Swan & Baker Pty Limited v Marando

Background 6The following account is largely based on findings made by the primary Judge. It includes references to some uncontentious documents and matters not in dispute. 7The respondents conducted a citrus farming operation near Griffith until 1987 when they sold their farm and moved to the Gold Coast (at [3]). In 1993, they purchased a property at Coomera. In August 2007, the respondents exchanged contracts for the sale of the property at a price of $1.95 million (at [4]). 8From about 1987 until 2008, the respondents used Swan & Baker as their accountants, with Mr Legat as their point of contact. It appears to have been common ground at the trial that the accounting services related principally to the preparation of taxation returns and the provision of taxation advice. Nonetheless, the relationship extended for a period of over two decades. 9The respondents were not sophisticated investors. Rather, they were poorly educated people who understood basic money matters (at [85(iv)]). However, Mr Marando had previously bought and sold properties and appreciated that lending money involves some risk (at [44(3)]). The respondents were capable of reading and comprehending English (at [62]). 10The sale of the Coomera property was completed in February 2008. In the meantime, the respondents had purchased another property for which they required bridging finance. This loan was to be repaid from the proceeds of sale of the Coomera property, leaving the respondents with approximately $1.2 million to invest. They decided to invest $500,000.00 of this amount in a term deposit with Westpac (at [7]). 11On 29 January 2008, the respondents had a meeting with Mr Legat. Mr Marando outlined to Mr Legat the forthcoming settlement of the respondent's property transaction and their desire to invest the proceeds. On that occasion Mr Legat suggested the Fund as an investment for part of the moneys available for investment. The Fund was a registered managed investment scheme involving advances to commercial borrowers secured by first mortgages over real property. 12A crucial meeting took place between the respondents and Mr Legat on 18 February 2008. The terms of the discussion were disputed, but the respondents made it clear that they wished to invest any available funds for only 90 days (at [8]). They gave as the reason their desire to purchase an investment property. At the meeting, Mr Legat gave the respondents a copy of the Fund's Product Disclosure Statement ("PDS") (at [34], [44(4)]). The PDS provided for a cooling off period of 14 days for new investments starting from the end of the fifth day after units were issued but Mr Legat did not point this out at the time. Mr Legat told the respondents that Mr Swan, a fellow director of Swan & Baker, was a director of the fund (at [44(12)]. 13The respondents met again with Mr Legat on 20 February 2008. At this meeting they completed an application form to invest $500,000.00 in the fund and provided a cheque for that amount. They indicated on the form their election to invest for a 90 day term. The respondents also checked the "Reinvest Quarterly" box as their "Distribution Preference". 14Shortly after the meeting of 20 February 2008, the respondents left the Gold Coast in order to spend time with family at Griffith. Mr Legat knew that the respondents were going away, but had their mobile telephone number (at [13]). 15Swan & Baker processed the respondents' application form and the cheque was lodged with the Fund on 26 February 2008 (at [12]). It was common ground that under the terms of the PDS the cooling off period for the respondents' investment expired on 18 March 2008. 16On 27 February 2008 and 4 March 2008, Fairfax media outlets published articles by a journalist, Mr West. Each of Mr West's articles suggested that "City Pacific" was urgently in need of funds. The second article went further and suggested that "City Pacific [was] veering towards collapse". Other articles appeared in the media during this period commenting adversely on the financial position or performance of the Fund and its manager, CPL (at [53]-[58]). 17CPL released its financial results on 21 February 2008, revealing a record profit of $27.47 million. Nonetheless, over the weekend of 1-2 March 2008 investors in the Fund lodged withdrawal requests totalling $10 million. This was approximately four to five times the usual volume of withdrawal requests for a similar period. 18On 3 March 2008, CPL announced that the redemption period for investments in the Fund had been extended to 180 days. The following day, trading in CPL shares was suspended for 8 days (at [15]). 19According to Mr Swan's evidence, on about 5 March 2008 he told Mr Legat that the decision to delay withdrawal requests was made because of the negative press coverage and to ensure orderly management of the Fund's assets. Mr Swan also told Mr Legat that to his knowledge the Fund had incurred no capital losses up to that time. 20On 14 March 2008, the audited accounts of the Fund for the six months ending on 31 December 2007 were released. The accounts revealed no asset impairments. 21The respondents returned from holidays in late March 2008. On their return, they became aware of a letter addressed to them from CPL dated 3 March 2008 (at [16]). The letter was headed "IMPORTANT NOTICE - PLEASE READ IMMEDIATELY". CPL's letter advised recipients that because of a substantial increase in the number of redemption requests, the directors of CPL had resolved to defer the payment of redemptions from the Fund for up to 180 days in accordance with the provisions of the PDS. The letter stated that "[w]e are confident of meeting all redemptions". The letter also reminded recent investors that a 14 day cooling off period applied to all new investments (at [61]). 22Following receipt of this letter, Mr Marando contacted Mr Legat and told him that this was not the arrangement that the respondents had entered into. Mr Legat informed Mr Marando that nothing could be done. Nonetheless, on 3 April 2008 the respondents completed a redemption request for all their units in the Fund (at [16]). The redemption request stated that the moneys were needed "for property settlement". In fact, the respondents had not entered into any contract to purchase property. 23On 13 October 2008, CPL resolved that existing redemption requests (including that of the respondents) were extinguished and that future redemptions were to be governed by the Corporations Act 2001 (Cth) (at [17]). 24Prior to the trial, the respondents received payments by way of return of capital, totalling $36,000.00 (at [19]). They retained their units in the Fund at the date of the trial, having rejected offers to purchase the units at a substantial discount to their face value.

Pleaded Case 25The Further Amended Statement of Claim ("FASC") pleaded the respondents' claim founded on breach of duty in an economical and not particularly precise way. The pleading may have reflected the fact that the breach of duty claim had not been at the forefront of the respondents' case as initially presented. 26The FASC pleaded that Mr Legat had engaged in unconscionable conduct in a number of respects. The particulars of the alleged unconscionable conduct included (para 6J): (g) Failure to give any or any adequate verbal warning of the issues concerning the financial position of City Pacific Limited in the period from 26 February [when the moneys were invested in units in the Fund] to 18 March 2008 [the date of expiry of the cooling off period]. The reference to "City Pacific Limited" seems to have been taken at the trial to be a reference to the financial position of the Fund of which CPL was the manager. 27The respondents later pleaded (para 9) that in giving advice to the respondents on the question of the investment of the sum of $500,000 in the circumstances pleaded above, [each of the appellants was] undertaking to advise [them] on a serious matter concerning the [respondents'] financial welfare. 28The pleading continued as follows: 10 By reason of the facts and matters pleaded in paragraph 9 above, the [appellants] and each owed to the [respondents] a duty of care to give advice on the matter of the investment of the sum of $500,000 in a careful, considered and objective manner. 11 In the circumstances, the [appellants] and each of them acted negligently in advising or failing to advise the [respondents], after 26 February 2008, on the matter of the investment of the sum of $500,000. PARTICULARS OF NEGLIGENCE ... (c) Failing to inform the [respondents] as to the true financial condition of City Pacific Limited during the period from 26 February to 18 March 2008. ... (f) Failing to warn the [respondents] during any "cooling off" period applying after 26 February 2008 of the fact of and of the matters referred to in: (i) the article City Pacific peers into abyss by Michael West published in the Fairfax media on 27 February 2008; and, (ii) the article "By all accounts, City Pacific is in trouble", also by Michael West and published in the Fairfax media on 4 March 2008 ...

Findings 29The primary Judge made findings on a number of matters no longer in issue but which are material to the respondents' claim founded on breach of duty. In addition, his Honour made findings specifically related to that claim. 30His Honour rejected the respondents' case based on alleged misleading or deceptive conduct by Mr Legat. In doing so, the primary Judge made (at [44]) the following findings: (1) ... Mr Legat introduced Mr and Mrs Marando to the City Pacific First Mortgage Fund as an investment. ... Mr Legat had been their accountant since 1987, and the PDS for the fund was displayed in the waiting room of the offices of the first defendant. It was the only brochure displayed in that waiting room. It had been on display there for some years, and no other brochures for investment products or funds were displayed in the waiting room. The reason why that PDS was displayed was given by Mr Legat as follows: "Well, Tom [Swan] being a director of City Pacific and still a director of Swan & Baker at the time, the - I would suggest was the reason." ... (5) I do not accept the evidence of Mr and Mrs Marando that they had not seen the PDS of the Fund prior to signing the application form. I accept the evidence of Mr Legat that he had given them the PDS form to take away and that they had done so. ... ... (7) ... [T]here was no basis for Mr Marando believing, at the time the investment was made, that it was a "risk free" investment. He understood at the time of signing the application that the interest rate being paid by the Fund was greater than bank interest rates (having already deposited $500,000 with Westpac Bank at a lower interest rate). ... (9) ... [O]n 18 February 2008 Mr Legat met with both Mr and Mrs Marando and, as the file note corroborates, discussed with them the comparative interest rates for the Fund and bank deposits. (10) ... Mr Marando told Mr Legat that he required a short-term investment of 90 days as he intended to purchase a house property. (11) ... Mr Legat told Mr and Mrs Marando that his parents had invested money in the Fund and had been happy with the returns on their investment. (12) ... Mr Legat told Mr and Mrs Marando that Tom Swan was a director of the Fund and had told Mr Legat that the Fund had quality assets. (13) ... Mr Legat told Mr and Mrs Marando on that occasion that the financial reports on the Fund supported Mr Swan's advice to that effect. (14) ... [I]t was on the basis of that discussion on 18 February 2008 that Mr and Mrs Marando decided to invest $500,000 in the Fund. ... (16) ... [O]n 18 February 2008 Mr Legat gave the PDS form to Mr and Mrs Marando who took it away with them. They returned to the office of the first defendant on 20 February 2008 and Mr Legat completed the application form for them to sign. Mr Legat then filled out the cheque, including the cheque butt of Mr Marando's chequebook and Mr Marando signed the cheque for $500,000 payable to the Fund. 31The primary Judge also rejected the respondents' case founded on unconscionable conduct by the appellants. In that context, his Honour made the following findings (at [63]): (i) That in the relevant period after 26 February 2008, the [appellants] did not act unconscionably in failing to advise the [respondents] of the actual financial position of CPL. On an objective view of the accounts of CPL, its financial position was basically sound. There was no evidence of any asset impairment at that time. Mr Swan's role in advising Mr Legat ... was consistent with the known facts at that time. ... (ii) [The appellants] did not act unconscionably in failing to bring to the attention of the [respondents] the two articles of Mr West published in the Fairfax media on 27 February and 4 March 2008. Mr Swan, as a director of CPL was clearly of the opinion, reasonably held at that time, that the articles contained inaccuracies and wrong conclusions based on his knowledge of the accounts and dealings of the company. He reassured Mr Legat as to those matters. ... (iii) [The appellants] could not have been in the position whereby they acted unconscionably by failing to give "any adequate verbal warning of the issues concerning the financial position of CPL in the period from 26 February to 18 March 2008" ... There was, in effect, nothing known to the [appellants] at that time that would rise to any duty to warn, or otherwise amount to unconscionable conduct given their state of knowledge as to the financial position of CPL.

The Negligence Claim 32The primary Judge observed (at [76]) that the appellants clearly owed the respondents a duty of care as their accountants. However, Mr Legat had endeavoured to establish that he merely provided information to the respondents, rather than advice. 33The primary Judge noted (at [82]) that the appellants accepted that a duty of care could go beyond the terms of a retainer. They also accepted that, depending on the circumstances, there might be a duty to take positive steps when these are necessary to avoid a real and foreseeable risk of economic loss being sustained by the client. However, the appellants submitted (at [82]) that there had been no real or foreseeable risk of loss in this case. According to the appellants, the risks fell into two categories:

• Mr West might have been right and Mr Swan might have been wrong about the financial circumstances of the Fund; and
• the respondents might not have been able to redeem their investment at the expiration of the 90 day term, and possibly not for a period of up to 180 days. The latter risk did not involve, so it was argued, any economic loss, but merely a delay in the respondents' plans to acquire real estate. 34The primary Judge continued as follows: 85 Here, it is clear that Mr Legat owed the Marandos a duty of care. The real issue is, what was the extent of that duty. Did it extend to a duty, having regard to all of the circumstances of the matter and Mr Legat's state of knowledge, to take positive steps to warn and advise the [respondents] during the cooling off period of their entitlement under the PDS to withdraw their money from the Fund? The following are relevant matters that I take into account in determining that matter: (i) The purpose of the [respondents] seeing Mr Legat on 29 January 2008 was clearly to discuss with him how to invest the proceeds of settlement from the sale of their home. That included a discussion about the taxation implications including capital gains tax, together with Mr Marando's superannuation fund. (ii) The meeting held on 18 February 2008 was for a far more specific purpose. That purpose was to discuss where the [respondents] would invest their funds for 90 days. ... [I]t was on the information given to them at that meeting by Mr Legat that the [respondents] decided to invest $500,000 in the Fund. (iii) Mr Legat understood that the [respondents] were relying on what he told them in coming to their decision to invest. (iv) The [respondents] were not sophisticated investors. Rather, they were poorly educated people who understood basic money matters. (v) I do not accept Mr Legat's evidence in cross-examination that he was not giving the [respondents] "financial advice", but was discussing "his knowledge of the product". Mr Legat knew that the [respondents] were relying on his advice which he understood had to be truthful and honest. (vi) Also relevant are the facts as I have found them, that the PDS for the Fund was available in the waiting room of [Swan & Baker]. It had been displayed there for some years, and it was the only PDS for any financial product displayed in that waiting room. (vii) The fact of Mr Swan's non-executive directorship of CPL added weight to the attraction of CPL as an investment vehicle for the [respondents]. (viii) Mr Legat facilitated the [respondents'] investment in the Fund by filling out the application form for them to sign and by forwarding it to the Fund. 86 Having regard to all of those matters, I find that the scope of the duty of care owed by Mr Legat to the [respondents] extended to taking reasonable care in advising the [respondents] in respect of their investment of money into the Fund to avoid a real and foreseeable risk of economic loss. He had crossed the line of merely providing "information" and was in fact, advising the [respondents] in respect of the investment of their money. He knew they were relying on his advice. His duty therefore extended to having knowledge of the PDS, which he had read prior to 18 February 2008, and with which he stated he was familiar ... 87 I do not accept the submission made by the [appellants] that the foreseeable risk of loss fell into the two categories outlined in paragraph 82 above. Given the extent of the run on the Fund, there was a real and foreseeable risk of economic loss being sustained by the [respondents], both in terms of the Fund delaying redemptions indefinitely or becoming frozen. Both were significant risks given the [respondents'] insistence on the investment for a period of no longer than 90 days. (Emphasis added.) 35The primary Judge then considered whether the appellants had breached their duty of care. He found that they had: 90 As at 3 March 2008 Mr Legat knew that the [respondents] had invested their money for only 90 days. He was familiar with the PDS and should have known of the cooling off period. The [respondents] submitted that Mr Legat's evidence that he was unaware of the provision and terms of the cooling off period was no more than an admission of negligence on his own part. Whilst there was no evidence that the cooling off provision was a statutory requirement in Queensland, provisions for cooling off regimes are contemplated by the Corporations Act 2001 (Cth) as being information that must be included in a PDS, whether required by law or otherwise (see s 1013 D(1)(i)). 91 If Mr Legat was in fact unaware of the cooling off period in this case as at 3 March 2008, he should have become aware of it following the letter dated 5 March 2008 [sic: 3 March 2008] sent by CPL to investors ... That letter set out in clear terms that recent investors were reminded that the 14 days cooling off period "applies to all new investments". The letter ... was sent because the board of CPL were concerned that the media had substantially contributed to what appeared to be a run on the Fund. The purpose of the letter was to notify investors of their decision to delay withdrawal requests for 180 days as provided by the constitution of CPL. Mr Swan discussed with Mr Legat ... matters relevant to the Fund and it was also his practise [sic] to email relevant ASX notifications or public announcements after release by CPL to Mr Legat ... to invite them to contact him if they needed any clarification ... 92 Mr Legat discussed the decision by CPL to extend the redemption period to 180 days with Mr Swan ... He knew that the fund had had a run of redemption requests over the weekend prior to 3 March 2008 and that the board had decided to freeze redemptions for 180 days as a precautionary measure. ... 93 As at 5 March 2008, at the very commencement of the 14 day cooling off period, Mr Legat knew that the [respondents] had relied on him to invest $500,000 in the Fund. He knew that they required a 90 day investment and he knew that they left the documents with him to facilitate that investment. Mr Legat knew that the [respondents] were away on holidays but that he had Mr Marando's mobile phone number. He knew within a very short time of 3 March 2008 that there was a run on redemptions on the Fund and he was mindful at that time of the [respondents'] investment in the Fund. 94 I find that Mr Legat knew about the letter sent to investors dated 5 March 2008 and, notwithstanding his lack of recollection of seeing the letter at that time, he must have been aware of it and its contents. His own parents were investors in the Fund for example. He also discussed the Fund's position with Mr Swan at the time. 95 I find that Mr Legat's evidence as set out above, that he did not know that Mr Marando had the option at that time of getting his money out of the Fund, bespeaks a breach by him of the duty to take reasonable care he owed to the plaintiffs. It was not sufficient for him to fulfil his duty of care merely to rely on the assurances of Mr Swan at this time that the Fund would restore itself. 96 Having regard to all of the circumstances, and to Mr Legat's state of knowledge, I find that Mr Legat further breached his duty of care to the [respondents] by failing to take positive steps to inform them prior to 18 March 2008 of their entitlement to withdraw their investment under the cooling off provisions in the PDS. (Emphasis added.) 36The primary Judge rejected (at [98]) the appellants' submission that any breach of duty by them had not caused the respondents to sustain a financial loss. His Honour found (at [99]) that if Mr Legat had properly advised the respondents of their entitlement to withdraw their investment from the Fund, they would have done so. 37In assessing damages, the primary Judge took into account (at [102]) that in September 2010 the respondents had refused an offer to purchase their units at 30 cents per unit. If accepted, according to his Honour, the offer would have yielded $133,886.05 for the 514,946.33 units then held by the respondents. (In fact, his Honour appears to have taken into account a different offer, at 26 cents per unit. This offer, if accepted, would have yielded $133,886.) His Honour also took into account the respondents' evidence that if they had not invested with the Fund (which offered 8.6 per cent per annum) they would have invested the moneys with Westpac at 7.5 per cent per annum. 38The primary Judge found that the respondents failed (at [106]) to mitigate their loss by refusing the offer to purchase their units. His Honour also found (at [107]) that damages should be reduced by 10 per cent "to take into account the present valuation of the [respondents'] holding in the Fund". 39The primary Judge calculated the damages as follows (at [105]):

1. Principal invested on 26 February 2008 $500,000.00 $500,000.00
2. Add interest on principal from 26/02/08 to 30/08/12 at 7.5% PA $169,007.00 $669,007.00 (4 years and 185 days)
3. Deduct return of capital on 12/10/10 -$20,597.85 $648,409.15
4. Deduct return of capital on 29/04/11 -$5,149.46 $643,259.69
5. Deduct return of capital on 30/09/11 -$5,149.46 $638,110.23
6. Deduct return of capital on 03/04/12 -$5,149.46 $632,960.77
7. Deduct interest at 7.5% PA on $20,597.85 from 12/10/10 to 30/08/12 -$2,950.00 $630,010.77 (1 year and 332 days)
8. Deduct interest at 7.5% PA on $5,149.46 from 29/04/11 to 30/08/12 -$516.00 $629,494.77 (1 year and 123 days)
9. Deduct interest at 7.5% PA on $5,149.46 from 03/11/11 to 30/08/12 -$354.00 $629,140.77 (335 days)
10. Deduct interest at 7.5% PA on $5,149.46 from 03/04/12 to 30/08/12 -$158.00 $628,982.77 (149 days) Total $628,982.77

40The damages were to be reduced by 40 per cent, to take account of the failure to mitigate (assessed at 30 per cent of the value of the units) and the further reduction of 10 per cent. The final award of damages was therefore $377,390.00.

Appellants' Submissions 41In opening the appellants' case on the appeal, Mr Gray SC said that the case essentially depended on the facts. He made no submission that the duty of care owed by the appellants to the respondents could not extend beyond the appellants' contractual duty under their retainer from the respondents. Indeed, as Mr Gray pointed out, the respondents did not plead a case in contract and the primary Judge was not asked to make, and did not make, findings as to the terms of any retainer. Thus the argument did not address the circumstances in which a professional person may owe a client a duty that extends beyond the scope of the retainer: see Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642; Curnuck v Nitschke [2001] NSWCA 176, at [5]-[9], per Davies AJA; at [57]-[59], per Fitzgerald AJA; Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343; 77 NSWLR 205, at [267]-[294] per Campbell JA; David v David [2009] NSWCA 8, at [76], per Allsop P; Dominic v Riz [2009] NSWCA 216, at [89]-[91], per Allsop P; Keddie v Stacks/Goudkamp Pty Ltd [2012] NSWCA 254; 293 ALR 764, at [104], per Beazley JA. Nor was any argument addressed to the effect of the regulatory regime under Part 7.6 of the Corporations Act 2001 (Cth) or the terms of any retainer of the appellants. It appears that Mr Legat may not have been authorised under that regime to provide financial advice relating to investments in the Fund. 42Nor did the argument on the appeal address the effect of s 5B of the Civil Liability Act 2002 ("CL Act"). Section 5B provides as follows: (1) A person is not negligent in failing to take precautions against a risk of harm unless: (a) the risk was foreseeable (that is, it is a risk of which the person knew or ought to have known), and (b) the risk was not insignificant, and (c) in the circumstances, a reasonable person in the person's position would have taken those precautions. (2) In determining whether a reasonable person would have taken precautions against a risk of harm, the court is to consider the following (amongst other relevant things): (a) the probability that the harm would occur if care were not taken, (b) the likely seriousness of the harm, (c) the burden of taking precautions to avoid the risk of harm, (d) the social utility of the activity that creates the risk of harm. 43At the trial, the appellants were content to accept as correct the statement of principle by Deane J in Hawkins v Clayton [1988] HCA 15; 164 CLR 539, at 579: The content of the duty of care in a particular case is governed by the relationship of proximity from which it springs. It may, in some special categories of case, extend to require the taking of positive steps to avoid physical damage or economic loss being sustained by the person or persons to whom the duty is owed. The appellants accepted this statement as correct at the trial notwithstanding that other aspects of Deane J's judgment have been disapproved by the High Court (Astley v Austrust Ltd [1999] HCA 6; 197 CLR 1, at [47], per Gleeson CJ, McHugh, Gummow and Hayne JJ) and that the concept of "proximity" is no longer employed in determining whether a duty of care is owed in a particular case (Sullivan v Moody [2001] HCA 59; 207 CLR 562, at [48], [49], per curiam; Keddie v Stacks, at [104]); Miller v Miller [2011] HCA 9; 242 CLR 446, at [59], per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ. 44The appellants were also apparently content at trial to accept as correct the statement by Brereton J in Riz v Perpetual Trustee Australia Ltd [2007] NSWSC 1153, at [113]: the prevailing position is that the scope of a solicitor's duty of care is not limited to the terms of the retainer but, depending upon the circumstances of the particular case, may require the taking of positive steps beyond the specifically agreed professional task or function, where these are necessary to avoid a real and foreseeable risk of economic loss being sustained by the client. 45The primary Judge does not appear to have been referred to the decision of the Court of Appeal in Dominic v Riz reversing Brereton J's decision. Although the Court of Appeal did not expressly disapprove the statement of principle by Brereton J, Allsop P said (at [87]) that insofar as the statement of principle embodied the proposition that a solicitor retained to advise on a loan and mortgage transaction is obliged to address the fairness or reasonableness of the underlying transaction, the statement went too far. 46In oral argument in this Court, Mr Gray proceeded on the basis that in some circumstances a professional person's duty of care to a client may extend to taking positive steps to avoid foreseeable economic loss being sustained by the client. Indeed, Mr Gray's written submissions cited Deane J's judgment in Hawkins v Clayton (at 579) where his Honour said that whether an "extended" duty of care has arisen depends on "the nature of the particular professional task or function which is involved and the circumstances of the case". 47However, Mr Gray relied upon a passage in the judgment of Sheller JA in Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398, to support his submission that an "extended" duty did not arise in the present case. In Citicorp, Sheller JA (with whom Meagher JA and Abadee AJA agreed) rejected a contention that a solicitor was obliged to spell out to a client not only the financial commitments the client was obliged to meet under a mortgage, but the client's likely ability to meet those commitments in the future. Sheller JA said (at 418): Stated bluntly, such a duty would require solicitors, retained to act on a purchase or mortgage for their skill in the law, to inform every client for whom they so acted of their views about the financial prospects of the purchase or mortgage where they felt or ought reasonably to have felt that there was risk of loss. One consequence of this would be to require solicitors to give opinions, which they were not qualified to give, with the obvious consequence that if they were wrong and the client had acted on the basis of those views, they would be liable in negligence. For good reason such a proposition is contrary to authority. The solicitor's duty is found in the terms of the retainer and the ambit of any additional assumed responsibility relied upon. 48Mr Gray submitted that if this Court upheld the primary Judge's finding that the appellants breached their duty of care by failing to advise the respondents, after they had already made their investment in the Fund, that they were entitled to withdraw that investment, the consequences would be far-reaching. According to Mr Gray, the burden on an advisor would be substantial, since he or she would effectively be required to monitor the progress of all clients' investments to determine whether a particular client should be advised to take action to minimise potential losses. 49Mr Gray submitted that on the primary Judge's findings, Mr Legat had no reason to doubt that the Fund was in a sound financial position, both when the respondents made their investment and when the redemption period was extended to 180 days. On his Honour's findings, so Mr Gray argued, there was no basis for the Court to find that the appellants breached their duty of care by failing to advise the respondents in early March 2008 that they were entitled to withdraw their investments within the cooling off period. Indeed to make such a finding was inconsistent with findings made by the primary Judge in the course of rejecting the respondents' other causes of action.

Duty of Care 50There is no doubt and indeed no dispute that on the findings made by the primary Judge, the appellants owed the respondents a duty of care when advising them to invest in the Fund. In Mutual Life & Citizens' Assurance Co Ltd v Evatt [1968] HCA 74; 122 CLR 556, Barwick CJ stated the principle as follows (at 572-573): Whenever a person gives information or advice to another, whether that information is actively sought or merely accepted by that other upon a serious matter, and particularly a matter of business, and the relationship of the parties arising out of the circumstances is such that on the one hand the speaker realizes or ought to realize that he is being trusted, particularly if he is thought by the other to have, or to have particular access to, information or to have a capacity or opportunity to exercise judgment or both as to the matter in hand, to give the best of his information or advice as a basis for action on the part of the other party and it is reasonable in the circumstances for the other party to seek or accept and in either case to act upon that information and advice the speaker, choosing to give the information or advice in such circumstances, comes under a duty of care both to utilize with reasonable care the information and sources of information at his disposal and to employ with reasonable care what capacity he has for judgment in relation to the matter and to exercise reasonable care in the expression of what he is prepared to convey by way of information or advice. ... But, it should be emphasized, the obligation of the speaker is no more than to use reasonable care in the circumstances. He is not in breach merely because his communicated information is incorrect or his proffered advice erroneous. ... He is merely required to exercise reasonable care in preparing himself to speak in conveying information, in exercise of his judgment and in expressing the information or advice which he chooses to convey. 51As was pointed out by the plurality in San Sebastian Pty Ltd v Minister for Administering the Environmental Planning and Assessment Act 1979 [1986] HCA 68; 162 CLR 340, at 356, the majority in the Privy Council on appeal in MLC v Evatt placed liability on a narrower basis, confining it to those carrying on a profession, business or occupation involving the possession of skill and competence, or claiming to possess such skill and competence, in the subject matter of the advice. Nothing turns on that distinction in the present case as Mr Legat was the respondents' accountant and held himself out as competent to give them investment advice. 52The duty owed by the appellants to the respondents required them to take reasonable care that the advice given was accurate and that it did not expose the respondents to an avoidable risk of financial loss. The appellants would have breached that duty of care if, for example, Mr Legat had advised the respondents to invest in the Fund without undertaking obvious inquiries that would have revealed that the Fund was in a precarious financial position or that the respondents were unlikely to be able to redeem their investment at the expiration of the 90 day term. 53The respondents did not contend in this Court that Mr Legat's advice to invest in the Fund, when given, involved a breach of his duty to take reasonable care. In any event, on his Honour's findings, no inquiries that Mr Legat could reasonably have been expected to make prior to advising the respondents to invest in the Fund would have revealed that the Fund was otherwise than in a healthy financial position. On his Honour's findings, it was not until the events of very early March 2008 that Mr Legat became aware, or could have become aware, of circumstances indicating that it was unlikely that the respondents would be able to redeem their investment at the expiration of the 90 day period, or that the Fund was likely to encounter financial difficulties. 54The contention accepted by the primary Judge (at [85]) was that Mr Legat owed a duty of care to the respondents to take positive steps to warn and advise them during the cooling off period of their entitlement under the PDS to withdraw their money from the Fund. This was said to be an aspect of Mr Legat's duty to take reasonable care to advise the respondents in respect of their investment in the Fund so as to "avoid a real and foreseeable risk of economic loss" (at [86]). The primary Judge found (at [96]) that Mr Legat (and Swan & Baker) breached the duty by failing to take positive steps to inform the respondents, prior to 18 March 2008, of their entitlement to withdraw their investment under the cooling off provisions stated in the PDS. 55As Mr Gray accepted, there are circumstances in which a professional person or adviser may come under a duty to take affirmative action to alert the client, or a third party to whom the duty is owed, to circumstances that might cause the client or third party economic loss if further steps are not taken. Hawkins v Clayton [1988] HCA 15; 164 CLR 539 is an example, although each member of the majority gave different reasons for concluding that the duty was owed in the circumstances of that case. 56In Hawkins v Clayton, a solicitor drafted a will for a client of the solicitor's firm. The will was retained by the firm for safe keeping. When the testatrix died, the firm took a number of steps in relation to her estate but made no attempt to locate the executor named in the will (who was also the residuary beneficiary). Ultimately, the executor obtained a grant of probate, but in the meantime the estate sustained losses because the principal asset, a house, fell into disrepair. The High Court held, by majority (Brennan, Deane and Gaudron JJ; Mason CJ and Wilson J dissenting), that the solicitors had breached a duty owed to the executor of the estate and were liable in damages for the losses occasioned to the estate. 57Brennan J held (at 549) that after the death of the testatrix, the solicitors came under a duty to the executor to disclose promptly the existence of the will of which they retained custody. His Honour did not regard this as a duty to take reasonable care to avoid causing the executor or the estate foreseeable loss. Rather, the solicitors were subject to a positive duty of disclosure which arose from the particular circumstances of the case. The circumstances included the solicitors' retention of the will after the testatrix's death, the nature of the will and its contents and the foreseeable consequences of a failure promptly to disclose to the executor the existence of the will. 58Gaudron J took a different approach. Her Honour identified (at 597) "reasonable expectation" as a suitable criterion of "proximity", which at that time was a key concept in determining whether a defendant owed a duty of care to a plaintiff. Her Honour considered the criterion to be appropriate: where the information [known to the solicitors] is necessary for the exercise or enjoyment of a legal right and the person against whom the duty is asserted knows or ought to know of that right and the necessity for the information before the right can be exercised or enjoyed. Gaudron J regarded it as a matter of great significance in determining whether a person was under a duty to volunteer information that the person was exclusively in possession of the relevant information (at 597, citing L Shaddock & Associates Pty Ltd v Parramatta City Council [No.1] [1981] HCA 59; 150 CLR 225, at 243, per Stephen J). 59Deane J, in accordance with the principles prevailing at the time, also analysed (at 578) the case in terms of the proximity of the relationship between the testatrix and the solicitors. In his view, the critical elements in the case were (at 578) the assumption of responsibility and of reliance combine[d] with that of the foreseeability of a real risk of economic loss. The risk that the estate and the executor (in effect, the sole beneficiary under the will) would sustain economic loss was "real and foreseeable" (at 579). 60Deane J expressed the view that the content of the duty of care in some special categories of case may extend to require the taking of positive steps to avoid physical damage or economic loss being sustained by the person or persons to whom the duty is owed. ...[T]he categories of case in which a relationship of proximity gives rise to a duty of care which may, according to circumstances, so extend are, like those in which there is a duty of care to avoid pure economic loss, commonly those involving the related elements of an assumption of responsibility and reliance. His Honour observed that the relationship of a solicitor and client may well give rise to a duty of care which requires the solicitor to take positive steps, beyond the specifically agreed professional task or function, to avoid a real and foreseeable risk of economic loss being sustained by the client. In a passage to which reference has already been made, his Honour said that whether such a duty arises depends (at 579) "upon the nature of the particular professional task or function ... and the circumstances of the case". 61Although it is not entirely clear, it appears that in their dissenting judgment (at 543) Mason CJ and Wilson J agreed with Deane J on this point: see Craig v Troy (1997) 16 WAR 96, at 144, per Malcolm CJ, with whom Franklyn and Wallwork JJ agreed. Mason CJ and Wilson J contemplated (at 545) that there can be circumstances that so strengthen a professional relationship as to import a common law duty of care to take positive steps to inform an executor of the existence and contents of a will: see Craig v Troy, at 140. 62As I have noted, Mr Gray did not dispute that the judgment of Deane J in Hawkins v Clayton, shorn of its references to proximity, correctly states the principles that determine whether the appellants' duty of care to the respondents could include a duty to take positive steps to alert them, after the Fund imposed a delay on redemptions, to their entitlement to take advantage of the cooling off period to withdraw their investment. Mr Gray may have taken that view because Deane J's judgment has been referred to with apparent approval in several cases which have considered the contentious issue of whether the duty of care owed by a professional person to his or her client may be broader than the scope of the retainer by which that person was engaged (see, for example, Waimond Pty Ltd v Byrne, at 652, 654, per Kirby P; Curnuck v Nitschke, at [9]-[10], per Davies AJA (with whom Meagher JA agreed); AJH Lawyers Pty Ltd v Basim Hamo [2010] VSCA 222; 29 VR 384, at [23], per Nettle JA (with whom Maxwell P agreed); cf Heydon v NRMA Ltd [2000] NSWCA 374; 51 NSWLR 1, at [364], per McPherson AJA). As I have explained, neither party has relied in this case upon the terms of any retainer or contractual arrangement that may (or may not) have been entered into between the respondents and the appellants. 63The appellants clearly owed a duty to the respondents to take reasonable care to ensure that Mr Legat's advice that they should invest in the Fund was based on accurate information and that the investment would not expose the respondents to a significant and avoidable risk of financial loss. The duty of care found by the primary Judge went further in two respects. First, the duty required the appellants to exercise reasonable care to avoid exposing or continuing the exposure of the respondents to a risk of financial loss even after the respondents had invested in the Fund. Secondly, it required the appellants, in order to avoid breaching their duty of care, to take affirmative action to bring the cooling off period to the attention of the respondents. 64The reasoning in Hawkins v Clayton supports the proposition that the duty owed by the appellants to the respondents could be as extensive as the primary Judge found. Deane J considered it significant that the relationship between the solicitor and the testatrix involved an assumption of responsibility by the former and reliance by the latter. In these circumstances, the foreseeable risk of economic loss to the client's estate if the executor remained unaware of the existence of the will justified the imposition of a duty of care on the solicitors to avoid the risk of loss to the estate materialising. Deane J concluded that the particular circumstances in Hawkins v Clayton warranted imposing a duty on the solicitors which required them, after the testatrix's death, to take affirmative steps to bring the will to the executor's attention. 65In the present case the primary Judge rejected Mr Legat's denial that he had accepted responsibility for providing advice to the respondents concerning the proposed investment in the Fund. His Honour found that:

• the respondents sought advice from Mr Legat as to where they should place the moneys they had available for investment;
• the respondents specifically informed Mr Legat that the moneys were to be invested for a term of 90 days because they wished to utilise the moneys to purchase an investment property;
• Mr Legat understood from his conversations with Mr Marando that the respondents wanted to redeem their investment at the expiration of 90 days because they wanted to do something else with their money;
• Mr Legat knew that the respondents were relying on his advice that the Fund was a suitable investment to meet their requirements; and
• Mr Legat facilitated the respondents' investment in the Fund for the fixed term of 90 days by filling out the application form for them to sign and forwarding it to the Fund. 66On the basis of these findings, it is clear that Mr Legat assumed responsibility for advising the respondents and that they relied on his advice. Of course, this does not necessarily mean that Mr Legat accepted responsibility for advising the respondents of developments post-dating their investment that created a risk of their incurring a loss by reason of the investment. However, the primary Judge made other findings that bear on the question:
• Mr Legat was familiar with the PDS and should have known of the cooling off period available to investors in the Fund;
• Mr Legat did not inform the respondents of the cooling off period at their meetings (Mr Legat accepted this in his cross-examination);
• Mr Legat knew from his conversations with the respondents in February 2008 that they were going away on holidays within a very short time;
• Mr Legat had the respondents' mobile telephone number;
• Mr Legat knew within a very short time after 3 March 2008 that there had been a run of redemptions on the Fund and he was mindful at the time of the respondents' recent investment in the Fund;
• Mr Legat learned at the same time that the Fund had extended the period for redemptions to 180 days;
• given the run of redemptions there was a real and foreseeable risk of economic loss being sustained by the respondents, both in terms of the Fund delaying redemptions indefinitely or becoming frozen;
• although Mr Legat claimed not to recall having seen the letter to investors of 3 March 2008, he knew about the letter and must have been aware of its contents;
• upon learning of the run on the Fund, Mr Legat sought advice from Mr Swan and received his assurance that "they expected that in the normal course of the cash flows expected of the [F]und, the [F]und would restore itself";
• Mr Legat made no further inquiries about the position of the Fund; and
• Mr Legat gave no thought to contacting the respondents to advise them to take advantage of the cooling off period. 67It will be seen that the primary Judge proceeded on the basis that Mr Legat should have known about the cooling off period, and made no explicit finding that he did know of the respondents' entitlement to withdraw their investment during that period. It would seem that a finding of actual knowledge was not made because it was not squarely put to Mr Legat that he did know of the respondents' entitlement despite there being indications in the evidence that he had read the PDS. For example, Mr Legat said in his affidavit that he handed to Mr Marando a copy of the PDS "copies of which were publically [sic] available and with which I was familiar". Elsewhere in his affidavit Mr Legat said that he had gained certain information concerning the Fund from "what [he] had read in the [PDS]". Moreover, the primary Judge found that Mr Legat knew of the letter of 3 March 2008, which referred to the cooling off period. Nonetheless I am content to proceed on the same basis as the primary Judge. 68Mr Gray challenged the finding that Mr Legat knew of the letter of 3 March 2008. The challenge seemed to be on the basis that Mr Legat said in his evidence that he did not recall seeing the letter at the time. However, he did say that he knew at the time that a letter had been sent to investors "post the freeze". Moreover, the primary Judge did not accept Mr Legat's evidence on some matters and identified other considerations (such as the fact that Mr Legat's parents were investors) that made it likely that he had seen the letter. There is no reason to interfere with his Honour's factual finding. 69The primary Judge found that Mr Legat gave the respondents a copy of the PDS at the meeting of 18 February 2008. However, it was not suggested on the appeal that the respondents read the PDS nor that they appreciated that the PDS provided for a cooling off period. Nor was it suggested that Mr Legat had any reasonable basis for believing that the respondents knew of the cooling off period. Indeed on Mr Legat's own evidence, despite his familiarity with the PDS, he himself did not appreciate that the respondents could withdraw their investment during a cooling off period. 70The primary Judge correctly found that if Mr Legat had acted with reasonable care when advising the respondents to invest in the Fund, he would have become aware of the cooling off period for which the PDS provided. Had Mr Legat specifically directed the respondents' attention to their entitlement to withdraw their investment during the cooling off period, either at the meeting of 18 February 2008 or the meeting two days later, he may well have discharged his duty to take reasonable care to ensure that the respondents were not exposed to a risk of avoidable financial loss, even though he knew that the respondents were going away on holidays. But Mr Legat did not direct their attention to the cooling off period and, as I have observed, he had no reasonable basis for believing that they knew of their entitlement. And had Mr Legat discharged his duty of reasonable care he would have had the one piece of information that, if communicated in a timely fashion to the respondents, could have enabled them to avoid any financial loss by reason of their investment. 71At the meetings of 18 and 20 February 2008, Mr Legat assumed responsibility for advising the respondents to invest in the Fund in order to achieve the specific objective they had communicated to him - namely, to invest for a period of 90 days and then use the money to purchase a property. On the findings made by the primary Judge, Mr Legat learned within ten days that the Fund had delayed redemptions for up to 180 days. This decision removed the very foundation of the respondents' investment decision: the ability to redeem their investment at the expiration of the 90 days fixed term. Mr Legat clearly appreciated that this was so since (as he said in his evidence) when he learned of the freeze he had the respondents in mind. When asked why he had not notified the respondents of the delay in redemptions, Mr Legat gave more than one explanation, but he never suggested that it was because he had forgotten what the respondents had told him or because he did not realise that the respondents would be adversely affected by the delay in redemptions. 72The announcement of the delay created a significant risk of financial loss to the respondents unless they were able to withdraw their investment. As Mr Gray accepted in argument in this Court, the inability of the respondents to redeem their investment at the expiration of 90 days created a serious impediment to their stated intention of purchasing a property with the money. Thus, regardless of whether their capital was safe, the Fund's announcement exposed the respondents to a risk of financial loss. 73But the risk faced by the respondents had a further dimension. As the primary Judge found, the run on the Fund in early March 2008 created a real and foreseeable risk that the respondents would suffer losses because redemptions might be indefinitely delayed or their capital might be imperilled. There was no expert evidence to this effect, but it hardly required particular expertise for an accountant who had recommended the investment to realise that the enforced delay in redemptions created a risk that investors would suffer loss, regardless of what Mr Swan said. In any event, Mr Legat clearly appreciated the risk since he sought reassurance from Mr Swan as to the Fund's cash flow. Moreover, in cross-examination Mr Legat acknowledged the rather obvious proposition that it was possible that the run could have turned into a stampede. 74In these circumstances, it seems to me that the primary Judge was correct to conclude that the appellants' duty to the respondents did not end once they had made their investment in the Fund. They were still at risk of financial loss. As Mr Legat realised, the freeze on redemptions from the Fund materially increased the risk of financial loss to the respondents. Mr Legat should have known that the respondents were entitled to withdraw their investment during the cooling off period. Thus he should have known that the respondents could have eliminated the additional risk to which they were exposed by exercising their entitlement to withdraw their investment. In my opinion, the appellants continued after the freeze to owe the respondents a duty to take reasonable care not to expose (or to continue to expose) them to an avoidable risk of financial loss by reason of their investment in the Fund. 75I also think that the primary Judge was correct to conclude that the appellants' duty to exercise reasonable care to avoid the risk of financial loss to the respondents could extend to requiring the appellants to take affirmative action to eliminate the additional risk the respondents faced after the announcement of the freeze. Mr Legat had assumed responsibility for giving specific investment advice to the respondents. He knew that the respondents had relied on that advice, making this a case of particular reliance by an investor as distinct from "general reliance": Brodie v Singleton Shire Council [2001] HCA 29; 206 CLR 512, at [307], per Hayne J. And if he had acted with reasonable care, Mr Legat would have appreciated that he had the one piece of information that, if communicated to the respondents, would have enabled them to avoid the risk to which the freeze on redemptions exposed them. 76This conclusion does not necessarily mean that the appellants were in breach of their duty. That is a separate question, to which I now turn.

Breach of Duty 77Mr Legat learned of the decision to delay redemptions from the Fund shortly after it was announced. At that time he realised that unless the decision was reversed, it was no longer possible for the respondents to achieve the objective they had communicated to him, namely the ability to redeem their investment after 90 days. That inability carried with it the risk of financial loss to the respondents. Furthermore, whether or not Mr Legat had any reservations about the assurances provided by Mr Swan, a reasonable person in his position would have appreciated that a run on the Fund, followed by a freeze on redemptions, created a risk that investors in the Fund would suffer losses. 78Warnings have been given that the steps that could have been taken to avoid a loss are much more obvious in hindsight than if the risk of loss is considered as a hypothetical future possibility: Brodie v Singleton Shire Council, at [309], per Hayne J; Graham Barclay Oysters Pty Ltd v Ryan [2002] HCA 54; 211 CLR 540, at [192], per Gummow and Hayne JJ. But this is not a case where the risk of loss became evident only with the advantages of hindsight. Investors were seeking to redeem their investments at an unprecedented rate and the managers of the Fund had responded by imposing a freeze on redemptions for up to 180 days. As soon as Mr Legat became aware of these developments, he realised that the rationale for the respondents' investment in the Fund had been removed and that there was a real risk that they would suffer financial loss. Moreover, had he acted with reasonable care he would have had the one piece of information that, if communicated to the respondents, would have enabled them to avoid the risks to which the freeze on redemptions had exposed them. 79When Mr Legat learned of the freeze on redemptions, he was aware that the respondents had left Sydney for a holiday. He had their mobile telephone number, which he had used over the years to contact them in connection with taxation and other accounting matters. But Mr Legat made no attempt to communicate with the respondents. 80The primary Judge did not expressly find that Mr Legat appreciated or should have appreciated that the respondents were unlikely to receive the letter of 3 March 2008 advising them of the freeze on redemptions until after the cooling off period had expired, although such a finding is implicit in his Honour's reasoning. Mr Legat did not suggest in his evidence that the reason for his failure to contact the respondents was that he believed or assumed that they would have received the letter of 3 March 2008 in time to withdraw their investment. The clear inference is that Mr Legat appreciated that, since the respondents had left Sydney, it was unlikely that they would receive the letter until they returned and that they might not return to Sydney for some time. That inference is supported by the absence of any communication from the respondents to the appellants during the cooling off period. Had they received CPL's letter prior to 18 March 2008, the overwhelming likelihood is that they would have contacted Mr Legat very quickly. This is exactly what they did once they received the letter in late March 2008. 81Had Mr Legat acted with reasonable care, he would have appreciated that the developments in early March 2008 had created not only a significant risk of financial loss to the respondents but that the foundation of their investment decision had been removed. He would have also appreciated that the respondents could avoid the risk and preserve their investment strategy by taking advantage of the cooling off period available to them under the PDS. He knew that the respondents had gone away and knew or should have realised that it was unlikely that they would learn of the unwelcome developments until after the cooling off period. Mr Legat had available to him a simple mechanism to make contact with the respondents to advise them of the developments and of their entitlement to withdraw their investment. 82In order to determine whether the appellants breached their duty of care to the respondents, it is necessary to consider whether the requirements of s 5B of the CL Act have been satisfied. The effect of s 5B(1) is that a person is not negligent in failing to take precautions against the risk of harm unless each of the requirements is satisfied. In this case they are:

• Mr Legat knew that the freeze on redemptions created a risk that the respondents would suffer financial loss and he should have known that they were exposed to a risk of an even greater loss (s 5B(1)(a));
• the risk was "not insignificant": indeed, given the respondents' intention to invest in the purchase of a property, the risk of some loss was very considerable, if not inevitable (s 5B(1)(b));
• a reasonable person in Mr Legat's position would have taken the precaution of telephoning the respondents to alert them to their entitlement (s 5B(1)(c)). 83In concluding that a reasonable person in Mr Legat's position would have telephoned the respondents, I have taken into account:
• the probability - indeed virtual certainty - that the respondents would suffer losses if care were not taken (s 5B(2)(a));
• the potential seriousness of the harm, especially the possible loss of the whole or a substantial part of the respondents' investment, a consequence which, as Mr Legat acknowledged in cross-examination, would be "catastrophic financially" for the respondents (s 5B(2)(b)); and
• the simple measure that Mr Legat could have taken to avoid the risk of harm, that is telephoning the respondents to alert them to their entitlement to withdraw their funds (s 5B(2)(c)). (The social utility of the activity that creates the risk of harm (s 5B(2)(d)) is not particularly relevant to the present case.) 84In my opinion, a finding that the appellants breached the duty of care they owed to the respondents does not create difficulties of the kind to which Mr Gray adverted in argument. This is a case which, as Mr Gray acknowledged, turns on its particular facts. The consequence of holding the appellants liable for failing to advise the respondents of their entitlement to withdraw their investment from the Fund during the cooling off period is not that accountants or other professionals will come under a non-contractual duty to monitor their clients' investments and take positive steps to alert clients to additional risks to which they are exposed. The conclusion I have reached means only that there can be particular circumstances in which an advisor's common law duty to take reasonable care can incorporate a requirement to take positive steps to alert a client to events that have exposed that client to an additional, but avoidable risk of financial loss. 85For these reasons, the primary Judge was correct to conclude that the appellants breached the duty of care they owed to the respondents.

Causation 86The appellants did not dispute the primary Judge's finding that if the respondents had been notified of their entitlement to withdraw their investment during the cooling off period, they would have done so. No submission was made on behalf of the appellants that if Mr Legat had attempted to telephone the respondents he would not have been able to reach them.

Damages 87The appellants submitted that the primary Judge had erred in awarding damages, even assuming that his Honour correctly found that the appellants had breached the duty of care they owed to the respondents. Mr Gray pointed out that his Honour had acknowledged (at [103]) that there "was no evidence before the Court of value in the units as at the present time". Nonetheless, the primary Judge had proceeded on the basis that the respondents had established a proven loss for which they should be compensated. This approach was erroneous, so Mr Gray argued, because in the absence of evidence of the present value of the units the respondents had simply not discharged the onus of proving that they had sustained a loss. 88In assessing the submission, it is necessary to take account of the primary Judge's reasoning. He found (at [44]) that the respondents invested $500,000 with the Fund. He also found (at [19]) that the respondents had received a return of capital of approximately $36,000 and that "[t]heir units are currently valued at between 20 and 25 cents per unit (for $1 par value)". In awarding damages for the respondents' loss, his Honour allowed for interest (as to which there is no complaint), but deducted:

• the capital repayments of $36,000.00; and
• $133,886.05 by reason of the respondents' failure to mitigate their loss through their refusal to accept an offer to purchase their units. 89In addition, the primary Judge deducted a further ten per cent (10 cents per unit) "to take into account the present valuation of [the respondents'] holding in the Fund". The precise basis of this added deduction is not made clear in the judgment. However, the respondents have made no complaint about it. The result is that the primary Judge effectively assessed the value of each unit at the date of trial (9-16 July 2012) at $0.40. 90The flaw in the appellants' submissions on damages is that despite the primary Judge's observation to which I have referred, there was evidence to support his implicit finding that the value of the units at the date of the hearing was no greater than 40 per cent of their face value (that is, no greater than 40 cents per unit). The evidence included the following:
• An Investment Summary as at 30 June 2011, provided by the Fund to the respondents, recorded a then current price of $0.31 per unit and a termination value of $159,633.36 for their investment (approximately equivalent to $0.32 per unit).
• The Interim Financial Report for the six months ended 31 December 2011, prepared by the directors of the Fund, showed net assets attributable to unit holders of $195,115,578. The same report showed the number of units on issue as 882,558,711. It can therefore be inferred, at least as a starting point, that each unit at that time was worth about $0.22. 91In the ordinary course, it would be unrealistic to expect a financial report for the year ended 30 June 2012 to have been available at the trial (which commenced on 9 July 2012 and concluded on 16 July 2012). It is fair to infer that the primary Judge had before him the most recent financial report for the Fund which strongly suggested that the value of each unit was no more than about $0.22 per unit. Even if some allowance is made for the possibility that the value of the units was not to be determined solely by reference to the net assets of the Fund, there was ample evidence to support the finding that the value was between $0.20 and $0.25 per unit. 92Since this was the appellants' only criticism of the primary Judge's assessment of damages, the award has not been shown to be excessive. 93I have pointed out that the primary Judge seems to have assumed that the allowance for the respondents' failure to mitigate their loss was calculated on the basis that they refused an offer of 30 cents per unit, whereas the correct figure seems to be 26 cents per unit. However, the appellants made no submission that the allowance for the failure to mitigate should be increased to take account of the apparent error or that the award of damages should correspondingly be reduced.

Orders 94The following orders should be made:

1. Appeal dismissed.
2. The appellants pay the respondents' costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 July 2013