. Of particular relevance for the present case, it was the partnership that the reasonable bystander would take as promising that once the deposit had been received into the custodian account it would be held there for the period of time "stipulated in the agreement between the depositor and the transacting party", and it was the partnership that the reasonable bystander would take as promising that once the transaction period had expired it would "return funds directly to depositors".

The Second and Third Investment Contracts 222 While Mr Seeto received the two Kim How Group communications (paras [47]-[49] above) before the second investment contract was entered, they are not relevant to the terms of that investment contract. The first of those communications concerned investments available only "this week", and the second investment was made well after "this week". The second communication concerned a scheme that had a different structure to the one that Mr Seeto had explained in April 1998, because of the way that it involved the placement of money into Mr Azuma's own bank account. At the first meeting at which Mr Seeto and Mr Azuma had discussed investment contracts, Mr Seeto had concentrated on the proposal that involved the money earning 50% per annum after being placed into a custodian account. However Mr Seeto had also said: "If you want us to invest into other programs, then the return will be even higher." The Kim How letters provided examples of these "other programs" but Mr Azuma retained his initial lack of interest in those "other programs". 223 The objective circumstances about entry of any contract relating to the second and third investment contracts were that they were on the same terms as applied to the first investment contract. In particular, Mr Seeto was purporting to contract on behalf of the partnership so far as the "custodian account" aspect of the investment was concerned.

Issue 5 - Identity of Investor for Third Investment Contract 224 That the trial judge has not resolved the differences between the evidence of Mr Azuma and Mr Nishiura concerning the entry of the third contract complicates the task of an appellate court in dealing with Mr Leopold's submission that the judge should have found that the contracting investor for the third investment contract was Mr Nishiura, not one of the Appellants. However, whether it is Mr Azuma's account of the circumstances in which the third investment contract was entered, or Mr Nishiura's account, there are some common elements. On both accounts, Mr Nishiura attended both meetings with Mr Seeto concerning the possibility of making the third investment. Mr Nishiura and Mr Seeto communicated directly at those meetings about the basis on which the investment should be made. Mr Azuma's role there was that of an introducer. On both of the accounts, the objective bystander would conclude that it was Mr Nishiura who was the investor, and the contracting party. That Mr Azuma provided a conduit for the funds to be placed in the custodian account does not alter who the contracting parties were. 225 On Mr Azuma's account, there is an additional detail, that it was Mr Nishiura who signed a form to open an offshore bank account "so that your profits can be paid directly into your own offshore account". That the profits were to belong to Mr Nishiura, and be paid directly to him, is strongly against Mr Azuma having been the contracting party for the third investment. 226 That it was Mr Nishiura, not one or more of the Appellants, who was the contracting party provides a sufficient basis for the appeal failing insofar as it relates to the third investment.

Issue 6 - Whether Any Contract Mr Seeto Entered Bound the Firm 227 Even though the reasonable observer would reach the conclusion that, insofar as the operation of the custodian account was concerned, Mr Seeto was purporting to act on behalf of the partnership, there is the separate question whether Mr Seeto's actions actually bound the other partners. 228 Section 5 Partnership Act 1892 at the relevant time provided: " Power of partner to bind firm Every partner is an agent of the firm and of the other partners for the purpose of the business of the partnership; and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which the partner is a member, binds the firm and the other partners, unless the partner so acting has in fact no authority to act for the firm in the particular matter, and the person with whom the partner is dealing either knows that the partner has no authority, or does not know or believe the partner to be a partner." 229 The entering of contracts to hold money in an offshore "custodian" account was not part of the actual business of the partnership. Further, at [29] the judge evidently accepted that neither Mr Beard nor Mr Ralph knew anything of Mr Seeto's dealings with Mr Azuma or Mr Mansell, and that they did not authorise those dealings. Thus Mr Seeto did not have actual authority to enter these contacts on behalf of his partners. 230 However, Mr Azuma did not know that Mr Seeto had no authority, and he at the least believed that Mr Seeto was a partner of the firm. Thus, the exception from liability of the firm created by the words following "unless" in section 5 does not apply. 231 It follows that whether Mr Beard and Mr Ralph are bound depends upon whether Mr Seeto's dealings with Mr Azuma count as "any act for carrying on in the usual way business of the kind carried on by the firm of which the partner is a member".

Evidence Relating to Section 5 232 The evidence included the terms of an accounting practice standard called "APS 10", and a guidance note called "GN 3". Each was issued in December 2003 by The Institute of Chartered Accountants in Australia, and related to the operation of trust accounts. Clause 1.3 of APS 10 said that it superseded a previous version of the standard that had been issued in June 1997, but that previous version was not in evidence. 233 The definition of "Trust Money" in clause 6 of APS 10 extended to money received by any Member "in the course of or in connection with offering or performing public accounting services, including financial planning, investment advisory and taxation services". Clause 12.1 required any Member who received Trust Money to establish and maintain a trust account, and cause that account to be audited. Clause 13.1 required establishment of a Trust Bank Account, the name of which "must include the words 'Trust Account'". Clause 34.1 required annual auditing of the Trust Account and Trust Account Records. Clause 35 required a copy of any auditor's report to be forwarded to a particular officer of the Institute. 234 As shown by the insurance proposals, one of the entities associated with the Gould Ralph accounting practice up to June 2000 was Spuntill Pty Ltd, which received cash funds from clients and invested it in deposits with licensed operators, and acted as a nominee on behalf of clients. Notwithstanding it being described this way in the 2000 insurance proposal, Mr Ralph said it did so in the 1980s "and probably into the early 1990s". 235 Mr Ralph's cross-examination included: "Q. Is that something that accounting firms often have, some sort of company to receive cash funds from clients? A. No, it's not an activity that I would think is commonly performed by accounting practices or provided by accounting practices, and certainly in modern times when one needs a licence, I believe, to undertake those activities. Q. But a licence was held in this case, was it? A. No, I don't believe that company had a licence. Q. I'm sorry, Spuntill was an unlicensed holder of funds, you say? A. I don't think Spuntill was still holding any funds at this stage. Again, this [the insurance proposal referring to Spuntill] is a document that was just carried over from previous years." 236 Mr Ralph's cross-examination also included: "Q. What's a custodian account, sir? A. A custodian account? Q. Yes, what does that mean? A. Holding custody of funds for some particular purpose. Q. Is that a sort of account that's equivalent to a trust account? A. I would think a trust account was probably a more generalised account. Custodian account, I would think, would be held for a specific purpose, particular purpose. Q. Does the expression 'custodian account' have some special meaning amongst accountants? A. I don't think so. Q. Do many accountancy firms have custodian accounts? A. I don't believe so, no." 237 That answer was not challenged. 238 Mr Beard was also cross-examined on the same topic: "Q. What is a custodian account? A. I understand it to be an account to which you would put money or someone would put money to have it looked after. Q. With the expression custodian account, how is that different to the trust account? A. A trust account would have to, like a real estate agent trust account, you put money in, you would have it audited. You would have the money going in and out for a short time. … Q. How does a custodian bank account differ from a trust, do you know? A. I am familiar with a trust. Gould Ralph Pty Ltd operates a trust, I am familiar with that. Q. What is the trust account at Gould Ralph that you are referring to? A. It has a trust account to which I would accept client monies, in the last two or three years I believe it has had no transactions but it is audited. Q. What is the sort of thing that Gould Ralph Pty Ltd would do with the trust account? A. In the last two or three years to my knowledge it hasn't done anything, but it could, some tax practices might accept refund cheques from [the tax office that] hasn't gone directly to the agent, take a fee; we don't do that. Q. Some accountants do, some don't, is that right? A. I understand some accountants do; we don't. … Q. Is a custodian account something that some accountants have? A. It is not something I am familiar with, no. Q. Trust accounts are very common, is that right? A. I understand lots of accountants would have trust accounts, yes. Q. And some accountants also are investment advisors, is that right? A. I don't believe so; possibly they may have a licence to be investment advisors, but that would be outside their accounting role. Q. And some accountants accept money from their clients and then hold that money for their clients and advise their clients what they should do with that money, is that right? A. I am not sure if I am qualified to speak for some accountants; I know what we do." 239 Mr Beard was taken to a memorandum of fees that had been sent to Mr Azuma, which included an entry for "general accounting and financial advice as required". Mr Beard was asked: "Q. But as a matter of practice one or other of Gould Ralph entities from time to time gave some financial advices to some of its clients, isn't that right? A. Financial advice, Gould Ralph Services would give - might give some advice of an accounting sort of nature. Q. Being financial advice, is that right? A. It is not in the ordinary course of business to give financial advice, that would be something that would require a licence. Q. But it is something that happened from time to time anyway, is that right? A. Not to my knowledge. Q. Looking at that invoice doesn't persuade you otherwise? A. It certainly says general accounting and financial advices; it is not good wording."

The Judgment Below on Section 5 Partnership Act 240 The judge noted an argument put by the Respondents, that when the usual business carried on by the partnership was auditing and insolvency work, the activities in which Mr Seeto was engaged were not the business of a kind carried on by such a practice. However, his Honour did not find it necessary to identify with any precision the relevant "kind of business" that the partnership carried on. 241 The judge rejected Mr Young's submission that section 5 applied in the present case. He referred to the transactions being promoted by Mr Seeto as ones that were "very strange indeed". He continued, at [82]: "Mr Nishiura's characterisation of what he was being told as 'almost unbelievable' was undoubtedly intended to be polite understatement. The investment proposals outlined in the various documents produced by Mr Seeto and Mr Mansell did not withstand even the most casual scrutiny and were plainly nonsensical as counsel for the plaintiffs quite properly conceded. It is difficult, if not actually impossible, to conceive of a legitimate partnership business whose usual way of business of the kind carried on by it could have included anything of the sort promoted to Mr Azuma by either Mr Seeto or Mr Mansell. On no view of the matter was it usual and it was probably not even business strictly so called. The whole scheme was so extraordinary that it should have put Mr Azuma on notice or inquiry as to Mr Seeto's authority. In my view nothing done by Mr Seeto, had he been a partner, would have bound the other members of the firm."

Appellants' Submission on Section 5 242 Mr Young submits that the business should have been characterised not by reference to the actual business conducted by this particular partnership, but by reference to the business one would expect to be carried on by a firm of chartered accountants. He relies upon the Regulations of the Institute of Chartered Accountants concerning conduct of trusts accounts, and Mr Beard's concession that lots of accountants would have trust accounts, as showing that receiving money into a trust account is a usual activity of accountants. The custodian account was, he submits, tantamount to a trust account. 243 No doubt against the possibility that "kind of business" might be characterised more closely by reference to the business of this actual partnership, he also submits that Gould Ralph Pty Ltd (the present incorporated practice) operates a trust account, and that the Gould Ralph accounting practice until "sometime in the 1990s" operated a trust account through Spuntill Pty Ltd. He submits that the only role of the accounting firm (in the sense of the combined activities of the partnership and Gould Ralph Services Pty Ltd) in the investment being proposed was to be a custodian of the money - it was not a party to the transactions through which the profits were to be earned. He submits that holding money in an insured custodian account is the sort of business one would expect an accounting firm to carry on.

Construction of Section 5 244 In considering these submissions, it is convenient first to consider the way in which section 5 operates. Section 5 (whose text is at para [228] above) has been construed by the High Court in Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd (1985) 155 CLR 541 at 547-8 (per curiam): "It can be seen that s 5 comprises two distinct limbs. The first deals with actual authority. It provides not that every partner is deemed to be an agent of the firm and his other partners for the purposes of the partnership business but that every partner is an agent of the firm and his other partners for that purpose. The actual authority to which it refers is, however, but prima facie in that it may be negated or qualified by contrary agreement of the partners: see above and [ Partnership ] Act , s 19. In substance, that first limb states the common law. ... The second limb of s 5 deals with ostensible authority. Even though actual authority be lacking, the act of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member binds the firm and his partners unless the other party 'either knows that he has no authority, or does not know or believe him to be a partner'. Again, this limb effectively states the common law." (original emphasis) 245 Clearly, what their Honours described as "the first limb" ends at the semi colon that follows the word "partnership". Clearly also, the first limb and the second limb provide alternative means by which the firm and the other partners can be bound. 246 The first thing to observe about the second limb of section 5 is that its concern is to identify when it is that an act that is carried out by an individual partner binds the firm and the other partners. 247 The application of the second limb of section 5 requires the identification of two separate things. One is the "business of the kind carried on by the firm of which the partner is a member". That requires one to consider the business carried on by the firm, and then characterise it as being of some particular "kind". The second matter looks at the specific act that has been carried out by a partner and that is alleged, in the particular proceedings, to bind the firm and the other partners. Concerning that act, the court must enquire whether the partner concerned has done that act for carrying on in the usual way the kind of business that the firm carries on. One can see that the more widely the "kind of business" is described, the greater potential role there will be for "carrying on in the usual way" to limit the scope of the acts done by one partner concerning which the other partners are bound.

Onus of proof 248 Of course, if the plaintiff seeks to make the partners of someone with whom the plaintiff has contracted liable upon the contract, and seeks to do so by the second limb of section 5, the plaintiff bears the onus of proving necessary facts establish what is the relevant kind of business, and that the contract in question falls within the usual way of carrying on that kind of business.

"Business of the Kind Carried on by the Firm" 249 Even though it will be a question of fact whether a particular transaction falls within the scope of the business of the kind that a firm carries on, there is a prior task involved in deciding at what degree of generality the "kind" of business should be pitched and how one ascertains the relevant "kind" of business. The very fact that there is a reference to "business of the kind carried on by the firm" suggests that it could be more general than the business that is actually carried on by the firm. 250 In this way, section 5 Partnership Act is to be contrasted with section 10 Partnership Act, which imposes liability on the firm for "any wrongful act or omission of any partner acting in the ordinary course of the business of the firm". In National Commercial Banking Corporation of Australia Ltd v Batty (1986) 160 CLR 251 at 298, Dawson J said that: "The ordinary course of the actual business of a firm may be narrower than the course of business of the kind carried on by a firm and requires an examination of the actual practices of the particular firm: cf Mercantile Credit Co Ltd v Garrod [1962] 3 All ER 1103". 251 (In Batty at 275, Brennan J also contrasted section 5 with section 10, saying: "An act which is not done 'in the ordinary course' of a firm's business cannot be 'an act for carrying on in the usual way' the firm's business. (I do not need to consider the converse proposition.)"

However, that remark concentrates on the difference between section 5 of section 10 arising from the difference between "in the ordinary course" and "in the usual way" , not from the element of generality possibly introduced into section 5 by reference to the kind of business.) 252 Mercantile Credit Co Ltd v Garrod [1962] 3 All ER 1103 (EWHC) was the case that Dawson J contrasted with the way section 10 operated. In it, Mocatta J considered a situation where a fraudulent partner in a business known as Hamilton Garage that repaired cars and provided lock-up garages for cars, purportedly sold a car to the plaintiff, when the fraudster had no title to that car. The plaintiff purchased the car so that it could then provide the car to a customer of the garage on hire purchase terms. Mocatta J at 1105 put to one side without deciding an argument that the terms of the partnership agreement excluded selling cars from the business of the partnership and turned directly to the second limb of the English equivalent of section 5. He approved, at 1106E, a passage in Lindley on Partnership, 12th edition, page 167 that said: "It will be observed that what is done in carrying on the partnership business in the usual way in which businesses of a like kind are carried on, is made the test of authority when no actual authority or ratification can be proved." 253 He said, at 1106F-G, that thus: "… I must have regard in deciding this matter to what was apparent to the outside world in general and Mr Bone in particular, and to the facts relevant to businesses of a like kind to that of the business of this partnership so far as it appeared to the outside world and Mr Bone." 254 He approved, at 1106G-H, the following passage from Lindley on Partnership, page 168: "The question whether a given act can or cannot be said to be done in carrying on a business in the way in which it is usually carried on must evidently be determined by the nature of the business, and by the practice of persons engaged in it. Evidence on both of these points is therefore necessarily admissible, and, as may readily be conceived, an act which is common in the prosecution of one kind of business in the ordinary way may not be required for carrying on another business of a different character." 255 The only evidence in Garrod about the ordinary way in which the business of a garage would be carried on came from the defendant, and was equivocal. Mocatta J at 1107F-H regarded himself as entitled to solve the matter by reference to his own "common sense". He decided the case in favour of the plaintiff because in hiring out the car on hire purchase terms the fraudulent partner "was doing an act of a like kind to the business carried on by persons trading as a garage". 256 In United Bank of Kuwait Ltd v Hammoud [1988] 1 WLR 1051 at 1057; [1988] 3 All ER 418 at 422 (EWCA), Glidewell LJ decided a question that arose under the English equivalent of section 5 concerning the liability of the partners of a solicitor without engaging in any examination of the particular business that the particular firm carried on, holding, at WLR 1057H; All ER 422: "The kind of business carried on by the firm is, of course, the business of solicitors." 257 Cases show that even in ascertaining the "ordinary course of business of the firm" for the purpose of section 10, a measure of generalisation is permissible. This suggests that at least that degree of generalisation might be permissible in ascertaining a "kind" of business for section 5. 258 Walker v European Electronics Pty Ltd (In Liq) (1990) 23 NSWLR 1 concerned the liability of members of a firm of chartered accountants for a fraudulent misappropriation of funds that one of their partners committed while acting as the receiver and manager of a company. The firm consisted of three partners, of whom one was not a registered liquidator, and thus was not eligible to act as the receiver of the company. The innocent partners argued that the business of the partnership might have included making receivers available, but did not extend to acting as receivers, when one of their members was ineligible to act in that way. Gleeson CJ (with whom Mahoney and Meagher JJA agreed) rejected that argument at 11A-C, saying: "The nature and the scope of the business of a firm will fall to be determined by reference to the agreement between the partners. … If partners have agreed to carry on a certain kind of business and that business includes acting in a particular manner or capacity then conduct by one of them in pursuance of that agreement will attract the operation of s 10. It is their agreement to go into that kind of business which is the foundation of their joint and several liability." 259 Mahoney JA said, at 11: "Sometimes the business of the firm is defined or described in the partnership agreement. In such a case, the court must decide, as a question of fact, whether the act in question can be and was done in the course of carrying it on. This may be decided by reference to specific evidence that an act of the kind in question is apt to be, or was, done in carrying on such a business. Or, in some cases, the court may be in a position to take notice of the fact that a business of the kind in question is apt to be carried on by doing acts of the relevant kind. In other cases, where the business is not defined or described in the partnership agreement, it is necessary to decide, on the facts of the case, what the business is and what acts are apt to be done in carrying it on. … The parties practised together as accountants. The inference is that their business included the acceptance of appointment as receiver or receiver and manager and the doing of acts done to carry out such an appointment. This is the kind of thing which accountants of their kind are apt to do and it is what, in the present case, they habitually did." 260 In Polkinghorne v Holland (1934) 51 CLR 143, Rich, Dixon, Evatt and McTiernan JJ upheld a claim by the client of a firm of solicitors against the partners of a solicitor who had advised the client on an investment. They recognised that "Solicitors possess, in virtue of their profession, no special skills in the valuation of real property, or shares, or of marketable securities" (at 158). However, they rejected the proposition that if the solicitor "is consulted upon the wisdom of investing in the shares of a company of which his client knows nothing, it is outside his province as a solicitor to inquire into the matter and to furnish his client with the information and assistance which the facts upon the register will give, to point out what inquiries may be made, and, if required, to undertake them or invoke the aid of those who will" (at 158), and held that giving such advice if requested was "work which it was in the course of a solicitor's business to perform" (at 159). The conclusion that the partners were liable was reached without any consideration of any particular terms of the partnership agreement - it was simply a matter of what was involved in them being in partnership as solicitors.

"For Carrying on in the Usual Way" 261 The notion of carrying on business of that kind "in the usual way" is ascertained by reference to business practices in the community in which the partnership acts, at the time at which the acts in question occurred. It presupposes that there is a "usual way" in which businesses of a particular kind are carried on in that community at that time. The judicial inquiry involved in the second limb of section 5 is whether the particular disputed act has, or has not, been done for carrying on the relevant kind of business in that usual way. 262 It has been recognised that the usual way in which a particular business is carried on can change over time: Shannon v Whiting (1900) 7 ALR 49 (VSC) at 57 (per Madden CJ) "the business done now [by a solicitor] is such as would make Lord Ellenborough turn in his grave"; United Bank of Kuwait v Hammoud at WLR 1063F; All ER 427h (per Staughton LJ) and Dubai Aluminium Co Ltd v Salaam [2001] QB 113 at 142 (per Aldous LJ) concerning an analogous question under section 10. 263 Enquiring whether the act in question is for carrying on in the usual way business of the kind carried on by the firm enquires what is the purpose for which the act was carried out. However, the case law makes clear that the mere fact that a partner is entering, for the purpose of defrauding a client, a transaction that is apparently within the regular course of the firm's business, is not of itself enough to show that the partners are not liable. As Rich, Dixon, Evatt and McTiernan JJ said in Polkinghorne v Holland at 157: "In judging whether [the partner] acted in the course of his authority, the part taken by him in the transactions must be regarded as upon the surface it appeared to [the client]." 264 Fletcher, The Law of Partnership in Australia, 9th ed (2007) Lawbook Co says, at [6.15]: "It may happen that a partner, without the consent of co-partners, carries out a transaction which, although it comes within the scope of the kind of business carried on by the partnership, is carried out in an unusual manner. In such cases, the transaction will not be binding upon the partnership, because the extraordinary manner of carrying out the transaction should put the other party to it on inquiry as to the authority of the partner with whom he or she is dealing. This condition ... is a useful check and balance provision where the person dealing with the partners is aware of usual practice within businesses of that sort but may work injustice in situations where conduct is extraordinary when compared with usual practice in that type of business but may not appear unusual to a person unacquainted with the practices of a particular kind of business." (footnote omitted) 265 An illustration is Goldberg v Jenkins (1889) 15 VLR 36, concerning the power of one partner to bind the firm to a borrowing at 60% per annum interest. Hodges J said, at 38-39: "In my opinion, a partner can only bind his co-partners by conducting the business in a way in which businesses are ordinarily conducted, and consequently he has not, in my opinion, authority to go outside the ordinary mode of dealing and the ordinary mode of transacting business, and to pledge his co-partners or the credit of the co-partnership for transactions which are not business transactions at all. I do not regard the transactions about which evidence has been given in this case as ordinary business transactions. A person conducting his transactions in the ordinary way during the year 1888, would have been able to obtain all the advances which he could reasonably require at rates varying from 6 to 10 per cent; but in this case, referring to the last transaction, the interest was something over 60 per cent, and that, in my opinion, is not conducting business at all; and the person lending the money on those terms knows that the person borrowing is not conducting an ordinary business transaction, and that, therefore, the partner borrowing would have no power to bind his co-partners." 266 Goldberg v Jenkins was a case where the judge did not identify the particular kind of business that the partnership in question carried out, and seems to have taken the view that the transaction there in question was so extreme that it would not have been entered in the usual way of carrying on any kind of business whatsoever. However, other cases have proceeded by identifying a kind of business, and then asking what is the usual way of carrying on that particular kind of business. Garrod was decided by reference to what was usual to the business carried on by persons trading as a garage. Further, whether the transaction in question fell within the usual way of carrying on that kind of business was judged by reference to "what was apparent to the outside world in general and [the person being dealt with] in particular" (at 1106F-G). 267 Similarly, in United Bank of Kuwait v Hammoud, it was held that whether the giving by a solicitor of an undertaking to a bank was carrying on in the usual way business of the kind carried on by the firm was to be decided objectively, on the basis of "what would the officials of a reasonably careful and competent bank have believed" (at WLR 1058H; All ER 423h-j per Glidewell LJ). Or, as Staughton LJ put it at WLR 1064D-E; All ER 428e-f: "… a third party is only concerned as to whether a transaction appears to be of a kind that is within the ordinary authority that the agent is held out as having …" 268 All this is consistent with the second limb being, as Construction Engineering v Hexyl held, a statement of the common law on ostensible authority.

How to Ascertain What is "Carrying On in the Usual Way" 269 Notwithstanding the way Mocatta J proceeded in Garrod, it does not seem to me to be in accordance with principle for a judge to inform himself or herself about what usually happens in a "business of the kind carried on by the firm" by reference to his or her own "common sense". It is in accordance with principle for "common sense" to be used in evaluation of evidence (indeed juries are regularly instructed that in considering the evidence they should use their common sense). As Mocatta J recognised, evidence is admissible of both the nature of the business of a particular partnership, and of what is usually done in carrying on a business of that type. But a judge can take into account a fact that is not proved by evidence only if that fact falls within the scope of judicial notice or can be inferred from facts that are proved or judicially noticed. 270 Section 144 Evidence Act 1995 provides: " Matters of common knowledge (1) Proof is not required about knowledge that is not reasonably open to question and is: (a) common knowledge in the locality in which the proceeding is being held or generally, or (b) capable of verification by reference to a document the authority of which cannot reasonably be questioned. (2) The judge may acquire knowledge of that kind in any way the judge thinks fit. (3) The court (including, if there is a jury, the jury) is to take knowledge of that kind into account. (4) The judge is to give a party such opportunity to make submissions, and to refer to relevant information, relating to the acquiring or taking into account of knowledge of that kind as is necessary to ensure that the party is not unfairly prejudiced." 271 An oddity about the way in which section 144(1) operates is that the conditions for its operation, namely that the matters of which judicial notice is taken are "knowledge that is not reasonably open to question, and is … common knowledge in the locality in which the proceeding is being held or generally" are themselves factual matters, but are not established by evidence. To that extent at least, some form of judicial notice is involved in the application of section 144 itself. 272 There is an unresolved question about whether section 144 displaces, or supplements, the common law concerning judicial notice. Some cases have proceeded as though it operates as a supplement: ICI Australia Operations Pty Ltd v WorkCover Authority (NSW) [2004] NSWCA 55; (2004) 60 NSWLR 18 at 62-4 [219]-[232]; Crown Glass & Aluminium Pty Ltd v Ibrahim [2005] NSWCA 195; Prentice v Cummins (No 5) [2002] FCA 1503; (2002) 124 FCR 67 at 85-7 [75]-[82]; Woods v Multi-Sport Holdings Pty Ltd [2002] HCA 9; (2002) 208 CLR 460 at 478-81 [64]-[70] (per McHugh J), 510-15 [162]-[169] (per Callinan J). However, in Gattellaro v Westpac Banking Corp [2004] HCA 6; (2004) 78 ALJR 394; 204 ALR 258 at [17], Gleeson CJ, McHugh, Hayne and Heydon JJ (with whom Kirby J agreed at [69]) expressed the somewhat tentative view that section 144 displaced the common law on judicial notice: "there would appear to be no room for the operation of the common law doctrine". 273 French J (as his Honour then was) noticed, but did not decide the difference of opinion in Victorian Women Lawyers' Association Inc v Federal Commissioner of Taxation [2008] FCA 983; (2008) 170 FCR 318 at 345 [114]-[115]. Nor does the argument in the present case make it necessary to decide it here. 274 When a court is deciding what is usual in a particular kind of business, the importance of it being able to act other than on evidence emerges from the way in which the reasoning proceeded in Polkinghorne v Holland. At 158 Rich, Dixon, Evatt and McTiernan JJ said at 158: "In the unreported case of Cox v Snowball and Kaufmann (1929), Irvine CJ, speaking for the Full Court of Victoria (Irvine CJ, Mann and Macfarlan JJ), said that although it is, of course, well known that clients are in fact often guided by the advice of their solicitors as experienced men of affairs, the conclusion that such advice is part of a solicitor's business as such, or that it is the business of a given firm, can only be based on evidence." 275 However, their Honours immediately distanced themselves from that proposition, saying: "An appeal to this Court from the relevant part of the judgment was dismissed by Knox CJ, Isaacs and Rich JJ, simply upon the ground that there was no evidence on which the jury could find a verdict for the plaintiff. The judgment of this Court did not deal with the statement of Irvine CJ." 276 Their Honours then went on to consider what was within the scope of a solicitor's duties without reference to any evidence on that topic, but rather drawing on case law about the extent of a solicitor's ordinary duty to his client.

The Role of Necessity in Deciding the "Usual Way" 277 The Union Bank of Australia v Fisher (1893) 14 NSWLR (E) 241 is a decision of the Full Court of the Supreme Court of NSW (Darley CJ, Foster and Manning JJ). Proper understanding of it requires a consideration of the facts as reported in the case at first instance: The Union Bank of Australia v Fisher (1892) 14 NSWLR (E) 1. Old system title land was owned by a Mr Salwey, subject to a mortgage to the plaintiff bank. Salwey's debt to the bank was guaranteed by a solicitor called Ralfe, and another person called Stephen. The bank's mortgage was transferred to Stephen, and Stephen deposited the deeds with the bank as security for his guarantee. There was an arrangement between Salwey, Ralfe and Stephen that the land would be sold and they would share the profits equally. Salwey entered a contract for the sale of the land to a syndicate. In January 1886, Ralfe borrowed the deeds from the plaintiff bank to enable him to prepare an abstract of title. Ralfe gave the solicitors for the plaintiff bank an undertaking, expressed to be in the name of his own firm, to return the deeds. The trial judge (Owen CJ in Eq) held, (at 14) that in this transaction Ralfe was acting as the solicitor for Salwey, though not ( at 18) as solicitor for Stephen, who was the depositor of the deeds. 278 Completion of the sale to the syndicate occurred, and Salwey received a mortgage back (at 3). However, the debt to the plaintiff bank was not paid off at the time of that settlement. Ralfe retained custody of the deeds because he expected to have to draw a discharge of the mortgage to the bank. In November 1887 Ralfe handed the deeds over to someone posing as a clerk of the solicitors of the plaintiff bank (at 3), but the judge was not satisfied that the person to whom Ralfe handed them over had authority from the bank to receive them (at 20). 279 Salwey (who by this time had been admitted as a partner of the firm) then obtained possession of the deeds by some means not disclosed on the evidence, and deposited them with the CBC Bank as security for an overdraft. When the solicitors for the plaintiff bank requested the deeds be returned to them, Salwey obtained possession of the deeds from the CBC Bank, and sent them to the solicitors for the plaintiff bank. The judge held (at 21) that, once the deeds were returned on this occasion to the plaintiff bank, Ralfe was discharged of his obligation to return the deeds. That decision was confirmed on appeal (14 NSWLR (E) 241 at 256). 280 Later, the CBC Bank asked Salwey for return of the deeds. He wrote a letter to the Union Bank in July 1888, saying that the mortgagors were forming a company to take over the property, and had asked for inspection of the deeds, and asked to borrow the deeds on the basis that they were returnable on demand. The plaintiff bank then returned the deeds to Salwey, who redeposited them with the CBC Bank. At that stage the CBC Bank registered its security, thus obtaining a statutory priority for its mortgage. 281 At all times there had been one member of the firm who knew nothing about the activities of Ralfe and Salwey concerning these deeds. Ralfe knew nothing about Salwey re-borrowing the deeds in July 1888. The plaintiff bank sought to recover its loss from the partners of Salwey. There was evidence from the senior partner of the bank's firm of solicitors (at 5) that "it was the most common thing in the world for one firm of solicitors to give up deeds to respectable firms on an undertaking to return them, and that it was done every week, and he had done it himself." 282 There were questions about whether the firm was bound concerning two different transactions: - the borrowing of the deeds by Ralfe in January 1886, and Salwey's later borrowing of the deeds in July 1888. The decision of the court, both at first instance and on appeal, was that neither borrowing bound the firm. 283 Owen CJ in Eq at 15, approved the statement of Parke B in Brettel v Williams (1849) 4 Exch 623 at 630; 154 ER 1363 at 1366; 80 RR 726 at 732 (also reported at 19 LJ Ex 121 at 124-5) that: "One partner does communicate to the other [LJ Ex reports this as 'others'], simply by the creation of that relation, and as incident thereto, all the authority necessary to carry on their partnership in its ordinary course, (see Hawtayne v Bourne [(1841)] 7 M&W 595 [; 151 ER 905; 56 RR 806; 10 LJ Ex 224]) and all such authority as is usually exercised by partners in the same sort of trade, but no more. To allow one partner to bind another by contracts out of the apparent scope of the partnership dealings, because they were reasonable acts towards effecting the partnership purposes, would be attended with great danger." 284 It was a matter of considerable importance in this case that the mortgage of the plaintiff bank was merely an equitable mortgage by deposit so that the deeds were (at 15) "… not merely muniments of title, but were themselves the security held by the bank, and were in the custody of [the bank's solicitors] as agents or trustees for the bank; so that Ralfe, in taking these original deeds, placed himself in the position of [the bank's solicitors], and held them as the bank's security for the bank." 285 It is the fact that it was possession of the deeds that constituted the plaintiff bank's security that explained Owen CJ in Eq's remark at 17-18 concerning the alleged practice of solicitors lending deeds to each other: "… no practice can, in my opinion, authorise the lending by a solicitor of original deeds which themselves are the security of that solicitor's client, and which have been deposited by the client with the solicitor for safe custody, and the borrowing of such deeds by a solicitor without the knowledge of his partner cannot make such partner liable if the deeds are subsequently lost or misapplied. It is no part of a solicitor's business, in this way, to make himself liable for a security held, not by his own client, but by the client of another solicitor. The distinction between deeds held as security, and deeds which are merely muniments of title may be illustrated … by supposing the security to be jewels. If jewels had been deposited in a bank as security for an overdraft, and the depositor had instructed his solicitor to prepare a bill of sale over those jewels in order to raise money to pay off the bank, and the solicitor had borrowed the jewels from the bank in order to make a schedule of them for the bill of sale, and those jewels had been fraudulently made away with by the solicitor, can it be contended that his partner, in ignorance of the transaction, would be liable? It is no answer to say that dealing in jewellery is no part of a solicitor's business. The jewels were borrowed to enable him to prepare a proper schedule to the bill of sale, just as the deeds were borrowed to prepare the abstract, and the preparation of the schedule to the bill of sale was just as much a solicitor's business as the preparation of an abstract of title. In each case the security-holder could have refused to allow his security to go out of his possession, and in such case the schedule or the abstract of title would have to be prepared where the security was, and probably - and in the case of the abstract certainly - at greater expense to the client, but in neither case could it justify one partner fastening on another partner a risk and liability which he never consented to undertake, and which, if he had known of it, he might have refused to incur." 286 After pointing out that in the case before him the depositor of the deeds, Stephen, was not a client of Ralfe, and thus the case before him was an even stronger case than the example of the jewels he continued (at 18): "Again, there was no potential necessity for this borrowing of the deeds. The bank or its solicitors could have refused to lend them, and in that case the abstract of title would have been prepared either at the office of the bank's solicitors, or from examined copies of deeds, or in some other way. This may have created an inconvenience, or increased expense to Ralfe's client; but a potential necessity for entering into a transaction such as to create a reasonable implication that there is power to do it, only arises when the transaction is a proper consequence of the relation between the parties, but not where it is done only to obviate an inconvenience or to save expense." 287 On the appeal, the judgment of the Full Court, delivered by Manning J, said, at 247-8: "… we cannot see how it came within the scope of the partnership business for Ralfe to borrow for the benefit, not of his firm, but of himself and his co-adventurers, deeds to which they had no claim, while they were held as a security by the bank, and the temporary possession of which was not in the slightest degree necessary to carry out the business undertaken. It is no doubt the business of solicitors, for a vendor, to prepare an abstract of title, but this could and should be done from extracts taken from the original deeds without disturbing the possession of the mortgagees. They were under no obligation to produce the original deeds for inspection by the purchaser's solicitor, who could, and should also, had he so desired, have compared the original deeds with the abstract again without disturbing the possession. It might possibly be a little, or even a great deal, more convenient to have free access to the original deeds at any time, but any expense that might have been occasioned by a departure from the proper practice would fall on the client only, and be a source of profit to the firm." 288 At 249, Manning J said that: "… the 'conduct of business as ordinarily carried on' is only another way of saying 'acting within the scope of the business.'" 289 Manning J at 249 referred to an argument "that a partner could bind his firm by taking some action which, while not actually necessary, might be very convenient in the interests of the firm." He said that that was not the law, and repeated the quotation from Brettel v Williams on which the trial judge had relied (set out at para [283] above). Manning J continued, at 249: "… Lindley LJ, in his work on Partnership , [referring to the 5 th ed (1888) W Maxwell & Son] at p 126, shews (and his very language has been judicially adopted by North J, in the case of [ In re Cunningham & Co Ltd (1887)] 36 Ch D [532 at] 538) that necessity is the limit of authority. He says: 'It will be observed that what is necessary to carry on the partnership business in the ordinary way is made the test of authority where no actual authority or ratification can be proved. This is conformable to the most recent and carefully considered decisions; but, by adopting it, the liability of a firm for the acts of its co-partners is not so extensive as non-lawyers sometimes image. The act of one partner to bind the firm must be necessary for the carrying on of its business; if all that can be said of it was that it was convenient, or that it facilitated the transaction of the business of the firm, that is not sufficient in the absence of evidence of sanction by the other partners. Nor, it seems, will necessity itself be sufficient if it be an extraordinary necessity." (original emphasis) 290 There being no necessity in the case before him, and (as his Honour later held) no evidence of sanction by the other partners, the initial borrowing by Ralfe did not bind his partners. 291 I have dealt with this case at some length because in Fletcher, The Law of Partnership in Australia, 9th ed, at [6.15] (p 166), it is treated as authority for the proposition that "For an act to be usual in a particular kind of business it must be reasonably necessary and not merely convenient, for the carrying on of that type of business." I do not accept that Union Bank v Fisher is authority for so wide a proposition. 292 I shall assume that the kind of business that partnerships of solicitors carry on involves conveyancing, drawing of wills, obtaining probate and administering the distribution of deceased estates, and drawing commercial agreements. Even if the members of a partnership of solicitors had agreed among themselves that they would not draw wills, if a partner of the firm were to undertake the drawing of a will, while apparently acting as a partner of the firm, his act in undertaking the drawing of that will would bind the firm (as against someone who did not know of the limitation on type of work that they had agreed), because it is an act of a type that is usual for a solicitor to do. That is so even though there is no necessity for solicitors to draw wills to carry on the type of business involved in being a solicitor. 293 The type of necessity that was involved in Union Bank v Fisher was of a more focused type - it looked at what was necessary to carry out a particular task that the solicitor had agreed, in the course of carrying out business that is of the kind that the firm carries on, to carry out. It accepted that the drawing of abstracts of title was part of the usual conduct of a solicitor's business, and accepted that preparation of an abstract required the solicitor to have access to the deeds, so that the relevant details could be copied and included in the abstract. What Union Bank v Fisher held was not necessary was to borrow the original of the deeds from someone who held the deeds as their security for a mortgage by deposit of title deeds. The point is expressed by A'Beckett CJ in Beyfus v Greene (1855) 1 VLT 348 at 349: "These and other cases, whilst upholding the general principle that one partner has authority to bind the rest in regard to partnership transactions, in the ordinary modes of creating such obligations, showed that when these modes departed from, an authority must be proved in respect of the whole [ie from all the partners] before the act of one will bind the remainder." 294 A different type of necessity, which is really a species of implied actual authority, exists in relation to those acts that are necessary to carry on the business that has been expressly agreed to be carried on. It is illustrated in Commercial Bank v Lakeman (1890) 7 WN (NSW) 40 at 41, where Darley CJ (with whom Windeyer and Foster JJ agreed) said: "Now although we may have knowledge of the nature of the business of stock and station agents as that business is carried on by large firms in Sydney, yet we do not see how, without evidence upon the subject, we are to know what it is in small towns such as Hay and Narrandera. We do not know if these men had power to borrow money or if the nature of their business necessitated it, and a partner has only power to borrow money where the nature of the business requires it."

Respondents' Submissions on Section 5 Partnership Act 295 Mr Leopold submits that Mr Seeto was not engaged in carrying on "business of the kind" carried on by the partnership, because that business was only of being auditors or insolvency practitioners. 296 He submits that section 5 does not permit the agglomeration of the "groups of entities" connected in some way with the partnership, in a way that would enable the general accountancy activities of Gould Ralph Services Pty Ltd to be taken into account for deciding what is "business of the kind" carried on by the firm. 297 As well, Mr Leopold submits that Mr Seeto's dealings fall outside the "usual way" in which the kind of business that the firm carries on is done. He submits that if the kind of business is just that of auditing and insolvency, that result clearly follows. He also submits that even if the kind of business is regarded as being that of an accountancy practice, the result still follows. He submits that it is not possible to treat the transaction as a mere isolated custody of money - rather, the way it was presented to Mr Azuma was that it was a necessary incident of a much larger investment transaction, which was itself highly unusual. 298 He also submits that the custodian account arrangements were no ordinary trust account. The account existed to facilitate transactions that were available only to "a very specially selected approved group of investor syndicates". It was located in Jersey, on the other side of the world to where the firm carried on business. There was no indication that the monies held in it were actually held on trust. While Mr Seeto said it was "like a trust account", he did not say it was a trust account, or that the money in it would be held on trust. Nor does any of the documentation make any mention about the money in it being held on trust.

Decision on Whether Mr Seeto's Actions Bound the Partners and the Firm 299 I accept that when section 5 talks about "the firm" it is talking about an actual partnership, not an economic entity for carrying on business, whatever the structure of that entity might be. That emerges from section 4 Partnership Act which at the relevant time provided: " Meaning of firms Persons who have entered into partnership with one another are for the purpose of this Act called collectively a firm, and the name under which their business is carried on is called the firm-name." 300 However, acceptance of that aspect of Mr Leopold's argument does not lead to the conclusion that the relevant "business of the kind carried on by the firm" in the present case was that of auditing and insolvency. 301 Here there was an actual partnership, and Mr Seeto was a member of that partnership for at least part of the time relevant to this litigation. When the second limb of section 5 imposes liability on the partners and the firm by reference to the "business of the kind carried on by the firm", it does so in a way that will give effect to the common law doctrine of ostensible authority. Thus, the "business of the kind carried on by the firm" is what the kind of business would reasonably seem to be to someone dealing with the firm, and in particular to someone who had had the type of contacts and dealings with the firm that the plaintiff had had. It is in this way, by reference to the circumstances of the particular case, that one solves the question about with what degree of generality the "business of the kind carried on by the firm" is to be described. 302 In the present case, some, but not all, of the matters that led to the conclusion that Mr Seeto was purporting to contract on behalf of the partnership are to be taken into account in deciding what was the relevant "business of the kind carried on by the firm". Because the second limb of section 5 states when it is that there is ostensible authority for a partner to act on behalf of the firm, it is only those dealings that a plaintiff has had that are truly part of the activities of the firm that can be relied on as the basis for ostensible authority. The only time that representations made by Mr Seeto to Mr Azuma fit into that category is when they are the type of representation that Mr Seeto had actual authority to make on behalf of the firm. Ostensible authority arises from representations made by or (actually) on behalf of the partners sought to be made liable, not from the partner in the position of Mr Seeto making representations of a type that he has no authority to make. 303 The sort of representations that are relevant to what someone in Mr Azuma's position would reasonably take the business of the firm to be are:

• the statement by Mr Seeto that he was a partner of a firm of accountants called Gould Ralph.

• Mr Seeto introducing Mr Azuma to his partners, and the partners acquiescing in being introduced as Mr Seeto's partners.

• The provision of accounting, taxation and audit services to Mr Azuma, and the companies he controls, from the one set of offices, and with the one contact person (namely Mr Seeto) and with signage that Mr Ralph agreed might give someone the impression that, even after he had ceased to be a partner, Mr Seeto was working for Gould Ralph.

• The sending of an engagement letter from the partnership concerning the provision of audit services.

• The partners permitting the company to use a letterhead that had as its most prominent aspect the name Gould Ralph Services Pty Ltd Chartered Accountants, at a time when the partnership used a letterhead extremely similar in typesetting and get-up that had as its most prominent aspect the name Gould Ralph & Company Chartered Accountants.

• The absence of any explanation to Mr Azuma about the different activities of the company and the partnership.

• The indiscriminate billing of all types of accountancy work together in the one memo of fees.

• Mr Ralph knowing that Mr Azuma was continuing to meet with Mr Seeto at the 40 Bridge Street offices even after October 1998.

• The absence of any explanation to Mr Azuma at any time in or after October 1998 about Mr Seeto having ceased to be a partner of the firm.

• The telephone number and fax number for the partnership and the company being the same. 304 This list does not include the state of the business name register from time to time, the terms of the Quality Control Manual, and the terms of the insurance proposals, because Mr Azuma knew none of those matters. 305 In all these circumstances the types of dealings that Mr Azuma had had with the firm were such as to make it reasonably seem that the business of the firm with which he was dealing was that of chartered accountants. 306 Whether section 5 applies in the present case will therefore depend on whether Mr Seeto's actions in entering the relevant contracts count as carrying on in the usual way the business of chartered accountants. 307 I accept that operating a trust account was part of the usual way in which the business of chartered accountants was carried on in Sydney at the times relevant to this case. That is so even though it was possible to carry on the business of a chartered accountant without operating a trust account, and in that sense the operation of a trust account was not necessary to carry on the business of chartered accountants. 308 I accept that it could be part of the usual way in which the business of chartered accountants was carried on in Sydney at those times for the accountant to receive into the trust account money that the client was, to the knowledge of the accountant, intending to invest. That could be so even if the investment was, to the knowledge of the accountant, to be an outlandish and improbable one. 309 The holding of the money in the "custodian account" was an essential element of the scheme that Mr Seeto presented to Mr Azuma (and indeed was part of the reason why the scheme's returns were said to be not as large as would be available if a different mode of "increasing the reserves" of the banks were adopted). I do not accept that there is a basis in the evidence, judicial notice or inference for concluding that it is part of the usual way in which the business of a chartered accountant was carried on in Sydney at that time, for an accountant to hold money in a trust account as an essential part of, rather than a preliminary and inessential step to, the client making an investment that is on any reasonable criterion outlandish and improbable - as the investments in the present case were. Particularly is that so when the investment is one that will be made with an entity in which the accountant has a personal interest, in partnership with someone who is not themselves a partner of the accountancy firm. Even more is that so when the investment is one that the accountant has recommended to the client. 310 Even though holding money for a client was a type of transaction that was part of the usual way in which the business of chartered accountants was carried on, the usual mode by which that sort of activity was carried on was by a conventional trust account. The "custodian account" of the company is not shown to have had a title that made it clear that the money in it was held on trust - ie, there was no clear express trust concerning the money in it. The undisputed evidence of Mr Ralph was that it was not the case that many accountancy firms have "custodian accounts". It has not been shown that one of the usual modes of a Sydney accountancy firm holding a trust account (let alone a "custodian account") is to do so in a foreign tax haven. It has not been shown that the particular mode of holding money for a client, namely in a "custodian account" rather than a trust account, was itself part of the usual way in which the business of chartered accountants was carried on, nor that it was necessary to enable the holding of money for a client to take place. 311 The context of Mr Beard's evidence, in which he said concerning a trust account "you would have it audited", related to the time that was relevant to the transactions. While the accounting practice standard that was in evidence, and which included the requirement for the trust account to be audited, post dated the relevant time period, it is nonetheless a piece of retrospectant evidence that provides a small amount of support for the conclusion that at the relevant time an audited trust account was the usual way in which accountants held money for clients. That a trust account is periodically audited is clearly an important safeguard concerning the money in it, not a matter of inessential detail. There is no evidence that the "custodian account" was the subject of any audit. That provides another way in which paying the money into the custodian account was not part of the usual way in which the business of chartered accountants was carried on in Sydney at the time. 312 When the payment of the money into a "custodian account" for the purpose of and as part of the scheme that Mr Seeto was promoting was not part of the usual way in which the business of chartered accountants was carried on in Sydney at the time, the Appellants have failed to show that the partners and the firm were bound by Mr Seeto having contracted, purportedly on behalf of the partnership, that the money would be paid into a "custodian account", held there, and in due course returned.

Issue 7 - Ostensible Authority 313 Against the possibility that Mr Seeto was held to have resigned from the partnership in October 1998, the Appellant made submissions about whether the second and third contracts had been entered with ostensible authority of the partnership. For the reasons already given in discussing the application of section 5 Partnership Act, the transactions were not entered within Mr Seeto's ostensible authority as a partner.

Issue 8 - Section 11 Partnership Act 314 Section 11 Partnership Act at the relevant time provided: " Misapplication of money or property received for or in the custody of the firm In the following cases, namely: (a) Where one partner acting within the scope of the partner's apparent authority receives the money or property of a third person and misapplies it, and (b) When a firm in the course of its business receives money or property of a third person, and the money or property so received is misapplied by one or more of the partners while it is in the custody of the firm, the firm is liable to make good the loss." 315 If the section is read literally, it does not apply in the present case, because neither a partner, nor the firm, has received any money from the Appellants - the only entity that has received money from the Appellants is the overseas "custodian account" of Gould Ralph Services Pty Ltd. The judge had noted, at [86] that: "… It would on one view be a curious result if the section did not extend to activities otherwise falling within its terms simply because the vehicle for the receipt of the funds was a corporate extension of the wrongdoing partner." 316 The judge's answer to that oddity, at [87] was that: "… a receipt of funds in such a fashion would be outside the ordinary course of business of the Gould Ralph & Company partnership. If the section has no application where a partner receives property of a third party in some capacity other than that of a partner in the firm, it would not extend to the receipt of funds into the account of either the first or second defendants as occurred in fact. Even if the receipt by those companies were considered for the sake of the argument to be a receipt by Mr Seeto, it could not on any view be considered to be a receipt by him in his capacity as a partner of the firm ." (original emphasis) 317 Mr Young submits: "The proposition that a partnership acting in its ordinary course of business cannot, as a matter of principle, receive money by having it paid by the payer to a third party is a very strange one, and it is doubly strange when the third party on its face is closely linked with the partnership. Persons and entities of all descriptions routinely accept payment by means such as payment to the entity's agent, solicitor, bank, or service company amongst a host of other possibilities. In the circumstances, the proposition that a payment made by the appellants to Gould Ralph Services Pty Ltd at the request of Mr Seeto was a payment that must, as a matter of principle, have been a payment made outside the ordinary course of business of the partnership is clearly unsustainable. In any event, one is in the present case dealing with the first limb of s 11, where the question is whether Mr Seeto was acting within the scope of his apparent authority in receiving the money, not whether the money was paid in the ordinary course of business of the partnership. The learned trial judge has thus not properly directed himself to the relevant test." 318 In the course of argument Mr Young abandoned any reliance on section 11(b). 319 In considering the applicability of section 11(a) I shall take the same course as the trial judge took, and shall assume without deciding that a receipt of money by a corporate vehicle closely connected with a partnership, such as Gould Ralph Services Pty Ltd, counts as a receipt by a partner, at least when it is a partner who directs that the payment be made to that company. However, it is still necessary for such a receipt to be "within the scope of the partner's apparent authority". For the reasons earlier given, it was not within the scope of Mr Seeto's apparent authority as a partner of the firm to contract that Gould Ralph Services Pty Ltd would receive the money and hold it in its "custodian account" as the means by which the Appellants could make the investments that Mr Seeto was promoting.

Issue 9 - Did the First Investment Contract Become Operative? 320 A separate ground upon which the Respondents seek to support the judgment in their favour concerning the first investment contract is that, even if there were to be a contract that bound the firm concerning money in the custodian account, that contract is not shown to have become operative. The arrangement under which the amount of the first investment was paid into the bank account of Seito Ocean Pty Ltd was put forward by Mr Seeto as an interim arrangement, to apply temporarily, while funds were being collected to make up the US$10 million needed for the actual investment. Mr Seeto's explanation of what would happen to the money while it was in the account of Seito Ocean Pty Ltd did not involve any promises purportedly made by the partnership. The promise that Mr Seeto made purportedly on behalf of the partnership was that money in the custodian account would be held safe for the term of the investment, and returned when that term was over. When the money was paid to Seito Ocean Pty it was not in the custodian account, and the term of the investment had not started to run. Thus, at that time any contract purportedly entered on behalf of the partnership had not attached. 321 The only evidence that the US$3 million ever was paid into the custodian account was Mr Azuma's evidence about Mr Seeto telling him that it had been so paid. There was no documentary confirmation that it had ever been paid. On the appeal, Mr Young accepted that it seemed as though the money had disappeared while in the Seito Ocean account. It follows that any contract purportedly made on behalf of the partnership by Mr Seeto concerning the first investment amount never attached. 322 In my view these matters provide a separate reason why the appeal fails concerning the first investment contract.

Order 323 I propose that the appeal should be dismissed with costs. 324 MACFARLAN JA: I agree with Campbell JA. **********

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