TAMBREE v TRAVEL COMPENSATION FUND & ORS

JUDGMENT OF : Mason P at 1; Sheller JA at 2; Ipp JA at 157 DECISION : 1 Appeal and cross-appeal allowed; 2 Set aside that part of order 1 which refers to the fourth and fifth defendants and add the following order:; 1A In favour of the plaintiff against the fourth and fifth defendants in the sum of $13,320 together with interest on the said judgment sum in accordance with the Supreme Court Act and Rules from 20 September 1999 to 15 November 2002 in the sum of $4,216 being a total of $17,536; 3 The respondent Travel Compensation Fund to pay the appellant and cross-appellant their costs of the appeal and cross-appeal but to have a certificate under the Suitors' Fund Act 1951 if so qualified; 4 Liberty to the appellant and cross-appellant within seven days to make application to vary costs order 4 made by Austin J.

CATCHWORDS : Travel Compensation Fund - accountant - auditor - misleading and deceptive conduct - s42 Fair Trading Act - whether breach of duty of care - whether fact that respondent continued unlicensed in business of travel agent severed chain of causation Evidence Act 1995 LEGISLATION CITED : Fair Trading Act 1987 Trade Practices Act 1974 (Cth) Travel Agents Act 1986 Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191 Bennett v Minister of Community Welfare (1992) 176 CLR 408 Chappel v Hart (1998) 195 CLR 232 Chester v Afshar [2003] QB 356 Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 Connor v Blacktown District Hospital (1971) 1 NSWLR 713 Environment Agency (formerly National Rivers Authority) v Empress Car Co (Abertillery) Ltd [1999] 2 AC 22 Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 Gardam v George Wills & Co Ltd [No 1] (1988) 82 ALR 415 Henville v Walker (2001) 206 CLR 459 CASES CITED : Jones v Dunkel (1959) 101 CLR 298 Kewside Pty Ltd v Warman International Ltd (1990) ASC 58821 Mahony v J Kruschich (Demolitions) Pty Ltd (1985) 156 CLR 522 March v E & M H Stramare Pty Ltd (1991) 171 CLR 506 Medlin v State Government Insurance Commission (1995) 182 CLR 1 Millman v Rochester Railway Co 3 App Div 109; 39 NYS 274 (1896) Modbury Triangle v Anzil (2000) 205 CLR 254 Rahman v Arearose Ltd [2001] QB 351 Ruddock v Taylor (2003) NSWCA 262 The Saints Gallery Pty Ltd v Plummer (1988) 80 ALR 525 Voli v Inglewood Shire Council (1963) 110 CLR 74 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 Yorke v Lucas (1985) 158 CLR 661 Robert Tambree t/as R Tambree & Associates - Appellant PARTIES : Travel Compensation Fund - First Respondent/First Cross Appellant Phillip Roseby t/as P J Roseby & Co - Fifth Respondent/Cross Appellant FILE NUMBER(S) : CA 41145/02 P Walsh - Appellant COUNSEL : N Francey - First Respondent/First Cross Respondent R Dubler - Fifth Respondent/Cross Appellant Burston Cole & Co - Appellant SOLICITORS : McCabe Terrill - First Respondent/First Cross Respondent Phillips Fox Lawyers - Fifth Respondent/Cross Appellant

LOWER COURT Supreme Court - Equity Division JURISDICTION : LOWER COURT ED 3295/99 FILE NUMBER(S) : LOWER COURT Austin J JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 41145/02 ED 3295/99

MASON P SHELLER JA IPP JA ROBERT TAMBREE t/as R TAMBREE & ASSOCIATES v TRAVEL COMPENSATION FUND & ORS Ms Fry, the second respondent, was the sole director and shareholder of the Travel Shop International Pty Ltd (TSIPL). The second respondent and her father, the third respondent, were directors and shareholders of Fiji Resorts International Pty Ltd (Fiji Resorts) and of Bali Resorts Pty Ltd (Bali Resorts). The second respondent, trading as the Travel Shop International, and each of these entities, carried on business as travel agents in New South Wales. The first respondent, Travel Compensation Fund (TCF), is a trust established by a deed to provide for a compensation scheme as prescribed by s57 of the Travel Agents Act 1986.

The Travel Shop International collapsed in 1999. When it collapsed, customers claimed upon the first respondent in respect of money they claimed to have paid to the business for the purchase of travel and accommodation, which was never supplied. The first respondent met these claims, making payment to the claimants under cl 15 of the trust deed. Notably, on 23 February 1999 the second respondent had resigned from the compensation scheme. Thereafter if she was still conducting the business of a travel agent she was doing so illegally and not as a participant in the scheme.

The first respondent commenced proceedings against the second and third respondents seeking recoupment and damages in respect of these claims. The second respondent also brought proceedings against Mr Tambree, the appellant, who provided accounting services to the Travel Shop International and Mr Roseby, an auditor, seeking relief by way of damages for negligent misrepresentation and misleading conduct under the Fair Trading Act 1987.

The trial Judge gave judgment against Mr and Mrs Fry, Mr Tambree and Mr Roseby in the sum of $143,050 together with interest in the sum of $45,280 totalling $188,330.23.

The trial Judge found that the appellant failed to meet the standard of care required of an accountant whose instructions were to prepare financial statements for the purpose of an audit and in connection with renewal applications to the first respondent. This conduct amounted to negligent misrepresentation and a breach of s 42 of the Fair Trading Act. The trial Judge also held that the conduct of Mr Roseby, the fifth respondent, in performing his auditing duties, constituted negligent misrepresentation and was misleading conduct in contravention of s42. Further, the trial Judge considered that the requisite causal connection had been established between the negligent conduct of Mr Tambree and Mr Roseby and the first respondent's losses incurred in meeting the claims by the customers.

The appellant challenged the findings of the trial Judge that he had engaged in misleading or deceptive conduct within the meaning of s42 of the Fair Trading Act and that the first respondent had suffered loss or damage "by" the representations relied upon within the meaning of s68 of the Fair Trading Act. The appellant also submitted that since the trial Judge found that all, but a small part, of the claims on the first respondent, incurred in 1999 while the second respondent was operating unlicensed, his Honour erred in finding that there was a commonsense causal connection between the representations relied upon and the first respondent's loss. Further, the appellant contended that the trial Judge erred in holding that he must have been aware that the accounts he prepared would be relied upon by the first respondent and that as a result he owed the first respondent a duty of care. The appellant also relied upon a lack of reliance or causation. Mr Roseby, the fifth respondent, cross-appealed against the decision of the trial Judge principally on the ground that his Honour erred in finding that Mr Roseby's 1997 or 1998 audit reports were causally related to the loss claimed by the first respondent, particularly given the unlawful activity of the second respondent and the absolute discretion of the first respondent whether to pay the claimants. Held: per Sheller JA, Mason P and Ipp JA agreeing:

1. Mr Tambree and Mr Roseby owed a duty of care to the first respondent to take reasonable care in the preparation of the accounts and the giving of audit certificates. They both quite clearly failed to do so.
2. The evidence of the witnesses, Mr Whittaker, Mr Brattoni, Mr Pitts and Mr Given, went to prove a general course of business according to which TCF made decisions about the eligibility of participants for renewal or termination of participation in the fund, "there being a probability that the general course will be followed in the particular case."

Connor v Blacktown District Hospital (1971) 1 NSWLR 713.

3. It was therefore open to the trial Judge to conclude that in renewing the second respondent's licence in 1997 and 1998 TCF acted upon the accounts prepared by Mr Tambree and the audit certificate given by Mr Roseby.

4. It is a matter of public importance that accountants, should not, when asked to prepare financial reports of business entities, act so negligently so as to produce a misleading report. Even more so, this can be said of an auditor who provides an auditor's certificate.
5. On the evidence, a proper discharge by Mr Roseby of his auditing duties or by Mr Tambree of his duties as an accountant would have led to a chain of regulatory events that would have prevented the losses being suffered by the claimants or, alternatively, would have provided a means for meeting them without recourse to TCF.

6. The connection between a wrongful act and harm is negatived if the factors required, in addition to the wrongful act, for the production of harm include "a voluntary human action or an abnormal occurrence." As a value judgment, Ms Fry's conduct following the termination of her participation in the fund could not be regarded as a normal occurrence. A person would not normally terminate the licence, which enabled that person to conduct a travel agent's business, and yet continue to conduct that business illegally.

March v E & MH Stramere Pty Ltd (1991) 171 CLR 506 7. Therefore, by no test could it be said that the negligently prepared accounts and audit and the misrepresentations that flowed from them, were casually related to the second respondent continuing illegally in the business of a travel agent after 23 February 1999. Both the appeal and the cross-appeal should be upheld to the extent that the first respondent was not entitled to recover the amount of compensation paid to those claimants who suffered loss as the result of the second respondent's activities after 23 February 1999. Legislation: Evidence Act 1995 Fair Trading Act 1987 Trade Practices Act 1974 (Cth) Travel Agents Act 1986

Cases cited: Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191 Bennett v Minister of Community Welfare (1992) 176 CLR 408 Chappel v Hart (1998) 195 CLR 232 Chester v Afshar [2003] QB 356 Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 Connor v Blacktown District Hospital (1971) 1 NSWLR 713 Environment Agency (formerly National Rivers Authority) v Empress Car Co (Abertillery) Ltd [1999] 2 AC 22 Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 Gardam v George Wills & Co Ltd [No 1] (1988) 82 ALR 415 Henville v Walker (2001) 206 CLR 459 Jones v Dunkel (1959) 101 CLR 298 Kewside Pty Ltd v Warman International Ltd (1990) ASC 58821 Mahony v J Kruschich (Demolitions) Pty Ltd (1985) 156 CLR 522 March v E & M H Stramare Pty Ltd (1991) 171 CLR 506 Medlin v State Government Insurance Commission (1995) 182 CLR 1 Millman v Rochester Railway Co 3 App Div 109; 39 NYS 274 (1896) Modbury Triangle v Anzil (2000) 205 CLR 254 Rahman v Arearose Ltd [2001] QB 351 Ruddock v Taylor (2003) NSWCA 262 The Saints Gallery Pty Ltd v Plummer (1988) 80 ALR 525 Voli v Inglewood Shire Council (1963) 110 CLR 74 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 Yorke v Lucas (1985) 158 CLR 661 ORDERS 1. Appeal and cross-appeal allowed; 2. Set aside that part of order 1 which refers to the fourth and fifth defendants and add the following order: 1A. In favour of the plaintiff against the fourth and fifth defendants in the sum of $13,320 together with interest on the said judgment sum in accordance with the Supreme Court Act and Rules from 20 September 1999 to 15 November 2002 in the sum of $4,216 being a total of $17,536. 3. The respondent Travel Compensation Fund to pay the appellant and cross-appellant their costs of the appeal and cross-appeal but to have a certificate under the Suitors' Fund Act 1951 if so qualified. 4. Liberty to the appellant and cross-appellant within seven days to make application to vary costs order 4 made by Austin J.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 41145/02 ED 3295/99

MASON P SHELLER JA IPP JA

Thursday, 26 February 2004 ROBERT TAMBREE t/as R TAMBREE & ASSOCIATES v TRAVEL COMPENSATION FUND & ORS Judgment 1 MASON P: I agree with Sheller JA. 2 SHELLER JA:

This is an appeal and cross-appeal from a decision of Austin J given on 8 November 2002 in proceedings begun in the Equity Division of the Court by Travel Compensation Fund (TCF) against five parties. The appellant, Robert Tambree, trading as R Tambree & Associates, and the cross-appellant, Phillip Roseby, trading as PJ Roseby & Co, were the fourth and fifth defendants. The plaintiff, TCF, is a trust established by a deed made on 12 December 1986 which, as amended, is referred to as "the trust deed", to provide for a compensation scheme as contemplated by the Travel Agents Act 1986 (the Act). The scheme is the compensation scheme prescribed pursuant to s57 of the Act. Section 52 of the Act enables the trustees of the trust to sue and be sued in the name of TCF. 3 The first defendant, Renee Julie Fry (Ms Fry) was the sole director and shareholder of the Travel Shop International Pty Ltd (TSIPL). Ms Fry and the second defendant, her father Trevor Fry (Mr Fry) were directors and shareholders of Fiji Resorts International Pty Ltd (Fiji Resorts) and of Bali Resorts International Pty Ltd (Bali Resorts). 4 Ms Fry, (trading as the Travel Shop International), TSIPL, Fiji Resorts and Bali Resorts each carried on business as travel agents in New South Wales. TSIPL, Fiji Resorts and Bali Resorts were at no time licensed under the Act to carry on such a business. Business was conducted in the name of The Travel Shop International in Parramatta until it was shut down on 20 April 1999 by licensing inspectors. When this happened, customers (the claimants) claimed from TCF money said to have been paid to the business for the purchase of travel services, which were never supplied. TCF met these claims and in the proceedings sought recoupment and damages from Ms Fry and Mr Fry. TCF also sought damages from Mr Tambree, who provided accounting services to the business, and from Mr Roseby, an auditor. The third defendant, Robyn Joan Fry, took no part in the proceedings. 5 TCF made payments to the complainants in accordance with cl 15 of the trust deed which, relevantly, provided as follows: "15.1 Subject to this deed, the Trustees shall pay compensation out of the Fund to a beneficiary - (a) who is a client; and (b) who has suffered or may suffer pecuniary loss arising directly from a failure to account for money or other valuable consideration by a participant - where - (c) the failure to account arises from an act or omission by the participant or an employee or agent of the participant; and (d) the client is not protected against the loss by a policy of insurance. 15.2 The Trustees may in their absolute discretion: … (b) pay compensation, including compensation in relation to any consequential pecuniary loss suffered by reason of a failure to account, to a person to whom they are not required to pay compensation under cl 15.1." 6 Some part, but the lesser part, of the payments was made under sub-clause 15.1. The greater part was made in the exercise of the trustees' absolute discretion under sub-clause 15.2(b). 7 Austin J gave judgment in favour of TCF against Ms Fry, Mr Fry, Mr Tambree and Mr Roseby in the sum of $143,050 together with interest in the sum of $45,280.23 being a total of $188,330.23. The proceedings against the third defendant were dismissed without any order as to costs and Ms Fry's cross-claim against TCF was dismissed with costs. The first, second, fourth and fifth defendants were to pay TCF's costs of the proceedings. As indicated, only Mr Tambree and Mr Roseby appealed or cross-appealed from this decision.

The Travel Agents Act 8 Section 6(1) of the Act prohibits a person from carrying on business as a travel agent, otherwise than in accordance with the authority conferred on that person by a travel agent's licence, or carrying on business as a travel agent in partnership with a person who is not the holder of a travel agent's licence. Section 4 of the Act provides that a person carries on business as a travel agent if the person carries on a business, whether or not in the course of or incidental to or in connection with any other business of, inter alia, selling tickets entitling another person to travel, or otherwise arranging for another person a right of passage on a conveyance or selling to, or arranging or making available for another person's rights of passage to a hotel or other accommodation at one or more places within or outside New South Wales and purchasing for re-sale the right of passage on a conveyance. An employee of a business would not ordinarily be regarded as carrying on business as a travel agent. 9 Division 2 of Pt 2 of the Act deals with the issue of licences. An application for a licence may be made to the Director General by a natural person of or over the age of 18 years or a body corporate (s8). The Director General may make such enquiries as the Director General considers necessary in relation to an application for a licence (s9). Section 10(1) provides that subject to that section "the Director General shall grant an application for a licence if the Director General is satisfied that the applicant is a participant in the compensation scheme or that the granting of the application results in the applicant being a participant in the compensation scheme." 10 Section 11 deals with conditions of, and restrictions on, licences. Section 11(2) provides that a licence is subject to (a) a condition that the licensee shall, at all times during the currency of the licence, be a participant in the compensation scheme. 11 Section 16 deals with the term of, and authority conferred by, a licence. Subsection (1) provides: "Except where it is suspended, a licence continues in force until, pursuant to the provisions of this Act, it is surrendered or cancelled."

Subsection (2) provides: "Where a licensee ceases to participate in the compensation scheme, the licence is suspended until the licensee again participates in the scheme." 12 Section 57 of the Act enables the making of regulations not inconsistent with the Act, required or permitted to be prescribed, or necessary or convenient to be prescribed, for carrying out or giving effect to the Act. Section 57(2) provides that regulations may: "(a) prescribe a scheme for compensating persons who suffer a pecuniary loss by reason of an act or omission by a person who carries on, or carried on, business as a travel agent."

The Trust Deed 13 The trust deed referred to "the Participation Agreement" entered into by several States relating to the licensing of persons carrying on, or intending to carry on, business as travel agents in the regulation of their operations. Reference was made in the Participation Agreement to a compensation fund, known as the Travel Compensation Fund (the fund). The trust deed included a Schedule which set out the terms and conditions of the trust and established the fund. "Participant" was defined to mean a person "for the time being, in the Trustees' determination eligible to be a contributor to the Fund and licensed or deemed to be licensed under the Act." Clause 2.2 of the Schedule provided: "The Trustees shall hold the Fund on trust for - (a) the Crown in right of the States; and (b) every person who entrusts money or other valuable consideration to another person, who carries on business as a travel agent (or an employee or agent of the other person) in connection with travel arrangements or travel related arrangements or both in a State if either: (i) that other person; or (ii) any third or subsequent person who carries on business as a travel agent in a State and who, in turn, receives directly or indirectly through an employee or agent of the third or subsequent person all or part of that money or consideration, other than as a principal, fails to account for the relevant money or consideration, whether due to an act or to an omission of that person (or an employee or agent of that person)." 14 The purposes of the trust as set out in cl 3 of the Schedule included to establish and provide for the operation of a fund to compensate persons who had suffered or may suffer a pecuniary loss by reason of a failure to account in respect of travel arrangements or travel-related arrangements by a person who carries on, or carried on, business as a travel agent and to make emergency payments for the benefit of persons who may suffer such a pecuniary loss. 15 Part 9 of the Schedule provided for initial application and contemplated a form for application and the provision to the trustees of any information that they reasonably required about the applicant's financial resources. The trustees were to determine whether an applicant was eligible to be a contributor to the fund. Where the trustees determined that an applicant was eligible they were to then certify to the relevant licensing authority that the person was eligible to become a participant. 16 Austin J said: "32 Financial criteria for the assessment of applications and for the conducting of AFRs [Annual Financial Reviews] have been published. AFRs are conducted by recourse to a points system, which is based on the published criteria. In assessing the financial viability of an applicant, and assessing AFRs, the TCF relies on information submitted by the applicant for participation or renewal, including financial statements which are required to be prepared by an accountant and independently audited. The participant is given a maximum 20 points. The form completed by the participant for an AFR provides for self-assessment. If the self-assessment is in excess of 10 points, participation is automatically renewed for the ensuing year, although the participant is subject to field audit or further review upon receipt of complaints or relevant information. Where a participant scores fewer than 10 points, its financial position is reviewed and generally conditions are imposed on renewal of participation. 33 Mr Antony Whittaker, the Manager Special Investigations of the TCF and a certified practising accountant, gave evidence about the TCF's financial criteria. At the relevant time he was a person who reviewed the financial statements of participants. I accept his account of the TCF financial criteria. 34 Mr Whittaker said that the TCF's financial criteria are directed to three main aspects of the participant's financial status, namely profitability, liquidity and solvency. If a participant had incurred a loss for the most recent financial year and Mr Whittaker was of the opinion that an operating loss of a similar magnitude in the ensuing year would undermine the financial situation of the participant, he would take this into account in determining the level of bank guarantees or other remedial measures that should be required, and whether to require the lodgement of audited financial statements for the ensuing six months rather than waiting another year. Mr Whittaker's practice was to include a provision for future loss in his calculation of the requirements for the participant to meet the financial criteria, unless the auditor said that the participant had not continued to incur losses. As to liquidity, Mr Whittaker's assessment would evaluate whether the participant had sufficient current assets to pay its current liabilities and whether it had a sufficient surplus of working capital to meet at least one month's overhead expenses. Solvency, in this context, involves assessing whether there is a sufficient surplus of tangible assets over liabilities, so that any losses sustained may be written off against shareholders' funds and not against funds belonging to creditors or consumers." 17 Part 12 of the Schedule dealt with the determinations regarding financial resources and enabled the trustees to publish from time to time guidelines as to the criteria which they might use to determine whether a person had, and was likely to continue to have, sufficient financial resources to enable the person to carry on business as a travel agent (12.1). The trustees might make it a condition of their determining that a person was, or was to remain, eligible to be a contributor to the fund that the person complied with any one or more of the following: (b) That the person's business be guaranteed in a way, or by a person or class of person, specified by the Trustees. (c) That the person maintain and operate the books of account and other accounting records of the travel agency business in a manner specified by the Trustees. (d) That a report be obtained at the expense of the person from a duly qualified auditor or accountant nominated by the Trustees stating that the accounting records of the travel agency give a true and fair view of the financial position of the business. (e) That a report be obtained at the expense of the person from a duly qualified auditor or accountant nominated by the Trustees providing such information as will permit the trustees to determine whether the person has sufficient financial resources to carry on business as a travel agent. (12.2)

Ms Fry's application to participate in the fund 18 On 13 April 1996 Ms Fry successfully applied to participate in the fund on a printed form which was provided. The principal place of business was given as Suite 1/354 Church Street, Parramatta and the name of the accountant as Sven Klinge of R Tambree & Associates. In the appended statement of personal assets and liabilities, Ms Fry described her assets as Nissan Skyline $5,500, cash at bank $15,000 and plant and equipment $5,400, making a total of $25,900. Against total liabilities was written "0". Also attached was what was described as a balance sheet as at 21 March 1996, showing a surplus of assets over liabilities of $25,900. Mr Klinge had signed it and certified that he had examined the books and records of Renee Fry and confirmed that the balance sheet showed a true and fair view of her financial viability as at 21 March 1996. 19 On 3 December 1997 Travel Shop International provided TCF with a renewal application, annual financial review, financial statements and an independent audit report. Mr Tambree had prepared the accounts which were included in the renewal material and Mr Roseby had signed the statement of auditor. On 11 November 1998 the Travel Shop International provided TCF with a renewal application, annual financial review, financial statements and an independent audit report. Again, Mr Tambree prepared the accounts included in the renewal material and Mr Roseby signed "an independent audit report". With each renewal application the Travel Shop International continued its participation in the fund.

The case against Mr Tambree 20 In its third and final amended statement of claim, TCF claimed that Mr Tambree, by preparing the accounts that formed part of the Participation Documents and preparing the accounts that were included in the 1997 renewal material and the 1998 renewal material, intended and well knew or ought to have known that TCF would rely on those accounts and would be induced thereby to permit Ms Fry to participate and/or remain in the compensation scheme prescribed under the Act and/or remain in the scheme without the imposition of a condition. Further, that acting on that material and induced thereby, TCF permitted Ms Fry's participation and continued participation without the imposition of a condition in consequence of which TCF had suffered loss and damage. In the alternative, under the heading "Trade Practices Claims" TCF claimed that Mr Tambree participated in, or approved, or was responsible for, the preparation of the Participation Material, the 1997 renewal material and the 1998 renewal material. Such materials were misleading and deceptive, or likely to mislead and deceive, TCF by not accurately reflecting the financial position or the trading activities of Ms Fry. As a result, TCF permitted Ms Fry to become a participant in the scheme and allowed her to trade as a licensed travel agent until February 1999 and she incurred liabilities for which TCF was subsequently obliged to compensate customers. 21 On 1 May 1996 Mr Tambree of R Tambree & Associates wrote to TCF "re Renee Fry": "I confirm that our firm act as auditors for the above applicant, and we are aware of the need for audited annual statements within three months after each annual year." 22 According to Mr Tambree shortly afterwards someone from TCF telephoned him and asked for his registered audit number. Mr Tambree said "We are not registered auditors" and was told that this being so he could not do the audit. He said he would speak to his client and arrange for an appropriate person to do the audit. Subsequently, he recommended Mr Roseby. 23 In June 1996 Ms Fry became a participant in TCF and was granted a travel agent's licence. The licence number was 2TA4438. On 11 October 1996, TSIPL was incorporated. On 19 November 1996, Ms Fry notified TCF of a change of address to 366 Church Street, Parramatta and that she was the proprietor of a registered business name "The Travel Shop International". In the meanwhile, an account was opened with a ticket consolidator, Metro Travel (Metro), either by Ms Fry as a participant in the fund or by TSIPL, or Fiji Resorts, or Bali Resorts. A ticket consolidator is a wholesaler of airline tickets, which purchases in bulk tickets from airlines and sells these tickets to travel agents. Travel agents use a ticket consolidator when, and to the extent that, the consolidator can offer cheaper airline tickets than can generally be obtained by the agents directly from the airlines. In February 1997 Ms Fry began trading and began use of the Metro account. By 30 June 1997 she owed Metro $36,157.50. 24 The first page of the December 1997 renewal application contained the name "The Travel Shop International" and a declaration dated 2 December 1997 by Ms Fry, as the proprietor of the agency, that the financial and other information provided in the report was true and fair and in accordance with the books and records of the business entity which operated the agency. I will return to the first page of the auditor's statement dated 2 December 1997 to the trustees of TCF and to International Air Transport Association when considering the claim against Mr Roseby, who signed it. 25 A summary of business income for the period of three months ended 30 June 1997 showed amounts for sales of a value of $287,158. A further document, headed "Financial Ratios Calculation Worksheet", showed total operating costs of $36,908 and eight points against the ratio of net tangible assets to turnover which was translated as meaning that the percentage of the net tangible assets to turnover was greater than 3 per cent. Eight points were shown for working capital available to meet overheads which represented an overhead expenses cover of more than two months. The total points were shown as sixteen. A summary balance sheet showed total assets at $50,637 and total liabilities as nil. 26 A six page document was prepared by Mr Tambree and dated 12 September 1997. The first page was as follows: "RENEE FRY TRADING AS THE TRAVEL SHOP INTERNATIONAL Trading as THE TRAVEL SHOP INTERNATIONAL Compilation Report _____________________________________________________ On the basis of the information provided by RENEE FRY TRADING AS THE TRAVEL SHOP INTERNATIONAL, we have compiled, in accordance with APS9 'Statement of Compilation of Financial Reports', the special purpose financial report for the period ended 30 June 1997. RENEE FRY TRADING AS THE TRAVEL SHOP INTERNATIONAL is responsible for the information contained in the special purpose financial report and has determined that the accounting policies used are consistent with his/her accounts preparation requirements. Our procedures have been limited to the classification and summarisation of information to compile this special purpose financial report from the information provided to us by the Proprietor and do not include verification or validation procedures. No audit or review has been performed and accordingly no assurance is expressed. Neither the firm nor any member or employee of our firm undertakes any responsibility or accepts any liability in any way whatsoever to any person other than RENEE FRY TRADING AS THE TRAVEL SHOP INTERNATIONAL in respect of the special purpose financial report including any errors or omissions in the special purpose financial report however caused. R TAMBREE & ASSOCIATES ………………………….. 12 September, 1997" 27 The six pages included a trading account for the year ended 30 June 1997 showed a total trading income of $288,158, cost of sales $226,548 and a gross profit from trading of $61,610. A document described as the detailed profit and loss account reduced the trading profit by expenses to a net profit of $24,702. The balance sheet for the period showed proprietor's funds with a capital contribution of $25,900 added to the net profit of $50,637 said to be represented by current assets of cash at bank of $46,377 and non-current assets broken up between loans. 28 There followed notes to and forming part of the financial statements for the year ended 30 June 1997 as follows: "Note 1 - Statement of Accounting Policies These financial statements are a special purpose financial report prepared in order to satisfy the requirements of the proprietor to prepare accounts. The proprietor has determined that the entity is not a reporting entity and therefore there is no requirement to apply Accounting Standards and other mandatory professional reporting requirements (Urgent Issues Group Consensus Views) in the preparation and presentation of these statements. The statements have been prepared in accordance with the requirements of the following Accounting Standards and other mandatory professional reporting requirement: AAS 6: Accounting Policies: Determination, Application and Disclosure AAS 8: Events Occurring After Balance Date AAS 1: Profit and Loss Accounts AAS 2: Measurement and Presentation of Inventories in the Context of the Historical Cost System AAS 4: Depreciation of Non-Current Assets No other Accounting Standards or other mandatory professional reporting requirements have been intentionally applied. The statements are also prepared on an accrual basis from the records of the entity. They are based on historic costs and do not take into account changing money values or, except where specifically stated, current valuations of non-current assets. The accounting policies are consistent with the previous period, unless otherwise stated." 29 The final sheet contained: "Note 2 - Operating Revenue 1997 $ Sales revenue 288,158

Note 3 - Cash Bank accounts Cash at bank 46,377

Note 5 - Receivables Non Current Other receivables: Loans to chief entity - Loans to related bodies corporate and Controlled entities Others 1,500 Note 9 - Property, Plant and Equipment Plant and equipment At cost 5,400 Less: Accumulated depreciation 2,640 -----______ 2,760 Note 14 - Owner's Equity Capital contributions 25,900 Profit (Loss) for year 24,702 Drawings 35 ______ Total Owner's Equity 50,637"

Renewal of the licence followed. 30 By 30 June 1998 Ms Fry owed Metro $178,867.11. The November 1998 renewal application was submitted to TCF by Ms Fry trading as The Travel Shop International. The documentation was relevantly to like effect as the 1997 renewal application. Mr Roseby signed the statement of auditor dated 11 November 1998. Gross sales were shown as exceeding $1.4 million. The gross operating profit was over $83,000, with overhead expenses of nearly $75,000. No more in this document, than in the 1997 document, was mention made of the debt to Metro. 31 Ms Fry's 1998 AFR claimed a maximum eight points for the ratio of net tangible assets to turnover, as the percentage of net tangible assets to turnover exceeded 3 per cent. It claimed a maximum eight points for working capital, as working capital provided more than two months cover to meet overheads. It claimed a maximum four points for maintaining fully funded client travel account/trust client account. As Ms Fry obtained a maximum twenty points based on the TCF's financial criteria, the 1998 AFR was not brought to the special attention of the Management Committee and it was decided that Travel Shop International continue as a participant in the fund. 32 In November 1998 TSIPL assumed conduct of Ms Fry's business and used the Metro account. On 18 February 1999, Ms Fry wrote to TCF indicating she wished to resign from the fund. On 23 February 1999, TCF terminated the participation of Travel Shop International in the compensation scheme. The premises at 366 Church Street, Parramatta were closed by licensing inspectors on 20 April 1999. 33 Austin J described the claims against Mr Tambree as follows: "14 The complaint against Mr Tambree is that he prepared the accounts that formed part of the Participation Documents, as well as the accounts that were included in the 1997 and 1998 Renewal Materials. The Statement of Claim alleges that Mr Tambree intended and knew or ought to have known that the plaintiff would rely on the accounts. He was therefore under a duty of care to the plaintiff. By providing the accounts he represented their accuracy and compliance with a relevant accounting standard, but his representations were incorrect. The plaintiff alleges that it relied on these representations, which were inaccurate, and that it has suffered loss. 15 The Statement of Claim also alleges that Mr Tambree thereby engaged in misleading or deceptive conduct contrary to s42 of the Fair Trading Act, or was knowingly concerned in Ms Fry's contravention of s42."

The case against Mr Roseby 34 In its third and final amended statement of claim TCF claimed that Mr Roseby, in purporting to audit the accounts and provide the audit certificate or report that were included in the 1997 renewal material and the 1998 renewal material, intended, and well knew, or ought to have known, that TCF would rely on those accounts and would be induced thereby to permit Ms Fry to participate and/or remain in the scheme and/or remain in the compensation scheme under the Act without the imposition of a condition. Further, acting on that material and induced thereby, TCF permitted Ms Fry's participation and continued participation without the imposition of a condition in consequence of which TCF had suffered loss and damage. In the alternative, under the heading "Trade Practices Claims" TCF claimed Mr Roseby, in participating in, or approving, or being responsible for the 1997 renewal material and the 1998 renewal material, was aware that the accounts in the 1997 and 1998 renewal material were misleading and deceptive or likely to mislead and deceive TCF in not accurately reflecting the financial position or the trading activities of Ms Fry. As a result, TCF permitted Ms Fry to become a participant in the scheme and allowed her to trade as a licensed travel agent until February 1999 and Ms Fry incurred liabilities to the claimants which TFC was subsequently obliged to compensate. By providing his audit certificate or report Mr Roseby represented that the accounts were correct and that the audit was conducted in accordance with the Australian auditing standards and with due care and skill. 35 Mr Tambree recommended Mr Roseby to audit the annual financial statements he produced for Ms Fry. After Mr Tambree produced the balance sheet, profit and loss, trading account and income tax return for the 1997 year he took all the source material and his file to Mr Roseby. 36 The 1997 financial statements provided to TCF included a statement of auditor to the trustees and an "independent audit report" both signed by Mr Roseby and dated 2 December 1997. I set out the "independent audit report" in full which, mutatis mutandis, is the same as that signed by Mr Roseby and dated 11 November 1998 for the 1998 financial year. "INDEPENDENT AUDIT REPORT To: Renee Julie Fry trading as The Travel Shop International and the Trustees of the Travel Compensation Fund and the International Air Transport Association. Scope I have audited the financial statements, being a special purpose financial report comprising the profit and loss account, balance sheet and notes to and forming part of the financial statements of Renee Julie Fry trading as The Travel Shop International for the year ended 30th June 1997 as set out on pages 1 to 6. The proprietor responsible for the financial statements and she has determined that the accounting policies used and described in Note 1 to the financial statements and the accounting disclosures contained therein are appropriate to the requirements of the Corporations Law as it applies to large corporations and the needs of the members, the Trustees of the Travel Compensation Fund and the International Air Transport Association. I have conducted an independent audit of the financial statements in order to express an opinion on them to Renee Julie Fry trading as The Travel Shop International, the Trustees of the Travel Compensation Fund and the International Air Transport Association. The financial statements have been prepared for distribution to the Proprietors, the Trustees of the Travel Compensation Fund and the International Air Transport Association for the purpose of fulfilling the requirements of the Corporations Law as it applies to large corporations, the Trustees of the Travel Compensation Fund and the International Air Transport Association. I disclaim any assumption of responsibility for any reliance on this report or on the financial statements prepared as a special purpose financial report to which it relates, to any person other than the Proprietors, the Trustees of the Travel Compensation Fund and the International Air Transport Association, or for any purpose other than that for which it was prepared. My audit has been conducted in accordance with Australian Auditing Standards. My procedures include examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial report and the evaluation of significant accounting estimates. These procedures have been undertaken to form an opinion as to whether, in all material respects, the financial statements are presented fairly in accordance with the application of accounting standards and other mandatory professional reporting requirements (Urgent Issues Group consensus Views), and the basis of accounting as described in Note 1 to the financial statements. The audit opinion expressed in this report has been formed on the above basis. Audit Opinion In my opinion, the financial statements of Renee Julie Fry trading as The Travel Shop International for the year ended 30th June 1997 are properly drawn up: (a) to give a true and fair view, in accordance with the accounting policies described in Note 1 to the financial statements, of the matters required by Divisions 4, 4A and 4B of Part 3.6 of the Corporations Law as they apply to large corporations, to be dealt with in the financial statements; (b) in accordance with the provisions of the Corporations Law as they apply to large corporations. (c) in accordance with applicable Accounting Standards and the mandatory professional reporting requirements (Urgent Issues Group Consensus Views), applied to the extent described in Note 1 to the financial statements." 37 In his reasons for judgment, Austin J summarised the effect of parts of this report, namely Mr Roseby's opinion that the financial statements, which he had audited, were properly drawn up to give a true and fair view in accordance with the appropriate accounting policies of the matters required to be dealt with in financial statements by the relevant provisions of the Corporations Law as they applied to large corporations. In Mr Roseby's opinion the financial statements had been drawn up in accordance with the provisions of the Corporations Law and the applicable accounting standards and mandatory professional reporting requirements to the extent described in Note 1 to the financial statements. In his opinion the proprietor was responsible for the financial statements and had determined the accounting policies to be used as described in Note 1 to the financial statements. The report noted that the financial statements had been prepared for distribution, inter alia, to the trustees of the TCF for the purpose of fulfilling the requirements of the trustees. 38 The renewal application dated 3 December 1997 appeared to have been based on the financial statements for the year ended 30 June 1997 and contained the following statement of auditor signed by Mr Roseby as auditor: "Statement of Auditor to the Trustees of the Travel Compensation Fund and to International Air Transport Association (Cross out if not reporting to IATA) I report and acknowledge that the information in this Annual Financial Review: 1. Forms the basis, together with the audited financial statements, on which the agency's continued eligibility for participation in the Travel Compensation Fund is determined; on which the agency's continued eligibility as an accredited IATA agent is determined; (Cross out if not reporting to IATA) 2. Has been extracted from the agency's audited financial statements; 3. Is true and fair to the best of my knowledge and belief; 4. In my opinion, discloses all contingent liabilities of the agency; 5. In my opinion, the realisable values of all investments are not less than their values on the agency's balance sheet; 6. That the person signing this report is a Registered Company Auditor; 7. (Delete if incorrect) That the agency has properly maintained a fully funded Client Travel or Trust Account in accordance with the criteria set out on Page 18. 8. (Delete if incorrect) That any loan(s) from related parties deducted from liabilities in calculating Shareholder'/Owner's Equity and the agency's Net Tangible Assets on the Summary Balance Sheet (Page 10) existed for a substantially similar amount throughout the whole audit period. 9. (Delete if not required) That any Capital Subscription since balance date included at Line 114 and, if applicable, Line 146 has been made for cash and that the monies have been deposited to the agency's bank account." 39 With minor changes on 11 November 1998 Mr Roseby signed such a statement of auditor on the 1998 application by Ms Fry for renewal. It is to be observed that in neither were paras 7, 8 or 9 deleted. 40 In the financial ratios calculation worksheet for the 1997 application, the question "Has a fully funded Client Travel Account/Trust Bank Account been maintained throughout the year in accordance with the criteria set out on page 18?" was ticked "No" and the question "Are the Client Travel Account balance at bank and the related Liability for Client Deposits shown on the Balance Sheet? was ticked "Yes". 41 Austin J described the claims against Mr Roseby as follows: "16 The complaint against Mr Roseby is that he audited the accounts forming part of the 1997 and 1998 Renewal Materials and provided an audit certificate in each year. The Statement of Claim alleges that Mr Roseby intended and knew or ought to have known that the plaintiff would rely on the accounts, and that he was under a duty of care to the plaintiff. By providing his audit certificate he represented that the accounts were correct and that the audit was conducted in accordance with Australian Auditing Standards and with due care and skill, and the plaintiff says it relied on these representations. The representations were inaccurate and the plaintiff has suffered loss. 17 The plaintiff also alleges that Mr Roseby engaged in misleading or deceptive conduct contrary to s42 of the Fair Trading Act, or was knowingly concerned in Ms Fry's contravention of s42."

Austin J's findings 42 Austin J said this about the 1997 financial statements and annual financial review: "77 The financial statements for the year ended 30 June 1997 were prepared by R Tambree & Associates. Mr Tambree's evidence was that some time in 1997 Mr Fry contacted him, and asked him to prepare some accounts urgently so that he could have his daughter's travel licence renewed. Subsequently Mr Fry attended Mr Tambree's office with a box full of material, including computer-generated cashbook statements, cheque books and invoices. Mr Tambree said that the material was coded into a computer by his staff, and the computer then generated a trial balance. He then saw Mr Fry and prepared a spreadsheet on Mr Fry's instructions. He reconciled the bank account and brought in unpresented cheques. He then carried out journal adjustments. Mr Fry was present while he did this work, and answered questions from time to time. He said that while he verified some items, he was aware that Mr Roseby would audit the accounts. I accept this evidence. 78 Mr Tambree said he asked Mr Fry why there were no amounts owed or owing but he did not recollect the precise terms of the conversation. I find this part of his evidence unconvincing and I reject it. 79 After he completed this process, his staff ran the adjusted figures through the computer, which produced a balance sheet, profit and loss, trading account and income tax return. A little while later, Mr Tambree took all the source material and his file to Mr Roseby. He did not speak to Ms Fry about the financial statements at any time." 43 His Honour referred to the financial information in the AFR showing sales, net assets and net profit before income tax together with annual expenses and working capital and said: "Nothing was shown for current liabilities or client account balances." Austin J said that it appeared that, following normal practice, the 1997 renewal application was treated as a "routine renewal" because self-assessment of the participant's points (16 points) was comfortably above the 10 point threshold. The content of the 1997 AFR was accordingly not brought to the attention of the Management Committee of Trustees, and it was decided that The Travel Shop International continue as a participant in the fund. 44 Turning to the 1998 financial statements and annual financial review, his Honour accepted Mr Tambree's evidence that the 1998 financial statements were prepared by him in the same manner as the 1997 accounts. Again, the financial statements showed sales revenue, net profit, net assets and working capital but nothing for current liabilities or client account balances. His Honour said: "92 The financial statements were accompanied by a Compilation Report by R Tambree & Associates dated 6 November 1998. That report said that the firm had prepared its special purpose financial report for the period ended 30 June 1998 'on the basis of information provided by Renee J Fry' and 'in accordance with APS 9 Statement of Compilation of Financial Reports'. A note stated that the financial statements had been prepared in order to satisfy the requirements of the proprietor to prepare accounts, and on the basis that the proprietor had determined that the entity was not a reporting entity. The note said that the financial statements had been prepared in accordance with the requirements of accounting standards AAS 1 (Profit and Loss Accounts), AAS 2 (Measurement and Presentation of Inventories in the Context of the Historical Cost System), AAS 4 (Depreciation of Non-Current Assets) and AAS 8 (Events Occurring After Balance Date), and other mandatory professional reporting requirements, but no other accounting standards had been intentionally applied. The statements were prepared on an accruals basis from the records of the entity, and were based on historic costs and did not take into account current valuations. 93 The Compilation Report asserted that Ms Fry was solely responsible for the information contained in the special purpose financial report. It continued: Our procedures use accounting expertise to collect, classify and summarise the financial information, which the Proprietor provided into a financial report. Our procedures do not include verification or validation procedures. No audit or review has been performed and accordingly no assurance is expressed. To the extent permitted by law, we do not accept liability for any loss or damage which any person, other than the Proprietor, may suffer arising from any negligence on our part. No person should rely on the special purpose financial report without having an audit or review conducted. The special purpose financial report was prepared for the benefit of the proprietor and the purpose identified above. We do not accept responsibility to any other person for the contents of the special purpose financial report." 45 TCF's attack upon these financial statements and AFRs was based on reports prepared by two accounting experts, Mr Humphreys and Professor Walker. Dealing with Mr Humphreys' first report of 4 August 2000, Austin J said: "125 Mr Rob Humphreys, a chartered accountant, prepared an expert's report for the TCF for the purpose of these proceedings. His report, dated 4 August 2000, dealt with the financial position of Ms Fry trading as The Travel Shop International in 1997 and 1998. Mr Humphreys was supplied with the affidavits in the proceedings and also financial statements and working papers in relation to the June 1997 and June 1998 financial years. He proceeded on the basis of information that Metro Travel was owed $65,684.03 at 30 June 1997 and $152,615.10 at 13 July 1998. His report was admitted into evidence upon the basis that those figures would be treated as assumptions. He also proceeded on the basis that the business owed $6123.10 to The Naviti in Fiji in relation to invoices dated prior to 30 June 1998. 126 I should mention that Ms Fry and Mr Fry deny that any such debt was owed to The Naviti. My finding on that point is that the evidence supports the view that the debt was owing as at 30 June 1998. There is documentary evidence to that effect, and Ms Fry acknowledged that she encountered problems in dealing with The Naviti. 127 As I understand the evidence of Mr Humphreys, it contains a criticism of the Travel Shop's AFRs on a qualitative and on a quantitative basis. The qualitative basis relates to accounting for client deposits, and the quantitative basis relates to the omission of any figures for amounts owing to Metro and The Naviti. The qualitative critique would remain even if I were to find that there were no amounts owing by The Travel Shop International to Metro or suppliers on 30 June 1997 or 30 June 1998. 128 As to the qualitative basis, Mr Humphreys expressed the opinion that an important component of the process of accounting in a travel agency relates to client deposits. When moneys are received on account of sales and placed into a bank account, a liability should be raised in an account designated 'Client Deposits' or some equivalent terminology. At balance date, the financial statements should include as a current liability the amount of Client Deposits, net of amounts already paid to service providers. Bank account balances, for the account into which moneys received from clients on account of sales are deposited, should be reconciled against amounts outstanding for unpaid service providers plus undrawn commission plus the total of holding deposits from clients for any work in progress. 129 In the opinion of Mr Humphreys, this reconciliation process should be performed regularly by the travel agent or their accountant, as it provides the basis for recognition of commission, confirmation that the debtors' balances have been properly recorded, and an indication of the liabilities that must be accrued for unpaid amounts due to travel service providers. Mr Humphreys added (at paragraph 3.6 of his report): 'In my opinion, it is a critical part of the auditor's task to confirm that such reconciliations are performed and to test and verify all of the essential elements, at least at balance date.' 130 Mr Humphreys criticised the 1997 and 1998 AFR's largely on the ground that they omitted any reference to client deposits, or to the Metro and other supplier debts. He produced a re-statement of the 1997 financial statements on the basis that the assumed debts were taken into account, so that an assessment could be made as to the impact of these adjustments on the points claimed by reference to the TCF's financial criteria. He referred to this re-statement as scenario 1. It assumes that the only relevant travel agent entity is The Travel Shop International. Since, however, there is (as I note elsewhere) evidence to suggest that one or more of TSIPL, Fiji Resorts and Bali Resorts may also have conducted travel agency business, he also produced a re-statement of the financial accounts on a "group" basis to take into account those other entities [scenario 2]. He concluded that, while the 1997 financial statements showed positive net assets and proprietors' funds, when adjusted they would show a material deficiency and a significant loss. 131 Mr Humphreys reached the same conclusions, with the same methodology, concerning 1998, except that he was unable to prepare a consolidated set of figures because financial information for the other companies for the year ended 30 June 1998 was not available." 46 Professor Robert Walker was the Professor of Accounting at the University of New South Wales. He analysed the Compilation Reports that accompanied the 1997 and 1998 financial statements and was very critical of them. In particular, he expressed the opinion that the assertion that the financial statements had been compiled in accordance with APS9 was misleading. 47 Austin J said: "133 APS 9 is a "miscellaneous professional statement" jointly issued by The Institute of Chartered Accountants in Australia and the Australian Society of Certified Practising Accountants. Its purpose is 'to identify the basic principles and to provide guidance on a member's professional responsibilities when an engagement to compile a financial report is undertaken for a client'. It also describes the form and content of the report that a member should issue in respect of such an engagement. 134 According to Professor Walker, the requirements of APS 9 were not met by the financial statements for the years ended 30 June 1997 and 30 June 1998 in the following respects: (1) Clause 19 of APS 9 specifies that 'a member must document matters which are important in providing evidence that the engagement was carried out in accordance with the terms of the engagement and this Statement'. Professor Walker said that the materials produced by the firm on discovery did not include any correspondence from or to Ms Fry regarding the terms of the engagement. There were no documents supporting the claims that Ms Fry was responsible for the information in the financial report and had determined that the accounting policies used were consistent with her requirements. (2) Clause 16 of APS 9 requires the accountant to establish the 'financial reporting framework to be applied'. The financial reports are the product of partly applying accrual accounting (for example, by recording depreciation) and partly applying cash based accounting (for example, by ignoring liabilities). (3) Clause 20 of APS 9 specifies that 'a member must obtain a general knowledge of the business and operations of the client in relation to which the compilation is being prepared and must be familiar with the accounting principles and practices of the industry in which the client operates and with the form and content of the financial report that is appropriate in the circumstances.' Professor Walker said that, based on the documents produced on discovery, it was reasonable to infer that the firm was aware of the requirements of the TCF for accounts to be prepared in accordance with the Australian Accounting Standards, and for those accounts to be audited. It was therefore inappropriate, in Professor Walker's opinion, for the firm to produce the form of Compilation Report that was used or to assert that the financial statements were a 'special purpose financial report' prepared in terms of APS 9. He noted that the explanatory material in the AFR form specified that the TCF required financial reports complying with all accounting standards except for a number of specified standards. (4) Clause 24 of APS 9 states that 'a member must consider whether the compiled financial report appears to be appropriate in form and free from material misstatements'. In Professor Walker's opinion, the firm was or should have been aware that the TCF required accounts to be prepared on an accrual basis. Professor Walker's review of the material provided to him suggested that no accrual entries had been made at the end of the year to 30 June 1997. The ledger did not include any accounts for creditors, and receipts from customers appear to have been recorded as revenue at the time that they were received. As to the year ended 30 June 1998, he noted that the accounts recorded operating revenues of $1,402,255 but again, no liabilities. He said (Report, paragraph 28): 'In my opinion, it would be common knowledge that the business of a travel agent is not a 'cash' business, and that basic services such as electricity or telephone do not render accounts on 30 June. Accordingly, it is inconceivable that such a business would not have had any liabilities to 30 June 1998.' He also said it would be inconceivable that a travel business with the turnover in excess of $1.4 million for the year did not hold money on deposit from customers, either held in the trust account or else recorded in the accounts as a liability. (5) Clause 11 of APS 9 states that 'in undertaking a compilation engagement a member must comply with the requirements of Miscellaneous Professional Statement APS 1 'Conformity with Accounting Standards and UIG Consensus Views'.' Professor Walker expressed the view that the firm was not entitled to regard 'Renee Fry trading as The Travel Shop International' as an entity not required to prepare 'general purpose financial statements'. General purpose financial statements are prepared when there are users of accounting information who must rely on those reports when making judgments about the financial performance and circumstances of an entity. That was the case for these accounts, which would be relied upon by the TCF. 135 Professor Walker expressed the view that the very act of 'compilation' of financial statements necessitates a degree of knowledge and skill, the proper application of which would or should have immediately highlighted serious deficiencies in the financial statements and in particular, the omission of any reference to trade creditors. He concluded (Report, paragraph 30): 'In my opinion, the failure of these accounts to recognise the existence of any liabilities represented a failure on the part of those who compiled the accounts (or those who were responsible for the issue) to exercise a reasonable standard of skill and care as accountants'. " 48 Professor Walker was also highly critical of Mr Roseby's audit reports for 1997 and 1998. He drew attention to the inconsistency between describing the financial statements as special purpose financial reports and, at the same time, asserting that the accounting disclosures contained in them were appropriate to the requirements of the Corporations Law as applied (at the time) to large corporations. Professor Walker said that large corporations would require the preparation of general purpose financial statements, and would require that all applicable Australian accounting standards be complied with. Austin J said: "137 Professor Walker was provided with a file of materials produced by Mr Roseby on discovery. He said he did not locate in those files sufficient audit working papers to provide reasonable support for Mr Roseby's claim that an audit had been carried out in accordance with Australian Auditing Standards. He noted that Australian Auditing Standard AUS 208 ("Documentation", October 1995) requires an auditor to prepare working papers that are sufficiently complete and detailed to provide an understanding of the audit. The material produced by Mr Roseby did not include any document setting up the terms of the audit engagement, or the overall audit plan, and such documents as had been produced seem to focus only on cash transactions, ignoring the need to assess such matters as whether liabilities had been properly recorded in the accounts and the significance of any post-balance date events. 138 Professor Walker also drew attention to Australian Auditing Standard AUS 210 ("Irregularities, Including Fraud, Other Illegal Acts and Errors", October 1995). According to that Standard, the auditor should plan and conduct the audit so as to have a reasonable expectation of detecting misstatements that have a material impact on the financial report arising as a result of irregularities. Professor Walker found no evidence that the audit plan complied with this requirement. 139 Nor was any document seen by Professor Walker which indicated any effort had been made to identify related parties and related party transactions, notwithstanding the requirements of Australian Auditing Standard AUS 518 ("Related Parties", October 1995). Professor Walker found evidence in the documents obtained from R Tambree & Associates that there were related party transactions between Fiji Resorts and The Travel Shop. 140 No document was produced to Professor Walker which indicated that any attention been paid to obtaining audit evidence to support the representations contained in the financial statements, notwithstanding Australian Auditing Standard AUS 502 ("Audit Evidence", October 1995). Nor was any document produced which indicated any attempt to apply analytical review procedures, notwithstanding Australian Auditing Standard AUS 512 ("Analytical Procedures", October 1995). 141 Professor Walker expressed the opinion that if Mr Fry had deliberately not informed Mr Roseby about the existence of certain liabilities, that they could not have exonerated Mr Roseby from his responsibility is [as] auditor to undertake proper procedures to assess whether the financial statements were materially misstated. Nor would Mr Roseby be in any way exonerated for failure to carry out an appropriate and professional audit by the fact that he charged only a modest sum for the conduct of the 1997 the audit. 142 Professor Walker also commented on the certification by Mr Roseby of the 1997 and 1998 AFR forms. He said that there were three misrepresentations by Mr Roseby: (1) the AFR forms acknowledged that the information contained in them would form the basis, together with the audited financial statements, on which the travel agency's continued eligibility for participation in the TCF would be determined, and yet the notes to the financial statements asserted that they were special purpose financial statements and that Ms Fry had determined that the accounting policies users were consistent with her accounts preparation requirements; (2) Mr Roseby certified that the information in the AFRs was true and fair to the best of his knowledge and belief and disclosed all contingent liabilities of the agency, but no information was given in the AFR forms about actual liabilities, let alone contingent liabilities; (3) Mr Roseby signed the 1998 form without deleting Clause 7, thereby asserting that the travel agency had properly maintained a fully funded Client or Travel Trust account, but the material reviewed by Professor Walker indicated that no separate account was maintained." 49 Of this I would highlight: · there were no files or audit working papers to support Mr Roseby's claim that an audit had been carried out in accordance with Australian auditing standards; · there was no evidence of an audit plan designed so as to have a reasonable expectation of detecting mis-statements that have a material impact on the financial report; · there was nothing to indicate that any attention had been paid to obtaining audit evidence to support the representations contained in the financial statements; · if Mr Fry had deliberately not informed Mr Roseby about the existence of liabilities, that could not have exonerated Mr Roseby from his responsibility as auditor to undertake proper procedures to assess whether the financial statements were materially mis-stated; · Mr Roseby misrepresented - that the information would form the basis, together with the audited financial statements, on which the travel agency's continued eligibility for participation in the TCF would be determined; that the information in the AFRs was true and fair to the best of his knowledge and belief and disclosed all contingent liabilities of the agency when no information was given in the AFR forms about actual liabilities, let alone contingent liabilities; and that in 1998 the travel agency had properly maintained a fully funded Client or Travel Trust account.

Liability of Mr Tambree 50 Austin J dealt with the liability of Mr Tambree as follows. His Honour noted that it was not contended against Mr Tambree that the financial statements which accompanied the 1996 application for participation were inaccurate. Attention was focused on the 1997 and 1998 renewals and the financial statements in relation to those years. First, the trial Judge dealt with the claim based on misleading conduct and then with the claim based on negligence. 51 Mr Tambree denied that he represented to TCF that the accounts which accompanied the 1997 and 1998 renewal material were true and correct or that he made a representation of his own about whether the accounts could be relied upon. He contended that he did no more than pass on information Mr Fry supplied to him; see Yorke v Lucas (1985) 158 CLR 661 at 666: "If the circumstances are such as to make it apparent that the corporation is not the source of the information and that it expressly or impliedly disclaims any belief in its truth or falsity, merely passing it on for what it is worth, we very much doubt that the corporation can properly be said to be itself engaging in conduct that is misleading or deceptive."

The innocent carriage of false information by a "mere conduit" does not give rise to liability; Gardam v George Wills & Co Ltd [No 1] (1988) 82 ALR 415 at 427 per French J. In The Saints Gallery Pty Ltd v Plummer (1988) 80 ALR 525 at 531 the Full Federal Court said: "A disclaimer of any personal knowledge of the paintings' authenticity was deducible from the parties' relationship and the whole of the circumstances we have recounted." 52 Mr Tambree relied upon that part of the compilation reports for each year which stated that neither his firm, nor any member or employee of it, undertook any responsibility or accepted any liability in any way whatsoever, to any person other than Ms Fry, in respect of the special purpose financial report including any errors or omissions in the special purpose financial report however caused. Further, the provisions stated that Ms Fry was responsible for the information contained in the special purpose financial report and had determined that the accounting policies used were consistent with his or her accounts preparation requirements. No audit or review had been performed and no assurance was expressed. Austin J said: "170 However, it is clear that Mr Tambree represented, in respect of both years, that the financial statements had been prepared in compliance with APS 9, that The Travel Shop was entitled to prepare a special-purpose financial report and (by inference) that the accounts were prepared on an accruals basis. I fully accept the analysis of Professor Walker with respect to these matters. It follows from Professor Walker's analysis that Mr Tambree's representations on these three matters were incorrect and misleading representations, and misleading conduct for the purposes of s 42. 171 In my opinion, Mr Tambree's misleading conduct was not confined to particular misrepresentations in the financial statements. His misleading conduct extended to the manner in which he went about his work as accountant in preparing the material. Mr Tambree's evidence was that he converted the data supplied by Mr Fry into a 'meaningful financial statement'. He did so in consultation with Mr Fry, in a manner inconsistent with his contention that he was a mere conduit or intermediary. He was aware of the purpose for which the accounts were being prepared, namely transmission to Mr Roseby for incorporation into the renewal application and AFRs. His conduct, in purporting to comply with APS 9, could not be described as merely a mechanical act, but was one in respect of which professional expertise was to be applied." 53 It is helpful to identify in summary the matters which Professor Walker commented on and which are set out in Austin J's judgment at pars 133-135 which I have quoted; · There were no documents to support the claims that Ms Fry was responsible for the information in the financial report and had determined that the accounting policies used were consistent with her requirements. · The financial reports were the product of partly applying accrual accounting (for example, by recording depreciation) and partly applying cash based accounting (for example, by ignoring liabilities). · It was inappropriate to produce the form of compilation report that was used or to assert that the financial statements were a special purpose financial report prepared in terms of APS9. · The ledger did not include any accounts for creditors, and receipts from customers appeared to have been recorded as revenue at the time that they were received. It would be inconceivable that a travel business with a turnover in excess of $1.4 million for the year did not hold money on deposit from customers, either held in the trust account or else recorded in the accounts as a liability. · General purpose financial statements are prepared when there are users of accounting information who must rely on those reports when making judgments about the financial performance in circumstances of an entity. That was the case for these accounts, which would be relied upon by the TCF. · The failure of the accounts to recognise the existence of any liabilities represented a failure on the part of those who compiled the account (or those who were responsible for the issue) to exercise a reasonable standard of skill and care as accountants. 54 TCF relied upon s42(1) in Pt 5 of the Fair Trading Act 1987 which provides that a person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. Section 68(1) provides, so far as presently relevant, that a person who suffers loss or damage by conduct of another person that is in contravention of a provision of Pt 5 may recover the amount of the loss or damage by action against the other person or against any person involved in the contravention. Austin J pointed out that the requirement of causation under s68 is the same as the "practical or commonsense concept applied by the common law", with the result, that acts done by a person in reliance upon the misrepresentation of another constitute a sufficient connection to satisfy the concept of causation: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525, a case concerned with the equivalent provision in s82 of the Trade Practices Act 1974 (Cth). 55 Austin J said: "173 The 'practical or common sense concept' referred to by the High Court in the Wardley Australia case was the concept expounded in March v E & MH Stramare Pty Ltd (1991) 171 CLR 506; see especially at 515 per Mason CJ. The question is not whether, but for the defendant's breach, the plaintiff's loss would have been sustained, but whether the defendant's identified breach was 'so connected with the plaintiff's loss or injury that, as a matter of ordinary common sense and experience, it should be regarded as a cause of it': March v Stramare , at 522 per Deane J. Where, as here, there are several factors (the conduct of each of the four defendants) contributing to the plaintiff's loss, the correct approach is to identify each 'substantial factor': J G Fleming, The Law of Torts (9th ed, 1998), p 222, citing March v Stramare . I shall consider whether the conduct of each of the four defendants was a 'cause' in this sense." 56 Austin J did not agree with Mr Tambree's contention that the TCF did not rely on the financial statement he had prepared when they assessed the 1997 and 1998 renewal applications. According to his Honour, the evidence showed that the assessors who reviewed the renewal applications applied the TCF's financial criteria and the system of self-assessment described in para 32 of his judgment, which I have quoted. In so doing they relied on the presence of financial information to support the assessments the applicant made and to support the points allotted to the application. "That reliance involved reliance on the accuracy of certain aspects of the financial information made relevant by the criteria." Austin J acknowledged that the assessors gave only a little time to each renewal application and that TCF had not demonstrated that the assessors, for the 1997 and 1998 application, in fact looked at the financial statements as opposed to the information in the application form. Further, Mr Brattoni, who had been the chief executive officer of TCF, gave evidence that the notes to the financial statements clearly disclosed that they had not complied with the instructions given in the form with respect to accounting standards. Austin J said: "176 … Nevertheless the misrepresentations that I have identified go to matters of importance, in respect of which the assessor for each year must have relied on the accuracy of the financial information. In particular, the fact that no liabilities were disclosed when in truth there were substantial liabilities in the business at both balance dates was a matter of fundamental importance. The assessors were entitled to assume that the accountant who prepared the financial statements would have taken steps of the kind prescribed by APS 9, even if the assessors did not read Mr Tambree's representation that he had complied with APS 9. That general assumption would include a particular assumption that the accountant had brought some judgment to bear on the question of liabilities before finalising financial statements which asserted that no liabilities were owing at the respective balance dates." 57 Austin J disagreed with Mr Tambree's contention that if the TCF had relied on his financial statements, it would have been so negligent in protecting its own interests, that the court should conclude that the misrepresentation was not any real inducement to TCF's decision to continue Ms Fry's participation in the fund. In Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 at 138 Hill J said: "A case may perhaps be imagined where an applicant is so negligent in protecting his own interests that there will be a finding of fact that the representation complained of was not in the circumstances a real inducement to his entering into a contract. In such a case the element of causation between misrepresentation and damage will have been severed by the intervention of the negligence of the applicant." 58 In Kewside Pty Ltd v Warman International Ltd (1990) ASC 58821 French J remarked: "Concepts such as contributory negligence and mitigation have no role as such in this process but analogous notions may apply to decide whether or not a claimed loss was truly caused by the contravention in question: Munchies Management Pty Ltd v Belperio (1988) 84 ALR 700 at 712; Elna Australia Pty Ltd v International Computers (Australia) Pty Ltd) [No 2] (1987) 16 FCR 410 at 418-9; Pavich v Bobra Nominees Pty Ltd (1988) 84 ALR 285." 59 Having regard to the TCF's method of processing renewal applications, Austin J regarded it as appropriate to infer, and did infer, that Mr Tambree's misrepresentations were a real inducement to the TCF's decision in respect of the 1997 and 1998 renewals. 60 Mr Tambree submitted that TCF had not shown that its losses occurred because Ms Fry was twice successful in having her participation in the fund renewed. All but a small part of TCF's claims, namely thirteen claims in a total amount of $13,320, related to losses incurred in 1999 when Ms Fry was operating without a licence. He relied on Mr Brattoni's evidence that he did not know whether, if Ms Fry had had her licence terminated a year earlier, she and her father would have stopped unlicensed trading at that time. In Austin J's opinion, the evidence given on behalf of TCF as a whole and in particular that of Mr Whittaker, an accountant employed by TCF, Mr Pitts, a former chairman of TCF, and Mr Given, a trustee of TCF, provided a commonsense causal connection between Mr Tambree's misrepresentations and the TCF's losses, which his Honour accepted. 61 Finally, Mr Tambree submitted that the TCF made voluntary payments to those who lost money dealing with Ms Fry while she was unlicensed, in such a fashion that those voluntary payments were not causally related to any conduct of Mr Tambree. His Honour disagreed with this submission saying that the evidence did not provide any reason to doubt that the management committee of trustees of the TCF exercised their discretion under the deed in a proper fashion to address claims that had arisen through a chain of events causally related to the renewal of Ms Fry's participation as a result of her 1997 and 1998 applications. His Honour said: "179 … The renewals permitted her to continue to trade, and then to informally transfer the business to TSIPL, and later to have the business transferred again to DMV Travel, while she and her father continued to deal with clients in much the same way until the business was physically closed down." 62 The trial Judge said: "180 If the TCF assessor had been aware at the relevant times that, by virtue of the content of the renewal applications, Mr Tambree had not complied with APS 9 and that the accounts had not been properly prepared on an accrual basis, it is reasonable to infer that he would have become concerned about the absence of liabilities in the financial statements, notwithstanding Mr Roseby's audit report. Applying the common sense approach to causation, one can infer that in such circumstances, further inquiries would have been made, leading to such events as Mr Whittaker, Mr Pitts and Mr Given have set out in evidence. 181 To the extent that the claim against Mr Tambree is based upon his involvement in contraventions by Ms Fry, Mr Tambree contends that it has not been established that he had the requisite knowledge that her conduct was misleading. Knowledge of falsehood is necessary, according to Yorke v Lucas (1985) at 666. In my opinion it has not been shown that Mr Tambree knew that the financial statements were incorrect with respect to liabilities. Rather, the problem was that, through failure to comply with APS 9 and to apply his professional judgment appropriately, he did not detect the deficiencies that were present in the financial statements. In my opinion Mr Tambree's liability is primary liability flowing from his own misleading conduct rather than involvement in the misleading conduct of Ms Fry." 63 Mr Tambree contended that he did not owe a duty of care to the TCF because he had no reason to suppose that the accounts he prepared would be communicated to the TCF and that it would rely on them; Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 at 252 and 265-6. At 252 Brennan CJ observed: "The uniform course of authority shows that mere foreseeability of the possibility that a statement made or advice given by A to B might be communicated to a class of which C is a member and that C might enter into some transaction as the result thereof and suffer financial loss in that transaction is not sufficient to impose on A a duty of care owed to C in the making of the statement or the giving of the advice. In some situations, a plaintiff who has suffered pure economic loss by entering into a transaction in reliance on a statement made or advice given by a defendant may be entitled to recover without proving that the plaintiff sought the information and advice. But, in every case, it is necessary for the plaintiff to allege and prove that the defendant knew or ought reasonably to have known that the information or advice would be communicated to the plaintiff, either individually or as a member of an identified class, that the information or advice would be so communicated for a purpose that would be very likely to lead the plaintiff to enter into a transaction of the kind that the plaintiff does enter into and that it would be very likely that the plaintiff would enter into such a transaction in reliance on the information or advice and thereby risk the incurring of economic loss if the statement should be untrue or the advice should be unsound. If any of these elements be wanting, the plaintiff fails to establish that the defendant owed the plaintiff a duty to use reasonable care in making the statement or giving the advice." 64 According to Mr Tambree, he compiled and supplied the figures to Mr Roseby for audit and no more, and did not expect the TCF to rely on his unaudited financial statements for the purpose of assessing Ms Fry's applications. Austin J regarded these contentions as contrary to the facts. His Honour said: "182 … Mr Tambree arranged for Mr Roseby to be engaged as auditor and knew that the accounts were being prepared for submission to the TCF for the purpose of Ms Fry's annual renewal applications. He prepared financial statements which, according to his own evidence, were set out in a professional manner and amounted to meaningful financial statements. He must have been aware that the financial statements prepared by him would, subject to audit, form the basis for the renewal applications. 183 The reliance placed upon the financial statements was reasonable reliance and in particular, it was reasonable for the TCF to rely on Mr Tambree's statement that he had complied with APS 9, and on the implication from the financial statements that they had been prepared on an accruals basis, and therefore that (subject to audit) they were accurate when they showed no liabilities. 184 In my opinion Mr Tambree failed to meet the standard of care required of an accountant whose instructions are to prepare financial statements for the purpose of an audit and in connection with renewal applications to the TCF. The misstatements that I have identified were negligent misstatements by him and for the reasons I have given, they have caused the TCF to suffer losses."

Liability of Mr Roseby 65 Austin J was of the opinion that the ingredients of TCF's claim against Mr Roseby for negligent mis-statement and misleading conduct contrary to s42 of the Fair Trading Act, on the ground that he was knowingly concerned in Ms Fry's contravention of s42, had been made out. His Honour said: "186 When he provided his audit reports for the 1997 and 1998 financial statements and applications, Mr Roseby knew that the TCF would rely on those reports. That is evident from the text of the reports themselves. He was under a duty of care to the TCF. By providing his reports he represented that the accounts presented a true and fair view of the matters required to be dealt with in financial statements and that they complied with applicable accounting standards. He also represented that his audit had been conducted in accordance with Australian Auditing Standards and with due care and skill. The TCF relied on Mr Roseby's report, because the application of the TCF's financial criteria to produce a point score depended upon financial information which it required to be audited. Mr Roseby's conduct of the audit failed to comply with the standard of care to which he was subject, and the representations that he made in his report included inaccurate and misleading representations. This is so, notwithstanding that he was deceived by Mr Fry, who concealed from him information about liabilities, because Mr Roseby's duty, which he did not adequately discharge, was to conduct a proper audit regardless of what he was told by Mr Fry. He was therefore liable to the TCF for the loss caused by his negligent conduct. 187 Mr Roseby's conduct of the audits for the 1997 and 1998 financial statements and applications, and his inaccurate and misleading representations in his reports, constituted misleading conduct for the purposes of s42 of the Fair Trading Act. He was therefore liable under s68 to compensate the TCF for the loss or damage that it suffered by his contravention." 66 Austin J was not persuaded that Mr Roseby was liable to compensate the TCF under s68 as a person involved in Ms Fry's contravention of s42. It had not been established that Mr Roseby actually knew the facts material to Ms Fry's contravention, although he negligently failed to conduct a proper audit which should have uncovered the true facts with respect to liabilities. 67 Austin J's conclusions were again based on his full acceptance of the evidence of Mr Humphreys and Professor Walker about the deficiencies of the 1997 and 1998 audits. According to his Honour, those reports showed that Mr Roseby's work was seriously inadequate and none of their reasoning and conclusions had been undermined. His Honour said: "188 … Indeed, in final submissions counsel for Mr Roseby did not directly contest the proposition that Mr Roseby was liable to compensate the TCF for losses caused by his client's audits. Rather, counsel submitted that Mr Roseby's audits did not cause the losses which the TCF seeks to recover." 68 TCF's causation case was that by reason of Mr Roseby's conduct in auditing Ms Fry's business in 1997 and 1998, the TCF renewed her participation in the fund and thereby permitted her to continue to trade as a licensed travel agent until February 1999. The TCF alleged that as a consequence it suffered the loss constituted by meeting the claimants' claims. 69 Austin J outlined Mr Roseby's answers to the TCF's case as follows: "190 First, Mr Roseby points out that Ms Fry's participation in the Fund was terminated on 23 February 1999, and yet after that time either Ms Fry or Mr Fry or their related entities continued to trade as a travel agent. Indeed, since I have found that from November 1998, TSIPL had taken over Ms Fry's travel agency business, the logic of Mr Roseby's position is that the unlawful activity began in November 1998 rather than in February 1999. According to Mr Roseby, the resulting claims arose either entirely or substantially from this unlawful activity. Mr Roseby contends that the audits of Ms Fry's business in 1997 and 1998 cannot be causally related to the TCF losses. The losses were caused by unlawful trading without a licence or participation in the Fund. By their conduct in continuing to trade unlawfully notwithstanding the actions of the Department of Fair Trading, Mr Fry and Ms Fry have broken the chain of causation back to Mr Roseby's audits, according to his contention. 191 I disagree with this submission. If one takes the evidence of Mr Whitaker, Mr Pitts and Mr Given, which I accept, it can be seen that remedial steps would, in all probability, have been taken by the TCF and the Department of Fair Trading substantially earlier than they were in fact taken. A proper audit would have put the TCF in a position to deal with the misleading financial disclosure late in 1997 or early in 1998. In terms of the common sense meaning of causation, Mr Roseby's conduct of the 1997 audit was a cause of the losses, because it allowed a state of affairs to develop in which Ms Fry and Mr Fry were able to continue to trade and expose the clients of the business to losses." 70 Austin J then summarised the second argument put and resolved it as follows: "192 Secondly, Mr Roseby invites the Court to consider the traditional sine qua non test, namely whether "but for" the negligent audit the TCF would have avoided any claims being made upon it. Mr Roseby submits that any such conclusion cannot be drawn in relation to the 1998 audit. This is because Mr Brattoni gave evidence that it would take up to a month to review the financial information in a renewal application, and if remedial action was then required, at least 21 days would be given for the participant to comply, and in the event of non-compliance, the participant would be invited to put its case at the next meeting of the Management Committee. This evidence means, according to Mr Roseby's submission, that a termination following the renewal application made in November 1998 would be unlikely to have occurred before 18 February 1999. 193 I accept this submission, subject to a qualification. Indeed, it seems to me that the same conclusion follows whether one applies the 'but for' test or the more general common sense concept of causation. In my view, it could not be said that the deficiencies in the 1998 renewal application and financial statements, if they were considered in isolation, could be said to have been a contributing cause to the TCF losses. The qualification is that Mr Roseby's submission requires that the 1998 renewal application and financial statements be considered in isolation. If one considers the 1998 financial disclosure together with the 1997 financial disclosure, taking into account the evidence of Mr Whittaker, Mr Pitts and Mr Given, a different picture emerges. If there had been full disclosure of liabilities in 1997 either initially or in response to some investigations stimulated by the auditor, and then Ms Fry lodged an application for renewal in 1998 showing much larger turnover figures but no liabilities, it stands to reason that the TCF would have responded rather more quickly than Mr Brattoni's timetable implies. 194 Turning to the 1997 audit, Mr Roseby says that at its highest, the TCF's case is that Ms Fry's licence would have been terminated in about February or March 1998 following lodgement of the financial materials in December 1997. But Mr Brattoni gave evidence that the policing of unlicensed trading was the responsibility of the Department of Fair Trading, whose activities were outside the control of the Fund, and he agreed with the proposition that no one knew whether the Frys would have stopped unlicensed trading if Ms Fry's licence had been terminated a year earlier. Moreover, says Mr Roseby, the Fund became aware of serious grounds for concern about the business on 8 February 1999, and rather than freezing bank accounts or requiring a trust account, it merely gave Ms Fry time to resign and terminated her participation two weeks later. 195 This submission does not take into account the evidence of Mr Whittaker, Mr Pitts and Mr Given. The effect of their evidence is that if proper financial disclosure had been made in 1997, Ms Fry's point score would have been minus 6 and the TCF would have imposed a requirement for a bank guarantee or an injection of capital, leading to termination of the licence if this funding was not forthcoming. Either funding would have been provided and so a capital buffer would have been created for the protection of clients, or participation in the Fund would have been withdrawn and Ms Fry's licence cancelled. If funding had been provided for the purposes of the 1997 renewal, it would then have been increased for the 1998 renewal so that, by February 1999, there would have been a capital buffer in the vicinity of $292,000, an amount adequate to meet the claims in fact made. Mr Roseby's deficient audits in 1997 and 1998 were a cause of this capital buffer not being required and obtained. 196 If the TCF's funding requirements were not met for the 1997 renewal, and consequently Ms Fry's participation in the Fund and her travel agent's licence were withdrawn in 1998, no one can be sure that Ms Fry and her father would not then have engaged in unlawful trading causing losses. But there is no evidence that would lead me to conclude that unlawful trading and losses would be more likely than not. The issue is purely one for speculation. What is tolerably clear is that proper discharge of his auditing duties by Mr Roseby would have led to a chain of regulatory events that would have prevented the loss in fact suffered by the TCF." 71 Thirdly, Mr Roseby drew attention to evidence indicating that Mr Fry, through one or more of the companies, Fiji Resorts, Bali Resorts and TSIPL, engaged in unlicensed trading throughout 1997 and 1998. Austin J had found that TSIPL took over the business from November 1998 onwards. TSIPL was never licensed and never audited. Austin J said: "198 It does not seem to me that Mr Fry's activities, assuming them to have been unlawful, made it improbable that proper auditing of Ms Fry's business in 1997 and 1998 would have avoided the TCF's loss. Whether, if regulatory intervention had taken place after a proper audit, Mr Fry would nevertheless have used one or more corporate entities to conduct unlawful trading, is a matter for speculation. Whether, if he did so, he would have caused loss to anyone and whether, if so, the loss would have been borne by the TCF rather than (for example) trade creditors such as Metro, are matters for speculation upon speculation. The evidence shows that on the balance of probabilities, and applying the common sense test of causation, Mr Roseby's deficient audits were a cause of the loss in fact incurred by the TCF." 72 Mr Roseby's fourth submission was that, as from 8 February 1999, all of the alleged financial misrepresentations had been revealed to the TCF. Therefore any misrepresentation arising from the audit no longer had any operative effect on the TCF. It was submitted that from that date, TCF was entirely the author of its own losses and that it declined to conduct a field audit and permitted participation to continue until 23 February 1999. Thereafter, it left it to the Department of Fair Trading to follow up any potential unlicensed trading. Accordingly, it was submitted losses incurred after 8 February 1999 could have no causal link to any misrepresentation in the audit. 73 Austin J said: "200 This submission misses the point of the TCF's case on causation. Assuming that the TCF had all relevant knowledge on 8 February 1999, it was then in a position to commence appropriate regulatory steps that would make it likely that losses would eventually be avoided. The losses in fact suffered by the TCF were incurred, principally, during 1999 before closure of the business. The evidence does not show that, if the TCF took its appropriate and usual regulatory measures in a period beginning on 8 February 1999, the actual losses it suffered would have been avoided. However, the evidence does show, on balance, that if Mr Roseby had conducted proper audits and thereby put the TCF in a position to commence its appropriate and usual regulatory procedures in 1998, the losses suffered by the TCF would have been avoided." 74 Fifthly, Mr Roseby drew attention to the fact that the TCF treated the claims it received as discretionary claims, under cl 15.2 of the deed, on the ground that even where payments were made before termination, the failure to account was considered to have arisen while the business was unlicensed. Generally speaking, the dates of travel by claimants, or the dates of the demands made upon the travel agent, or the dates of the claims made upon the TCF, post-dated the termination of Ms Fry's participation in the scheme. Mr Roseby invoked the general principle that "the free, deliberate and informed act or omission of a human being, intended to produce the consequence which it did in fact produce, negatives causal connection", citing HLA Hart and A Honore, Causation in the Law (1959) at 130. Putting the matter another way, the law did not recognise a voluntary payment as amounting to a person's loss or damage unless that person was under a legal obligation to meet the payment. Therefore, it was submitted, the TCF was under no such obligation to meet the claims, because claims were in respect of unlicensed trading and the trustees had a discretion with respect to them. 75 Austin J said: "203 In my opinion it is correct, in respect of most of the claims, that they were not covered by clause 15.1 of the Deed, because the Claimants' losses did not arise from an act or omission by a participant in the Fund. By the time the losses were incurred, the business had been taken over by TSIPL, which was not a participant, and although Ms Fry remained a participant until 23 February 1999, her business conduct from November 1998 onwards was as agent for TSIPL. Consequently I proceed on the basis that most of the claims were met under clause 15.2, which gives the Trustees an absolute discretion to pay compensation in certain circumstances not governed by clause 15.1. 204 Although the Trustees had a discretion to accept or deny the claims, they were required to exercise that discretion in their capacity as fiduciaries, acting for proper purposes and upon relevant considerations. It is probable that their discretion is in the nature of a trust power ( Re Baden's Deed Trusts [1971] AC 424 at 449 per Lord Wilberforce), and consequently they have an equitable duty to exercise that discretion, when faced with a claim for compensation in proper form. The Court cannot review "on the merits" the exercise by a trustee of an absolute discretion that has been exercised in good faith and without ulterior purpose ( Gisborne v Gisborne (1877) 2 App Cas 300), but the exercise of fiduciary powers is open to review on several grounds, however broad may be the terms of the discretion ( Karger v Paul [1984] VR 161). The Court may determine whether the discretion has been exercised in bad faith or arbitrarily or capriciously or irresponsibly ( Re Pauling's Settlement Trust [1964] Ch 303, at 333; Lutheran Church of Australia v Farmers' Co-operative Executors & Trustees Ltd (1970) 121 CLR 628, at 639; Attorney-General for the Commonwealth v Breckler (1999) 197 CLR 83); whether it has been exercised upon a "real and genuine consideration" ( Dundee General Hospitals Board of Management v Walker [1952] 1 All ER 896, at 905); whether the discretion has been exercised for an ulterior purpose or not in accordance with the purposes for which it was conferred ( Cowan v Scargill [1985] 1 Ch 270; Lock v Westpac Banking Corporation (1991) 25 NSWLR 593); and in a case where the trustee has disclosed the reasons for the exercise of the discretion, whether those reasons are sound ( Re Londonderry's Settlement [1965] Ch 916; Parkes Management Ltd v Perpetual Trustee Co Ltd (1997) 10 ACLR 303)." 76 In Austin J's opinion the evidence did not provide any ground for contending that the trustees acted otherwise than properly in the discharge of their fiduciary responsibilities. Nevertheless the trustees' decisions were constrained by the equitable principles to which his Honour had referred. In particular, the equitable requirement to exercise the discretion for proper purposes, having regard to the objects for which it was conferred, was a substantial limitation. This limitation might well mean that, subject to disentitling factors, a claim in proper form should be allowed, where the loss had been caused to a customer of a travel agent who did not know, and had no reason to believe, that the agent was unlicensed. "205 That being so, it is incorrect to classify the Trustees' decisions to allow claims as free acts of intervention, breaking the chain of causation. The misleading financial disclosure in 1997 and 1998 set in train a series of events that included the consideration of compensation claims by the Trustees in the exercise of their fiduciary responsibilities, the product of that process being acceptance of the claims and payment of the Claimants." 77 Sixthly, Mr Roseby submitted that, on the evidence, the Metro account holder until June 1997 was Fiji Resorts and thereafter the account holder was TSIPL. He contended that Ms Fry's business acquired tickets from TSIPL and was only indebted to that company for the tickets actually ordered by her for the business, all of which were paid for. Hence, it was said, Ms Fry's evidence that her business had no liabilities at the two balance dates was correct, and consequently the financial statements and renewal applications in 1997 and 1998 did not mistake the liabilities of the business. 78 In Austin J's opinion there were two answers to this submission: "207 … First, it is contrary to the findings of fact that I have made with respect to the Metro account, on the basis of my review of the whole of the evidence. I have taken the view that from about February 1997 until November 1998, a period that includes the two balance dates, the account holder with Metro was Ms Fry trading as The Travel Shop International. Secondly, while Mr Roseby's submission, if correct, would have answered the allegation that the financial statements were misleading in their assertion that there were no liabilities, it would not have overcome other deficiencies in the financial statements and their audit, as identified by Mr Humphreys and Professor Walker. Those other deficiencies were causally related to the TCF's loss." 79 Seventhly, Mr Roseby contended that even if Ms Fry's personal business was indebted to Metro Travel at the two balance dates, it did not necessarily follow that this fact would have been revealed in an audit. The state of the records, in the possession of Ms Fry and Mr Fry at the time of the 1997 audit, was not known. Metro did not issue regular statements of accounts to the Travel Shop International and the invoices that it issued were not in evidence. While the printout that was in evidence suggested an outstanding debt of approximately $65,000 as at 30 June 1997, Mr Roseby pointed out that there was no direct evidence that the invoices, the subject of the printout, had been issued to and received by Ms Fry before 30 June 1997, or that they were due for payment at or before this date. 80 Austin J disagreed with Mr Roseby's assessment of the evidence on this point and said that the printout was to be read in conjunction with Mr Ng's second affidavit and his oral evidence. His evidence clearly was that, although the due date on the statement may not have been accurate, an amount of approximately $65,000 was owing as at 30 June 1997. 81 Mr Roseby also submitted that Mr Fry, who admitted to deceiving the auditor in 1998, could have succeeded in deceiving the most diligent auditor in 1997 by not revealing invoices or client files and the like. His Honour said: "210 … However, Professor Walker's evidence established that a diligent auditor would have pursued the question of liabilities in the circumstances in this case, where the accounts asserted that there were no liabilities at all. I infer that, although particular invoices or client files could have been concealed from even the most diligent auditor, Mr Fry would not have been able to persuade a diligent auditor that the business had no liabilities whatever at the balance date. Further, I infer that where the business involved very frequent contact with a ticket consolidator, a diligent auditor would have been concerned to know the state of the account between the ticket consolidator and travel agent, and would not have accepted the assertion that there was no debt in the absence of verification." 82 Mr Roseby argued that the alleged debt to Metro Travel, as at 30 June 1997, could have been matched by corresponding debtors (for example, DMV Travel or TSIPL), whose debts were not accounted for as current assets. This submission, Austin J regarded as merely speculation. The only fact, established by the evidence, was that there was a debt owing to Metro Travel. 83 Mr Roseby said that a payment of $30,000 was proved to have been made to Metro on 2 July 1998, but there was no direct evidence that it was for unpaid invoices issued before 30 June 1998. Austin J was satisfied by other evidence that there was a substantial debt owing to Metro as at 30 June 1998. Moreover, on balance it would be appropriate to infer that the amount of $30,000 paid to Metro on 2 July 1998 was in respect of a debt incurred on or before 30 June 1998. Although neither Mr Humphreys nor Professor Walker was prepared to give evidence that proper audit would in fact have revealed the outstanding liabilities to Metro Travel, their evidence was to the effect that the audit should have been directed towards testing, inter alia, whether there was any indebtedness as at the balance dates by the business to the major ticket consolidator with which the business dealt. 84 Austin J said: "214 My conclusion is that there is no substance to Mr Roseby's submissions on these matters. The TCF has made out its case against Mr Roseby for negligent misstatement and for misleading conduct in contravention of s 42, and has established the requisite causal connection between the negligent conduct and contravention and the losses incurred in meeting claims by Claimants." 85 Austin J went on to summarise his conclusions as follows: "215 The case against Ms Fry for misleading conduct in contravention of s 42 of the Fair Trading Act has been made out. Mr Fry was involved in Ms Fry's contravention, for the purposes of ss 61 and 68 of the Fair Trading Act, and he was also involved in contraventions by Mr Tambree and Mr Roseby. Mr Tambree and Mr Roseby engaged in conduct in breach of their duties of care to the TCF, which was also misleading conduct under s 42 of the Fair Trading Act. 216 I am satisfied that the wrongful conduct of each of these four defendants caused the TCF to suffer the losses in the sum of $143,050 particularised in the schedule to the Third Amended Statement of Claim. Consequently the TCF is entitled to judgment against each of those four defendants. 217 In my opinion, the TCF has not established any entitlement to recovery under s 40 (3) of the Travel Agents Act or by virtue of assignments by the Claimants of their rights of action. 218 There is no credible evidence to support the cross-claim (the Third Cross-claim) brought by Ms Fry against the TCF, alleging breach of duty and conspiracy by officers of the TCF and defamation against the TCF. That cross-claim should be dismissed." 86 His Honour gave judgment as follows: "1. In favour of the plaintiff against the first, second, fourth and fifth defendants in the sum of $143,050.00 together with interest on the said judgment sum in accordance with the Supreme Court Act and Rules from 20 September 1999 to 15 November 2002 in the sum of $45,280.22 [sic] being a total of $188,330.23. 2. The proceedings against the third defendant be dismissed with no order as to costs. 3. The first defendant's third cross claim against the plaintiff be dismissed with costs and order that the first defendant pay the plaintiff's costs in respect of such cross claim. 4. The first, second, fourth and fifth defendants pay the plaintiff's costs of the proceedings."

Grounds of appeal 87 Mr Tambree challenged the findings that he had engaged in misleading or deceptive conduct within the meaning of s42 of the Fair Trading Act, and that TCF suffered loss or damage "by" the representations relied upon within the meaning of s68 of the Fair Trading Act. In particular, he claimed that since Austin J had found that all but a small part of the claims on TCF were incurred in 1999 while Ms Fry was operating unlicensed, his Honour erred in finding that the evidence of Mr Whittaker, Mr Pitts and Mr Givin provided a commonsense causal connection between the representations relied upon and TCF's loss. It was further submitted that his Honour erred in finding that Mr Tambree must have been aware that the accounts he prepared would be relied on by TCF and that as a result he owed a duty of care to TCF. Mr Tambree also relied upon a want of reliance or causation. 88 Mr Roseby cross-appealed against Austin J's decision, principally on the ground that the trial Judge erred in concluding that Mr Roseby's 1997 or 1998 audits were causally related to the loss or damage claimed, pointing particularly, to the unlawful activity outside the Travel Agents Act and the absolute discretion of TCF as to whether to pay claimants. 89 Mr Tambree accepted in evidence that APS9 imposed requirements on an accountant in the preparation of accounts which were designed to ensure that the accounts were a fair representation of the business that the accounts related to. He accepted that, apart from APS9, in preparing accounts for a business, he was trying to prepare accounts which reflected the business activity carried on by that entity in the particular financial year. He was aware that the accounts were being prepared to be used by Ms Fry for the purpose of submission to TCF. 90 In his submissions for Mr Tambree, Mr Walsh of counsel, challenged the finding that Mr Tambree made a representation on his own behalf that the financial statements were true and correct or accurate or in any way suitable to be relied upon. Inevitably, counsel properly conceded, that at the relevant date Travel Shop International had incurred liabilities which were not included in the accounts. He put his client's position as simply as this: "Going back to the 1996 year, Mr Fry had requested Mr Tambree to prepare these accounts to be lodged with an application for membership with the fund. He was informed when he did that that the fund would not accept his accounts unless they were audited. Mr Tambree then said 'Well I will audit them' and the Travel Compensation fund said to him 'Unless you are a registered auditor, we cannot accept them'. Thereafter arrangements were made for Mr Roseby to audit the accounts and for him to send them on as part of the process to the TCF.'

He relied upon the fact that his client knew that the documents in 1996, 1997 and 1998 were going to the TCF, in circumstances where the fund had told him that it would not rely on his audit or his documents but rather it required, whatever he produced to be audited by a registered auditor. Mr Roseby fulfilled that function in 1997 and 1998. The evidence was that Mr Tambree was confronted with boxes of receipts, and the like, and carried out a mechanical function of simply setting out in a tabular accounting form, the information that had been provided to him. In answer to the complaint, Mr Tambree in a misleading fashion represented that the documents produced did comply with APS9. Counsel conceded that Mr Tambree did not comply with APS9. He joined issue on the significance of this, having regard to the disclaimer whereunder Mr Tambree said he undertook no responsibility and accepted no liability in any way whatsoever to any person other than Ms Fry. 91 I am content to deal with this ground of appeal in the way that Austin J did. Austin J found that Mr Tambree was aware of the purpose for which the accounts were being prepared, namely, transmission to Mr Roseby for incorporation into the renewal application and AFRs. His conduct, in purporting to comply with APS9, could not be described as merely a mechanical act, but was one in respect of which professional expertise was to be applied. 92 In his affidavit of 28 March 2001, Mr Tambree said that he completed the financial statements as a result of a conversation with Mr Fry who said he had checked with the travel people. "They tell me you can do the audit. Will you do the financial statements that are required?" In 1997, Mr Fry spoke to him again, saying that he needed to get accounts done urgently so he could get Ms Fry's travel licence renewed. Mr Tambree never met or spoke to Ms Fry. A box full of material was brought to him which was coded into a computer which generated a trial balance. He said the functions he performed were primarily of a bookkeeping nature. He said that he asked Mr Fry various questions and Mr Fry gave him instructions. His Honour rejected Mr Tambree's evidence that he asked Mr Fry why there were no amounts owed or owing but did not recollect the precise terms of the conversation. 93 In his oral evidence, Mr Tambree said that he was aware that the accounts prepared by him were going to be used by Ms Fry for the purpose of submission to the TCF. Mr Tambree said he had been an accountant for thirty years but did not really know what APS9 amounted to. He knew it existed as a basic accounting standard. He said he was aware, in preparing the accounts for Ms Fry in 1997 and 1998, that they would exist as apparently reliable accounts reflecting the business. He said he was concerned to ensure they were set out in a professional manner containing a trading account, a profit and loss account and a balance sheet each in relation to the business. He did the work in return for a fee as part of his regular professional practice. 94 The conclusion of Professor Walker was that the failure of the accounts to recognise the existence of any liabilities represented a failure, on the part of those who compiled the accounts (or those who were responsible for the issue), to exercise a reasonable standard of skill and care as accountants. 95 It was no answer to the conclusion of Professor Walker, as suggested by Mr Walsh, that Mr Tambree could rely on the fact that the financial statements were to be audited by somebody else; Voli v Inglewood Shire Council (1963) 110 CLR 74 at 87-88 and compare Bennett v Minister of Community Welfare (1992) 176 CLR 408 at 429. To say, as Mr Tambree did, both in September 1997 and in November 1998 that the report had been prepared, "in accordance with APS9" was misleading. Mr Tambree's appeal, that he made no representations or that such as he made were not misleading and deceptive, must fail. The suggestion that he exercised reasonable skill and care in preparing the statements is ludicrous. 96 Mr Walsh's point was that the opening paragraph, claiming that the report had been prepared in accordance with APS9, should not be looked at alone but should be considered in the context of the statement that neither he nor his firm undertook any responsibility or accepted any liability in any way whatsoever to any person, other than Ms Fry, in respect of the report, including any errors or omissions in the report however caused. Whatever comfort the reader might have drawn from the opening lines, so it was said, would have immediately vanished had the reader gone on to look at the following three paragraphs. Mr Tambree admitted that there was no compliance or attempted compliance with APS9. He claimed that it was sufficient if he tabulated the information given to him and made no enquiries at all. 97 Next Mr Tambree put that there was no evidence of reliance. Mr Tambree relied on the trial Judge's finding that TCF had not demonstrated that the assessors of the 1997 and 1998 applications had looked at the accounts for the purposes of the assessment, and said, that the assessors were available to give evidence but TCF chose not to call them. Mr Brattoni, whose evidence the trial Judge accepted, gave evidence of his opinion that assessors relied on the auditor's certificate. Accordingly, it was submitted that the trial Judge should have found that the assessors did not rely on the accounts prepared by Mr Tambree or that there was no evidence that the assessors relied on the accounts. Therefore there was no causal connection between the representations and loss suffered by TCF. Further, it was said that the trial Judge erred in finding that the assessors were entitled to assume, and by inference did assume, that the accounts prepared by Mr Tambree complied with APS9 even if the assessors did not read them. Further, having found that all but a small part of TCF's claims were incurred in 1999 while Ms Fry was operating unlicensed, the trial Judge erred in finding that the evidence of Mr Whittaker, Mr Pitts and Mr Given provided a common sense causal connection between the representations and TCF's loss. 98 TCF relied upon the evidence, particularly of Mr Whittaker, an accountant and the manager, special investigations of TCF, who since 1987 had been in charge of the assessing section or special investigations of TCF, Mr Brattoni, TCF's chief executive officer, Mr Pitts, a former chairman of trustees of TCF and Mr Given, a trustee of TCF, who gave evidence of TCF's procedure for financial review and the procedure of management committee meetings which made decisions about the eligibility of participants or terminations of participants. This material was admitted and its admissibility was not challenged in the appeal. Although this may not have been articulated, no doubt the evidence of these witnesses went to prove a general course of business according to which these procedures would ordinarily have been done "there being a probability that the general course will be followed in the particular case"; Connor v Blacktown District Hospital (1971) 1 NSWLR 713. At 716 Jacobs JA said: "The particular rule is that I can give evidence of what I did on a particular day, even though I have no distinct recollection of the particular day, if it was part of my practice to do the act regularly." 99 At 721 Asprey JA, with whose reasons Mason JA agreed, referred to the then current edition of Phipson, Law of Evidence (see now Phipson on Evidence, 15th ed, (2000) 6-21) and said: "To prove that an act has been done, it is admissible to prove any general course of business or office, whether public or private, according to which it would ordinarily have been done, there being a probability that the general course will be followed in the particular case." 100 The principle is also discussed in Cross on Evidence, Australian edition at 1130. In a useful commentary to the Evidence Act 1995 in Ritchie's Supreme Court Practice, Vol 1, 5338, the authors say that it is doubtful whether evidence of course of business or usual practice, is really within the "coincidence rule" and so governed by s98 of the Evidence Act: "This is because the rule only applies where the evidence is adduced for the purpose of establishing that, because of the 'improbability of the events occurring coincidentally', 'a person did a particular act'. Evidence of course of business, or usual practice, is rarely adduced for the purpose of establishing the improbability of coincidence between past events and the matters in issue. Indeed the usual purpose of the evidence is to establish the opposite - namely the improbability that, in relation to the matters in issue, there would have been a departure from an established pattern of conduct."

101 Austin J said this about the evidence on causation: "156 TCF's internal accountant, Mr Whittaker, gave evidence in which he re-assessed Ms Fry's AFRs for 1997 and 1998 on the basis of various scenarios for each year. His view was that if the accounts prepared for those AFRs had been prepared in a proper manner, the point score would have been minus 6 on each occasion. He said that if that had been so, he would have recommended the provision of a bank guarantee or an injection of capital in 1997 of between $47,000 and $86,000; and in 1998 he would have recommended a bank guarantee or capital injection in the sum of $292,000. He also said that Metro Travel's review of the amount which it claimed to be owing to it for the 1998 year would have led Mr Whittaker to increase the amount of the bank guarantee or capital injection. Failure to comply with the requirement for a bank guarantee or capital injection would have resulted, according to their evidence, in determination of Ms Fry's participation in the Fund, with the result that she would not have been able to carry on the business of a travel agent lawfully. 157 Mr Whittaker assumed, on instructions from the TCF, that the Travel Shop's financial statements presented on 2 December 1997 had been adjusted in the matter set out in Mr Humphreys' report, scenario 1. He then recalculated the Travel Shop's points under the TCF's financial criteria, based on the amended figures. His evidence was that the Travel Shop would have scored minus 6 points instead of 16 points. On that basis, Mr Whittaker said that the TCF assessor would have required either a bank guarantee of $47,000 in its favour, or an injection of capital in the sum of $47,000, for the Travel Shop to meet the financial criteria for continued participation in the Fund. The assessor would have written to the Travel Shop requiring that those remedial measures be carried out within 21 days. If the Travel Shop had failed to do so, a briefing paper would have been prepared recommending that the Fund Trustees impose a condition of a $47,000 capital injection or bank guarantee on continued participation by the Travel Shop in the Fund. If the Travel Shop had provided the necessary capital injection or bank guarantee before the meeting of the Management Committee of Trustees was held to consider the matter, then the issue would be at an end, but if the Trustees were to impose conditions as envisaged and the Travel Shop failed to comply, participation by the Travel Shop in the Fund would have been liable to be terminated. 158 Mr Whittaker also gave evidence based on scenario 2 in Mr Humphreys' report, in respect of the Travel Shop's 1997 AFR. His opinion was that if the revised figures were in accordance with scenario 2, the Travel Shop would have scored minus 6 points instead of 16 points, and the assessor would have required a bank guarantee or injection of capital of $86,000. The same consequences would have flowed from failure to comply. 159 Evidence was also given on behalf of the TCF by Osmond Pitts and Brian Given, who were Trustees of the TCF and members of the Management Committee at all relevant times. They explained that the Management Committee comprised three Trustees, themselves and one other. The meetings of the Management Committee were normally attended by Mr Brattoni as Chief Executive Officer and also by Mr Whittaker (as regards his department's agenda matters). When making a decision to impose a condition upon the eligibility of a participant, or to terminate participation in the Fund, the Management Committee followed the procedure of receiving a briefing paper from Mr Whittaker, which they would review and discuss at the meeting. Before any decision was made, the participant would be given an opportunity to address the meeting. The trustees would then make a decision and communicate it to the participant. The usual types of remedial action included bank guarantees and capital injections. 160 Both Mr Pitts and Mr Given gave evidence that if they had received a briefing paper from Mr Whittaker of the kind envisaged in Mr Whittaker's evidence in response to scenario 1 and scenario 2 of Mr Humphreys' report, they would have followed Mr Whittaker's recommendations by requiring either bank guarantees or capital injections in the amounts set out by him. Their opinion was that if the Travel Shop did not comply with conditions imposed by them in response to Mr Whittaker's recommendations, the Travel Shop's participation in the TCF would have been terminated. 161 As with the Travel Shop's 1997 AFR, Mr Whittaker gave evidence with respect to the 1998 AFR. He assumed, on instructions by the TCF, that the Travel Shop's 1998 AFR included financial statements in the adjusted form set out in Mr Humphreys' report for the year ended 30 June 1998. He said that the Travel Shop would then have scored minus 6 points instead of 20 points. He said that the assessor would have required either a bank guarantee or a capital injection of $292,000, and would also have required audited financial statements for the six months ended 31 December 1998, for the Travel Shop to meet the financial criteria. The same consequences would then have followed as would have followed in respect of the 1997 AFR, leading eventually to the imposition of conditions by the Management Committee and in the event of continued non-compliance, termination of the Travel Shop's participation in the Fund. 162 Mr Pitts and Mr Given gave evidence in respect of the 1998 AFR, similar to their evidence in respect of the 1997 AFR. They said that if Mr Whittaker had made the recommendations that (according to Mr Whittaker's evidence) he would have made upon the adjusted figures set out in Mr Humphreys' report, they would have accepted those recommendations. Their evidence took into account that by late 1998, the Management Committee would have had AFRs from the Travel Shop for two years. Their evidence was that they would have taken the decisions recommended by Mr Whittaker if either the 1997 AFR had been adjusted according to one of Mr Humphreys' scenarios or had remained in its present form. They said that, in addition to following Mr Whittaker's recommendations, they would have required that the Travel Shop's membership be reviewed within 21 days, and again at the end of February 1999 in light of the further audited accounting material. If the required bank guarantee or capital injection had not been provided, or if the six-monthly audited accounting records revealed further deterioration, the Travel Shop's participation in the Fund would have been terminated. 163 Mr Brattoni gave evidence about the procedure followed by the TCF before remedial action would be undertaken. He said that if a participant did not obtain the requisite 10 points in self-assessment of their AFR, or obtained 10 points but another matter was raised by the financial assessing section of the TCF, then usually the assessing section would write to the participant and outline the remedial action that ought to be taken to satisfy the TCF's financial criteria for continued eligibility. Usually this remedial action would be in the form of an increase in equity or the provision of a bank guarantee. 164 If the participant failed to comply with the TCF's request, the TCF would write to the participant and advise them that the matter would be placed before the Management Committee of Trustees for determination. The directors of the participant or its financial advisers would be invited to attend this meeting. Mr Whittaker as chief assessor would prepare a briefing paper on the matter for the Management Committee, including a recommendation. Mr Brattoni would countersign the recommendation if he approved it. Then the Management Committee, having heard the representatives of the participant, would make a determination by resolution in light of the recommendations in Mr Whittaker's report. If the participant failed to comply with the Management Committee's resolution, they would be liable to have their participation in the TCF terminated. Mr Brattoni said that, having reviewed Mr Whittaker's evidence, he would have approved Mr Whittaker's recommendations in respect of the 1997 and 1998 years." 102 It is curious that Mr Newman, a financial assessor, who filed an affidavit which was relied upon by TCF and who was, to some extent, involved with Ms Fry's participation in the scheme, gave no evidence about the assessment of her applications or about the practice. Mr Newman gave some oral evidence and was cross-examined by Mr Fry, who appeared for himself at the trial, but not on this point. During that cross-examination at the luncheon adjournment on 28 February 2002, Mr Francey, who appeared both at the hearing and on the appeal for TCF, indicated "lest there be some Jones v Dunkel [(1959) 101 CLR 298] against us" that he had made arrangements for Mr Hammond, another assessor, "who apparently did the point score for the first year" to be available for cross-examination if required. 103 Mr Francey said he was not calling further evidence, he was calling a witness and making him available to be cross-examined if anybody wanted to make a point on it. Neither Mr Walsh, who appeared for Mr Tambree, nor Mr Dubler, who appeared for Mr Roseby, cross-examined Mr Newman nor did they require Mr Hammond for cross-examination. 104 Mr Walsh and Mr Dubler argued that the failure to lead evidence about the procedure of assessment from either Mr Newman or Mr Hammond gave rise to the inference that their evidence would not assist their employer, TCF. In Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418 Handley JA said: "There appears to be no Australian authority which extends the principles of Jones v Dunkel to a case where a party fails to ask questions of a witness in chief. However, I can see no reason why those principles should not apply when a party by failing to examine a witness in chief on some topic, indicates 'as the most natural inference that the party fears to do so'. This fear is then 'some evidence' that such examination in chief 'would have exposed facts unfavourable to the party'; see Jones v Dunkel at 320-321 per Windeyer J."

His Honour referred to one of the leading cases in the United States, Milliman v Rochester Railway Co 3 App Div 109; 39 NYS 274 (1896), a decision of the Appellate Division of the Supreme Court of New York where Follett J, speaking for the Court, said: "I think the rule is as applicable to a case in which a party fails to interrogate a friendly witness, so situated as to be presumed to have knowledge of the existence or non-existence of the vital facts in issue, as it is to the case of a failure to produce such a witness. Indeed I think the omission to interrogate a friendly witness in respect of facts presumably within his knowledge is more significant than the failure to call such person as a witness, and that the presumption that the testimony would not have been favourable to the party's case is stronger than the one which arises from the failure to produce such a person as a witness." 105 Two affidavits by Mr Brattoni were read and he was extensively cross-examined about the assessment process. He had until shortly before he gave evidence been the chief executive officer of TCF. Mr Brattoni, under cross-examination, said: "Within a normal year we could expect to receive approximately 60 to 70 per cent of the returns in the period between the last week of September and the end of October. So that is approximately 2,800 returns. I'm sorry, I revise that, I've done a notional calculation against the total number of participants, they don't all use the June financial year end so I'll slice about 300 off that, maybe 400. Make it 2,400 returns allotted between four permanent assessors and some part-timers, they get about 200, 300 returns each to review." 106 There was no challenge to the procedure described by Mr Whittaker, Mr Pitts and Mr Given, and in that sense, there was no need for either Mr Newman or Mr Hammond to go over the ground which seemed to be undisputed. Furthermore, it would be unrealistic to invite either Mr Newman or Mr Hammond to recall the fact of having considered a particular application. I would not infer that their failure to give evidence in chief flowed from any fear that the witnesses would have exposed facts unfavourable to TCF but rather flowed from the witness' inability, because of non-recollection of one amongst hundreds of documents assessed in a short period of time, to give evidence of any assistance to the court. The appellants had the opportunity to cross-examine them. I find it surprising that that opportunity was not taken up in light of cross-examination directed to Mr Brattoni, particularly about the disclaimers in Mr Tambree's financial reports. However, overall, I do not think these matters require the drawing of any meaningful inference. 107 Mr Tambree's submissions relied heavily upon his disclaimer and the fact known to him that the accounts were to be audited. Bluntly, he said that he did no more than to organise a box full of documents of account into a structure which looked like trading and profit and loss accounts and a statement of assets and liabilities. This, he did as an accountant of many years experience and for the known purpose in 1997 and 1998 of assisting or producing evidence to assist Ms Fry's applications for renewal of her travel agent's licence. Why Mr Tambree should do this in a way that was professionally incompetent and negligent and say they were compiled in accordance with APS9 may be explained by incompetence, carelessness or misunderstanding. He gave evidence that the statement was "merely generated by our computer software" and that he did not think that anybody relied on it or even read it. He wondered how many accountants were familiar with the contents of APS9. He gave this evidence: "Q. Now that you know what is involved with APS9 you are aware, aren't you, that what APS9 does is impose a certain requirement on an accountant in the preparation of accounts that is designed to ensure that the accounts are a fair representation of the business that the accounts relate to? A,. Yes, I now know. I would agree. It was unfortunate that APS9 was mentioned in those things. I don't think there was any reliance placed on it by anybody, but I am aware. Q. Even apart from APS9 I take it that if you are preparing accounts for a business what you are trying to do is to prepare accounts which reflect what business activity was carried on by that entity in the particular financial year? A. Yes. Q. And I take it that you are aware that accounts prepared by you in relation to business entities such as Renee Fry trading as the Travel Shop and such as Fiji Resorts International Pty Ltd do get used, for example, as the basis of tax returns that are submitted to the Australian Taxation Office? A. Yes. Q. And in this instance you are aware, aren't you, that the accounts that were prepared by you were going to be used by Renee Fry for the purpose of submission to the Travel Compensation Fund? A. Yes, I was aware of that. I knew that the Travel Compensation Fund would not place reliance on these statements I prepared; that they were already advised but they had to be ordered." 108 In my opinion, both Mr Tambree and Mr Roseby owed a duty to TCF to take reasonable care in the preparation of the accounts and the giving of the audit certificates. They both quite clearly failed to do so. TCF's claim against them is not defeated by any disclaimer. It was open to Austin J to conclude that in renewing Ms Fry's licence in the years in question it acted upon the accounts prepared by Mr Tambree and the audit certificate given by Mr Roseby. I am not persuaded that his Honour erred in doing so. 109 The grounds of Mr Roseby's cross-appeal were: "1. His Honour erred in concluding that the Cross Appellant's 1997 or 1998 audit was causally related to the loss or damage claimed. 2. His Honour, having found that: (a) all of the loss or damage arose out of the Travel Shop International Pty Limited (TSIPL) taking money from members of the public for travel services for which it did not later account; (b) at a time when TSIPL neither had a licence under the Travel Agents Act 1986 (NSW) nor was a member of the First Cross Respondent [TCF]; (c) and at a time when, in respect of most of the claims, the Second Cross Respondent [Ms Fry] neither had a licence nor was a member of the First Cross Respondent; (d) and that all of the loss arose out of activity that was unlawful and contrary to the provisions of s6 of the Travel Agents Act 1986 (NSW); ought to have concluded that such loss was materially caused by the said unlawful activity outside the Travel Agents Act 1986 (NSW) and not by reason of the audits of 1997 or 1998 conducted by the Cross Appellant which was only used to determine whether or not the Second Cross Respondent shall continue to be a member of the First Cross Respondent. 3. His Honour, having found because most of the claims related to unlawful trading, that there was an absolute discretion upon the First Cross Respondent as to whether to pay claimants or not, erred in failing to find that the voluntary decision of the First Cross Respondent to pay members of the public who had lost monies meant that such payments could not be regarded as loss or damage incurred by the First Cross Respondent which was causally connected to the alleged negligent audits of the Cross Appellant. 4. His Honour, having found that the relevant undisclosed debt in the 1997 audited accounts was $36,157.50 [see para 56], rather than $65,684.03 as assumed by the First Cross Respondent's witnesses and experts, ought to have made the following consequential findings: (a) a proper audit in 1997 would have led to a reduced requirement for a bank guarantee or injection of capital than that assumed by the First Cross Respondent's witnesses and experts; (b) it was more likely than not that any such requirement would have been met by the First Cross Respondent [sic] to maintain her licence for the subsequent 12 months; (c) any termination of the First Cross Respondent's [sic] licence after a proper audit in 1998 would not have taken place at any materially earlier time than in fact occurred. 5. His Honour, to the extent that the trial judge found [at para 193] that the First Cross Respondent would have terminated the Second Cross Respondent's licence earlier than it did following a proper audit in 1998, erred in such finding for the reasons stated above." 110 Mr Roseby's submissions were based on the following essential matters, some of which were incontestable:

TCF pleaded that its loss was the result of its reliance upon the accounts and audit which led TCF to permit Ms Fry to continue participation in the scheme and to continue such participation without the imposition of a condition in circumstances where she incurred liabilities.

Austin J found that the licensed business of Ms Fry effectively ceased from 20 November 1998 and was taken over by or transferred to TSIPL, which was controlled by Mr Fry, and which, from November 1998 alone conducted the relevant travel agency business. During this period, until it was closed in April 1999, the business's failure to account gave rise to the bulk of the claims on the scheme by members of the public compensated by TCF. TSIPL conducted the business as a separate entity from Ms Fry, the licence holder, whose supposed accounts were audited by Mr Roseby. TSIPL dealt with the public and put moneys received into its bank account. Ms Fry's bank account after November 1998 was largely dormant.

On 23 February 1999 Ms Fry resigned from the scheme. Thereafter if she was still conducting the business of a travel agent she was doing so illegally and not as a participant in the scheme.

Most of the payments which TCF sought to recoup against Mr Roseby were not made under cl 15.1 of the Trust Deed as arising from a failure to account for money by a participant, ie Ms Fry, but under cl 15.2 for loss suffered by reason of a failure to account in other circumstances.

Mr Roseby claimed that it was irrational to hold that the audit of Ms Fry's accounts in 1997 and 1998 was causally connected to claims made on the scheme by members of the public as the result of dealings with a different entity.

In any event, it was submitted that even if the accounts had been properly prepared and accurate, and properly audited to show the true position, it was likely Ms Fry would have met any conditions TCF required to be met in 1997 for maintaining the licence and would not have ceased trading any earlier than she did. 111 TCF argued that the wrongful conduct of Mr Tambree and Mr Roseby generated the very risk of injury which resulted when Ms Fry continued to conduct the business of a travel agent after resigning from the scheme and that what she did occurred in the ordinary course of things. Their misleading statements and negligence was a continuing cause of the loss suffered by the claimants and, hence, TCF. 112 Mr Roseby submitted, and Mr Tambree joined in this submission, that there was no causal link between the 1997 and 1998 financial reports and audits of Ms Fry's travel agency business, which TCF relied upon to permit her to participate in the scheme, and TCF's payments out of the fund to members of the public following a failure to account to the claimants by the separate entity, TSIPL, which was never a participant in the scheme. It was submitted that the losses arose out of TSIPL's independent activities when Ms Fry no longer conducted any business and that the vast majority of the claims occurred when Ms Fry was no longer a member of the fund. 113 Although it has been held that the ultimate test of causal relationship between tortious breach of duty and compensable harm is the application of commonsense and experience, the intervention of other immediate causes has led to various qualifications. In Medlin v State Government Insurance Commission (1995) 182 CLR 1 at 6, Deane, Dawson, Toohey and Gaudron JJ said: "For the purposes of the law of negligence, the question whether the requisite causal connexion exists between a particular breach of duty and particular loss or damage is essentially one of fact to be resolved, on the probabilities, as a matter of commonsense and experience. And that remains so in a case such as the present where the question of the existence of the requisite causal connexion is complicated by the intervention of some act or decision of the plaintiff or a third party which constitutes a more immediate cause of the loss or damage. In such a case, the 'but for' test, while retaining an important role as a negative criterion which will commonly (but not always) exclude causation if not satisfied, is inadequate as a comprehensive positive test. If, in such a case, it can be seen that the necessary causal connection would exist if the intervening act or decision be disregarded, the question of causation may often be conveniently expressed in terms of whether the intrusion of that act or decision has had the effect of breaking the chain of causation which would otherwise have existed between the breach of duty and the particular loss or damage. The ultimate question must, however, always be whether, notwithstanding the intervention of the subsequent decision, the defendant's wrongful act or omission is, as between the plaintiff and defendant and as a matter of commonsense and experience, properly to be seen as having caused the relevant loss or damage. Indeed, in some cases, it may be potentially misleading to pose the question of causation in terms of whether an intervening act or decision has interrupted or broken a chain of causation which would otherwise have existed. An example of such a case is where the negligent act or omission was itself a direct or indirect contributing cause of the intervening act or decision." 114 In Henville v Walker (2001) 206 CLR 459 McHugh J, with whose reasons Gummow J agreed, referred, inter alia, to Medlin at 7 and said at 490 [97] and 491 [99]: "The common law concept of causation recognises that conduct that infringes a legal norm may be causally connected with the sustaining of loss or damage even though other factors may have contributed to the loss or damage.

… In Environment Agency v Empress Car Co (Abertillery) Ltd [1999] 2 AC 22 at 29, Lord Hoffmann pointed out that common sense answers to questions of causation will differ according to the purpose for which the question is asked. Furthermore, not only may there be different answers to questions regarding causation when attributing responsibility to different people under different rules, but there may be different answers when attributing responsibility to different people under the same rules; [1999] 2 AC 22 at 30."

See also per Kirby J in Chappel v Hart (1998) 195 CLR 232 and per Gleeson CJ in Modbury Triangle v Anzil (2000) 205 CLR 254 at 269. 115 Later in his judgment at 493 McHugh J said: "105 The corollary of the 'common sense' approach to causation, as Mahoney JA pointed out in Barnes (1988) 12 NSWLR 337 is that it is not reducible to a 'test' that can be applied across the spectrum of factual situations that arise from case to case. Nevertheless, the course of judicial reasoning in this area has produced certain principles that assist tribunals of fact in deciding causation issues. 106 If the defendant's breach has 'materially contributed' to the loss or damage suffered, it will be regarded as a cause of the loss or damage, despite other factors or conditions having played an even more significant role in producing the loss or damage. As long as the breach materially contributed to the damage, a causal connection will ordinarily exist even though the breach without more would not have brought about the damage. In exceptional cases, where an abnormal event intervenes between the breach and damage, it may be right as a matter of common sense to hold that the breach was not a cause of damage. But such cases are exceptional." 116 At 504 [136] McHugh J said: "Given the long history of the common law's recognition of the concept of remoteness in assessing damages in contract and tort and its relationship with the issue of causation, it seems proper to read the term 'by' in s82 [of the Trade Practices Act ] as including the concept of remoteness. By remoteness, I mean that the loss or damage was not reasonably foreseeable even in a general way by the contravener." 117 In that case, the majority said that the policy behind the Trade Practices Act was to prevent misleading or deceptive conduct which induces persons to act to their detriment, such that ordinarily the claimant is to be compensated for the actual loss suffered. In such a case it may be open to the defendant to avoid liability for losses attributable to the claimant's unreasonable conduct or to other sources (but that can only occur where there is a divisible loss capable of being disentangled); see Mendelow; Trade Practices Act: Recent Developments in Assessment of Damages 77 ALJ 534 at 541. 118 Thus, in the present case, attention must be directed to the causal connection taking account, in an appropriate way, of the effect of Ms Fry's ceasing to carry on business as a travel agent and later, on 23 February 1999, resigning from and ceasing to participate in the scheme, and considering whether the loss to TCF from claims thereafter was too remote.

119 Mr Roseby complained that Austin J focused on whether the audits were a substantial factor in producing the loss claimed, rather than considering the "but for" test, even as a negative check. His Honour concluded that the 1997 and 1998 audits allowed Ms Fry "to continue to trade, and then to informally transfer the business to TSIPL and later to have the business transferred again to DMV Travel". His Honour assumed the audits prevented earlier remedial steps being taken by TCF which, in turn, allowed "a state of affairs" to develop where Mr Fry and Ms Fry were able to continue to trade. It was submitted that the trial Judge failed to appreciate that the circumstances of renewal of Ms Fry's licence/participation in TCF of itself, was only of inconsequential or negligible relevance to the actual activities of TSIPL. Those activities had, at best, an incidental and tenuous connection with Ms Fry being a participant in the scheme and contributor to the fund. Most of the claims against TSIPL arose when Ms Fry was neither a participant or contributor and was not licensed. 120 After November 1998, when Ms Fry transferred her business to TSIPL, the activities of TSIPL were sufficiently independent from Ms Fry's licensed business to mean, at law, that they were not causally related. A proper analysis of the facts did not permit the conclusion that it was Ms Fry's participation in the scheme that "allowed" TSIPL and the Frys to continue to trade after that participation ceased. As a matter of commonsense, Mr Roseby's audit of the financial creditworthiness of Ms Fry did not materially contribute to TSIPL's taking over the business of the Travel Shop International and continuing to trade. It was these acts of TSIPL which caused the losses in question. Further, on the balance of probabilities, TCF would not have terminated Ms Fry's participation any earlier than it did, even if the accounts had been accurate and properly audited. 121 From 1 August 1994, Fiji Resorts was involved in the travel industry. Ms Fry and Mr Fry were directors and shareholders and Mr Fry the controlling force. Fiji Resorts never held a licence nor was it ever a member of the fund. From July/August 1996 until at least February 1997, Fiji Resorts ordered tickets from Metro. It operated in conjunction with other licensed travel agents, such as DMV Travel, before Ms Fry was licensed and began to trade in February 1997. Fiji Resorts, apart from lawfully using other person's licenses, also traded unlawfully as a travel agent without a licence both before and while Ms Fry held her licence. The Metro account was in the name of Fiji Resorts from 1995 until at least February 1997. Accordingly, it was wrong to conclude that Mr Roseby's audits and Ms Fry's participation in the fund, thereafter, were causally related to the unlawful trading of Fiji Resorts or TSIPL on the basis that it was Ms Fry's licence that "allowed" the latter to occur. 122 In 1997, Fiji Resorts ceased trading. TSIPL was incorporated on 11 October 1996. Ms Fry was the sole director and shareholder. Mr Fry controlled the company. By at least 26 May 1998 it was trading. Austin J found that the licensed business of Ms Fry effectively ceased from 20 November 1998 when it was taken over or transferred to TSIPL. TSIPL alone, and as an entity separate from Ms Fry, not Ms Fry, conducted the relevant travel agency business from November 1998. This business gave rise to claims on TCF by members of the public. 123 The claimed losses covered moneys provided by the public to TSIPL during the period January 1999 to April 1999. As already indicated of the amount claimed by TCF only $13,320 was for compensation to consumers who had made payments before 23 February 1999 when TCF terminated the participation of Travel Shop International in the compensation scheme. In the period that followed until the premises at 366 Church Street, Parramatta were closed by licensing inspectors on 20 April 1999, when dealing with the public, TSIPL quoted Ms Fry's licence number. Further statements were made that Travel Shop International was the provider, a Travel Shop International receipt was given, a Travel Shop International acknowledgement of booking was given, a Travel Shop International itinerary was given or a Travel Shop International remittance was given to most, if not all, the claimants compensated by TCF. In its submissions TCF accepted that all the claims, other than those represented by the amount of $13,320, were for business done after 23 February 1999. 124 In some of the documentation such expressions are used as "Travel Shop also known as DMV Travel" and "Formerly the Travel Shop International Pty Ltd". This is confusing and no doubt was designed to confuse. DMV Travel was a licensed travel agent used by Fiji Resorts before Ms Fry's licence was granted. In their evidence, the Frys maintained that they had a lawful arrangement in place which would permit TSIPL to conduct a travel business as an agent of DMV Travel. On 24 March 1999 the Department of Fair Trading received a letter from DMV Travel, which also operated in Parramatta, informing the department that DMV Travel was immediately re-locating premises to 366 Church Street, Parramatta, the address of the Travel Shop International. It was submitted that because Austin J found that the business was conducted by TSIPL, rather than Ms Fry, there was no basis for TCF's claim pursuant to s50(4) of the Act against Ms Fry. The evidence did not allow the conclusion that Ms Fry's continued participation in the fund was a significant or material fact which led to TSIPL engaging in either unlawful trading on its own or lawful trading through DMV Travel. 125 It was submitted that it was contrary to the rationale of an audit of Ms Fry's financial standing, confirming her creditworthiness, to hold that the audits were causally connected to claims made on TCF by members of the public who had dealt with a different entity never audited by Mr Roseby. This was so, even if at times, the entity quoted Ms Fry's licence number along with that of DMV Travel. This was even more tenuous when Ms Fry had resigned from the scheme and TSIPL was purporting to act, not pursuant to some arrangement with her, but with DMV Travel. 126 In the alternative, it was contended that Austin J ought to have found on the evidence that "but for" the audits of 1997 and 1998 and assuming no misrepresentation as alleged, the termination of Ms Fry was unlikely to have occurred any earlier. Based on the evidence of Mr Humphreys' reports, TCF would, on the 1997 audit, have required a bank guarantee or an injection of capital in an amount of $47,000 to allow continued participation in the fund, if Ms Fry's business was treated on its own, and an injection of $86,000 if it was grouped with Fiji Resorts as one entity. This was based on the liability to Metro being $65,684.03. Part of the liability was that of Fiji Resorts. Ms Fry's liability was $36,157.50. If the amount were corrected the injection of capital for scenario one would have been $25,872.38 and $47,340.95 for scenario two. In fact, they were separate businesses before February 1997 and scenario two was not appropriate. Thus the true injection of capital or amount of a bank guarantee would have been $25,872.38. It was submitted, on the evidence, that Ms Fry would have provided this. 127 In respect of the 1998 accounts the indebtedness of Ms Fry to Metro was $178,867.11. TCF would have required a bank guarantee or capital injection in the vicinity of $292,000. It was submitted that on the evidence, in the ordinary course, termination of the licence following lodgement of unsatisfactory financial material would not have resulted in termination any earlier than it occurred. This the trial Judge accepted in a passage I have quoted, subject to a qualification that: "If there had been full disclosure of liabilities in 1997 either initially or in response to some investigation stimulated by the auditor, and then Ms Fry lodged an application for renewal in 1998 showing much larger turnover figures but no liabilities, it stood to reason that TCF would have responded rather more quickly than Mr Brattoni's timetable implies." 128 There were, it was submitted, two difficulties with this. His Honour's conclusion involved a switch from a scenario of proper accounts being submitted in 1997 to negligent accounts in 1998. It was submitted that if proper accounts had been submitted for both, there was no basis for suggesting that termination would have occurred earlier than it did. Mr Brattoni under cross-examination accepted that a proper account in 1998 would have been unlikely to result in any earlier termination of Ms Fry's licence. 129 In January 1999, TCF was told that Ms Fry's accounts were wrong. A field audit was proposed. On 8 February 1999, Mr Fry told TCF he had hidden things from his auditor and there were liabilities not revealed in the accounts. This did not prompt any immediate action from TCF. TCF permitted Ms Fry to resign. On 23 February 1999 the executive committee of TCF resolved to terminate participation by Ms Fry's agency in the fund. A letter to that effect was sent on 25 February 1999. 130 It was submitted that the trial Judge ought to have found on the balance of probabilities that TCF would not have been better off, or caused an earlier termination of Ms Fry's licence, had there been no negligent acts or omissions as alleged in respect of Mr Roseby's audits. The small capital injection or bank guarantee of 1997 would have been from Ms Fry's business and not available to meet the claims of the public on TSIPL. 131 Finally, Mr Roseby submitted that the payments to contributors by TCF were entirely voluntary and deliberate. That brought into play the general principle that the free, deliberate and informed act or omission of a human being negatives the causal connection found by Austin J; (HLA Hart and Honore, Causation in the Law at 136-162). Where trustees of a government instrumentality voluntarily decide for moral/political reasons to compensate members of the public who have suffered loss, general principle negatives causation. 132 As the learned author remarks in Lockhart The Law of Misleading or Deceptive Conduct, 2nd ed, at 10.4: "To be compensable in deceit and negligent misrepresentation, the loss claimed must also have 'flowed directly from the inducement'; Gould v Vaggelas (1985) 157 CLR 215 at 242. In deciding whether particular losses have that connection with the plaintiff's act of reliance, it will often be necessary to confront the second of the difficult questions identified in March v E & MH Stramare Pty Ltd (1991) 171 CLR 506, namely whether the defendant's wrongful act has been superseded as the cause of the loss claimed by 'something which can be described as either unreasonable or extraneous or extrinsic'; The Oropesa [1943] P 32 at 39. For that purpose, the courts distinguish between supervening acts or events occurring in the ordinary course of things by virtue of the particular risk arising from the defendant's act ( March v Stramare at 518-9) and acts or events which '[transform] the outcome of [the defendant's] conduct into something of far greater consequence … not readily foreseeable by [the defendant]' March v Stramare at 515. Only the latter are regarded as breaking the chain of causation between the impugned conduct and subsequent loss." 133 In March v Stramare at 517-8 Mason CJ said: " Novus actus interveniens In similar fashion, the 'but for' test does not provide a satisfactory answer in those cases in which a superseding cause, described as a novus actus interveniens, is said to break the chain of causation which would otherwise have resulted from an earlier wrongful act. Many examples may be given of a negligent act by A which sets the scene for a deliberate wrongful act by B who, fortuitously and on the spur of the moment, irresponsibly does something which transforms the outcome of A's conduct into something of far greater consequence, a consequence not readily foreseeable by A. In such a situation, A's act is not a cause of that consequence, though it was an essential condition of it. No doubt the explanation is that the voluntary intervention of B is, in the ultimate analysis, the true cause, A's act being no more than an antecedent condition not amounting to a cause." 134 In those terms, one must ask whether, even if the acts of Mr Tambree and Mr Roseby set the scene for Ms Fry's ability, legally, to conduct a travel agency business in New South Wales and then to continue that business after she terminated participation in the scheme on 23 February 1999, what she did thereafter transformed the outcome of Mr Tambree's and Mr Roseby's conduct into something of far greater consequence, a consequence not readily foreseeable by them. The Chief Justice continued at 517-518: "The facts of, and the decision in, M'Kew v Holland & Hannen & Cubits [1970] SC (HL) 20 illustrate the same deficiency in the test. The plaintiff would not have sustained his ultimate injury but for the defendant's negligence causing the earlier injury to his left leg. His subsequent action in attempting to descend a steep staircase without a handrail in the normal manner and without adult assistance resulted in a severe fracture of his ankle. This action was adjudged to be unreasonable and to sever the chain of causation. The decision may be explained by reference to a value judgment that it would be unjust to hold the defendant legally responsible for an injury which, though it could be traced back to the defendant's wrongful conduct, was the immediate result of unreasonable action on the part of the plaintiff. But in truth the decision proceeded from a conclusion that the plaintiff's injury was the consequence of his independent and unreasonable action. The fact that the intervening action is deliberate or voluntary does not necessarily mean that the plaintiff's injuries are not a consequence of the defendant's negligent conduct. In some situations a defendant may come under a duty of care not to expose the plaintiff to a risk of injury arising from deliberate or voluntary conduct or even to guard against that risk: see Chomentowski v Red Garter Restaurant Ltd (1970) 92 WN (NSW) 1070. To deny recovery in these situations because the intervening action is deliberate or voluntary would be to deprive the duty of any content." 135 In the present case, can it be said that Ms Fry's activity or conduct after 23 February 1999 severed the chain of causation? 136 The Chief Justice continued at 518-519: "It has been said that the fact of the intervening action was foreseeable does not mean that the negligent defendant is liable for damage which results from the intervening action: see Chapman v Hearse (1961) 106 CLR at 122; M'Kew at 25; Caterson v Commissioner of Railways (1973) 128 CLR 99 at 110. But it is otherwise if the intervening action was in the ordinary course of things the very kind of thing likely to happen as a result of the defendant's negligence. In Dorset Yacht Co v Home Office [1970] AC 1004 at 1030, Lord Reid observed: 'But if the intervening action was likely to happen I do not think that it can matter whether that action was innocent or tortious or criminal. Unfortunately, tortious or criminal action by a third party is often the 'very kind of thing' which is likely to happen as a result of the wrongful or careless act of the defendant.' Much the same approach was adopted by this Court in Caterson where Gibbs J (with whom Barwick CJ, Menzies and Stephen JJ agreed) pointed out that, if the plaintiff's action in jumping from the train was, in the ordinary course of things, the very kind of thing likely to happen as a result of the defendant's negligence and was not unreasonable, the jury was entitled to find that the plaintiff's injuries were caused by the defendant's negligence. The finding that the plaintiff's action was not unreasonable was then essential to that conclusion because contributory negligence was a defence in New South Wales at the relevant time. See also Chapman v Hearse at 124-125; and note the reference in Mahony v J Kruschich (Demolitions) Pty Ltd (1985) 156 CLR 522 at 529, to the acceptance by Gibbs J in Dillingham Constructions Pty Ltd v Steel Mains Pty Ltd (1975) 132 CLR 323 at 329-330, of the suggestion that, if a pedestrian were run over by two drivers consecutively and both were negligent, the injuries caused by the second driver would be damage for which both drivers were liable if those injuries were also the foreseeable consequence of the first driver's negligence. As a matter of both logic and common sense, it makes no sense to regard the negligence of the plaintiff or a third party as a superseding cause or novus actus interveniens when the defendant's wrongful conduct has generated the very risk of injury resulting from the negligence of the plaintiff or a third party and that injury occurs in the ordinary course of things. In such a situation, the defendant's negligence satisfies the 'but for' test and is properly to be regarded as a cause of the consequence because there is no reason in common sense, logic or policy for refusing to so regard it." 137 At 534 McHugh J quoted from Mahony at 528: "A line marking the boundary of the damage for which a tortfeasor is liable in negligence may be drawn either because the relevant injury is not reasonably foreseeable or because the chain of causation is broken by a novus actus interveniens." 138 McHugh J continued at 534-536: "As I have pointed out, however, questions of novus actus interveniens involve value judgments. Thus, Hart and Honore who support the novus actus interveniens doctrine argue at p.133 that the decisions of the courts have been controlled by the principle that the connexion between a wrongful act and harm is negatived 'if the factors required, in addition to the wrongful act, for the production of the harm include a voluntary human action or an abnormal occurrence'. Yet Hart and Honore concede (see 142-156) that non-voluntary conduct for this purpose includes conduct which is the result of physical compulsion, concussion, fright, self-preservation, preservation of property, protection of interests, legal or moral obligations, unreflective acts, mistake, accident or negligence. As J Stapleton has pointed out in 'Law, Causation and Common Sense', Oxford Journal of Legal Studies , vol 8 (1988) 111, at 125: 'Quite apart from the fact that this is a remarkable departure from ordinary usage for authors committed to analysis of the accurate use of plain language, it serves to disguise the fact that the division between those acts which negative causal connection and those that do not appears, as we have seen, to be value-based, that is, to depend on the evaluation of the interest served by the intervening act.' Once it is recognised that foreseeability is not the exclusive test of remoteness and that policy-based rules, disguised as causation principles, are also being used to limit responsibility for occasioning damage, the rationalization of the rules concerning remoteness of damage requires an approach which incorporates the issue of foreseeability but also enables other policy factors to be articulated and examined. One such approach, and the one I favour, is the 'scope of the risk' test which has much support among academic writers as well as the support of Denning LJ in Roe v Minister of Health [1954] 2 QB 66 at 85, where his Lordship said: 'Starting with the proposition that a negligent person should be liable, within reason, for the consequences of his conduct, the extent of his liability is to be found by asking the one question: Is the consequence fairly to be regarded as within the risk created by the negligence? If so, the negligent person is liable for it: but otherwise not.' (My emphasis). Damage will be a consequence of the risk if it is the kind of damage which should have been reasonably foreseen. However, the precise damage need not have been foreseen. It is sufficient if damage of the kind which occurred could have been foreseen in a general way: Hughes v Lord Advocate [1963] AC 837. But the 'scope of the risk' test enables more than foreseeability of damage to be considered. As Fleming points out ( Law of Torts, 7th ed. (1987), 193), it also enables allowance to: 'be made to such other pertinent factors as the purpose of the legal rule violated by the defendant, analogies drawn from accepted patterns of past decisions, general community notions regarding the allocation of 'blame' as well as supervening considerations of judicial policy bearing on accident prevention, loss distribution and insurance.' Thus, the 'scope of the risk' test enables relevant policy factors to be articulated and justified in a way which is not possible when responsibility is limited by reference to commonsense notions of causation or to more specific criteria such as 'novus actus interveniens', 'sole cause' or 'real cause', all of which conceal unexpressed value judgments." 139 As a value judgment I do not think that what Ms Fry did following her termination of participation could be regarded as a normal occurrence. A person would not normally terminate the licence which enabled that person to conduct a travel agent's business and yet continue to conduct that business illegally. 140 In his report, Professor Walker observed that while Mr Tambree might claim to have only "compiled" the financial statements, the very act of "compilation" necessitates some degree of knowledge and skill. Leaving aside questions relating to whether or not the accounts were prepared in terms of APS9 or other accounting standards, in Professor Walker's opinion "the proper application of knowledge and skill relating to accounting would (or should) have immediately highlighted serious deficiencies in the accounts prepared for Ms Fry, namely the omission of any reference to trade creditors." A person who, holding himself out as an accountant, prepares a financial report about a trader in such a delinquent and incompetent manner betrays the standard which people would ordinarily expect of him as an accountant. It is a very serious thing. As serious, if not more serious, is the audit certificate of Mr Roseby. 141 In Ruddock v Taylor (2003) NSWCA 262 Ipp JA at para 90 referred to the English Court of Appeal's decision in Chester v Afshar [2003] QB 356. The judgment of the Court was given by Sir Denis Henry. The Court, in a case where a doctor had negligently failed to warn the claimant of the risk of developing a syndrome if a surgical procedure on her spine was undertaken, applied the majority views expressed in Chappel v Hart. At 377-8 his Lordship, considering causation, put aside co-incidences with which the defendant had nothing to do, citing the classic example given by Lord Hoffman in Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191 at 213: "A mountaineer about to undertake a difficult climb is concerned about the fitness of his knee. He goes to a doctor who negligently makes superficial examination and pronounces the knee fit. The climber goes on the expedition, which he would not have undertaken if the doctor had told him the true state of his knee. He suffers an injury which is an entirely foreseeable consequence of mountaineering but has nothing to do with his knee." 142 Sir Denis Henry continued at 378: "44 In cases such as the present, however, it simply cannot be said that the injury suffered had nothing to do with the problem which had taken the claimant to the doctor. It was a consequence of that very problem and the doctor's attempt to put it right. Furthermore it was a consequence about which the claimant had expressed her concern to the doctor and been wrongly reassured. The closer analogy is with the mountaineer who consults his doctor because he is afraid that his knee will give way under the strain of mountain climbing, is wrongly reassured that it will not, and who is injured because his knee does give way. The doctor was not to blame for the knee giving way, any more than the doctor (if the first operation was not negligently performed) was to blame for the cauda equina syndrome in this case, but he was to blame for the mountaineer being on the mountain at all." 143 In the present case, while neither Mr Tambree or Mr Roseby was responsible for the way Ms Fry conducted her business so as to cause loss to the claimants, the argument is that they were to blame for her being in business at all. At 378-9 his Lordship referred to the observations of Lord Hoffmann in Environment Agency (formerly National Rivers Authority) v Empress Car Co (Abertillery) Ltd at 29, 31. 144 His Lordship said that a somewhat similar point was made by Laws LJ in Rahman v Arearose Ltd [2001] QB 351 at 367: "So in all these cases the real question is, what is the damage for which the defendant under consideration should be held responsible . The nature of his duty (here, the common law duty of care) is relevant; causation, certainly, will be relevant - but it will fall to be viewed, and in truth can only be understood, in light of the answer to the question: from what kind of harm was it the defendant's duty to guard the claimant?" 145 His Lordship said at 379: "In principle there seems to be little difficulty in attributing causative responsibility to a doctor who has in breach of duty failed to draw a particular risk to his patient's attention if in the event that particular risk materialises. 47 The purpose of the rule requiring doctors to give appropriate information to their patients is to enable the patient to exercise her right to choose whether or not to have the particular operation to which she is asked to give her consent." 146 In Ruddock v Taylor, Ipp JA stated why he considered that the appellants in that case, who were found to have wrongfully imprisoned the respondent, caused the damage sustained by the respondent. His Honour said: "85 As Professor Jane Stapleton has explained in her article 'Cause-in-Fact and the Scope of Liability for Consequences' (2003) 119 LQR 388, there are two fundamental questions involved in the determination of causation in tort.

86 The first relates to the factual aspect of causation, namely, the aspect that is concerned with whether the negligent conduct in question played a part in bringing about the harm, the subject of the claim. Professor Stapleton argues (at 389) that this inquiry involves determining whether there was, on the part the defendant, "historical involvement in [the plaintiff] suffering actionable damage".

87 The second aspect concerns "the 'appropriate' scope of liability for the consequences of tortious conduct" (Stapleton op cit at 411). In other words, the ultimate question to be answered when addressing the second aspect is a normative one, namely, whether the defendant ought to be held liable to pay damages for that harm. This inquiry may involve normative issues of a general kind, or issues such as whether the so-called evidentiary gap should be bridged (in the sense explained in Bonnington Castings Ltd v Wardlaw [1956] AC 613), whether the defendant materially increased the risk (in the sense explained in Fairchild v Glenhaven Funeral Services Ltd [2003] 1 AC 32), and whether the damage claimed is too remote.

88 Terminology such as 'common sense causation' and 'proximate' or 'dominant' or 'effective' or even 'legal' cause conceal judicial reasoning, rather than explain it. These terms afford little guidance about when negligent conduct will be considered to have caused harm (see Stapleton, 'Duty of Care Factors: a Selection from the Judicial Menus' , an essay in The Law of Obligations : Essays in Celebration of John Fleming, Cane and Stapleton, ed, 59 at 61; Review of the Law of Negligence (2002) at 108 to 119)." 147 Ipp JA said of Chester v Afshar: "91 On these facts, the Court of Appeal found that the doctor had caused the injury. Part of its reasoning was that the law was designed to require medical practitioners properly to inform their patients of the risks attendant on their treatment. As the surgeon failed to take proper care in regard to this duty, and that resulted in the patient consenting to an operation to which she would not otherwise have given her consent, the purpose of the rule would be thwarted if the surgeon were not to be held responsible. The very risk about which the surgeon failed to warn the patient materialised and caused her an injury she would not otherwise have suffered. In these circumstances, the Court of Appeal considered that it would be unjust to hold that the effective cause of the patient's injury was the random occurrence of the very small risk in the condition occurring. 92 This was a normative decision, that is, a decision based on policy considerations." 148 This accords with what Professor Stapleton said in 1988 in Oxford Journal of Legal Studies, Vol 8, 111 at 125: "… the division between those acts which negative causal connection and those that do not appears, as we have seen, to be value based, that is, to depend on the evaluation of the interest served by the intervening act."

This passage was quoted by McHugh J in March v Stramare at 535. 149 Austin J found, based on the evidence given on behalf of TCF as a whole, and in particular the evidence given by Mr Whittaker, Mr Pitts and Mr Given, that there was "a common sense causal connection between Mr Tambree's misrepresentations and the TCF's losses" (para 178). Turning to Mr Roseby, his Honour found: "a proper audit would have put the TCF in a position to deal with the misleading financial disclosure late in 1997 or early in 1998. In terms of the common sense meaning of causation, Mr Roseby's conduct of the 1997 audit was a cause of the losses, because it allowed a state of affairs to develop in which Ms Fry and Mr Fry were able to continue to trade and expose the clients of the business to losses" (para 191). 150 Adopting the approach suggested by Ipp JA, the first question is whether there was, on the part of Mr Tambree or Mr Roseby, "historical involvement in TCF suffering the damage claimed." Austin J found that there was. Factual challenges are made to this conclusion. I am not, however, persuaded that, if Mr Tambree and Mr Roseby had properly and carefully completed their duties, in the one case as an accountant, and in the other case as an auditor, Ms Fry's licence would have been renewed in 1997 and 1998, or, if renewed, not terminated before 23 February 1999. The performance of those duties in the way Professor Walker said they should have been performed, required in the case of Mr Tambree the proper application of knowledge and skill, which would or should, have immediately highlighted serious deficiencies in the financial statements, and, in particular, the omission of any reference to trade creditors and in the case of Mr Roseby, the undertaking of proper procedures to assess whether the financial statements included material misstatements.

151 As Austin J found, eligibility for participation in the scheme and for the grant of a licence depended upon the financial viability of the applicant. To determine this, TCF relied upon the information submitted by the applicant. The form provided for self-assessment. Self-assessment in excess of ten points led to automatic renewal. But for the negligence of Mr Tambree and Mr Roseby, Ms Fry's licence would not have been automatically renewed in 1997 and 1998. Had the accounts been properly prepared or properly audited Ms Fry's financial position would have been reviewed and almost certainly conditions imposed for renewal.

152 Austin J found that either a bank guarantee or an injection of capital would have been required. If it had not been forthcoming, participation in the scheme would have been withdrawn and Ms Fry's licence would have been cancelled. If the condition had been met for each year there would have been a capital buffer sufficient to meet the claims in fact made. Austin J found that Mr Roseby's deficient audits in 1997 and 1998 were a cause of this capital buffer not being required. 153 On the evidence and consistent with Austin J's findings, I am satisfied that a proper discharge of Mr Roseby of his auditing duties or by Mr Tambree of his duties as an accountant would have led to a chain of regulatory events that would have prevented the losses being suffered by the claimants or, alternatively, would have provided a means for meeting them without recourse to TCF. 154 The next question is whether, bearing in mind the particular circumstances in which they negligently made misleading representations, Mr Tambree and Mr Roseby should be held responsible for all of TCF's loss. It is a matter of public importance that accountants should not, when asked to prepare financial reports of business entities, to be used by an agency such as TCF, act so negligently as to produce a misleading report. Even more so can this be said of an auditor who provides an auditor's certificate. These documents were about Ms Fry's financial affairs and were provided for TCF. Again there are challenges on the facts to the conclusion that they fell within the scope of the risk. 155 Mr Roseby's conduct in negligently preparing a misleading audit occurred in the context of supporting Ms Fry's application to participate in the scheme. TCF relied upon this conduct in its pleading by claiming that the accounts and audit induced TCF to permit Ms Fry to continue in the scheme and accordingly engage in the business of a travel agent. She subsequently ceased to carry on that business in her own name, and a little later, ceased to participate in the scheme. It is not clear from the findings whether thereafter she did other than work for TSIPL, which seems to have made use of her licence number. Both Mr Tambree and Mr Roseby knew that the accounts and audit certificate were to aid Ms Fry continuing in the scheme and engaging in business as a licensed travel agent. However in my opinion, by no test could it be said that the negligently prepared accounts and audit and the misrepresentations that flowed from them, were causally related to her continuing illegally in the business of a travel agent. The example given by counsel for Mr Roseby, of the negligent testing of a potential driver being causally related to the driver negligently injuring a person while continuing to drive after the licence was cancelled, seems to me apposite. On this ground, in my opinion, both the appeal and the cross-appeal should be upheld to the extent that TCF is not entitled to recover the amount of compensation paid to those claimants who suffered loss as the result of Ms Fry's activities after 23 February 1999.

Conclusion 156 The appeal and cross-appeal succeed to the extent that there was no sufficient causal connection between the negligence or breaches of s42 of the Fair Trading Act by the appellant and cross-appellant and the loss suffered by TCF in paying compensation to persons who made payments for travel services after 23 February 1999. The verdict and judgment should be adjusted accordingly both as to principal and interest. I propose the following orders: 1. Appeal and cross-appeal allowed; 2. Set aside that part of order 1 which refers to the fourth and fifth defendants and add the following order: 1A. In favour of the plaintiff against the fourth and fifth defendants in the sum of $13,320 together with interest on the said judgment sum in accordance with the Supreme Court Act and Rules from 20 September 1999 to 15 November 2002 in the sum of $4,216 being a total of $17,536. 3. The respondent Travel Compensation Fund to pay the appellant and cross-appellant their costs of the appeal and cross-appeal but to have a certificate under the Suitors' Fund Act 1951 if so qualified. 4. Liberty to the appellant and cross-appellant within seven days to make application to vary costs order 4 made by Austin J. 157 IPP JA: I agree with Sheller JA. **********

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