Claims by the Plaintiff against the Third and Fifth Defendants
106 The plaintiff relied on two causes of action against the third and fifth defendants, both of which were based on the statement about Mr Wynne's income in the letter of 7 June 1991. These causes of action were:-
107 1. A cause of action in tort for breach of a duty owed to the Society, as a member of a class of prospective mortgagees, to exercise reasonable care and skill in representing the amount of the income of the proposed borrower Mr Wynne.
108 2. A cause of action for breach of s 42 of the Fair Trading Act. The plaintiff alleged that the accountants had engaged in misleading or deceptive conduct, by misrepresenting that Mr Wynne's income was $235,000 per annum, comprised of a salary of $35,000 per annum and drawings from his business of $200,000 per annum, and/or by misrepresenting that their misrepresentation about Mr Wynne's income was based on reasonable grounds and was the product of a careful exercise of their accounting expertise.
109 The third defendant was the author of the letter of 7 June 1991. However, it was not disputed by counsel for the accountants that in writing the letter the third defendant had been acting in the ordinary course of the business of the firm of chartered accountants and, accordingly, the fifth defendant would be subject to the same liability as the third defendant.
110 No attempt was made by counsel for the accountants to dispute that the accountants owed a duty of care to the Society or that they had been negligent or to justify the representation about Mr Wynne's income made in the letter of 7 June 1991 or to dispute that the accountants had engaged in misleading or deceptive conduct. Among much evidence showing that the representation about Mr Wynne's income was untrue was a copy of Mr Wynne's income tax return for the year ended 30 June 1991, which had been prepared by the third and fifth defendants and which showed Mr Wynne's income for that year as $35,880.
111 Certain amounts had been withdrawn by Mr Wynne from a beneficiary loan account he had with Banksia Settlements Pty Limited. However, Banksia Settlements Pty Limited was insolvent and Mr Mentzalis in his report expressed the opinion that, based on the standards and practices of the accounting profession as at 7 June 1991, none of the amounts which had been withdrawn by Mr Wynne from the beneficiary loan account could be considered to be income of Mr Wynne.
112 A submission which was made by counsel for the third and fifth defendants was that the plaintiff had not established that the Society had relied on the misrepresentation by the accountants about the amount of Mr Wynne's income in deciding to enter into the mortgage loan transaction. Alternatively, it was submitted that any reliance by the Society on the misrepresentation had been unreasonable.
113 In support of these general submissions, it was contended that the representation about Mr Wynne's income, that his gross income was $235,000 per annum, did not convey any useful information about his capacity to service a loan, because it said nothing about what outgoings Mr Wynne had or what his disposable or nett income was.
114 It was pointed out by counsel for the accountants that a condition that a proposed borrower should have any particular level of income was not included in the document prepared by Mr Wrigley in August 1990, as one of the principles to be applied in deciding whether applications to the Society for mortgage finance should be approved. On the other hand, the first principle set out by Mr Wrigley, "no more than 60% of current valuation to be loaned", showed that the value of the security being offered by the proposed borrower was more important to the Society in deciding whether an application for mortgage finance should be approved, than was the amount of the borrower's income or his capacity to service a loan.
115 It was pointed out by counsel for the accountants that, after the Society had received the letter of 7 June 1991, the Society had not made any inquiry about what Mr Wynne's income was. It was submitted that the fact that the Society had not made any inquiry showed that the amount of Mr Wynne's income was not a material matter for the Society in deciding whether to approve Mr Wynne's application for mortgage finance. It was said that the absence of any inquiry was particularly significant, because Mr Gehrmann had received other documentary information, which was inconsistent with the representation in the accountant's letter about Mr Wynne's income.
116 I do not consider that the submission by counsel for the accountants that the plaintiff had not established that the Society had relied on the misrepresentation by the accountants about the amount of Mr Wynne's income in deciding to enter into the mortgage loan transaction, should be upheld.
117 In respect of both of the plaintiff's causes of action, the plaintiff is entitled to succeed on the issue of reliance or inducement, if it establishes that the Society in fact relied on the misrepresentation about Mr Wynne's income in deciding to enter into the mortgage loan transaction, even if the misrepresentation was not the sole or even the principal inducement and even if it was unreasonable for the Society to place any reliance on the misrepresentation. See Gould v Vaggelas (1985) 157 CLR 215 at 236 per Wilson J. A passage in the judgment of Heerey J in Sykes v Reserve Bank of Australia at 715, which I referred to earlier in this judgment, is worth setting out in full:-
"The present case is one alleging direct reliance by representees on statements by the representor. The Act (that is, the Trade Practices Act) does not in such circumstances erect any precondition that such reliance be 'reasonable'. Any argument to the contrary would be inconsistent with the well-established principle that contributory negligence is not available as a defence to a claim for damages based on a contravention of s 52. In Henjo Investments Pty Ltd v Collins Marrickville Pty Lt (1988) 39 FCR 546; 79 ALR 83 Lockhart J, with whom Burchett and Foster JJ relevantly agreed, said (at FCT 558; ALR 96) after referring to a number of decisions:
'These decisions support the view that recovery under s 52 is founded by the applicant's factual reliance upon the misleading or deceptive conduct of the respondent, although that conduct was not the only factor in the applicant's decision to enter a particular agreement, and although the applicant did not seek to verify the representations or did so inadequately and so failed to discover their falsity'
Also in Sutton v AJ Thompson Pty Ltd (in liq) (1987) 73 ALR 233 at 240-1 another Full Court said:
'But there is nothing in the principle cited, or in any other authority which has been brought to our attention, to suggest that a person who has been misled into entering a contract, by false representations of a type which were likely to produce that result, and in fact did so, can be deprived of his remedy because of his failure to check the accuracy of those representations'.
The possibility remains that the representee's own carelessness may be so dominant as to break the chain of causation.. However the present case is far removed from any such situation".
118 Mr Gehrmann gave evidence in his witness statement that he read the letter of 7 June 1991 from the accountants, that as a result of reading the letter he believed that Mr Wynne would have sufficient income from which to meet his obligations under the proposed loan and that one of his reasons for forming the view that the application for a loan should be approved was his belief that Mr Wynne would have sufficient income from which to meet his obligations under the proposed loan. I accept this evidence from Mr Gehrmann.
119 When asked in cross-examination what he had done to satisfy himself that Mr Wynne would have the capacity to repay the loan he was applying for, Mr Gehrmann said, "I relied on the letter from Bruce and Partner which said that he had an income of $235,000 per annum". Mr Gehrmann gave further oral evidence that, although he had not received any information about Mr Wynne's outgoings, a gross income of $235,000 was "in excess of the income that most of our borrowers had and it appeared to me that $235,000 as an income was well sufficient to service the loan…. When I see someone with $235,000 as an income, I believe that is extraordinary and they would normally meet their obligations". I accept the oral evidence by Mr Gehrmann which I have quoted.
120 One of the principles stated by Wilson J in Gould v Vaggelas at p 236 was:-
"If a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into the contract there arises a fair inference of fact that he was induced to do so by the representation".
121 In the present case the representation in the letter of 7 June 1991 was calculated to induce, and was intended by the third defendant to induce, a lender to make a loan to Mr Wynne. The letter was addressed to a mortgage broker. In his verified answer to interrogatory 21 the third defendant admitted on or before 7 June 1991 he knew or believed that "lenders/mortgagees rely on information concerning the income of potential borrowers provided to it by mortgage brokers as part of an overall assessment of factors which are relevant in deciding whether to make a proposed mortgage advance". In par 42 of his witness statement the third defendant said that he assumed that Mr Moody might use the letter of 7 June 1991 to complete loan application forms or provide to a lender, if necessary. In oral evidence the third defendant admitted that the purpose of providing a figure for Mr Wynne's income was to demonstrate Mr Wynne's capacity to make interest payments under the proposed mortgage advance.
122 In my opinion, given the evidence I have referred to, the principle stated by Wilson J in Gould v Vaggelas is applicable and furnishes an additional reason for holding that the representation made by the accountants operated as an inducement to the Society to enter into the mortgage loan transaction.
123 I am satisfied that I should hold that the plaintiff has established that the Society relied on the misrepresentation made by the third and fifth defendants in deciding to enter into the mortgage loan transaction. Even if it would have been unreasonable for the Society to rely on the misrepresentation, that would be immaterial to whether the Society in fact relied on the misrepresentation.
124 It was submitted by counsel for the accountants that the plaintiff had not established a causal connection between the representation made by the accountants and the losses the plaintiff had suffered. It was further submitted that, if the solicitors had not breached the implied term in their retainer and had not been negligent, the losses the plaintiff had suffered would not have been incurred.
125 In March v E & M.H. Stramare Pty Limited (1990-91) 171 CLR 506 it was held by the High Court that causation is a question of fact to be answered by reference to common sense and experience and one into which considerations of policy and value judgments necessarily enter. It is not necessary, in order that an alleged cause should be found to be a cause, that it should have been the only cause or even the principal cause of the event or loss under consideration.
126 In my opinion, the misrepresentation by the accountants was a cause of the Society entering into the mortgage loan transaction. If the Society had known that the income of the proposed borrower was not $235,000 per annum but only about $35,000 per annum or even less, the Society would not have entered into the mortgage and if the Society had not entered into the mortgage it would not have suffered any loss.
127 Furthermore, the misrepresentation by the accountants was, even more directly, a cause of the losses suffered by the plaintiff. A matter relied on by the Court of Appeal in deciding that the mortgage should be set aside was that the Society had received accounts of Banksia Settlements Pty Limited which should have put it on notice of the poor financial position of Mr Wynne and Banksia Settlements Pty Limited and accordingly on notice that the proposed transaction was perilous from Mr Wynne's point of view and improvident from Mrs Wynne's point of view.
128 Mr Gehrmann gave evidence in the present proceedings that after he had received Mr Julian's letter of 18 June 1991 he had looked at the accounts of Banksia Settlements Pty Limited. However, in the case of any apparent inconsistency between the accounts and the letter of 7 June 1991 from the accountants, he had preferred to rely on the letter from the accountants, who were acting for Mr Wynne and Banksia Settlements Pty Limited and who, Mr Gehrmann reasoned, would have been familiar with the financial affairs of Mr Wynne and Banksia Settlements Pty Limited, including what tax planning had been put in place on behalf of Mr Wynne. Mr Gehrmann said in his evidence that "the primary consideration with regard to serviceability was the letter from the accountants." He said, "because of the amount of income given by the chartered accountant at $235,000 to Mr Wynne - and he was the one who made the application - it appeared that no further inquiries were needed". Later in his evidence Mr Gehrmann said:-
"If it was stated that his income was $235,000 per annum and that was given by his accountant who knew the tax planning behind it all, no further inquiries I thought were necessary".
129 In short, it was because of the representation by the accountants, coming as it did from an apparently skilled and knowledgable source, that Mr Gehrmann did not appreciate the true financial position of Mr Wynne and Banksia Settlements Pty Limited and decided that no further inquiries about capacity to service the loan were required.
130 As to the submission that, if the solicitors had not been in breach and had not been negligent, the plaintiff's losses would not have been incurred; even accepting (as I do) that, if the solicitors had not defaulted in their obligations, the losses the plaintiff suffered would not have been incurred, that does not exonerate the accountants from liability. As stated in Fleming the Law of Torts (8th ed 1992) at 200:-
"The law does not excuse a defendant from liability for a consequence merely because other causal factors for which he was not responsible were also necessary to produce it… Usually the interaction of several, though independent, wrongful acts produces a single indivisible result… The resulting harm (to which both contributed) being indivisible, each will be answerable for all the damage…".
131 In the present case I consider that the losses suffered by the plaintiff are indivisible.
132 It was submitted by counsel for the accountants that, even if the losses incurred by the Society had been caused by the accountants' misrepresentation as to Mr Wynne's income, nevertheless those losses (or damages) were too remote to be recoverable. It was submitted that under the principle governing remoteness of damage in tort, a tortfeasor is liable only for damages of a kind which it was reasonably foreseeable might occur in consequence of the tortfeasor's tortious conduct. It was then submitted that the kind of damages which it was reasonably foreseeable the Society might suffer as a consequence of the accountants' misrepresentation as to Mr Wynne's income would have been the costs of realising the mortgage security, it not being reasonably foreseeable that the Society would suffer the total loss of the monies advanced, together with the costs incurred by the Society or ordered to be paid by the Society in court proceedings between the Society and the mortgagee.
133 In my opinion, the losses claimed by the Society, namely the loss of the principal sum lent to Mr Wynne, the loss of interest on this principal sum and the court costs incurred and ordered to be paid in the court proceedings with the mortgagee Mrs Wynne were damages of a kind which it was reasonably foreseeable might flow from the accountants' misrepresentation and were, therefore, not too remote from the accountants' misrepresentation to be recoverable from the accountants.
134 The test for remoteness of damage in actions in tort has been described as "undemanding" (Habib v The Nominal Defendant (1995) 2 MVR 454 at 463 per Kirby P, Priestley JA concurring). In Commonwealth of Australia v McLean (1996) 41 NSWLR 389 Handley JA and Beazley JA in their joint judgment said at 403:-
"A wrongdoer is responsible for all damage of the same type or kind as that which was reasonably foreseeable, even if the particular damage, or its extent, were not reasonably foreseeable or the damage occurred in an unexpected and unforeseeable manner".
135 Examples of how undemanding the test of remoteness of damage in actions in tort is, include such cases as Habib v The Nominal Defendant, Commonwealth of Australia v McLean, Hughes v Lord Advocate (1963) AC 837, Nader v Urban Transit Authority (NSW) (1985) 2 NSWLR 501, Kavanagh v Akhtar (1998) 45 NSWLR 588.
136 In my opinion, the losses incurred by the Society consisting of the loss of the monies advanced, the loss of interest on the monies advanced and the costs of the court proceedings with Mrs Wynne were losses of a kind which it was reasonably foreseeable that the Society as the mortgagee might suffer, in consequence of a misrepresentation made by the accountants as to the income of Mr Wynne, which was made by the accountants to a mortgage broker for the purpose of inducing a member of the class of potential lenders to lend monies to Mr Wynne on the security of a mortgage over property in which Mrs Wynne had an interest.
137 In any event, as I have already sought to demonstrate, the misrepresentation by the accountants was a cause, not merely of the Society entering into the mortgage loan transaction, but was, quite directly, a cause of the security for the advance being lost, in that Mr Gehrmann was induced by the misrepresentation by the accountants to disregard other information, which the Court of Appeal considered should have put the Society on notice of the financial position of Mr Wynne and Banksia Settlements Pty Limited and that the proposed transaction was improvident from Mrs Wynne's point of view. On this basis, the damages claimed by the Society are clearly not too remote. On this basis also, a submission made on behalf of the accountants that the damages claimed by the plaintiff were divisible and that the accountants should be liable only for a part of the damages claimed by the plaintiff, also fails.
138 It was submitted by counsel for the accountants that the two causes of action against the accountants were statute-barred. It was accepted by counsel for the accountants that the incurring of actual damage by the Society was an essential element of each cause of action. It was contended that any cause of action against the accountants had accrued, when the letter of 7 June 1991 was received by the Society.
139 The submission that the causes of action against the accountants accrued when the Society received the accountants' letter of 7 June 1991 is clearly wrong. No actual damage, indeed not even any contingent loss, was incurred by the Society upon its receiving this letter.
140 Even if actual damage was incurred by the Society when it entered into the mortgage loan transaction (which I do not consider to be the case), the cause of action for the tort of negligence would not be statute-barred, as the present proceedings were commenced within six years of the date of the mortgage.
141 As regards the cause of action based on s 42 of the Fair Trading Act, for reasons similar to the reasons I have already given in rejecting a submission made by counsel for the solicitors that the cause of action against the solicitors under the Fair Trading Act was statute-barred, I do not consider that any actual damage caused by the accountants' misrepresentation, as distinct from a contingent loss, was incurred by the Society, until a Court order was made setting aside the mortgage. The first Court order setting aside the mortgage was the order made by Hunter J on 15 September 1994, that is less than three years before these proceedings were commenced.
142 It was submitted by counsel for the accountants that the Society had been guilty of contributory negligence. It was submitted that the Society had been negligent in relying on the statement by the accountants about Mr Wynne's income, when the statement did not disclose what Mr Wynne's disposable income was. It was further submitted that, having received information in the form of accounts of Banksia Settlements Pty Limited and statements of assets and liabilities which showed that the representation in the letter of 7 June 1991 about Mr Wynne's income could not be true or might not be true, the Society had been negligent in entering into the mortgage loan transaction, without making any further inquiry about Mr Wynne's income.
143 As I have already held in the case of the claims against the solicitors, contributory negligence is not available as a defence to a cause of action based on a contravention of s 42 of the Fair Trading Act. On the other hand, contributory negligence is available as a defence to a cause of action founded on the tort of negligence.
144 It is, of course, a curious submission to be made on behalf of two chartered accountants, that a statement made by them in their capacity as chartered accountants about the income of a client, that is a statement made on a matter within the area of their professional expertise, which was addressed by them to a mortgage broker and which was intended by them to be relied on by members of a class of prospective mortgagees which included the Society, ought not to have been relied on by the Society.
145 In any event, I do not consider that the Society was guilty of contributory negligence.
146 The Society was an unsophisticated lender and most applicants to it for mortgage advances had much smaller gross incomes than $235,000 per annum. I consider that Mr Gehrmann was entitled to take the view that a prospective borrower who, in July 1991, had a gross income of $235,000 per annum would be able to meet his obligations under the proposed mortgage.
147 I am also of the opinion that the Society, without making any further inquiry and notwithstanding that it had received apparently inconsistent information, was entitled to rely on an unequivocal written representation about Mr Wynne's income made by a firm of chartered accountants, who acted for Mr Wynne and his company and who were familiar with the financial affairs of Mr Wynne and his company, including any tax planning for Mr Wynne, which might not be reflected or fully reflected in the financial statements which had been provided to the Society.
148 As I have previously remarked in this judgment, there is, in my opinion, a distinction between the question of whether, vis-a-vis Mrs Wynne, the Society should have made further inquiry and the question of whether, vis-a-vis a firm of chartered accountants who had provided information about the income of a prospective borrower, the Society should have made further inquiries.
149 In my opinion, the plaintiff is entitled to a verdict against the third and fifth defendants, without any finding of contributory negligence.